Case interview examples › Pricing

Pricing case interviews

A client has to set a price for something new, or change a price it already charges. You find the price that does the most for profit.

How a pricing case runs

Pricing cases come in two kinds: pricing a new product or service, and changing an existing price or price structure, such as tiers, subscriptions or volume discounts. Both turn on three views of price: what it costs to provide, what the alternatives cost, and what customers are willing to pay.

The middle of the case is usually a calculation: how many customers leave or switch at the new price, and whether the extra margin on those who stay makes up for them. Finish with what could go wrong, such as competitors responding or a cheaper tier eating a dearer one, and how the client should test the change before rolling it out.

A structure to start from

What should the client charge?

• Cost floor
  • Variable cost per unit
  • Contribution the price must earn
• Competitors
  • Prices of the alternatives
  • How customers compare them
• Customer value
  • Willingness to pay by segment
  • Value delivered against the alternative
• Structure and response
  • Tiers, bundles and discounts
  • Competitor reaction and cannibalisation

Cost sets the floor and customer value sets the ceiling; competitors decide where in between the price can sit. Segment early. Heavy users and light users, or large and small businesses, rarely value the same product the same way, and most good pricing answers charge them differently.

The maths it tests

Volume the client can lose before a price rise hurts = rise ÷ (margin + rise)

With a 30% margin, a 10% rise survives losing up to a quarter of volume.

Price elasticity = % change in volume ÷ % change in price

Above 1, a price rise shrinks revenue; below 1, it grows it.

Weighted average price

Across tiers or customer groups, weight each price by the share of customers paying it.

Customer lifetime value

Monthly margin × expected months as a customer, for subscription cases.

Where candidates lose marks

• Pricing from cost alone, which leaves money on the table whenever customers value the product highly.
• Treating all customers as one group with one willingness to pay.
• Raising the price without working out how much volume the client can afford to lose.
• Recommending a new price with no plan to test it first.

Pricing cases to practise

• Copper Kettle Cafes Foundation Copper Kettle Cafes, a 38-store coffee chain in the Pacific Northwest, must decide whether to raise the price of its flat-rate coffee subscription and the list price of drip coffee for walk-in customers.
• MapleGrid Foundation MapleGrid's board is weighing a move from one flat per-seat plan to a three-tier packaging for its field-service software — price the menu against the customer mix.
• Harborline Payments Intermediate Harborline Payments must replace its one-size blended fee with a volume-tiered schedule as competitors publish interchange-plus rate cards.
• Prosperland Home Office Visa Funding Intermediate Prosperland's Home Office must set the visa pricing policy for its new digital immigration service.
• Ember Bank Advanced Ember Bank is a US digital consumer bank whose paid subscription tier, Ember Plus, has stopped growing and started losing money on its most engaged subscribers.

Other case types

• Profitability case interviews
• Market entry case interviews
• M&A case interviews
• Growth strategy case interviews
• Operations case interviews

Every case in the library