Top 5 Imperatives for Banks

Top 5 Imperatives for Banks

Steps to meet critical objectives

Monday, June 11, 2007

4. Adaptive Pricing Paradigm (APP) in a Global zed Market
The term "Adaptive Pricing Paradigm" was originally used to refer to manufacturing companies from developing countries (primarily China) selling products at a price lower than the manufacturing costs of the counterparts in developed countries (primarily US) on account of lower labour costs. As quality improved in developing countries and they mastered advanced techniques in manufacturing and processes in services, even companies that produced high value added goods & services were at risk. At that point, they were forced to transform their business models so that they adopted the APP, i.e. lowered the cost of production / providing service to the point where they were able to sell profitably in the market with the lowest purchasing power. The three components of the Adaptive Pricing Paradigm are:
o Lowering the cost structure;
o Selling profitably in markets with the lowest purchasing power;
o Replicating the low cost model in markets with higher purchasing power;

Banks like ICICI Bank of India, which has successfully introduced a lean, and lower cost business model in India has now entered mature markets like the United Kingdom, which now constitute a significant portion of its business. The trend has only become more global. The year 2007 will be the starting point of a trend, where global banks, driven by demographics, are establishing sizeable presence in large and fast growing emerging economies viz. the BRIC. They will be forced to establish innovative APP business models in these economies, which they will eventually replicate in their home markets. Banks like HSBC are already using terms like "shift spend to global innovation and service" and "being the low cost producer (of IT)" which sums up the phenomenon.

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