When you hear the word 'pricing,' you might automatically think of dollar signs. But you need to be aware that how you price is actually far more important than how much you price
- About This Video
- Transcript
Wei Ke highlights the strategic shift from traditional to innovative pricing models across industries. By emphasizing dynamic pricing adaptations, he proposes alternatives such as usage-based models to boost customer loyalty and ease competitive pressures. In the financial services sector, Wei champions flexible pricing in response to regulatory shifts. In wealth management, new fee structures like tiered packages are designed to align client value with service. Utilize these insights to stay ahead in evolving markets.
When you hear the word pricing, you might automatically think of dollar signs. But you need to be aware that how you price is actually far more important than how much you price.
Hello, I’m Wei Ke, a Partner at Oliver Wyman. I’ve been in pricing strategy, analytics, and execution for over 20 years, authoring more than 50 publications and leading more than 250 projects. Last year, I was named one of the Top 25 marketing and sales consultants and leaders of 2024 by The Consulting Report.
At Oliver Wyman, I focus on the intersection of pricing, sales and marketing, and financial services. One of the areas I spend quite a bit of time on is pricing model development. One thing there that’s very interesting is that every industry has a dominant pricing model that’s accepted by the customer base. What works well in one sector does not automatically work well in another. For example, dynamic or surge pricing is the dominant pricing model in travel and transportation. But if your favorite streaming services were to price their monthly subscription fee dynamically, you’d probably cancel them. Research shows that a subscription pricing model correlates with the expectation of price stability.
Coming up with a pricing model that’s different from the dominant model of the sector can relieve pressures from a price war and even become a competitive edge. For example, in the early 2000s, a global tire manufacturer realized that its premium-quality tires, which lasted longer, were not selling well in the fleet management sector. So, they devised an ingenious solution; they changed their pricing to a usage-based price per kilometer-driven model. And since their tires lasted longer, the per-kilometer price was lower than the competition. This helped them reverse the slowing sales of their premium products while eventually growing revenue thanks to a much stickier customer base.
Changing the pricing model can also effectively respond to regulatory changes that impact existing revenue sources. For example, regulators have recently been pressured to lower overdraft fees in the financial services world. Banks argue that lowering those fees would create a moral hazard since the fees were introduced to deter undesired behaviors like overdrawing your checking account. But in fact, many so-called habitual overdrafts earn six-figure salaries. Our research shows that most of those overdraw only small amounts and would need only a $50-$200 overdraft limit. This suggests that banks should consider a less-rigid alternative to the high per-incidence overdraft fees that we have today, where costs are proportional to the requested amount.
Dominant pricing models for the industry don’t change overnight. In the wealth management sector, the dominant assets under management (AuM) fee model has existed since the ’90s. It was introduced as customers increasingly demanded that their fees correlate with the performance of their investment portfolio.
During the 2008 financial crisis, though, the AuM fee model came under severe pressure. Because even though an average investor’s portfolio shrank by half, the wealth manager — whose fees are a percentage of the investor’s balance — still made money! On the flip side, when a client’s portfolio
doubles, their wealth management needs usually don’t double as well. The AuM fee model hardly seems fair in these scenarios.
A decade and a half later, innovative players, both large and small, are chipping away at the dominance of AUM. A large regional bank in the US became the first to offer good-better-best packages on their wealth management services while limiting AuM to the investment management portion. Meanwhile, smaller, more nimble Registered Investment Advisors have introduced various alternative fee models, from flat subscriptions to a proportion of monthly take-home salary.
As you can see, changing pricing models is not a trivial undertaking. At the same time, though, following the rest of the market with a dominant pricing model often is not the answer for companies trying to break through in their respective markets, as it often results in margin compression, if not an outright price war. Instead, discover the customer base's needs, whether B2C or B2B and design a pricing model that best reflects the value delivered to meet those needs. That’s the winning approach. I’m Wei Ke, and this is my take on pricing models.
The transcript was edited for clarity.
- About This Video
- Transcript
Wei Ke highlights the strategic shift from traditional to innovative pricing models across industries. By emphasizing dynamic pricing adaptations, he proposes alternatives such as usage-based models to boost customer loyalty and ease competitive pressures. In the financial services sector, Wei champions flexible pricing in response to regulatory shifts. In wealth management, new fee structures like tiered packages are designed to align client value with service. Utilize these insights to stay ahead in evolving markets.
When you hear the word pricing, you might automatically think of dollar signs. But you need to be aware that how you price is actually far more important than how much you price.
Hello, I’m Wei Ke, a Partner at Oliver Wyman. I’ve been in pricing strategy, analytics, and execution for over 20 years, authoring more than 50 publications and leading more than 250 projects. Last year, I was named one of the Top 25 marketing and sales consultants and leaders of 2024 by The Consulting Report.
At Oliver Wyman, I focus on the intersection of pricing, sales and marketing, and financial services. One of the areas I spend quite a bit of time on is pricing model development. One thing there that’s very interesting is that every industry has a dominant pricing model that’s accepted by the customer base. What works well in one sector does not automatically work well in another. For example, dynamic or surge pricing is the dominant pricing model in travel and transportation. But if your favorite streaming services were to price their monthly subscription fee dynamically, you’d probably cancel them. Research shows that a subscription pricing model correlates with the expectation of price stability.
Coming up with a pricing model that’s different from the dominant model of the sector can relieve pressures from a price war and even become a competitive edge. For example, in the early 2000s, a global tire manufacturer realized that its premium-quality tires, which lasted longer, were not selling well in the fleet management sector. So, they devised an ingenious solution; they changed their pricing to a usage-based price per kilometer-driven model. And since their tires lasted longer, the per-kilometer price was lower than the competition. This helped them reverse the slowing sales of their premium products while eventually growing revenue thanks to a much stickier customer base.
