"2020 Foresight: Relationship Pricing" now available at Fast Market Research

With changes in economic fundamentals, technology, regulatory frameworks and competitive dynamics, the retail banking industry has recorded a gradual transformation in its banking business models since 1990. Following the financial crisis, banks analyzed the importance of building a profitable and long-term relationship with their customers to increase revenues and profitability. Since pricing is affected by cost pressures and changing customer expectations, banks use the opportunity to build a strong customer relationship by offering a customer-centric business models based on relationship pricing.
Banks apply different relationship pricing models including product bundling, behavior- and time-based pricing, and personalized pricing to a diverse customer base which suits their individual banking requirements and willingness to pay. Product bundling enables the single point management of packages, prices and promotional offers to customers, providing customized packages and bundles including products and services from different business lines, rather than selling one product or service at a time. NatWest in the UK offers product bundling with discounted features which has resulted in an increase in profit margins.
Banks also offer time-based pricing by providing differentiated prices for new and existing customers and categorizing these according to their long- and short-term associations with the bank. Wells Fargo offers higher interest rates in its certificate of deposits (CD) or savings account at the end of every month, enabling existing customers to earn extra interest as an incentive to save more and increase their assets with the bank over time.
Behavior-based pricing, based on the overall purchasing behavior of customers, involves offering various promotional offers and discounts on products and services. This enhances the long-term relationship of customers, resulting in higher profit margins and revenues. Through personalized pricing, banks generate and apply customized pricing for specific customers or customer groups. The bank calculates a customer's financial status and suggests a customized solution.
Banks are adopting advanced technology to enhance their banking solutions and build strong customer relationships. Banks have signed up with a number of analytical firms to develop frameworks and applications to use data collected from customer transactions. The use of advanced customer analytics tools in relationship pricing helps banks to understand consumer buying behavior, enabling them to offer personalized services which results in an increase in customer acquisition and retention. This approach also helps to target and isolate the most profitable customers and phase out pricing that does not offer significant value.

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