© 2014 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Name Your Price How Optimization Can Deliver Ideal Pricing Strategies for Higher Revenues and Margins Horia Tipi Director, Product Management FICO

© 2014 Fair Isaac Corporation. Confidential. Be smarter about pricing—stop leaving money on the table—out-maneuver your competitors Think differently about pricing—you can out-maneuver instead of engaging in a pricing war 2

© 2014 Fair Isaac Corporation. Confidential. Poll  Auto  Mortgage  Loan  Deposit  Card  Other What line of business do you represent? 3

© 2014 Fair Isaac Corporation. Confidential. Poll  Use historical data and competitor data  Use Business Intelligence tools  Use analytics  Use optimization  Use optimization but have outgrown current solution How are you currently handling pricing decisions? 4

© 2014 Fair Isaac Corporation. Confidential. Most of Us Have Had This Experience You’re ready to make a major purchase, like a car. But you have some specific financing requirements. And you’re being kept waiting as the terms of financing are worked out—excruciatingly slowly. The minutes tick by as the sales agent goes back and forth between you and the finance manager trying to get a deal approved. 5

© 2014 Fair Isaac Corporation. Confidential. What if Making the Right Deal Were Faster and Easier? 6 ► Every offer optimized to: ► Balance the objectives and constraints of multiple stakeholders ► Meet customer needs ► Comply with regulatory requirements

© 2014 Fair Isaac Corporation. Confidential. Close the Deal by Out-Pricing Competitors ► This is not about under-pricing. Find the sweet spot where offers fully meet the needs and objectives of the consumer and business and are therefore most likely to be accepted and profitable. ► It’s not just for auto sales. Apply to any decision where there’s room for discretionary pricing. 7

© 2014 Fair Isaac Corporation. Confidential. Key Aspects of Optimal Pricing ► Analytic process of pinpointing best choices among millions (sometimes billions) of possibilities in complex decisions ► Business process of balancing multiple stakeholder points of view ► Interactive process of listening to and sometimes negotiating with customers Customer-Centric Pricing Optimization 8

© 2014 Fair Isaac Corporation. Confidential. “On average, a 1% price increase translates into an 8.7% increase in operating profits (assuming no loss of volume, of course). Yet we estimate that up to 30% of the thousands of pricing decisions companies make every year fail to deliver the best price. That’s a lot of lost revenue.” Source: Using big data to make better pricing decisions, McKinsey & Company, June

© 2014 Fair Isaac Corporation. Confidential. 5 Keys to Out-Pricing Competitors With Customer-Centric Pricing Optimization 10

© 2014 Fair Isaac Corporation. Confidential. Simplify Complex Real-World Pricing Problems 1 Just a few of the factors to be considered in a pricing decision: credit amount | credit term | discount amount | down payment, deposit or security | customer credit risk | propensity and timeframe for purchase | price sensitivity impact on take-up, usage, delinquency, attrition | revenue | profit | customer lifetime profitability | portfolio-level objectives & constraints | segment-level objectives & constraints | customer-level objectives & constraints | campaign objectives & constraints | regulatory compliance | capital management objectives & constraints | dealer or partner objectives & constraints Even with this small sample, the combinatorial possibilities are immense. 11

© 2014 Fair Isaac Corporation. Confidential. Solving Complex Real-World Pricing Problems No limits on data types/quantities or predictive model inputs True customer-level optimization (segments as small as 1) Encompass linear and non-linear relationships Optimize for discrete price points ($2.99, $3.19, etc.) Constraints applied at any level (portfolio, segment, customer) Balance competing objectives Packaged solutions require problems to be “dumbed down” to fit limitations of modeling tools and optimization engine Fuzzy problem resolution delivers approximate answers Sharp problem resolution delivers accurate, reliable answers 12

