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MECE way to solve pricing case

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Benjamin replied on 07/18/2018
ex-Manager - Got MBB offer - Taylor case solving, no framework - beginners to experts

Hi,

In addition to Vlad answer which is very complete, I would advise to first clarify weither it's a B2C or B2B case.

In the latter, the same product may be sold at different price depending on customers /industry targetted, and you would have at some to consider this in your approach.

Best
Benjamin

Vlad replied on 07/17/2018
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School

Hi,

I would look at the following areas:

1. Cost-based pricing - you actually check what are the costs and apply standard industry / target markup. You need to take into account R&D and capital costs if the case (interviewer) specifically states that. Also, the availability of patent is important, since the whole point of it is to protect your price and achieve ROI on the whole R&D pipeline of drugs (including the ones that were not launched / approved)

2. Competitors - basically it's simply benchmarking against competitors with a similar product. Make sure you take into account the segment (i.e. in premium higher price may be the proxy for quality). Since the value proposition of the competitors may be different, competitor pricing is just one of the metrics that you should take into account

3. Value-based pricing can be done in 2 ways:

  • For existing products, you identify what it the economic value and perceived value for the customer. Also, you compare the value proposition and features of your product vs. the VP of your competitors. If you have a significant difference in value prop - you have to define how much value you propose to the customer in $ terms. (e.g. your product may have additional customer support, better packaging, additional features and thus should be priced hire. Or it should be priced the same and you will win the market share due to these differences)
  • For the new products, you can calculate the closest alternatives and think how much additional value we provide by replacing them. Think of the discount airlines compared to trains or buses

4. Pricing strategy - here you define how you will price the product taking into account 1,2,3 and your company strategy. Maybe you decide to have a zero margin if you can crossell other services. Or maybe you would like to subsidize to win the competition. Also, think of price differentiation and having different pricing tiers (e.g. basic, premium or even freemium) and how it helps to drive price perception and fulfill strategic goals

Good luck!

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