AU2012258388A1 - Reference price framework - Google Patents

Abstract

REFERENCE PRICE FRAMEWORK A method of computer-assisted price modelling is provided, which uses a reference price 5 (138) to assist in evaluating discretionary pricing of transactional services provided (i) by a professional among his own transactions or (ii) by a target professional among others' transactions. A universe of pricing episode data is segmented into groupings based on price predictive parameters. These data are then arranged in each grouping according to price. A reference price (138) is determined within each grouping based on a 10 predetermined level, rank or percentile. This reference price (138) can then be used to evaluate the pricing episode (132) data and provide various calculations or comparisons, including the revenue opportunity that could have been obtained by pricing at the reference price (138).

Description

S&F Ref: 828264D2 AUSTRALIA PATENTS ACT 1990 COMPLETE SPECIFICATION FOR A STANDARD PATENT Name and Address PriceMetrix Inc., of 40 University Avenue, Suite 200, of Applicant : Toronto, Ontario, M5J 1T1, Canada Actual Inventor(s): Christopher May Douglas Trott Jeffrey Marsden Patrick Kennedy Address for Service: Spruson & Ferguson St Martins Tower Level 35 31 Market Street Sydney NSW 2000 (CCN 3710000177) Invention Title: Reference price framework The following statement is a full description of this invention, including the best method of performing it known to me/us: 5845c(E900919_1) REFERENCE PRICE FRAMEWORK INCORPORATION BY REFERENCE 5 This application is a divisional application of Australian Patent Application No. 2010249158 filed on 2 December 2010, which is in turn a divisional application of Australian Patent Application No. 2007229337 filed on 17 October 2007. The originally filed contents of Australian Patent Application No. 2010249158 and Australian Patent Application No. 2007229337 are incorporated herein by reference in their entirety as if 10 expressly set forth. TECHNICAL FIELD The invention relates to pricing methods for transactional and related services or products. BACKGROUND 15 In many industries, when a professional provides a transactional service for a client (such as executing a trade in the securities industry), the professional has discretion over the price (i.e. the professional's fee or commission) charged to the client for the service. Ultimately, the price charged by the professional must be within the market acceptable boundaries, or clients will go elsewhere. However, if the price charged is too 20 low, the professional may have a high volume of trades/transactions, but be in fact a revenue "under-performer". While the discretion over pricing allows professionals much freedom to reward client loyalty, or encourage new business or more desirable business, many salespeople and 25 sales force managers with such discretion find it a source of difficulty and frustration. In practice, many professionals do not have a reliable sense of how they themselves price transactions and are woefully uninformed as to the pricing behaviour of their competitors doing similar transactions for similar clients. In some industries or firms there are 1 "bench-marks" that are commonly used by professionals (with some tinkering to account for differences between their clients, the types of assets being transacted and the types of transactions). However, the bench-marks are often out of date, or out of step with market realities. Ideally, a professional should be able to charge a client "what the 5 market will bear" but this is impossible without accurate and up-to-date information on the state of the market. There is also pressure on professionals in certain industries or particular firms to maximize revenue by charging higher prices. However, with little reliable guidance, it is difficult for a professional to know how to adopt a pricing strategy that is competitive and revenue-maximizing, without losing touch with his own client, 10 asset and transactional variables. By the same token, firms want to be able to keep tabs on their own professionals and the prices charged for their transactional services with an eye to maximizing revenue and monitoring the "top performers" and "bottom performers" in their organizations. 15 However, the firms also lack a sense of the overall trends in pricing behaviour within their organizations and more broadly within their industry. This is exacerbated by the culture of secrecy in some industries (notably, securities) which disdains sharing any pricing information with competitors. Furthermore, some professionals and some industries use complex price formulas which effectively make pricing opaque. 20 It would be beneficial to provide a method of modelling pricing behaviour through "pricing episodes" for particular transactions by particular professionals to assist in evaluating: (1) professionals on the basis of their own past pricing behaviour; 25 (2) professionals among their peers in a firm, or across firms; and 2 (3) groups of professionals (e.g. departments or firms or teams) in a larger context (e.g. market-wide). SUMMARY 5 According to a first aspect of the present invention, there is provided a method of computer-assisted modeling using a reference price to assist in evaluating discretionary pricing of transactional services provided by a professional, the method comprising: executing software on a computer in communication with a database stored on a storage 10 means, the database including a universe of pricing episode data of