Pricing Strategy Case Study Interview Sample

why pricing is crucial

In our preparation journey to management consulting we all stumbled upon some sort of pricing framework, such as value-based pricing or price-based costing. However pricing is one of those areas where it can be very risky to employ a ready-made framework without an in-depth understanding of the customer dynamics. In all pricing scenarios the value at stake is generally very high as decisions reflect themselves straight into a company’s bottom line. In the paragraphs below we’ll show you a method to pinpoint the decisive factors in every pricing problem and identify the best decisions based on the client’s priorities (no ready-made frameworks here).

the ingredients

In all pricing decisions there are three critical data points we could use to come up with a potential price:

  1. Competitors’ prices: The idea is establishing prices based on how much competition charges. This implies the competitors exist and they sell a comparable product.
  2. Company’s costs: In order to make a product, the company has to incur a cost. Potentially this could be the starting point of pricing the pricing decisions. However, as we’ll learn, this should never be the case.
  3. Value added: Products usually aim to add value to customers, a generic concept which could come in terms of time, convenience, or money. However, for the purpose of pricing analyses, value should always be translated in economic terms. It is essential to bear in mind that different customer segments may attribute different values to a product, implying that the company could potentially charge different prices to different customers reflecting different value added in economic terms. 

HOW TO PRICE A PRODUCT?

In order to understand in depth the thinking behind pricing, we’ll examine two cases and then derive general rules.

CASE #1: Duscraft, a fuel-efficient plane

Duscraft has just created a new airliner comparable in size to Boeing 737/Airbus 320 but with a significantly lower fuel consumption. Everything else, including maintenance costs is similar to its Boeing and Airbus competitors. Current prices for a Boeing 737 is 25m$ and for an Airbus 320 is 26m$. Considering that an aircraft usually lasts for 20 years and yearly fuel cost is 500,000$ for a Boeing 737, 400,000$ for an Airbus 320, and 300.000 for a Duscraft, how much should Duscraft charge for its aircraft?

CASE #2: Surinoco S-100, a mass-market phone

Surinoco is a Chinese supplier of while label mobile phone for the main European telecom operators. It has recently created its first branded phone, the S-100. The phone has similar characteristics to other mainstream mobile phones (whose price ranges from 60$ to 70$) and appeals to the lower end of the market. How would you think about pricing the S-100?

a FOUR-step approach to effective pricing

step#1: ESTIMATE THE CLIENT’S BEST ALTERNATIVE

Since we live in a market economy, we expect consumers to act rationally based on comparing our product with the ones of the competition. Therefore the starting point of our pricing decisions should be understanding what our client would choose if our product was NOT on the market. We identify the best alternative by estimating total costs the client has to incur by using different products. Here our focus should be the total cost of ownership (including acquisition price and running/maintenance costs), not only the acquisition price. Let’s see the application of this criteria to the above examples:

Duscraft

Total running costs (B-737): 500,000 x 20 + 25m = $35m Total running costs (A-320): 400,000 x 20 + 26m = $34m

Therefore the best alternative is the Airbus 320 as it has the lowest total running costs.

 As you noticed we did not include maintenance costs, but for a reason: they are the same for all the three aircrafts and so adding them to all the 3 equations would not make a difference.

Surinoco

Total running costs (competition) = acquisition price: $~65

This assumes negligible running maintenance costs

STEP#2: ESTIMATE THE VALUE ADDED VS. THE BEST ALTERNATIVe

When pricing a product the main question is understanding how much value it adds to customers. The concept of value added is especially relevant for products that are somehow innovative and not commoditized. The key question is: does it add value compared to what? Additional value added should not be computed with respect to not using any product at all, but rather on using the best available alternative. For example, if we are dealing with a new fertilizer improving the quantity of a given crop, the value added would be given by the additional yield vs. the best existing fertilizer, not vs. not using any fertilizer at all. Once we estimate the value added, we should also estimate which share of this value we should charge to the customer. Let’s see the application of this criteria to the above examples:

