The Effect of Pricing Strategy

THE EFFECT OF PRICING STRATEGY ON CONSUMER BEHAVIOR IN THE
PERSONAL INSURANCE INDUSTRY
by
Kathleen F. Kane
A Dissertation Presented in Partial Fulfillment
of the Requirements for the Degree
Doctor of Business Administration
UNIVERSITY OF PHOENIX
July 2007
UMI Number: 3288621
Copyright 2007 by
Kane, Kathleen F.
All rights reserved.
UMI Microform 3288621

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© 2007 by Kathleen F. Kane
ALL RIGHTS RESERVED

THE EFFECT OF PRICING STRATEGY ON CONSUMER BEHAVIOR IN THE
PERSONAL INSURANCE INDUSTRY
BY
Kathleen F. Kane
July 2007
Approved:
Stephen Tvorik, Ph.D., Mentor
Ruby Rouse, Ph.D., Committee Member
*
D e l h Ashley-Baisden, Ph.D., Committee Member
Accepted and signed:
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A Belfina ~ s h l e ~ - ~ k s d e n7 'Date
Slac/o7
Date
Dean, School of Advanced Studies
University of Phoenix
ABSTRACT
The worldwide financial services industry has been experiencing a transformation
because of technological advancements and deregulation since 2000. The result of the
transformation is increased competition and market power, leading to pricing wars and
volatile consumer behavior. The purpose of the quantitative study was to investigate the
degree of relationship between pricing strategies and the consumer behaviors of retention
and loyalty. The study included an online survey founded in the theory of reasoned
action’s attitude toward behavior model. The study examined the current attitudes of
Hartford, Connecticut county personal insurance policy holders and their attitudes after a
sophisticated pricing method was described. The results indicate a positive and
significant relationship between consumer self-perceptions of pricing strategies and
retention and loyalty.

DEDICATION
This dissertation is dedicated to my mother Judy, who instilled the need for
continual education early in my life; to my husband Jim and daughter Mackenzie who
wholeheartedly supported me during the last four years; and to my many friends at
Movado Farms, Inc., who supported my efforts to write papers and this dissertation
during horse shows and lessons.

ACKNOWLEDGEMENTS
I thank Dr. Stephen Tvorik, Mentor, Dr. Delfina Ashley-Baisden, Committee
Member, and Dr. Ruby Rouse, Committee Member, for their contributions to this
dissertation and continual support through this journey. I also thank the faculty and
students of the University of Phoenix, who provided camaraderie and advice for the last
four years.
iv
TABLE OF CONTENTS
LIST OF TABLES........................................................................................................... viii
LIST OF FIGURES ........................................................................................................... ix
CHAPTER 1: INTRODUCTION ....................................................................................... 1
Background of the Problem ................................................................................................ 2
Statement of the Problem.................................................................................................... 6
Purpose of the Study ........................................................................................................... 7
Significance of the Study .................................................................................................... 9
Nature of the Study ........................................................................................................... 10
Research Questions........................................................................................................... 13
Hypotheses........................................................................................................................ 15
Conceptual or Theoretical Framework ............................................................................. 17
Definition of Terms........................................................................................................... 20
Assumptions...................................................................................................................... 21
Scope, Limitations, and Delimitations.............................................................................. 22
Limitations .................................................................................................................... 23
Delimitations................................................................................................................. 24
Summary ........................................................................................................................... 26
CHAPTER 2: REVIEW OF THE LITERATURE ........................................................... 27
Study Context.................................................................................................................... 28
Regulation..................................................................................................................... 29
Changing Consumer Needs .......................................................................................... 31
Competition .................................................................................................................. 33
v
Historical Overview .......................................................................................................... 35
Theory of Reasoned Action .......................................................................................... 36
Consumer Behavior ...................................................................................................... 38
Customer Retention ...................................................................................................... 39
Customer Loyalty ......................................................................................................... 41
Pricing Strategy............................................................................................................. 44
Sophisticated Pricing Strategies.................................................................................... 45
Financial Models........................................................................................................... 48
Capital Asset Pricing Model (CAPM) ...................................................................... 49
Black-Scholes Option Pricing Model ....................................................................... 50
Discounted Cash Flow Model................................................................................... 51
Actuarial Models........................................................................................................... 52
Maximum Probable Loss Principle........................................................................... 53
Ruin Probability Principle......................................................................................... 54
Current Findings ............................................................................................................... 55
Conclusion ........................................................................................................................ 55
Summary ........................................................................................................................... 57
CHAPTER 3: METHOD .................................................................................................. 58
Research Method .............................................................................................................. 58
Design Appropriateness .................................................................................................... 62
Research Questions........................................................................................................... 63
Hypotheses........................................................................................................................ 65
Population ......................................................................................................................... 67
vi
Informed Consent.............................................................................................................. 68
Sampling Frame ................................................................................................................ 69
Confidentiality .................................................................................................................. 72
Geographic Location......................................................................................................... 73
Instrumentation ................................................................................................................. 73
Data Collection ................................................................................................................. 77
Pilot Group........................................................................................................................ 78
Data Analysis .................................................................................................................... 79
Reliability and Validity..................................................................................................... 82
Summary ........................................................................................................................... 86
CHAPTER 4: DATA ANALYSIS ................................................................................... 88
Data Collection ................................................................................................................. 88
Data Demographics........................................................................................................... 89
Data Analysis .................................................................................................................... 90
Reliability and Validity................................................................................................. 90
Hypothesis 1: The Relationship between Pricing Strategy and Retention ................... 91
Hypothesis 2: The Relationship between Pricing Strategy and Additional Purchases. 94
Hypothesis 3: The Relationship between Pricing Strategy and Referrals .................... 96
Additional Insight into Consumer Behavior................................................................. 98
Research Study Themes.............................................................................................. 103
Theme 1: Price ........................................................................................................ 104
Theme 2: Understanding Insurance ........................................................................ 106
Summary ......................................................................................................................... 108

vii
Conclusion ...................................................................................................................... 108
CHAPTER 5: CONCLUSIONS, IMPLICATIONS, AND RECOMMENDATIONS... 110
Discussion ....................................................................................................................... 110
Issues of Scope and Limitations ..................................................................................... 119
Recommendations and Implications ............................................................................... 119
Suggestions for Future Research .................................................................................... 124
Summary ......................................................................................................................... 126
Conclusion ...................................................................................................................... 127
APPENDIX A: COVER EMAIL SAMPLE................................................................... 145
APPENDIX B: PILOT QUESTIONNAIRE .................................................................. 146
APPENDIX C: POSSIBLE RESPONSES FOR QUALITATIVE QUESTIONS ......... 155
APPENDIX D: UPDATED SURVEY AFTER PILOT FEEDBACK ........................... 157
APPENDIX E: FREQUENCY ANALYSIS OF MULTI-ANSWER QUESTIONS ..... 178

viii
LIST OF TABLES
Table 1 Cronbach’s Alpha Analysis for All Variables and Questions..……………………91
Table 2 Intercorrelations between Variables for Renewing Insurance Policies……….…92
Table 3 Theory of Reasoned Action Model for Renewing Insurance………………………93
Table 4 Intercorrelations between Variables for Purchasing Additional Insurance….....95
Table 5 Theory of Reasoned Action Model for Purchasing Additional Insurance………96
Table 6 Intercorrelations between Variables for Referrals……………………………..…..97
Table 7 Theory of Reasoned Action Model for Referrals……………………………………98
Table 8 Intercorrelations between Variables for How My Company Prices Policies….100
Table 9 Theory of Reasoned Action Model for How My Company Prices…..……….….101
Table 10 Intercorrelations between Variables for Comparison Shopping…………….…102
Table 11 Theory of Reasoned Action Model for Comparison Shopping…………………103

ix
LIST OF FIGURES
Figure 1. Distribution of Participants by Age…………………………………….....………. 90
Figure E1. Why do you stay with your insurance company?..........................................178
Figure E2. How do you think insurance companies price policies?................................179
Figure E3. What is important to you in purchasing insurance?......................................180
Figure E4. Why would you leave your insurance company?..........................................181
Figure E5. What is your reaction to the sophisticated pricing method?..........................182
Figure E6. What should an insurance company use to price a policy?...........................183

1
CHAPTER 1: INTRODUCTION
The worldwide financial services industry is experiencing a transformation
relative to restructuring and consolidation (Choi & Weiss, 2005). The transformation, as
argued by Choi & Weiss and Oliva (2005) is the result of technological advancements
and deregulation, influenced by the Internet and the Gramm-Leach-Bliley Act of 1999.
Transformation of financial services, in the form of consolidation, is accelerating within
the United States and consolidation results in increased competition and market power,
leading to questions on what the impact is to consumers (Choi & Weiss, 2005; Oliva,
2005).
Over the last 10 years according to Bayley and Stoll (2006), technological
advancements have resulted in improvements in consumer analysis accompanied by
changes in personal insurance policy pricing. The use of predictive modeling techniques
is one of the changes and allows not only insurance providers but also other product
providers, the ability to differentiate consumers. Differentiating consumers increases the
capability for leaders to increase growth and profit for the organization (Bayley & Stoll,
2006).
According to an article on non-life insurance in the United States, the United
States represents 47.7% of the non-life insurance global market. The property and
casualty segment equals 75.9% of the United States non-life insurance market value. By
2009, the United States non-life insurance market value is expected to reach $760.7
billion, representing a 25.1% increase over 2004 (“Non-life insurance in the United
States,” 2005).
2
Competition in the personal insurance industry is high, and the market is mature
(Maurstad, Riddergard, & Vrolijk, 2001; Smith, Willis, & Brooks, 2000). The cost of
acquiring new customers is five times that of retaining customers (Clemons & Weber,
1994). A large body of research exists regarding the relationship between customer
retention and customer satisfaction and service experience (Bolton, 1998; Durvasula,
Lysonski, Mehta, & Tang, 2004; Reichheld, 1996). There is also research on how pricing
strategies affect consumers’ purchasing behavior (Ho, Lim, & Camerer, 2006; Marquis,
2006; Seog, 2006; Shimp & Kavas, 1984). Research is lacking concerning the effect
pricing strategies have on the specific consumer behaviors of retention and loyalty.
The objective of the study was to explore the effect of pricing strategies on
consumer attitudes toward behavior through the framework of the theory of reasoned
action. Through examination of consumer attitudes and intentions, leaders may learn
about consumer behavior (Ajzen & Fishbein, 1980), thereby focusing strategies
appropriately. The results of the study provide valuable knowledge for the leadership of
insurance providers and other consumer industries regarding the relationship between
pricing strategies and consumer behavior.
Background of the Problem
The transformation of the financial services industry creates competitors focused
on sustainable profitability and consumers (Oliva, 2005). In an environment where the
cost of products and services continues to rise, price for value is very important to the
consumer. J. D. Power and Associates (2001) indicated survey results where 60% of
respondents would switch insurance providers for cost savings. The remaining 40% cited
other factors such as life events and service issues as reasons for switching (J. D. Power
3
and Associates, 2001). Consumers who are more knowledgeable understand price for
value and adjust behavior towards a product and service provider accordingly
(Huchzermeier, Iyer, & Freiheit, 2002).
In the past, purchasing insurance policies occurred from a single distribution
method, the local insurance agent in town (Dumm & Hoyt, 2003). The insurance agent
was someone known to the family and usually lived in the same city or town.
Relationships with customers occurred through face-to-face conversations. An insurance
agent had knowledge of the city or town and was aware of a customer’s life events.
Insurance providers, such as State Farm or Allstate, had offices within the towns
and other insurance providers had products sold through a local agent in town (Dumm &
Hoyt, 2003). The local agent, as stated by Dumm and Hoyt, provided insurance
counseling and analysis for each customer and identified the appropriate provider from
whom to purchase coverage. The customers trusted the agent to perform the research and
present the best insurance coverage to meet their current needs, and the agency became
the center of trust and dependence for both the customer and the insurance provider.
Prior to the Internet, insurance agents governed consumer behavior (Dumm &
Hoyt, 2003). According to Dumm and Hoyt, the agent provided comparison shopping for
the consumer and recommended the best policy and provider. Consumers built long-term
relationships with an agent. Insurance providers trained and supported the agents and
paid competitive commissions to assure sales. The focus for insurance providers was on
product benefits and servicing the agent, and not on developing competitive policy price
strategies.
4
Segmentation allows insurance providers a method of identifying groups of
people perceived to behave in the market in the same way (Bielski, 2006; Clemons &
Weber, 1994). The elements or characteristics of a segment determine how the provider
will price a policy, and these characteristics are part of the pricing input (Nagle &
Cressman, 2002). The deeper or richer the characteristics, the more customized or
sophisticated the strategy is to a particular consumer and the greater the differentiation
from competitors (Tuckey, 2005). Sophisticated and effective pricing strategies provide a
greater impact on a product’s market success over any other product element (Cram,
2006).
Personal insurance such as automobile and home insurance is mandatory when
purchasing a vehicle or house within the United States (Esho, Kirievsky, Ward, &
Zurbruegg, 2004). Departments of Insurance in each state regulate the nature and
frequency of price changes and therefore monitor society’s concerns over fair pricing in
the industry (Baranoff & Baranoff, 2003). The catastrophic events of the 2005 hurricane
season have caused consumer concern over the pricing of home, automobile, and
business insurance in coastal regions (Grace, Klein, & Liu, 2005). Price increases in these
areas bring both societal concerns and provider financial impact (Grace et al., 2005).
To win the competition within the insurance industry, as stated by Maurstad et al
(2001), leaders must focus on product features and now, with a more knowledgeable
consumer, on price. To obtain market share, insurance providers must win consumers
from other providers. Leaders within insurance providers must develop unique product
features and effective pricing strategies to satisfy individual consumer needs.

5
Through the availability of information and comparison shopping on the Internet,
a shift is occurring for both consumer and insurance providers (Choi & Weiss, 2005;
Dumm & Hoyt, 2003; Oliva, 2005). The result is the need for providers to focus and
adapt to changing consumer insight and behavior (Giloni, Seshadri, & Kamesam, 2003).
Consumers are becoming more discerning, and providers need to present information
appropriately to retain or capture the new type of consumer (Dumm & Hoyt, 2003; Giloni
et al., 2003). New pricing strategies are critical for leaders of insurance providers to
increase market share and produce more positive consumer behavior (Smith et al., 2000).
Today, pricing insurance policies occurs through cost-plus type models (Yeo,
Smith, Willis, & Brooks, 2001). Cost-plus pricing is determined through identification of
average variable costs plus an allocation of fixed costs and the addition of a profit level.
According to Yeo et al., claims filed by insurance consumers determine variable costs in
insurance, providing a challenge in determining exact costs. In the past, insurance leaders
segmented the customer population through demographic characteristics. Leaders and
actuaries assigned prices to these segments with the assumption of each individual within
a segment behaving in the same manner (Yeo et al., 2001).
As the industry has matured and competition increased, insurance providers have
expanded product lines, reduced expenses, and focused more on differentiating between
consumers (Shoemaker, 2003). Providers have begun to move away from the one-price-
fits-all method for differentiation (Shoemaker, 2003). Providers now look to an increase
in the number of consumer characteristics to integrate into pricing strategies, allowing for
more customizable pricing (Marn, Roegner, & Zawada, 2003).

6
The United States financial services industry is experiencing an accelerated
transformation. The result of the transformation is an increase in mergers, acquisitions,
and competition (Choi & Weiss, 2005; Oliva, 2005). To obtain new consumers,
according to Dumm and Hoyt (2003), insurance providers must take market share from
other providers. To do so, organizational leaders will require unique products and pricing
strategies with the goal of resulting in more favorable consumer behavior.
Uncertainty in the regulatory environment is creating uncertainty in the United
States insurance industry as contended by Oliva (2005). In addition, an influential
transformation to a consumer-focused industry is occurring. Transparency, technology,
and a focus on profit are critical to success in the insurance market (Oliva, 2005).
Business rules and increased granularity in developing product features and pricing are
Oliva’s recommendations for the industry.
Statement of the Problem
Competition in the personal insurance industry is high, the market is mature, and
each state controls the allowable insurance rates (“Insurance Industry Trends,” 2006;
Smith et al., 2000). The cost of obtaining new customers is five times the cost of
retaining customers (Clemons & Weber, 1994). To obtain new consumers, insurance
providers must take market share from other providers (Dumm & Hoyt, 2003). To do so,
organizational leaders will require unique products and pricing strategies with the goal of
influencing more favorable consumer behavior (Dumm & Hoyt, 2003). Failure to
examine the relationship between pricing strategies and consumer behavior may result in
loss of customers to competitors who understand the relationship (Cram, 2006).

7
Prices in the insurance industry have risen in the last three to five years at twice
the rate of inflation, increasing consumer concerns about pricing (Beloucif, Donaldson, &
Kazanci, 2004). According to Beloucif et al., the role of price appears to have
overshadowed service quality in insurance purchases, leading consumers to be less loyal
to the insurance provider. Customer retention and loyalty are important to the overall
financial performance of an organization (Beloucif et al., 2004). When pricing strategies
interfere with customer behavior, overall organizational financial performance may suffer
(Smith et al., 2000). Understanding the relationship between pricing strategies and
customer behavior will assist organizational leaders in developing successful strategies
(Cram, 2006; Dutta, Bergen, Levy, Ritson, & Zbaracki, 2002).
The study’s purpose focuses on the relationship between pricing strategies and
consumer behavior through the theory of reasoned action. The study’s design contains an
online survey instrument, targeting the adult population within a specific United States
county. The specific target population is any Hartford County, Connecticut resident, male
or female, who is a United States citizen and 18 years or older. Correlational statistical
analysis will determine the strength and direction of the relationship between pricing
strategies and consumer behavior. The results of the study provide insight to leaders by
identifying important elements of pricing strategies to assist in maintaining or increasing
loyalty and retention thereby stabilizing or increasing financial performance.
Purpose of the Study
The purpose of the quantitative research study was to determine the degree of
relationship between pricing strategies and the consumer behaviors of retention and
loyalty within the personal insurance industry. The study’s design included an online
8
survey targeted at adult purchasers of personal insurance within Hartford County,
Connecticut. The use of a simple random sampling technique provided a study sample
inclusive of the various demographic segments representing the target population.
The intention of the nonexperimental correlation study design was to expose
consumer attitudes and intentions toward the purchase or repurchase of personal
insurance policies. Understanding attitudes and intentions leads to understanding
behavior (Ajzen & Fishbein, 1980). The researcher-developed survey has foundations in
the theory of reasoned action and the attitude-toward-behavior model. The design of the
study is appropriate for correlational research.
The dependent variables are the behavioral aspects of consumer retention and
loyalty. Customer retention centers on the creation and maintenance of long-term
relationships (Harrison & Ansell, 2002). Customer loyalty is the extent to which a
customer has shown, over the short term, engagement in repetitive purchasing behavior
of an organization’s products or services (Hellier, Geursen, Carr, & Rickard, 2003). The
independent variable is pricing strategy. A pricing strategy includes information
necessary to determine the overall price for a product or service (Maurstad et al., 2001).
The design of the study includes an online survey delivered through the Web-
based survey service zoomerang.com. Zoomerang.com provided resources to determine
the population and the sample through supplied criteria and simple random sampling
techniques. Delivery of the cover email and the collection of the anonymous responses
also occurred through zoomerang.com.
Utilization of basic descriptive, correlational, regression, and content analysis
tests occurred to examine the nature of the relationship between pricing strategies and
9
consumer behavior. The design is ex post facto or one that has no control over the
variables during the study (Cooper & Schindler, 2006). The method of a quantitative
correlational study and nonexperimental design are appropriate to address the nature of
the study.
Significance of the Study
The financial services industry is experiencing a worldwide transformation (Choi
& Weiss, 2005). The transformation stems from technological advances such as the
Internet and deregulation (Choi & Weiss, 2005; Oliva, 2005). For insurance
organizations, the Internet exposes weaknesses in pricing methods and the possible
adverse selection by consumers (Finnegan & Moffat, 2000). The response from insurance
providers is to offer more discounts or reduce rates; however, Seog (2002) has suggested
for both the long term and short term, the strategy of lowering prices may not be the best
solution.
Leaders must provide an environment where pricing is a strategic capability
within an organization (Dutta et al., 2002). Sophisticated pricing strategy development
must include the perspectives of not only the organization and the competition but of the
customers (Cram, 2006). Pricing strategies not containing all three elements provide
limited value to an organization. The element missing from most pricing strategies is the
voice of the customer. Leaders recognizing the voice of the customer when developing
pricing strategies provide additional competitive advantage to the organization (Cram,
2006; Dutta et al., 2002).
Changes in pricing strategies are complex and become a liability if leaders do not
focus on the correct elements (Dutta et al., 2002). Leaders are responsible for leading and
10
managing change (Kerfoot, 2004) as well as being aware of new ways of developing
competitive advantage. Leaders who invest the time and resources in effective pricing
strategies provide the organization with sustainable competitive advantage (Dutta et al.,
2002).
The more knowledge a consumer has about insurance products and pricing, the
higher the potential for volatile consumer behavior (Durvasula et al., 2004).
Understanding how pricing strategies affect consumer behavior allows leaders to develop
flexible strategies (Marn et al., 2003). With the cost of obtaining new customers being
five times the cost of retaining customers (Clemons & Weber, 1994) an imperative exists
for organizational leaders to develop effective pricing strategies (Cram, 2006; Dutta et
al., 2002).
Nature of the Study
Multiple insurance distribution methods are now available, and many insurance
providers are engaging in combinations of methods to broaden consumer reach (Dumm &
Hoyt, 2003). As of 2003, according to Dumm & Hoyt, 2% of the population purchased
insurance on the Internet. Research concerning insurance on the Internet continues to
increase. Forrester Research, Inc. performed a benchmark study and discovered that, of
the automobile insurance consumers studied, 86% used the Internet to research insurance.
Once consumers collect the information, 78% of the consumers will work with an agent
to obtain the best fit for the individual’s situation (Temkin, 2005).
The study uses a quantitative design. The purpose of the quantitative design is to
measure the strength and direction of the relationship between the variables. The
population targeted is Hartford County, Connecticut, adult purchasers of personal lines

11
insurance products chosen through a simple random sampling technique. The nature of
the research questions and hypotheses for the study requires a design capable of
indicating the type of relationship existing between the independent and dependent
variables (Cooper & Schindler, 2006; Creswell, 2002).
The data-gathering technique for the study is an online survey instrument
managed through the Web-survey service zoomerang.com. The cross-sectional survey
instrument included quantitative and qualitative elements founded in the theory of
reasoned action. The data obtained provided insight into customer attitudes toward
insurance pricing strategies and the resulting behavior in the areas of retention and
loyalty.
Online survey methods provide many of the essential philosophies contained
within the heart of the survey technique (Bonometti & Tang, 2006; Fricker, Galesic,
Tourangeau & Yan, 2005; Hair, Bush & Ortinau, 2002). Online survey methods have set
new standards for advancing the future collection of primary data (Bonometti & Tang,
2006; Hair et al., 2002). Many recent research studies have used the online survey
method in order to reach large populations locally or globally (Bazzie, Witmer, Pinto,
Bush, & Clark, 2006; Royal, 2005; Scott & Hughes, 2006; Watson, 2005). The methods
used are appropriate to examine the current attitudes and behaviors of the adult personal
insurance purchasers within Hartford County, Connecticut (Ajzen & Fishbein, 1980).
The use of an online survey instrument is also appropriate for the nature of the
study and the target population. Online surveys provide a quick and efficient method of
delivery and data gathering (Bonometti & Tang, 2006; Burns & Bush, 2003; Fricker et
al., 2005). Using a Web-based survey instrument embedded within electronic mail may
12
increase the response rate and honesty of answers from participants (Bonometti & Tang,
2006; Burns & Bush, 2003). Online surveys also increase the ability to send secondary
distributions to additional participants if the response rate is low (Bonometti & Tang,
2006).
Many studies involving consumer behavior have used the theory of reasoned
action (Donghun, 2005; Njite & Parsa, 2005; Shaw & Shiu, 2000; Shimp & Kavas, 1984;
Yoh, Damhorst, Sapp, & Laczniak, 2003). The purpose of the theory, as explained by
Ajzen and Fishbein (1980), is to forecast, clarify, and sway people’s actions. The authors
noted the method most employed within research studies to gather appropriate attitudinal,
intentional, and behavioral data is a survey. Interviews and focus groups are other
possible ways to gather behavioral data.
Advantages of survey methods include the ability to accommodate large sample
sizes, the ease of administering and recording questions and answers, and the capability
of utilizing advanced statistical analysis (Burns & Bush, 2003; Hair et al., 2002). Online
survey methods are increasing in use, and electronic surveys and communication are
revolutionizing research studies (Burns & Bush, 2003; Creswell, 2002).
The use of a quantitative design provides the ability to identify the nature of the
relationship between variables (Cooper & Schindler, 2006; Simon, 2005). The use of an
online survey instrument provides the reach and flexibility necessary to gather data from
a diverse population (Bonometti & Tang, 2006). The objective of the study was to
provide insight into consumer attitudes towards and behaviors around insurance pricing
strategies. With the transformation of the financial services industry, leaders must
understand the intentions and behaviors of consumers in order to remain competitive

