Manugistics is to make a move into financial services, marketing software solutions which help companies gauge the correct pricing levels for consumer products.
The company says that banks and insurance companies throughout North America and Europe are actively evaluating how Manugistics pricing optimisation solutions can help to offset margin erosion caused by slower market growth, increasing competition, customer price sensitivity, and online price shopping via the Web.
Whereas most financial institutions have developed pricing models to cover risk, financing costs, expense allocation, required return on equity and hedging, few utilise customer price sensitivity to optimise pricing. A recent study conducted by The Charted Institute of Bankers (CIB) that included 25 of the European Union's 30 largest bank and insurance groups confirms the need says Manugistics: only 58 percent of the groups' continental European customers - and only 49 percent of their United Kingdom customers - clearly generated profits for these companies.
Says Simon Caufield, vice president of global financial services for Manugistics, "The CIB study is strong evidence that financial institutions must pay greater attention to the pricing of products and services based on the customer's willingness to pay, if they hope to improve customer profitability."
Manugistics software extends existing pricing models by grouping customers according to differing price sensitivities, says Caufield. These prices can then be fine-tuned and adjusted in response to changing market conditions, such as wholesale rates.
"Take for example a mortgage loan," said Caufield. "Some customers are extremely rate sensitive - looking for the best rate possible - while others' willingness to pay can vary substantially based on FICO(R) score, prior relationship with the bank, loan to value, origination fee, distribution channel, location and a host of other factors. By not optimising pricing to customers' willingness to pay, a mortgage bank could forego margin opportunities with customers that would have paid a higher rate, and revenue opportunities with prospects that would have bought the product if it had been offered at a slightly lower rate."