financial services forum€¦ · 4/4/2017 · about everything is as little recognised as it is...

www.simon-kucher.com

Pricing in a digital world

Financial services forum

4 April 2017

Alex Graham, Director

London office1 Plough PlaceLondon EC4A 1DE, UKTel. +44 20 7832 6700 [email protected]

Pricing in a digital world conference: Retail banking

* 10 year CAGR; ** manager magazin survey of top managers in Germany, August 2007 and 2011/IMB;brand eins Thema/Statista survey of 1,426 partners and project leaders from consulting firms and 1,300 C-level managers from German companies, May 2014

Simon-Kucher in numbers

980employees worldwide

97partners

£197mannual turnover 2016

#1ranked consultancyin Marketing, Pricing, Sales and CRM**

17%growth rate*

3,200projects in the last three years

2


Source: BusinessWeek, January 18, 2004; The Wall Street Journal, September 22, 2003; letter to Hermann Simon, Simon-Kucher's founder and chairman, June 3, 2003; "Business Consulting", Gilbert & Czerniawska, 2005, The Economist Books; William Poundstone 2010

The world's leading pricing adviser

The influence of Simon-Kucher on the prices we pay for just about everything is as

little recognised as it is staggering

Peter Drucker

"... in pricing you offer something

nobody else does."

"world leader in giving advice to companies on

how to price their products"

"…the world's leading pricing consultancy…"

"pricing strategy specialists"

Professor Philip Kotler

“No one knows more about pricing than SKP."

3


Selected clients –other clients excluded due to confidentiality

Simon-Kucher works with industry leaders from all sectors

Automotive Consumer & Retail

Alfa Romeo

Audi

BMW

Daimler

Fiat

Kia

Maserati

Michelin

Mercedes-Benz

Porsche

Renault

Toyota

Volvo

VW

Adidas

Barnes&Noble.com

Beiersdorf

Coca Cola

Ferrero

Haribo

Henkel

Nestlé

Nikon

Office Depot

Pepsico

Warner Music Company

Energy & Utilities Technology & Software

BP/Aral

Castrol

E.ON

EnBW

EVN

Liquigas

Mainova

natGAS

Nordex

Orlen

RheinEnergie

RWE

Shell

Tank & Rast

Yello

Citrix

Fujitsu

Intel

Intuit

Kronos

Microsoft

Novell

Panasonic

Philips

RSA Security

SAP

Semikron

Sony Ericsson

SunGard

Financial Services Telecommunications & Media

Allianz

American Express

AXA

Barclays

BNP Paribas

Citi

Credit Suisse

Deutsche Bank

GE Capital

Generali

HSBC

RBS

Virgin Money

Western Union

1&1

Axiata

Betfair

LinkedIn

PayPal

Deutsche Telekom

KPN

Skype

T-Mobile

Vodafone

The Economist Group

Which?

Xbox Live

Travel & Hospitality Manufacturing & Logistics

Accor

British Airways

Center Parcs

Europcar

Hilton

Lufthansa

Navigon

Thalys

Thomas Cook

Travelport

TUI

Virgn Holidays

Bosch

Caterpillar

De Post

DHL Express

Honeywell

La Poste

Osram

Parcelforce

Siemens

Swiss Post

Tetra Pak

TNT

4


Note: Ranking by Manager Magazine based on survey of senior executives across a wide selection of industries

…and have over 30 years of global banking project experience

Citi CIBC Danske Bank Deutsche Bank

GE Capital MoneyGram Postbank Rothschild

Scotiabank Société Generale TD UBS

Deep market knowledge

Broad market knowledge

Banking project experience

Unrivalled experience and expertise on bank pricing:

Risk-based pricing model implementation (50+ projects)

Precision pricing and granular pricing segmentation model implementation (50+ projects)

Best practices from multiple markets with different banking models and regulatory regimes

Deep banking industry knowledge with a customer lens and pricing focus

8 -15 bps increase in margin improvement on both sides of the balance sheets

20-30% improvement on customer "cross-buying", increased funding stability, and customer stickiness

Aldermore Barclays Best Invest HSBC

Lloyds Bank Permanent tsb RBS Virgin Money

5


Sources: 1Simon-Kucher analysis; 2Thelce.com

Retail banking today: Pressure from different angles

Backdrop

Margins under increased pressure

Reducing net interest income by over £300m

across the UK ‘big 6’ retail banks between 2015

and 20161

Lower for longer: Five year sterling swaps fell

from 1.05% to 0.85% in the last

year2

Pressure in retail

banking

Need to monetise

digital

Loss of customer

relationships

Open banking and

FinTechs

Reduced branch interactions to

deepen customer relationships

68% of banking executives feel that FinTech will

completely redefine the UK retail banking market in the

next 5-10 years

Banks need to realign value story

from branch to digital services

6


Challenge 1: Banks are losing customer relationships

Traditional world: Banks use branches to engage customers and deepen relationships

Emerging world: Banks can only engage customers through digital channels

Building relationships: Branch advisers able to build meaningful relationships with customers

Cross-sell: Strong cross-selling opportunities by observing account activities during teller

interactions

Focus on pushing products: Deepening relationships through mobile apps dependent on banner advertising risk of noise or irrelevance

Legacy platforms: Costly implementation of smart end-to-end customer journeys due to

legacy platforms

7

Branches are closing: Banks are struggling to maintain strong relationships with valuable customers

UK branches across ‘big 4’: Lloyds, RBS, Barclays and Santander*

Digital investments: Banks are investing billions in digital to ‘catch-up’ after years of under-investment