pricing episodes, the computer being programmed for carrying out all of the following steps: segmenting the universe of pricing episode data of pricing episodes into a plurality of groupings, delimited by at least one price predictive parameter; the price predictive parameter being related to time of transaction, type of transaction, customer or customer type, asset or is asset type, account or account type or composition; the pricing episode data including discretionary prices chargeable by and within the discretion of the professional for transactional services provided by the professional; ranking the pricing episode data within each grouping according to the discretionary prices; choosing a reference price from among the ranked discretionary prices within each grouping based on a 20 predetermined level, rank or percentile; using the reference price for evaluating the pricing episode data in the grouping. According to another aspect of the present invention, there is provided a method of computer-assisted modeling using a reference price to assist in evaluating discretionary 25 pricing of transactional services provided by a professional, the method comprising: executing software on a computer in communication with a database stored on a storage means, the database including a universe of pricing episode data of pricing episodes, the computer being programmed for carrying out all of the following steps: segmenting the universe of pricing episode data of pricing episodes into a plurality of groupings, 30 delimited by at least one price predictive parameter; the price predictive parameter being related to time of transaction, type of transaction, customer or customer type, asset or asset type, account or account type or composition; the pricing episode data including discretionary prices chargeable by and within the discretion of the professional for transactional services provided by the professional; ranking the pricing episode data 35 within each grouping according to the discretionary prices; choosing a reference price from among the ranked discretionary prices within each grouping based on a predetermined level, rank or percentile; using the reference price for evaluating the pricing episode data in the grouping by dividing the pricing episode data arranged within each grouping into a first set having discretionary prices above the reference price and a second set having discretionary prices below the reference price. s BRIEF DESCRIPTION OF THE FIGURES FIG. 1 is a graph of a sample distribution of pricing episode data within a sample matrix segmented by price predictors (PP1, PP2). FIG. 2 is a graph of a sample arrangement of the pricing episode data according to price, showing a reference price identified within each segmented grouping (in this case, the 10 median price). FIG. 3 is an illustrative example of pricing episode data for a professional in contrast to reference prices for individual trades. DETAILED DESCRIPTION OF THE FIGURES 15 Embodiments of the he invention build on a central idea that a "reference price" can be used as a bench-mark for evaluating discretionary pricing for transactional services by professionals and groups of professionals. The reference price is determined by identifying a level, rank or percentile that is considered to be indicative of what the market will bear, or alternatively, 20 [THE NEXT PAGE IS PAGE 7] 4 what price the class of buyers should be willing to accept. For the purpose of illustration in the present application, median is used as the basis for determining "reference price", building on the belief that a professional could reasonably aim to be "above average" in his pricing. However, it will be understood that other levels, ranks or percentiles (e.g. top 5 quartile, quintile or decile) can equally be used to determine a reference price with the overarching qualification that the reference price should be simple and transparent, so that comparisons are easily understood. The starting point is a set of data (a "universe") which represents pricing episodes by a 10 group of professionals or a single professional over a period of time or in some other selected category (e.g., a peer group, a department, a firm, a region). Each "pricing episode" is associated with a little bundle of data for a given transaction or service rendered: 15 0 Who did the transaction (i.e. what professional) - and any other professional particulars believed to be relevant (e.g. the department and firm); e Who was the transaction for (i.e. which client or account) - and where is the client located, in which household, etc.; * When did the transaction occur or when was the transactional service rendered; 20 0 What was transacted - i.e. type of asset, value, volume, other particulars of service rendered; * What was the price charged by the professional for the transactional service whether flat fee, %, $ per volume or per hour. 7 The universe of the pricing episode data is then segmented according to one or more price predictors. The "price predictors" are variables or characteristics that are hypothesized to have some effect on pricing behaviour. Examples might include specific 5 asset, account or client attributes (e.g. volume of asset purchased, type of asset, scarcity, value). As shown in Fig. 1, the pricing episode data falls into the segmented price predictive groupings in a matrix 100 set by the two price predictors (PP1, PP2) 110, 120. The 10 groupings are bounded by breakpoints (shown as 112A, 112B, 112C for PP1 (110); and 122A, 122B for PP2 (120) in