Changing the pricing model can also effectively respond to regulatory changes that impact existing revenue sources. For example, regulators have recently been pressured to lower overdraft fees in the financial services world. Banks argue that lowering those fees would create a moral hazard since the fees were introduced to deter undesired behaviors like overdrawing your checking account. But in fact, many so-called habitual overdrafts earn six-figure salaries. Our research shows that most of those overdraw only small amounts and would need only a $50-$200 overdraft limit. This suggests that banks should consider a less-rigid alternative to the high per-incidence overdraft fees that we have today, where costs are proportional to the requested amount.
Dominant pricing models for the industry don’t change overnight. In the wealth management sector, the dominant assets under management (AuM) fee model has existed since the ’90s. It was introduced as customers increasingly demanded that their fees correlate with the performance of their investment portfolio.
During the 2008 financial crisis, though, the AuM fee model came under severe pressure. Because even though an average investor’s portfolio shrank by half, the wealth manager — whose fees are a percentage of the investor’s balance — still made money! On the flip side, when a client’s portfolio
doubles, their wealth management needs usually don’t double as well. The AuM fee model hardly seems fair in these scenarios.
A decade and a half later, innovative players, both large and small, are chipping away at the dominance of AUM. A large regional bank in the US became the first to offer good-better-best packages on their wealth management services while limiting AuM to the investment management portion. Meanwhile, smaller, more nimble Registered Investment Advisors have introduced various alternative fee models, from flat subscriptions to a proportion of monthly take-home salary.
As you can see, changing pricing models is not a trivial undertaking. At the same time, though, following the rest of the market with a dominant pricing model often is not the answer for companies trying to break through in their respective markets, as it often results in margin compression, if not an outright price war. Instead, discover the customer base's needs, whether B2C or B2B and design a pricing model that best reflects the value delivered to meet those needs. That’s the winning approach. I’m Wei Ke, and this is my take on pricing models.
The transcript was edited for clarity.
Wei Ke highlights the strategic shift from traditional to innovative pricing models across industries. By emphasizing dynamic pricing adaptations, he proposes alternatives such as usage-based models to boost customer loyalty and ease competitive pressures. In the financial services sector, Wei champions flexible pricing in response to regulatory shifts. In wealth management, new fee structures like tiered packages are designed to align client value with service. Utilize these insights to stay ahead in evolving markets.
When you hear the word pricing, you might automatically think of dollar signs. But you need to be aware that how you price is actually far more important than how much you price.
Hello, I’m Wei Ke, a Partner at Oliver Wyman. I’ve been in pricing strategy, analytics, and execution for over 20 years, authoring more than 50 publications and leading more than 250 projects. Last year, I was named one of the Top 25 marketing and sales consultants and leaders of 2024 by The Consulting Report.
At Oliver Wyman, I focus on the intersection of pricing, sales and marketing, and financial services. One of the areas I spend quite a bit of time on is pricing model development. One thing there that’s very interesting is that every industry has a dominant pricing model that’s accepted by the customer base. What works well in one sector does not automatically work well in another. For example, dynamic or surge pricing is the dominant pricing model in travel and transportation. But if your favorite streaming services were to price their monthly subscription fee dynamically, you’d probably cancel them. Research shows that a subscription pricing model correlates with the expectation of price stability.
Coming up with a pricing model that’s different from the dominant model of the sector can relieve pressures from a price war and even become a competitive edge. For example, in the early 2000s, a global tire manufacturer realized that its premium-quality tires, which lasted longer, were not selling well in the fleet management sector. So, they devised an ingenious solution; they changed their pricing to a usage-based price per kilometer-driven model. And since their tires lasted longer, the per-kilometer price was lower than the competition. This helped them reverse the slowing sales of their premium products while eventually growing revenue thanks to a much stickier customer base.
Changing the pricing model can also effectively respond to regulatory changes that impact existing revenue sources. For example, regulators have recently been pressured to lower overdraft fees in the financial services world. Banks argue that lowering those fees would create a moral hazard since the fees were introduced to deter undesired behaviors like overdrawing your checking account. But in fact, many so-called habitual overdrafts earn six-figure salaries. Our research shows that most of those overdraw only small amounts and would need only a $50-$200 overdraft limit. This suggests that banks should consider a less-rigid alternative to the high per-incidence overdraft fees that we have today, where costs are proportional to the requested amount.
Dominant pricing models for the industry don’t change overnight. In the wealth management sector, the dominant assets under management (AuM) fee model has existed since the ’90s. It was introduced as customers increasingly demanded that their fees correlate with the performance of their investment portfolio.
During the 2008 financial crisis, though, the AuM fee model came under severe pressure. Because even though an average investor’s portfolio shrank by half, the wealth manager — whose fees are a percentage of the investor’s balance — still made money! On the flip side, when a client’s portfolio
doubles, their wealth management needs usually don’t double as well. The AuM fee model hardly seems fair in these scenarios.
A decade and a half later, innovative players, both large and small, are chipping away at the dominance of AUM. A large regional bank in the US became the first to offer good-better-best packages on their wealth management services while limiting AuM to the investment management portion. Meanwhile, smaller, more nimble Registered Investment Advisors have introduced various alternative fee models, from flat subscriptions to a proportion of monthly take-home salary.
As you can see, changing pricing models is not a trivial undertaking. At the same time, though, following the rest of the market with a dominant pricing model often is not the answer for companies trying to break through in their respective markets, as it often results in margin compression, if not an outright price war. Instead, discover the customer base's needs, whether B2C or B2B and design a pricing model that best reflects the value delivered to meet those needs. That’s the winning approach. I’m Wei Ke, and this is my take on pricing models.
The transcript was edited for clarity.