This document summarizes an article about price optimization in the warranty industry. It discusses how price optimization uses predictive modeling to set prices based on customer demand rather than just production costs. Price optimization analyzes customer attributes, market conditions, and historical customer behavior to predict how customers will respond to different prices. The article provides an example of how industrial parts manufacturer Parker Hannifin significantly improved profits by implementing price optimization across its 800,000 products. Price optimization integrates three types of predictive models: claim propensity models, market situation models, and customer behavior models to identify price changes that maximize a chosen objective like volume or profitability.
1. The document provides advice on drawing diagrams for exam questions, including making diagrams about 1/3 of an A4 page, keeping text separate from diagrams, clearly labeling axes and curves, and drawing diagrams at the appropriate technical level.
2. It then lists 15 common diagrams that may be included, such as the law of diminishing returns, fixed and variable costs, revenue curves, and imperfect competition models.
Article about different competitive strategies and how these relate to basic types of alliances. An introduction to the book Creating Profit Through Alliances
The document discusses various pricing strategies firms can use when they have market power, including price discrimination, peak-load pricing, and two-part tariffs. It explains how firms can segment markets and charge different prices to maximize profits by capturing consumer surplus. Specifically, it covers first-degree, second-degree, and third-degree price discrimination, and discusses examples like airlines, movies, and electricity pricing. The two-part tariff is introduced as a strategy to separate the decision to purchase a good into two prices: a fixed entry fee and a variable usage fee.
This document discusses various concepts related to pricing strategies. It covers 6 main learning outcomes:
1) The importance of pricing decisions to businesses and the economy. Price determines revenue and profit.
2) Different pricing objectives businesses may have like profit maximization, sales maximization, or maintaining status quo prices.
3) How demand influences price determination. The interaction of supply and demand curves establishes the equilibrium price.
4) Yield management systems which use software to adjust prices and maximize profits by filling unused capacity.
5) Cost-oriented pricing strategies like markup pricing, break-even pricing, and profit maximization pricing that relate price to a business's costs.
6) Other factors that influence
This document provides an overview of monopolistic competition and oligopoly markets. It discusses how firms in these markets determine quantity and price in both the short run and long run. In monopolistic competition, firms produce differentiated products and compete on quality, price, and marketing. In the short run, firms can earn economic profits but entry by new firms drives prices down to average total cost in the long run, eliminating profits. The document also discusses product development, advertising, and barriers to entry in monopolistic competition. It then covers oligopoly markets with a small number of firms and strategic interactions between firms using game theory models like the prisoners' dilemma.
The document outlines several key factors that affect pricing decisions, including marketing objectives, competition, costs, and product characteristics. It also discusses different pricing methods such as cost-based pricing, market-oriented pricing, and competitive bidding. When introducing new products, the document notes that companies may use price skimming or penetration pricing strategies. It finally covers various pricing policies including discounts, transfer pricing, geographic pricing, and leasing options.
The document discusses market structures and perfect competition. It defines perfect competition as a market with many small firms, homogeneous products, firms that are price takers, and easy entry and exit. Under perfect competition, firms are price takers and produce where marginal revenue equals marginal cost to maximize profits. In the long run, perfect competition leads to normal profits as firms enter and exit the market.
The document discusses market power and pricing strategies in the smartphone industry, noting that average smartphone selling prices are expected to fall 9% in 2013 due to intense competition between manufacturers as well as emerging markets and substitute devices. It also explores concepts of economies of scale that can lower costs and prices for consumers as smartphone production increases.
1. The document provides advice on drawing diagrams for exam questions, including making diagrams about 1/3 of an A4 page, keeping text separate from diagrams, clearly labeling axes and curves, and drawing diagrams at the appropriate technical level.
2. It then lists 15 common diagrams that may be included, such as the law of diminishing returns, fixed and variable costs, revenue curves, and imperfect competition models.
Article about different competitive strategies and how these relate to basic types of alliances. An introduction to the book Creating Profit Through Alliances
The document discusses various pricing strategies firms can use when they have market power, including price discrimination, peak-load pricing, and two-part tariffs. It explains how firms can segment markets and charge different prices to maximize profits by capturing consumer surplus. Specifically, it covers first-degree, second-degree, and third-degree price discrimination, and discusses examples like airlines, movies, and electricity pricing. The two-part tariff is introduced as a strategy to separate the decision to purchase a good into two prices: a fixed entry fee and a variable usage fee.
This document discusses various concepts related to pricing strategies. It covers 6 main learning outcomes:
1) The importance of pricing decisions to businesses and the economy. Price determines revenue and profit.
2) Different pricing objectives businesses may have like profit maximization, sales maximization, or maintaining status quo prices.
3) How demand influences price determination. The interaction of supply and demand curves establishes the equilibrium price.
4) Yield management systems which use software to adjust prices and maximize profits by filling unused capacity.
5) Cost-oriented pricing strategies like markup pricing, break-even pricing, and profit maximization pricing that relate price to a business's costs.
6) Other factors that influence
This document provides an overview of monopolistic competition and oligopoly markets. It discusses how firms in these markets determine quantity and price in both the short run and long run. In monopolistic competition, firms produce differentiated products and compete on quality, price, and marketing. In the short run, firms can earn economic profits but entry by new firms drives prices down to average total cost in the long run, eliminating profits. The document also discusses product development, advertising, and barriers to entry in monopolistic competition. It then covers oligopoly markets with a small number of firms and strategic interactions between firms using game theory models like the prisoners' dilemma.
The document outlines several key factors that affect pricing decisions, including marketing objectives, competition, costs, and product characteristics. It also discusses different pricing methods such as cost-based pricing, market-oriented pricing, and competitive bidding. When introducing new products, the document notes that companies may use price skimming or penetration pricing strategies. It finally covers various pricing policies including discounts, transfer pricing, geographic pricing, and leasing options.
The document discusses market structures and perfect competition. It defines perfect competition as a market with many small firms, homogeneous products, firms that are price takers, and easy entry and exit. Under perfect competition, firms are price takers and produce where marginal revenue equals marginal cost to maximize profits. In the long run, perfect competition leads to normal profits as firms enter and exit the market.
The document discusses market power and pricing strategies in the smartphone industry, noting that average smartphone selling prices are expected to fall 9% in 2013 due to intense competition between manufacturers as well as emerging markets and substitute devices. It also explores concepts of economies of scale that can lower costs and prices for consumers as smartphone production increases.
This document discusses pricing strategy and management. It covers analyzing pricing situations, selecting pricing strategies, and determining specific prices and policies. Key aspects include analyzing customer price sensitivity, competitors, and costs. Pricing strategies include skimming, penetration, and being at, above, or below competition. Determining specific prices considers costs, demand, and pricing in action. Policies manage pricing structure and discounts. Special situations involve pricing across segments, channels, and a product's life cycle.
This document discusses monopolistic competition and oligopoly. It begins by outlining the topics to be discussed, which include monopolistic competition, oligopoly, price competition, and the prisoner's dilemma as it relates to oligopolistic pricing. It then provides characteristics and examples of monopolistic competition, including differentiated products with free entry and exit. It analyzes a monopolistically competitive firm's behavior and profits in the short and long run. It also discusses oligopoly characteristics like having a small number of firms and barriers to entry. It provides examples of oligopolistic industries and analyzes oligopoly models including Cournot, Bertrand, and Stackelberg. It concludes with a pricing problem scenario involving Procter & Gamble, K
The document discusses the characteristics and profit maximization of firms operating under pure competition. It can be summarized as follows:
1) Under pure competition, there are many small firms, standardized products, free entry and exit of firms, and firms act as price takers.