13
(Cram, 2006; Oliva, 2005; Marquis, 2006). The identification of the degree of
relationship between pricing strategies and the consumer behaviors of retention and
loyalty was the focus of the study.
Participants in the study could not work for an insurance provider or insurance
agency regardless of the type of insurance sold. Insurance purchases could occur for an
individual or family automobile, home, renter’s, or condominium policy. Participants
could be first-time purchasers or have current insurance policies.
Generation of the sample occurred through a simple random sampling technique
performed by Zoomerang.com resources. The sample included a broad view of insurance
purchasers to allow for generalizability of the findings. Correlation and regression
statistical analysis determined the relationship between pricing policies and consumer
actions in response to pricing strategies. The research design and method are appropriate
to gather and analyze the amount of data necessary to provide a valid and reliable study.
Research Questions
The transformation of the financial services industry and the changes in consumer
analysis has caused insurance providers to react quickly (Choi & Weiss, 2005; Oliva,
2005). Insurance providers are evaluating ways to increase customer retention and loyalty
in a mature and highly competitive market as observed by Maurstad et al. (2001). The
authors have stated the ability to customize policy pricing to an individual provides the
organization the flexibility to adapt to changing consumer behavior and needs.
Effective pricing strategies incorporate the views of the consumer, the
organization, and the competition (Cram, 2006). Changing an organization’s pricing
strategy is complex and difficult, though the rewards will offset the challenges if done
14
correctly (Dutta et al., 2002). A successful 1% increase in pricing may improve profit by
11.1% (Cram, 2006). The improvement in the financial performance of the organization
is clear, though only one aspect of effective pricing and overall financial performance
(Cram, 2006).
When an organization’s leaders invest time in research into improved pricing
strategies as stated by Dutta et al. (2002), competitors will have difficulty in duplicating
the method. The inability for competitors to duplicate pricing strategies may lead to a
sustainable competitive advantage for the organization. The missing element of the
improved pricing triangle is the perspective of the customer (Cram, 2006). Customer
purchases and ongoing behavior also influence an organization’s performance (Harrison
& Ansell, 2002; McKenzie, 2006).
Research studies have shown relationships between consumer purchases and
pricing strategies (Ho et al., 2006; Marquis, 2006; Seog, 2006; Shimp & Kavas, 1984).
Research is lacking relative to pricing strategies within the insurance industry and the
consumer behaviors of retention and loyalty. Consumer retention focuses on maintaining
long-term relationships with the organization (Harrison & Ansell, 2002). For the
insurance industry, long-term relationships mean the renewal of insurance policies and
these relationships are the focus of the first research question for the study:
R1. What is the strength and direction of the relationship between an insurance
organization’s pricing strategy and the consumer’s attitude toward the renewal of
insurance policies?
Consumer loyalty exists in two forms. Behavioral loyalty occurs when a
consumer engages in repetitive purchasing of an organization’s products or services

15
(Fitzgibbons & White, 2005; Hellier et al., 2003). Attitudinal loyalty refers to a
consumer’s commitment towards a brand and generation of word-of-mouth advertising or
referrals (Fitzgibbons & White, 2005). The question surrounding the relationship of
pricing strategies to the consumer behavior of loyalty leads to the remaining two research
questions for the study:
organization’s pricing strategy and the consumer’s attitude toward purchasing
additional insurance policies?
organization’s pricing strategy and the consumer’s attitude toward referring the
insurance provider to new customers?
Hypotheses
Past studies have shown the relationship between customer loyalty and retention
and customer satisfaction (Bolton, 1998; Durvasula et al., 2004; Reichheld, 1996).
Additional studies of the insurance industry focused on customer satisfaction and service
experience (Bolton, Kannan, & Bramlett, 2000; Oliver, 1980). Research studies exist on
the relationship of pricing strategies and consumer purchasing (Ho et al., 2006; Marquis,
2006; Seog, 2006; Shimp & Kavas, 1984). The objective of the study is to extend the
related body of knowledge to the relationship between pricing strategies and the
consumer behaviors of retention and loyalty.
Consumer retention and loyalty are important factors in an organization’s
financial performance (Harrison & Ansell, 2002; Smith et al., 2000). Consumer retention
and loyalty exist when a consumer engages in repeated purchases of an organization’s

16
products and services (Fitzgibbons & White, 2005; Hellier et al., 2003). Consumer
loyalty also exists when consumers generate word-of-mouth advertising or referrals
(Fitzgibbons & White, 2005).
Consumers have difficulty, as contended by Cram (2006), in identifying how
much they should be willing to pay for an item. Consequently, organizational leaders
capable of identifying benefits and value to a consumer and matching price to these
elements will succeed in the marketplace. As explained by Cram, understanding
consumer insight and behaviors leads to success in pricing strategies and organizational
performance. Consumers are learning more about organizational products and services
from the Internet (Kannan & Kopalle, 2001).
Additional knowledge leads to attitudes and behaviors about the organization and
the product (Saussy, 2004). These attitudes and behaviors become part of an individual’s
self-concept (Fitzmaurice, 2005). Self-concept is the degree to which a particular item or
set of actions equates to one’s self-image from the individual’s perspective (Fitzmaurice,
2005). Research has identified a positive relationship between self-concept and intentions
under specific consumer purchasing behaviors (Fekadu & Kraft, 2001; Fitzmaurice,
2005).
The hypotheses tested in the study are as follows:
H01: There is no relationship between a consumer’s self-concept of pricing
strategies and his or her attitude toward retention behavior relative to the
renewal of insurance policies.

17
HA1: A positive relationship exists between a consumer’s self-concept of pricing
strategies and his or her attitude toward behavior relative to additional
product purchases.
product purchases.
strategies and his or her attitude toward behavior relative to referrals.
Conceptual or Theoretical Framework
The guiding premise for the study is that effective pricing strategies have a
positive influence on a consumer’s attitude toward behavior. The influence on
consumer’s behavior would be specifically around retention and loyalty. The theory of
reasoned action provides a suitable framework for conceptualizing these behaviors
(Ajzen & Fishbein, 1980).
The theory of reasoned action focuses on predicting and understanding an
individual’s actions (Ajzen & Fishbein, 1980). The first element in the theory is the
identification and measurement of interest in the behavior (Ajzen & Fishbein, 1980).
From the interest identification and measurement, a prediction of the action is possible
18
(Ajzen & Fishbein, 1980). According to the theory, an individual’s purpose to engage in
a behavior is the direct determinant of the behavior (Ajzen & Fishbein, 1980).
The second element of the theory is the understanding of an individual’s actions
and requires an understanding of two determinants, the personal and social influences
(Ajzen & Fishbein, 1980). The personal factor or “attitude toward the behavior” (Ajzen
& Fishbein, 1980) reflects the individual’s assessment of engaging in the behavior. The
social factor or “subjective norm” (Ajzen & Fishbein, 1980) reflects an individual’s self-
perception of the societal influences to engage or not engage in a behavior.
Many research studies have used the theory of reasoned action (Armitage &
Christian, 2003; Bartee, Grandjean, & Bieber, 2004; Miniard & Page, 1984; Njite &
Parsa, 2005; Strader & Katz, 1990; Trafimow & Finlay, 2002; Tuncalp & Sheth, 1975).
Understanding the evaluative criterion an individual uses in purchasing a product is one
aspect the theory of reasoned action can address (Ajzen & Fishbein, 1980; Njite & Parsa,
2005). According to the J. D. Power and Associates (2001) survey, the price of an
insurance policy is an important consumer criterion. Understanding additional
information about various pricing strategies may influence a person’s attitude and
behavior regarding the purchase of products (Saussy, 2004).
Consumers have greater sensitivity to price changes than changes in other product
or service elements (Gourville, 2003). In addition, Gourville stated, presentation of
pricing information adds to a consumer’s understanding of the product or service
presented. If an organization can increase understanding and lower price sensitivity for a
consumer, loyalty begins to form. The benefits of consumer loyalty are increased
retention, increased profitability, and lower cost of service for the organization (Reinartz
19
& Kumar, 2002; Shoemaker, 2003). Additionally, customers may refer the organization
to others and purchase more products (Fitzgibbons & White, 2005).
Research by Durvasula et al. (2004) identified two types of behavioral outcomes
sought by service providers. The first is behavioral loyalty and focuses on specific
behaviors in consumer repurchasing. The second is attitudinal loyalty and focuses on a
consumer’s probability of referring a service provider to another consumer.
Organizational leaders capable of positively influencing consumer loyalty directly affect
the organization’s financial performance (Nagle & Cressman, 2002).
In an environment where the cost of goods continues to rise, price for value is
very important. J. D. Power and Associates (2001) indicated survey results where 60% of
respondents would switch insurance providers for cost savings. The remaining 40% cited
other factors such as life events and service issues as reasons for switching. Consumers
who are more knowledgeable understand price for value and adjust behavior to the
product and service provider accordingly (Saussy, 2004).
A more knowledgeable personal insurance consumer understands the product
features necessary to cover applicable assets (Laury & McInnes, 2003). Knowledgeable
consumers look for the best value in products purchased (Nagle & Cressman, 2002). As
significant events occur in an individual’s life, coverage and products may change (Esho
et al., 2004). Consumers want more customized pricing based on these events and the
relationship with the provider. Leaders within insurance providers must develop an
understanding of their consumer and the degree of loyalty consumers are willing to give,
and leaders must develop product benefits to attract and maintain customers (Marn et al.,
2003).
20
A GartnerG2 2002 survey of insurance executives found the perception of product
feature and functionality of insurance products to be important elements in attracting new
customers (Schehr, 2003). The GartnerG2 2002 survey of consumers, however, found
price and packaging to be more important (31%) than features and functions (24%)
(Schehr, 2003). Understanding the consumer perspective is critical in developing
organizational strategies (Cram, 2006). Through effective pricing strategies, leaders can
develop a sustainable competitive advantage and a more loyal consumer base (Dutta et
al., 2002).
Definition of Terms
The insurance industry has a unique and confusing language. The section of
definitions provides assistance in comprehension of specific terms and establishes a
common understanding for the purposes of the study. The objective of the study was to
explore the effect of pricing strategies on consumer behavior through the framework of
the theory of reasoned action.
Pricing is the creation of a price that provides value for the customer while
maximizing gain for the organization (McCarthy, 1960). A pricing strategy is the
capability to both repeatedly and effectively appraise risks in the development of product
and service price structures (Cram, 2006; Maurstad et al., 2001). Pricing strategies also
include the perspectives of consumers, the competition, and the organization (Cram,
2006). An element of the consumer perspective is the consumer’s price sensitivity
(Maurstad et al., 2001).
Consumer behavior is an individual’s purchase and consumption decisions,
influenced by culture, social class, and reference group (Peter & Donnelly, 2003).
21
Customer retention is the rate at which customers remain engaged with an
organization through renewals or continuing to purchase new products or services from
the same organization (Payne, Christopher, Clark, & Peck, 2003).
Customer loyalty is the desire of the customer to remain with an organization
because of the value the customer receives in product, quality, sales support, and
availability (Payne et al., 2003).
Loyalty exists as behavioral or attitudinal (Fitzgibbons & White, 2005).
Behavioral loyalty exists when a customer engages in the repetitive purchasing of an
organization’s products or services (Fitzgibbons & White, 2005; Hellier et al., 2003).
Attitudinal loyalty is a consumer’s bias for a brand and includes word-of-mouth
advertising such as referrals (Fitzgibbons & White, 2005).
The study was limited to personal insurance. Personal insurance includes those
types of insurance typically used by a household, such as homeowners’ and automobile
insurance (Plunkett Research Online, 2006). Other types of insurance include life and
commercial. Personal insurance is undergoing changes in the analysis of consumers,
leading to change in pricing strategy (Cram, 2006).
Assumptions
The study’s design and method contained several inherent assumptions. The first
is the use of the theory of reasoned action as the foundation of the study. Development of
the theory of reasoned action occurred to explain and predict consumer behavior (Ajzen
& Fishbein, 1980). According to the theory, attitudes and social norms lead to behavioral
intentions thus leading to behavior (Ajzen & Fishbein, 1980). The theory has been the
framework for many research studies (Donghun, 2005; Njite & Parsa, 2005; Shaw &
22
Shiu, 2000; Shimp & Kavas, 1984; Yoh et al., 2003), though not all have produced
supportive results (Bagozzi, 1981; Miniard & Cohen, 1979; Ryan, 1982).
The second assumption was the study measures are valid and reliable. An online
survey, containing closed and multiple-answer questions based on the theory of reasoned
action, was the tool used to gather data for the study. Choosing the measures for the study
occurred through the examination of many studies having used the theory of reasoned
action. The assumption was the studies produced valid and reliable results using these
measures.
The third assumption was participants would respond to the online survey.
Response rates are difficult to predict for online surveys (Fricker et al., 2005). Industry
market researchers suggest a 1-10% response rate experience for Web-based insurance
surveys (E. Casey, personal communication, November 5, 2006; M. Sternat, personal
communication, November 6, 2006). Online surveys produce varying levels of response
rates, though the rates are in acceptable ranges for valid and reliable results (Fricker et al.,
2005).
The fourth assumption was the participants would be honest in their responses to
the survey. Because the nature of insurance purchasing is emotive (Beloucif, et al., 2004)
and consumers are concerned over insurance prices (Cooley, 2002), the assumption is
participants would respond honestly. Another assumption is an online survey provides
privacy for the participant to be honest and therefore the participant will be honest.
Scope, Limitations, and Delimitations
The target population of the study was adult personal insurance purchasers within
the United States. The data gathered included the target population’s perceptions
23
regarding pricing strategies on consumer behavior, specifically retention and loyalty. The
data gathered was both quantitative and qualitative.
Limitations
The study has several limitations inherent in the design. The first limitation is the
focus on personal insurance related to an individual’s automobile, home, condominium,
and renter’s insurance policies. Personal insurance was the focus of the study because of
the mandatory nature of having to purchase insurance and the behavior a consumer uses
to research products. Life insurance is a product many people obtain from employers at
little or no cost to themselves and does not invoke as many behavioral changes in
consumers during life events as personal insurance. Commercial insurance is a possible
future research area to compare with the results of the study for differences in behavior
based on product type.
The second limitation is in the focus of the aspects related to consumer behavior.
The study’s design focuses on an analysis of retention and behavior relative only to
additional purchases and referrals. From an insurance industry basis, these two aspects
are very important to the cost of servicing a customer or the overall expenses of the
organization. The study did not include consumer behavior around usage of the products
or perceptions of products.
The third limitation is the focus on only the consumer point of view. No agency or
insurance provider input is included, and criticisms may occur from the lack of an agent’s
viewpoint. Agency information may be useful in further research to corroborate the
findings of the study; however, obtaining such information is beyond the scope of the
research.
24
The fourth limitation is the use of an online survey instrument in recording
consumer data. Not all households have access to the Internet. As of 2005, only 55% of
United States households had Internet access, though the percentage grows every year
(Fricker et al., 2005). Face-to-face or focus group sessions would be valuable in gathering
more qualitative data and would allow examination into a larger breadth of data. To reach
the appropriate sample for the study, however, in a timely manner, the online survey
instrument provided the best approach.
Delimitations
Delimitations existed for the study. The first delimitation is the focus on Hartford
County, Connecticut. As of the 1700s, Hartford has been a center for the insurance
industry and has the name of “Insurance City” (“Hartford Insurance Companies,” 2006).
Hartford County provides an interesting location to study attitudes and intentions toward
insurance pricing.
The second delimitation is the requirement of the respondent to possess his or her
own personal insurance policy or be in the process of purchasing a policy. The
requirement eliminated anyone who is on another person’s insurance policy and is not
one of the primary insurance holders. The purpose of the delimitation is to eliminate
people who do not make decisions around insurance purchases. The study’s goal was to
measure the attitude and perceptions of people who actively purchase insurance and who
would have firsthand knowledge of the experience.
The third delimitation is the elimination of 16- and 17-year-olds from the study.
In some cases, young people may have their own insurance policies; however, the
majority is likely to exist on a parent’s policy or to have had a parent purchase the policy
25
for the teen. The purpose of the delimitation was to eliminate those without firsthand
experience with the pricing and purchasing of personal insurance policies. People fully
responsible for purchasing insurance policies are more aware of the various product
features and prices associated with insurance and therefore will provide meaningful
insight to the study.
A study criterion is to sample various ages within the county of Hartford,
Connecticut. One of the limits for the study included individuals who purchase or are
about to purchase personal insurance policies. The study criterion does not target a
specific age range and therefore has generalizability. Effects to generalizability occur if
the responses from the online survey are concentrated in specific age groups. If the study
responses are skewed or lower than needed, zoomerang.com resources will add
participants, by request.
The study criterion does not limit participants to a particular insurance provider,
and therefore, the results have generalizability to all insurance providers of personal
insurance. The results offer insight to insurance providers engaging in the development of
effective pricing strategies as well as those not actively engaged. In addition, leaders of
any organization who include consumer attitudes and behaviors in strategies may find
value in the results.
Pricing is a strategic capability leaders must have within the organization to
succeed in the marketplace (Dutta et al., 2002). Effective and shrewd pricing strategies
include the perspectives of the consumer, the organization, and the competition (Cram,
2006). Leaders who invest properly in developing strategic capabilities around pricing
26
will assist the organization in obtaining a sustainable competitive advantage (Dutta et al.,
2002).
Summary
The financial services industry is experiencing a transformation of organizations
and changes in consumer analysis (Choi & Weiss, 2005). State control of insurance rates
adds to the criticality of developing pricing strategies necessary to price insurance
appropriately (“Insurance Industry Trends,” 2006). Pricing consumers individually and
one event at a time provide the most successful results and highest profits (Marn et al.,
2003). The research is needed because insurance organizations are increasingly
developing more sophisticated and more effective pricing strategies and because of the
lack of current research concerning the effectiveness of these strategies on consumer
behavior.
Chapter 1 presented the research plan for examining the relationship between
pricing strategies and consumer behavior. Included was an introduction to the
significance of the research and the appropriateness of the method and a discussion of the
research questions and the hypotheses. Chapter 2 presents a review of the literature
surrounding the theoretical framework of the study and the results of any previous
research. Chapter 3 will expound on the research method proposed for conducting the
study.
27
CHAPTER 2: REVIEW OF THE LITERATURE
Transformation of financial services in the form of consolidation is increasing
within the United States (Choi & Weiss, 2005; Oliva, 2005). Consolidation results in
increased competition and market power, leading to questions on the effect to consumers
(Choi & Weiss, 2005). Since the mid 1990s, technological advancements have resulted in
improvements in risk analysis (Bayley & Stoll, 2006). The result of these specific
improvements is a change in personal insurance policy pricing (Bayley & Stoll, 2006).
For organizations to succeed, a balance of market growth and profitability is
necessary (Smith, et al, 2000; Yeo et al, 2001). Insurance market growth and profitability
conflict when growth entails issuing higher risk (Yeo et al., 2001). Higher risk means
insurance consumers are more unpredictable and present the possibility of increased
claims or negative consumer behavior (Yeo et al., 2001). Pricing strategies can alleviate
the higher risk and profitability issues; however, these same strategies can create negative
consumer behavior if not developed properly (Yeo et al., 2001).
One can find significant research relative to pricing strategies for insurance
providers and consumer behavior individually (Ho et al., 2006; Marquis, 2006; Seog,
2006; Shimp & Kavas, 1984). A lack of research exists on the effects pricing strategies
have on the consumer behaviors of retention and loyalty in personal insurance. The
quantitative study will provide insight for leadership of insurance providers and other
industries relative to the relationship of consumer behavior and pricing strategies.
The literature review presents information on consumer behavior relative to
retention and loyalty based on the theory of reasoned action. An examination of the
current pricing strategies used by insurance providers also occurs. The literature review
28
will highlight the gap in current pricing strategies for insurance providers against
consumer needs and behaviors. From the literature review, an understanding of the need
to study the effect of pricing strategies on consumer behavior is clear.
Study Context
Insurance in the United States is a highly competitive (Smith et al., 2000; Yeo et
al., 2001) and regulated industry (Baranoff & Baranoff, 2003). Personal and commercial
insurance has a finite number of competitors and has a sales boundary of the United
States (Berger, Cummins, & Weiss, 1997). Nearly 67% of the operating expenses are
associated with management of the distribution channels, and of the operating expenses,
40% is associated with agent commissions (Berger et al., 1997).
Insurance, by its nature, is the legal transfer of risk, and the worth of the policy
relies on the effectiveness and efficiency of the legal system (Esho et al., 2004).
Insurance also relies on the reliability of the law-making process (Esho et al., 2004).
Changing consumer needs, technology, and competition additionally affect the insurance
industry. Each factor presents a set of new challenges for insurance providers (Oliva,
2005).
The quantitative research study involved surveying adult insurance consumers in
Hartford County, Connecticut. The focus is on the personal insurance business within the
United States. Personal insurance provides the largest population of insurance consumers
and the most volatile in consumer behavior because of the competitive nature of
automobile insurance (Finnegan & Moffat, 2000). Purchasing a home or automobile in
any of the 50 states requires personal insurance (Baranoff & Baranoff, 2003). The
29
following discussion outlines the contextual factors of the study and the potential effect
on these variables.
Regulation
In discussing historical trends in insurance regulation, Baranoff and Baranoff
(2003) stated that over 200 years ago, regulation of insurance in the United States was
simple and resided within each state. The mission of each state was to issue charters to
insurance providers. Adoption of taxation, rates, and solvency regulations followed.
Today, insurance regulation is complex and includes local, state, and government issues
as well as privacy mandates, specific accounting principles, and availability and
affordability to consumers.
Currently, a debate exists among insurers, state departments of insurance, and the
federal government over where the insurance regulatory arm should reside (Baranoff &
Baranoff, 2003). The debate is whether insurance regulation resides within the state
departments of insurance or a federal department (Baranoff & Baranoff, 2003; Oliva,
2005). In 1868, because of the case of Paul v. Virginia, the Supreme Court gave the states
control of insurance regulation (Baranoff & Baranoff, 2003). In 1871 the National
Association of Insurance Commissioners (NAIC) formed to operate as both the
functional and symbolic arm of insurance.
Reversal of the Supreme Court decision of 1868 occurred in the case of United
States v. South-Eastern Underwriters Association (Baranoff & Baranoff, 2003). In 1945,
the states received regulatory authority via passage of the McCarran-Ferguson Act
(Baranoff & Baranoff, 2003). In 1971 the Insurance Service Organization (ISO) formed
as the industry’s central advisory association (Baranoff & Baranoff, 2003).

30
Two pieces of recent legislation have prompted the new debate over where
insurance regulation should reside (Baranoff & Baranoff, 2003). The first was the
Gramm-Leach-Bliley Financial Modernization Act (GLBA) of 1999. GLBA removed the
barriers between banking, insurance, and securities industries while supplying an outline
for the regulator’s responsibilities (Baranoff & Baranoff, 2003; Mamun, Hassan, &
Maroney, 2005).
The second is the Terrorism Risk Insurance Act (TRIA) of 2002, developed in the
aftermath of the September 11, 2001, terrorist attacks. TRIA provides support for the
insurance providers while maintaining support for insurance consumers affected by
terrorist activities in the United States (Baranoff & Baranoff, 2003; Davis, 2006; Oliva,
2005). The passing of these two acts has provided new opportunities for regulation
authority to change (Baranoff & Baranoff, 2003).
Another recent regulation is the Fair Credit Reporting Act, first presented in 1996
as the Consumer Credit Reporting Reform Act (Baranoff & Baranoff, 2003; Swartz,
2005). The act provides for a consumer’s right for privacy around one’s credit
information (Baranoff & Baranoff, 2003; Swartz, 2005). In the age of the Internet, as
discussed by Bowie and Jamal (2006), individual privacy has become a major issue. In
addition, as noted by Cole and McCullough (2004), with credit score used for rating
purposes, insurance providers must provide awareness to consumers regarding personal
information gathering.
Each regulation passed and each market change occurring adds challenges for the
insurance provider (Atchinson, 2005; Oliva, 2005). A key opportunity for insurance
providers is to remain aware of the changing requirements resulting from government

31
regulations (Atchinson, 2005). Regulation leads to increased price pressure (Baranoff &
Baranoff, 2003), requiring leaders within insurance providers to address current pricing
strategies to become more adaptable to the regulatory environment. In a time of industry
transformation and increased competition, leaders must bring sophisticated pricing
strategies to the organization, and these strategies must include the consumer perspective
(Cram, 2006).
Changing Consumer Needs
Any number of factors influence consumer purchases (Giloni et al., 2003). For
insurance consumers, needs change based on the economy, competition, knowledge,
technology, catastrophic events, and life events. Insurance providers must develop
effective strategies to address changing consumer preferences and needs in order to retain
consumers and drive new business (Giloni et al., 2003). Uncertainty about terrorism and
the economy, as Banham (2003a) asserted, have led to more scrutiny from consumers
causing them to examine all possible alternatives before purchasing or renewing
insurance policies.
In times of economic growth, consumers increase personal assets, leading to the
need for more insurance (Esho et al., 2004). The addition of items such as cars, vacation
homes, and jewelry requires additional security via insurance (Esho et al., 2004). These
events provide opportunities for insurance providers to increase a customer’s account and
potentially lead to increased levels of retention. While the acquisition of items increases
demand for other supporting products such as insurance, price continues to affect demand
(Esho et al., 2004).