DUSCRAFT

Value added vs. best available alternative (A-320): (400,000-300,000)x20 = $2m

SURINOCO

In this case there is no significant value added with respect to competitors, since the product is commoditized and aligned to competition

STEP#3: ESTIMATE THE SHARE OF VALUE ADDED to be REFLECTED IN PRICINg

Theoretically almost all the value added vs. the best alternative could potentially be charged back to the client as a higher price, i.e. if the client is a rational, utility maximizing individual she should be willing to pay the price for the best alternative option (STEP #1) plus a sum just marginally lower to the total value added (STEP #2), as shown in the Duscraft case below:

DUSCRAFT

Willingness to pay: Best competitor's price [A320] ($26m) + value added ($2m) = ~$28m

This way the benefit from our new product would be almost entirely cashed in by the company. However, even if the client should rationally accept an agreement like this, it is unlikely that he will, for various reasons, such as:

  • Switching costs to a new product
  • “Risk” in adopting a new, relatively unknown, product
  • Likely lower level of trust

For the above reasons, in order to incentivize the client to buy the new, innovative product, the company may decide on a more equal split of the value added, such as charging

Best competitors price [A320]: ($26m) + value added ($2m) x 50% = ~$27m

This way the value added would be effectively split equally between the company and the client, i.e. the total running cost for the client of using our plane would be 1m lower vs. using the best alternative (A320):

Total running costs (A-320): 400,000 x 20 + 26m = $34m Total running costs (Duscraft): 300,000 x 20 + 27m = $33m

There is no formula for share split of the value added as it depends on a series of “soft” factors. It is however an essential concept to keep in mind.

Looking at the Surinoco case there is no added value vs. competition and therefore the only applicable reference point are competitors’ prices.

STEP #4: CHECK COSTS

Some companies in the past based their pricing on costs. Some still do it now, but this is pure nonsense. You should base prices on what customers are willing to pay, based on competitors’ prices and value added. So, what is the role of costs? They should be checked before launching a product, to ensure that the price estimated in STEPS 1 to 3 exceeds the cost. However, they should not be treated as the starting point, but as a final check in the decision of whether to commercialize a product.

Discover our articles on case interviews

Case Study Interview Examples: Questions and Answers

You will need to prepare for an interview where case study questions will be asked. While preparation is required for every job interview, extra time is required to adequately prepare for case study interviews.

Providing an answer to a case study question involves much more than simply recounting the issues and problems set forth, it includes identifying the most important issues, employing sound and logical analysis, developing an action plan for addressing the problem(s) and making recommendations. Depending on the firms you're interviewing with, and the industry you work in, case study questions can be presented in verbal or written format, and address a number of topics.

In case interviews, it's not uncommon for interviewers to exclude important details when asking candidates to resolve hypothetical business problems presented. It's okay to ask interviewers for more information, and it's expected. They want to see if you can identify what information is important, and what is not.

Occasionally, interviewers provide no detail at all to test your analytical skills when adequate resources are unavailable. In these situations, it's okay to make assumptions, but they must be based on sound logic and analysis of information that is provided.

Interviewers asking case study questions are primarily concerned with how effectively you can analyze a problem, determine key factors, brainstorm ideas, and propose workable, pragmatic solutions that are supported by your analysis.

Answering Case Interview Questions

In the case interview, coming up with the "correct" answer isn't nearly as important as the process you use for getting there. When answering a case interview question, you want to showcase your ability to analyze a situation or business dilemma, identify the important issues, and develop sound conclusions that flow from your analysis. For this reason, it's important to use a logical framework for breaking down and analyzing the case. Some of the more common business analysis frameworks that can be employed include Porter's Five Forces, Value Chain Analysis, Four P's of Marketing, and SWOT Analysis. The framework you decide to use should be a function of the type of case you're presented.

Where a specific framework for analysis isn't readily available or applicable, a general framework or analytical approach can be applied. The most important thing is that your approach to answering the case interiew question is structured and logical.