2) In the short run, firms will produce the quantity where marginal revenue equals marginal cost to maximize profits or minimize losses.
3) In the long run, if profits exist firms will enter to increase supply and drive the price down until it equals minimum average cost, resulting in zero economic profits.
There are several methods that oligopolistic firms use to set prices. Cost-based pricing sets price based on average costs, with some markup added. Competition-based pricing matches prices of similar products already on the market. Demand-based pricing considers how demand responds to price changes, allowing for perceived-value pricing and price discrimination between market segments. Strategy-based pricing for new products involves either price skimming to extract high prices from early adopters or penetration pricing at low initial prices to gain market share. Firms typically combine multiple pricing methods rather than relying on just one.
This document discusses opportunities for companies to optimize transactional pricing and reduce price leakages. It outlines a three step process: 1) Identify and size the opportunity through price variability analysis and net price waterfall analysis, 2) Analyze root causes of leakage, 3) Capture the opportunity through targeted actions like new price lists and sales force training, then institutionalize changes. Reducing discounts in unprofitable accounts can improve earnings without risking business. Customers' price elasticity depends on various criteria that must be understood to maximize selling price through tailored pricing.
Sears advertised a motor buggy for $395 in 1909 that included tires, axles, a top, lamps, horn, and oil. The buggy was built in Sears' own factory under the supervision of an expert with 15 years of automobile experience. Sears found suppliers that could make frames and other parts for the buggy more cheaply than Sears could make them itself due to the suppliers' larger volumes. By carefully selecting suppliers and building the buggy itself, Sears was able to offer an affordable motor vehicle.
ECO 550 STUDY Possible Is Everything / eco550study.comrock1234561
FOR MORE CLASSES VISIT
www.eco550study.com
Chapter 9—Applications of Cost Theory
MULTIPLE CHOICE
1. Evidence from empirical studies of short-run cost-output relationships lends support to the:
2. The short-run cost function is:
3. Theoretically, in a long-run cost function:
4. Break-even analysis usually assumes all of the following except:
This document discusses the concept of price discrimination, which involves a firm charging different prices to different consumers for the same good or service. It provides definitions and key conditions for price discrimination, including that the firm must have some control over prices. It also gives examples of different degrees of price discrimination, including perfect 1st degree discrimination, 2nd degree excess capacity pricing, and 3rd degree market segmentation. The document outlines some potential advantages of price discrimination and notes that in practice, factors beyond just demand elasticity can influence price differences. It concludes by providing links to additional resources on the topic.
Managerial economics involves applying economic concepts and theories to help managers make sound business decisions. It examines topics like demand analysis, cost analysis, pricing decisions, and factors that influence profits. The key economic concepts covered include supply and demand, elasticity, opportunity cost, and production functions. Managerial economics aims to help managers optimize decisions given objectives and constraints to achieve goals efficiently.
This document discusses developing pricing strategies and programs. It outlines a six-step process for setting prices: 1) selecting a pricing objective, 2) determining demand, 3) estimating costs, 4) analyzing competitors, 5) selecting a pricing method, and 6) adjusting prices over time. Pricing objectives include maximizing profits, market share, or market skimming. Demand is estimated using factors like price sensitivity, elasticity, and demand curves. Costs include fixed and variable costs. Competitors' prices and value offerings are also analyzed. Common pricing methods are mark-up, target-return, perceived-value, value, and going-rate pricing. Prices may be initiated or responded to over time.
This document discusses Porter's Five Forces model and its application to analyzing the competitive environment of Nokia's business. It provides an overview of each of the five competitive forces - threat of new entrants, threat of substitutes, bargaining power of suppliers, bargaining power of buyers, and competitive rivalry. It then gives a brief history of Nokia, describing its growth into a leading telecommunications equipment manufacturer with a strong brand presence globally and in local Indian markets.
This document discusses developing pricing strategies and programs. It covers understanding pricing, setting prices, adapting prices, and initiating and responding to price changes. Some key points include:
- Pricing must be consistent with a firm's marketing strategy and target markets. Price is determined by costs, demand, competitors, and consumer psychology.
- Technologies like the internet have increased price transparency and consumer power. Consumers actively process various price information and signals.
- Firms estimate costs, demand, and analyze competitors to determine an appropriate pricing method and final price. Methods include markup, target return, and value-based pricing.
- Prices must be adapted based on location, time of year, product life cycle stage,
The document discusses various factors that influence pricing decisions. It explains that pricing is important for both economic allocation of resources and business revenue/profits. Pricing objectives can be profit-oriented like profit maximization, or sales-oriented like market share. Price is determined by demand and supply forces in the market. Other factors like production costs, competition, the product lifecycle stage, distribution channels, promotions, customer demands, and quality perceptions also impact price.
The document provides a mark scheme for the Edexcel GCE Economics exam from January 2006. It outlines the answers and number of marks awarded for multiple choice and longer questions in Section A and B. Section A covers topics like mergers, oligopoly, costs and revenue. Section B involves questions on the low-cost airline industry, regulation of Royal Mail, and assessing contestability. The mark scheme emphasizes definitions, calculations, diagrams, and evaluation in awarding marks for responses.
This document contains the mark scheme for Edexcel GCE Economics (6354) from Summer 2005. It provides the answers and marking schemes for 10 multiple choice questions and 1 essay question with 3 parts on the topics of:
1) Perfect competition and price discrimination
2) Conditions for profitable price discrimination and why it may be more common in airlines than pharmaceuticals
3) Impacts of the internet on market contestability
The mark scheme outlines the key points examiners are looking for in responses and the number of marks awarded for correct or partially correct answers. It serves as guidance to ensure consistent evaluation of answers addressing the given economic concepts.
The document summarizes various theories on the sources of competitive advantage and firm performance, including neoclassical, Bain-type IO, Schumpeter, Chicago School, Coase/Williamson, and the resource-based view. It discusses how Michael Porter built upon these theories in his five forces framework to analyze competition and strategy. Porter's five forces model examines the threat of new entrants, power of suppliers and buyers, substitute products, and industry rivalry to determine a firm's profitability. The document also contrasts Porter's view of competition as a "win-lose" concept with the idea of "coopetition" where firms can find "win-win" opportunities through cooperation.
Pricing and Output Decisions in Monopolynazirali423
1. The document discusses monopoly market structure and pricing decisions. A monopoly is characterized by a single firm that produces an entire market's supply of a good or service with no close substitutes.
2. As the sole provider, a monopoly firm has market power and faces a downward-sloping demand curve. It can influence prices and maximizes profits by reducing output and increasing price compared to competitive firms.
3. There are high barriers to entry for other firms, such as patents, licenses, and economies of scale. These barriers allow the monopoly to maintain economic profits in the long run.
Multiple Dimensions of Price Sophisticationguestc9708f8
This document discusses the dimensions of pricing sophistication in property and casualty insurance. It identifies five critical dimensions along which a company's pricing sophistication can be evaluated: 1) data - the type, volume, and quality of data collected; 2) modeling approach - how data is analyzed; 3) rating plan design - how ratings and prices are determined; 4) competitive sensing - understanding competitors; and 5) pricing strategy - how sophistication aligns with business goals. More sophisticated insurers are able to leverage larger and higher quality datasets and more advanced analytical techniques to optimize their rating plans, gain competitive insights, and better align prices with business strategy.