32
Life events such as obtaining a driver’s license, getting married, buying a home,
or having children lead to an increased need for insurance (Esho et al., 2004). Insurance
providers examining customer information can provide enhanced services while
providing potential increases in customer loyalty and retention (Harrison & Ansell, 2002;
Smith et al., 2000). Catastrophic events such as hurricanes, fires, and automobile
accidents cause consumers to utilize insurance policies.
During catastrophic events, insurance providers engage the support services
insurance policy holders rely on to take care of the problems encountered. The consumer
contact point can reinforce a consumer’s decision on an insurance provider or present
doubts (Keaveney, 1995). In addition, how an insurance provider prices a renewal after
catastrophic events will either retain the customer or cause the customer to search for
alternatives (Keaveney, 1995). Research identifies the higher sensitivity of consumers to
price changes than to quantity changes (Gourville, 2003).
The Internet has provided easy access to information regarding insurance (Marn
et al., 2003). From insurance information websites to electronic insurance providers,
consumers have new ways of examining and purchasing insurance products (Marn et al.,
2003). The number of online consumers quoting automobile insurance increased 24%
between 2004 and 2005 (“Ensuring insurance,” 2006). Additionally, during the same
period, the purchase of insurance policies online increased 29% (“Ensuring insurance,”
2006). Consumers who are more knowledgeable understand price to value and behave
accordingly (McKenzie, 2006).
As a result, insurance providers are competing more on price than ever before
(Marn et al., 2003). Insurance purchased on the Internet occurs with little or no
33
interaction with a live insurance agent and consequently price becomes an important
decision factor (Marn et al., 2003). Pricing strategies must assist the insurance leaders in
developing an appropriate rate for each consumer (Marn et al., 2003) and provide a
sustainable competitive advantage (Dutta et al, 2002).
The character of the personal lines insurance industry is changing (Oliva, 2005;
Smallwood & Gorman, 2004). The in-person contact points between a customer and
agent or insurance provider have become infrequent (Joseph, Stone, & Anderson, 2003).
Insurance is an intangible product at the time of purchase and insurance providers must
build a level of confidence and trust with the customer (Joseph et al., 2003). Customers
expect insurance providers, when necessary, to deliver the product and features
purchased in a timely manner (Joseph et al., 2003).
As asserted by Atchinson (2005), unmet promises produce negative results not
only to the particular provider but also within the industry as a whole. The future of
financial service providers will be a matter of survival, where those providers keeping
pace with consumer needs and pricing will win the competition. Organizational leaders
incorporating effective pricing strategies within the organization include the consumer
and competitor perspectives (Cram, 2006).
Competition
According to Giloni et al, (2003), until the 1990s, insurance providers presented
products and services largely through insurance agencies. The authors argued that an
insurance provider gains advantage through maintaining and enhancing the agent-
consumer relationship. In the 1990s and in the new millennium, changes occurred with
34
the Internet and direct response TV and the decision of some major insurance providers
to add direct sales (Giloni et al., 2003).
As a result, the insurance industry is experiencing a transformation (Choi &
Weiss, 2005; Oliva, 2005). With the advent of the Internet, insurance providers have been
working with Internet agencies as part of the distribution channel (Giloni et al., 2003).
The Internet channel adds a new dimension and set of consumers to many organizations.
The reach and speed of the Internet provides both enormous opportunities and enormous
challenges (Temkin, 2005).
The Internet allows consumers to find information on their own time and as much
as can be absorbed (Tower, 2005). Knowledgeable consumers ask more questions
concerning factors related to the pricing of policies, resulting in better decisions for their
families or themselves (Saussy, 2004). At the same time, the Internet provides more
information to the insurance provider. Additional examination of consumer patterns of
behavior and consumer preferences of distribution method and function can also occur
(Giloni et al., 2003).
Distribution methods provide the same functions for each insurance provider, and
insurance providers must develop different strategies for reaching and pricing consumers
in order to remain competitive (Giloni et al., 2003). In addition, insurance providers need
to increase shareholder returns and improve organizational financial performance (Giloni
et al, 2003). Double digit price increases occurred for most insurance products between
2001 and 2003, yet at the same time, insurance providers did not have enough money to
cover consumer insurance claims (Banham, 2003a). Each of these factors underlies the
need for more disciplined product development and better pricing strategies.
35
Between 2002 and 2003, 52 insurance companies underwent regulatory
supervision or experienced bankruptcy and liquidation (Banham, 2003b). In addition, the
insurance industry has seen downgrades in industry rating from A. M. Best for many
insurance providers (Banham, 2003b). Both of these have the potential to lead to
consolidation of insurance providers. Mergers and acquisitions have become a recent
threat to insurance providers, both from being a potential target to having larger
competitors.
The introduction of new competitors such as banks and other financial institutions
presents potential risk for insurance providers and an increased need to develop unique
devices to win market share (Duska, 2005). The union of available capital and insurance
expertise can be a challenge; however, similar unions have proven to be successful
(Cutler & Zeckhauser, 2004). Banks and other financial institutions, as identified by
Lavender (2004), provide large target populations while already having customer
relationships. In addition, these entities contain large capital pools to draw financial
support from if necessary. The total effect of the challenges of these new competitors in
the insurance industry is undiscovered, presenting an opportunity for further research.
Historical Overview
The following sections contain an examination of the foundational framework and
the elements of the hypotheses for the study. The discussion moves from the theory of
reasoned action to the dependent and independent variables, and ends with a review of
the current strategies and models in place for insurance providers. The chapter ends with
conclusions regarding pricing strategies and consumer behavior.

36
Theory of Reasoned Action
In a discussion of attitudes and behavior, Ajzen and Fishbein (1980) stated that in
1901, Baldwin first defined attitude as a willingness to be considerate of or act in a
specific nature. In 1918, Thomas and Znaniecki began the use of the concept of attitudes
in the determination of an individual’s definite and prospective responses. Ajzen and
Fishbein suggested early research could not significantly determine attitudes predict
behavior, but after World War I a resurgence in research took place concerning attitudes
predicting behavior, specifically consumer behavior (Ajzen & Fishbein, 1980).
The theory of reasoned action (TRA) is a well-established theory developed in the
late 1950s by Martin Fishbein. Expansion of TRA by Fishbein and Ajzen occurred
throughout the 1960s and 1970s and was foundational in social psychology regarding
consumer behavior (Njite & Parsa, 2005). TRA presents the idea of personal and social
influences developing attitudes toward an individual’s behavior (Ajzen & Fishbein,
1980). If a researcher can identify and understand the attitudes of a consumer, behavior
can be predicted (Ajzen & Fishbein, 1980).
Behavioral intentions are the foundation of TRA. Such intentions are a synopsis
of the incentive necessary to engage in a specific action and reflect an individual’s
willingness to attempt an action (Ajzen & Fishbein, 1980; Armitage & Christian, 2003).
Traditional views identify attitudes as having a direct relationship to behavior (Armitage
& Christian, 2003). Attitudes are merely a directional signal of behavior and a persuasion
in intent, as described in the theory of reasoned action (Armitage & Christian, 2003).
Social influence is an additional determinant of behavior (Ajzen & Fishbein, 1980;
Armitage & Christian, 2003).

37
The model for TRA is represented as B = BI = w1AB + w2SN (Fishbein & Ajzen,
1975). B is the explicit and blatant behavior as decided by the person, BI is the intent to
perform the behavior, and AB is the attitude toward the behavior. SN is the subjective
norm or belief that others desire the person to perform the behavior (Voss, Page, Keller,
& Ozment, 2006); w1 and w2 are regression weightings for the attitude toward the
behavior and the subjective norm, respectively (Fishbein & Ajzen, 1975).
The theory holds an expectancy-value model of attitudes: An individual has a
good or bad feeling toward an object, leading to the incorporation of expectations of the
item’s capabilities and value to the individual (Tuncalp & Sheth, 1975). The feeling an
individual holds develops from normative and behavioral beliefs (Ajzen & Fishbein,
1980). Behavioral beliefs may come from personal experience with a product or service,
and normative beliefs may come from family or friend experiences (Ajzen & Fishbein,
1980). The combination of beliefs provides the attitude toward the object (Ajzen &
Fishbein, 1980).
Consumer research, as observed by Ajzen and Fishbein (1980), traditionally
focused on specific brands and product evaluations. These specific aspects of a brand or
product become criteria for measuring consumer behavior and attitudes, and the analysis
of these attributes and consumer behavior contribute to predicting consumer preferences.
The authors asserted the theory of reasoned action developed to predict consumer
intentions and behaviors. The theory’s utilization, however, spans many types of
behavioral intent (Gullatte, 2006; Ham, 2006; Kwok & Gao, 2005/2006; Sable, Schwartz,
Kelly, Lisbon, & Hall, 2006; Voss et al., 2006). Although utilization of the theory is
broad, criticism still exists.

38
Research indicates TRA is not reliable in predicting brand or product preference
(Ajzen & Fishbein, 1980). Additionally, researchers identify the need to perform an
elicitation study first before beginning the study to achieve appropriate results (Sutton et
al., 2003). TRA focuses on the salient beliefs of a single person (Ajzen & Fishbein, 1980;
Sutton et al., 2003). Researchers have presented the idea of salient beliefs as group-based
and not individually based (Sutton et al., 2003). Therefore, the wording within the
qualitative questions may present a different set of beliefs being elicited (Sutton et al.,
2003).
Research studies also indicate perceived behavioral control rather than attitude is
a more effective predictor of behavioral intent (Chang, 1998). Additional criticisms exist
concerning the theory’s inability to recognize social, cultural or practical aspects of the
setting for the study (Smith, 2005). Other criticisms focus on the theory’s inability to
differentiate between personal and normative pressures on intention (Shimp & Kavas,
1984). Throughout all of the criticisms, TRA has received empirical support in consumer
behavior research (Vaidyanathan, Aggarwal, Stem, Muehling, & Umesh, 2000).
Consumer Behavior
Consumer behavior is an individual’s purchase and consumption decisions,
influenced by culture, social class, and reference group (Peter & Donnelly, 2003).
Research centers on consumer satisfaction as the main influence in consumer behavior
concerning consumer loyalty (Beloucif et al., 2004; Bloemer, Brijs, Swinnen, &
Vanhoof, 2002; Oliver, 1980; Sivadas & Baker-Prewitt, 2000). Other research has shown
consumer perception of value and pricing influence consumer behavior more than
satisfaction (Hellier et al., 2002; Shoemaker, 2003; Thomas, Blattberg, & Fox, 2004).
39
The objective of the study is to focus on pricing strategies and their effect on
consumer behavior relative to retention and loyalty. Research has indicated the
relationship between loyalty and organizational performance (Beloucif et al., 2004;
Grönroos, Storbacka, & Strandvik, 1994; Rust, Zahorik, & Keiningham, 1995). Sparse
research exists on insurance prices and consumer decision making (Laury & McInnes,
2003). There is a lack of research focused on pricing strategies and their relationship to
consumer behavior relative to customer retention and loyalty for the personal insurance
industry. The importance of studying these two elements of customer behavior becomes
evident in the following sections.
Customer Retention
Customer retention, as suggested by Harrison and Ansell (2002), entails a focus
on current customers with a view of creating and maintaining long-term relationships. In
addition, retention may also mean the generation of additional business. Organizations
have typically lost 15-20% of their customers each year and reducing the rate by 5%
provides an organization an increase in profits of anywhere from 25-85% (Harrison &
Ansell, 2002).
Many organizations focus customer retention programs on managing customer
satisfaction (Harrison & Ansell, 2002). Prior research has suggested both repurchase
intention (Cronin & Taylor, 1992; Reichheld & Sasser, 1990) and repurchase behavior
(Bolton, 1998; Sambandam & Lord, 1995) have connections to customer satisfaction.
Customer satisfaction is fundamental to customer retention (Kotler, 2000). Further
research identified customer satisfaction as having less of an effect on customer retention

40
than previously thought (Reichheld, 1996). In addition, efforts in improving customer
satisfaction resulted in diminishing returns (Reichheld, 1996).
Other research identified switching barriers as a way to increase customer
retention (Jones, Mothersbaugh, & Beatty, 2000; Oliva, Oliver, & MacMillan, 1992).
Management should not rely on increasing switching costs as a strategy for retaining
customers and should focus on creating “superior customer value and equity delivery”
(Hellier et al., 2003, p. 1788). A customer’s level of knowledge concerning products and
pricing are a barrier to customer defection (Capraro, Broniarczyk, & Srivastava, 2003).
Providing as much information as possible, as argued by Capraro et al. (2003),
enables consumers to make informed decisions, and consumers will see the passing of
information as a valued service. The authors stated consumers focus information
gathering and product or service searches utilizing as much knowledge as they have. The
more knowledge the consumer has, the tighter the focus of the search and consumers buy
alternatives when more information is obtainable regarding the alternative.
A challenge for the insurance industry is to develop a pricing strategy adequate
for predicted claim costs and the ability to price policies for attraction and retention of
customers (Smith et al., 2000). A strong relationship between price and retention can
provide advantage to an organization (Smith et al., 2000). A strong relationship, as
asserted by Day (2003), begins in the organizational embodiment of customer beliefs and
attitudes. The key to understanding the relationship is segmentation and breaking down
the customer base into various groups with different needs and expectations (Day, 2003).
Pricing, as identified by Keaveney (1995), is the third largest customer-switching
category in insurance, with service failures and service encounters as first and second.
41
Additional categories of customer switching, according to Keaveney, included
involuntary circumstances, inconvenience, competition, ethical problems, and response to
failure. Within the pricing category are four subcategories—high prices, price increases,
unfair pricing, and deceptive pricing practices (Keaveney, 1995). The focus of research
has been on service failures and service encounters or customer satisfaction and
experience (Bolton et al., 2000; Cronin & Taylor, 1992; Keaveney, 1995; Taylor, 2001).
There is a lack of research on insurance pricing strategy and consumer behavior (Laury &
McInnes, 2003).
An increase in price rating has considerable affirmative effect on consumer
loyalty behavior, while a decrease has no effect on loyalty (Bolton et al., 2000). Research
validated the large role pricing plays in a consumer’s decision to terminate or renew a
policy (Smith et al., 2000). Leaders’ focusing on customer retention and pricing
consumers appropriately will lead to improved customer relationships and loyalty
(Harrison & Ansell, 2002).
Customer Loyalty
Industry research has discovered many people have a pessimistic view of
insurance overall (Cooley, 2002). Reactions from individuals are emotional rather than
intellectual in dealing with insurance (Beloucif et al., 2004). Negative views are
prominent because people use insurance features only when a problem occurs and
therefore associate the insurance provider with negative situations (Cooley, 2002). In
addition, people believe insurance costs are high and when one submits a claim, the costs
increase (Cooley, 2002).

42
Customer loyalty exists in two forms (Fitzgibbons & White, 2005). Behavioral
loyalty exists when a customer engages in the repetitive purchasing of an organization’s
products or services (Fitzgibbons & White, 2005; Hellier et al., 2003). Attitudinal loyalty
is a consumer’s bias for a brand (Fitzgibbons & White, 2005). Attitudinal loyalty
includes a preference and commitment to a brand as well as word-of-mouth advertising
(Fitzgibbons & White, 2005). Focus for the study is in both definitions of loyalty.
The three degrees of loyalty as described by Coyles and Gokey (2002) are
emotive, inertial, and deliberative. Emotive people are the most loyal and make
purchasing decisions they believe to be the correct choice and almost never reconsider
the decision. Inertial people also rarely reassess decisions. The lack of action results from
a lack of involvement with the product or service or the high costs of switching to a
competitor. Deliberators reassess decisions often and look for a better deal in price,
service, and overall value.
Prices in the insurance industry, as observed by Beloucif et al. (2004), had risen
from the beginning of the millennium at twice the rate of inflation, creating increased
consumer concern about pricing. The authors stated the role of price appeared to have
overshadowed service quality in insurance purchases, leading consumers to be less loyal
to the insurance provider. According to these authors, emotion plays a significant part in
the decision-making process of an insurance consumer. If a consumer can trust an
insurance provider to provide the purchased features and guarantees, the quality of the
relationship is high, and consumer loyalty increases. Service and relationship quality will
not uphold a lack of price aggressiveness for long.

43
Competitors in the insurance industry differentiate themselves on functional
attributes such as price (Coyles & Gokey, 2002). Insurance is a mature and highly
regulated market (Baranoff & Baranoff, 2003; Smith et al, 2000). Competitors can view
each other’s rates filed with the state department of insurance, as the filings are public
record (Maurstad et al, 2001). While competitors can view rates, the pricing strategy used
is unknown. For those organizations making use of an effective pricing strategy,
customization to a single individual is achievable, providing a path to proper consumer
behavior (Cram, 2006).
Consumers see value in a product or service differently, influencing purchase and
renewal decisions (Woodruff, 1997). A consumer who has a low value perception of the
current insurance provider will investigate alternative providers (Cooley, 2002). A
perceived value in the creation of strong relationships with insurance providers is
important in consumer loyalty (Durvasula et al., 2004).
Others believe service quality and customer-focused performance provide the
competitive edge for organizations (Buzzell & Gale, 1987; Zeithaml, Berry, &
Parasuraman, 1996; Wang & Lo, 2004). Service quality and customer-focused
performance is critical to increased market share, loyalty, and retention, whereas price is
only slightly related (Weinstein, 2002; Zeithaml, 1988). In a customer-centric
environment, service and performance receive much organizational attention (Weinstein,
2002).
Marketers of insurance providers must understand the importance of the value
sources for a consumer (Durvasula et al., 2004). Marketers must package the service or
product so consumers can fully understand the features and benefits of the offering.
44
Insurance providers need to develop the strategies and abilities for delivering consumer
value (Durvasula et al., 2004). Pricing strategies using sophisticated techniques can be
one of the strategies an organization undertakes to target specific consumers (Marn et al.,
2003). In meeting consumer value, leaders create an environment where long-term
relationships, referrals, and additional product purchases can occur (Nagle & Cressman,
2002).
Pricing Strategy
The pricing of goods and services is one of the most critical and intricate
assessments organizations must make (McCarthy, 1960). Pricing is one of four
controllable factors an organization has. The other factors are product, promotion, and
place, and these are the 4Ps of marketing (McCarthy, 1960). Pricing as defined by
McCarthy, is the creation of a price that provides value for the customer while
maximizing gain for the organization.
Creating a price perceived by the consumer to be too high may lead the consumer
to a competitor and thus cause a loss of revenue for the organization (Smith et al., 2000).
Pricing too low may bring the wrong type of consumer and may affect organizational
performance through high support or claims (Smith et al., 2000). The pricing strategy an
organization chooses must blend with the goals, culture, and market of the organization
(Shoemaker, 2003). Pricing must also provide a perception of value to a consumer in
order to influence behavior (Hellier et al., 2002; Nagle & Cressman, 2002; Shoemaker,
2003).
Product or service price is a key driver in an organization’s profitability (Barone
& Bella, 2004; Dolan & Simon, 1996; Keaveney, 1995; Marn et al., 2003). The effects of
45
price drive profit more than any other element for an organization (Dolan & Simon,
1996). Price is often the focus of discussion within an organization between financial and
product departments, as well as with consumers during customer care center calls or
surveys (Nagle & Cressman, 2002).
Price becomes a competitive element in the goal for market share (Dolan &
Simon, 1996). Organizations remaining indifferent or frustrated around pricing strategies
stay behind by allowing the competition to set market prices (Dolan & Simon, 1996).
These organizations obtain only traditional margins as a result and become followers in
the industry, remaining in the middle or bottom of the market (Dolan & Simon, 1996).
Marketing perceptions prior to 1970, as observed by Kotler (2005), were simply
about how to price, distribute, and promote products and services; however, marketing is
now concerned with understanding consumers and contextual implications of the
environment and the broader meaning of marketing. According to Kotler, organizations
need to include more thought around new concepts and abilities in order to add additional
insight into the market. Including knowledge around consumer behavior and perceptions,
environmental influences, and competitor activities provides a more detailed view of an
organization’s true market (Kotler, 2005). To obtain the information necessary to address
these new and evolving influences, organizations must engage more in sophisticated
pricing techniques (Cram, 2006).
Sophisticated Pricing Strategies
Sophisticated pricing is the capacity for an organization to appraise risks in a
consistent and effective manner (Maurstad et al., 2001). A sophisticated method of
pricing includes the consumer’s price sensitivity in the development of product or service
46
price structure (Maurstad et al., 2001). Pricing through sophisticated methods is a tool or
technique for established organizations who are seeking to further their rate of growth
and profitability (Maurstad et al., 2001).
According to Dolan and Simon (1996), organizations utilizing sophisticated
pricing techniques increase the ability to achieve organizational goals through the
practice of intelligent pricing. Organizations also increase profits through effective
pricing. Organizations engaging in sophisticated pricing strategies obtain extensive
knowledge of consumers and their behaviors. These organizations are “power pricers”
(Dolan & Simon, 1996, p. ix).
The development of sophisticated pricing techniques requires, as stated by Dolan
and Simon (1996), a methodical and detailed examination of an organization’s
competition and the market’s consumers. Leaders use these techniques to evaluate the
results of various pricing situations. The result is the creation of charts explaining the
potential market evolution, with an understanding of the future impact of current pricing
decisions.
Through sophisticated pricing techniques, organizations can integrate the
elements of price, cost, and profit into an effective pricing strategy, according to Dolan
and Simon (1996). The authors warned that organizations just good at pricing would find
the market challenging and costly. Organizations must become shrewd in pricing
strategies and pricing analysis to reap the dividends. To accomplish a sophisticated
pricing strategy, leaders must have a perspective on pricing, data to sustain pricing, and
the means to analyze the data. Leaders must also obtain the support and willingness to
undertake the efforts involved (Dolan & Simon, 1996).

47
Organizations engaged in sophisticated pricing techniques use more than 40
variables in rating a straightforward automobile or homeowner’s policy (Maurstad et al.,
2001). A typical insurance provider uses approximately 15 variables (Maurstad et al.,
2001). The difference between the levels of pricing sophistication is in the understanding
of the costs involved in producing and supporting a policy (Dolan & Simon, 1996). In
addition, leaders must understand the customer’s behavior in response to the price (Dolan
& Simon, 1996). Competitive activity also adds to an organization’s capability to price
correctly (Dolan & Simon, 1996).
Difficulty in developing good pricing behaviors in an organization, as noted by
Dolan and Simon (1996), lies in two areas: interdependence and information.
Interdependence occurs through both products and markets. Product interdependence
comes from both horizontal and vertical means. Being able to price within both segments
of products provides an organization with potential complexity and disagreement on how
to price correctly.
Market interdependence places additional complexity to pricing products (Dolan
& Simon, 1996). Where market independence occurs, developing pricing is easier than
when markets overlap. Many organizations handle interdependence well, and therefore,
an area of potential difficulty is minimized. The area of information however, creates
more potential pitfalls for organizations.
In the insurance industry, Progressive Insurance is “the prince of smart pricing”
(Dolan & Simon, 1996, p. 14). Progressive has the title because of the organization’s
ability to collect and analyze loss and consumer data better than the competition (Dolan
& Simon, 1996). Progressive’s leaders understand the importance of price and value to
48
the consumer when purchasing a product (Dolan & Simon, 1996). The gathering of
market and competitive information by Progressive’s leaders is an imperative.
Progressive’s leaders use the information to develop competitive pricing and appropriate
population segments or tiers (Dolan & Simon, 1996).
Between 200,000 and one million policies per product line are required to enable
an insurance provider to create dependable risk segments (Maurstad et al., 2001). The
risk segmentation then allows the leaders to engage in differentiated pricing. The amount
of information from a large volume of policies can be overwhelming for an organization.
If the proper tools are not in place to examine the data, valuable information is lost.
The current pricing strategies of insurance providers utilize minimal variables and
focus on historical characteristics (Maurstad et al., 2001). The methods used focus on
financial models adapted from other industries. Sophisticated pricing techniques allow
insurance leaders to develop specific strategies for the insurance industry (Maurstad et
al., 2001). A review of the financial models currently in use highlights the need for new
methods.
Financial Models
Insurance policies or contracts are financial devices, according to Phillips,
Cummins, and Allen (1998). By defining a policy as a financial tool, the need or
appearance to invoke financial models to insurance pricing would make sense. Financial
models appear to provide a major development over past actuarial models through the
acknowledgement that policy pricing is consistent with asset pricing and the evasion of
arbitrage opportunities (Phillips et al., 1998).

