Page 205 - DMGT510_SERVICES_MARKETING

Services Marketing

Notes Customer relationships are difficult to assign a value to in the pricing process. Customers
will generally press for some price concessions in consideration of other relationships
they have with the bank.
Asset and liability mix also impacts pricing results. Generally speaking, banks operating
with higher loan-to-asset ratios are able to afford to pay more for deposits. Likewise,
banks can afford to be more competitive on certain deposit products if they have fewer
maturities in a particular timeframe or less total outstanding balances in a product line.
What is the market rate for the core product?
Customers have more distribution channels available to them today than at any other
point in history. In the past 10 years, the number of bank locations has increased 20%. Of
course, there are the mortgage bankers, the Internet, and a host of other financial service
providers competing for your customer’s loan and deposit business.
The point is the competitive marketplace always ensures that if a financial institution is
charging too much for loans or paying too little for deposits, its share of the market will
likely dwindle as existing and prospective customers find alternative providers. You can
do all the math you want to determine required pricing points, but if your pricing is
uncompetitive, your market share will shrink.
What would the bank have to do to sales and operations to make its rates the most
competitive in its market?
Pricing is a key issue for the associates who sell bank products to your customers. The fact
is, lenders want the lowest rates, and people dealing with depositors want to pay the
highest rates. You need the right balance of fee income, strategies to reduce operating
costs, and a healthy asset and liability mix to change your required pricing.
Source: www.indiastudychannel.com/projects/4701-P-s-Marketing-For-ICICI-BANK.aspx

Organisational Objectives through Pricing

Profit or Income Related Objectives
(a) To Achieve a Targeted Return on Investment (ROI): Many service firms work on a target
return on sales or on its investments as an objective. Thus, if Crossword, the book retailer,
works on a 25 per cent return on sales, they would appropriately add an amount called
mark-up to its cost of the book. The mark-up would cover most of its anticipated costs as
well as make provision for profit. Targeted return on investment is taken by a firm with
respect to its assets and liabilities, that is, its net worth. The industry leader mostly does
this - as their pricing can be independent of competition.

Example: HDFC, the leading housing financier, can price its services to earn a net profit
that is 20 per cent of its net worth.
(b) To maximize profit: Service firms require profit in order to enable them to pay dividend
to its investors, pay rent and other utility bills, pay salaries and wages to its staff and also
invest in new technologies and other expansion plans. But to maximize profits, the service
firm requires data on its segments, possible sale in each segment at different prices, as also
estimates of fixed and variable costs.
With these available data, it would be easy for Container Corporation of India (CONCOR) to
calculate the combination of price and revenue that generates the highest profits. But those firms
which do not have such developed marketing systems like Management Information Systems

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