This document discusses pricing strategy and management. It covers analyzing pricing situations, selecting pricing strategies, and determining specific prices and policies. Key aspects include analyzing customer price sensitivity, competitors, and costs. Pricing strategies include skimming, penetration, and being at, above, or below competition. Determining specific prices considers costs, demand, and pricing in action. Policies manage pricing structure and discounts. Special situations involve pricing across segments, channels, and a product's life cycle.
This document discusses monopolistic competition and oligopoly. It begins by outlining the topics to be discussed, which include monopolistic competition, oligopoly, price competition, and the prisoner's dilemma as it relates to oligopolistic pricing. It then provides characteristics and examples of monopolistic competition, including differentiated products with free entry and exit. It analyzes a monopolistically competitive firm's behavior and profits in the short and long run. It also discusses oligopoly characteristics like having a small number of firms and barriers to entry. It provides examples of oligopolistic industries and analyzes oligopoly models including Cournot, Bertrand, and Stackelberg. It concludes with a pricing problem scenario involving Procter & Gamble, K
The document discusses the characteristics and profit maximization of firms operating under pure competition. It can be summarized as follows:
1) Under pure competition, there are many small firms, standardized products, free entry and exit of firms, and firms act as price takers.
2) In the short run, firms will produce the quantity where marginal revenue equals marginal cost to maximize profits or minimize losses.
3) In the long run, if profits exist firms will enter to increase supply and drive the price down until it equals minimum average cost, resulting in zero economic profits.
There are several methods that oligopolistic firms use to set prices. Cost-based pricing sets price based on average costs, with some markup added. Competition-based pricing matches prices of similar products already on the market. Demand-based pricing considers how demand responds to price changes, allowing for perceived-value pricing and price discrimination between market segments. Strategy-based pricing for new products involves either price skimming to extract high prices from early adopters or penetration pricing at low initial prices to gain market share. Firms typically combine multiple pricing methods rather than relying on just one.
This document discusses opportunities for companies to optimize transactional pricing and reduce price leakages. It outlines a three step process: 1) Identify and size the opportunity through price variability analysis and net price waterfall analysis, 2) Analyze root causes of leakage, 3) Capture the opportunity through targeted actions like new price lists and sales force training, then institutionalize changes. Reducing discounts in unprofitable accounts can improve earnings without risking business. Customers' price elasticity depends on various criteria that must be understood to maximize selling price through tailored pricing.
Sears advertised a motor buggy for $395 in 1909 that included tires, axles, a top, lamps, horn, and oil. The buggy was built in Sears' own factory under the supervision of an expert with 15 years of automobile experience. Sears found suppliers that could make frames and other parts for the buggy more cheaply than Sears could make them itself due to the suppliers' larger volumes. By carefully selecting suppliers and building the buggy itself, Sears was able to offer an affordable motor vehicle.
ECO 550 STUDY Possible Is Everything / eco550study.comrock1234561
FOR MORE CLASSES VISIT
www.eco550study.com
Chapter 9—Applications of Cost Theory
MULTIPLE CHOICE
1. Evidence from empirical studies of short-run cost-output relationships lends support to the:
2. The short-run cost function is:
3. Theoretically, in a long-run cost function:
4. Break-even analysis usually assumes all of the following except:
This document discusses the concept of price discrimination, which involves a firm charging different prices to different consumers for the same good or service. It provides definitions and key conditions for price discrimination, including that the firm must have some control over prices. It also gives examples of different degrees of price discrimination, including perfect 1st degree discrimination, 2nd degree excess capacity pricing, and 3rd degree market segmentation. The document outlines some potential advantages of price discrimination and notes that in practice, factors beyond just demand elasticity can influence price differences. It concludes by providing links to additional resources on the topic.
Managerial economics involves applying economic concepts and theories to help managers make sound business decisions. It examines topics like demand analysis, cost analysis, pricing decisions, and factors that influence profits. The key economic concepts covered include supply and demand, elasticity, opportunity cost, and production functions. Managerial economics aims to help managers optimize decisions given objectives and constraints to achieve goals efficiently.
This document discusses developing pricing strategies and programs. It outlines a six-step process for setting prices: 1) selecting a pricing objective, 2) determining demand, 3) estimating costs, 4) analyzing competitors, 5) selecting a pricing method, and 6) adjusting prices over time. Pricing objectives include maximizing profits, market share, or market skimming. Demand is estimated using factors like price sensitivity, elasticity, and demand curves. Costs include fixed and variable costs. Competitors' prices and value offerings are also analyzed. Common pricing methods are mark-up, target-return, perceived-value, value, and going-rate pricing. Prices may be initiated or responded to over time.
This document discusses Porter's Five Forces model and its application to analyzing the competitive environment of Nokia's business. It provides an overview of each of the five competitive forces - threat of new entrants, threat of substitutes, bargaining power of suppliers, bargaining power of buyers, and competitive rivalry. It then gives a brief history of Nokia, describing its growth into a leading telecommunications equipment manufacturer with a strong brand presence globally and in local Indian markets.
This document discusses developing pricing strategies and programs. It covers understanding pricing, setting prices, adapting prices, and initiating and responding to price changes. Some key points include:
- Pricing must be consistent with a firm's marketing strategy and target markets. Price is determined by costs, demand, competitors, and consumer psychology.
- Technologies like the internet have increased price transparency and consumer power. Consumers actively process various price information and signals.
- Firms estimate costs, demand, and analyze competitors to determine an appropriate pricing method and final price. Methods include markup, target return, and value-based pricing.
- Prices must be adapted based on location, time of year, product life cycle stage,
The document discusses various factors that influence pricing decisions. It explains that pricing is important for both economic allocation of resources and business revenue/profits. Pricing objectives can be profit-oriented like profit maximization, or sales-oriented like market share. Price is determined by demand and supply forces in the market. Other factors like production costs, competition, the product lifecycle stage, distribution channels, promotions, customer demands, and quality perceptions also impact price.
The document provides a mark scheme for the Edexcel GCE Economics exam from January 2006. It outlines the answers and number of marks awarded for multiple choice and longer questions in Section A and B. Section A covers topics like mergers, oligopoly, costs and revenue. Section B involves questions on the low-cost airline industry, regulation of Royal Mail, and assessing contestability. The mark scheme emphasizes definitions, calculations, diagrams, and evaluation in awarding marks for responses.
This document contains the mark scheme for Edexcel GCE Economics (6354) from Summer 2005. It provides the answers and marking schemes for 10 multiple choice questions and 1 essay question with 3 parts on the topics of:
1) Perfect competition and price discrimination
2) Conditions for profitable price discrimination and why it may be more common in airlines than pharmaceuticals
3) Impacts of the internet on market contestability
The mark scheme outlines the key points examiners are looking for in responses and the number of marks awarded for correct or partially correct answers. It serves as guidance to ensure consistent evaluation of answers addressing the given economic concepts.
The document summarizes various theories on the sources of competitive advantage and firm performance, including neoclassical, Bain-type IO, Schumpeter, Chicago School, Coase/Williamson, and the resource-based view. It discusses how Michael Porter built upon these theories in his five forces framework to analyze competition and strategy. Porter's five forces model examines the threat of new entrants, power of suppliers and buyers, substitute products, and industry rivalry to determine a firm's profitability. The document also contrasts Porter's view of competition as a "win-lose" concept with the idea of "coopetition" where firms can find "win-win" opportunities through cooperation.
Pricing and Output Decisions in Monopolynazirali423
1. The document discusses monopoly market structure and pricing decisions. A monopoly is characterized by a single firm that produces an entire market's supply of a good or service with no close substitutes.
2. As the sole provider, a monopoly firm has market power and faces a downward-sloping demand curve. It can influence prices and maximizes profits by reducing output and increasing price compared to competitive firms.
