I don’t think we’ve ever seen loan pricing competition like we’re seeing right now, and I don’t think it’s over. I think it’s going to get much worse through 2022.
So, what do you do in terms of creating some loan pricing strategies that allow you to command premium pricing when others are undercutting your pricing on your very best customers AND the prospects that you’re going after?
Why doesn’t your loan pricing strategy work?
Let’s start with what doesn’t work: buying profitability analysis software that allows you to figure out when you have broken even and then build something more into that.
I’ve been an eyewitness to bank after bank losing their independence because of that strategy. That strategy never works because you can never command enough pricing on those when you don’t have enough profit built into them.
What else doesn’t work?
Saying those things that all bankers tend to say: “We have good people” and “We have great service. Therefore, we’re worth more.”
Sure, maybe you can occasionally get an extra 25 basis points on that despite the lack of differentiation, but that’s probably the upper limit, and it’s far from a “tried and true” approach.
It’s also kind of a lame way to go about it—it just doesn’t work well.
What does work?
Creating that extreme differentiation for your bank that far exceeds the additional premium pricing that you’re about to charge that customer.
When you create that differentiation, it’s a powerful way to create a distinction in your customer’s mind that you’re worth more. That’s if you create a differentiation such that they can tell you that the value you bring is worth more— whatever that happens to be: $800,000, $1 Million, maybe $2 million more, and you’re charging $10,000 or $20,000 additional, which sounds like a pretty good deal to them.
To make this work, it requires two elements:
- Your extreme differentiation, and
- Creating a sales process (and having your team follow it) that works so well, your customer tells you why you’re worth hundreds of thousands of dollars more than what you’re charging.
As Wallace Wattles said so well, “Always bring ten times more value than the cash you asked for, and people will beat a path to your door.”
Never is it more profoundly true than in banking sales when we’re up against desperate competitors trying to steal away our best customers by low-balling the loan pricing.
– Roxanne Emmerich
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Please watch the video above and share it with your exec team and board.