49
The most common financial models utilized involve assets, options, and cash flow
(Phillips et al., 1998). Discussion of the most commonly used insurance financial models
occurs in this section. The models discussed are the capital asset pricing model, the
Black-Scholes option pricing model, and the discounted cash flow model. Utilization of
the models as well as the positive and negative aspects of each is discussed.
Capital Asset Pricing Model (CAPM)
CAPM is a commonly used model for organizational investors in determining
asset allocation, performance criteria development, and setting investment rates-of-return
(Wang, 2003). Utilization of the CAPM model occurs in developing insurance premiums.
According to Wang, W. F. Sharpe and J. Lintner are the fathers of CAPM or the Sharpe-
Linter model, developed in 1965.
CAPM contains an element known as Beta or the “systematic risk” of an asset
(Gencay, Selcuk, & Whitcher, 2003, p. 108; Haugen, 1996, p. 86). Beta is a tool for
comparing shares or rates with each other (Haugen, 1996). CAPM “expresses the cost of
equity as the sum of a required return on riskless assets plus a premium for systematic
risk” (Palepu, Healy, & Bernard, 2004, p. 8-3). The CAPM model assumes a constant
risk-free rate, market risk premiums, and a constant market expected return (Arnott,
2005). For the insurance industry, CAPM implies rates equal the expenses associated
with the policy and the expected present value of claims (Choi, Hardigree, & Thistle,
2002).
While the CAPM model has been widely used for many years in many industries,
research has shown a weak correlation between CAPM predicted and actual returns
(Wang, 2000). For insurance pricing, the model assumes a normal distribution for asset
50
returns. The assumption will not be valid if loss distributions skew (Wang, 2000). There
are also estimation errors identified with the underwriting beta (Wang, 2000).
Assumptions also exist regarding insurers having reasonable claim cost
expectations (Choi et al., 2002). According to Arnott (2005), CAPM is incorrect both
empirically and theoretically because of the model’s flawed suppositions around
leveraging without limits and borrowing or lending at risk-free rates. In spite of these
issues, Arnott admitted CAPM does provide assistance for organizations through
valuation and utility rate commissions.
Black-Scholes Option Pricing Model
The Black-Scholes model developed in 1973 identified the valuation of a
European call option (Arnold, Nixon, & Shockley, 2003). The model includes variables
such as the risk free rate, market instability, and current price of the primary asset
(Arnold et al., 2003). The Black-Scholes model has come under much criticism
concerning scope and circumstances (Chew, 2001). In spite of the criticism, the model is
the most widely utilized mechanism for valuing stock options as well as other derivatives
and contingent claims (Chew, 2001).
Utilization of Black-Scholes occurs in insurance because of the similarities
between a stop-loss reinsurance cover and an option (Wang, 2000). The disadvantage of
Black-Scholes is the need for lognormal distributions and the difference between pricing
options and the way organizations price insurance (Wang, 2000). As noted by Choi et al.
(2002), use of the model occurs based on the notion of the insurer having the option to
evade payment. The authors stated risky debt is associated with having an equity position
51
in the insurer and in an option-pricing model such as Black-Scholes, compensation goes
to the policyholder for bearing the risk and the company becomes risk-neutral.
The Black-Scholes model falters for insurance pricing once the basic assumptions
of the market features disappear (Young & Zariphopoulu, 2002). Assumptions mentioned
include a lack of transaction costs, steady chaos, market wholeness, and liquidity. On the
other hand, Phillips et al. (1998) noted advantages of the Black-Scholes model in the
incorporation of default risk and the ability for utilization across multiple insurance lines.
Black-Scholes provides critical elements needed for pricing more precisely (Phillips et
al., 1998).
Discounted Cash Flow Model
Discounted cash flow (DCF), as described by Palepu et al. (2004), is a valuation
method derived from the dividend discount method. Valuation is the procedure of turning
a prediction into an approximation of the worth of a piece of or the entire organization.
DCF entails the development of featured multiyear predictions of cash flows. DCF
models straighten out accruals, distribute significant cash flows over larger time spans,
and reconfigure accruals through discounting predicted cash flows (Palepu et al., 2004).
Discounted cash flow is a standard for valuing bonds, preferred stocks, and other
fixed-income securities (Myers, 1984). DCF can be useful in developing insurance policy
premiums; however, problems in developing premiums arise in the DCF model’s
assumption of predicted growth rates (D’Arcy & Gorvett, 2004). Predicted growth rates
are susceptible to both discount rates and selected growth rates, and neither can be
measured accurately (D’Arcy & Gorvett, 2004).

52
The three financial models discussed have fundamental purposes other than
pricing insurance policy premiums. Organizations use these models through adjustments
and assumptions, while focusing on the underwriting profit margin and collective
premium of the insurer’s portfolio (Oh & Kang, 2004). Unfortunately, the limitations of
the models outweigh the adjustments and assumptions. These limitations eventually
break down the appropriateness of financial models for pricing premiums (Young &
Zariphopoulu, 2002). The insurance industry must find more sophisticated tools and
techniques to accommodate the unique features of the inherent insurance risks (Young &
Zariphopoulu, 2002).
Actuarial Models
Rating structures for insurance, as argued by Choi et al. (2002), have foundations
in actuarial principles, leading to the development of actuarial models of pricing. The
authors explained the fundamental objective for these models is to position prices to
obtain a desired ruin or insolvency probability. Actuarial models suggest underwriting
profits will pessimistically rely on surplus and optimistically rely on the variance of
losses. There is similarity to financial pricing models, where in the near term supply is
completely elastic. In addition, policyholders shoulder the risk of insolvency through
increased prices thereby creating a positive effect for the insurance provider (Choi et al.,
2002).
The fundamental actuarial model associates price with expected claim costs and
policy expenses along with a risk load factor, added to maintain a desired ruin probability
(Choi et al., 2002). Actuaries utilize combinations of distributions to represent the
number of claims provided by insurance policy holders (Denuit, Lefevre, & Shaked,
53
2000). The Poisson distribution provides a good representation of the number of claims
by an individual insured during a specific timeframe (Denuit et al., 2000). There are
various types of actuarial models (Oh & Kang, 2004). The basis of some models is on
moments as statistical parameters, while others utilize the principles of maximum
probable loss or ruin probability (Oh & Kang, 2004).
Maximum Probable Loss Principle
The maximum probable loss rule is a catastrophe-averse assessment rule or one
indisposed to actuarial and large utility threats (Peterson, 2002). A catastrophe, in
actuarial terms, speaks to the outcome of an act or event rendering the use or utility of
something to be low (Peterson, 2002). An insurance example would be Hurricane
Andrew as the event and the resulting loss of homes and automobiles as the lost utility
outcome of the event. A catastrophe-averse principle is an official assessment tenet
developed to evade possible catastrophes at a higher level than other principles such as
maximum expected utility (Peterson, 2002).
Insurance organizations use the maximum probable loss principle to evade
contracts where the potential costs could lead to insolvency (Peterson, 2002). The
principle provides a list of alternatives identifying all acts or events with associated
probabilities of a catastrophic result and resulting level of utility (Peterson, 2002). For
insurance organizations, the choice of an appropriate alternative includes appropriate
costs within the pricing strategy for policy premiums (Peterson, 2002). One concern with
the maximum probable loss principle is in the pointed distinctions created between
alternatives considered catastrophic or hazardous and those considered acceptable or
nonhazardous (Peterson, 2002). An alternative model is the ruin probability principle.

54
Ruin Probability Principle
The ruin probability principle describes an organization’s capital position through
initial capital, income, and expense functions (Yuanjiang, Xucheng, & Zhang, 2003).
Insurance actuaries use the ruin principle during optimization analysis (Yuanjiang et al.,
2003). The two most utilized models within the ruin probability principle are Cox and
Cramér-Lundberg.
The Cramér-Lundberg model is a stochastic model for risk control and dividend
optimization (Taksar, 2000). According to Taksar, the model uses a compound Poisson
process for reserves with a linear period identifying a stable arrival of insurance
premiums. Management of risk control occurs through partial reinsurance of claims. In
such optimization analysis, actuaries look to control or predict certain variables in order
to maximize results. The difficulty, Taksar argued, with the Cramér-Lundberg model is
the variability of claims, in both size and timing.
The Cox model is a doubly stochastic Poisson process concerned with the arrival
of claims for catastrophic events (Dassios & Jang, 2003). The Cox model, as described
by Dassios and Jang, indicates claim strength to be a stochastic function to account for
the deterministic strength of the event and the resulting claim. The function allows the
Cox model to provide more flexibility than the Cramér-Lundberg model.
The Cramér-Lundberg model results in giving actuaries and reinsurers the ability
to compensate for the risks associated with participation in incomplete markets (Dassios
& Jang, 2003). In addition, maximization of shareholder wealth through profit earning
rather than breaking even occurs (Dassios & Jang, 2003). Regardless of the model used,
55
an overall pricing strategy is necessary to ensure long-term organizational performance
while balancing customer loyalty and retention.
Current Findings
Current research on sophisticated pricing strategies in the insurance industry is
limited. Sophisticated pricing strategies require a substantial investment by an
organization in data gathering, analysis, and strategy development (Maurstad et al.,
2001). Small and medium size organizations may be unable to invest the necessary
resources to these intensive development and analysis efforts (Maurstad et al., 2001). The
result is the larger organizations with the resources and insight to engage in these efforts
become the leaders in the industry (Dolan & Simon, 1996).
There is a gap in the research relative to how pricing strategies affect consumer
retention and loyalty in personal insurance. Progressive was the first company to develop
sophisticated pricing techniques in the insurance industry (Tuckey, 2005). Only a small
group of insurance providers has followed Progressive’s lead (Tuckey, 2005). Though
sophisticated pricing strategies are new, analysts assert the strategies will be the
determining factor in whether insurance providers will succeed and or go out of business
(Tuckey, 2005).
Conclusion
The information presented in the literature review supports the need to investigate
the research questions. The information indicates current pricing methods are inefficient
for insurance providers to obtain greater market share in a mature market. In addition,
there is a necessity for insurance leaders to rethink pricing strategies to include robust
information and to price according to each consumer. Insurance leaders need new tools to
56
gain a competitive advantage and to retain customers, and focusing on pricing strategies
will provide the advantage.
The effort of developing sophisticated pricing strategies focuses on creating the
right price for the consumer and risk (Tuckey, 2005). Critics accuse insurance providers
of developing new prices through underwriting to avoid the regulatory issues within the
rating process (Tuckey, 2005). Organizations using sophisticated pricing strategies must
find alternatives to producing rates for groups of people, resulting in limited financial
growth (Tuckey, 2005).
Current pricing strategies rely on limited factors concerning a consumer and
utilize methods developed for other industries and purposes (Tuckey, 2005).
Sophisticated pricing strategies allow leaders to develop methods unique to the insurance
industry through elements necessary to price an individual correctly (Tuckey, 2005). The
result is an improvement in the quality of product development and an appropriate price
for the risk (Tuckey, 2005).
The insurance industry is experiencing high levels of change with the addition of
new distribution channels, regulation, and technology (Atchinson, 2004; Duska, 2005;
Oliva, 2005). The threat of terrorism, stronger competition, new competitors, and
changing consumer needs are also challenges (Choi & Weiss, 2005; Oliva, 2005). To
address the volatility of the market, leaders must focus on effective strategies to price
competitively (Nagle & Cressman, 2002; Smallwood & Gorman, 2004). Leaders must
also maintain high levels of customer loyalty and retention (Nagle & Cressman, 2002;
Smallwood & Gorman, 2004). Effective pricing strategies enable an insurance provider
57
to develop prices to match the risk as well as enable flexibility to meet changing
consumer needs (Maurstad et al., 2001).
Summary
Leaders with effective pricing strategies have the ability to analyze many sources
of data, resulting in an increase in organizational performance and positive consumer
behavior (Cram, 2006; Dolan & Simon, 1996). An increase in customer retention of 2%
for an organization provides the same result as a 10% decrease in overhead expenses
(Weinstein, 2002). The ability of organizations to retain customers is critical to long-term
organizational performance (Harrison & Ansell, 2002).
Effective pricing strategies address the three influences of demand, supply, and
environment (Dolan & Simon, 1996). Sophisticated pricing techniques provide a
competitive edge and an increase in market share and profitability (Dolan & Simon,
1996). Organizations must develop strategies oriented towards delivering equity and
customer value (Hellier et al., 2003). Effective pricing strategies provide organizations
with the process to achieve market advantage (Maurstad et al., 2001).
Examination of the relationship between pricing strategies and consumer behavior
occurs through the study described in chapter 3. Chapter 3 will provide the research
design and complete details of the environment and population of the study, including
discussion of the data collection methods and analysis techniques proposed. The
summary will include discussion of the generalizability and repeatability of the study and
identification of the study’s key points.

58
CHAPTER 3: METHOD
The purpose of the quantitative study was to analyze consumer attitudes toward
behavior in the specific areas of retention and loyalty. The results of the study add to the
body of knowledge regarding the relationship between pricing strategies and consumer
attitudes toward behavior. The previous two chapters presented the essence of the
research study, the significance to leadership, and a review of relevant prior research.
Chapter 3 provides a detailed description of the methodology for the research
study. The research method and appropriateness sections show the necessity of using a
quantitative design for the study. The remaining sections detail the target population,
sampling method, data collection and analysis procedures, and the internal and external
validity of the sample and population. The chapter concludes with a summary of key
points.
Research Method
The design for the study is a quantitative design intended to identify the strength
and direction of the relationship between the variables (Cooper & Schindler, 2006;
Simon, 2005). The study design includes the use of a simple random sampling technique
to obtain the sample from the target population. The population consists of Hartford
County, Connecticut, adult male and female purchasers of personal insurance policies.
The tool for the study is an online survey, using zoomerang.com, intended to
measure the relationship between pricing strategies and consumer behavior. Because of
the quantitative nature of the online survey, qualitative and mixed-method designs are not
appropriate. The survey does however, contain questions having the potential for multiple
answers, but the design is still quantitative in nature.

59
The focus of the study is on identifying attitudes and intentions toward the
behavior of purchasing personal insurance policies. Identification occurred within the
framework of the theory of reasoned action relative to the attitude-toward-behavior
model. Specifically the objective of the study is to measure the strength of the
relationship between pricing strategies and the attitudes and behaviors of consumers
purchasing or repurchasing personal insurance.
The study measured the conative component of a consumer’s attitude. According
to Colborn (2007), the conative component of an attitude represents the consumer’s
planned or definite actions to a specific entity. The combination of the consumer’s
cognitive and affective attitude components as related to the entity drives the conative
component. To measure cognitive and affective attitude components, Colborn argued
both quantitative and qualitative research elements are necessary. The survey instrument
contains six multiple-answer questions to address the qualitative elements.
To understand an individual’s actions, researchers must consider and investigate
the determinant factors for the actions (Ajzen & Fishbein, 1980). A researcher must
understand why people choose certain actions over other alternatives (Ajzen & Fishbein,
1980). Capturing data concerning an individual’s attitude toward a behavior requires any
standard scale process (Ajzen & Fishbein, 1980). Examples of standard scales are
Thurstone and Likert-type scales, scalograms, Guttman-type scales, and Osgood’s
semantic differential (Ajzen & Fishbein, 1980). Utilization of the semantic differential
scale occurred in the study to measure the quantitative data.
Scaling processes may lead an individual to subjective responses based on the
format of the question and scale measurements (Hair et al., 2002). Including questions
60
regarding qualitative information provides additional insight into attitudes and intentions
(Hair et al., 2002). The focus of the survey was on obtaining the attitude toward the
behavior of purchasing rather than the attitude toward insurance as a product. The
research focus prevents utilization of the attitude-toward-object model within the theory
of reasoned action.
The independent variable for the study is the pricing strategy. A sophisticated
pricing strategy includes a large number of variables necessary to determine the overall
price for a product or service (Maurstad et al., 2001). The variables used create tiers
within the pricing structure (Maurstad et al., 2001). The more variables involved, the
larger the number of tiers possible for segmentation (Maurstad et al., 2001). The more
segmentation developed, the more accurate the price to the consumer (Bielski, 2006;
Maurstad et al., 2001).
Consumer behavior and attitude toward behavior are elements of the purchasing
process the study measured. Specifically, the dependent variables analyzed are the
behavioral aspects of consumer retention and loyalty. Customer retention centers on the
creation and maintenance of long-term relationships (Harrison & Ansell, 2002). The cost
of acquiring customers is five times the cost of retaining customers (Clemons & Weber,
1994), and as a result, a higher retention rate allows organizations to increase financial
performance.
Prior research focused on the effects of customer satisfaction on retention (Bolton,
1998; Cronin & Taylor, 1993; Kotler, 2000). The focus of the study is on measuring the
relationship between sophisticated pricing strategies and the consumer attitudes and
intentions toward the behavior of repurchasing personal insurance. Understanding

61
consumer attitudes toward pricing strategies allows organizations to develop appropriate
methods of pricing for competitive advantage. In a mature industry such as insurance,
competitive advantage must be more creative than product differentials (Tuckey, 2005).
Customer loyalty is the extent to which a customer has shown over the short-term,
engagement in repetitive purchasing behavior of an organization’s products or services
(Hellier et al., 2003). Since 2000, for the insurance industry, prices have risen at twice the
rate of inflation, increasing consumer concern toward pricing (Beloucif et al., 2004). The
role of price appears to have surpassed service quality in insurance purchases, leading
consumers to be less loyal to the insurance provider (Beloucif et al., 2004).
Developing sophisticated pricing strategies and informing consumers of these
strategies may lead to positive attitudes towards repurchasing insurance. Traditional
pricing strategies do not focus on the long-term relationship between the consumer and
the insurance provider (Thomas et al., 2004). Current models do not account for
consumer behavior such as loyalty and retention (Thomas et al., 2004). The use of the
theory of reasoned action framework for the study allowed for the investigation of the
relationship.
The design of the study included the following sequence of events:
1. Develop attitude-toward-behavior survey
2. Create confidentiality notification
3. Release survey to pilot group
4. Gather feedback and modify survey if necessary
5. Define the appropriate population
6. Provide zoomerang.com with the population criteria

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7. Use a simple random number generator to choose the sample
8. Zoomerang.com to create the sample
9. Release survey to sample
10. Gather research data over timeframe specified in survey
11. Analyze data and assess response size
12. Release survey to additional members of the population if required
13. Code qualitative and quantitative data
14. Test quantitative data
15. Review reliability and validity of data
16. Report findings
Design Appropriateness
The nature of the study is a nonexperimental correlational design. The intention
for the study’s design was to facilitate an assessment of the strength and direction of the
relationship between pricing strategies and consumer behavior. The intent of a
quantitative research design and methodologies is to determine relationships between
variables (Aron, Aron, & Coups, 2005; Cooper & Schindler, 2006).
Exploratory and explanatory method designs are not applicable for the study, as
these designs focus on quantitative or qualitative data, not both (Creswell, 2002).
Exploratory methods are also phased approaches to a study (Creswell, 2002). Errors are
possible between data gathered in each phase (Creswell, 2002). Attitudes towards
behavior over time may also change, skewing the reliability and validity of the data. The
study measures the attitude toward behavior during a point in time rather than a trend
over time.
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Causal research designs collect data for identifying cause-and-effect relationships
(Burns & Bush, 2003; Hair et al., 2002). Causal research is an appropriate design when
the focus of the study concerns establishing functional relationships or explaining
causality (Burns & Bush, 2003; Hair et al., 2002). Causal research designs are
experiments (Bush & Burns, 2003). The causal method is inappropriate for the study.
Descriptive method designs focus on procedures illustrating marketing elements
and are appropriate for studying consumer attitudes, intentions, and behaviors (Burns &
Bush, 2003). Most descriptive research uses surveys requiring responses to questions
(Burns & Bush, 2003). The focus of the study was to identify intentions and attitudes
concerning insurance policy pricing strategies and consumer behavior tendencies around
purchasing insurance. The descriptive design was appropriate for the study.
The study instrument is a researcher-developed survey founded in the survey
development approach presented by Ajzen and Fishbein (1980). The quantitative aspects
of the instrument determine the relationship between consumer behavior and pricing
strategies. The qualitative elements of the survey provide insight into why consumers
behave the way they do regarding personal insurance purchasing. Basic descriptive,
correlational, regression and content analysis tests provide the statistical techniques to
analyze the data.
Research Questions
The transformation of the financial services industry has caused fear amongst
insurance providers (Choi & Weiss, 2005; Oliva, 2005). Insurance providers are
evaluating ways to increase customer retention and loyalty in a mature and highly
competitive market (Maurstad et al., 2001). The ability to customize policy pricing to an
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individual provides the organization the flexibility to adapt to changing consumer
behavior and needs (Maurstad et al, 2001).
Effective pricing strategies incorporate the views of the consumer, the
organization, and the competition (Cram, 2006). Changing an organization’s pricing
strategy is complex and difficult, though the rewards will offset the challenges if done
correctly (Dutta et al., 2002). A successful 1% increase in pricing may improve profit by
11.1% (Cram, 2006). The improvement to the financial performance of the organization
is clear, though only one aspect of effective pricing and overall financial performance
(Cram, 2006).
When an organization’s leaders invest time and research into sophisticated pricing
strategies, competitors will have difficulty in duplicating the method (Dutta et al., 2002).
The inability of competitors to duplicate pricing strategies may lead to a sustainable
competitive advantage for the organization (Dutta et al., 2002). The missing element of
the sophisticated pricing triangle is the perspective of the customer (Cram, 2006).
Customer purchases and ongoing behavior also influence an organization’s performance
(Harrison & Ansell, 2002; McKenzie, 2006).
Research studies show relationships between consumer purchases and pricing
strategies (Ho et al., 2006; Marquis, 2006; Seog, 2006; Shimp & Kavas, 1984). There is a
lack of research relative to pricing strategies within the insurance industry and the
consumer behaviors of retention and loyalty. Consumer retention focuses on maintaining
long-term relationships with the organization (Harrison & Ansell, 2002). For the
insurance industry, long-term relationships mean the renewal of insurance policies and
these relationships are the focus of the first research question for the study:
65
organization’s pricing strategy and the consumer’s attitude toward the renewal of
insurance policies?
Consumer loyalty exists in two forms (Fitzgibbons & White, 2005). Behavioral
loyalty occurs when a consumer engages in repetitive purchasing of an organization’s
products or services (Fitzgibbons & White, 2005: Hellier et al., 2003). Attitudinal loyalty
refers to a consumer’s commitment towards a brand and generation of word-of-mouth
advertising or referrals (Fitzgibbons & White, 2005). The question surrounding the
relationship of pricing strategies to the consumer behavior of loyalty leads to the
remaining two research questions for the study:
organization’s pricing strategy and the consumer’s attitude toward purchasing
additional insurance policies?
organization’s pricing strategy and the consumer’s attitude toward referring the
insurance provider to new customers?
Hypotheses
Past studies have shown the relationship between customer loyalty and retention
and customer satisfaction (Bolton, 1998; Durvasula et al., 2004; Reichheld, 1996).
Additional studies on the insurance industry focused on customer satisfaction and service
experience (Bolton et al., 2000; Oliver, 1980). Research studies exist on the relationship
of pricing strategies and consumer purchasing (Ho et al., 2006; Marquis, 2006; Seog,
2006; Shimp & Kavas, 1984). The objective of the study is to extend the related body of
66
knowledge to the relationship between pricing strategies and the consumer behaviors of
retention and loyalty.
Consumer retention and loyalty are important factors in an organization’s
financial performance (Harrison & Ansell, 2002; Smith et al., 2000). Consumer retention
and loyalty exist when a consumer engages in repeat purchases of an organization’s
products and services (Fitzgibbons & White, 2005; Hellier et al., 2003). Consumer
loyalty also exists when consumers generate word-of-mouth advertising or referrals
(Fitzgibbons & White, 2005).
Consumers have difficulty in identifying how much they are willing to pay for an
item (Cram, 2006). Organizational leaders capable of identifying benefits and value to a
consumer and matching price to these elements will succeed in the marketplace (Cram,
2006). Understanding consumer insight and behaviors leads to success in pricing
strategies and organizational performance (Cram, 2006). Consumers are learning more
about organizational products and services from the Internet (Kannan & Kopalle, 2001).
Additional knowledge leads to attitudes and behaviors about the organization and
the product (Saussy, 2004). These attitudes and behaviors become part of an individual’s
self-concept (Fitzmaurice, 2005). Self-concept is the degree to which a particular item or
set of actions equates to one’s self-image from the individual’s perspective (Fitzmaurice,
2005). Research has identified a positive relationship between self-concept and intentions
under specific consumer purchasing behaviors (Fekadu & Kraft, 2001; Fitzmaurice,
2005).
The hypotheses tested in the study are as follows:

