challenge given to Ben in his summer internship with Progressive was
to figure out why Geico’s online conversion rates (defined as the
percentage of people requesting a price quote who subsequently
purchased a policy) were higher than Progressive’s. Was it due
to the fact that Geico’s prices were generally lower?
Was the conversion of a Geico prospect driven by the absolute Geico
price or the Geico price relative to Progressive’s price? And,
most importantly, how should Progressive respond?
Using simple data charts, Ben first established
that Geico’s prices were generally lower and that, as expected,
conversion rates for both companies declined with the price quoted.
In addition, for almost all price quotes, the Progressive conversion
rate was lower than Geico’s. Using regression, Ben next looked
at prospects who received quotes from both companies and established
that relative (rather than absolute) price was the better predictor
of conversion. Using this model, Ben was able to
predict the gains associated with a change in pricing.
Ben’s analysis led to proposed changes in pricing
with an estimated impact of $10 million in incremental profit!