Steering pricing to readjust business focus from margin maximization to higher retention & conversion.
We worked with a key player in the Dutch energy market that was struggling from:
falling market share due to the excessive competition
the low conversion rate on new deals
high price variance
“There is a critical need to immediately readjust our pricing strategy to reduce customer churn and get as many new customers as possible.” – Pricing Manager, SME Division
In order to effectuate the new strategy for reducing customer churn and improving acquisition performance, with the least amount of penalty on margin, some advanced simulation, scenario analysis, and model steering techniques were built upon the existing dynamic pricing algorithm.
Simulation Algorithms like Markov Chain were used to find the Margin-Conversion tradeoff from historical data on past performance. Pricing managers then ran Scenarios Analyses to assess the business impact of different points of the tradeoff curve. Once the desired setting was chosen, the New Strategy (Higher Conversion by Sacrificing Minimum Possible Margin) was passed on to the algorithm as a new objective function.
Parameters/Features of the algorithm were then automatically adjusted to Revise the Price Recommendations and Guidancethat sales were receiving, to help meet the new business strategic objectives.
The key deliverables of the Model Steering Project are:
New Strategy- higher conversion by sacrificing minimum possible margin
Simulation Algorithms to find the margin conversion tradeoff from historical data on past performance