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product purchases.
product purchases.
Population
The target population for the study was the adult population within the county of
Hartford, Connecticut. The specific target population for the study was any Hartford
County, Connecticut resident, male or female, 18 years or older, and who is a United
States citizen. Participants in the study had to reside within Hartford County and purchase
their own personal insurance policies or be in the process of purchasing a policy. The
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personal insurance policy may be for home, automobile, renter’s, condominium, or
watercraft use. Participants must also have had an active email address.
Study participants could not work for an insurance provider or insurance agency
regardless of the type of insurance sold. Participants could purchase insurance as an
individual or as a family. Participants could be first-time purchasers or have current
insurance policies. The sample provided a broad view of insurance purchasers to allow
for generalizability of the findings.
The study design used the probability sampling technique of simple random
sampling. Application of the random numbers method occurred to an email address list
obtained from zoomerang.com to derive the sample. With a reachable rate of 75%, an
overall incidence rate of 60%, and expected completion rate of 10%, the number of
targeted respondents is 2,044. Discussion of the method for arriving at the sample size
occurs in the Sampling Frame section.
Informed Consent
Each individual within the sample received a cover letter email through
zoomerang.com. The email contained several segments identifying the introduction,
purpose of the email, purpose of the study, informed consent, and a web address to
connect to the survey. If the study response were lower than needed, zoomerang.com
would add participants by request. Appendix A includes a sample of the initial email.
Each individual participating in the survey received a disclaimer within the initial
email concerning the participation in the study. The email explained the purpose of the
study and provided notification to the participants of anonymity and the privacy of
69
individual data. With the use of zoomerang.com, participant email addresses remained
confidential. Additionally, each individual had the option of not completing the survey.
Once a participant chose to take part in the study, the participant actively began
the survey after entering an electronic signature and date. Participants proceeded to the
Web survey located on a unique Internet address provided by zoomerang.com. The
individual again had the opportunity to opt out of the study. Review of the anonymity and
privacy of data occurred, and the individual may or may not have proceeded with the
study.
Sampling Frame
The study design included a simple random sampling probability method through
zoomerang.com. Probability sampling methods assist researchers where identification
occurs for the likelihood of selection of every case (Burns & Bush, 2003; Hair et al.,
2002). Probability methods allow the evaluation of both the dependability and soundness
of data through calculation of the chance of the difference between the population and the
sample (Burns & Bush, 2003; Hair et al., 2002). Generalizability of the findings depends
on the size of the sample (Hair et al., 2002).
Probability sampling methods include simple random, systematic random,
stratified random, and cluster (Burns & Bush, 2003; Fink, 2003; Hair et al., 2002). The
systematic random method requires an ordered population, such as a list of taxpayers or
employees (Burns & Bush, 2003; Hair et al., 2002). The stratified random method
includes participants separated into groupings called strata (Hair et al., 2002). The cluster
method requires the population exist in geographic groupings with similar attributes
(Burns & Bush, 2003; Hair et al., 2002). The simple random method allows each
70
sampling unit a known, equal, and nonzero opportunity of selection (Burns & Bush,
2003; Fink, 2003; Hair et al, 2002).
The simple random method is appropriate when the target population is small and
all sampling units are identifiable (Burns & Bush, 2003; Hair et al, 2002). Simple random
sampling allows attainment of unbiased estimates of the target population’s
characteristics (Burns & Bush, 2003). Use of the central limit theorem, associated with
the confidence interval, allows the resulting sample, regardless of the size, to be a valid
representation of the population (Burns & Bush, 2003).
For the study, a list of the target population was obtainable, and therefore, a
simple random method was appropriate. Advantages to a simple random method are the
ease and brevity of identifying the sample, resulting in an economic solution for
researchers (Burns & Bush, 2003; Hair et al., 2002). Disadvantages include the need for a
complete listing of the population (Hair et al., 2002).
The generation of the email address list for the study’s target population occurred
at zoomerang.com utilizing a simple random method. The sample generation occurred
through a random number generator also at zoomerang.com. Once the sample list was
complete, the participants received an email providing the cover letter and Web address
of the survey.
The following formula determined the sample size (Burns & Bush, 2003, p. 380;
Hair et al., 2002, p. 345):
(P *Q)
n = (Z2B,CL)
e²
where: n = sample size
ZB,CL = the standardized z-value associated with a confidence level

71
P = percentage of the target population having the desired characteristics
Q = [1-P] or the percentage of the target population not having the desired
characteristic
e = the acceptable tolerance level of error
The confidence level chosen for the study is 95%, and therefore, the z-value is
1.96. The P-value chosen for the study is 60%, allowing for the uncertainty of whether
the potential participants have characteristics of the elimination criteria. Potential
participants in the study’s geographic area had a higher possibility of working for an
insurance organization because of the concentration of the industry in Hartford County.
The Q-value is therefore 40%. The acceptable tolerance level of error is 10% because of
the lower accuracy of the sample to the true population and the ability to obtain a
complete listing of the population (Burns & Bush, 2003). Placing all values within the
formula the sample size or n-value becomes 92 individuals.
The following formula determined the number of contacts necessary to provide
the appropriate sample size for the study (Hair et al., 2002, p. 349):
n
Number of Contacts =
(RR ) * (OIR ) * (ECR )
where: n = the needed sample size
RR = the reachable rate
OIR = the overall incidence rate
ECR = expected completion rate
For the number of contacts formula, the reachable rate was 75%. The reachable rate is
appropriate given the nature of the lead list purchased through the Web-based survey
service.
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The overall incidence rate (OIR) provides the estimate of potential participants
meeting the defined population characteristics (Burns & Bush, 2003; Hair et al., 2002).
The OIR for the study was 60%, given the P-value for the calculation of the number of
respondents necessary. The expected response rate was set at 10%, given the nature of the
instrument involved in the study (Fricker et al., 2005) and market research results for
online insurance surveys (E. Casey, personal communication, November 5, 2006; M.
Sternat, personal communication, November 6, 2006). Given these rates and the sample
size determined, the study required 2044 contacts to ensure 92 useable responses.
The study design incorporated the use of the Web-based survey service
zoomerang.com to identify and obtain the appropriate sample size and characteristics. A
random number generator provided by the Web service generated the sample. The
sample’s email address list remained at zoomerang.com to provide anonymity of the
recipients.
Confidentiality
To encourage honesty and response, anonymity and confidentiality were
necessary for the study. Anonymity refers to the assurance of a participant’s
identification being unknown based on the response (Hair et al., 2002; Scott, 2005).
Confidentiality refers to the assurance a participant’s identification is unknown to other
entities (Hair et al., 2002; Scott, 2005). Presentation of an anonymity and confidentiality
statement occurred in the cover email for the study and at the beginning of the survey.
Participants had to consent through electronic signature; however, the signature did not
remain with the data.

73
The cover email appears in Appendix A. The introduction of the cover email
provided the purpose of the survey and the method of selection of the participants.
Participants could opt not to respond to the survey from the cover email or could have
actively responded through opening the website and electronically signing the survey. At
the beginning of the survey, participants received a repeat of the anonymity and
confidentiality disclaimer, allowing the participant to continue or not respond. The
participants could opt out of the survey at any point in their response.
Geographic Location
The study population was limited to the Hartford County, Connecticut, area.
Hartford County consists of 29 towns (“Hartford County,” 2006). Personal insurance
purchasers must have legal residence within the United States to purchase insurance.
Insurance providers must abide by state and federal regulations (Baranoff & Baranoff,
2003). Properties owned outside the United States fall under other pricing strategies and
regulations and were out of scope for the study.
Instrumentation
The study design included an online survey instrument presented to participants
through an email cover letter. The instrument was researcher-developed and founded in
the method presented by Ajzen and Fishbein (1980). There is no standard survey for the
theory of reasoned action to measure attitudes and intentions, as each study examines
specific attitudes and intentions toward a specific behavior.
An online survey provided an appropriate instrument to engage participants,
because of the characteristics of the population desired for the study. Online instruments
provide for faster data collection and eliminate encoding data from paper forms
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(Bonometti & Tang, 2006; Burns & Bush, 2003; Hair et al., 2002). Online instruments
also reduce errors in data as compared to manual methods, and allow participants to
respond when convenient, potentially increasing response rates (Bonometti & Tang,
2006; Burns & Bush, 2003; Hair et al., 2002).
Online survey methods provide many of the essential philosophies existing within
the core of the survey technique (Burns & Bush, 2003; Hair et al., 2002). Online survey
methods have set new standards for advancing the future collection of primary data
(Burns & Bush, 2003; Fricker et al., 2005; Hair et al., 2002). Survey methods allow the
accommodation of large sample sizes, minimize data collection costs, and increase
generalizability concerning the target population (Burns & Bush, 2003; Hair et al., 2002).
In addition, online surveys provide easy opt-in and opt-out capabilities and features for
anonymity and confidentiality (Fricker et al., 2005; Hair et al., 2002).
The study design included a cross-sectional online survey and was appropriate to
examine current attitudes and behaviors of adult personal insurance purchasers within the
Hartford County, Connecticut area. Survey methods allow for the gathering of qualitative
and quantitative data (Hair et al., 2002). Measuring attitudes and behaviors, negative to
positive or favorable to unfavorable, requires scales such as the Thurstone-type, Likert-
type, or semantic differential (Ajzen & Fishbein, 1980). Surveys are appropriate for
inclusion of these methods. The study’s survey uses the semantic differential scale.
Disadvantages of online survey methods focus on the nonobservation errors of
coverage, sampling, and response rate (Fricker et al., 2005). Potential bias exists because
of the lack of Internet usage in all households, thus limiting number of the possible
75
participants (Fricker et al., 2005). The lack of comprehensive lists of Internet users also
adds to the challenges of online research (Fricker et al., 2005).
The survey consists of questions concerning attitudes and behavior toward the
pricing of subsequent purchase of personal insurance policies. The survey was
researcher-developed and founded on the concepts of Ajzen and Fishbein. The questions
developed from the following steps in the construction of an attitude-toward-behavior
questionnaire (Ajzen & Fishbein, 1980, pp. 261-263):
1. Define the behavior of interest in terms of its action, target, context, and time
elements.
2. Define the corresponding behavioral intention.
3. Define the corresponding attitude and subjective norm.
4. Elicit salient outcomes and referents.
5. Define behavioral beliefs, outcome evaluations, normative beliefs, and
motivation to comply.
The number of questions is dependent on the attitudes and behaviors under
examination within the study (Ajzen & Fishbein, 1980). Presentation of questions
representing attitude, intention, subjective norm, and belief questions occurred for each
dependent variable. The same set of questions repeat after the description of the
independent variable is given. Comparison of the two sets of questions occurs in the
analysis of the results. Appendix B provides the pilot survey questionnaire for the study.
The study’s research questions and hypotheses focus on the consumer behaviors
of retention and loyalty. For retention, the survey questions addressed the specific
behavior of renewals. For loyalty, the survey questions addressed the specific behaviors
76
of additional insurance purchases and referrals. The survey reflects the areas of focus of
the research questions and hypotheses.
The survey contains two sections. The first section addressed current thoughts,
attitudes, intentions, and salient beliefs toward the purchasing of personal insurance
policies. The thought area presented multiple-answer questions to ease the respondent
into the survey and to obtain a baseline of thought around the behavior of purchasing
insurance policies.
The remaining questions within the first section use semantic differential scales.
Each area addressed the consumer behaviors of retention and loyalty and utilized the
attitude-toward-behavior model to develop a means to predict purchasing behavior. The
scales are set to five points ranging from favorable (+2) to unfavorable (-2), likely (+2) to
unlikely (-2), or should (+2) to should not (-2) in keeping with Ajzen & Fishbein (1980).
The questions addressed the intentions, attitudes, and subjective norms necessary to
predict behavior.
The second section of the survey began with a description of how sophisticated
pricing is developed. The survey presented two questions asking respondents to describe
reactions and identify the elements insurance organizations should know in order to price
appropriately. The remaining sections of the survey align with the first section. The
changes involved the addition of the words new pricing method within the questions. The
two sections allowed for comparison of the effect the description of sophisticated pricing
has in attitudes, beliefs, and intentions.
There were 37 questions in total, providing multiple-answer and closed responses.
The approximate time to complete the survey is 10-15 minutes. Research suggests 20
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questions is a reasonable number of questions to ask in an Internet-based survey and
results in the highest response rate (Deutskens, Ruyter, Wetzels, & Oosterveld, 2004).
Internet-based surveys with more than 20 questions received a higher than expected
response rate and therefore are appropriate (Deutskens et al., 2004).
To verify the researcher-developed instrument, a pilot study is necessary (Leedy
& Ormond, 2001). The pilot group consisted of 15 individuals chosen from counties
outside of Hartford, Connecticut, to avoid possible duplication with the sample
participants. The purpose of the pilot group was to provide feedback on the
comprehension of the questions and the ease of responding. In addition, the pilot group
identified the time necessary to complete the survey. Incorporation of the pilot group
feedback into the instrument occurred before delivery to the sample.
Data Collection
The gathering of data for the study occurred using a database located at
zoomerang.com. The cover email each participant received allowed the individual to
open the survey at a secure location. An electronic signature was required for consent, but
not stored, and presentation of the anonymity and confidentiality statements occurred.
When the participant chose to take the survey, the questions appeared on the computer
screen with instructions on how to fill in responses.
The survey application captured and retained each response. The participant could
not move forward to the next set of questions until he or she entered an answer for each
question on the current page. There was an option to leave the survey on every screen. If
the participant chose to leave the survey without answering al of the questions, the
responses remained in the database and were unusable in the results.

78
The zoomerang.com database contained all responses numbered sequentially by
question and participant. Any participant choosing to leave the survey early had data
recorded, though the data was incomplete. The data recorded for quantitative questions
was the number of the question and the value of the response chosen as coded prior to the
study launch.
Text recording of qualitative questions occurred as entered. Open-ended questions
were part of the original design of the survey. To code for open-ended questions a four-
step process is utilized (Hair et al., 2002):
1. Generate a list of as many potential responses as possible (Appendix C)
2. Consolidate responses
3. Assign numerical values as a code to each question
4. Assign a coded value to each response
Manual review of the qualitative data occurred to assign appropriate coding and to
consolidate all the responses. All data remained in the Web database throughout the
study. At the end of the study, the data was stored on a digital medium.
Pilot Group
The study’s design included a researcher-developed survey based on the theory of
reasoned action and the attitude toward behavior model. To validate the instrument a pilot
was necessary to examine the questions for clarity and to indicate the time necessary to
complete the survey. A convenience sample of 15 people received the survey in
Appendix B through the zoomerang.com web site. The 15 participants did not live in
Hartford County, Connecticut and each met the remaining sample selection criteria.
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The end of the survey contained an additional open-ended question asking
participants to enter any issues or questions and the time taken to complete the survey.
All 15 participants indicated the survey took more than 20 minutes to complete and the
open-ended questions were the reason for the extended time. Seven participants ended the
survey early stating they were uncertain as to how much longer the survey would take to
finish after 20 minutes. Two respondents indicated the aversion to answering open-ended
questions in online surveys and the preference of multiple-answer questions with an
option to enter a few thoughts. Lastly, all 15 participants identified the subjective norm
questions as being confusing and difficult to respond to based on the question format.
The feedback indicated three areas of the survey needing clarification: the amount
of time, the subjective norm question formatting, and open-ended questions. Based on the
feedback, reformatting the subjective norm questions to have more information in the
answer selection and less wording in the question occurred. The open-ended questions
changed to a list of potential answers with the ability to choose multiple answers or enter
in items not found in the list. The final change was the addition of the participant’s
progress through the survey at the top of each web page. Appendix D includes the revised
survey based on the changes from the pilot group’s feedback.
Data Analysis
Data analysis is the process of data reducing, summarizing, pattern examination,
and statistical evaluation necessary to prove or disprove hypotheses (Cooper & Schindler,
2006). In this section, presentation of the handling of the data and the theoretical basis for
utilizing the identified techniques occurs. The survey instrument contained six qualitative
elements, necessitating the use of quantitative and qualitative data methods analysis.
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The first step after data collection is data editing (Cooper & Schindler, 2006).
Data editing occurs to identify unusable or incomplete responses (Cooper & Schindler,
2006). For the study, the definition of an incomplete response is a survey response where
an individual chose not to complete the entire survey. To move forward within the
survey, all questions must have an answer. Responses not containing an answer for every
question were unusable and were not included in the data analysis.
The demographic questions required participants to supply nominal data. The
remainder of the survey obtained ordinal data and textual responses. Analysis of the data
took place through basic descriptive, correlational, regression, and content analysis tests.
Descriptive statistics include the measures of central tendency, variation, and the
relationship of a specific score to a group of scores (Aron et al., 2005). One measure of
central tendency is the mean; representing the normal average value of resulting scores
(Aron et al., 2005). Another measure of central tendency is the mode, representing the
most common score in the distribution (Aron et al., 2005). The final measure of central
tendency is the median, representing the middle value within scores. Each measure of
central tendency occurred in the study.
Variation indicates the dispersion of the resulting scores’ distribution (Aron et al.,
2005). One measure of variation is standard deviation or the average amount of
difference between the scores and the mean (Aron et al., 2005). Reference to both the
mean and standard deviation is common in quantitative research studies (Aron et al.,
2005). The study’s data analysis includes the calculation of standard deviation.
To characterize the association between two or more variables a correlation
statistic is necessary (Aron et al., 2005). Correlations are positive, negative, or zero
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indicating no correlation between variables (Aron et al., 2005). A correlation coefficient
is the representation of the degree of correlation between variables. The coefficient
ranges from a perfect negative correlation (-1) to a perfect positive correlation (+1). The
Pearson correlation test was an appropriate instrument for testing the quantitative results
of the study design.
Content analysis occurred for the qualitative elements within the study’s survey.
Content analysis is a thorough and methodical inspection of the contents of textual
information (Leedy & Ormond, 2001). The purpose of content analysis is to identify
patterns or themes within the responses (Leedy & Ormond, 2001). Tabulation of the
frequency of each theme or element identified within the text provides a quantitative
view of content analysis (Leedy & Ormond, 2001).
Content analysis follows a six-step process (Cooper & Schindler, 2006). The first
step is the identification of a utilization scheme (Cooper & Schindler, 2006). The four
utilization schemes are (a) syntactical, (b) referential, (c) propositional, and (d) thematic
(Cooper & Schindler, 2006). Syntactical utilization focuses on individual words within
responses and is not robust enough for the study. Referential utilization focuses on
terminology related to objects, events or people. The referential method does not provide
insight into how attitudes relate to behavior and is not appropriate for the study.
Propositional utilization involves multiple frameworks, identifying relationships
among a player, an entity, and a manner of performing (Cooper & Schindler, 2006). The
study’s purpose addressed the attitudes and resultant behavior rather than attitude toward
an object. Propositional utilization is therefore not appropriate for the study. Thematic
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utilization focuses on identifying a pattern or distinctive structure within the research
results (Cooper & Schindler, 2006). For the study, thematic utilization was appropriate.
The remaining steps in content analysis are (a) selection of a sample plan, (b)
development of recording and coding instructions, (c) data reduction, (d) inferences about
the context, and (e) statistical analysis (Cooper & Schindler, 2006). Developing a coding
structure allows statistical analysis to occur (Hair et al., 2002). The first two steps in
developing a coding structure are generating a list of possible responses and
consolidation of responses (Hair et al., 2002). The last two steps are assigning a
numerical value as a code and assigning a coded value to each response (Hair et al.,
2002).
Appendix C contains the proposed list of possible responses for the qualitative
questions. Appendix B provides the survey and the related values for the responses.
Utilization of the software application SPSS occurred for analysis of the quantitative
data. Analysis of the multiple-answer questions occurred through manual content analysis
and Microsoft ExcelTM. Both the quantitative and qualitative aspects of the survey
allowed a thorough application of reliability and validity criteria (Cooper & Schindler,
2006).
Reliability and Validity
Reliability and validity are two associated concepts that can establish the realistic
value and applicability of results in social research. Reliability focuses on the correctness
and exactness of the testing methods and design (Cooper & Schindler, 2006). Reliability
assesses a measurement’s independence from chance or unstable error (Cooper &
Schindler, 2006). Reliability assesses the coefficients of stability, equivalence, and

83
internal consistency (Cooper & Schindler, 2006). Measurement of reliability coefficients
occurs numerically through correlation formulas (Cooper & Schindler, 2006).
For the study, maximization of reliability occurs through the administration of the
survey to the participant through the Web service. Each participant received the same
cover letter, survey, and instructions without subjective information from a facilitator.
Participants engaged in the survey at convenient times, and there was no time pressure to
complete the survey once started. Completing the survey at one’s own convenience
allows the participant to read each question thoroughly and respond in a calm and
objective manner (Hair et al., 2002). Validation of internal reliability occurred by
calculating Cronbach’s alpha for all combinations of the variables tested.
Validity focuses on how well a test evaluates what a researcher intended to assess
(Cooper & Schindler, 2006). There are many forms of validity. For the study, assessing
external and internal validity occurred. External validity refers to the generalizability of
the findings to a broader population (Cooper & Schindler, 2006). Internal validity refers
to whether the measurement techniques are appropriate to measure what the study is
designed to measure (Cooper & Schindler, 2006).
Utilization of a pilot group eliminates the threat of reactivity of testing and
increases external validity (Cooper & Schindler, 2006). Though the basis of the study’s
survey is the germinal work of Fishbein and Ajzen (1975), the instrument content is
researcher-developed and required a pilot for validity. Inclusion of a pilot group for the
study was necessary to address question comprehension and response time for the survey.
The pilot sample contained the same characteristics as the target population and was
located outside the Hartford County, Connecticut, area.

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Minimization of the threat of interaction of selection for external validity occurred
using simple random sampling for participants. Minimization of other reactive factors
such as the survey environment or knowledge of survey participation occurred because of
the use of a Web-based instrument. Participants can take the survey anywhere of comfort
to them and without anyone else knowing (Hair et al., 2002). Additionally, if the subject
of the study creates an unfavorable reaction, the participant could exit the survey at any
time (Hair et al., 2002).
Internal validity has seven threats to mitigate (Cooper & Schindler, 2006). The
first is history. History involves events that may occur during the study to change the
relationship(s) being studied (Cooper & Schindler, 2006). The second threat is
maturation. Maturation focuses on the change occurring when a study spans a period of
time (Cooper & Schindler, 2006).
The third threat is testing (Cooper & Schindler, 2006). Testing refers to the
possibility of a first test affecting the taking of a second test in the study (Cooper &
Schindler, 2006). The first three threats are not appropriate for the study as the study was
not longitudinal in nature, nor were there multiple tests for participants to take.
The fourth threat to internal validity is instrumentation (Cooper & Schindler,
2006). Utilization of different questions for each participant or different observers at each
data-gathering session invites validity issues (Cooper & Schindler, 2006). For the study,
there was only one set of questions, and all participants received the same set of
questions. The survey was Web-based and no observer or interviewer could influence the
responses.
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Selection is the fifth threat to internal validity and refers to potential inequality
within control and experimental groups (Cooper & Schindler, 2006). The study did not
have experimental and control groups, and therefore there was no threat from selection.
The statistical regression threat refers to participants selected by severe scores (Cooper &
Schindler, 2006). The threat did not exist for the study, as a score or measure did not
select the participants.
The last threat is experiment mortality and refers to attrition of the study
participants and the possibility of changing the nature of the sample (Cooper & Schindler,
2006). The study design included a simple random sampling method, and the possibility
of attrition was real. If a shortfall in the number of respondents occurred, identification of
additional population members occurred until enough participants respond. Mitigation of
the threat was necessary for the study.
The theory of reasoned action has been the framework for many research studies
involving consumer attitudes and behavior (Armitage & Christian, 2003; Bartee et al.,
2004; Miniard & Page, 1984; Strader & Katz, 1990; Trafimow & Finlay, 2002; Tuncalp
& Sheth, 1975). Each of these studies uses the attitude-toward-behavior questionnaire
framework (Ajzen & Fishbein, 1980). The theory of reasoned action, along with the
attitude-toward-behavior model, contributes significantly in the prediction of intentions
and behaviors (Trafimow & Finlay, 2002). The research method and design for the study
provided the reliability and validity to prove or disprove the study hypotheses and
provide generalizable results.

