Price is a tricky thing. From a bank’s perspective you have to project profitability, risk and growth. It’s messy work and it’s only half of the conversation.
The other half lies with the customers. They want a simple and clear way to measure the value and cost of one loan offer against another. How can you be sure to address their needs while making sure your bank meets (or exceeds) its targets?
First, consider how the customer thinks about cost and value. If your customer is very sophisticated when it comes to loan deal structure – say, a CFO trying to minimize cost of capital while maintaining optimal liquidity against long-term capital requirements as measured by NPV – then your pricing discussion will be fairly straightforward. Not simple, but well understood by all sides.
However, if the customer’s main focus is to make their business successful and they value convenience, delivery speed, or customer service, you may have more work on your hands. When the deal terms are the driving force, the relationship manager has to meet the customer where they are, have a pricing conversation in terms they can embrace, and present solutions in a way that moves the deal to close. That’s no small feat.
What the Best Relationships Managers Do
Based on what we’ve seen, it takes a relationship manager with skill and a bank with a culture of transparency to get these deals done and turn a customer from a rate shopper to a value shopper.
Listening is an ability almost everyone has, but a skill that few people practice. The best relationship managers we know are great listeners at the onset of the deal. Proper listening is critical to understand not only what the customer is trying to do with the money they request, but also where they see the value exchange with the bank.
- Offer expertise
Once the customer value perception is understood, then matching the deal with those values and the ROE goals of the bank is the primary task of the relationship manager. To do this, the conversation must change, and the relationship manager becomes the subject matter expert. In many cases, this means challenging the perceptions of the customer, and in almost all cases it means showing them the impact of items other than just rate.
- Expand the conversation
To effectively do this, the relationship manager needs to be armed with data that’s relevant to the bank. What are its competitive advantages? Where are trade offs easy to make and where are they more difficult? To move the discussion away from rate, the relationship manager must be able to speak in equally concrete terms about the value and impact of other deal terms.
But how can the relationship manager move the critical points of a deal from something that is mutually understood (rate) to something that even the relationship manager may not be sure about?
First, the bank must make that data available to the relationship manager. Second, the relationship manager must establish credibility. For example, saying “Everything else being equal, we can do that bridge loan for 31 months, but not 36” is a credible, transparent and effective way to bring duration into the conversation.
- Offer alternative scenarios
With the right transparency, the relationship manager can prepare alternate scenarios that are appropriate to the customer’s value position, and meet the requirements of the bank. These scenarios can be presented in a way that highlights the non-rate aspects of the pricing decision, and draws the customer to a decision based on value rather than rate.
However, an overabundance could be harmful. When overwhelmed with options, clients have a tendency to withdraw or revert. In expanding the conversation, one or two additional scenarios should be sufficient to move the customer from a rate shopper to a value shopper.