Reference no: EM131164558

In the 1980s, Progressive was a small auto insurance company that sold most of its policies to people who had poor driving records and could not qualify for the standard rate policies sold by other insurers. Progressive charged higher premiums for these policies, which the insurance industry calls substandard policies. Often, other insurers who could not write standard polices for customers would refer those customers to Progressive. The combination of high premiums and the lower cost of its smaller sales force enabled Progressive to earn good profits on this business. Eventually, other insurers noticed Progressive’s success and began to offer their own substandard policies. To respond to the increased competition, Progressive improved its claim service and became one of the first insurance companies to offer 24/7 service every day of the year. During the 1990s, Progressive gradually developed a full line of auto insurance products for all types of drivers and focused on offering the lowest prices in both standard and substandard markets. Although Progressive’s advertising mentions the quality of its service, it always emphasizes its low prices. Progressive was the first auto insurance company to launch a Web site (in 1995) and was the first to sell policies online (in 1997). Knowing that most potential insurance buyers shop multiple Web sites to find the best rate, the company began showing its competitors’ rates on its Web site in 2002, allowing potential customers to compare prices without leaving Progressive’s site. The site displays these rates even when Progressive’s rate is higher than a competitor’s rate on a particular policy. Progressive’s management has expressed a belief that people prefer to buy insurance from honest companies who offer the best prices. In 2008, Progressive introduced a female character, “Flo,” who embodies openness, honesty, and a devotion to low prices. Flo appears in the company’s television and radio ads, and is featured prominently on its Web site. In fact, the character often appears in television ad vignettes that tout the price comparison feature of the Web site.

REQUIRED: 1. Many managers would be reluctant even to mention competitors, much less provide their competitor’s prices to potential customers. In about 200 words, outline Progressive’s reasons for showing competitors’ prices and analyze the costs and benefits of doing so.