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Mather Disciplined Pricing Approach For Banking Summary
- 1. Developing Disciplined Pricing Capabilities For Banks October, 2010 mather: 43 Woodstock Street Historic Roswell District Roswell, GA 30075 www.mathereconomics.com
- 2. Contents About Us Strategic Pricing For Banks Contact Us
- 3. Who Are We? Strategic Marketing And Applied Analytics Consulting Group Copyright 2009 Mather LLC. All rights reserved. Our Approach: Customer-focused, data and insights-driven with a bias towards action Our Focus: Developing business, marketing and pricing strategies and tactics to maximize customer acquisition and Customer Lifetime Value Our Consultants: A mix of PhD’s, marketers and strategic consultants from world-class companies Our Strength: Making sense of complex data through advanced analytics and technology to support key business decisions 3 Recognized pricing experts in multiple industries
- 4. What Makes Us Different? Proven and established advanced analytics capabilities to draw insights from large quantities of data Extensive expertise in applying science to pricing Provide pricing analytics as an outsourced service for multiple companies Experts at data capture, integration and visualization Experts at solution delivery in the enterprise space and cutting edge technologies Deep understanding of how customer insights drive business decisions Mix of marketers, consultants and PhD’s Copyright 2009 Mather LLC. All rights reserved. Our real world experience coupled with our analytics and technological capabilities make our recommendations actionable 4
- 5. We Have Worked With Best In Class Companies Copyright 2009 Mather LLC. All rights reserved. 5
- 6. Our Capabilities Copyright 2009 Mather LLC. All rights reserved. 6 Destination development Customer driven strategic planning Customer centric organizational alignment TechnologyCustomer Driven Growth Strategy Marketing Strategy & Capabilities Data Analytics & Outsourcing Portfolio strategy Value proposition and brand architecture development Marketing capabilities development Consumer & store segmentation Enterprise analytics Pricing analytics Test & learn protocol Customer Lifetime Value Marketing spend effectiveness & media mix modeling Next-best selling product, cross-sell & up-sell Promotion & retail analytics Basket analysis Social media tracking & engagement methods & technologies Technology requirements & planning Data capture, storing, analytics & visualization technologies
- 7. Contents About Us Strategic Pricing For Banks Contact Us
- 8. Financial-Overhaul Legislation Will Place Increased Pressure On Bank Revenues And Profitability Consumer Financial Protection Bureau will increase banking regulation increasing pressure on profits New bank regulation will eliminate billions of dollars in revenue to banks through the elimination of key fees – Fees charged to merchants for debit-card transactions (interchange fees) – Overdraft fees Copyright 2009 Mather LLC. All rights reserved. 8 Banks will need to charge new fees to recover lost revenue
- 9. Banks Will Need To Charge Fees For Services That Customers Have Become Accustomed To Receiving For Free – All This In Tough Economic Times Copyright 2009 Mather LLC. All rights reserved. 9 New fees to recover lost revenue What will be the net effect on the bank’s revenues and profitability? How will existing and new customers react? What will be the net effect on attrition and acquisition? How will the Consumer Financial Protection Bureau and other regulators react?
