An Innovative Pricing Solution

THE PROBLEM

A Latin American healthcare company faced the challenge which plagues the healthcare services and insurance industries: how to correctly price a new line of products/services, given the uncertainty in the demand-profile of each new B2B customer.

For years it had been unable to narrow down the profit margins on service contracts. At times, it even had to fulfill loss-making contractual obligations, due to a demand-profile different from the expected at signing.

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THE SOLUTION

The Team was given access to historical commercial and operational data, and guided by the client's strategy, set itself the task of recreating the industry approach from the ground up.

Advanced analytics was applied from a first-principles perspective, bringing together an initial assessment using Van Westendorp's PSM to gauge potential price ranges for all services to be offered to specific target-audiences.

Afterwards, a new software tool was created to crunch each new potential client's data and output a specific demand profile.

In parallel, the cost structure of servicing potential demand profiles was modeled according to an innovative infectiology-inspired price discovery methodology that covered a continental-sized geographic span.

The two models were brought together in a custom-made web-based operational tool that outputs a complex array of prices for each potential B2B customer, as well as ranges for commercial concessions, and expected resources and predicted profit margins for each contract.

In the 4 years the tool has been in operation, profit predictions on new contracts never strayed more than 11,5% from the model's predictions, an unprecendented level of accuracy for an industry plagued by mispriced contracts.

This allowed the client to make the most competitive offers on RFPs, while feeling safe not to enter in unprofitable contracts.

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TEAM'S RESPONSIBILITIES

Conceptual solution design

Analysis on historical data to validate hypothesis

Advanced demand forecast with custom-made model

Advanced analytics used to model operational costs

Software design and development

Operational process mapping and reengineering

Deployment and execution of the solution

Training of client's teams

Assisted hand-over of solution

On-going assistance and on-demand customisation for more specific forecasts

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