How to Get the Front Line to Price and Win Profitable Loans and Deposits Neil Stanley, Bank Performance Strategies Julia Hernandez, Bank Performance Strategies

Overview  What’s the mindset of the front line banker today?  What drives customer behavior?  How do customers experience service in this environment?  What does this mean for financial institutions and your organization?

The mind of the front line banker... How many times have we observed the following:

The mind of the front line banker... If only our deposit rates were higher... If only our competitors would stop offering such crazy rates... If only we could price our loans more competitively.... No one will pay that for our service/product... I’ll just waive those fees and the customer will be happy... How many times have we observed the following: I want to provide service, but what can I really do... There are so many rules and regs to follow – I don’t know if I can take on any more...

If those statements were true.... Then all the money available for deposits would be in these: And all of the Consumer Loans would go here:

The mind of the customer... Make my life easier Speak to me in “basic English” Want the best, but will respond to what is fair. I want an actual conversation – and walk away understanding What’s the catch? I want to find an expert How do I know that I am not being treated like a chump? No excuses, just deliver.

A little humor about how quickly our customers expect change...

So how do we reconcile these views to create a: Win for the Customer Win for the Financial Institution Win for the Employees Develop a clearly defined pricing strategy, utilizing different price points to address what the customer values... Communicate it effectively... And support it with tools and resources

How do other industries approach this? Coupons Name your own price Flash Sales Utilize Resellers Show your competitors rates/prices Let’s take a look... Loyalty Cards

Let’s look at the travel industry...

How about the fashion industry?

The insurance industry?

And you see items like these all the time...

Humans are different and therefore make choices differently... One size fits all no longer applies

So how has the banking industry taken this into account?  Do we have a system as sophisticated as this when determining how to price loans and deposits?  Cost pricing method  This method calls for a seller to consider the actual cost of an item, then consider his or her ideal cost percentage. Ideal cost percentage varies, but typically lies somewhere between 25 and 30 percent. The two are divided and voila, you have an item price  Competition pricing method  The seller using this method assigns prices to items based on the general market price or the prices assigned by the competition. Usually, the seller will either price the item to be the same as the competing prices, price it slightly lower to get those looking for a bargain, or price it higher to attract those looking for higher quality.  Demand driven pricing method  This concept is based on the economics of supply and demand. For instance, banks in airports or concession stands at sports stadiums can get away with charging more for their items because it is the only source in the vicinity. The demand is greater than the supply, so people are willing to pay more for it. Banks that offer specialty items or a unique experience can get away with charging more since it reflects both the product and the experience.  Study your market and your customer base before pricing your items. You will most likely know what prices are simply too high, and the last thing you want to do is drive your customers away. Make your prices competitive and reasonable, and make sure you are offering the value appropriate for higher cost items. and-operations/a-quick-guide-on-pricing-restaurant-menu- items/c28020.aspx#sthash.T8nBTRTH.dpuf

So if we are in an era where complexity and price differentiation is expected, what can banks do about it?

The Bank’s Opportunity.. proposition.pdf If you want to powerfully impact the bottom line, the top line has the greatest potential. Pricing - How big is the opportunity in banking?

Pricing Loans Thinking of Commercial Lending - How do these factors impact the appropriate price?  Switching from variable to fixed  Lengthening the term of the loan  Lengthening the amortization period  Adding a floor to protect the bank  Adding a ceiling to protect the borrower  Reducing borrower’s probability of default  Adding collateral  Adding independent, financially solvent and liquid guarantors How much rate change is appropriate for each change to these factors individually and collectively? How should your front line communicate and negotiate with borrowers?

Develop a clearly defined pricing strategy, utilizing different price points to address what the customer values... Communicate it effectively... And support it with tools and resources

Price Concession Results from Lack of Defined Pricing Strategy using Different Price Points

Price differentiation in loans

Structural Negotiation Results from Defined Pricing Strategy using Different Price Points when Offer Differentiation is Significant

How can you closely manage pricing while adding value to your customer?

Four Pricing Levers for Time Deposits

Offer Differentiation Results from Defined Pricing Strategy using Different Price Points when Offer Differentiation is Minimal

Customers are often comfortable with self- directed value exploration

So, what should we do now?? Only those who adapt will survive...so what now?  Create clarity – what is the unifying goal? Conflicting goals put employees in no win situations  Measure and coach – continually monitor how employees are doing and coach them towards the goal  Support them with tools – support your initiatives with the best of what is available, no need to reinvent the wheel

So, what should we do now?? Enlighten your team…

So, what should we do now?? Equip your team…

So, what should we do now?? 1.Develop a Clearly Defined Pricing Strategy 2.Incorporate different price points address what customers value 3.Communicate it to your team 4.Support it with Systems and Tools Empower your team…

Thank you for your time! Neil Stanley  Former Bank Executive with 25+ Years Experience  Launched Bank Performance Strategies in 2009  Master’s Degree in Economics  Published Writer in Numerous Trade Publications  Conference Speaker  Instructor at Multiple Graduate School of Banking Institutions Julia Hernandez Former Bank Executive with 12+ Years Experience Certified Treasury Professional (CTP) designation Conference speaker Master’s Degree in Organizational Design Lean/Six Sigma Certification