Managing Change in Pricing Strategies: Addressing the Human Element

This is the third installment in our article series exploring the Nomis November 14 discussion on pricing challenges in a falling rate environment. In the first two articles, we examined lessons from historical rate changes and the reevaluation of risk scoring models. This article shifts focus to the critical role of change management, particularly the human factors, in implementing new pricing strategies.

The Overlooked Risk: People Risk

As financial institutions update pricing models and risk scores to adapt to today’s dynamic environment, much of the focus is on minimizing model risk. However, our team emphasizes that people risk—the challenges associated with aligning teams to new strategies and systems—is equally, if not more, important.

Change management in this context involves more than regulatory compliance or technical adjustments. It requires acknowledging and addressing the disruption these changes create for employees across all levels of the organization:

• A New Era for Staff: Many employees have only worked in a near-zero rate environment. For some, the last significant rate movements occurred before they entered the workforce. Adjusting to rapid rate changes and their implications is uncharted territory.
• Frontline Challenges: Teams managing customer interactions must navigate unfamiliar scenarios, such as negotiating rates or fielding questions about competitive options. With heightened competition, the stakes are higher, and the pressure on frontline staff is significant.
• Leadership’s Role: Effective management teams are leaning into these challenges by proactively preparing their staff for disruptions. This includes setting clear expectations, offering robust training, and creating frameworks to support staff decision-making in a fast-moving environment.
  
  

Here are some practical ways institutions can manage these human challenges:

1. Anticipate Resistance: Acknowledge that changes to long-standing models and processes may be met with skepticism or discomfort. Transparent communication is key to building trust.
2. Invest in Training: Equip employees with the knowledge and tools to handle dynamic pricing. This includes everything from understanding new rate structures to confidently negotiating with customers.
3. Simplify Processes: Streamline systems to reduce confusion. For instance, provide clear guidelines on rate flexibility and decision-making boundaries for staff handling customer inquiries.
4. Foster a Collaborative Culture: Engage employees across departments to align on objectives, share insights, and collectively adapt to new realities.

Leadership must also consider the broader implications of their pricing decisions. For example, rapid changes in deposit rates can cause immediate and tangible impacts for frontline staff, who often bear the brunt of customer reactions. By preparing staff for these shifts and involving them in the adaptation process, institutions can reduce friction and improve the overall execution of pricing strategies.

The evolution of pricing strategies is as much about people as it is about models and numbers. Addressing people risk and prioritizing change management ensures smoother implementation and better outcomes.

For further insights, read our first article, Navigating Pricing Challenges in a Falling Rate Environment: Lessons from the Past, or our second article, Reevaluating Risk Scoring in a New Pricing Landscape. You can also watch the full recording of our November 14 Fireside Chat to hear directly from the Nomis team.