3. There are high barriers to entry for other firms, such as patents, licenses, and economies of scale. These barriers allow the monopoly to maintain economic profits in the long run.
Multiple Dimensions of Price Sophisticationguestc9708f8
This document discusses the dimensions of pricing sophistication in property and casualty insurance. It identifies five critical dimensions along which a company's pricing sophistication can be evaluated: 1) data - the type, volume, and quality of data collected; 2) modeling approach - how data is analyzed; 3) rating plan design - how ratings and prices are determined; 4) competitive sensing - understanding competitors; and 5) pricing strategy - how sophistication aligns with business goals. More sophisticated insurers are able to leverage larger and higher quality datasets and more advanced analytical techniques to optimize their rating plans, gain competitive insights, and better align prices with business strategy.
1. Google is a multinational technology company that specializes in internet-related services and products.
2. Google generates most of its profit from advertising through programs like AdWords.
3. Google's products include its core search engine, as well as Gmail, Google Maps, YouTube, Android, and Chrome.
Competitive market analysis (CMA) provides the most comprehensive approach to measuring an insurer's competitive position, but it is also the most complex and costly to implement. CMA involves using a batch-rating tool to calculate rates for an insurer and its competitors for all current policies or target risks, providing a complete picture of pricing effectiveness down to each rating segment. Some alternatives are less sophisticated, such as reviewing competitors' rate changes or an insurer's own statistics, but these provide only a relative or limited view of competitive position. The most advanced insurers are continuing to leverage complex rating models and data to segment risks and establish niche pricing, making comprehensive CMA more necessary for other insurers to avoid adverse selection and unprofitable
The document discusses opportunities, challenges, and innovations for marketing fast-moving consumer goods (FMCG) in rural markets in India. It notes that rural markets are growing twice as fast as urban markets and represent a significant opportunity for FMCG companies. However, rural consumers have different habits and awareness levels than urban consumers. The document then provides details on the hair care industry in India, including key product categories, consumer behaviors, market sizes, and penetration levels in rural versus urban areas.
This document discusses how manga publishers in North America standardized paratextual elements like logos, imprint names, and labeling between 1996-2008 to help categorize manga for readers. Key publishers included Viz Media, Tokyopop, Dark Horse, Del Rey, CMX, Media Blasters, Aurora, and Yen Press. The standardized paratext framework developed during this period could then be applied to package any book as manga-style.
Price optimization uses three predictive models - claim propensity, market situation, and customer behavior - to set prices that maximize profits given constraints. An example is Parker Hannifin, which implemented demand-based pricing and saw profits rise from 7% to 21%. Price optimization integrates these models to predict how customers respond to price changes and identify optimal pricing strategies.
Multiple Dimensions of Pricing Sophisticationguestc9708f8
The document discusses the multiple dimensions of pricing sophistication for property and casualty insurance companies. It identifies five key dimensions - data, modeling approach, rating plan design, competitive sensing, and pricing strategy. The document provides a spectrum for each dimension, ranging from low to very high sophistication. It explains where different companies may fall along each spectrum based on their capabilities and resources. The goal is to provide insurers a framework to evaluate their own sophistication and identify areas for improvement.
1) Conducting competitive market analysis (CMA) to assess competitive position is becoming more important for insurers but also presents challenges.
2) CMA involves using a batch-rating tool to calculate rates for an insurer and competitors for current policies, providing a comprehensive view of competitive position by segment.
3) Effective CMA requires overcoming obstacles like selecting appropriate competitor companies, ensuring accurate tier alignment across insurers' rating plans, and validating generated premiums from comparative rating tools.
The document discusses monopolistic competition in the toothpaste market using Crest toothpaste as an example. It notes that while Procter & Gamble has monopoly power over Crest, their power is limited because consumers can easily substitute other brands if the price rises too much. The demand for Crest is downward sloping but fairly elastic. As a result, Procter & Gamble will charge a price only slightly higher than their marginal cost.
ECOPA uses statistical and econometric analysis to provide companies with in-depth customer knowledge and optimal pricing strategies. They perform quantitative analyses to understand typical customers, relevant market segments, and profit-maximizing prices. Their analyses leverage growing data availability and specialized techniques. ECOPA's process involves data mining of customer and sales data to build profiles and identify segments. They then develop demand models to advise on price levels maximizing profits given demand characteristics and constraints. Recommendations are tested on a sample before full implementation.
Sears advertised a motor buggy for $395 in 1909 that included tires, axles, a top, lamps, horn, and oil. The buggy was built in Sears' own factory under the supervision of an expert with 15 years of automobile experience. Sears found suppliers that could make frames and other parts for the buggy more cheaply than Sears could make them itself due to the suppliers' larger volumes. By carefully selecting suppliers and building the buggy itself, Sears was able to offer an affordable motor vehicle.
This document provides details about Ashok Leyland Limited (ALL), an automotive company in India. It discusses ALL's pricing strategies, branding strategies, production capacities and utilization levels. It notes that ALL uses strategies like cost-plus pricing, market-oriented pricing, and penetration pricing. It also discusses ALL's brand communication efforts and joint ventures with companies like Nissan. The document provides production data for ALL and competitors from 2007-2012, showing that ALL's production has increased from 84,006 vehicles in 2007-08 to an estimated 103,267 in 2011-12.
This document summarizes a study on surge pricing in transportation network economies. It begins by explaining how dynamic pricing allows prices to change quickly based on demand without significant costs. Dynamic pricing is common in sharing economies and industries with digital sales. The transportation industry, including ridesharing services, uses dynamic pricing where prices surge to match supply and demand. However, consumers have complained about excessive surge pricing in some cases. The document aims to analyze surge pricing as a potential case of excessive pricing and how authorities should regulate dynamic prices. It provides background on dynamic pricing applications and benefits across industries before focusing on its use and effects in the transportation sector.
Assessment of the effect of Cost Leadership Strategy on the performance of L...inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
Porter's Generic Competitive Strategies outlines three strategies for achieving above-average performance in an industry: cost leadership, differentiation, and focus (with two variants of focus - cost focus and differentiation focus). Cost leadership involves becoming the low-cost producer through economies of scale or other cost advantages. Differentiation means being unique along dimensions valued by customers. Focus involves choosing a narrow scope within an industry and tailoring strategy to a target segment.
Credibility in threats and commitments in sequential games is base.docxvanesaburnand
Credibility in threats and commitments in sequential games is based on
randomizing one's actions so they are unpredictable
explicit communications with competitors
effective scenario planning
analyzing best reply responses
In a game, a dominated strategy is one where:
It is always the best strategy
It is always the worst strategy
It is the strategy that is the best among the group of worst possible strategies.
Is sometimes the best and sometimes the worst strategy
The starting point of many methods for predicting equilibrium strategy in sequential games is
designing proactive reactions to rival actions
information sets
uncertain outcomes
backwards induction based on an explicit order of play
endgame analysis
If one-time gains from defection are always less than the discounted present value of an infinite time stream of cooperative payoffs at some given discount rate, the decision-makers have escaped
the Folk Theorem
the law of large numbers
the Prisoner's dilemma
the paradox of large numbers
the strategy of recusal
Which of the following pricing policies best identifies when a product should be expanded, maintained, or discontinued?
full-cost pricing policy
target-pricing policy
marginal-pricing policy
market-share pricing policy
markup pricing policy
To maximize profits, a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ____ in all markets.
ratio of price to marginal cost
ratio of marginal cost to marginal utility
ratio of price to elasticity
marginal revenue
The following are possible examples of price discrimination, EXCEPT:
prices in export markets are lower than for identical products in the domestic market.
senior citizens pay lower fares on public transportation than younger people at the same time.
a product sells at a higher price at location A than at location B, because transportation costs are higher from the factory to A.
subscription prices for a professional journal are higher when bought by a library than when bought by an individual.
