Unlocking Profitability: Optimising Extended Warranty Pricing for a Leading Electronics Retailer
Industry: Retail - European leader in consumer electronics and telecommunications
Challenge: Optimise pricing and profitability of extended warranty subscriptions
Solution: Predictive analytics, financial modelling, real-time dashboard reporting
Technology: MY SQL, Power BI, Excel
Situation and Challenge
A prominent European electronics retailer sought to enhance the profitability of its extended warranty subscription service. The client faced significant variability in subscription profitability due to fluctuating claim levels. The primary challenge was to accurately assess claim levels and associated costs to determine optimal pricing strategies and understand customer lifetime value as key profitability drivers.
Insight and Action
Previous analyses lacked granularity, resulting in inaccurate forecasting and suboptimal pricing. Our approach involved:
- Engaging key stakeholders to source and analyse five years of transactional data across all channels and territories.
- Implementing a probabilistic bottom-up aggregation model to assign probability distributions to customer cohorts, segmented by value dimensions.
- Developing an accurate forecasting model for lifetime value of undiscounted revenue and cost, based on churn and claims propensities.
- Segmenting data into over 25 value dimensions to unlock deeper insights into lifetime value and profitability across warranty types and product categories.
Our intervention delivered substantial benefits:
– Developed a real-time Power BI dashboard providing comprehensive product performance insights.
– Revealed significant channel influence on profitability, identifying one consistently loss-making channel.
– Discovered that 85% of core revenue was generated by just 14 products (less than 30% of the category range).
– Identified new pricing opportunities reflecting channel profitability.
– Achieved a 45% improvement in forecasting accuracy.
– Increased year-on-year margin by 1%, with notable fluctuations across categories.
Key Outcomes:
– Enhanced customer profitability analytics for UK/Ireland extended warranty policies.
– Exposed critical channel pricing misalignments, exceeding initial expectations by 45%.
– Implemented interactive Power BI dashboards, improving business planning and portfolio management.
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