LAKE FOREST, Ill.—What are the keys to pricing these days? Making wise choices based on both art and science, according to Moebs $ervices, whose data shows which states' financial institutions are getting this right, and which ones are making mistakes.
“Remember in the movie Indiana Jones and the Last Crusade, the ancient knight who protected the Holy Grail told Harrison Ford, who played Indiana Jones, to choose wisely,” said Michael Moebs, economist and chair of Moebs $ervices. “To price, one needs to choose wisely. Why? Pricing is both an art—qualitative—as well as scientific, quantitative.”
Moebs $ervices data (shown in the charts and maps below) reveals financial institutions should price as low as they can based on the market data they can obtain, looking inside state borders, and let volume produce a profitable bottom line.
“Good pricing starts with collecting accurate data,” said Moebs. “Strategic pricing pulls the data together and measures the pricing as one market picture. Pricing tactics execute how to price, not what to charge.”
States Getting It Right
What states’ FIs do this well?
“Missouri, Ohio, Wisconsin and North Carolina do financial pricing well, while Maryland and Rhode Island are poor at this,” said Moebs.
Moebs explained there are four basic elements to price a rate or fee by market. The map colors are determined by the following core price components:
- Cost of Living Index (COLI)
- Overdraft fee
- Mortgage rate
- McDonald’s Quarter Pounder Burger
“Why these factors? COLI contains 57 items from 240 cities nationwide including housing, groceries, utilities, health care, transportation, and miscellaneous items such as haircuts, boy’s jeans, veterinary services, etc.,” explained Moebs. “COLI represents the day-to-day needs of Americans.”
Moebs emphasized the overdraft fee is the primary fee for financial services.
“Mortgage rate is the dominant monthly payment. What we call the McDonald’s Quarter Pounder Burger are basic farm and processing ingredients, labor, equipment and location cost.”
Moebs explained the map color codes signify consumer choice costs, or the price consumers pay: the lowest, moderately low, normal, moderately high, and the highest. While the table (at right) shows the quantitative results.
Green Good Pricing vs. Red Poor Pricing
The 2024 Comparative Pricing table highlights the four key pricing elements, said Moebs.
“The COLI difference between North Carolina (97.8) and Rhode Island (112.2) shows a 14.2% difference in living standards. This difference between the highest green state and lowest red state sets the tone for each contrasting market.”
Michael Moebs
Repeat the same green vs. red comparison for OD prices, and Missouri vs. Maryland shows a $1.06 difference, or 3.6% higher for financial services fees in Maryland, Moes explained.
The “weakest” comparison is mortgage rates, said Moebs.
“Wisconsin vs. Maryland—the difference is only four basis points,” said Moebs. “However, do the opposite by comparing the lowest green state to the highest red state and this is 20 BPs, which is a significant contrast. This is $50 a month more for an average mortgage payment.
“Finally, the McDonald’s pricing element steals this pricing analysis,” said Moebs. Examining this category we see that the Wisconsin pricing element is $5.50 vs. $7.06 in Maryland—a $1.56 difference or 28.3%. The McDonald’s Quarter Pounder Burger is the key element to establish a market price,” concluded Moebs. “Why? Because it has labor, material, and location, or basic economic factors to price anything.”