__ is a new product pricing strategy which results in a high initial product price. This price is reduced over time as demand at the higher price is satisfied.
Prestige pricing
Price lining
Skimming
Incremental pricing
Third-degree price discrimination exists whenever:
the seller knows exactly how much each potential customer is willing to pay and will charge accordingly.
different prices are charged by blocks of services.
the seller can separate markets by geography, income, age, etc., and charge different prices to these different groups.
the seller will bargain with buyers in each of the markets to obtain the best possible price.
Governance mechanisms are designed
to increase contracting costs
to resolve post-contractual opportunism
to enhance the flexibility of restrictive covenants
to replace insurance
When retail bicycle dealers adver.
This document provides an overview of industrial pricing strategies and policies. It discusses key factors that influence industrial pricing decisions such as pricing objectives, demand analysis, cost analysis, and competitive analysis. It then examines various pricing strategies across different stages of the product lifecycle and for different types of customers. Specific pricing policies like trade discounts, quantity discounts, and cash discounts are also explained. Commercial terms and conditions prevalent in industrial markets are briefly outlined.
Implicitly or explicitly all competing businesses employ a strategy to select a mix
of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
The document discusses how pharmaceutical companies are changing how they evaluate contract manufacturing organizations (CMOs). It describes the new "value proposition" approach, which focuses on generating the best value for customers through practices like open book calculations, buying manufacturing capacity, supply chain visibility and management. This entails strategic partnering between pharma companies and CMOs and changes their relationship from simply focusing on cost cutting to making the CMO the customer's supplier of choice. The value proposition approach requires a shift in mindset and more collaborative strategic thinking to effectively meet the complex demands of the pharmaceutical sector. CMOs that adopt this new approach will be better able to satisfy customers and remain competitive in the market.
524 COMPETITIVE ADVANTAGE IN THE ENTERPRISE PERFORMANCE .docxalinainglis
524
COMPETITIVE ADVANTAGE IN THE ENTERPRISE PERFORMANCE
Prunea Ana Daniela
Universitatea din Oradea, Facultatea de Stiinte Economice
[email protected]
Abstract: Rapid changes in market characteristics and the technological innovations are
common and faster challenges, resulting in products, processes and technologies. The
competitive advantage is volatile, difficult to obtain and more difficult to maintain and
strengthened with consumers who through their individual choices polarization confirms
the recognition performance and award competitive advantages, thus causing the
competitive ranking of companies present in a particular market. The competitive
advantage lies in the focus of the performance of companies in competitive markets and
innovation is a source for obtaining and consolidating it. Companies will need to
demonstrate the capacity to adapt to changes in the business environment so as to
maintain the helded positions. This paper treats this aspect behavior that companies
should adopt to get on the account of innovation a sustainable competitive advantage. I
started of the work in the elaboration from the theory of developed by Michael Porter in
his book "Competitive Advantage: Creating and Sustaining Superior Performance" we
applied methods listed thus trying to point out possible ways of creating competitive
advantage by companies. We have presented the sources of competitive advantage and
the factors on which depends its creation. Walking theoretical research revealed how lack
of competitive advantage leads to a lack of competitiveness of companies and the benefits
that arise with the creation of this type of asset. Among the most important benefits is to
increase performances. Once the competitive advantage is achieved, it must be
maintained and updated market conditions and the methods that can be created a
sustainable competitive advantage represent the answers to many of the companies
questions are fighting for survival in an environment of fierce competition. The
implementation of methods for obtaining competitive advantages, but also exist dangers,
that every company should know them once they develop a strategy for obtaining a
competitive advantage. The purpose of this paper is to present the importance of having
competitive advantage; the ways in which it ppoate obtain and hazards that may arise
with its implementation by companies.
Key words: competitive advantage; companies; competition; strategies
JEL classification: A1, D6
1. Introduction
The concept of competitive advantage in the literature has been introduced by M. Porter
in an attempt to identify objectives. In his book "Competitive Advantage: Creating and
Sustaining Superior Performance," Porter says the goal of all businesses is getting a
competitive advantage in relations with competitors on the market. This advantage can
be achieved by two ways, ie selling products at a lower price, or their differentiati.
524 COMPETITIVE ADVANTAGE IN THE ENTERPRISE PERFORMANCE .docxtroutmanboris
524
COMPETITIVE ADVANTAGE IN THE ENTERPRISE PERFORMANCE
Prunea Ana Daniela
Universitatea din Oradea, Facultatea de Stiinte Economice
[email protected]
Abstract: Rapid changes in market characteristics and the technological innovations are
common and faster challenges, resulting in products, processes and technologies. The
competitive advantage is volatile, difficult to obtain and more difficult to maintain and
strengthened with consumers who through their individual choices polarization confirms
the recognition performance and award competitive advantages, thus causing the
competitive ranking of companies present in a particular market. The competitive
advantage lies in the focus of the performance of companies in competitive markets and
innovation is a source for obtaining and consolidating it. Companies will need to
demonstrate the capacity to adapt to changes in the business environment so as to
maintain the helded positions. This paper treats this aspect behavior that companies
should adopt to get on the account of innovation a sustainable competitive advantage. I
started of the work in the elaboration from the theory of developed by Michael Porter in
his book "Competitive Advantage: Creating and Sustaining Superior Performance" we
applied methods listed thus trying to point out possible ways of creating competitive
advantage by companies. We have presented the sources of competitive advantage and
the factors on which depends its creation. Walking theoretical research revealed how lack
of competitive advantage leads to a lack of competitiveness of companies and the benefits
that arise with the creation of this type of asset. Among the most important benefits is to
increase performances. Once the competitive advantage is achieved, it must be
maintained and updated market conditions and the methods that can be created a
sustainable competitive advantage represent the answers to many of the companies
questions are fighting for survival in an environment of fierce competition. The
implementation of methods for obtaining competitive advantages, but also exist dangers,
that every company should know them once they develop a strategy for obtaining a
competitive advantage. The purpose of this paper is to present the importance of having
competitive advantage; the ways in which it ppoate obtain and hazards that may arise
with its implementation by companies.
Key words: competitive advantage; companies; competition; strategies
JEL classification: A1, D6
1. Introduction
The concept of competitive advantage in the literature has been introduced by M. Porter
in an attempt to identify objectives. In his book "Competitive Advantage: Creating and
Sustaining Superior Performance," Porter says the goal of all businesses is getting a
competitive advantage in relations with competitors on the market. This advantage can
be achieved by two ways, ie selling products at a lower price, or their differentiati.
This document summarizes Ford's process for developing international advertising strategies. Ford divides markets into segments by country and studies consumer preferences and perceptions in each country. They develop advertising strategies that emphasize key attributes for each market. Strategies are tested using a decision model to predict their effectiveness. The best performing strategies are selected for each country, allowing strategies to vary by market while maintaining common elements across countries. An example using Ford Granada launch data from several European countries illustrates how preferences and perceptions varied between markets, informing the development of customized strategies per country.
This document provides an overview of industry analysis and its importance for corporate and business strategy. It discusses how analyzing the determinants of industry profitability - including customer demand, competition intensity, and supplier bargaining power - can help assess industry attractiveness and structure. The document introduces Porter's Five Forces framework for analyzing competition within an industry and identifying factors that influence profit potential. It emphasizes that understanding how macroenvironmental trends affect a firm's industry environment is crucial for strategic planning.
