Page 204 - DMGT510_SERVICES_MARKETING

Unit 11: Pricing of Services

Notes
Example: A firm of estate agents seeking to extend its operations to a new region may
offer initially very low commission rates in order to build volume in that market.
Price is used as a means of maintaining the market share of a service during its life and is

used tactically to defend its position against competitors.
Ultimately, for organisations working to financial objectives, prices must be set at a level

that allows them to meet their financial objectives.


Caselet Pricing at ICICI Bank

he pricing decisions or the decisions related to interest and fee or commission
charged by banks are found instrumental in motivating or influencing the target
Tmarket.
The RBI and the IBA are concerned with regulations. The rate of interest is regulated by the
RBI and other charges are controlled by IBA.
The pricing policy of a bank is considered important for raising the number of customers’
vis-à-vis the accretion of deposits. Also the quality of service provided has direct
relationship with the fees charged. Thus while deciding the price mix customer services
rank the top position.

The banking organisations are required to frame two- fold strategies. First, the strategy is
concerned with interest and fee charged and the second strategy is related to the interest
paid. Since both the strategies throw a vice-versa impact, it is important that banks attempt
to establish a correlation between two. It is essential that both the buyers as well as the
sellers have feeling of winning.
Pricing Bank Products Starts with Three Basic Questions.
What rate does the bank need to meet its financial objectives?
The answer is, “it depends.”

Some considerations for loan and deposit pricing are:
ROA or ROE objectives

Related income taxes
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Earning assets to total assets
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Equity-to-asset ratio
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Cost to service earning assets being funded or deposits funding an earning asset

Pricing for the activities and risks associated with the product
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Rate tiers based on product balances
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Asset and liability mix.
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Another element to consider in the pricing of earning assets is the risk of loss. Most
notably, this is relevant in loan pricing. Many banks assign a risk weighting to individual
loans over a certain size or based on loan type and assign a credit risk charge based on
those ratings.
Contd...

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