The Impact of Discriminatory Pricing Based on Customer Risk: An Empirical Investigation Using Indirect Lending Through Retail Networks

Christopher Amaral, Ceren Kolsarici, Mikhail Nediak

Research output: Contribution to journalArticlepeer-review


Purpose: The purpose of this study is to understand the profit implications of analytics-driven centralized discriminatory pricing at the headquarter level compared with sales force price delegation in the purchase of an aftermarket good through an indirect retail channel with symmetric information. 

Design/methodology/approach: Using individual-level loan application and approval data from a North American financial institution and segment-level customer risk as the price discrimination criterion for the firm, the authors develop a three-stage model that accounts for the salesperson’s price decision within the limits of the latitude provided by the firm; the firm’s decision to approve or not approve a sales application; and the customer’s decision to accept or reject a sales offer conditional on the firm’s approval. Next, the authors compare the profitability of this sales force price delegation model to that of a segment-level centralized pricing model where agent incentives and consumer prices are simultaneously optimized using a quasi-Newton nonlinear optimization algorithm (i.e. Broyden–Fletcher–Goldfarb–Shanno algorithm). 

Findings: The results suggest that implementation of analytics-driven centralized discriminatory pricing and optimal sales force incentives leads to double-digit lifts in firm profits. Moreover, the authors find that the high-risk customer segment is less price-sensitive and firms, upon leveraging this segment’s willingness to pay, not only improve their bottom-line but also allow these marginalized customers with traditionally low approval rates access to loans. This points out the important customer welfare implications of the findings. 

Originality/value: Substantively, to the best of the authors’ knowledge, this paper is the first to empirically investigate the profitability of analytics-driven segment-level (i.e. discriminatory) centralized pricing compared with sales force price delegation in indirect retail channels (i.e. where agents are external to the firm and have access to competitor products), taking into account the decisions of the three key stakeholders of the process, namely, the consumer, the salesperson and the firm and simultaneously optimizing sales commission and centralized consumer price.

Original languageEnglish
Pages (from-to)56-86
Number of pages31
JournalEuropean Journal of Marketing
Issue number13
Publication statusPublished - 29 May 2023

Bibliographical note

Funding Information:
The Social Sciences and Humanities Research Council (SSHRC) and Ian R. Friendly.

Publisher Copyright:
© 2023, Christopher Amaral, Ceren Kolsarici and Mikhail Nediak.


  • Consumer credit
  • Financial services
  • Price discrimination
  • Price optimization
  • Risk-based pricing
  • Sales incentives

ASJC Scopus subject areas

  • Marketing


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