Never before has pricing been such an important part of a bank's business strategy.

Industry consolidation and subsequent cost-squeezing have made marketing more complicated. Further, new technologies and the advent of delivery channels make it all the more important for banks to examine their pricing and product mix, and develop a pricing framework that will optimize success.

In creating a pricing framework, carefully analyze the trade-offs among five key strategic objectives:

*Maximizing price competitiveness in the marketplace.

*Creating compelling value to attract new customers.

*Leveraging fee opportunities when customers are not price-sensitive.

*Providing customers with incentives to use less-expensive delivery channels.

*Meeting or exceeding your processing costs.

Before creating a pricing framework, however, keep in mind the importance of clearly defining and communicating your vision as it relates to pricing.

Consider not only how you want to position yourself compared to your competitors, but also what kind of delivery channel strategy you will be implementing and what kind of costs you want to recover.

Bear in mind the link between your vision and incentive compensation for your bank's line management. The absence of this link can lead to resistance from all levels of management and hinder the implementation of a new strategy.

But if you're armed with a clearly defined strategy, you're much more likely to gain line management's support for creating an effective pricing framework.

Your pricing framework should evaluate "competitiveness" by analyzing three factors:

Customer/brand awareness - calculated either mathematically (brand premium or discount) or more qualitatively (image awareness studies).

Market share - most bank marketing departments have this data available.

Customer price - the average annual out-of-pocket cost to the customer. It's calculated by multiplying the average number of fee-related transactions per year by the fees charged for each transaction - including balance requirements and interest rates, because these are key dimensions of pricing.

Once you've plotted this information for yourself and your competitors, you will understand your position in relation to your competitors, what changes - if any - you will need to make to position yourself properly, and how these changes should affect pricing.

A product that delivers compelling value is one that customers view as having clear advantages in price, feature and service level over competitive products. To ascertain where your products fit in, identify your buyer groups and their specific needs and behaviors.

Some customers might be totally focused on speed and convenience of transactions, while others might want a face-to-face relationship. You will then be able to rank your products based on the value to specific customer segments.

By reviewing the rank for each product of yours and your competitors, you might find that your products are not sufficiently differentiated or that they are not properly targeted toward buyer values relative to their prices.

To motivate customers to purchase your products, you might need to redesign your products with more compelling and distinct features and pricing.

Mr. Greene and Mr. Ganesathasan work in Andersen Consulting's financial services practice.

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