ABA Banking Journal - July/August 2016 - (Page 54)

>>> LENDING Offering Variable Pricing for Higher PROFITS Future success for bankers depends on how they respond to increasingly competitive pricing pressure. BY NEIL STANLEY D espite dramatic declines in net interest margin-76 basis points from early 2010 to late 2015-not all banks are not accepting lower profitability as inevitable. They demonstrate that the pricing processes can be greatly enhanced to make them the exceptions to this industry trend. Pricing is not most bankers' favorite topic. Developing a robust, clearly defined pricing culture is not likely to be found on the primary agenda of an average bank executive. But it's a critically important differentiator, and mastering price offers stands to set banks that do it apart. For example, according to a recent SageWorks survey, only 35 percent of bankers believe they are pricing loans correctly. By contrast, 37 percent aren't sure, 23 percent think they are underpricing loans and 6 percent say they are overpricing their loans. Pricing provides an opportunity to be different than average in a very important and powerful way. In the pricing pressure cooker Customers always expect the professional to initiate price offers. For customer-facing bankers, initiating the price discussion feels uncomfortable, and handling pushback from customers can be frustrating. Pushback arises frequently because virtually everyone-regardless of their competencies-possesses reference prices. Banking is not alone in this regard. Most people can tell you fairly accurately the cost of things ranging from a home to a gallon of milk or gasoline. Competitors don't advertise their average prices. They advertise their best promotional rates and these are the prices that become valid reference points in the mind of your customers. The pricing spectrum for viable buyers and sellers has some explicitly stated, as well as unspoken, points. These price points include aspiration (the price they hope for), expectations (the price they believe is reasonable) and abandonment (the price they are unwilling or unable to go to or beyond). Of course, the order of these price points on the scale is flipped when you compare the buyers and the sellers. The buyers want to buy low and the sellers want to sell high. In a mature industry like banking, it can be challenging to differentiate the offerings of one financial institution 54 ABA BANKING JOURNAL | JULY/AUGUST 2016

Table of Contents for the Digital Edition of ABA Banking Journal - July/August 2016

CHAIRMAN’S VIEW
UPFRONT
PICTURE THIS
LEGAL BRIEFS
ECONOMIC OUTLOOK
HOW BANK STARTUPS BUILD LEADERS
LEADERSHIP LESSONS FROM THE WORST JOB I EVER HAD
BREAKING THROUGH $10 BILLION
PLATFORMS AND PARTNERS
EXCEEDING CUSTOMER EXPECTATIONS STARTS AT THE CORE
ALL-AMERICAN BANKER
WEALTH MANAGEMENT
ABA COMPLIANCE CENTER INBOX
MARKETING
PAYMENTS
BOARD MATTERS
LEADING
FROM THE STATES
CORPORATE SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS

ABA Banking Journal - July/August 2016

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