Scope of Advice

Details: Written by: Graham Ross

When advising clients on improvements to Pricing Capabilities, my view there is a hierarchy of three levels that need to be considered.

Market Position
Business Proposition
Customer Interaction

Too often Pricing Analyst become focused on the Claims Modelling within the Business Propositon level. Whilst important this is not sufficient and all issues within all three levels need appropriate attention to have an effective pricing function.

Hierarchy	Market Position	Business Proposition	Customer Interaction
Description	Understanding the market context, overall levels of profitability and setting pricing objectives	Developing the product and pricing policy	Delivering a proposition to meet the customer's requirements, obtaining the appropriate underwriting information and agreeing the price
Issues Addressed	Market Pricing Levels Relative competitive position Stakeholders' objectives and risk appetite	Value Proposition Product Structure Marketing Promotions Underwriting Policy Rating System Design	Individual price negotiations Cross or Up selling options Promotion of optional covers Application of underwriting policy Data collection and Verification Misrepresentation and Fraud
Tools and Processes	Competitive Intelligence Business Planning Scenario Planning Stakeholder management	Market Research External data sources Claims modelling Elasticity modelling Price Optimisation Financial Analysis Competitor Analysis	Market Testing Web tracking and analytics Staff objectives and rewards Operational controls Underwriting Audits Antifraud measures

These concepts are developed from an approach advocated in "The Price Advantage" by Marn,Roegner & Zawada

It's a hierarchy because if you haven't dealt with the higher issues you can get in a mess when dealing with the lower issues. For example trying to set a product and pricing policy without a good understanding of the market context and your competitive advantages can result in unrealistic profit or volume objectives.

Hierarchy of Pricing