Once started, it can’t be stopped without an extreme intervention… or a profound enlightenment.
And the ravages of discounting pricing causes debilitating future impact:
- It sabotages your ability to recruit, hire and train the best.
- It deteriorates your ability to deliver the very best customer service.
- It destroys your ability to bring on the cutting-edge products and services.
- It robs you of your ability to offer the very best top-of-the-line products.
- It makes it harder to create salable equity and robs you of the multiple of book you would otherwise receive.
It is a slippery slope—with a very dark ending.
And regulators are ready to pounce on banks that have not figured out how to get and keep deposits that are low-cost.
Unfortunately, most banks are well down that slope already. The only question is whether they can save themselves before it’s too late.
It’s uncertain…but possible.
Marketing guru Dan Kennedy defines six major things that govern price elasticity.
- Who is selling
- Who is buying
- Where they are buying
- How they are buying
- Urgency of purchase
- How and when paying for purchase
Some of these you can manage—others are a bit out of your control.
Let’s look at the first one—who is selling. This one you can impact in a significant way. And you should.
It’s not your “name” or your “brand”—it’s not how much stuff you have. It is “who” you are. The “who” has more to do with your celebrity status as an expert, as the bank that the movers and shakers get to do business with, than it has to do with how many bells and whistles your products have.
Being positioned as the bank that does big deals fast and works with all the best and brightest would be a great benefit. You can position in many different ways—as long as they matter to the customer and are worth premium pricing. Let’s face it—the banks that spend money on “branding” campaigns missed the point. It’s not about pretty—it’s about wild differentiation regarding what people will pay extreme premium pricing for. Branding companies can’t do that for you. Only you can explore that extreme differentiation and deliver on it in alignment to your intimate awareness of what each of your niche markets need.
Being the one in the market that stands out as have extreme expertise—far beyond understanding your “products” but for having unique competencies that your competitors are not willing to take on the additional risk for the reward you are about to receive.
Now let’s focus on who is buying. This is significant.
There are people who will always pay for the most expensive option. They assume it means more quality and less hassle, and they don’t even want to talk about the cheaper option. Kennedy’s research shows 5-10% will always pay for the higher priced option when given a choice. That makes it easy—you will always have another “choice”—one where they get a “premier” program.
Why would you refuse them that opportunity by not offering them a premium priced version of everything you do?
Now HOW they are buying?
That’s an easy one. What’s the very worst time to talk to a borrower about renewing the loan? Within 60 days of renewal. Why? Because they are already thinking of bidding you out. Instead, by renewing earlier, your renewals will go through the roof, and rates become inconsequential.
And when calling on a prospect for a loan, don’t even come near them at renewal time—wrong timing. If you can get there well before, that’s perfect.
Also, if you can get in with a business before they hire a CFO who thinks that good management requires “bidding out the banking business, you are likely to be in far better shape than after a new CFO starts. Of course, combining timing with extreme differentiation is necessary as well.
Calling on a business with an average million-dollar checking account balance is best done when they’re not looking for a new banking relationship—because if they are looking, you will be bidding with others. That said, it still matters that you differentiate but why get brought into a bidding war?
And then there is urgency.
This is a beauty. If you position yourself as the bank that can close a commercial real estate deal within 48 hours and your competitors are taking three weeks, imagine the opportunity cost of a prospect not having what you have—the ability to capitalize on a buying opportunity at a foreclosure against others who can’t compete with your speed.
If they can get a property for 30% less because you hustle, shouldn’t that entitle you to a good fee and a premium priced loan?
Good pricing is for the well informed, which is exactly what you need to be. Above all else, stop feeding the cancer of discounting.
Discover the secrets of extreme premium pricing in my newest book
The Net Interest Margin Solution
A limited number of free copies are available.