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Anonymous A

on Jul 08, 2019

Global

BCG case 1

Could you please advise how fixed cost affect pricing strategy?

I had an example with an electricity supplier to identify pricing strategy. I had two types of consumers, small and large, and the following example given:

1. small consumer - cost per 1mwat/hour - 1.3 EUR, large customer cost per 1mwhat/hour - 0.1 EUR

2. total fixed cost - 1 Million EUR

3. Total electricity consumption- 10 million

Question is, what pricing strategy?

It is definitely clear that larger there should be two pricing for each customer group. But I am not sure how fixed cost affect pricing in this example?

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Top answer

Vlad

Coach

on Jul 08, 2019

McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

You can calculate the breakeven price for each group customer that will cover fixed costs. But the number you are missing is the number of customers or at least % split

Best!

1 comment

Anonymous A

on Jul 09, 2019

Hi Vlad, thanks a lot for your reply. as Break Even Sales Price = (Total Fixed Costs/Production Volume ) + Variable Cost per Unit, in this case fixed cost/unit = 10 EUR, does it mean that price for each group of customer will be 10+1.3=11.3 and 10+0.1=10.1 EUR? saying that there is not customer split or total number provided? bullet #1 in this case was give as "example of variable costs for two customer groups"..