- 10. To Charge For New Fees And Ensure Maximum Revenue Increase And Minimum Customer Attrition Banks Need A Disciplined Pricing Approach Pricing Best Practices Scientific Modeling Disciplined Pricing Approach Lift in revenues Improved customer retention and acquisition Increased Customer Satisfaction & Loyalty Satisfied Consumer Financial Protection Bureau and Other Regulators Benefits to Banks Copyright 2009 Mather LLC. All rights reserved. 10
- 11. The Impact of Developing A Disciplined Pricing Approach $ A disciplined approach to pricing will often increase revenue 2-5% Copyright 2009 Mather LLC. All rights reserved. 11
- 12. Pricing Approach Disciplined Pricing Measure & Track Review Regulatory & Legal Constraints Build Database And Pricing Model Test & Refine Pricing Tactics Review Bank Strategy & Implications On Pricing Develop Preliminary Pricing Tactics Develop Pricing Strategy Implement Pricing & Pricing Guidelines 1 2 3 4 5 6 7 8 Copyright 2009 Mather LLC. All rights reserved. 12
- 13. Pricing Approach – Phase 1. Review Bank Strategy & Implications On Pricing Review the bank’s overall strategy to determine its implications on pricing strategy and tactics. What are the Bank’s growth objectives? What is the Bank’s positioning in the marketplace? Efficient Pricing Measure & Track Review Regulatory & Legal Constraints Build Database And Pricing Model Test& Refine Pricing Tactics Review Bank Strategy& Implications on Pricing Develop Preliminary Pricing Tactics Develop Pricing Strategy Implement Pricing & Pricing Guidelines 1 2 3 4 5 6 7 8 Copyright 2009 Mather LLC. All rights reserved. 13 Pricing Strategies Pricing Tactics Costs Customers Competitors Target high quality profitable customers Increase geographic coverage 5% increase in revenues 4% reduction in customer attrition Strategic Objectives Review strategic objectives and that impact pricing
- 14. Pricing Approach – Phase 2. Review Regulatory & Legal Constraints Review internal (e.g., organization, process, IT) and external regulatory, compliance and legal guidelines to determine specific constraints on pricing tactics and testing protocols Efficient Pricing Measure & Track Review Regulatory & Legal Constraints Build Database And Pricing Model Test& Refine Pricing Tactics Review Bank Strategy& Implications on Pricing Develop Preliminary Pricing Tactics Develop Pricing Strategy Implement Pricing & Pricing Guidelines 1 2 3 4 5 6 7 8 Copyright 2009 Mather LLC. All rights reserved. 14 Pricing Strategies Pricing Tactics Costs Customers Competitors Elimination of overdraft fees 30 day disclosure period for pricing changes Limited IT infrastructure for efficient pricing management Siloed pricing process Strategic Objectives Review regulatory environment and internal constraints that impact pricing and testing Regulatory & Legal Environment Internal Constraints
- 15. Pricing Approach – Phase 3. Develop Pricing Strategy Develop detailed pricing strategies – aligned with the bank’s strategic objectives -- for the bank’s overall portfolio and individual products. Develop the metrics and goals that will be used to measure the pricing effectiveness Efficient Pricing Measure & Track Review Regulatory & Legal Constraints Build Database And Pricing Model Test& Refine Pricing Tactics Review Bank Strategy& Implications on Pricing Develop Preliminary Pricing Tactics Develop Pricing Strategy Implement Pricing & Pricing Guidelines 1 2 3 4 5 6 7 8 Copyright 2009 Mather LLC. All rights reserved. 15 Pricing Tactics Costs Customers Competitors Strategic Objectives Define role of pricing within overall Bank and marketing strategy Pricing Strategies Develop pricing strategies, metrics & goalsRelativePrice Economic Value L H H A B C Products & Portfolio