Fig. 1). The breakpoints will typically be numerical limits, but may instead be other kinds of categories. The breakpoints are selected so as to ensure that each grouping 130 has a representative sample of pricing episode data 132. For instance, it might be desirable to allow no fewer than 10 pricing episodes 132 in 15 each grouping. If there are less than 10, the breakpoints might be re-set and the segmenting re-established. Fig. 2 shows the arrangement of pricing episode data 132 in each grouping. The pricing episodes 132 are arranged in a linear fashion 134 high-to-low or low-to-high (by price) in 20 each grouping. As illustrated in Fig. 2, this linear representation of the data will indicate certain patterns or trends within each grouping. The linear arrangement also allows for the determination of the reference price 138 in each grouping (i.e. the price occurring at the desired level, rank or percentile in each arranged grouping 134). For this example, the reference price is taken to be the median price. 8 The reference price 138 allows the linear arrangement 134 of pricing episodes 132 to be divided into those above 136 the reference price 138 and those below 140 the reference price 133. If the pricing episodes of a given "target" professional (or target group) are 5 then isolated out of the mass, each of these pricing episodes can be compared against the reference price (above or below) in a particular grouping. Where the price charged by the professional (the discretionary price or actual price) was below the reference price, a revenue opportunity can also be identified, which is: Revenue Opportunity = (Reference Price - Price Charged) * Volume 10 The revenue opportunity amounts can also be summed together for a given professional (or group) in a single grouping or across all of the groupings. Thus, the professional using the modeling method can identify where he is pricing "below reference" (i.e. below market) and can identify the "lift" or "opportunity" that would be generated by pricing at the reference price. 15 Fig. 3 shows an illustrative example of the comparison with actual pricing episode data (in this case "Trades" 200). As shown in comparison matrix 250, two Price Predictors PPA 210 and PPB 220 were used to segment the universe of pricing episode data. Assume for the purpose of the example that these are: 20 PPA = overall value of trade PPB = value per share The price charged by the professional to execute Trade #1 was $150. This information was retrieved from the segmented universe matrix 260 where the PPA ($1200) and PPB ($2.50) were located within their delimited grouping (shaded region shown in matrix 9 260). The Reference Price 240 is taken from the median of all of the prices in that grouping (in this case, $121.50). As the Actual Price exceeds the Reference Price, Trade #1 was priced "above reference" (i.e. above market). 5 To determine the revenue opportunity for this set of pricing episode data (Trades #1-4), the instances where actual price was below reference price would be isolated (in this case, Trades #2 and 4). For each of these instances, the difference would be calculated between actual and reference price: Revenue OpportunityT 2 = $175.93 - $150.00 = $25.93 10 Revenue OpportunityT 4 = $225.00 - $199.99 = $25.01 Sum of (Revenue OpportunityT 2 + Revenue OpportunityT 4 ) = $50.94 The overall revenue opportunity for this example would be $50.94 (times the volume of the trades T 2 and T 4 ). This is an illustration of the amount of revenue "lost" by pricing under the reference price. It is also a data-based illustration of where pricing revenues 15 could be improved (i.e. where "opportunities" exist). The use of a reference price could also be applied to an entire universe of data (not previously segmented into groupings). However, the groupings allow like transactions to be compared. For instance, a high-value transaction may be compared against other 20 high-value transactions, or transactions with similar types of assets (e.g. early maturing or late maturing bonds) may be compared. 10 Furthermore, it will be appreciated that while many of the examples referred to in the description relate to securities concepts (trades, brokers, etc.), the modelling method works equally well for other types of discretionary pricing for transactions (e.g. legal services provided by professionals which are priced within the discretion of the 5 professional) or other services rendered by similar types of professionals (e.g. financial advisors, planners, insurance salespeople). The method works best where there are a number of comparable factors between the professionals and their pricing episodes to permit drawing conclusions. 10 The invention is designed to be carried out using software run on a computer or computer network, using standard databases and hardware. Preferably, the software generates reports to illustrate pricing episode data in both summarized and detailed forms. 15 The foregoing description illustrates only certain preferred embodiments of the invention. The invention is not limited to the foregoing examples. That is, persons skilled in the art will appreciate and understand that modifications and variations are, or will be, possible to utilize and carry out the teachings of the invention described herein. Accordingly, all suitable modifications, variations and equivalents may be resorted to, and such 20 modifications, variations and equivalents are intended to fall within the scope of the invention as described and within the scope of the claims. 11

