PRICING: CONCLUSIONS FROM THE EXERCISE

AM | @MackinlayEuruni

Sources. Hooman Estelami. Marketing Financial Services. New York: Dog Ear Publishing, 2006 (chapter one, P. 12); Evelyn Ehrlich & Duke Fanelli. The financial services marketing handbook. Tactics and techniques that produce results. Bloomberg, 2012, introduction (pp. 13-14).
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. Pricing as a key marketing decision. Pricing is one of the most important decisions in marketing of financial services. Prices serve multiple roles for the financial services organization as well as for the individuals who use those services. To the financial services organization, price represents the sole source of revenues. In addition, price is the most visible component of the marketing strategy of a financial services organization. A second function of price is to communicate to the marketplace the identity and positioning of a financial organization.

. The Carmignac enigma. How does Carmignac Gestion manage to make so much money? It has been well established in consumer research that, under certain circumstances, consumers tend to rely on price a proxy for quality. They might therefore assume that higher-priced financial services are of better quality, and the lowering of prices may not necessarily be associated with more positive consumer impressions of the financial service. High prices may thus be quite acceptable to customers. Two factors might account for this fact: (1) Price complexity. Financial services prices are instrinsically complex and multidimensional. As a result, consumers may have a difficult time determining what exact price is that they are paying; (2) Returns trump fees. In some areas of financial services —notably, investments— consumers may focus on returns and ignore costs, event though costs will affect returns. In mutual funds, management fees for the same type of fund can vary by more than a percentage point, as personal finance experts have been telling the public for years. But very few investors pay attention to management fees, or even sales charges that can deduct 5 per cent from the investment before the money is ever put to work. Returns trump fees!

. Banco Santander: acquisition marketing. The minimum balance approach to pricing savings products (see Sun Trust) and the Santander approach have an instrinsic appeal among consumers. The term 'free' associated with this pricing approach is considered to be one of the stronger terms in advertising and consumer communications. The free checking approach is primarily used as a part of a broader customer acquisition strategy by banks with the underlying philosophy that it will facilitate new customer acqisitions and the eventual cross-selling of other financial services that banks offer to these new customers. (Remember the 'stickiness' o money decisions!) Acquisition marketing, anyone?
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