Pricing strategy cases are common in consulting interviews. Setting the optimal price to maximize revenue is a tricky problem, and one that you will likely be asked to solve at some point in your career if you pursue a role in management consulting. These cases can be a little tricky though, so let's walk through what these cases will look like and what you should do to crack the pricing case. But first, what is a pricing strategy case?
What Is A Pricing Strategy Case Interview?
Pricing strategy cases can take many different forms but a common one would be a new product offering of some sort. For example, let’s say your client is a German automotive manufacturer rolling out an electric sports car. The key case question would be, how should your client address the pricing strategy for this new product offering. Using a slew of data such as cost to manufacture, demand expectations, and supply / demand dynamics, candidates will be expected to develop a pricing strategy and make a pricing recommendation.
The process for a pricing case is like most other cases. It will start with a prompt that presents the key question or challenge. This leads to the candidate creating a framework, then doing some data analysis or number crunching. Next, there will likely be a brainstorming session and finally you will be expected to close out the case with a recommendation. The key difference here is that the recommendation MUST include a price, since this is a pricing case.
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How to Solve A Pricing Strategy Case Interview
To understand how to solve a pricing case, you need to know the three key approaches: cost-based pricing, market-based pricing, and value-based pricing. We will look at each.
Cost-Based Pricing
Cost-based pricing is simply taking the cost to make a product and applying a margin to the cost. For example, if the car in our example above cost $50,000 to manufacture and the company wants to make a 20% margin, you would recommend a price of $60,000, which would yield profit of $10,000 on $50,000 of cost, which is a 20% margin.
Market-Based Pricing
Market-based pricing suggests that pricing should be based on what competitors are offering. Again, using our automotive example from above, if competitors are selling a similarly built car and pricing it at $60,000, candidates might be prompted to suggest a price of $60,000. The justification for this recommendation would be that customers have shown they are willing to pay that price for a similar product so we can assume they will do the same for our product.
Value-Based Pricing
Value-based pricing is based on the idea that you price the product based on its financial value to consumers, or what customers are willing to pay for the product. Going back to the automotive example above, you may be presented with data showing all the perks included in the electric car and how much customers are willing to pay for each. In that case, you would simply add up the financial value of the perks that are included in the vehicle and recommend a price based on that total.
Pricing Strategy Case Interview Frameworks
Typical frameworks in a pricing case will include looking into each of the three pricing methods discussed above. If you identify from the prompt that you are dealing with a pricing strategy case, your framework buckets will likely be the three pricing methods listed above: cost-based, market-based, and value-based. When delivering the framework, candidates should essentially outline that they would like to dive deeper into each method to determine which method best fits the product in question. You’ll quickly realize that some methods work better than others in certain cases.
For example, the automotive example we used above probably wouldn’t be a great candidate for value-based because all vehicles have a baseline of value since the car will get you from point a to point b. Additionally, intuition tells you that market-based pricing is likely not a strong candidate here either since vehicles are extremely customizable and that makes it unlikely that there are very many “comparable” products in a pricing context. That leaves you with cost-based, which makes sense for a vehicle since the production process is so important and represents most of the cost to manufacture the car.
Understanding the nuances like that may not come natural at first, especially if you don’t have a background working in the automotive industry. However, as you’re preparing for case interviews, you’ll come across several different cases in different industries, and you’ll start to pick up on nuances just like this one. And if you don’t pick up on this in the case and have all three, your interviewer will likely “nudge” you in the right direction. Then once you crush the analysis and make a strong recommendation, you’ll realize that you did just fine. So how should you prepare for these types of cases?
Pricing Strategy Case Interview Prep
When prepping for a case interview, it’s important to start by simply prepping for a standard case interview. We recommend you start here with our Case Interview Prep Guide. Aside from standard case-preparation, the next step in preparing for a pricing strategy case is to thoroughly understand the three pricing methods we outlined above and ensure you understand quantitatively how to derive a pricing recommendation from each. We also advise you to practice your recommendations since these MUST have a price embedded in them for each pricing case. The most important aspect of a final recommendation is answering the question your client asked, and since these cases ask what the pricing strategy should be, you must answer that question.
Conclusion
If you’ve gotten to the point where you are casing with a firm, it means they WANT to hire you, they just want to see how you think first. We believe that if you’ve followed our advice on preparing for the case, understand the pricing strategy frameworks we’ve presented, and are ready to crush the recommendation, you should also be ready to celebrate an offer. As always, we wish you the best of luck in your search and trust that you found this article helpful.
Additional Reading:
- Case Interview Frameworks: Ultimate Guide
- Consulting Resume: Complete Guide
- Case Interview: Complete Prep Guide