This document provides an overview of pricing principles and strategies for estimating costs. It discusses factors to consider when setting prices like customer value and profitability. Various pricing models are outlined, including fixed pricing, subscriptions, and cost-plus pricing. The document also covers pricing strategies, constructing cost models, analyzing project risks, and reviewing estimates. The key aspects of pricing covered are customer value, profitability, cost analysis, and risk assessment.
The document discusses competitive strategy and industry analysis. It begins by defining industry structure and the 5 forces that shape competition: threat of new entry, intensity of rivalry, pressure from substitutes, bargaining power of buyers, and bargaining power of suppliers. It then discusses the value chain and how activities within the value chain can provide competitive advantage. Finally, it outlines generic competitive strategies of cost leadership, differentiation, and focus, noting firms can pursue a cost focus, differentiation focus, or broad cost leadership/differentiation strategies. The key aspects of industry structure, sources of competitive advantage, and generic strategies are summarized in under 3 sentences.
IMPACT Silver is a pure silver zinc producer with over $260 million in revenue since 2008 and a large 100% owned 210km Mexico land package - 2024 catalysts includes new 14% grade zinc Plomosas mine and 20,000m of fully funded exploration drilling.
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1. Price Optimization, 29 October 2009 Page 1 of 7
October 29, 2009 ISSN 1550-9214
Editor's Note : This column by Christopher W. Hurst and Jose Moreno Codina of
Towers Perrin is the latest in an ongoing series of contributed editorial columns. Readers
who are interested in authoring a contributed column in the future can click here to see
the Guidelines for Editorial Submissions page.
Price Optimization:
A Potent Weapon for the Warranty Industry.
By Christopher W. Hurst and Jose Moreno Codina, Towers Perrin
The hotel industry has long taken advantage of flexible pricing, based on demand, the type of
customer, the day of the week and the season. If you make a reservation at a popular resort
hotel at the height of the season, you'll certainly pay top dollar. Conversely, many city hotels
that rely on business travelers during the week offer cheap weekend rates to attract guests
and fill rooms on Saturday nights. This is "price optimization" -- the integration of demand-
side pricing (a customer's willingness to pay) into an overall pricing strategy.
Traditionally, many in the warranty industry have priced their goods and services based on
supply-side factors (production cost plus a margin for profit). However, this cost-plus-profit
approach leaves a lot of money on the table in the form of lost revenue from prospective
customers. According to AMR Research, between 1% and 5% of value is lost across all
industries because companies don't know enough about their customers' willingness to pay or
don't have the ability to profit from this knowledge.
Pricing can be one of the most potent weapon companies have. When a more sophisticated
pricing approach is implemented, operating profit increases significantly, much more than
when other factors such as variable cost, volumes or fixed costs are adjusted. In a few
industries where the product's value is largely intangible (e.g., cosmetics), prices have always
been largely based on demand. However, it is only in recent years, with the development of
sophisticated predictive modeling capabilities, that a broader spectrum of industries has
started to pay attention to the demand side.
Among other obstacles, understanding how customers respond to price changes is fiendishly
difficult. And until recently the data crunching and econometric modeling capabilities it
demands simply haven't been widely available. But now, demand-side pricing techniques
have begun to spread from the industries that originated these practices -- hotels and airlines -
- to other industries, such as retail, automotive, telecommunications and financial services.
The aim of price optimization is to set prices across an insurer's portfolio in a way that
maximizes a predefined measure of customer value over a given time period and aligns
pricing with the company's strategic objectives. Effective price optimization allows a
warranty provider to increase and decrease premium prices based on a combination of
marketplace variables, including (but not limited to) product demand, certain customer
characteristics and the competitive landscape. It also takes into account the implications of
price differentials, including profitability and lifetime value.
Parker Hannifin Case Study
An illustrative case is Parker Hannifin Corp., a leading producer of industrial parts used in
aerospace, transportation and manufacturing. Throughout most of its history, Parker Hannifin
priced the 800,000-plus products it sold using a simple cost-plus pricing model.
In 2001, new management concluded that a new pricing strategy was the key to improving
margins. Managers observed that, under the current pricing system, efforts to improve a
product or reduce production costs did not necessarily result in higher margins. Prices for the
improved product had the same margin as the standard product, because reduced production
costs were routinely passed on to customers through lower prices.
As a result, Parker implemented a new pricing strategy that factored customer demand and
levels of competition into the price for each product. The effort was a resounding success:
The company's return on invested capital went from 7% in 2002 to 21% in 2006!
http://www.warrantyweek.com/archive/ww20091029.html 10/30/2009
2. Price Optimization, 29 October 2009 Page 2 of 7
Three Building Blocks of Price Optimization
In essence, price optimization is about getting to know your customers and your market
better. As can be seen in Exhibit 1, there are three constituent parts of a comprehensive price
optimization program, each of which is a value-adding activity in and of itself:
Claim propensity models express how customer attributes are predictive of their
inclination to report a claim. These models are used to develop new rating variables
or increase the accuracy of existing rating variables.
Market situation models express how the company's competitive position and the
market's competitive intensity vary by segment or niche within the market. As
discussed further below, the relative value and importance of these market situation
models within the warranty industry can vary by market and entity.
Customer behavior models express how the customer's attributes and the market's
situation are predictive of the customer's behavior (e.g., response rate or cancellation
rate).
Exhibit 1
Price Optimization Balances the Trade-Off between Supply/Cost
and Demand/Revenue
In this example, we integrate profit (cost) models by customer segment and distribution
channel with price elasticity models. The goal is to set prices that optimize the trade-off
between the contribution per policy and volume of business expected to meet a given
financial objective and business constraints.
All three of these modeling techniques are essential building blocks of price optimization
(Exhibit 2).
Exhibit 2
Three Types of Predictive Models
Support Price Optimization
http://www.warrantyweek.com/archive/ww20091029.html 10/30/2009
3. Price Optimization, 29 October 2009 Page 3 of 7
This Week's Warranty Headlines:
Price optimization integrates claim propensity, market situation and customer behavior Assurant Solutions reports increased
models to predict the impact of price changes on volume and to identify the best price net operating income and a reduced
changes for a given financial objective and constraints. The goal is to provide a company domestic combined ratio.
with the tools necessary to reach a particular strategic objective (e.g., volume or profitability) Press Release, October 28, 2009
and to allow for flexibility to adapt to changing business circumstances. Australian regulators cite Auction
Alliance/Deals Direct for misleading
The power of price optimization is that it allows the company to gather demographic and warranty policies.
market data and use them, singly or in combination, to set rates. These data range from Sunday Times, October 28, 2009
variables that help predict prospective losses (e.g., credit score and loan-to-value ratios), to DeNooyer Chevrolet and Redline
competitor pricing, to customer likelihood to purchase a warranty at specific times of the day.
Motorsports sell high-performance
In fact, the list is limited only by the company's needs.
cars backed by GM warranties.
Albany (NY) Times-Union, October 28, 2009
Claim Propensity Models Brocade offers next-day limited
lifetime warranty on select Internet
The traditional focus of many companies has been to seek advantage by using available data switches.
to better select or reject risks and price them. Sophisticated claim propensity models can Press Release, October 28, 2009
integrate qualitative customer and product attributes with traditional quantitative rating risk RV company EarthRoamer files for
factors. The results allow more accurate prediction of both the likelihood that a policyholder Chapter 7 liquidation with 100
may experience a claim in the future and the probability of the claim being above or below warranty claims unpaid.
average claim costs for any given class. These models can be used for targeted marketing, Boulder (CO) Daily Camera, October 28, 2009
underwriting segmentation and more accurate pricing.
