TOWERGROUP: FINANCIAL SERVICE INSTITUTIONS GAIN COMPETITIVE ADVANTAGE WITH ADOPTION OF PROFIT-BASED PRICING

Needham, MA - 6 September 2006

In a highly commoditized industry, financial service institutions (FSIs) can look to customer information as the key factor that determines whether a customer will purchase a product at a given price. Traditional pricing techniques such as one price fits all, market based, index based, and risk based all ignore consumers' price sensitivity and cause many FSIs to leave business on the table. New research from TowerGroup finds that now is the time for FSIs to look at price revenue optimization (PRO) / profit-based pricing due to current market and business conditions.

According to TowerGroup, the development and use of sophisticated mathematical algorithms will allow FSIs to implement a profit-based pricing principle to find the right price for each segment, market, channel and product at all times. TowerGroup predicts that PRO will be the next frontier in pricing for financial institutions, but notes that proper implementation will require FSIs to modify pricing sheets continually and rapidly.

TowerGroup estimates that by the end of the decade, larger institutions will be the first to adopt profit-based pricing, almost universally.

TowerGroup also feels that banks would receive additional benefits with the implementation of PRO/profit-based pricing such as, overcoming fluctuating loan demand, increased competition in markets where loan demand is down, and the need to increase market share. For consumers, TowerGroup predicts that PRO implementation will allow for more tailored product and pricing offerings, which in turn will provide consumers with better deals.

A new TowerGroup report titled, "Profit-Based Pricing: Time to Stop Leaving Money on the Table" by Bobbie Britting, senior analyst for the Consumer Lending research practice at TowerGroup, examines the history of price and revenue optimization, its guiding principles, and the future of profit-based pricing in the financial services industry.

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