Price and Profit Optimization for Financial Services

Catalina Bolancé, Montserrat Guillen, Jens Perch Nielsen and Fredrik Thuring
Additional contact information
Catalina Bolancé: Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona, Av. Diagonal, 690, 08034 Barcelona, Spain
Montserrat Guillen: Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona, Av. Diagonal, 690, 08034 Barcelona, Spain
Jens Perch Nielsen: Cass Business School, City, University of London, 106 Bunhill Row, London EC1Y 8TZ, UK
Fredrik Thuring: Cass Business School, City, University of London, 106 Bunhill Row, London EC1Y 8TZ, UK

Risks, 2018, vol. 6, issue 1, 1-12

Abstract: Prospective customers of financial and insurance products can be targeted based on the profit the provider expects to earn from them. We present a model for individual expected profit and two alternatives for calculating optimal personalized prices that maximize the expected profit. For one of these alternatives, we obtain a closed-form expression for the price offered to each prospective customer; for the other, we need to use a numerical approximation. In both approaches, the profits generated by prospective customers are not immediately observed, given that the products sold by these companies have a risk component. We assume that willingness to pay is heterogeneous and apply our methodology using real data from a European insurance company. Our study indicates that a substantial boost in profits can be expected when applying the simplest optimal pricing method proposed.

Keywords: sales optimization; optimal price; price elasticity (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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