Consumer Reports survey calls Ford
"the only Detroit automaker with
Companies face several issues in moving to a greater use of more accurate risk assessment
world-class reliability."
and pricing. First is the challenge of gathering accurate data and scrubbing them so they're Press Release, October 27, 2009
useful. Second is conducting statistical analyses and extracting usable insights from them.
Finally, more accurate risk assessment and pricing entails a fundamental shift in a company's Johnson Controls takes a $105 million
culture. warranty charge in its residential HVAC
business.
Press Release, October 27, 2009
Claim propensity models almost always reveal some surprising, nonintuitive results that
challenge long-held beliefs, and the company's staff must learn to trust the data that come out Companies claiming to represent
of them. By definition, new risk assessment models are not consistent with market practice. BSkyB sell bogus satellite insurance
Implementing claim propensity models is expensive, and if the staff ignores the results or the renewals in UK.
company doesn't act on them, it will make no sense to incur the costs. Yeovil Express, October 27, 2009
Florida attorney general sues
Market Situation Models Hollywood Auto Gallery over allegedly
bogus warranties.
Press Release, October 26, 2009
Many companies analyze the price competitiveness of their products based on a small sample
of representative hypothetical customers by comparing their prices against key competitors. Isuzu Commercial Truck of America
While this approach gives the company a general sense of its relative price position, insights offers powertrain warranty on used
from such an analysis are limited by the small sample size. Innovative companies have Class 3-5 trucks.
Press Release, October 26, 2009 (Word file)
significantly expanded the extent of these price comparisons and found new ways to make
use of the richer market information they provide. Forklift suppliers say warranties help
them sell maintenance contracts to
By populating a market situation model with price comparisons for virtually every possible warehouse managers.
customer (i.e., every combination of customer attributes) across a broader array of Arabian Supply Chain, October 25, 2009
competitors, companies can identify customer population segments and niches where their Qatar Automobiles Company offers
competitive position is weak or strong. More importantly, the large volumes of price lifetime warranties on Mitsubishi
comparisons facilitate a more complete analysis of the competitive intensity of particular vehicles.
market segments. AME Info, October 25, 2009
http://www.warrantyweek.com/archive/ww20091029.html 10/30/2009
4. Price Optimization, 29 October 2009 Page 4 of 7
This analysis, in turn, enables the company to make tactical decisions about which segments Wal-Mart to offer TV and PC
to attack and which segments to retreat from. Competitive market analysis using market
installation and support services
situation models is used:
through NEW Customer Service Cos.
Wall Street Journal, October 23, 2009
to help identify segments where the company's prices are low or high relative to the Hyundai's ten-year powertrain
market; warranty offer in 1999 was a
marketing coup in the U.S.
to understand the competitive intensity in each segment and support strategic Marketplace, October 23, 2009
decisions regarding product deployment in different competitive segments; and
UK company called e-motive launches
line of electric scooters covered by
to understand the potential scope for price changes and what impact such changes
two-year warranties.
would have on market positioning. Which? October 23, 2009
Intel CEO says it's more expensive to
In certain warranty industries (such as the vehicle service contract industry), a warranty
keep old PCs running than to buy new
product is often sold exclusively through dealerships. In other cases, the product is sold direct
to the consumer. For dealer-sold contracts, there may be less value attributed to the actual ones.
Computerworld, October 22, 2009
price of a particular contract since many consumers don't obtain multiple price quotes.
However, the relative competitiveness of a vendor's warranty product may still help predict Extended warranty sellers for satellite
what the customer is willing to pay for the contract. TV equipment told to stop saying they
represent Sky.
The Mirror (UK), October 22, 2009
In some cases, competitor prices for warranties may not be as easy to obtain as they might be
for other industries. Depending on the product, price information may be found through John Deere Power Systems offers
internet searches, dealership and general agent assistance, or even competitors' rate filings yacht buyers a 5-year/2,000-hour
with state departments of insurance. However, if the information isn't available, a simpler extended warranty at no cost.
competitive index can be based on only the terms and coverages of warranties on similar Press Release, October 21, 2009
products offered by selected competitors. For instance, it's likely that the terms for some Service Protection Advisors launches
product warranties (e.g., length of coverage, waiting period) and details of what types of month-to-month vehicle service
losses are covered by competitors can predict the likelihood of a prospective customer contract program.
purchasing your product. Press Release, October 21, 2009
Alliance for Grey Market and
Customer Behavior Models Counterfeit Abatement publishes
warranty & service abuse study.
Developing accurate customer behavior models is the final building block in price Press Release, October 20, 2009 (PDF file)
optimization. By developing models of customer responses to marketing campaigns, Lawsuit alleges Gateway should have
competitive activity and other pricing or service events, companies can gain a comprehensive known MPC was financially troubled.
picture of customers' demand preferences at different price points and understand how they Consumer Affairs, October 20, 2009
will affect new business development. Because this analysis enters new territory for most
HomeInsurance.com & Home Warranty
companies, it will likely require a shift in mindset on the part of management, followed by
careful project planning to be sure the analysis results will be usable. of America to bundle homeowner's
insurance & home warranties.
Press Release, October 20, 2009
The price elasticity function takes into account different variables that have not been widely
analyzed, including the history of price variations, brand strength and awareness, distribution Zildjian doubles warranty on cymbals
channel and other significant factors. The result of this modeling produces a scoring to two years.
Music Instrument Professional, October 20, 2009
algorithm to predict conversion rates for price relative to price changes and, if applicable, to
the competition. AmTrust Financial Services joint
venture to acquire GMAC's auto
The most effective way to generate a price elasticity of demand curve is to vary prices and insurance business.
measure the impact on volume. Insurers can use controlled testing of rates to generate Press Release, October 19, 2009
demand curves. By replicating the rate structure and marketing to one group of customers A.M. Best revises ratings status of
through parallel testing of multiple sets of rates, they can measure the impact on volumes as GMAC Insurance Group following
prices change. This kind of testing helps measure conversion and retention rates by price. AmTrust announcement.
Press Release, October 22, 2009
Where parallel controlled testing is not appropriate, multivariate techniques drawn from Nationwide Home Warranty ordered to
historical data can be used to develop models explaining the likelihood of retention as a stop selling service contracts in Florida
function of price change and customer characteristics. Models may also include competitors'
without a license.
prices. Insurance Journal, October 19, 2009
Whittaker Builders files for bankruptcy
Bringing It All Together but warranty work to continue.
St. Louis Business Journal, October 19, 2009
The final step and culmination of this work is to develop a new pricing structure that Sony offers insight into Bravia quality
optimizes profit per customer. In other words, it maximizes profitability subject to a control process.
minimum volume of business. A company's preference for market share over short-term Current, October 18, 2009
profitability will shift over time. It may decide to aggressively increase market share when
the market is strong in order to benefit from a hardening. Alternatively, when facing capacity Canon replaces Pixma MX300 printer
constraints, a company may wish to focus only on its most profitable customers. as a goodwill gesture six months out of
warranty.
