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Adroit use of information-driven marketing can fundamentally reshape the structure of a market-and leave competitors scratching their heads in puzzlement about what hit them.

Consider how Progressive Corp., a $2.4 billion property and casualty insurance company based in Mayfield Village, Ohio, employed sophisticated use of customer information to outmaneuver competitors in the motorcycle insurance business.

The classic approach to pricing a motorcycle insurance policy was based on such factors as the value of a bike and the size of its engine. The reasoning was simple: Bigger bikes cost more, so the replacement cost is higher. If they are bigger, they go faster and the risk is higher. Without further analysis of the data, this seems a perfectly appropriate approach.

The actual market situation, however, is much more complex. For example, some 1,000-cc bikes are ridden by members of Hell's Angels; other owners take them out only for weekend jaunts on the turnpike, and then only three months out of the year. The rest of the time, their bikes rest safely in a garage.

By carefully sorting through mounds of data, Progressive found an effective way to distinguish the two situations: The key turned out to be finding information that indicated whether the insurance applicant kept his bike in a garage and whether the applicant was married.

"We collected that data for some period of time," explained a top Progressive executive, "collected the loss data, and found something that enabled us to price significantly differently-way below market price for that particular risk-and get that business, with the remaining part [of the market] less profitable for everyone else.

"You have to be in position to say, `How can I re-segment their book of business?" says this executive. "It is a constant struggle to see who gets stuck with a mis-priced segment of business."

Because of its ability to pick up signals from the marketplace and develop an elaborate set of models to interpret those signals, Progressive could select the low-risk applicants from the high-risk pool of potential insureds. This meant it could cherry-pick customers with a precision that most other companies can only dream of.

And, to top it off, a strategy like Progressive's is likely, at least initially, to baffle its rivals. To its competitors, Progressive seemed to be pricing its insurance products at unprofitably low levels. Not only was Progressive able to look for patterns and insights, but when it did find them it was hard for competitors to figure out just what Progressive was doing-a competitive advantage that is the dream of marketers operating in virtually any sector.

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