Regardless of the type of case you're presented, there will likely be a few main parameters and several factors that influence those parameters. The first thing you want to do is identify the parameters and factors, the then determine which are key to the case output.

For example, assume the case involves a company's declining profitability. From your initial review of the case information you determine the main parameters to consider are total revenues and total costs.

After defining the two main parameters, you'd then drill down further to the factors influencing each of the parameters you've identified. You determine the factors influencing total revenues are average price of goods sold and volume of goods sold. And for total costs, fixed costs and variable costs.

With both the case parameters and factors clearly identified you give yourself the ability to steer the conversation and begin to identify possible solutions. To identify areas of concern, you'll want to explore the history of the four influencing factors. At the end of your discussion with the interviewer you may determine that it's rising variable costs that are having the biggest impact on profitability. You'll then drill down even further to determine what is causing variable costs to rise and come up with more specific recommendations.

Building a graphic representation (tree, decision diagram, etc.) of parameters, factors and other influencing elements will help you structure your thought process, keep from missing key aspects of the case, and make a strong argument for the recommendations you'll make.

Using a framework or structured approach to developing a recommendation for a case study interview question provides the added benefit of giving the interviewer something to take back and present to his or her superiors to make the case that you're the right person for the job.

Whatever you do, don't force-fit frameworks. If a particular framework doesn't apply to the case, don't use it. Most frameworks incorporate universal concepts that can be applied to various business issues. Use the concepts you've learned in school or through prior work experience to support your analysis of the case. Show your interviewer that you understand these business concepts well enough that you can apply them to the specifics fo the business issue being presented in the case.

Below we're going to present several case interview questions organized by question type. To perfect your ability to perform well in case interviews, we recommend reviewing each question and then developing a logical framework or approach for answering each one.

Standard Case Interview Questions

As is the case in real life, there is usually no single correct answer to standard case interview questions. As long as you're able to prove your case, using sound analysis and by demonstrating an understanding of the main case issues, you're likely to do well. Below are some common standard case interview questions that provide great practice for case interviews.

  • What would be your approach for introducing a product into a foreign market? What are the risks and benefits to consider i.e. producing in your own country vs producing in the new country, etc?

  • Company ABC is struggling, should it be restructured? Identify the three main problems it's facing. What is the most important problem the company is facing? How would you recommend the company address this problem? How would you turn this company around? Provide your reasoning for your recommendation(s).

  • A toy company has been experiencing decline sales for the last two seasons. Research suggests that introducing several new product lines is the solution. Develop a marketing strategy for the company's largest product line, including pricing, product packing, etc.

  • A large chain of retail clothing stores is struggling with profitability. Bases on your review fo the company's financial statements, what problems can you identify? Can this company be turned arounds? How would you go about deciding?

  • A new Eddie Bauer Store is being opened up in London. Discuss all the marketing issues regarding the opening of this new location.

To perform well on standard case inteview questions you should be able to:

  • Take in information quickly and remember what you hear.
  • Identify key issues, prioritize and logically solve problems.
  • Make quick, yet accurate, decisions.
  • Manage time efficiently.
  • Perform under pressure.
  • Be aware of resource constraints.
  • Identify customer needs.
  • Be original and creative.

Market Sizing Case Interview Questions

A market sizing case interview question is one where you're asked to determine the size of market for a particular product. These types of case interview questions are popular, and actually not difficult to answer if you practice. The following a few examples of market sizing case interview questions.

  • Please provide the total weight of a fully loaded Jumbo Jet at the time of take off.
  • How many light bulbs are there in the United States?
  • How many photocopies are taken in the United Kingdom each year?
  • How much beer is consumed in the city of New York on Fridays?
  • How many people sell AMWAY products in the United States?
  • If there are 7,492 people participating in a tournament, how many games must be played to find a winner?
  • How many golf balls will fit in the Empire State Building?
  • How many car tire are sold in Canada each year?
  • Given thhe numbers 5 and 2000, what is the minimum number of guesses required to find a specific number if the only hint you're given is "higher" and "lower" for each guess made?
  • How do you determine the weight of a blue whale without using a scale?