The Consumerist, October 18, 2009
Using price optimization techniques, a company can leverage sophisticated analytical
methods to clarify strategic direction in pricing strategy and react quickly and nimbly to new SquareTrade CEO pitches longer
patterns in data as they are uncovered. By integrating the three components of price warranties for less money in online
optimization -- claim propensity models, market situation models and customer behavior interview.
models -- companies can more confidently meet particular profit objectives or change prices Auction Bytes, October 18, 2009
to meet market share targets, while understanding the profit implications of doing so. Towers Perrin estimates the cost of
defective Chinese drywall at $15 to
Our objective is to move a company closer to the "efficient frontier" that represents $25 billion.
maximum profit for each particular volume of business (Exhibit 3). New Orleans Times-Picayune, October 18, 2009
Sky hears complaints accusing Digital
Exhibit 3 Satellite Warranty of using misleading
http://www.warrantyweek.com/archive/ww20091029.html 10/30/2009
5. Price Optimization, 29 October 2009 Page 5 of 7
Efficient Frontier of Portfolio Profitability sales tactics in UK.
The Independent, October 17, 2009
Insurers dropping policies after
homeowners file Chinese drywall
claims.
Associated Press, October 15, 2009
Harley-Davidson to discontinue Buell
brand, but warranty coverage will
continue as normal.
Associated Press, October 15, 2009
The pitfalls of extended warranties.
Wall Street Journal, October 15, 2009
Fiat India's new Fiat First program
includes extended warranty options for
Punto and Linea.
Wheels Unplugged, October 15, 2009
Tata Motors gives Indigo Manza a two-
year/75,000-kilometer warranty.
Press Release, October 14, 2009
IDC's PC tracker report puts HP in first
place worldwide, Acer in second, and
Dell in third.
CNET News, October 14, 2009
Why Saturn owners will lose out on
warranty repairs.
Popular Mechanics, October 14, 2009
Given the complexity of different analyses, price optimization is typically undertaken in Florida regulators order National Home
phases by iteratively testing price changes against volumes and profitability. Testing is first Protection Inc. to stop selling home
performed across a small part of the portfolio and is then expanded to more markets and lines warranties.
of business. The advantage of a phased approach is that it can be used to prove the concept, Insurance Journal, October 14, 2009
and tactics can be adjusted according to results. The outcome of each step can help Aspen Avionics signs agreement for
demonstrate impact in order to gain further organizational buy-in, and the information SigmaQuest SigmaSure product quality
collected during the first phases can be used to provide input to later phases. management software.
Press Release, October 14, 2009
Initially, price testing can be used to make iterative improvements to profitability. In later Warranty Holdings acquires motorcycle
stages, we combine multivariate models of costs and price elasticity to simulate the service contract marketer RpmOne Inc.
relationship between price change at the customer level and overall profitability. Findings
can be used to set prices across the whole portfolio. Press Release, October 13, 2009
Johnson Controls forecasts 12-cent-
Developing price-testing capabilities can help your company move to more textured and
per-share warranty charge in its
accurate representations of your market. But there is hard work involved. For each step to be
valuable, you'll need solid data, sophisticated statistical models, competitive intelligence, and residential HVAC business.
Press Release, October 13, 2009
courage and conviction.
Malta's Consumer Affairs Act gives
buyers 2 years from purchase date to
A Word About Auto Warranties return faulty products.
Times of Malta, October 11, 2009
For many in the auto warranty industry (and perhaps in some specific cases in other warranty Service USA and Kansas Corp. acquire
industries), selling primarily through auto dealerships (or other third parties who contribute DVD Blue Beam Repair Inc.
to the final charged premium) presents a unique challenge to price optimization because the Press Release, October 11, 2009
insurer or administrator has limited control over the final price (given the mark-up applied at
the dealership level). In these cases, it becomes critical for the warranty administrator/insurer Canadian auto dealers say voluntary
to establish processes for working directly with the dealerships to design a price optimization right to repair deal should replace
approach that adds value for all parties. pending legislation.
Press Release, October 9, 2009
In these cases, price optimization models can be designed to maximize profits for the Lenovo opens first retail shop in India;
dealership and the administrator/insurer -- or at least achieve a balance between the goals of New Delhi location also hub for
each party. And in cases where the dealership shares in the ultimate profitability of their warranty work.
dealer-sold vehicle service contracts (through individually owned reinsurance companies), Channel Times, October 9, 2009
the dealership has even greater vested interest in the ultimate profitability of the product. Tradewinds Distributing Company
details warranty durations for its
Once a company has a picture of customer preferences and is armed with an understanding of Whirlpool branded HVAC units.
how various pricing actions will impact purchasing decisions, it can apply that understanding Press Release, October 8, 2009
to other components of the pricing strategy developed earlier in the process. Construction industry dinner attendees
get update on defective drywall from
Achieving various levels of price optimization is a journey. We recommend that companies China.
interested in raising their game start by understanding where they stand relative to their Fort Myers (FL) News-Press, October 8, 2009
competitors, then determine the best way to improve their modeling and analyses. What Denny Hecker's auto dealerships
methodologies, benchmarks or analyses may be missing from your current approach that
accused of pocketing customers'
could help you achieve greater profitability? With this knowledge, you can decide how to
move forward. extended warranty premiums.
St. Paul (MN) Pioneer Press, October 8, 2009
NHTSA investigates reports of Toyota
Tundra frame corrosion that may cause
brake failure.
http://www.warrantyweek.com/archive/ww20091029.html 10/30/2009
6. Price Optimization, 29 October 2009 Page 6 of 7
Detroit Free Press, October 8, 2009
About the Author: GadgetGuard releases iPhone app that
sells its user an extended warranty for
Christopher W. Hurst is a consultant with Towers $3-to-$5/month.
Perrin and is located in the firm's St. Louis office. He Press Release, October 7, 2009
specializes in reserving and pricing for warranty, GAP Admiring US Fidelis employee was the
and other F&I products for various entities writer of company owner Darain
(manufacturers, third party administrators, insurers, Atkinson’s Online Blog.
and reinsurers) and types of products (vehicles, homes, St. Louis Post-Dispatch, October 7, 2009
heaters, and air conditioners).
SEAT says the number of warranty
claims on its Ibiza model have tumbled
Mr. Hurst’s warranty experience includes a range of
by 38%.
services for clients, including performing liability Press Release, October 7, 2009
valuations of warranty obligors; forecasting unpaid
liabilities (both a point estimate and a range of Federal report blames the collapse of a
possible outcomes), unearned premiums and indicated Dallas Cowboys practice facility on
rates; conducting funding studies for catastrophic stop- design failures.
loss reinsurance protection for vehicle service contract Dallas Morning News, October 7, 2009
providers; developing estimated losses (and the Assurant Solutions introduces a new
resulting necessary funding) for new products; monthly protection program for
completing year-end reserve reviews (including a Statement of Actuarial Opinion) for netbook personal computers.
warranty and other long-duration contract insurers; and providing expert witness support. Mr. Press Release, October 6, 2009
Hurst is a graduate of Northwestern University, a Fellow of the Casualty Actuarial Society,
Warrantech Consumer Product
and a Member of the American Academy of Actuaries.
Services to administer service
contracts for Appliance Direct.
For comments or questions about this article, please feel free to call or e-mail Mr. Hurst at +1 Press Release, October 6, 2009
(314) 719-5846 or chris.hurst@towersperrin.com.
Warranty Direct UK finds Honda Jazz
most reliable, Seat Ibiza least reliable
supermini car.
Press Release, October 5, 2009 (Word file)
Greg Gadbois joins Assurant Solutions
as ESC Business Development Director.
Press Release, October 5, 2009
Israeli Peugeot and Citroën distributor
drops coolant replacement
requirement in warranties.
Ha'aretz, October 5, 2009
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http://www.warrantyweek.com/archive/ww20091029.html 10/30/2009