© 2014 Fair Isaac Corporation. Confidential. Client Success: Pinpointing Where to Raise Prices ► Bank needed to know where it could raise prices without raising attrition rate CHALLENGE : ► Optimize price and initial credit line SOLUTION : ► 17% decrease in loss while maintaining revenue ► $20 increase in profit per account RESULTS : 13

© 2014 Fair Isaac Corporation. Confidential. It’s important to be able to look inside an optimization solution to understand how it works and build trust in the output. “Black box” vs. “Transparent box” Make Analytics Transparent to Business Experts 2 14

© 2014 Fair Isaac Corporation. Confidential. For Example Users Can Expose and Examine Any Part of the Process ► Are profit predictions reliable? CFO checks cost of funds in the historical data used to model profitability. ► What would happen if we slightly loosened our loss constraints? Risk manager uses simulation to explore tradeoffs with margin and revenue. 15

© 2014 Fair Isaac Corporation. Confidential. Enable Collaboration to Drive Optimization 3 Put business users in control of pricing optimization. Give them role-based interfaces for providing inputs to the process, interacting with each other and reviewing results. That’s how you embed smart pricing into organizational DNA. 16

© 2014 Fair Isaac Corporation. Confidential. Let’s Zoom Into This Big Picture 17

© 2014 Fair Isaac Corporation. Confidential. Role-based Interfaces and “Single Source of Truth” Repositories for Data, Analytics and Business Rules 18

© 2014 Fair Isaac Corporation. Confidential. Integrate Backroom Policy Making with Real-Time Customer Interactions 4 Extend the collaborative process all the way to the frontline. Dealers and sales agents can have meaningful conversations with customers, then instantly generate new optimized offers based on customer choices and preferences. Use for negotiating alternative deals, customizing product bundles, offering individualized debt consolidation solutions… 19

© 2014 Fair Isaac Corporation. Confidential. Pricing responds to customer needs and POS choices while meeting all company requirements, including regulatory compliance 20

© 2014 Fair Isaac Corporation. Confidential. Client Success: Alternate Deal Making at Point of Sale ► Auto finance company needed to reduce decline rates and make exception decisions faster and more consistently CHALLENGE : ► Real-time optimization of alternative deals SOLUTION : ► Increase revenue est. $12M US ► Decrease labor costs est. $3M US ► Lower decline rates ► Higher dealer and customer satisfaction RESULTS : 21

© 2014 Fair Isaac Corporation. Confidential. ► Provide stakeholders with rapid operational feedback and the means to change optimization parameters based on results ► Create automated workflows that speed approval and deployment of adjusted pricing strategies ► Implement analytic learning loops to drive performance improvements Be Able to Turn on a Dime for Market Maneuverability 5 22

© 2014 Fair Isaac Corporation. Confidential. Compare Actual to Simulated Results Gaps are opportunities for learning: Use analytics to explore causes Simulated On-plan Underperforming 23

© 2014 Fair Isaac Corporation. Confidential. Business experts can rapidly change pricing policies, without the need for IT assistance 24

© 2014 Fair Isaac Corporation. Confidential. Fully Configurable to Your Pricing Process 25

© 2014 Fair Isaac Corporation. Confidential. ► Schedule a pricing assessment: ► Systems readiness ► Assess existing models ► Rapid pilot FICO Would Like to Assist You 26

© 2014 Fair Isaac Corporation. Confidential. Questions 27

© 2014 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Thank You! Horia Tipi

© 2014 Fair Isaac Corporation. Confidential. Learn More at FICO World Related Sessions ► Helping Your Dealers to Create a Better Customer Experience ► How Optimization Helps You Turn Questionable Data… Products in Solution Center ► FICO ® Deal Pricing Optimizer, FICO ® Optimization Modeler, FICO ® Xpress Optimization Suite Experts at FICO World ► Matt Stanley ► Horia Tipi White Papers Online ► Five Keys to Out-Pricing (Not Under-Pricing) Competitors ( Blogs ► 29

© 2014 Fair Isaac Corporation. Confidential. Please rate this session online! Horia Tipi