- 16. Pricing Approach – Phase 4. Build Database And Pricing Model Gather, cleanse and organize required internal and external data to build the database. Develop the pricing and survival model that will measure price elasticity, impact of pricing tactics on revenue and profitability, customer acquisition and pricing attrition. Efficient Pricing Measure & Track Review Regulatory & Legal Constraints Build Database And Pricing Model Test& Refine Pricing Tactics Review Bank Strategy& Implications on Pricing Develop Preliminary Pricing Tactics Develop Pricing Strategy Implement Pricing & Pricing Guidelines 1 2 3 4 5 6 7 8 Seasonality & Trends Competitor’s Prices Economic Indicators Market Factors Regulatory Parameters Customer & Account Data Cost Data Collect, organize and cleanse data & build database dB Build Pricing and Survival model Metrics Price Elasticity Customer Segments ProfitabilityObjectives Products & Services Regions Competitive Reaction Pricing & Survival Model Copyright 2009 Mather LLC. All rights reserved. 16
- 17. Pricing Approach – Phase 4. Build Database And Pricing Model (continued) Calculate account attrition and segment profitability Pricing & Survival Model Copyright 2009 Mather LLC. All rights reserved. 17 sub_account wrtoff_amt plan_migrations ph_nbr_changes num_phones num_basic_srv days_active returns transfers reacts market_cd market_desc market_cluster 200091831 0 0 0 1 1 1986 0 0 0 2 Chattanooga 3 200104208 0 0 0 2 2 1916 0 0 0 2 Chattanooga 3 200176551 0 0 0 1 1 1878 0 0 0 2 Chattanooga 3 200239561 -36.21 0 0 1 1 2188 0 0 0 2 Chattanooga 3 200256598 0 0 0 9 4 385 0 0 0 2 Chattanooga 3 200268812 0 0 0 1 1 1741 0 0 0 2 Chattanooga 3 200287141 -0.55 0 0 2 2 1644 0 0 0 2 Chattanooga 3 sub_account age income entrydate discondate hotlinedate prevhotdate ezpay winback male reactsind nbrchange startmonth 200091831 52 4 3-Apr-99 9-Sep-04 14-Aug-04 14-Aug-04 0 0 1 0 0 4 200104208 38 4 22-Apr-99 15-Mar-06 13-Sep-03 13-Sep-03 0 1 0 0 0 4 200176551 62 7 19-Aug-99 9-Oct-04 13-Sep-04 13-Sep-04 1 0 0 0 0 8 200239561 44 3 29-Nov-99 9-Jun-04 21-May-04 21-May-04 0 0 0 0 0 11 200256598 60 3 31-Oct-05 20-Apr-06 31-Oct-05 31-Oct-05 1 0 1 0 0 12 200268812 50 6 18-Dec-99 23-Sep-04 27-Aug-04 27-Aug-04 0 1 0 0 0 12 200287141 80 5 24-Dec-99 24-Jun-04 14-Jun-04 14-Jun-04 1 0 0 0 0 12 sub_account residence jan06_tot_calls jan06_tot_mou adults_in_hh num_feat_codes deacts CLV 24 Mos Risk Score Loyalty Option 200091831 13 1031 2325 2 1 0 508 24 None 200104208 3 1216 3206 3 3 0 481 51 Handset 200176551 4 593 4651 2 1 0 583 14 None 200239561 3 141 192 1 2 0 399 72 Credit 200256598 1 360 618 1 8 2 373 82 Fee Waiver 200268812 9 840 1489 3 1 0 475 49 Credit 200287141 5 860 2611 2 2 0 456 42 Credit Customer Lifetime Value Prototype Customer Profile CLV Calculation: New Customer (Y or N) Y Contract Revenue $517.05 Acquisition Month 12 Fee Revenue $114.90 Cricket Market 32 Handset Margin $36.88 Handset Age 12 Acquisition ($100.00) Income tier 10 Direct Operating Age 40 MOU Blended ($127.17) Average MOU 1,486 Call Center ($19.48) Average IVR 12 Payment Costs ($8.24) Gender (M or F) F Paper Billing Costs ($13.76) Unpaid balance $22 Credits ($49.96) EZPay status (Y or N) N Write-off Amount ($20.00) Operating Costs Expected Lifetime Value $330.21 