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Summary
Pricing as a strategic capability is critical for organizational success and
sustainable competitive advantage (Dutta et al., 2002). The inclusion of the consumer
perspective, in addition to the organizational and competitor perspectives, assists leaders
in developing effective pricing (Cram, 2006). To obtain the consumer perspective, an
understanding of consumer attitudes, intentions, and beliefs is necessary (Ajzen &
Fishbein, 1980). Insurance providers need to retain their current customer base and seek
to attract new customers because of the maturity of the insurance market in the United
States (Maurstad et al., 2001; Smith et al., 2000; Tuckey, 2005). Sophisticated pricing
may be one strategy to assist leaders in the customer challenge.
Chapter 3 presented the proposed methodology for the study. The purpose of the
quantitative study’s design was to examine the influence of pricing strategies on
consumer loyalty and retention. The theory of reasoned action and the attitude-toward-
behavior model of Ajzen and Fishbein (1980) formed the framework of the study design
and the questionnaire. Chapter 3 provided a discussion of the instrument and use of
statistical tools, the collection method, and the reliability and validity of the design and its
components.
Through the discussion of each segment of the methodology, the ability to
generalize the findings to the broader population occurred. By following the methodology
presented, future researchers can replicate the study. The methodology appropriately
supports the research questions and hypotheses and allows for robust statistical analysis.
The results from the study provide insight to leaders of insurance providers and other
organizations into the nature of the influence of pricing strategies on consumer behavior.
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Chapter 4 provides a detailed account of the results of the study without
discussion. Chapter 4 provides the data analysis and indicates the level of support for the
hypotheses. Chapter 5 presents a summary of the study along with recommendations for
organizational leaders and future research.

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CHAPTER 4: DATA ANALYSIS
The purpose of the quantitative study was to determine the degree of relationship
between pricing strategy and consumer loyalty and retention within the personal
insurance industry. To make the determination, the study design focused on the attitudes
toward behavior held by adults living in Hartford County, Connecticut. One hundred and
forty six individuals 18 years and older, and non-employed by insurance companies or
agents, participated in the study.
Chapter 1 presented the research plan for examining the relationship between
pricing strategies and consumer behavior. Chapter 2 provided a literature review
beginning with historical background information on pricing strategies in the insurance
industry, consumer behavior, and the theory of reasoned action. Chapter 3 provided a
detailed description of the study’s methodology. Chapter 4 presents a detailed account of
the study results without discussion. In addition, the chapter provides the data analysis
and indicates the level of support for the hypotheses.
Data Collection
The sample size increased from 2044 to 2336 after discussion with
zoomerang.com’s market research analyst, P. Beary, to ensure the necessary responses
(P. Beary, personal communication, February 16, 2007). Survey development occurred
through the zoomerang.com web site and included the pilot group suggestions (Appendix
D). Zoomerang.com sent the emails containing the cover letter (Appendix A), the
incentive of 50 zoom points from zoomerang.com, and the web address for the survey.
Within one week of the survey invitation, 218 or 9.3% of the sample accessed the
web site. Of the 218 who responded, 162 or 6.9% of the sample participated in the
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survey. Each response received a unique number and no other identification existed in the
data. Text entries from the multiple-answer questions remained in the data as entered by
the participant. Once the survey closed, the recording of data stopped and downloading of
the data from the zoomerang.com database occurred to a data drive and compact disc.
Data Demographics
Of the 162 participants who entered the survey, 16 either did not meet the criteria
or chose not to participate. The remaining 146 participants completed the survey and
responded to all questions. Of the 146 participants, 71.2% were female and 28.8% were
male with the mean age range being 40 to 49, as seen in Figure 1. The residence
information identified 73.3% of the participants own their residence, 21.2% rent, 0.7%
leases, and 4.8% other. The other category included “living with a relative,” “employer
provided,” “rent free,” “rent with fees,” “family home,” and “none of my business” as
responses.
45
40
Number of Participants
35
30
25
20
15
10
5
0
18 or 19 20-29 30-39 40-49 50-59 60-69 70+
Age Range
Figure 1. Age distribution of the study participants.

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Figure 1 presents the distribution of participants by age. The kurtosis and
skewness for the distribution were less than +1 and -1 (-.81 and -.11 respectively)
indicating only minor kurtosis and skewness. The standard deviation was 1.36 and the
variance was 1.84.
The vehicle question indicated 96.6% of the participants own their vehicle, 2.7%
lease, and 0.7% other. The one participant indicating other cited having “one owned and
one leased” as a response. The final question asked if the participants compare their
insurance with other companies. Of the participants, 64.4% indicated they do comparison
shop and 35.6% do not.
Data Analysis
The results of the statistical tests are in Tables 1 to 11. The data analysis is
comprised of six sections. The first section presents the reliability analysis using
Cronbach’s Alpha. The next three sections present data analysis by hypothesis. The fifth
section provides additional reliability analysis for the multiple answer questions and the
sixth section provides insight into consumer attitudes and additional support for the
hypotheses.
Reliability and Validity
Calculation of Cronbach’s alpha occurred on all variables to assess the internal
reliability of each, excluding the pilot results. Table 1 presents the results of reliability
analysis on each variable before and after the sophisticated pricing method (SPM)
description, as well as the combinations of variables. An inspection of the results
indicates the comparison shopping question set does not have adequate internal
reliability. The remaining variables and questions sets have adequate internal reliability.
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Table 1
Cronbach's Alpha Analysis for All Variables and Questions
Pricing Strategy
Variable/Question Set Current SPM Both
Attitude .89 .98
Intent .57* .87
Subjective Norm .63* .83
Renew Questions .80
Additional Purchase Questions .71
Referral Questions .78
How My Company Prices Questions .76
Comparison Shopping Questions .55*
All Questions .85 .94 .93
Note. n = 146. * indicates a lack of internal reliability
Hypothesis 1: The Relationship between Pricing Strategy and Retention
The first pair of hypotheses address the possible relationship between a
consumer’s self-perception of pricing strategies and his or her attitude toward retention
behavior relative to the renewal of insurance policies. The null hypothesis stated there
would be no relationship between self-perception of pricing strategies and retention
behavior. The corresponding alternative hypothesis stated there would be a positive
relationship.
The current intent question had skewness between +2 and -2 (-1.49). The current
attitude and subjective norm questions had skewness between +1 and -1. All SPM
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renewal questions had skewness between +1 and -1. The means were slightly favorable
for attitude, likely for intent, and maybe should for the subjective norm. The standard
deviations remained tightly concentrated around the mean.
Tables 2 and 3 present the correlation and TRA model for the survey’s renewal
questions. Table 2 includes participants’ responses for both current and sophisticated
pricing method self-perceptions for attitude, intent, and subjective norm relative to
renewing insurance. The direction for all correlations is positive, the strengths of the
correlations are weak to moderate for current perceptions and strong for sophisticated
pricing perceptions, and all are significant (p < .01, α = .05).
Table 2
Intercorrelations Between Variables for Renewing Insurance Policies
Variables 1 2 3
Current Perceptions (n = 146)
1. Intent __ .50* .33*
2. Attitude __ .22*
3. Subjective Norm __
Sophisticated Pricing Perceptions (n = 146)
1. Intent __ .82* .56*
2. Attitude __ .60*
Note. α = .05, * p < .01

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Table 3 presents the theory of reasoned action models for the renewal self-
perceptions as developed through multiple regression analysis. The direction of the
correlations between current attitude and intent (AB), and current subjective norm and
intent (SN) are positive and of moderate strength (r = .50 and r = .33 respectively).
Attitude adds more weight (w1 = .42) to the relationship with intent then subjective norm
does (w2 = .26). The correlations are very significant (p < .01) and overall, 30% of the
variation in intent comes from attitude and subjective norm.
Table 3
Theory of Reasoned Action Model for Renewing Insurance
Pricing Strategy AB w1 AB p-value SN w2 SN p-value R2
Current .50 .42 0.00 .33 .36 0.00 .30
SPM .82 .69 0.00 .56 .22 0.00 .69
Note. n = 146, α = .05
After describing the sophisticated pricing method (SPM), the correlation between
attitude and intent changed (r = .50 to r = .82). The correlation between the subjective
norm and intent also changed (r = .33 to r = .56). The weight of attitude increased (w1 =
.69) and decreased slightly for subjective norm (w2 = .22). The variation in intent due to
attitude and subjective norm increased to 69% and the correlations remained very
significant (p < .01).
The results indicate as the attitude and subjective norm toward renewal intent
increased so did the intent to renew. Increased attitude toward the new pricing method
added more weight to the increase in intent to renew. The results indicate support for the
alternative hypothesis.
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Hypothesis 2: The Relationship between Pricing Strategy and Additional Purchases
The second pair of hypotheses address the possible relationship between a
consumer’s self-perception of pricing strategies and his or her attitude toward loyalty
behavior relative to additional insurance purchases. The null hypothesis stated there
would be no relationship between a consumer’s self-perception of pricing strategies and
purchasing additional insurance products. The corresponding alternative hypothesis
stated there would be a positive relationship between variables.
Skewness for both current and SPM questions were between +1 and -1 for
attitude, intent and subjective norm. The additional purchase question means were neutral
for intent and subjective norm. For attitude, the mean changed from neutral to slightly
favorable for SPM. The standard deviations remained tightly concentrated around the
mean.
Tables 4 and 5 present the correlation and TRA model for the survey’s additional
purchase questions. Table 4 includes participants’ responses for both current and new
pricing method self-perceptions for attitude, intent, and subjective norm relative to
purchasing additional insurance. The direction for all correlations is positive and the
strengths of the correlations are moderate. The correlation between attitude and
subjective is not significant (p > .10). All remaining correlations are very significant (p <
.01).
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Table 4
Intercorrelations between Variables for Purchasing Additional Insurance
Variables 1 2 3
1. Intent __ .35* .26*
2. Attitude __ .08***
1. Intent __ .53* .63*
2. Attitude __ .48*
Note. α = .05, * p < .01, *** p > .10
Table 5 presents the theory of reasoned action models for the additional purchase
self-perceptions. The direction of the correlations between current attitude and intent, and
current subjective norm and intent are positive and of moderate and weak strength (r =
.35 and r = .26 respectively). Attitude adds more slightly more weight (w1 = .35) to the
relationship with intent then subjective norm does (w2 = .28). The relationships were very
significant (p < .01) and overall, 18% of the variation in intent comes from attitude and
subjective norm.
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Table 5
Theory of Reasoned Action Model for Purchasing Additional Insurance
Current .35 .35 0.00 .26 .28 0.00 .18
SPM .53 .28 0.00 .63 .57 0.00 .46
Note. n = 146, α = .05
The correlation between attitude and intent increased (r = .35 to r = .53) after
describing the new pricing method and maintained significance (p < .01). The correlation
between the subjective norm and intent also increased (r = .26 to r = .63) while
maintaining significance (p < .01). The weight of attitude decreased (w1 = .28) and
increased for subjective norm (w2 = .57). The variation in intent due to attitude and
subjective norm increased to 46% and the relationship is very significant (p < .01).
The results indicate intent to purchase additional insurance increases as attitude
and subjective norm increase. Less than half of the influence of intent comes from
attitude and subjective norm for the study sample. The overall results indicate support for
the alternative hypothesis of the relationship between variables being positive.
Hypothesis 3: The Relationship between Pricing Strategy and Referrals
The final pair of hypotheses address the possible relationship between a
consumer’s self-perception of pricing strategies and his or her attitude toward loyalty
behavior relative to referrals. The null hypothesis stated there would be no relationship
between a consumer’s self-perception of pricing strategies and referring family and
friends to an insurance company. The corresponding alternative hypothesis stated there
would be a positive relationship.

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The referral questions had skewness between +1 and -1. The means were neutral
for attitude, intent and subjective norm. The standard deviations remained tightly
concentrated around the mean.
Tables 6 and 7 present the correlation and TRA model for the survey’s referral
questions. Table 6 includes participants’ responses for both current and new pricing
method self-perceptions for attitude, intent, and subjective norm relative to referrals. The
direction for all correlations is positive and the strengths of the correlations are moderate
to strong and very significant (p < .01 and α = .05).
Table 6
Intercorrelations between Variables for Referrals
Variables 1 2 3
1. Intent __ .75* .56*
2. Attitude __ .45*
1. Intent __ .80* .63*
2. Attitude __ .59*
Note. α = .05, * p < .01
Table 7 presents the theory of reasoned action models for the referral self-
perceptions. The direction of the correlations between current attitude and intent, and
current subjective norm and intent are positive and strong (r = .75 and r = .56
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respectively). Attitude adds more weight (w1 = .70) to the relationship with intent then
subjective norm does (w2 = .42) and the relationships are very significant (p < .01).
Attitude and subjective norm contribute 63% of the variation in intent and the
relationship is very significant (p < .01 and α = .05).
Table 7
Theory of Reasoned Action Model for Referrals
Current .75 .70 0.00 .56 .42 0.00 .63
SPM .80 .64 0.00 .63 .26 0.00 .68
Note. n = 146, α = .05
After participants read the new pricing method description, the correlation between
attitude and intent (AB) changed (r = .75 to r = .80). The correlation between subjective
norm and intent (SN) changed (r = .56 to r = .63), and both relationships were very
significant (p < .01). The weights of both attitude and subjective norm decreased (w1 =
.64 and w2 = .26 respectively). The variation in intent due to attitude and subjective norm
increased to 68% and the correlations are very significant (p < .01).
The results indicate intent changes in the same direction as attitude and subjective
norm. All relationships for referrals were positive and strong. The overall results indicate
support for the alternative hypothesis of a positive relationship between pricing strategies
and loyalty behavior relative to referrals.
Additional Insight into Consumer Behavior
Included in the survey were two additional attitude-toward-behavior questions.
The first question asked participants to identify their attitude, intent, and subjective norm
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relative to finding out how their current insurance company priced their policies. The
second question asked about participant’s self-perceptions relative to engaging in
comparing insurance prices.
Skewness for all questions on how a company prices policies was between +1 and
-1. The means were neutral for the current attitudes, subjective norms, and intents. After
the participants read the new pricing method description, the means became slightly
favorable for attitude, likely for intent, and maybe should for subjective norm. The
standard deviations remained tightly concentrated around the mean.
Table 8 includes participants’ responses for both current and new pricing method
self-perceptions for attitude, intent, and subjective norm relative to how their company
prices policies. The direction for all correlations is positive and the strengths of the
correlations are weak (r = .17) to moderate (r = .59). The relationship between attitude
and subjective norm is significant (p < .05 and α = .05) and the remaining relationships
are very significant (p < .01 and α = .05).

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Table 8
Intercorrelations between Variables for How Participants' Company Prices
Variables 1 2 3
1. Intent __ .24* .42*
2. Attitude __ .17**
1. Intent __ .47* .59*
2. Attitude __ .33*
Note. α = .05, * p < .01, ** p < .05
The results of the TRA model for company pricing, presented in Table 9, indicate
the correlation between current attitude and intent is significant (p < .05). The
relationship between current subjective norm and intent is very significant (p < .01). The
direction of the correlations between current attitude and intent, and current subjective
norm and intent are positive and weak to moderate (r = .24 and r = .42 respectively).
Attitude provides less influence (w1 = .16) to the relationship with intent then subjective
norm does (w2 = .47). Attitude and subjective norm provide 21% of the variation in
intent, indicating a weak relationship.

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Table 9
Theory of Reasoned Action Model for How Participants’ Company Prices
Current .24 .16 0.02 .42 .47 0.00 .21
SPM .47 .28 0.00 .59 .51 0.00 .44
Note. n = 146, α = .05
The correlation between the SPM attitude and intent (r = .47) indicates an increase
from the current attitude and intent, to a moderate relationship. The correlation between
the subjective norm and intent (r = .59) also indicates an increase to a strong positive
relationship. The influence of both attitude and subjective norm increased (w1 = .28 and
w2 = .51) and both relationships are very significant (p < .01). The variation in intent due
to attitude and subjective norm increased to 44% indicating a moderate relationship. The
results indicate the intent to find out more about how a company prices a policy, changes
in the same direction as attitude and subjective norm.
The remaining questions asked participants about their attitudes and intent toward
comparing their insurance policies with other companies. Skewness for all responses was
between +1 and -1. The means were neutral for all current variables and slightly
favorable for attitude and likely for intent after participants read the new pricing method
description. The standard deviations remained tightly concentrated around the mean.
The direction for the attitude to intent relationship and attitude to subjective norm
are neither positive nor negative, indicating no relationship, as seen in Table 10. The
remaining relationship is positive and the strength of the correlation is moderate (r = .49).
The relationship between subjective norm is very significant (p < .01 and α = .05).
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Table 10
Intercorrelations between Variables for Comparison Shopping
Variables 1 2 3
1. Intent __ -.03*** .40*
2. Attitude __ .02***
1. Intent __ .30* .49*
2. Attitude __ .18**
Note. α = .05, * p < .01, ** p < .05, *** p > .10
The TRA model also indicates the direction of the correlation between current
attitude and intent as neutral, as presented in Table 11. The direction of the correlation
between current subjective norm and intent is positive, moderate and very significant (r =
.40, p < .01). Attitude adds no weight (w1 = -.04) to the relationship with intent and
subjective norm adds weight (w2 = .48). Overall 16% of the variation in intent comes
from attitude and subjective norm indicating a weak relationship.

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Table 11
Theory of Reasoned Action Model for Comparison Shopping
Current -.03 -.04 0.60 .40 .48 0.00 .16
SPM .30 .20 0.00 .49 .49 0.00 .29
Note. n = 146, α = .05
After describing the new pricing method (SPM), the correlation between attitude
and intent changed (r = -.03 to r = .30), indicating an increase to a moderate and positive
relationship. The correlation between the subjective norm and intent changed (r = .40 to r
= .49), also indicating a slight increase in the moderate and positive relationship. The
weight of attitude increased to (w1 = .20) and slightly increased for subjective norm to
(w2 = .49). The variation in intent due to attitude and subjective norm increased to 29%
and both relationships are very significant (p < .01).
Research Study Themes
The survey included six multiple answer questions, each containing the option for
participants to enter additional responses. The first four questions explored the
participant’s current perceptions of how insurance companies price policies, why a
participant stays with their current company and what would make them leave. The last
two questions explored the participant’s reaction to the sophisticated pricing method
description.
Two themes emerged from the multiple answer questions through frequency
analysis. Examination of the themes occurs in this section relative to the hypotheses.
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Appendix E provides the frequency analysis for these six questions. The results from
these additional questions assist in providing information relative to retention and loyalty.
Theme 1: Price
The intent of the multiple answer questions was to allow participants to express
current perceptions around what is important to them about staying or leaving an
insurance company. In addition, the questions focused on the participant’s current
knowledge of how insurance companies’ price policies and how companies should price
in the future. For the questions focused on what is important when purchasing insurance
and staying with or leaving an insurance company, price was the most important element.
The first question asked participants to identify the reasons why they stay with
their current insurance company. Of the 146 participants, 70.5% responded with multiple
answers and 29.5% with a single answer. 66.9% of the participants indicated price as a
reason to stay with their current insurance company. Convenience (40.4%) and customer
service (29.5%) were second and third in importance. Family, brand, and the agent
accounted for 8.2%, 13.7%, and 27.4% respectively.
Other responses included not understanding insurance (1.4%), not knowing of
other companies to try (2.7%), too complicated to move (10.3%), and product (13%).
11.0% of the participants indicated other as a response. The responses included the
categories of longevity with an agent or company, difficulty in or the desire to move
companies, the way companies’ package insurance, and personal restrictions. Examples
of actual responses are “insurance provided by employer,” “on Medicare,” “shopping
around for new ins. often is hard,” and “they’re all the same.” The question responses
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indicate price is the most important criterion for staying with the participant’s current
insurance company.
The second question asked participants to identify the criteria used in deciding to
purchase or renew insurance. Of the 146 participants, 77.4% responded with multiple
answers and 22.6% with a single answer. 91.8% of the participants indicated price as the
most important criterion in purchasing or renewing insurance. Product features (58.2%)
and customer service (47.3%) were second and third in importance. Family
recommendations, agent recommendations, and the brand of the organization accounted
for only 6.2%, 13%, and 19.2% respectively.
Of the participants, 4.1% chose other as a response. The text typed into the open-
ended field included “being able to get the kind of insurance I want,” “continuity of
service,” “quality of service,” “company reputation,” and “don’t want to switch
companies.” The participant responses indicate price is the most important criterion when
purchasing or renewing insurance.
The third question asked participants what criteria would make them leave their
current insurance company. Of the 146 participants, 69.9% responded with multiple
answers and 30.1% with a single answer. Price was not included as part of the given
potential responses in order to find out if price would be added to the responses by
participants. Unsatisfactory customer service (70.5%) and unsatisfactory claim payment
(67.1%) were 1st and second in importance. Moving, buying additional assets, agent
recommendation, marital status changes, and driving record accounted for 22.6%,
11.0%, 9.6%, 5.5% and 5.5% respectively.

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Other accounted for 21.2% of the responses. Of these, 14.4% entered price as a
response. The remaining responses included the categories of will not change companies,
change in status or coverage offered, and not sure what would make them change.
Examples of actual responses are “divorce,” “cheaper price elsewhere,” “nothing,” and
“unsure.” While price was not part of the given responses, participants felt price was
important enough to add in the other category.
The theme of price is strong with participants as indicated within these three
questions. The result is consistent with the quantitative analysis and the self-perceptions
of the relationship between pricing and customer behavior. The results from these
questions support the alternative hypotheses.
Theme 2: Understanding Insurance
The remaining three multiple-answer questions related to participant self-
perceptions of how insurance companies price policies. The first question focused the
participant’s current perception of how an insurance company prices policies. Of the 146
participants 74% responded with multiple answers and 26% with a single answer.
Averaging across demographics was the largest response with 76.7%, with driving
history (69.2%) and claim history (62.3%) as second and third. Only 6.9% responded
they did not know how insurance companies price policies.
A small number of the participants (4.1%) believe the agent influences the price
and 1.4% believes insurance companies use magic to price policies. 8.2% of the
participants believe insurance companies create a price any way they want and 3.4%
responded other. The responses included in the other category are “economic,” “credit
checks,” “uninsured motorists,” and “anything else the insurance company wants.”
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Overall, the participants centralized on averaging demographics and driving and claim
history as the key factors in how insurance companies price policies.
In the survey between the first question on how insurance companies price
policies and the remaining two questions, descriptions of both current pricing and
sophisticated pricing methods appeared. The questions following these descriptions
focused on the reaction of the participants to the new method. The questions also
examined what the participants feel an insurance company should use to price policies.
The reaction to the sophisticated pricing method provided more disperse
responses. Of the 146 participants, 58.9% chose a single response and 41.1% chose
multiple responses. Less than half of the participants (43.2%) liked the idea of the
sophisticated pricing method and 30.1% were going to do research on the method. An
additional 13.7% would talk with their agent about the method and 19.2% of the
responses indicated the new method would bring value to the participant. 19.2% of the
responses also indicated the participant would like their insurance company to use the
sophisticated method, while 12.3% responded the method does not make a difference.
The remaining response categories were too complicated (4.8%), do not
understand (8.2%), do not care (6.8%) and other (8.9%). Of the other category the
responses included “Risk of higher premium is greater,” “It is great for someone with
little or no problems,” “Sometimes a group rate helps,” “Yessss [sic], so often my
situation is unique,” “BORING,” and “could be unfavorable.” Overall, the participants
exhibited an understanding of the sophisticated pricing method and indicated a moderate
desire to understand more about it.

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The last question asked participants what they felt should be included when an
insurance company prices a policy. Only 5.5% of the participants chose a single answer
while 94.5% chose multiple answers with the top three responses being driving history
(88.4%), claims history (71.2%), and age (68.5%). The bottom three responses were
longevity at job (29.5%), income (24.7%), and credit history (23.3%). The remaining
responses included type of house or vehicle (60.3%), location (56.9%), marital status
(44.5%), lease/rent/own (42.5%), longevity at address (39.7%), children (30.1%), and
other (6.9%). The other category included “How much you drive, I walk to work,”
“Lawsuits,” and “health.”
Summary
The purpose of the study was to examine the degree of relationship between
pricing strategies and the consumer behaviors of retention and loyalty within the personal
insurance industry. The analysis results revealed significant findings and indicated the
relationships between variables to be positive and of varying strength. The results
indicate support for the three alternative hypotheses presented, while maintaining
reliability and validity. Regarding the study’s variables, the data analysis results indicated
the relationships between pricing strategies and the consumer behaviors of retention and
loyalty increased positively. The themes identified from the multiple-answer questions
indicate support for price being an important factor in choosing insurance companies and
that consumers are more knowledgeable about insurance.
Conclusion
Chapter 4 presented the study results and the data analysis performed. The data
analysis identified support for the three alternative hypotheses and the reliability and
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validity of the study. Discussion included the pilot group and changes made to the online
survey. The data demographics indicated an appropriate spread of participants to meet the
target population criteria. Chapter 5 presents the findings, recommendations, and
potential studies for future research. Also included are the implications to leaders and
reflections on the study. Presentation of the findings occurs by hypothesis and theme.
Chapter 5 ends with a discussion of any limitations found during the study, a summary of
the study, and overall conclusions.

