Dynamic Pricing and Profitability: Details and Explanations

SAS Banking Intelligence Architecture for analytics, combined with Amdocs’ operational Product Catalog and dynamic pricing engine, gives banks the needed flexibility to build and change pricing and product bundles to develop and sustain a personalized approach for customers. Dynamic Pricing and Profitability Management (DPPM) from SAS and Amdocs enables banks to adopt customer-focused product and pricing management, which results in longer, more profitable customer engagements, as well as process improvements that reduce cost and improve overall operational agility.

Shelley Sessoms, Editor of SAS Financial Services News, goes in-depth about DPPM in this Q&A with Doug Green, Client Business Executive North America at Amdocs, and David Macdonald, General Manager of the SAS Financial Services Group.

Shelley Sessoms (SS): First off, Doug, please explain the concept of dynamic pricing and product bundling.

Doug Green (DG): In the simplest terms, it’s the ability of the bank to price relative to the customer’s requirements as well as the profile they have of the customer regarding profitability and revenue. It’s dynamic because it changes based on the customer situation. Product bundling and dynamic product bundling is basically the ability of the bank to take any product, from any line of business and any service line, and combine it with other products and then offer a fairly unique and customized financial solution to the customer.

SS: So this is not offering the same product to different customers with different prices?

DG: That’s correct. It’s a focus on a single customer, typically, or a single customer segment, in order to provide them with what is perceived as a customized financial solution to meet their needs and the profitability requirements of the bank.

SS: To make that customer more profitable.

DG: Exactly.

SS: And why is there a need for this solution now?

DG: Because I believe that banks in particular have been on a retail journey for a while, but the sum of that journey has been what I call “superficial change.” Most of the changes have been around the branch and how the branch is laid out and so forth. But nothing has been done to make them more geared toward retail, and I think banks realize that now. In order to be more of a retailer, someone who interacts with customers on a daily basis or creates long term relationships, banks have to bite the bullet and do something that goes against the grain. They need to horizontally integrate the bank so that they face the customer as one bank, not six or seven banks. More importantly, they need to be able to deliver financial solutions specifically to that customer, because customers often walk into banks with a specific product in mind, and banks need to be able to deliver on that product.

SS: Do we have savvier banking customers these days?

DG: Absolutely. The customer base has changed. More customers are knowledgeable about financial products because of investments and the investment market. Most people now really, truly understand much more than, say, their parents did, for example. That’s number one. Number two is access. These same customers have access, easy access, to banks, brokerages, insurance companies, etc. Now customers have access to a lot of financial products that, in fact, the same bank is selling, but to other providers. So now they can easily do comparative shopping. They can research products because they now have the access that they didn’t have before. All of this combined is what’s causing banks to say, “If we really want to be a financial supermarket, we have to get our act together and provide all of these products because otherwise our customers will go shopping somewhere else.”

SS: Let’s focus on the SAS and Amdocs solution. How does it work?

DG: This is a two-part solution. One part of it is the need to have an enormous amount of flexibility with the product – to bundle products very quickly, to price dynamically as we talked about before, to customize those products dynamically, and to add incentives. That’s one aspect of it. The other aspect that’s required is an enormous amount of analytics. You need to go through a lot of transactions, profiles, models and so forth. Without that, you’re going to have the best product manufacturing capability, but you don’t know who to sell it to. So if you combine the two, you will get the right product for the right customer, the right bundle for the right customer, and that’s really what the banks want to achieve.

David Macdonald (DM): Amdocs provides the capability to really understand, price and package the product. What SAS provides is the necessary technology to analyze customer behavior, relationships and transactions, and then create profitability models. SAS’ analysis can then be combined with the product capabilities that Amdocs provides.

SS: What challenges do banks face when implementing this solution?

DG: The biggest challenge is a bank’s legacy system, which generally provides very little flexibility. It’s a hard-coded environment for products and applications. So it would mean that a bank would have to develop a new application any time they made or worked off an existing application, any time they wanted to change that product and come out with something new to market. As far as bundling products, they almost have no capability to bundle those products because each line of business owns its own product files and you can’t go across those files easily. Banks talk about cross-selling, but now it’s usually done manually. This solution automates the process.

DM: In addition to the technology constraints, there are also organizational issues. There has to be a sponsor from the top who is willing to make a difference. There also needs to be a realization of vision that is not always easy to establish with many organizations that have been working with systems for decades.

SS: What are the benefits to banks implementing DPPM?

DG: Banks, particularly in the United States, are concerned about retention because the overall market is not growing. Banks historically have had very high turnover so the typical customer in the United States more than likely has five products spread across three institutions. Banks are not getting wallet share. This solution addresses that concept of, “I’m going to be able to provide you everything you need financially and therefore, hopefully not only will you stay, but you’ll actually do more business.”

The second benefit relates to competition. New competitors come out with products quickly and then the banks react to it, but by then it may be a little too late. So now they’ll now be able to quickly deal with their competitors.

The third benefit is profit. Banks are under enormous pressure for revenue from the retail side of their business. With the SAS and Amdocs solution, they can sell more products and make more profits.

SS: How then is pricing and product bundling going to change the industry?

DG: Number one, it will put banks on a level of competition that they’ve never had before. When you have that kind of flexibility and reaction to the market with new products, it changes the dynamics of that market dramatically. The shares, the market shares, will change quickly now. Secondly, it will change the customer’s perspective of a bank. Customers today view a bank as a boring place to go. Frankly, not a great sales experience for the most part, even though customers are making the most decisive, important decisions they’ve ever made in their life. When customers see that the bank is establishing a long-term relationship with them, when customers view banks as an advisor or partner, this will change the customer’s attitude.

SAS and Amdocs provide a dynamic pricing and profitability management solution.