Pricing is a Function of a Bank Employee’s Confidence and Commitment
When bank employees accept that the bank’s rates and fees are fair and commit to maximizing the bank’s financial success, holding fast on pricing becomes a cultural norm. Yes there are key relationships and other unique circumstances, but at these banks they stay exceptions. It also goes without saying, senior management sets the tone by example and expectation.
Although we all want “the best deal” we can get, most of us understand the concept of having to pay for a product or service. When there is an ongoing relationship with continued interaction and service, there is an added ingredient to our definition of “the best deal”. Banking is very much about these kinds of relationships and on-going interaction. As such, customers choose to deal with a bank they trust and who they believe will treat them fairly. While the price must be reasonable, having the lowest possible price becomes less important.There is a dynamic most of us have noticed as a parent or a child. When a child asks for something, a caring, calm and confident “no” is usually not resisted with much intensity. On the contrary, when the parent is wavering internally with himself/herself, wondering if he/she should say “yes,” the child reads it immediately. At that point the child is like a shark smelling blood and goes after the parent with a barrage of convincing arguments.
Customers are not children and should not be controlled. However, the issue of seeking something from someone who can grant it is the same. When a bank employee and customer discuss a rate or a fee, the customer can readily tell if the employee is hesitant about the fairness of the price. When the customer sees a calm, confident employee who believes it is a fair and equitable price for both parties, the customer usually thinks like this: “I trust him/her to treat me fairly, and if he/she thinks this is a fair price and is what the bank needs, I am ok with it.” On the contrary, when an employee is hesitant about the price, the customer readily picks up on it and wonders why the employee would charge them so much if the employee doesn’t even think it is fair. They feel taken advantage of and show resistance. Even if they accept it, the trust relationship begins to break down.
This is not about manipulation. It is truly about fairness. It is the employee believing the customer receives a valuable service and that the bank must receive adequate compensation to pay its employees and owners. Banks thrive when they set reasonable prices that are fair to both parties and then expectantly and confidently charge the customers. It keeps the trust relationship intact and provides a necessary income stream for employee salaries and shareholder returns. Whether it is an interest rate, loan fee or service charge, bank employees who develop confidence that the price is reasonable and who stay committed to the bank’s financial success will see dramatic declines in special pricing.
If the bank has a major cultural problem in this area of special pricing, senior management will have to give employees permission to lose a few relationships that are dragging down the whole bank. Most banks with a higher ROE adopted this concept along the way. In the end, confidence and commitment make a big difference.
About the Author
Kelly Karns is President of Karns Profit Improvement®, an independent Oklahoma-based financial consulting firm that has specialized in growing the profits of community banks in a multi-state area since 1986.