One of the most topical issues in banking is pricing.
A lot of debating between banks and their clients or even clients amongst themselves is about pricing. Even annual financial results can start a huge debate. However, this would certainly not be about shareholders’ earnings but clients feeling that great profits by banks are largely due to their contribution. Utterances such as, “They are bound to make that much. They are killing us with fees and charging us for everything,” are made.
On the flipside, banks sometimes feel that their clients do not invest time in understanding how pricing works. My honest conclusion, however, is that bankers and customers ought to have coffee and thrash out a few things. The fact is that we truly misunderstand each other. I recently came across an article authored by Marco Bertini, Julia von Schuckmann, and Ann Kronrod (Harvard Business Review, March 2022) titled “Talking to your Customers about Prices.” The authors introduce factors that can help in having a meaningful conversation, an analogy from linguistics (study of language), their submission is that any conversation must follow four basic rules.
The first is the rule of quality. The rule dictates that participants in a conversation must only say what is true and accurate. Then there is the rule of manners where participants must avoid use of expressions that are overly vague, complex or simplistic. The third is the rule of relevance – participants in a conversation contribute only information that is related to the topic. Lastly is the rule of quantity where only the right amount of information that is needed is provided – nothing more and nothing less.
The dialogue between bankers and their clients must observe these rules. Let me also point out that the dialogue between the two parties cannot be a pricing negotiation? The starting point is dissection of a tariff guide for a further understanding. Banks are required by law to make tariff guides accessible, whether on their websites, posted in the banking halls or through brochures. However, evidence still suggests that despite availability of tariff guides, content is not fully understood by clients.
The second school of thought casts a shadow on bankers and argues that they do not do enough to make sure that customers understand their pricing. Both submissions are open to argument, but the fact of the matter is pricing is generally a hot topic. Clients should take heed and thoroughly understand pricing options presented. For bankers, the customer’s profile is critical. ATMs, banking apps or online banking are relatively cheap transacting channels that are also convenient and safer than manual transactions conducted in-branch.
Another interesting aspect to think about is the pricing process. Clients must understand that commercial and statutory banks are regulated by the Bank of Botswana and other bodies such as NBFIRA in terms of bancassurance products. Banks therefore go through a rigorous process to get their pricing approved. Qualification and quantification build a business case towards pricing determinations and proposals can be approved or declined.
The central bank can even impose a moratorium on pricing. This is just evidence to demonstrate to clients that banks don’t have a field in determining pricing. There are considerations to be made and steps to follow. Competitor pricing is another factor. In a price-sensitive market with many competitors, it is suicidal for a bank to price above the market. Pricing is an ever-present determinant in customer acquisition and retention strategies.
Remember the notion of “cherry picking?” Again this is not to say that internal factors that determine pricing should be ignored. In the final analysis, a discourse between banker and client, full disclosures, learning more about how banks price their products, and pricing options available to a customer, can take away a lot of pain from both parties and nullify misconceptions.
By Gomolemo Kololo Manake
LinkedIn: Gomolemo Kololo Manake