Prospective customers of financial and insurance products can equi-jec 6 be targeted based on the profit the provider expects to earn from them.We present a model for individual expected profit and two alternatives for calculating optimal personalized prices that maximize the expected profit.For one of these alternatives, we obtain a closed-form expression for the price offered to each prospective customer; for the other, we need to use a numerical approximation.
In both approaches, the profits generated by prospective customers are not immediately observed, given that the products sold by these companies have a risk component.We assume red pygmy dogwood that willingness to pay is heterogeneous and apply our methodology using real data from a European insurance company.Our study indicates that a substantial boost in profits can be expected when applying the simplest optimal pricing method proposed.