The following are tips for answering market sizing case interview questions:

  • Take time to think before you answer the question.
  • If given a pen and paper, take notes and write down key information. Use the paper to make calculations, write down ideas and structure your answer.
  • Ask additional questions if you feel you are missing information. The interviewer is often expecting you to ask to find missing information.
  • Use lateral thinking and be creative. There isn't always just one right answer. Just make sure your answer is backed up by sound logic and numbers that make sense.
  • Make sure you know your math. At minimum you'll need to perform some basic arithmetic or mathematical calculations.
  • These quesitons are often used to test your ability to structure, as well as your ability to think laterallly, make logical links and communicate clearly.
  • Make mental calculations quickly by making sensible estimates and rounding numbers up or down.
  • Does your answer make sense? If you're answer doesn't make sense, chances are you've made a bad assumpation, estimate or calculation. Go back and carefully check your work and provide a new answer.
  • You can use business frameworks (SWOT, Porter's Five forces, etc.) or mind mapping to support your analysis and answers, as long as it makes sense.
  • Many market sizing questions revolve around issues being faced by an organization or industry. Commercial awareness can be very important to answering market sizing questions.

Logic Problems

Questions involving logic problems are designed to test your ability to think quickly and logically. These questions also require you to be able to perform numeracy quickly, while under pressure. The following are a few logic problems followed by their answers. Review the questions, develop your own answers, and then check your answers to see how well you did.

1. At 3:15, how many degrees there between the two hands of a clock? (J.P. Morgan interview question).

2. A fire fighter has to get to a burning building as quickly as he can. There are three paths that he can take. He can take his fire engine over a large hill (5 miles) at 10 miles per hour. He can take his fire engine through a windy road (7 miles) at 9 miles per hour. Or he can drive his fire engine along a dirt road which is 8 miles at 12 miles per hour. Which way should he choose?

3. You spend 21 dollars on vegetables at the store. You buy carrots, onions and celery. The celery cost half the cost of the onions. The onions cost have the cost of the carrots. How much did the onions cost?

4. You spend a third of all the money you have on a piano. Half of your remaining money you use to buy a piano chair. A quarter of the rest of your money you use to buy piano books. What porportion of you original money is remaining?

5. Why are manhole cover always round, instead of square?

6. In the Chicago subway system there are two escalators for going up but only one for going down to the subway. Why is that?

7. You find three boxes at the store. One contains onions. Another contains potatoes. The third contains both onions and potatoes. However, all three of the boxes are labeled incorrectly so it's impossible to tell which box contains what. By opening just one box (but without looking in) and removing either a potatoe or onion, how can you immediate label the contents of all the boxes?

8. There are 8 bags of wheat, 7 of which weigh the same amount. However, there is one that weighs less than the others. You are given a balance scale used for weighing. In less than three steps, figure out which bag weighs less than the rest.

9. There are 23 rugby teams playing in a tournament. What is the least number of games that must be played to find a tournament winner?

The following are the answers to the 9 logic problems above:

Clock

If you thought the answer was zero degrees, you'd be incorrect. At 3:15, the clock's minute hand will be pointing at 15 minutes, exactly 90 degrees clockwise from vertical. At 3:15, the clock's hour hand will exactly one quarter of the distance between 3 O'clock and 4 O'clock. Each of the 12 hours on the clock represents 30 degrees (360 degrees divided by the 12 hours on the clock). Consequently, one quarter of an hour is exactly 7.5 degrees, so at 3:15 the minute hand will be at 97.5 degrees. So there is a difference of 7.5 degrees between the hour hand and minute hand at 3:15.

Fire Fighter

Driving his fire engine 5 miles at 8 miles per hour takes 37.5 minutes. Driving his fire engine 7 miles at 9 miles per hour takes about 47 minutes. Driving his fire engine 8 milles at 12 miles per hour takes 40 minutes. So he should choose to drive his fire engine over the hill.