MOU Blended $0.007 Call Center $1.56 Payment Costs $0.66 One-time Transaction Margins Paper Billing Costs $1.10 Acquisition Month ($63.12) Credits per month $4.00 Disconnection ($20.00) Acquisition Costs $100.00 Total ($83.12) Handset Costs $112.33 Recurring Transaction Margins Revenues Operating Month $37.50 Handset Revenue $149.21 Expected Active-Months (2 yrs) 12.49 Monthly Contract Price $45.00 Total $430.83 Monthly Fee Revenue $10.00 Develop analytics by customer segment: attrition, price elasticity, CLV & profitability $/pc Output Average Cost Marginal Cost Profit Demand Marginal Revenue Price Cost/PC Determine price elasticity, marginal cost & profitability
- 18. Pricing Approach – Phase 5. Develop Preliminary Pricing Tactics Develop detailed preliminary pricing tactics achieve strategic and pricing objectives within regulatory and internal constraints. Various pricing options will be considered and evaluated both qualitatively (pros & cons) and quantitatively (though the pricing model and test & refine protocol). Options include variations of: flat fee, two part pricing and tiered pricing, etc. Efficient Pricing Measure & Track Review Regulatory & Legal Constraints Build Database And Pricing Model Test& Refine Pricing Tactics Review Bank Strategy& Implications on Pricing Develop Preliminary Pricing Tactics Develop Pricing Strategy Implement Pricing & Pricing Guidelines 1 2 3 4 5 6 7 8 Review pros and cons of different pricing approaches Copyright 2009 Mather LLC. All rights reserved. 18 P Q Price Quantity Revenue = P x Q P0 Price Quantity P1 P2 P3 P4 Q4 Q3 Q2 Q1Q0 Revenue = Pi x Q i i =0 N Flat Pricing Segmented Pricing Incrementalvalue Flat Fee Two Part Pricing Tiered Pricing Pricing Approach Description Structure Single account maintenance fee independent of usage Includes a flat maintenance fee plus a usage (per transaction fee) fee Variable fee depending on usage level $24 permonth $10 permonth + • Pertransaction fee o $5/trans for1 -10 transactions o $3/trans for11 – 20 transaction o $1/trans for21+ transactions Fee dependingon: o Numberof transactions o Bankingactivity o Minimum $ amount o # of services in use o Bundling Develop detailed preliminary pricing tactics
- 19. Pricing Approach – Phase 6. Test & Refine Pricing Tactics Test preliminary pricing tactics to measure customer reaction, acquisition and attrition. Testing is performed with carefully planned and chosen test & control groups. Pricing tactics are adjusted according to test results. Efficient Pricing Measure & Track Review Regulatory & Legal Constraints Build Database And Pricing Model Test& Refine Pricing Tactics Review Bank Strategy& Implications on Pricing Develop Preliminary Pricing Tactics Develop Pricing Strategy Implement Pricing & Pricing Guidelines 1 2 3 4 5 6 7 8 Test different pricing scenarios Adjust and refine pricing tactics Copyright 2009 Mather LLC. All rights reserved. 19 80.00% 82.00% 84.00% 86.00% 88.00% 90.00% 92.00% 94.00% 96.00% 98.00% 100.00% Out of AreaRetentionby Date Cohort 11/30 target 11/30 control 12/7 target 12/7 control 12/14 target 12/14 control 12/21 target 12/21 control 1/25 target 80.00% 82.00% 84.00% 86.00% 88.00% 90.00% 92.00% 94.00% 96.00% 98.00% 100.00% North Coastal Retention by Date Cohort 11/30 target 11/30 control 12/7 target 12/7 control 12/14 target 12/14 control 12/21 target 12/21 control 1/25 target 80.00% 82.00% 84.00% 86.00% 88.00% 90.00% 92.00% 94.00% 96.00% 98.00% 100.00% NorthRetentionby Date Cohort 11/30 target 11/30 control 