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CHAPTER 5: CONCLUSIONS, IMPLICATIONS, AND RECOMMENDATIONS
The dissertation contains research yielding empirical data regarding the direction
and strength of the relationship between pricing strategies and consumer retention and
loyalty. To understand the strength and direction, the study design measured the attitudes
toward behavior held by adults living in Hartford County, Connecticut. Chapter 5
presents the conclusions, implications, and recommendations of the study and discusses
the impact on leadership and industry practitioners. The implications from the analysis of
the data, and the recommendations made, represent the study findings and the literature
presented.
The study’s intent was to provide insight into the effect pricing strategies have on
the self-perceptions and behaviors of consumers. Attitudes, intentions, and subjective
norm influences lead to specific behaviors (Ajzen & Fishbein, 1980). Understanding
these elements allows leaders to develop strategies to meet consumer needs and increase
the financial performance of the organization (Cram, 2006).
Discussion
The theory of reasoned action focuses on predicting and understanding an
individual’s actions (Ajzen & Fishbein, 1980). According to Ajzen and Fishbein (1980),
the identification and measurement of an individual’s interest in a behavior leads to the
prediction of an action. If an individual’s purpose is to engage in a behavior, the intent is
a direct determinant of the behavior. The two influences to an individual’s intent are their
attitude toward the behavior and their social influences relative to engaging in the
behavior.
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The goal of the research question associated with Hypothesis 1 was to measure
the strength and direction of the relationship between insurance pricing strategies and
consumers’ attitudes toward renewing insurance policies. The results of the survey
questions identified the participant’s perception of renewing insurance policies with their
current insurance company. In addition, the results of the questions indicated whether the
participant would be more apt to renew their policy with a company using sophisticated
pricing methods. The data analysis revealed very significant, moderately strong, and
positive relationships between all the participants’ attitudes, subjective norms, and
intentions. The relationship increased in strength and correlation after participants read
the description of the sophisticated pricing method.
The examination of the renewal research question and hypotheses provided
valuable insight from the 146 participants’ perceptions. The data analysis indicates a
strong intention driven by attitude and subjective norm, suggesting a strong determinant
of renewal behavior. The results indicate support for the alternative hypothesis of a
positive relationship existing between self-perceptions of pricing strategies and renewals,
and a rejection of the null hypothesis.
Alternate interpretations may include that because the correlations were strong
with a participant’s current attitude and subjective norm, the sophisticated pricing method
description made no difference in the relationship. Another interpretation may be because
insurance is a requirement when an individual owns an asset such as a house or an
automobile, the renewal of a policy is also a requirement and therefore there is no
additional knowledge acquired through these results. Renewing a personal insurance
policy for assets owned is a requirement within the United States. The company an
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individual chooses to renew with is a personal choice and one influenced by several
elements, including attitudes and social influences. The results from the data analysis
indicate a stronger intent to renew with a company using sophisticated pricing methods.
the strength and direction of the relationship between insurance pricing strategies and
consumer’s attitudes toward purchasing additional insurance policies. The results of the
questions identified the participants’ perceptions of purchasing additional insurance
through their current insurance company. In addition, the results identified whether the
participant would be more apt to purchase additional insurance from a company using
sophisticated pricing methods. The data analysis revealed very significant, moderate to
strong and positive sets of relationships between the participants’ attitudes, subjective
norms, and intentions. The relationship increased in strength and correlation after
participants read the description of the sophisticated pricing method and suggests a
positive intention toward additional insurance purchases.
According to Fitzgibbons and White (2005) and Hellier (2003), consumer loyalty
exists in two forms. The first is behavioral loyalty and occurs when consumers engage in
repetitive product or service purchasing from an organization. An organization has
benefit from consumer loyalty through increased retention, profitability, and lower
service costs (Reinartz & Kumar, 2002; Shoemaker, 2003). In addition, Gourville (2003)
stated the presentation of rate-based information to a consumer adds to their
understanding of products and services. Through increased understanding and lower
consumer price sensitivity, loyalty begins to form.

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Consumer reactions in dealing with insurance are at an emotional rather than
intellectual level (Beloucif et al., 2004). Emotive people are the most loyal and make
purchasing decisions they believe to be correct and almost never reconsider the decision
(Coyles & Gokey, 2002). If the consumer can trust an insurance provider to deliver the
purchased features and guarantees, the quality of the relationship is high and consumer
loyalty increases (Beloucif et al., 2004).
Development of sophisticated pricing methods occurs to maximize organizational
profit and minimize risk while providing value to the consumer (Dolan & Simon, 1996;
McCarthy, 1960). According to Nagle and Cressman (2002) and Shoemaker (2003),
pricing methods perceived to add value to a consumer, influence consumer behavior. The
data analysis indicates support for the premise through increased correlation between
attitude, subjective norm, and intention after participants read the sophisticated pricing
method description.
An alternative interpretation of the data results is people only purchase insurance
when the need arises, such as a marital status change or additional asset purchase (Esho et
al., 2004). The need to purchase insurance becomes the determinant of behavior rather
than attitude or subjective norm. However, the data results indicate when an additional
purchase is necessary; the participants’ perceptions are that purchasing from a company
using sophisticated pricing methods is more favorable. The data analysis results support
the alternative hypothesis and reject the null hypothesis.
the strength and direction of the relationship between pricing strategies and referring an
insurance company to other people. The results of the questions identified the attitudes,
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subjective norms, and intentions of the participants referring family and friends to their
current insurance provider. In addition, the results indicated whether the participant
would be more apt to refer people to an insurance company using sophisticated pricing
methods. The data analysis showed strong, positive correlations in both the current self-
perceptions and the self-perceptions after presenting the sophisticated pricing method
description.
Referrals, as stated by Durvasula et al. (2004), are one aspect of attitudinal loyalty
and the second type of behavioral outcome an organizational leader seeks. Attitudinal
loyalty indicates a preference and commitment to a brand (Fitzgibbons & White, 2005).
Consumers trusting an insurance company to provide the purchased features and
guarantees, create a high quality relationship and a sense of loyalty with the organization
(Beloucif et al., 2004). Referrals and word-of-mouth advertising are an outcome of
quality relationships according to Fitzgibbons and White (2005).
While incorporating consumer perceptions into pricing strategies is beneficial to
an organization, consumers purchase insurance only when necessary and their decisions
are emotional (Esho et al., 2004). Referrals are also an emotional response to the
perceived level of relationship between the consumer and the company (Beloucif et al.,
2004). The data analysis indicates only a slight increase in the overall influence of
attitude and subjective norm to intention after participants read the sophisticated pricing
method description. The result indicates a slight interest by participants to engage in
referrals of friends and family to an insurance company using sophisticated pricing
methods.
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The examination of the research question and hypothesis for referrals provided
valuable insight. While correlations indicate a strong and positive relationship, suggesting
a strong determinant of intent to engage in referrals, the difference in self-perceptions
increased slightly. The data analysis still however, supports the alternative hypothesis and
rejects the null hypothesis.
Alternate interpretations may be that consumers prefer others to make their own
decisions about a company or product. Individuals are comfortable with making their
own informed decisions but less likely to influence others in their decision making.
Insurance needs are not the same for everyone and therefore people may not be sure as to
what others need and one company may not provide the right value and products for
everyone.
Knowledgeable consumers understand the price to value relationship and adjust
their behavior toward a product and service organization accordingly (Durvasula et al.,
2004; Huchzermeier et al., 2002). One of the survey’s attitude-toward-behavior questions
examined the participants’ attitudes, subjective norms, and intentions relative to finding
out how their current insurance company prices their policies. The question examined
these elements from the participants’ current perceptions and their perceptions after
reading the sophisticated pricing method description. The intent of these questions was to
add support for the study’s hypotheses.
The results indicate a moderate and positive relationship between attitude and
subjective norm to intention. The data analysis showed that as participants read about a
new pricing method the attitude and subjective norm increased positively and led to an
increase in intent. The increase in intention may lead to participants gaining more
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knowledge about insurance pricing. The results do support the research indicating that a
more knowledgeable consumer influences consumer behavior.
An alternate interpretation of the results may be other elements influence whether
a participant obtains more knowledge about insurance. The provision of a description of a
new pricing method versus asking a participant to look up a new method may provide
different results. Influences may include the time a participant may have to investigate
other methods and the lack of knowledge in how to obtain additional information. Further
research should examine the reasons why participants do not engage in comparison
insurance pricing.
The study’s instrument also presented six multiple-answer questions to the
participants. The intent of these questions was to identify themes from current participant
perceptions of how insurance companies price policies and why they stay with their
insurance company. According to Saussy (2004), additional knowledge leads to attitudes
and behaviors about an organization and a product. The study began with questions
relative to the participant’s current perceptions about how insurance companies price
policies and what influences a participant to stay with or leave an insurance company.
The data analysis revealed the theme of most importance to a participant is price.
Price was the number one reason participants stay with an insurance company and the
most important criteria in purchasing insurance. Price was intentionally not included in
the question relative to why a participant would leave their insurance company. The
intent was to assist in the support of price being an important element by allowing the
participant to add price as a reason.

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A free form field allowed participants to add additional thoughts or reasons as to
why they leave an insurance company. While not indicated by a majority of participants,
price was present in the free form field, indicating importance to a few individuals. The
data analysis also indicates support for the GartnerG2 2002 survey, having identified
price as an important influence in insurance purchases and renewals.
Alternate interpretations to the results may be that because insurance is an
emotional purchase and consumers are price sensitive, price is an easy answer to indicate.
People are always looking for the lowest price regardless of the quality or value.
Insurance however, is not a product purchased often and its use may not occur for long
periods. Consumers purchase insurance for personal assets because the law requires it or
the consumer chooses to have protection for an asset. The basis for the product features
and the price a consumer pays is the value to the consumer.
The second theme identified within the multiple answer questions focused on
consumer knowledge. Three questions focused on how insurance companies price
policies today, how insurance companies should price policies, and reactions to the
sophisticated pricing method. The question concerning how an insurance company prices
policies today indicated a good level of knowledge exists with participants. The majority
of participants indicated averaging demographics was the method used by insurance
companies. A small number of participants indicated no knowledge of how an insurance
company prices a policy.
The responses to the question asking participants to identify what criteria should
be included in insurance policy pricing had the majority of the participants including
multiple answers. A small number of participants felt a single criterion was necessary to
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price a policy. The results indicate support for the use of multiple criteria in pricing an
insurance policy, which is the basis of sophisticated pricing methods.
The reaction to the sophisticated pricing description provided interesting results.
While a majority of the participants indicated the need to include multiple criteria for
pricing an insurance policy, less than half liked the method of sophisticated pricing. In
addition, less than one quarter of the participants felt sophisticated pricing methods
would bring value to them. The results bring forth the question of whether the description
provided was adequate to obtain a reasonable understanding, or participants truly did not
find value with the new method. The written responses exhibit a knowledge of the
description as a small number of participants reasoned the possible meaning and value to
their specific situations.
Overall, the data results indicate a more knowledgeable insurance consumer
exists. Insurance consumers are capable of receiving information about pricing strategies
and methods and interpreting the impact to their specific situation. Sophisticated pricing
methods enable the ability to apply the right price at the right time to an individual;
however, the impact may be positive, negative, or neutral to the consumer’s current
situation.
Alternative interpretations to the data analysis and findings may be the multiple-
answer questions add no value to the research questions or hypotheses. The questions
intended to provide a qualitative means of validating the quantitative results. The
question of whether participants were being consistent in the responses of their
perceptions had to be explored. Other means of achieving validation could have occurred
and are discussed in the future research section.

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Issues of Scope and Limitations
Cronbach’s alpha test indicated a lack of reliability for the questions related to
whether or not participants comparison shop insurance. The lack of internal reliability in
the responses indicates a lack of correlation between attitude, intent, and subjective norm
relative to the behavior of comparing insurance. The result is consist with the correlation
analysis performed, indicating no correlation with current pricing methods and only a
weak correlation with sophisticated pricing methods. Whether or not a participant
engages in comparing insurance prices adds no value to the study’s hypotheses and
therefore no further discussion on the comparison question set occurred.
The study design required participants to have a valid email address and the
requirement limits the participants to those able to purchase a personal computer and pay
for access to the internet. Utilization of zoomerang.com provided a constraint due to
payment required for a minimum number of responses and access to limited funding. The
combination of these two issues influenced the possible number of responses; however,
more responses than necessary were obtained for the study.
The survey also included participant self-selection. If participants did not accept
the criteria once the survey began, an option existed to leave the survey. If at any point
during the survey the participant did not wish to participate, there was an option on every
survey page to allow the participant to leave the survey.
Recommendations and Implications
To succeed in the transformation of the financial services industry and consumer
analysis changes occurring today, leaders of insurance organizations must evaluate ways
to increase customer retention and loyalty (Choi & Weiss, 2005; Maurstad et al., 2001;
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Oliva, 2005). According to Maurstad et al. (2001), leaders developing customized policy
pricing to an individual, provide the organization the ability to adapt to changing
consumer behavior. Improvements in pricing strategies, especially those including the
consumer perspective, create sustainable competitive advantages for an organization
(Cram, 2006; Dutta et al., 2002). Understanding, through the study, the influence pricing
strategies have on consumer behavior allows leaders to incorporate the appropriate
consumer perspective into the organization’s pricing strategies.
According to Harrison and Ansell (2002), organizations concerned about
consumer retention must focus on creating and maintaining long-term customer
relationships. In addition, Capraro et al. (2003) suggested providing as much information
as possible to a consumer enables more informed decision making and the perception of
adding a valuable service. Adding value to a consumer and increasing their level of
knowledge provides a barrier to losing customers. The data analyses presented indicates
support for the research.
The first major theme identified in the study is price. The J. D. Power and
Associates 2001 and GartnerG2 2002 surveys identified price as a significant motivator
for consumers in switching insurance companies and purchasing insurance in general.
The study results support the previous research and indicate to leaders the necessity for
consideration of an insurance consumer’s price sensitivity not only in first time purchases
but also in renewal purchases.
The theme of price also provides insight to leaders of insurance companies
relative to understanding the motivations behind insurance purchases. Customer
satisfaction and service are reasons why a customer will leave an insurance company, but
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price also plays a role. When a customer leaves one company for another or purchases for
the first time, price is foremost on their criteria list. Leaders who understand the
consumers’ price position will succeed in providing their organization a competitive
advantage (Cram, 2006; Dutta et al., 2002) and will increase retention and loyalty. The
insight is applicable to leaders of all types of renewal-based products and is not limited to
insurance organizations.
The recommendation to leaders is that price is at least as important to consumers
when purchasing or renewing products as customer service and satisfaction. Leaders must
spend an equal amount of organizational resources on developing appropriate pricing
strategies as is spent on customer retention and service efforts. Pricing must become a
strategic capability within all insurance organizations as well as other industries (Dutta et
al., 2002). Pricing strategies including the perspective of the consumer provide
organizations with a sustainable competitive advantage (Cram, 2006). Failure of an
organization to incorporate the perspective of the consumer into pricing strategies
provides competitors who understand consumers, the opportunity to gain market share.
The pricing of products is one of the most critical evaluations organizational
leaders can make (Barone & Bella, 2004; Cram, 2006; Nagle & Cressman, 2002).
According to Smith et al. (2000), creating a price perceived by the consumer as too high
may lead the consumer to a competitor, thereby reducing retention. Pricing strategies, as
stated by Cram (2006), must include the perspective of the consumer to be effective in
the marketplace. The data analysis supports the research as indicated by the increase in
correlation and influence between attitude, subjective norm, and intention after
participants read the sophisticated pricing method description. The results provide insight
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for leaders exploring the possibility of using sophisticated pricing methods within their
organizations.
Organizations develop sophisticated pricing methods to minimize the financial
impact from a consumer, according to Dolan and Simon (1996). These pricing methods
also incorporate the consumer’s price sensitivity in the development of the price structure
(Maurstad et al., 2001). Leaders who understand the importance of price and value to a
consumer will succeed in the market (Dolan & Simon, 1996) and will build effective
relationships with consumers (Beloucif et al., 2004). Though sophisticated pricing
methods require a substantial effort from an organization to create, the rewards of
financial stability and flexibility, and the potential of increased retention and loyalty
provide the benefit.
The study results also indicated participants were interested in having their
insurance companies utilize sophisticated pricing methods. Other participants in the study
identified they would engage in research on these methods and still others would discuss
these methods with their agents. Insurance leaders must have their organizations prepared
to discuss their level of use of these methods for agents or consumers who inquire. In
addition, leaders should have their organization prepared to discuss why they are not
engaged in these methods.
A recommendation for insurance and other leaders is to examine the use of
sophisticated pricing methods. As indicated by the study results, these methods may not
be beneficial for all customers. Some customers may experience increases in price while
others may stay the same or decrease. Sophisticated pricing strategies, as with other
strategies, must develop within the culture, risk tolerance, and market of the organization
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(Shoemaker, 2003). Leaders who do not evaluate sophisticated pricing methods could
leave their organizations lagging competitively behind other organizations who engage in
these methods.
The second theme of the study is the knowledge level of the consumer. The study
results indicate a good knowledge level of insurance pricing by the participants. These
results support the findings by J. D. Power and Associates 2001 survey where with the
rising cost of goods, including insurance, consumers are evaluating price for value. The
evaluation leads a consumer to change their behavior regarding the product or
organization accordingly.
The more a consumer understands about product features and pricing, the better
the understanding of value to them and the better the relationship with the organization
(Durvasula et al., 2004; Huchzermeier et al., 2002). While the study results indicate a
positive relationship existing between pricing strategy and referrals, the difference
between pricing methods was small. The implication is consumers need a relationship
with an organization and a firsthand understanding of the pricing method before they
engage in referrals. Leaders providing consumers with information about the
organization’s pricing provide consumers with the beginning to the relationship.
Insurance organizations are competing with companies such as Progressive which
offer consumers not only information about their products and prices, but also those of
competitors (www.progressive.com). Regardless of the accuracy of the information
received, Progressive creates a perception of honesty and openness about their prices.
The study results indicate a positive relationship between knowing how insurance
companies price and retention and loyalty. Leaders must learn to leverage knowledgeable
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consumers and build long-term relationships through information sharing and value-
adding services rather than acquiring short-term relationships based on marketing
initiatives.
Suggestions for Future Research
The study population was limited to the geographic area of Hartford County,
Connecticut. While the location provides an interesting population considering the
concentration of insurance companies in the area, a further research opportunity would be
to examine a countrywide population. In various sections of the United States, regional
insurance companies are located. Regional insurance providers cater to a local market
and these organizations may provide additional insight into pricing strategies and
consumer behavior.
Reliability with the questions around whether participants engage in comparing
insurance existed within the study. Further examination of the attitudes and subjective
norms involved in the behavior of comparing insurance may provide leaders with insight
into why more consumers do not engage in comparison-shopping. Leaders may find
creative ways to provide more information to consumers thereby offering value resulting
in building relationships that are more effective.
Further research opportunities would be a longitudinal or experimental study.
Being able to observe attitudes, intentions, and actual behaviors relative to pricing
strategies and retention and loyalty provides the full cycle involved in purchasing and
renewing insurance policies. A causal design is another opportunity for future research.
Identifying whether pricing strategies actually cause specific retention and loyalty
behaviors would add valuable information to organizations.

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Personal insurance policies were the focus for the study. Future research could
examine commercial insurance and the impact to a business rather than an individual.
Life insurance does not offer an opportunity as many people obtain life insurance from an
employer or buy life insurance once and never change.
Opportunities for future research can include focus groups and interviews with
organizational leaders and insurance agents. Obtaining multiple perspectives would
provide for specific actions leaders and organizations can take to improve consumer
behavior. In addition, focus groups and interviews provide a qualitative data that brings
additional context and provides triangulation with quantitative data.
The study’s instrument was developed and delivered through zoomerang.com.
Zoomerang.com offers subscribers points to purchase products and services in return for
taking surveys. The population obtained from zoomerang.com has internet access and are
possibly motivated to respond due to the rewards. Inclusion of non-internet users would
provide future opportunities and comparison groups. The study design also used a simple
random sample method. Studies in the future should use a different approach to sampling.
Future research could also analyze the attributes, intentions, and subjective norms
by gender and age range. Different age ranges have different insurance needs based on
asset ownership and stage of life. Social influence may also be different between age
ranges and between genders. Women today have careers, are more independent, and have
different needs from men.
The study’s design also limited the definition of retention and loyalty to renewals,
referrals, and additional insurance purchases. Future research may expand the definition
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to include other forms of retention and loyalty. Beyond insurance, other product and
service organizations may define these behaviors in different ways.
Summary
The purpose of the study was to identify the strength and direction of the
relationships and not causality. The findings for each research question indicate support
for the alternative hypotheses, indicating positive relationships exist between variables.
The study’s design and method maintained adequate reliability and validity, with the
exception of the comparison shopping responses, and minimized Type I error
possibilities. In addition the study results are significant to very significant (p < .05 and p
< .01) for all analyses, except attitude to intent for comparison shopping, and included a
larger than necessary sample size. The results are therefore generalizable to the
population parameters set forth in the study.
The study results indicate significant and positive relationships between consumer
self-perceptions of insurance pricing strategies and customer retention and loyalty. The
participants indicated increased positive attitudes, subjective norms, and intentions
toward sophisticated pricing methods relative to renewals, referrals, and additional
purchases. Insurance leaders should engage in research to incorporate the insights
appropriately into product and pricing development and sales and marketing initiatives.
The study results also indicate support for the use of sophisticated pricing methods
influencing customer retention and loyalty, thereby adding to increased organizational
financial performance.
The insight and recommendations provided from the study are applicable to
leaders of any product or service organization. Understanding consumer behavior relative

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to pricing strategies enables leaders of any organization to build competitive advantage.
Developing pricing as a strategic capability of an organization will be vital to the
organization’s long-term success, as stated by Dutta et al. (2002). Organizations that do
not invest in some form of sophisticated pricing method will fall behind competitors who
do or the organization may cease to be financially stable (Cram, 2006).
Conclusion
Pricing as a strategic capability is critical for organizational success and
sustainable competitive advantage (Dutta et al., 2002). The inclusion of the consumer
perspective, in addition to the organizational and competitor perspectives, assists leaders
in developing effective pricing (Cram, 2006). To obtain the consumer perspective, an
understanding of consumer attitudes, intentions, and beliefs is necessary (Ajzen &
Fishbein, 1980). The study’s results have contributed knowledge into consumer
perceptions relative to pricing strategies and consumer retention and loyalty. The study
results support the alternative hypotheses of positive relationships existing between each
variable.
The key insight from the study is that price is the most important criteria for
insurance consumers when renewing or purchasing insurance. Research has focused on
customer satisfaction and service, but as the transformation of the financial industry
continues, more research and thought must be given to the strategic nature of pricing and
the impact to consumer behavior. While the study’s focus was on the insurance industry,
the findings apply to many industries and to leaders evaluating the use of sophisticated
pricing methods. All leaders should ensure their organizations are including consumer
self-perceptions relative to pricing within the development of pricing strategies.

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APPENDIX A: COVER EMAIL SAMPLE
My name is Kathleen Kane and I am a student at the University of Phoenix working on a

Doctorate of Business Administration degree. I am conducting a research study entitled
“Pricing Strategies Relationship to Consumer Behavior in Personal Insurance.” The
purpose of the research study is to determine the degree to which pricing strategies affect
the consumer behaviors of retention and loyalty within the personal insurance industry in
Hartford County, CT. As the final requirement of this program, I must complete a
doctoral dissertation and research study. This is the reason for my email to you today.
Your participation will involve responding to questions given in an online survey based
on the www.zoomerang.com web site. Your participation in this study is voluntary. The
results of the research study may be published but your name will not be used and your
results will be maintained in confidence. In this research, there are no foreseeable risks to
you. The research study concerns attitudes toward the pricing of personal insurance
policies. Personal insurance policies include auto, home, condo, or renters insurance. To
participate in this study you must meet the following criteria:
1. 18 years or older and live in the United States.

2. Will be purchasing or have purchased your own insurance policy (as an individual
or a household).
3. Do not work for an insurance company or agency selling personal, commercial, or
life insurance.
First, let me Thank You for reading through my email and allowing me to explain my
study. I am hoping you will continue by responding to the survey. The survey should take
no more than 5-10 minutes of your time. If you do not have the time right now, please
save this email and come back at a more convenient time for you. I would appreciate a
response by DATE HERE.
Your participation in this survey is completely voluntary. Your response is very

important to this research study. Your privacy and confidentiality are important to you.
Your identification is not contained within any response. The responses are for academic
use only and will not be shared with any third party.
Once again, I would like to Thank You for giving me your time in this research study.
Your response is very important to this study. To take the survey, please double click on
the web address below. You will be taken to an acknowledgement entry page at the
beginning of the survey. If you would like to have a copy of the results of the study you
may send a request to EMAIL ADDRESS HERE.
Kathleen Kane
University of Phoenix Online Doctoral Student
146
APPENDIX B: PILOT QUESTIONNAIRE
Hello! Thank you for participating in this research study.
The research study concerns attitudes toward the pricing of personal insurance policies.
Personal insurance policies include auto, home, condo, or renters insurance. To
participate in this study you must meet the following criteria:
1. 18 years or older and live in the United States.