Digital investments announced by banks: Millions EUR

€8,500m

€ 3,000m

€ 1,200m € 1,200m€ 1,000m € 1,000m € 950m

€ 420m

JPM BNP Lloyds RBS CoBa DB HSBC BBVA


*Source: Simon-Kucher analysis

Challenge 2: Banks need to realign the value story

5,000

5,200

5,400

5,600

5,800

6,000

6,200

6,400

6,600

6,800

2013 2014 2015 2016

CAGR: -6%

Value addition

Needs to offset value lost

Monestisation opportunity needed as a return on investment

Value removal

Customer perception that services are being taken away

8


Simon-Kucher retail banking study June 2016; n=80

Challenge 3: The majority of retail banking executives are excepting an ‘open banking’ revolution

Increased price transparency: Banks and third-parties will become more pro-active in offering product upgrades banks need to:-

1. Decommoditise: Avoid becoming directly comparable

2. Build loyalty through non-price value drivers

Simon-Kucher 30-second survey: % Agree or completely agree

Open banking and APIs

Role of FinTech in

re-defining

retail banking

68%

70%

FinTech and new start-upbanks will completelyredefine the UK retail

banking market within thenext five to ten years

Use of third party companiesto leverage data insights from

personal current accountswill become the new normal

in the next five years

9


But what does loyalty mean?: Banks should deepen customer relationships through service and product

High loyalty

Low profitability

Incentivise deeper product

use

High loyalty

High profitability

Drive advocacy

Low loyalty

Low profitability

Strengthen customer engagement

Low loyalty

High profitability

Mitigate attrition

Basic product relationship: Current

account and basic savings

Deep product relationship:

Mortgages, loans and high savings balance

Basic digital relationship: Branch users and inactive customers

Deep digital relationship: Heavy use of online/mobile banking

1

3

Drive engagement: Improve service offering with strong focus on building adoption of new (and often mobile) functionality

Monetise services currently given away for free: Offer compelling value that consumers are willing to pay for

Deepening relationships: Use loyalty pricing on mortgages, loans and savings to mitigate against price comparison

2

2

3

1

10

Source: Simon-Kucher current account study 2015, n=1,016

Simon-Kucher UK consumer survey October 2015

Deepening relationships: Look beyond cash-back and rewards

Cash-back & rewards

9%

Money management

13%

Peace of mind

3%

Money management has high appeal: Cater to making better financial decisions

This is how UK new entrants will differentiate: Strong focus on enhanced user experience

Cash-back and rewards – a sustainable variable cost?: Cash-back and rewards can present a compelling offer to 45%, although is also very costly such incentives should be directly tied with product holdings (i.e. customer profitability)

19%

13%

10% 4%

No appeal for features = 30%


Dependent on digital

enablement

11

Loot Monzo Soldo Starling Tandem

Pro-active notifications on spending performance against pre-set budget categories

Protect against short-term liquidity squeezes by offering a temporary £200 overdraft for a week for 75p

Split everyday family spending across multiple prepaid cards

Pro-active guidance on spending based on transaction history and expected bills. Provides warnings well before going overdrawn

Pro-active messages on how to save money by e.g. switching electricity provider or cancelling of old subscriptions, relevant discounts etc.

Source: Simon-Kucher & Partners

Learning from FinTech: Digital value should be simple, relevant and pro-active


Principle 1: Simplicity

Customers should be able to understand what it does and how it works in less than two

seconds

Principle 2: Relevance

Features should provide relevant value to individual customer

needs while not overwhelming

Principle 3: Pro-active

Maximum value should be delivered with minimum

customer effort

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Source: Simon-Kucher current account study 2015, n=1,016*Prices optimal for customers willing to pay only.

Customer willingness to pay: There is evidence that banks can monetise digital features


Bill management services Overdraft grace period Free foreign transactions

Access to short-term loans Overdraft warnings Real balance alerts

Your balance is -£89. Do you want to borrow £100 for one week? This will cost £2. Reply ‘YES’

You will be overdrawn by £120 in TWO days. You are due to get paid in FOUR days

Available balance: £1,339

Balance after expected bills: £561

13

Feature-rich, Value-Poor Instant comprehensionFeature-rich, Value-Poor Instant comprehension

Strengthen communications: Customers are not interested in ‘features’ but coherent solutions

128MB build-in memory

128MB memory card included

MMC / SD memory card slot

Pricing in a digital world conference: Retail banking 14

Source: Simon-Kucher & Partners

Strengthen communications: Value communication is a function of clarity and cognitive ease


Cognitive overload Cognitive easeCognitive overload Cognitive ease

Established 1994 Exited search business in 2005

Established 1997 Global market leader in 2016

15


Conclusions

1. Banks face long lasting challenges including margin squeeze, reduced customer engagement and the threat of digital new entrants

2. Banks need to build loyalty now both through deeper digital engagement and cross-sales

3. Offering cash-back and rewards is costly and should be closely linked to profitability

4. Engaging customer digitally should mean delivering value that is simple, relevant and pro-active

5. Customers are willing to pay for digital features that improve transparency, convenience and decision making such as smart budgeting tools

6. Banks should communicate with customers coherently and avoid overloading customers with excessive information

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Source: Comscore, independent study on PayPal express checkout 2011

Strengthen communications: If all else fails…

Version Displays Wins

Puppy 15468 67

Text 15558 30

Use a puppy (babies work too)

A/B Testing Results

17

www.simon-kucher.com

London office1 Plough PlaceLondon EC4A 1DE, UKTel. +44 20 7832 6700

Thank you

financial services forum€¦ · 4/4/2017 · about everything is as little recognised as it is...

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