Credit card companies are leaving additional profit potential untapped, reveals a study conducted by Simon-Kucher & Partners. According to the consultancy, improved focus on key marketing principles, combined with best practice execution, could add millions in revenue streams.
In a recent study by Simon-Kucher & Partners, a consulting firm specialised in strategy, marketing & sales, the firm analysed the commercial operations of 14 leading credit card providers in the Netherlands. The consultants looked at a wide range of commercial elements and KPI’s, concluding that there still is substantial room for improvement. Three key opportunity stand out, says the business advisory, centered around improved customer segmentation and differentiation, value-based pricing and value-based communication.
One of the first insights in the study is the fact that 79% of providers offer only 1-2 credit card types to the Dutch population, which consequently implies that only 21% of providers offer more than 2 types of credit cards. They in essence use a simple segmentation approach: most have a student card and a corporate card, which in the view of the pricing experts is a too “standardised” approach. “Dutch leading credit card providers assume that the majority of the Dutch population is homogenous in needs and does not require a different offering”, comments Hayri Culum, Senior Director and head of the financial services practice at Simon-Kucher & Partners Amsterdam, “leaving millions in profits untapped”.
Pricing is another area which houses significant addition revenue potential, with Culum pointing at two examples. Firstly, only 7% of providers have a ‘product selector’, a tool that guides different customers to different offerings, depending on their needs. Such a tool is according to Culum “key for extracting different willingness’s to pay”, supporting sales teams with optimising the profitability chain across the customer base. “This means that 93% of providers are currently not fully extracting the full willingness to pay of different customers”, says Culum. Moreover, the advisor notes, only 30% of the investigated companies actually has a good-better-best portfolio, a sub-optimal result via a vis international peers.
Secondly, only 14% of providers engage in value-based pricing. 86% of the companies still operate with the traditional yearly price metric; a pricing method which according to Culum “inflates price perception and fails to communicate value”. With value-based pricing in place, credit card providers would be better able to price in a manner which is innovative and in line with actual value in the marketplace.
Price perception management
The third element which leaves room for improvement is price perception management. Of the companies analysed, 21% had websites where too much text is used, with 750+ words per product. Moreover, the study shows that for 29% of websites, 5+ clicks are needed to get to relevant content. In other words, many companies are setting aside key pillars of customer-centricity when presenting their offerings to their customers. “A process which takes too long to direct customers towards relevant information reflects a low awareness of the importance of price perception management”, comments Culum.
Against the backdrop of the increasing pressure in the already competitive marketplace, the Simon-Kucher Senior Director believes that executives would be foolish not to spend more time rethinking and optimising their sales & marketing value chains. “Future leaders will be those that take the necessary steps towards a more valued-based approach”, he concludes. Although the study was conducted in the Netherlands, Culum believes several trends and learnings uncovered are applicable to credit card companies worldwide.