2. Will be purchasing or have purchased your own insurance policy (as an individual
or a household).
3. Do not work for an insurance company or agency selling personal, commercial, or
life insurance.
Your participation in this survey is completely voluntary. Your response is very

important to this research study. Your privacy and confidentiality are important to you.
Your identification is not contained within any response and I do not ask anywhere for
your name or other vital information. Each response is given a sequential number based
on the order in which you and other respondents take the survey. The responses are for
academic use only and will not be shared with any third party.
During the survey you have the option to leave the survey. If you do so any information
you have cannot be associated with you. When you reenter the survey it will start at the
beginning again. Instructions are provided on each page of the survey.
In order to begin the survey please read the following statement. You are asked to agree
to the survey before taking the survey through an electronic signature. This signature is
not retained as part of the data of the survey. Please acknowledge agreement of the
statement by clicking the “Yes, I agree” box and then sign and date within the space
provided. If you do not wish to take the survey please click the “No, I don’t agree” box.
Once again, thank you for your time.
By signing this form I acknowledge that I understand the nature of the study, the potential
risks to me as a participant, and the means by which my identity will be kept confidential.
My signature on this form also indicates that I am 18 years old or older and that I give
my permission to voluntarily serve as a participant in the study described.
___ Yes, I agree ___ No, I don’t agree
Name: ________________________________________ Date: ____________________
147
This first set of questions is about your thoughts toward personal insurance companies
and the pricing of policies. Personal insurance includes auto, home, condo, and renters
policies.
If you wish to leave the survey now please click on the EXIT button at the bottom of the
screen. Please remember that if you reenter the survey you will begin at the beginning
again.
Thank you for your time and responses!
1. If you have insurance currently, what are the reasons you stay with your
company?
2. What information about you do you think insurance companies utilize to

determine the price for your insurance policy?
3. What is important to you when purchasing or renewing a personal insurance

policy?
4. What event(s) or situation(s), if any, would cause you to leave your current
insurance provider?
5. If you comparison shop when purchasing or renewing your personal insurance

policy, what methods do you utilize to compare?
148
6. If you have insurance currently, who are your personal insurance providers?
In this section the questions involve your current attitude toward personal insurance and
the pricing of polices. Personal insurance policies include auto, home, condo, and renters
insurance.
1. My attitude toward purchasing personal insurance policies is: (Check only one answer)
+2 +1 0 -1 -2
Favorable Slightly favorable Neutral Slightly Unfavorable Unfavorable
2. My attitude toward renewing personal insurance policies is: (Check only one answer)
+2 +1 0 -1 -2
3. My attitude toward how insurance companies price my personal insurance policy is:
(Check only one answer).
+2 +1 0 -1 -2
4. My attitude toward referring friends to my personal insurance company is: (Check

only one answer).
+2 +1 0 -1 -2
5. My attitude toward the price of my personal insurance policy is: (Check only one
answer).
+2 +1 0 -1 -2
This next section is about your current intentions toward personal insurance and the
pricing of policies. Personal insurance includes auto, home, condo, and renters policies.
149
1. My intent to renew my personal insurance policy(s) with my current insurance

company is: (Check only one answer).
+2 +1 0 -1 -2
Very Likely Somewhat Likely Neutral Somewhat Unlikely Very Unlikely
2. My intent to purchase additional personal insurance policies or increase coverage on

an existing is policy is: (Check only one answer).
+2 +1 0 -1 -2
3. My intent to refer friends or family to my current personal insurance company is:

+2 +1 0 -1 -2
4. My intent to find out how my personal insurance company prices my insurance

policies is: (Check only one answer).
+2 +1 0 -1 -2
5. My intent to comparison shop my personal insurance policy(s) is: (Check only one
answer).
+2 +1 0 -1 -2
This next section is about your current beliefs toward personal insurance and the pricing
of policies. Personal insurance includes auto, home, condo, and renters policies.
1. Most people who are important to me think, when it comes to renewing my personal
insurance policy(s) with my current insurance company, that I: (Check only one answer)
+2 +1 0 -1 -2
Should Maybe Should Don’t care Maybe Should Not Should Not
150
2. Most people who are important to me think, when it comes purchasing additional
personal insurance policy(s) or increase coverage on an existing policy, that I: (Check
only one answer)
+2 +1 0 -1 -2
3. Most people who are important to me think, when it comes to promoting or referring
friends and family to my current insurance company, that I: (Check only one answer)
+2 +1 0 -1 -2
4. Most people who are important to me think, when it comes to finding out how my
current personal insurance company prices my insurance policy(s), that I: (Check only
one answer)
+2 +1 0 -1 -2
5. Most people who are important to me think, when it comes to comparison-shopping

my personal insurance policy(s), that I: (Check only one answer)
+2 +1 0 -1 -2
In this next section, I will describe a new method of pricing insurance policies that is
currently being considered by insurance companies. After the short description, I will ask
you a series of questions concerning your attitude, intentions and beliefs toward this
pricing method.
Traditional methods of pricing insurance policies involve obtaining a few basic

pieces of information about an individual. This information includes address, age,
marital status, driving, credit, and claim records. Once the customer provides this
information, an insurance provider groups the individual with others who have a
similar set of information and background. Rates for policy coverages are created
based on the group as a whole. These rates are then combined as an individual
chooses coverages, to create the overall price for a policy.
A new pricing method being considered by insurance providers is one, which can
produce a customized price for each individual. Individuals still provide
151
information concerning age, location, marital status, credit, and driving record or
claim history. The difference is, this new pricing method develops a price for the
individual, not the group. An individual’s information stands alone in determining
the rates for the coverages and the price for the policy.
Through the questions asked by your agent or the company when you purchase
insurance, the company can develop a price that brings value to you and your
situation. The pricing method does not average you with others in your age range or
location. The price is customized for you.
Having read this description please click next to complete the survey.
This first set of questions is about your thoughts toward personal insurance companies
that utilize the pricing method just described. Personal insurance includes auto, home,
condo, and renters policies.
1. After reading the description of this new pricing method, please describe your
initial reaction.
2. After reading the description of this new pricing method, what facts about you
should the insurance company ask you to provide in order to customize your
policy price?
This next section is about your attitudes toward the new pricing method of policies just
described. Personal insurance includes auto, home, condo, and renters policies.
1. My attitude toward purchasing personal insurance policies with this new pricing
method is: (Check only one answer)
152
+2 +1 0 -1 -2
2. My attitude toward renewing personal insurance policies with sophisticated this new
pricing method is: (Check only one answer)
+2 +1 0 -1 -2
3. My attitude toward insurance companies that price my personal insurance policy with
this new pricing method is: (Check only one answer).
+2 +1 0 -1 -2
4. My attitude toward referring friends or family to a personal insurance company that

prices with this new pricing method is: (Check only one answer).
+2 +1 0 -1 -2
5. My attitude toward this new pricing method for my personal insurance policy is:
+2 +1 0 -1 -2
This next section is about your intentions toward personal insurance with this new
pricing method of policies. Personal insurance includes auto, home, condo, and renters
policies.
1. If my personal insurance company utilizes this new pricing method, my intent to

renew my personal insurance policy(s) is: (Check only one answer).
+2 +1 0 -1 -2
2. If my personal insurance company utilizes this new pricing method, my intent to

purchase additional personal insurance policies or increase coverage on an existing policy
is: (Check only one answer).
+2 +1 0 -1 -2
153
3. If my personal insurance company utilizes this new pricing method, my intent to refer
friends or family to my personal insurance company is: (Check only one answer).
+2 +1 0 -1 -2
4. My intent to find out how my personal insurance company prices my insurance

policies is: (Check only one answer).
+2 +1 0 -1 -2
5. My intent to comparison shop my personal insurance policy(s) is: (Check only one
answer).
+2 +1 0 -1 -2
This next section is about your current beliefs toward personal insurance and this new
pricing method. Personal insurance includes auto, home, condo, and renters policies.
1. If my personal insurance company utilizes this new pricing method, most people who
are important to me think, when it comes to renewing my personal insurance policy, that
I: (Check only one answer)
+2 +1 0 -1 -2
are important to me think, when it comes to purchasing additional personal insurance
policy(s) or increase coverage on an existing policy, that I: (Check only one answer)
+2 +1 0 -1 -2
are important to me think, when it comes to promoting or referring friends and family,
that I: (Check only one answer)
+2 +1 0 -1 -2
154
4. Most people who are important to me think, when it comes to finding out how my
personal insurance company prices my insurance policies, that I: (Check only one
answer)
+2 +1 0 -1 -2
are important to me think, when it comes to comparison-shopping my personal insurance
policy(s), that I: (Check only one answer)
+2 +1 0 -1 -2
Demographics:
Age: Gender: For your residence, do you:
18 or 19 Male: Own:
20 – 29 Female: Rent:
30 – 39 Lease:
40 – 49 Other:
50 – 59
60 – 69
70 + For your automobile, do you:
Own:
Lease:
Other:
Thank you for taking the time to respond to this survey.
Your responses are very important to this study. If you would like to receive a summary
of the results of the survey please send an email to EMAIL ADDRESS HERE.
155
APPENDIX C: POSSIBLE RESPONSES FOR QUALITATIVE QUESTIONS
1. What makes you stay with your current insurance provider?
Agent
Price/Good Deal
Convenience
Customer Service/Claims service
Product
Too lazy to move companies/no time to move companies
Don’t understand insurance
Don’t know who else to place business with
Family
Brand of the company
2. How do you think insurance companies create the price for your insurance policy?
Averaging across age, location, gender, marital status

Don’t know
Magic
Based on claim history
Based on driving history
Based on agent
However they want
3. What is important to you when purchasing or renewing a personal insurance policy?
Price
Product features
Customer service
Agent recommendation
Family recommendation
4. What event(s) or situation(s) would cause you to leave your current insurance
provider?
Moving
Getting Married
Buying additional assets (car, home, condo)
Unsatisfactory customer service
Unsatisfactory claim payment
Driving record changes
156
5. How do you comparison shop when purchasing or renewing your personal insurance
policy?
Internet
Agency
Family
Friends
Toll free numbers for companies
Insurance magazines/analyst reports
Do not
6. After reading the description of sophisticated pricing, please describe your initial
reaction.
Too complex
Do not understand
Adds value to me
Like the idea
Want current insurance company to do this
Will talk to agent
Will do more research on it
Do not care
Will discuss with others
Does not make a difference
7. After reading the description of sophisticated pricing, what facts about you should the
insurance company ask you to provide in order to customize your policy price?
Age
Location
Driving history
Claims history
Type of house/vehicle
Lease/rent/own
Marital status
Children
Longevity at job
Longevity at address
Income
Credit score
Location’s crime rate
157
APPENDIX D: UPDATED SURVEY AFTER PILOT FEEDBACK
Attitudes Toward Purchasing Insurance
To participate in this study you must meet the following criteria:
1. 18 years or older and live in Hartford County, Connecticut.
2. Will be purchasing or have purchased your own insurance policy (as an

individual or a household).
3. Do not work for an insurance company or agency selling personal,

commercial, or life insurance.
Your participation in this survey is completely voluntary. Instructions are provided

on each page of the survey.
You are asked to agree to participate in the survey through an electronic

signature after reading the following paragraph. This signature is not retained as
part of the data of the survey. Please click the “Yes, I agree” button and then sign
and date within the space provided if you wish to continue. If you do not wish to
take the survey please click the “No, I do not agree” button. Once again, thank
you for your time.
By signing this form I acknowledge that I understand the nature of the study, the
potential risks to me as a participant, and the means by which my identity will be
kept confidential. My signature on this form also indicates that I am 18 years old
or older and that I give my permission to voluntarily serve as a participant in the
study described.
1
I meet the terms and agree to participate in this survey.
Yes, I agree
No, I do not agree
2
Today's Date
Month Day Year Time
Date
158
3
Name
Survey Page 1
There will be 4 sets of questions in this first section.

Please respond by clicking the button next to the answer you choose. (1 of 4)
4
If you have insurance currently, what are the reasons you stay with your
company? You can choose multiple answers.
Agent
Price/Good Deal
Convenience
Customer Service/Claims service
Product
Too complicated to move companies
Don’t know who else to place business with
Family
159
Other, please specify
5
How you do you think insurance companies determine the price for your
insurance policy? You may choose multiple answers.
Averaging across age, location, gender, marital status
Don’t know
Magic
Based on claim history
Based on driving history
Based on agent
However they want
6
What is important to you when purchasing or renewing a personal
insurance policy? You may choose multiple answers.
Price
Product features
Customer service
160
7
What event(s) or situation(s), if any, would cause you to leave your
current insurance provider? You may choose multiple answers.
Moving
Getting Married
Buying additional assets (car, home, condo)
If you wish to leave the survey now please close your survey window by clicking
the "X" in the upper right hand corner of your screen.
Survey Page 2
161
Please respond to each question by clicking the number under your response.
Personal Insurance includes auto, home, condo, and renters policies.

(2 of 4)
8
My attitude toward purchasing personal insurance policies is:
Favorable Slightly Favorable Neutral Slightly Unfavorable Unfavorable
9
My attitude toward renewing personal insurance policies is:
10
My attitude toward how insurance companies price my personal
insurance policy is:
11
My attitude toward referring friends to my personal insurance company
is:
162
12
My attitude toward the price of my personal insurance policy is:
If you wish to EXIT the survey simply close the screen by clicking the "X" in the
upper right corner of your screen.
Survey Page 3
Personal insurance includes auto, home, condo, and renters policies.

(3 of 4)
13
My intent to renew my personal insurance policy(s) with my current
insurance company is:

163
14
My intent to purchase additional personal insurance policies or increase
coverage on an existing is policy is:
15
My intent to refer friends or family to my current personal insurance
company is:
Very Likely Somewhat Likely Neutral Somewhat Unlikely Very Unikely
16
My intent to find out how my personal insurance company prices my
insurance policies is:
17
My intent to comparison shop my personal insurance policies is:

164
If you wish to exit the survey simply close this screen by clicking the "X" in the
Survey Page 4
Please respond to each question by clicking the button next to your response.

(4 of 4)
18
Most people who are important to me think that I:
Should renew my personal insurance policies with my current

insurance company
Maybe Should renew my personal insurance policies with my

current insurance company
Don’t care if I renew my personal insurance policies with my

Maybe Should Not renew my personal insurance policies with my

Should Not renew my personal insurance policies with my current

insurance company
19
Should purchase additional or increased coverage on my

165
personal insurance policies with my current company
Maybe Should purchase additional or increased coverage on my

Don’t care if I purchase additional or increased coverage on my

Maybe Should Not purchase additional or increased coverage on

my personal insurance policies with my current company
Should Not purchase additional or increased coverage on my

20
Should promote or refer friends and/or family to my current

insurance company
Maybe Should promote or refer friends and/or family to my current

insurance company
Don’t care if I promote or refer friends and/or family to my current

insurance company
Maybe Should Not promote or refer friends and/or family to my

Should Not promote or refer friends and/or family to my current

insurance company
21
Should find out how my current insurance company prices my

insurance policies
Maybe Should find out how my current insurance company prices

my insurance policies
Don’t care if I find out how my current insurance company prices

166
Maybe Should Not find out how my current insurance company

prices my insurance policies
Should Not find out how my current insurance company prices my

insurance policies
22
Should comparison shop my personal insurance policies with

other insurance companies
Maybe Should comparison shop my personal insurance policies

with other insurance companies
Don’t care if I comparison shop my personal insurance policies

Maybe Should Not comparison shop my personal insurance

policies with other insurance companies
Should Not comparison shop my personal insurance policies with

Survey Page 5
I will now briefly describe a new method of pricing insurance policies that is
currently being considered by insurance companies. After the short description, I
167
will ask you a set of questions concerning your attitude, intentions and beliefs
toward this pricing method.
Traditional methods of pricing insurance policies involve obtaining a few basic

pieces of information about an individual such as address, age, marital status,
driving, credit, and claim history. Once you provide this information, an insurance
provider groups the individual with others who have a similar set of information
and background. Rates for policy coverages are created based on this grouping.
These rates are then combined as an individual chooses coverages, to create
the overall price for a policy.
A new pricing method being considered is one that can produce a customized
price for each individual. You still provide information concerning age, location,
marital status, credit, and driving record or claim history. The difference is, this
new pricing method develops a price for the individual, not the group. An
individual’s information stands alone in determining the rates for the coverages
and the price for the policy.
The pricing method does not average you with others in your age range or
location. The price is customized for you.
Having read this description please click SUBMIT to complete the survey.
Survey Page 6
There are 4 sets of questions in this last section.
Please enter your responses by clicking the button next to the appropriate
answers.
(1 of 4)
23
After reading the description of this new pricing method, please
describe your initial reaction. You may choose multiple answers.
168
Too complex
Do not understand
Adds value to me
Like the idea
Will talk to agent
Do not care
24
After reading the description of this new pricing method, what facts about
you should the insurance company ask you to provide in order to
customize your policy price? You may choose multiple answers.
Age
Location
Driving history
Claims history
Lease/rent/own
Marital status
169
Children
Longevity at job
Income
Credit history
Survey Page 7

(2 of 4)
25
My attitude toward purchasing personal insurance policies with this new
pricing method is:
Slightly
Favorable Slightly Favorable Neutral Unfavorable
Unfavorable
170
26
My attitude toward renewing personal insurance policies with this new
pricing method is:
Slightly
Unfavorable
27
My attitude toward insurance companies that price my personal
insurance policy with this new pricing method is:
Favorable Sligtly Favorable Neutral Sligtly Unfavorable Unfavorable
28
My attitude toward referring friends or family to a personal insurance
company that prices with this new pricing method is:
Slightly
Unfavorable
29
My attitude toward this new pricing method for my personal insurance
policy is:
Slightly
Unfavorable
171
Survey Page 8

(3 of 4)
30
If my personal insurance company utilizes this new pricing method, my
intent to renew my personal insurance policy(s) is:
Somewhat
Very Likely Somewhat Likely Neutral Very Unlikely
Unlikely
31
intent to purchase additional personal insurance policies or increase
coverage on an existing policy is:
172
Somewhat
Unlikely
32
intent to refer friends or family to my personal insurance company is:
Somewhat
Unlikely
33
My intent to find out how my personal insurance company prices my
insurance policies is:
Somewhat
Unlikely
34
My intent to comparison shop my personal insurance policies is:
Somewhat
Unlikely
173
Survey Page 9
Please respond to each question by clicking the button next to your response.

(4 of 4)
35
If my personal insurance company utilizes this new pricing method,
most people who are important to me would think that I:
Should renew my personal insurance policies
Maybe Should renew my personal insurance policies
Don’t care if I renew my personal insurance policies
Maybe Should Not renew my personal insurance policies
Should Not renew my personal insurance policies
36
Should purchase additional or increased coverage on my

personal insurance policies
Maybe Should purchase additional or increased coverage on my

174
Don’t care if I purchase additional or increased coverage on my

Maybe Should Not purchase additional or increased coverage on

my personal insurance policies
Should Not purchase additional or increased coverage on my

37
Should promote or refer friends and/or family
Maybe Should promote or refer friends and/or family
Don’t care if I promote or refer friends and/or family
Maybe Should Not promote or refer friends and/or family
Should Not promote or refer friends and/or family
38
Should find out how my current insurance company prices my

insurance policies
Maybe Should find out how my current insurance company prices

Don’t care if I find out how my current insurance company prices

Maybe Should Not find out how my current insurance company

prices my insurance policies
Should Not find out how my current insurance company prices my

insurance policies
175
39
Should comparison shop my personal insurance policies with

Maybe Should comparison shop my personal insurance policies

Don’t care if I comparison shop my personal insurance policies

Maybe Should Not comparison shop my personal insurance

policies with other insurance companies
Should Not comparison shop my personal insurance policies with

Survey Page 10
Please answer some basic demographic questions to finish the survey.

Please respond to each question by clicking the circle next to your response.
Thank you for your responses!
40
176
Age Range:
18 or 19
20-29
30-39
40-49
50-59
60-69
70 +
41
Gender
Male
Female
42
For your residence, do you:
Own
Lease
Rent
43
177
For your vehicle(s), do you:
Own
Lease
44
Do you comparison shop your insurance?
Survey Page 11
178
APPENDIX E: FREQUENCY ANALYSIS OF MULTI-ANSWER QUESTIONS
Don’t know who else
Family
Too complicated to move
Other
Product
Brand
Agent
Customer Service
Convenience
Price or Good Deal
0 20 40 60 80 100 120
Figure E1. Why do you stay with your insurance company?

179
Magic
Other
Agent
Don’t know
However they want
Claim history
Driving history
Averaging demographics
0 20 40 60 80 100 120
Figure E2. How do you think insurance companies price policies?

180
Other
Customer service
Product features
Price
0 20 40 60 80 100 120 140 160

Figure E3. What is important to you in purchasing insurance?

181
Getting Married
Buying additional assets
Other (21 indicated price)
Moving
0 20 40 60 80 100 120
Figure E4. Why would you leave your insurance company?

182
Too complex
Do not care
Do not understand
Other
Will talk to agent
Adds value to me
Like the idea
0 10 20 30 40 50 60 70
Figure E5. What is your reaction to the sophisticated pricing method?

183
Other
Credit history
Income
Longevity at job
Children
Lease/rent/own
Marital status
Location
Age
Claims history
Driving history
0 20 40 60 80 100 120 140

Figure E6. What should an insurance company use to price a policy?

The Effect of Pricing Strategy

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The Effect of Pricing Strategy

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THE EFFECT OF PRICING STRATEGY ON CONSUMER BEHAVIOR IN THE

PERSONAL INSURANCE INDUSTRY

A Dissertation Presented in Partial Fulfillment

of the Requirements for the Degree

Doctor of Business Administration

All rights reserved.

UMI Microform 3288621

ProQuest Information and Learning Company

ALL RIGHTS RESERVED

PERSONAL INSURANCE INDUSTRY

Stephen Tvorik, Ph.D., Mentor

Ruby Rouse, Ph.D., Committee Member

Accepted and signed:

Accepted and signed:

Accepted and signed:

The worldwide financial services industry has been experiencing a transformation

significant relationship between consumer self-perceptions of pricing strategies and

retention and loyalty.

during horse shows and lessons.

I thank Dr. Stephen Tvorik, Mentor, Dr. Delfina Ashley-Baisden, Committee

LIST OF TABLES........................................................................................................... viii

LIST OF FIGURES ........................................................................................................... ix

CHAPTER 1: INTRODUCTION ....................................................................................... 1

Background of the Problem ................................................................................................ 2

Statement of the Problem.................................................................................................... 6

Purpose of the Study ........................................................................................................... 7

Significance of the Study .................................................................................................... 9

Nature of the Study ........................................................................................................... 10

Conceptual or Theoretical Framework ............................................................................. 17

Scope, Limitations, and Delimitations.............................................................................. 22

CHAPTER 2: REVIEW OF THE LITERATURE ........................................................... 27

Changing Consumer Needs .......................................................................................... 31

Historical Overview .......................................................................................................... 35

Theory of Reasoned Action .......................................................................................... 36

Consumer Behavior ...................................................................................................... 38

Customer Retention ...................................................................................................... 39

Customer Loyalty ......................................................................................................... 41

Sophisticated Pricing Strategies.................................................................................... 45

Capital Asset Pricing Model (CAPM) ...................................................................... 49

Black-Scholes Option Pricing Model ....................................................................... 50

Discounted Cash Flow Model................................................................................... 51

Maximum Probable Loss Principle........................................................................... 53

Ruin Probability Principle......................................................................................... 54

Current Findings ............................................................................................................... 55

CHAPTER 3: METHOD .................................................................................................. 58

Research Method .............................................................................................................. 58

Design Appropriateness .................................................................................................... 62

Sampling Frame ................................................................................................................ 69

Data Collection ................................................................................................................. 77

Data Analysis .................................................................................................................... 79

Reliability and Validity..................................................................................................... 82

CHAPTER 4: DATA ANALYSIS ................................................................................... 88

Data Collection ................................................................................................................. 88

Data Analysis .................................................................................................................... 90

Reliability and Validity................................................................................................. 90

Hypothesis 1: The Relationship between Pricing Strategy and Retention ................... 91

Hypothesis 2: The Relationship between Pricing Strategy and Additional Purchases. 94

Hypothesis 3: The Relationship between Pricing Strategy and Referrals .................... 96

Additional Insight into Consumer Behavior................................................................. 98

Research Study Themes.............................................................................................. 103

Theme 1: Price ........................................................................................................ 104

Theme 2: Understanding Insurance ........................................................................ 106

Summary ......................................................................................................................... 108