Credit card firms leave millions in profit untapped

10 March 2015

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.

Credit card companies leave millions in profit untapped

Homogenous approach
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”.

Optimal pricing
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. 

Credit Card

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.

Hayri Culum, Simon Kucher & Partners

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.


Late payment culture cripples productivity of SMEs

29 March 2019

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.