[vc_row][vc_column][vc_column_text]Deciding to switch the management of product pricing from a decentralized process to a centralized process, is not a decision to be taken lightly. Pricing forms the cornerstone of a bank’s competitive positioning and is a key element in determining its bottom line. There are many factors to consider when making changes to a pricing strategy within a retail bank that it can seem overwhelming at times. And who’s to guarantee that the gain of centralization will be worth the disturbance it may cause?
Many financial services decision-makers face this dilemma when trying to transition from branch-level negotiated prices to any type of centralized pricing policy. They have to balance between the benefits of a centralized pricing policy, and the efforts required to implement this policy throughout their retail banking network. Therefore, it is important to identify the obstacles standing in the way of deploying a centralized policy, and find the best ways to overcome them.
Three Obstacles in Your Way
When deploying a centralized pricing strategy, it’s inevitable that certain difficulties will be encountered. By understanding the potential obstacles ahead of time, it is possible to build a solution that takes them into account early on in the process. There are three main obstacles that should be addressed – technical, cultural and organizational/political.
- Technical Challenges
The lack of flexibility in a bank’s existing IT systems is a barrier to deploying new prices for products, quickly and efficiently. In many cases, the schedule of upgrading core banking IT systems is out of your reach and control. Furthermore, ancillary pricing systems need to be identified and integrated with IT operations (although the shift to cloud-based solution can significantly simplify these efforts).
- Customer Banking Culture
Introducing a centralized pricing strategy is a major policy decision that can affect the product offering and engagement with customers. In certain markets, customers are accustomed to receiving special treatment and have the ability to negotiate prices directly with their local bank manager. Replacing this norm with a “take it or leave it” approach, where the prices are centrally set, could have significant ramifications. However, we believe (and will discuss this in a follow up blog) that there are ways to mediate the culture clash that the “take it or leave it” approach will elicit.
- Organizational & Political Challenges
Customers may not be the only ones who show some level of resistance to changes made to pricing methods. If local branches or regional retail managers have a high degree of autonomy in setting prices, then some degree of resistance can be expected when introducing a centralized pricing policy. Generally, managers are concerned that reducing the flexibility they have in making their own pricing decisions could affect their ability to control customer satisfaction and ultimately sales. Additionally, some managers may feel that taking away their autonomy is a sign that their status or level of seniority has somehow been diminished. The question would then be – is there a way to address these concerns within a centralized pricing policy?
See my follow up blog that discusses overcoming organizational & political barriers that may exist in your bank. This blog looks into the analytical strategies that are available to banks no matter where they are in terms of price centralization and analytical complexity. The blog also explores ways to go about designing a centralized pricing policy and striking the right balance when deploying optimized pricing solutions within your bank.
Question: Do you think that the industry is moving towards centralized pricing or is this just another trend? Please feel free to share your thoughts in the comment field below.