FitCo. is a health insurance company that has shown rapid growth in the past 5 years but due to some critical reasons, the profitability of this company has decreased in the last three years.
FitCo. made $1.5 billion in earnings five years ago with a $1500 profit margin and 1 million consumers. With 2 million members now, it has an average profit margin of $500, generating $1 billion in revenue. $1 billion − $1.5 billion is 0.5 billion.
The decline in revenue is one of the main causes of unprofitability. Customers in new markets may spend less on healthcare. FitCo. has outbid rivals to succeed in new markets. The rule mandates that larger businesses set lower prices. Other than this, costs have gone up, including fixed costs. FitCo. has invested in new markets for marketing, customer support, etc. The cost of variables has grown. FitCo. provides insurance for specific healthcare, yet clients choose to access other types of healthcare.
We found that FitCo's profitability decreased by a third as a result of setting prices too low in new areas. FitCo. It will have to boost pricing in order to increase earnings in line with consumer growth. As of now, I would advise a 40% price increase since it would enable us to earn the same $1,500 margin in new areas as we do in our present markets. However, this plan will also result in a 40% decrease our consumer base.
Going future, I want to assess if a 40% rise is appropriate based on our rivals' prices in new areas since this might potentially have an impact on our brand's reputation.