The Difference Between Intentional & Unintentional Client Value
One way to nurture great banking relationships is to use pricing as a tool to incentivize specific client behaviour. We’re agreeing to provide additional value to the client – a discount, waiver or bonus in the form of a tailored offer – in exchange for meeting certain conditions. These conditions represent the behaviour we want the client to exhibit on an ongoing basis.
Whether it’s targeting a specific segment or an individual client, I’m all for relationship pricing as a strategy. However, where some banks tend to fall short is in the execution of such a strategy. To this end, I’d like to make an important distinction between what I call intentional client value and unintentional client value.
Intentional client value is a good thing – effectively, it’s a conscious decision to reward the client. There’s clarity of rationale behind the strategy, and the desired behaviour and the required conditions to achieve that behaviour are defined. You know exactly how much value you’re giving a client and what you expect to receive in return. It’s up to the client to decide if he/she would like to capture that additional value in exchange for meeting those conditions. If the offer is personalized and compelling, the answer should be yes.
Conversely, unintentional client value is a bad thing – you’re forgoing value in situations where you don’t necessarily want or need to. The culprit tends to be manual processes and an inability to effectively track conditions automatically. Did you know that you could be giving away millions of dollars a year in revenue leakage from unintentional client value?
Below are a few examples of intentional and unintentional client value. These concepts aren’t rocket science, but eliminating unintentional client value is a key component of reducing revenue leakage and doing relationship pricing well – that is, what’s good for the client and good for the bank.
|Examples of intentional client value||Examples of unintentional client value|
|1. Deepen a single-product relationship. A client receives a preferred deposit rate for maintaining a minimum savings account balance and holding a credit card.||1. Incorrect fee waivers. A client requests and receives an unjustified or unauthorized fee waiver or reversal.|
|2. Become the client’s primary bank. A client receives a 50% discount on the monthly fee on her chequing account for making a minimum of two bill payments online and one direct deposit per month.||2. Expired promotions. A client continues to receive a special, limited-time deposit rate from a promotion that expired months ago.|
|3. Consolidate the relationship. A client receives a preferred car loan rate for consolidating his mortgage from another bank.||3. Unmet conditions (product bundles). A client continues to receive a fee discount on a packaged bundle of three products after cancelling one of the required products.|
|4. Say thanks. A client receives an annual fee waiver on her credit card as part of a campaign to reward high-value clients.||4. Unmet conditions (rewards program). A client receives a cash back bonus as part of a rewards program that requires a minimum of five debit transactions per month, but she only does three transactions.|
|5. Encourage lower-cost channels. A client receives a monthly cash back bonus for shifting his in-branch deposits to mobile deposits.||5. Ineligible clients. A client receives a preferred mortgage rate that is reserved for a high-value client segment, even though he is not eligible.|
|6. Reduce churn. A deposit client with high balances at risk of attrition receives an offer for a preferred rate on a 12-month term deposit.|
Can you point to examples of unintentional client value at your bank?
Zafin Cloud delivers a relationship pricing governance framework that tracks client behaviour against contractually obligated conditions and automatically calculates the correct value for the client – whether it’s a standard price, a promotional price or some other benefit. We have several clients across retail and corporate banking using the platform for this purpose for both fee-based and rate-based products.
Zafin (@zafin) is a leading financial technology provider that enables banks to form richer, more personalized client relationships. Built from the ground up for financial services, its platform empowers banks to enhance revenue and operational efficiency. Founded in 2002, Zafin sits among North America’s top FinTech companies, and is trusted by retail and corporate units at some of the largest banks worldwide. Headquartered in Toronto with global offices, Zafin has a proven track record with a 100 percent client retention rate as validation.
This blog post was written by Kyle Thom, Director of Marketing at Zafin. You can email him directly at email@example.com