by Robert D. Kugel CFA | 2012-09-24 | Article ID: QT12-57 | Article Type: QuickTake
Nomis Solutions provides software and services, including pricing and revenue optimization (PRO), to banking and finance companies. PRO uses analytics to sift through large data sets to tease out customer behavior characteristics, identify customer segments and quantify their price sensitivities. Analytics applied here can help organizations more carefully manage the process of defining offers to customers, especially the levels of discretion they allow account managers and sales people, as well as terms and conditions. By appropriately structuring its offers, a financial services company can get closer to the optimal trade-off between volumes and risk-adjusted profitability.
Nomis’s software provides clients a score that measures customers’ price sensitivity. By allowing financial services companies to understand how changes in pricing will affect demand from different segments of customers, it can provide an analytic basis for an effective customer value pricing strategy. The financial industry has inherently fewer strategic methods for maximizing profit than many others. Interest rates are a commodity. Unlike when buying luxury goods, few borrowers are willing to pay more for a mortgage because of the prestige of borrowing from a particular lender. A further complication is that those eager to pay a higher interest rate are also more likely to default. Thus it is necessary to segment existing and potential customers to determine, on the one hand, their willingness to pay for loans or services or, on the other, their requirements for the use of their own funds such as certificates of deposit or checking accounts. Evidence is mounting that PRO is an effective tool in the finance industry. We recommend that financial services firms take steps to incorporate more effective pricing as part of their strategy and evaluate using Nomis Solutions to provide the analytical and operational underpinnings of such an effort.