NEEDHAM, Mass. (3/10/10)--Credit union members, like other consumers, have shifted from spenders to savers during an all-time low interest-rate environment. Now credit unions must prepare to deal with members' price sensitivity on both the deposit and lending sides--while trying to rebuild balance sheets damaged by the economy and a record low interest rate environment. Lenders may have forgotten the importance of accurately pricing products and services in the wake of the credit crisis, according to TowerGroup, a Needham, Mass.-based research and consulting firm. The trend, which is affecting all financial services providers, was noted in a TowerGroup Viewpoint by Bobbie Britting of the firm's consumer lending division (TowerGroup Newsletter
March 9). The reinvented, more sophisticated forms of pricing management such as price optimization and profit-based pricing can help institutions adjust to the new economy, Britting said. TowerGroup recommends that lenders make better use of data and analytics to offer the right product and price for each member/customer segment. Key findings include:
* Sophisticated pricing capabilities can take the new account decision from "Yes or no?' to "What level of profitability can the institution except to achieve based on the deal structure?" * In the midst of the recession, many lenders in the U.S. and the United Kingdom abandoned their emerging price optimization capabilities. * The flight of consumer funds into insured deposits continued from early 2008 through 2009 as consumers moved from borrower to saver economy. * Some institutions are winning the race to grow balances, but only a handful of banks are able to forecast consumers' price sensitivity and factor this demand variable into their pricing strategies. * Adoption of sophisticated pricing strategies on both sides of the balance sheet will best position institutions to differentiate on factors beyond pricing. * Financial services institutions in countries that were less affected by the credit crisis-- such as Australia, Canada and South Africa--have continued to adopt advanced pricing and profitability management strategies.