Get the Frontline to Price and Win Profitable Loans and Deposits

Neil Stanley

Neil Stanley

A big obstacle most bankers have in sales is our belief that we are selling a commodity and everyone always wants the best price. After all isn’t money the ultimate commodity?

Gather a room full of bankers and ask them questions about selling banking services and you will hear that customers just want high yields on their deposits and low interest rates on their loans. That is a conclusion that is universally accepted because it is accurate. However, a room full of bankers seldom reach the right implications about their sales efforts from their deep understanding of this situation. People paid to manage money think differently about the value of banking services. Bankers far too often will conclude that because all of us want more value, everyone will manage their financial arrangements like a financial professional. This is despite the very stark evidence to the contrary.   What bankers would casually pay $35 for an overdraft? What banker would casually revolve credit card debt at 18% when they could get a consumer loan for 5%? What banker would accept a time deposit today at an interest rate that is substantially less than what the market is offering? Yet, these events occur all the time.

We think differently about money because we are paid to be accountable for how money is managed. How have you enabled your sales staff to understand that although everyone wants the best price, there are huge differences in what buyers will do to secure the best price? Some of which will seem quite irrational.

As much as loans can be considered a commodity, time deposits have even fewer variables for de-commoditizing them. Every depositor wants high yield and short commitment. They would always rather have a 1.25% CD APY than a .8% APY. The front line bankers buy into this paradigm strongly. This leads too often to apologies and surrendering of real sales opportunities right in front of them.

If you experiment with a variety of CD offering rates and track the results you will find that CDs will be booked at large variations around the national average. They are not always booked at the highest yield and shortest commitment available. While all CD customers want higher rates all the time, some of them are not willing to put effort into getting that result. An effective way to help your front line is to simply track and communicate the variety of pricing on recently booked business. Once you demonstrate that profitable pricing is possible, you have the ability to get the front line to believe it is often achievable. It can be demonstrated that price differentiation enables us to serve more people and create more profit from our efforts. Reference this recent journal article on Price Differentiation in the Journal of Product and Pricing Lifecycle Management.

Regarding sales process we find that high performance bankers attract and keep customers by helping customers see clearly what is at stake. One way is to dollarize the difference. If we ask people how hard they would work to go from .8% to 1.25%, they don’t know the answer. However, if we ask them how hard they would work for $250, we may not anticipate their answer, but they know. Effective bankers today present offers in terms of dollars so that they get a much greater market share regardless of the level of pricing they offer. This is just one way of providing a consultative sales process.

If you want to empower bankers with a differentiated pricing structure, you have to simultaneously enlighten them that empowerment brings responsibility. What they do makes a difference and that difference can be positive or negative. The vast majority of people will respond well to empowerment and enlightenment, but it is incumbent upon management to prepare the front line. It can be done. We find that good bankers can and will appreciate the opportunity to enhance pricing for the bank if they are prepared with processes and tools within a healthy sales and pricing culture. In fact, it is the ability to get things done and help people that inspires and drives high-performers in the first place. Maturing your pricing culture becomes more than an add-on activity. It becomes an integral part of a high-performance financial institution.

Neil Stanley,  Bank Performance Strategies will be a featured speaker at the IBA Convention, September 21-23 in Des Moines.

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