Claims (12)

1. A method of computer-assisted modeling using a reference price to assist in evaluating discretionary pricing of transactional services provided by a professional, the method comprising: executing software on a computer in communication with a database stored on a storage means, the database including a universe of pricing episode data of pricing episodes, the computer being programmed for carrying out all of the following steps: segmenting the universe of pricing episode data of pricing episodes into a plurality of groupings, delimited by at least one price predictive parameter; the price predictive parameter being related to time of transaction, type of transaction, customer or customer type, asset or asset type, account or account type or composition; the pricing episode data including discretionary prices chargeable by and within the discretion of the professional for transactional services provided by the professional; ranking the pricing episode data within each grouping according to the discretionary prices; choosing a reference price from among the ranked discretionary prices within each groupin based on a predetermined level, rank or percentile; and using the reference price for evaluating the pricing episode data in the grouping.

2. The method of claim 1, wherein the predetermined level, rank or percentile comprises the median price within the grouping.

3. The method of claim 1, wherein the computer is further programmed for: 6895277_1 12 dividing the pricing episode data arranged within each grouping into a first set having discretionary prices above the reference price and a second set having discretionary prices below the reference price.

4. The method of claim 1, wherein the computer is further programmed for: observing any patterns in the distribution of pricing episode data within a grouping having regard to the reference price; and providing at least one goal-setting recommendation for future discretionary pricing by the professional based on any observed patterns.

5. The method of claim 1, wherein the discretionary prices are commissions or fees charged by a salesperson or broker.

6. The method of claim 1, wherein the transactional services are trades in a tradeable asset, the professional is a salesperson or broker, and the prices are commissions or fees charged by the salesperson or broker for the trades.

7. The method of claim 1, wherein segmenting comprises the computer being programmed for: determining if there are a pre-selected minimum number of pricing episodes within each grouping before proceeding to the next step, and if there are less than the minimum number of pricing episodes, re-segmenting the universe based on a different at least one parameter.

8. A method of computer-assisted modeling using a reference price to assist in evaluating discretionary pricing of transactional services provided by a professional, the method comprising: 6895277_1 13 executing software on a computer in communication with a database stored on a storage means, the database including a universe of pricing episode data of pricing episodes, the computer being programmed for carrying out all of the following steps: segmenting the universe of pricing episode data of pricing episodes into a plurality of groupings, delimited by at least one price predictive parameter; the price predictive parameter being related to time of transaction, type of transaction, customer or customer type, asset or asset type, account or account type or composition; the pricing episode data including discretionary prices chargeable by and within the discretion of the professional for transactional services provided by the professional; ranking the pricing episode data within each grouping according to the discretionary prices; choosing a reference price from among the ranked discretionary prices within each grouping based on a predetermined level, rank or percentile; and using the reference price for evaluating the pricing episode data in the grouping by dividing the pricing episode data arranged within each grouping into a first set having discretionary prices above the reference price and a second set having discretionary prices below the reference price.

9. The method of claim 8, wherein the predetermined level, rank or percentile comprises the median price within the grouping.

10. The method of claim 8, wherein the computer further: calculates and displays, for any pricing episode data in the second set of each grouping, a transaction revenue opportunity amount, comprising the difference between the reference price and the discretionary price multiplied by a volume of the transaction. 6895277_1 14

11. The method of claim 10, wherein the computer further: determines, for any grouping, an overall revenue opportunity amount, comprising the sum of all of the transaction revenue opportunity amounts within the grouping.

12. The method of claim 10, wherein the segmenting step further comprises: determining if there are a pre-selected minimum number of pricing episodes within each grouping before proceeding to the next step, and if there are less than the minimum number of pricing episodes, re-segmenting the universe based on a different at least one parameter. Dated 22 November, 2012 PriceMetrix Inc. Patent Attorneys for the Applicant/Nominated Person SPRUSON & FERGUSON 6895277_1 15