I know the three pricing strategies: value based, cost based, competitor pricing. But, how do I determine which strategy to use in a case? Is there a specific info I should look for that implies I should use one strategy over other?
how to choose between 3 pricing strategies
Overview of answers
Upvotes
Best answer
Great question!
Question #1: Are there competitors (or is this a new market)?
Q1A: If yes, can I differentiate my product?
If yes, value-based
If no, competitor pricing/benchmarking is eliminated.
Q1B: If no, can I determine the value-add of my product (i.e. if saves x costs or a survey says people will pay x)?
If yes, value-based
If no, cost-based
Summary: If you can, you always want to do value-based. This is the most effective form of pricing. If you have "something" to go off of, you use it, else you use cost-based because you have no other choice.
Value-based occurs if:
1) You are a monopoly
2) You are the first entrant into a market
3) You can differentiate your product from other (I.e. monopolistic competition)
Was this answer helpful?
Hi Anonymous,
very good question.
Adam is right in that the objective of the client should be the starting point of all considerations. However the exampes provided do not make too much sense: since thr pricing strategy does not influence the cost structure, there is no difference between the two options outlined. A price which maximizes revenue will automatically also maximize profits!
However, Adam's principle approach is correct! The objective may determine the pricing strategy. If your objective is not profit maximization, but e.g. to penetrate the market as quickly as possible, while avoiding losses, then you should adopt cost-based pricing.
Moreover, the context mostly plays a major role: if the focal product is an innovation (which is usually the case in pricing questions, then Benchmark Pricing or Cost-Plus Pricing do not make much sense, since you don't have a point of reference! This leaves you with value-based Pricing, which usually is the way to go in consulting case interviews.
An frankly speaking - from the interviewer's perspective, value-based pricing usually is the only option that leads to an interesting case study. The other two options are trivial - then the case would be over within 3 minutes if the candidate is strong! ;)
Cheers, Sidi
Was this answer helpful?
Hello!
Precisely this is the difference between a good case and an excellent one.
Depending on how the case is prompted, the best way to go is precisely laying off the different options, explaning pros and cons of each of them -totally tailored to the industry- and touching base with the client (interviewer) again to see which one fits best.
Hope it helps!
Cheers,
Clara
Was this answer helpful?
How I would tackle this is link it to the objective of the client (which should be asked for in the beginning).
Say the objective is profits --> Choose the pricing strategy that gives the client the highest profits.
Say the objective is revenue growth --> Choose the pricing strategy that gives the client the highest revenues.
Etc.
Was this answer helpful?
Hi, it depends on the objectives of the case and the priorities of the client
Best,
Antonello
Was this answer helpful?
Related Cases
Company case by Simon-Kucher & Partners
Style:
Topics:
Cruise company German Sea Tours (GST) is a successful operator of international cruises. GST currently offers several cruise trips, lasting between 5 and 24 days. Additional services can be booked on board (e.g. excursions at each destination, onboard leisure activities). Customers tend to book thei
...
Cruise company German Sea Tours (GST) is a successful operator of international cruises. GST currently offers several cruise trips, lasting between 5 and 24 days. Additional services can be
...
(Open whole case)
57.6k
Times solved
Intermediate
Difficulty
Company case by Mercedes-Benz Management Consulting
As a consultant at Mercedes-Benz Management Consulting, you are actively shaping the future of mobility. While you are contributing to decisive projects that design the future of the world’s No.1 premium carmaker, you also develop your own career path and you have the unique possibility to build you
...
As a consultant at Mercedes-Benz Management Consulting, you are actively shaping the future of mobility. While you are contributing to decisive projects that design the future of the world’s
...
(Open whole case)
18.2k
Times solved
Intermediate
Difficulty
Style:
Your client, Customlope, is the leader in the US secure envelope manufacturing industry. Banks buy these envelopes for operations such as money deposits and high value transactions.Next year, a new digital technology will reduce the overall number of units sold in the industry by 25%.In the short te
...
Your client, Customlope, is the leader in the US secure envelope manufacturing industry. Banks buy these envelopes for operations such as money deposits and high value transactions.Next year
...
(Open whole case)
58.5k
Times solved
Beginner
Difficulty
Style:
Topics:
Our client is an international CPG (consumer packaged goods) firm called Bryan, with multiple business units (toothpaste, batteries, skin & body care, among others).They are the global market leader i
...
Our client is an international CPG (consumer packaged goods) firm called Bryan, with multiple business units &nb
...
(Open whole case)
40.2k
Times solved
Intermediate
Difficulty
Topics:
Your client, Fysikum, is an operator of squash centres in Sweden. The squash centres include sauna, spa, pool, gym and of course the squash courts. Due to the extreme success in Sweden the company is considering expanding to other countries of Europe, in particular Germany.Therefore they a
...
Your client, Fysikum, is an operator of squash centres in Sweden. The squash centres include sauna, spa, pool, gym and of course the squash courts. Due to the extreme success in Sw
...
(Open whole case)
32.8k
Times solved
Intermediate
Difficulty
Content Creator
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate
1,095
Meetings
77,182
Q&A Upvotes
232
Awards
151 Reviews
If I cannot determine the value of my product, why would I do cost-based (Q1B,"if no")?
That's literally the last option left! There's no competition to reference, and I don't know what people are willing to pay...I have to go off of what it costs...