Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Ian

100% Recommendation Rate

233 Meetings

20,247 Q&A Upvotes

USD 289 / Coaching

5

how to choose between 3 pricing strategies

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?

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?

5 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Ian

100% Recommendation Rate

233 Meetings

20,247 Q&A Upvotes

USD 289 / Coaching

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)

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)

If I cannot determine the value of my product, why would I do cost-based (Q1B,"if no")? — Anna on Dec 23, 2020

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... — Ian on Dec 30, 2020

Book a coaching with Sidi

99% Recommendation Rate

426 Meetings

4,130 Q&A Upvotes

USD 449 / Coaching

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

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

Book a coaching with Clara

100% Recommendation Rate

55 Meetings

14,416 Q&A Upvotes

USD 229 / Coaching

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

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

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.

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.

Book a coaching with Antonello

98% Recommendation Rate

154 Meetings

5,218 Q&A Upvotes

USD 219 / Coaching

Hi, it depends on the objectives of the case and the priorities of the client

Best,
Antonello

Hi, it depends on the objectives of the case and the priorities of the client

Best,
Antonello

Related case(s)

Simon-Kucher Case: GST Cruise Company

Solved 4.6k times
Simon-Kucher Case: GST Cruise Company 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 their tickets several months in advance. GST has had a long history of revenue growth, but in the past five years, it showed lower growth rates. Board members are not sure whether the market, in general, saw lower growth or whether the problem is specific to GST. GST recognizes that winning new customers and stimulating existing customers to book their vacations with GST is crucial for future growth and therefore has always focused on keeping a close relationship with its (potential) cruise-trip bookers. GST’s chief commercial officer (CCO) Ms. Brown has hired Simon-Kucher & Partners to assess the market environment and competitive positioning for cruise ships and to conduct a subsequent evaluation of potential growth options.
4.5 5 83
| Rating: (4.5 / 5.0)

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 ... Open whole case

Volkswagen Consulting Case: Wo soll produziert werden?

Solved 4.2k times
Volkswagen Consulting Case: Wo soll produziert werden? Ihr Kunde ist in einem globalen Automobilkonzern dafür verantwortlich ein neues Produkt mit einem Volumen von 140.000 Fahrzeugen über den gesamten Produktionszeitraum auf den Markt zu bringen. Bedingt durch finanzielle Anspannung liegt ein besonderer Fokus auf den Kosten.
4.3 5 80
| Rating: (4.3 / 5.0)

Ihr Kunde ist in einem globalen Automobilkonzern dafür verantwortlich ein neues Produkt mit einem Volumen von 140.000 Fahrzeugen über den gesamten Produktionszeitraum auf den Markt zu bringen. Bedingt durch finanzielle Anspannung liegt ein besonderer Fokus auf den Kosten. Open whole case

Bank envelope

Solved 59.0k times
Bank envelope 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 term, our client wants to maintain his current profit level without investing in the new technology. How can you help him?
4.5 5 2437
| Rating: (4.5 / 5.0) |

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 shor ... Open whole case

Shaving & Co

Solved 41.5k times
Shaving & Co 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 in every market they play in except for the hair removal market. They came to us asking how they can also become number one in this market. How can you help them out?
4.3 5 1748
| Rating: (4.3 / 5.0) |

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 in every market they play in except for the hair removal market. They came to us ... Open whole case

Fysikum

Solved 38.4k times
Fysikum 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 asked us to evaluate this possible expansion.
4.4 5 2299
| Rating: (4.4 / 5.0) |

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 asked us ... Open whole case