Pricing Case Interviews

Introduction

• Common type of case interviews
• Importance for consulting interviews
• Three main pricing strategies:
  1. Pricing based on costs
  2. Pricing based on value provided
  3. Pricing based on competition

Pricing Based on Costs

• Set price based on production costs plus a profit margin.
• Example: Apple iPhone: Cost $200; 20% profit margin; Price $240.
• Sets the lower range of pricing.

Pricing Based on Value Provided

• Determine the value provided to customers.
• Example: iPhone values: Entertainment $300, Productivity $200, Communication $400, Status $100; Total $1000 maximum willingness to pay.
• Sets the upper range of pricing.

Pricing Based on Competition

• Determine price relative to competitors.
• Consider competitor prices and consumer surplus.
• Example: Samsung smartphone priced at $400 provides $600 value; $200 consumer surplus.
• Apple needs to provide a similar consumer surplus, allowing a price of $800 for the iPhone.

Steps to Solve Pricing Case Interview

1. Understand the Goal or Objective

   • Identify company goals: maximize profits, revenue, market share, or customer base.

2. Develop a Framework

   • Structure includes: Product uniqueness, cost pricing, competitive pricing, value-added pricing.

3. Determine the Minimum Price Point

   • Use cost-based strategy; price > costs.

4. Determine the Maximum Price Point

   • Value-based strategy; maximum willingness to pay.

5. Determine the Optimal Price Point

   • Competition-based strategy; identify consumer surplus needed.

6. Consider Additional Pricing Factors

   • Cross-sell/up-sell potential, different customer segments, competitor reactions.

7. Deliver a Recommendation

   • Suggest optimal price point, reasons, and next steps.
   • Consider areas not covered, additional pricing factors, and open questions.

Conclusion

• Understanding of three pricing strategies and seven-step process.
• Ready to solve pricing case interviews.
• Additional resources for other types of case interviews and comprehensive case interview course available.