12/7 target 12/7 control 12/14 target 12/14 control 12/21 target 12/21 control 1/25 target 90.00% 91.00% 92.00% 93.00% 94.00% 95.00% 96.00% 97.00% 98.00% 99.00% 100.00% Overall North Coastal Retention Target Control 90.00% 91.00% 92.00% 93.00% 94.00% 95.00% 96.00% 97.00% 98.00% 99.00% 100.00% Overall North Retention Target Control 90.00% 91.00% 92.00% 93.00% 94.00% 95.00% 96.00% 97.00% 98.00% 99.00% 100.00% Overall East Retention Target Control Flat Fee Two Part Pricing Tiered Pricing Pricing Approach Description Structure Single account maintenance fee independent of usage Includes a flat maintenance fee plus a usage (per transaction fee) fee Variable fee depending on usage level $24 permonth $10 permonth + • Pertransaction fee o $5/trans for1 -10 transactions o $3/trans for11 – 20 transaction o $1/trans for21+ transactions Fee dependingon: o Numberof transactions o Bankingactivity o Minimum $ amount o # of services in use o Bundling
- 20. Pricing Approach – Phase 7. Implement Pricing & Pricing Guidelines Roll out new pricing schemes and guideline, implement required organizational, capabilities, process and IT changes, coordinate with legal and compliance, and activate marketing/communications. Efficient Pricing Measure & Track Review Regulatory & Legal Constraints Build Database And Pricing Model Test& Refine Pricing Tactics Review Bank Strategy& Implications on Pricing Develop Preliminary Pricing Tactics Develop Pricing Strategy Implement Pricing & Pricing Guidelines 1 2 3 4 5 6 7 8 Copyright 2009 Mather LLC. All rights reserved. 20 Implement Pricing Process and IT VP Strategic Marketing & Communications Director Marketing Communications Director Insights & Analytics Category Directors Marketing Managers SVP Operations VP Operations West VP Operations South Operations Managers Operations Managers Marketing Managers Strategy Local Market Strategy Communications with Operations Organization, decision rights & capabilities Flat Fee Two Part Pricing Tiered Pricing Pricing Approach Description Structure Single account maintenance fee independent of usage Includes a flat maintenance fee plus a usage (per transaction fee) fee Variable fee depending on usage level $24 permonth $10 permonth + • Pertransaction fee o $5/trans for1 -10 transactions o $3/trans for11 – 20 transaction o $1/trans for21+ transactions Fee dependingon: o Numberof transactions o Bankingactivity o Minimum $ amount o # of services in use o Bundling Pricing scheme & guidelines Marketing & Communications Sales/Channel Pricing Management Change price? Notify stake- holders Business Strategy Revise Pricing Materials $$ Finance Marketing YES Proposed New Price Approved New Price Validate Customer Pricing Update Pricing Records Request Quote Customer Customer rejects Quote1 Quote 1.a (modified w/o approval) Customer accepts Quote1.a Senior Management Costs Margin Profits Pricing Strategy Manufacturing Inventory Logistics Customer ACMEInc. CompetitionSuppliers Pricing Products Segment Credit Rating Freight Rebates Internal Factors Quote/Order Invoice Price Invoice Pay to $ Payment (Net) List Price Database External Factors Price Change Process Quote 1 (not approved) Quote 1 (approved) Start! Analysis Approval Process