Store

Answering this problem just requires some simple algebra. If we assume the cost of celery = x, then the cost of onions = 2x, and cost of the carrots is 4x, such that the total cost of all vegetables = x + 2x + 4x = 7x = 21 dollars. Consequently, x = 3 dollars. Hence, the onions cost 6 dollars.

Piano

You spend a third of all the money you have on a piano, so you're left with two thirds (2/3). You spend half (1/2) of the remaining two thirds on a piano chair, which leaves you with just one third of what you started with (1/2x2/3=1/3). You spend a quarter (1/4) of what you have remaining (1/3) on piano books, which leaves you with one twelth of the original (1/4x1/3=1/12).

Manhole Cover

A square manhole cover can be dropped down the hole if turned diagonally to the hole, where round covers can't be dropped down manholes.

Chicago Subway

People coming into the subway tend to arrive at different times, so the flow of people down the escalators is a more even stream. Conversely, when people get off the subway they typically all arrive at the escalators at about the same time. Consequently, two escalators are need to handle people leaving the subway, where only one is required for people arriving.

Three Boxes

Just open the box that is labeled "Onions and Potatoes". Since none of the boxes are labeled correctly, this box must contain only onions, or only poatatoes. If you remove a potatoe from this box, the box must be the "Potatoes Only" box.

One of the remaining two box has to be the "Onions Only" box. However, the only you currently have it labeled "Potatoes Only", and the other is label "Onions Only". So the box labled "Potatoes Only" must be the box that contains only onions, and the box labeld "Onlions Only" must be the box that has both potatoes and onions.

Bags of Wheat

Immediately, take any 2 of the bags and place them to the side. Weigh 3 of the remaining six bags against the other 3 bags. If these bags weigh the same, that means the bag that weighs less must be one of the two that you immediately placed to one side. If this is the case, weigh the 2 bags you placed to one side against each other to find out which one weighs less. You've now found in your bag.

However, upon weighing the sets of 3 bags against one another you find that one set weighs more than the other set, place one of the bags from the set of heavier bags aside and weigh the remaining two bags to find out which one is heavier. If they are of equal weight, the you know that the bag you place to one side is the bag you're looking for.

Rugby Tournament

In a tournament, every rugby team except the winner is eliminated from the tournament after being defeated just once. Hence, the number of games required to find a tournament winner is going to be one less than the number of teams, or 22 in this case.

Business Case Interview Questions

The following are examples of common business case interview questions:

  • How would you work with a subordinate who is underperforming?

  • You're consulting with a large pharmacy with stores in multiple states. This company has improved sales but experienced a decrease in revenue. As a result, it is contemplating store closings. Explain how you'd advise this client?

  • You are working directly with a company's management team. It is organizing a project designed to significantly increase revenue. If you were provided with data and asked to supervise the project, what steps would you take to ensure it's successful?

  • You have been assigned to work with a small company that manufactures a popular product. However, a competitor begins selling a very similar product which incorporates state of the art technology. What would you advise your client to do?
  • You have been assigned to advise a company with a large Western European market. Company management wants to open the Chinese market. What advice do you have for this company?

  • The firm has assigned you to consult a company intending to drop a product or expand into new markets in order to increase revenue. What steps would you take to help this company achieve its objective?

  • You have been assigned to consult a shoe retailer with stores throughout the nation. Since its revenue is dropping, the company has proposed to sell food at its stores. How would you advise this client?

Case Interview Resources

In addition to the guides and articles presented on our website, there are several other good resources, including workshops, mock interviews, books and interactive online resources, that will prepare you for case interviews. Some of the resources we recommend are listed below.

Books

  • Vault Guide to the Case Interview
  • Vault Career Guide to Consulting
  • Case in Point: Complete Case Interview Preparation
  • Mastering the Case Interview
  • Ace Your Case! Consulting Interviews (series 1-5)

Interactive Online Resources



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