Banking & Insurance

Pricing Challenges and Opportunities

Financial service providers such as banks and insurance companies are operating in highly competitive environments. In Europe where deregulation has blurred frontiers and increased cross-boarder competition, the need for competitive pricing solutions has never been greater. Furthermore, clients have now access to Internet services that allow them to easily compare the different offerings available in the market.

In this context, there is such high pressure on margins that optimization of prices is becoming a major challenge for the industry. Major banks and insurance companies already use decision support systems to provide precise estimates of their costs including refinancing and future risks. However, "cost-based" pricing is not sufficient when, due to competitive pressure, negotiation margins are under pressure and are widening fast.

For these reasons, leading banks and insurance companies are adopting differential pricing as a competitive weapon to protect their own markets and penetrate new ones. This revolutionary pricing technique has been used successfully since 1985 by the airline industry in a similar competitive environment. Like airlines, banks and insurance companies can segment clients according to their price sensitivity. They have fixed costs and capacity constraints, due to re-financing and limited staffing levels, that create opportunity costs at certain periods of the year.

Benefits of Open Pricer technology

Open Pricer provides tools that assist banks and insurance companies in optimizing their sales margins through effective differential pricing. Our Intelligent Pricing technology offers the following advantages to the banking and insurance industry:

• gain new customers, minimize churn and optimize profitability using differential pricing
• evaluate the price that optimizes (depending on the strategy) the expected revenue, the expected contribution margin or the expected LTV of each customer
• segment the customers depending on their price sensitivity
• estimate the perceived value of different product attributes (type of loan/insurance, duration, change flexibility)
• evaluate the actual return of a promotional or advertising campaign
• optimally allocate limited resources to sales requests which have the highest expected profitability
• calculate precise incremental and opportunity costs generated by each contract