- 21. Pricing Approach – Phase 8. Measure & Track Measure results against key goals (e.g., lift in revenue, profitability, customer attrition & acquisition). Analyze variance and determine key drivers. Adjust pricing tactics accordingly. Continuously track and measure results. Efficient Pricing Measure & Track Review Regulatory & Legal Constraints Build Database And Pricing Model Test& Refine Pricing Tactics Review Bank Strategy& Implications on Pricing Develop Preliminary Pricing Tactics Develop Pricing Strategy Implement Pricing & Pricing Guidelines 1 2 3 4 5 6 7 8 Copyright 2009 Mather LLC. All rights reserved. 21 - 50,000 100,000 150,000 200,000 250,000 300,000 NewConnections(perweek) Campaign C Campaign B Campaign A Campaign I Campaign G Campaign F Campaign E Campaign D HandsetSubsidies Base Actual Curr Month YTD 2006 Curr Month YTD D Actual-Goal Actual Actual D '07-'06 D '07-'06 L1 Procedures (eyes) 1% 8463 71,135 -15% 21% Consults (patients) -91% 513 5,573 10% 4% Leads (patients) -77% 2,566 26,055 12% 9% Avg. Patient Pay 2,413$ 2,372$ 1.1% 1.8% Avg. Discount L-C Conversion 20% 21% -2% 162% C-P Conversion 917% 709% -23% -89% L-P Conversion 183% 152% -24% -70% No Show/Cancel Leads % Consults % Proc % Leads % Consults % Proc % % Leads % Cons % Cons % Proc Leads Cons Proc Leads Cons Proc DTC 1,633 57% 290 51% 296 4% 1,703 54% 279 46% 380 4% 51% 46% 49% 40% 65% 56% 51% -8% -4% -47% OD/MD 1,084 38% 228 40% 343 5% 1,178 38% 297 49% 474 5% 43% 48% 46% 49% 27% 35% 40% 10% 6% -36% CAP/TPP 133 5% 42 7% 27 0% 193 6% 32 5% 13 0% 4% 5% 4% 2% 5% 2% 2% -1% 5% -2% TruVision 24 1% 2 0% 0 0% 37 1% 3 0% 0 0% 1% 1% 0% 0% 5% 7% 7% -4% -6% -7% Curr Month YTD 2006 Curr Month YTD D Actual-Budget Actual Actual D '07-'06 D '07-'06 Center Marketing -29% $893,968 $7,552,540 97% 99% OD/MD $1,333,991 $17,733,763 -73% -81% CM Spend/Proc $106 $106 169% 64% OD/MD Spend/Proc $158 $249 1298% -85% Total Company (National) $102 $174 $362 -21% $2,203 $38 5650.0% $38 $285 $187 52.4% 2066% $14,997,877 $15,883,616 $360,500 4306.0% $3,294,113 Actual D Curr-Prev Budget Actual $3,330,498 $2,051,813 -62% $1,757,241 16.8% $19,409,557 Marketing Spend 2007 2006 2007-2006 Current Month Previous Month YTD Budget Actual D Actual-Budget 54% 49% 3% 4% 0% 1% % % % Proc % Leads 43% 46% 101.0% 29% 27% 2% 27% 29% 0.7% 139.0% 167.3% -28.3% 45.0% 38% Sources 2007 YTD Current Month Previous Month 2007 2006 708.8% 854.0% -145.2% 81.0% 70.3% 638.5% 19.6% 19.6% 0.0% $1,847 32% 56.0% 54.0% -34.4% $2,441 $2,420 0.9% 2,414$ 5,773 11,563 2,882 -75% 3,125 -8% 124,417 28,426 D I-Fusion I Average Current Month Previous Month YTD Goal Actual D Actual-Goal Actual D Curr-Prev Goal 9408 -23% 85,000 86,189 6,241 565 -91% 612 -8% 67,147 Objectives 2007 2006 2007-2006 Current Month I- Fusion I Average Actual 7,900 7,209 -9% Measure relevant results Visualize results vs. key goals – Analyze variances Flat Fee Two Part Pricing Tiered Pricing Pricing Approach Description Structure Single account maintenance fee independent of usage Includes a flat maintenance fee plus a usage (per transaction fee) fee Variable fee depending on usage level $24 permonth $10 permonth + • Pertransaction fee o $5/trans for1 -10 transactions o $3/trans for11 – 20 transaction o $1/trans for21+ transactions Fee dependingon: o Numberof transactions o Bankingactivity o Minimum $ amount o # of services in use o Bundling Variance in: Revenues Profitability Attrition Acquisition Adjust tactics
- 22. Contents About Us Strategic Pricing For Banks Contact Us
- 23. 404-395-4937 matt@mathereconomics.com Contact Us mather: 43 Woodstock Street Historic Roswell District Roswell, GA 30075 770-993-4111 main www.mathereconomics.com Matt Lindsay, Ph.D. Daniel Fischer 404-543-3272 daniel@matherLLC.com David Weinberger 770-649-0472 david@mathereconomics.com