1 / 10

Progressive Corp

Progressive Corp. Take-Aways. Progressive’s “recipe” for Competitive Advantage. Identify a profitable and growing customer segment of the market: “Mis-priced” non-standard clients Key problem: Customer retention Solution: Create superior service

acton
Download Presentation

Progressive Corp

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Progressive Corp Take-Aways

  2. Progressive’s “recipe” for Competitive Advantage • Identify a profitable and growing customer segment of the market: • “Mis-priced” non-standard clients • Key problem: Customer retention • Solution: Create superior service • Main point: Pricing and service are complements

  3. Intelligent pricing sophisticated historical database of non-standard customer attributes & accidents better ability to rate customers (i.e., estimate risk) more prices (14,000) product managers Express Quote 1800 Better Service Immediate Response 24/7 operations Empowered, trained adjusters Measure performance of service organization lag between claim filing and closure fraction of open claims tied to incentives Fast Payment Find the “right” customer segment Increase Customers’ Willingness to Pay Progressive’s Competitive Advantage in Non-Standard

  4. The Price is Right • You are bidding to acquire a client list from a rival firm • The value of the client list to the rival is from $0 - $9 with equal probability • Because of your superior service, the client list is worth 50% more if you acquire it • The rival will accept any price for the list which is at or above its value • How much should you bid?

  5. Equilibrium Analysis • The only sensible bid is not to bid at all • Why? • You “win” only in circumstances where the list is least valuable. • Suppose you bid $3. • Then you win when the list is worth: 0, 1, 2, or 3 (each equally likely) • Your profits from the acquisition are: • .25 x $9 < $3 • So you actually lose money on average

  6. “Dumb” Player: Charge $1200 to everybody “Smart” Player: Charge $1150 to Medium and Low Customers, $2000 to High Customer Gets only high risk customer loses $800 Gets medium and low risk customers, makes $900 Mis-pricing is a major driver of cost in insurance Expected Loss: $1200 / customer

  7. Questions about Progressive’s Competitive Advantage • How sustainable is Progressive’s competitive advantage in non-standard? • how long would it take other firms to develop the same (or better) pricing expertise? • Product advantage versus competitive advantage? • Can Progressive’s competitive advantage in non-standard be transferred to the standard segment? • do they have better pricing skills in standard? can they develop them faster than others? • can competitors in standard copy Progressive’s Immediate Response System? • do they have the incentives to do so?

  8. Progressive met Allstate’s challenge and entered the standard segment Progressive S&P 500

  9. Progressive performance highlights • Expansion in other non-standard segments: • 25% market share in 2002 for motorcycles (#1 player) • nearly 2M total policies for motorcycles, mobile homes, watercraft, snowmobiles, and homeowners • Shift to direct channel: • Approx 30-35% of new auto policies acquired via direct channel

  10. Progressive strategy in 2004 • Maintain focus on 4% underwriting margin • Continue to build direct distribution strength (I.e., Internet) • Compete in standard • Strategic principles remain high-service and focus on risk segments in which Progressive has a pricing advantage

More Related