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

Adi

100% Recommendation Rate

44 Meetings

3,795 Q&A Upvotes

USD 149 / Coaching

4

Profitability Case: Sample reasons why revenue per unit falls

In profitability cases, what are some sample reasons why revenue per unit falls (i.e. prices)? My initial thoughts are competitive response and strategic promotional pricing. Any other ideas?

In profitability cases, what are some sample reasons why revenue per unit falls (i.e. prices)? My initial thoughts are competitive response and strategic promotional pricing. Any other ideas?

4 answers

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

100% Recommendation Rate

44 Meetings

3,795 Q&A Upvotes

USD 149 / Coaching

Hey,

You need be clear here: are you looking to analyse drop in Revenue overall or drop in revenue per unit which can also be interpeted as ARPU (avg. revenue per unit or user)? The approach is slightly different.

From a purely price perspective, price drop or reductions can be due to:

  • Competitive pressure resulting in driving down prices
  • Economies of scale from increasing production
  • Reduction in costs of production
  • Promotions
  • Initial high pricing to capture early adoptors which then is reduced
  • Decrease price to increase market share

Hey,

You need be clear here: are you looking to analyse drop in Revenue overall or drop in revenue per unit which can also be interpeted as ARPU (avg. revenue per unit or user)? The approach is slightly different.

From a purely price perspective, price drop or reductions can be due to:

  • Competitive pressure resulting in driving down prices
  • Economies of scale from increasing production
  • Reduction in costs of production
  • Promotions
  • Initial high pricing to capture early adoptors which then is reduced
  • Decrease price to increase market share

(edited)

Book a coaching with Clara

100% Recommendation Rate

50 Meetings

11,636 Q&A Upvotes

USD 229 / Coaching

Hello!

Careful here, since it´s very different to look at declines in:

  • ARPU (average revenue per unit)
  • Price

You can have one of them increasing and the other one decreasing, for example.

Cheers,

Clara

Hello!

Careful here, since it´s very different to look at declines in:

  • ARPU (average revenue per unit)
  • Price

You can have one of them increasing and the other one decreasing, for example.

Cheers,

Clara

Book a coaching with Ian

100% Recommendation Rate

185 Meetings

15,210 Q&A Upvotes

USD 289 / Coaching

Hi there,

Adi nailed it with his list.

I would just add that it's possible our client has not changed prices at all for any given unit, but rather that they are selling more cheap items than expensive items (i.e. the product mix has changed).

Hi there,

Adi nailed it with his list.

I would just add that it's possible our client has not changed prices at all for any given unit, but rather that they are selling more cheap items than expensive items (i.e. the product mix has changed).

Book a coaching with Henning

100% Recommendation Rate

134 Meetings

3,774 Q&A Upvotes

USD 169 / Coaching

Fully agree with the reasons Adi listed for falling realized prices.

On top of that, I would challenge your ingoing assumption "...reasons why revenue per unit falls (i.e. prices)":

Revenue per unit can fall even if prices remain stable, if a client aggregates data to a high level, there might be a mix shift involved: High-price SKUs are in decline and low-price SKUs are on the rise. That means that on an overall level revenue per unit drops, although prices for each SKU remain stable (or can even increase year on year). This is an often seen phenomenon in interview cases.

Fully agree with the reasons Adi listed for falling realized prices.

On top of that, I would challenge your ingoing assumption "...reasons why revenue per unit falls (i.e. prices)":

Revenue per unit can fall even if prices remain stable, if a client aggregates data to a high level, there might be a mix shift involved: High-price SKUs are in decline and low-price SKUs are on the rise. That means that on an overall level revenue per unit drops, although prices for each SKU remain stable (or can even increase year on year). This is an often seen phenomenon in interview cases.

Related BootCamp article(s)

Getting Up to Speed

In order to repeatedly demonstrate prerequisite skills under the pressure of a real case interview, you need to learn the basics and practice cases.

1 Q&A

Related case(s)

MBB Final Round Case - Smart Education

Solved 15.1k times
MBB Final Round Case - Smart Education Our client is SmartBridge, a nonprofit educational institution offering face-to-face tutoring services. The client operates in the US. The mission of SmartBridge is to help as many students as possible to complete studies and prevent that they drop from the school system, in particular in disadvantaged areas. The client is considering starting operations for its services in the Chicago area. They hired us to understand if that makes sense. Due to the nonprofit regulation, SmartBridge should operate on its own in the market, without any partnership. How would you help our client?
4.6 5 522
| Rating: (4.6 / 5.0)

Our client is SmartBridge, a nonprofit educational institution offering face-to-face tutoring services. The client operates in the US. The mission of SmartBridge is to help as many students as possible to complete studies and prevent that they drop from the school system, in particular in disadvant ... Open whole case

Espresso, Whatelse?

Solved 8.8k times
Espresso, Whatelse? Espresso Whatelse is an Italian company that produces coffee and espresso machines since 1908. It is the Italian market leader and has a strong presence overall in Europe. In 2019, Espresso Whatelse has increased its revenues but it has seen declining profit margin. Your client wants to understand the root causes of this 2019 trend and how to increase its profit margin again.  
4.6 5 444
| Rating: (4.6 / 5.0)

Espresso Whatelse is an Italian company that produces coffee and espresso machines since 1908. It is the Italian market leader and has a strong presence overall in Europe. In 2019, Espresso Whatelse has increased its revenues but it has seen declining profit margin. Your client wants to understand ... Open whole case

Hot Wheels

Solved 4.7k times
Hot Wheels Problem definition: Our client is Korean Car Parts (KCP), a multi-national original equipment manufacturer (OEM) of car parts based in Korea. They've recently seen a decline in profits and have brought us in to understand how to address this falling profitability.
4.6 5 281
| Rating: (4.6 / 5.0)

Problem definition: Our client is Korean Car Parts (KCP), a multi-national original equipment manufacturer (OEM) of car parts based in Korea. They've recently seen a decline in profits and have brought us in to understand how to address this falling profitability. Open whole case

McKinsey Digital / BCG Platinion: Oil & Gas Upstream Technology

Solved 2.9k times
McKinsey Digital / BCG Platinion: Oil & Gas Upstream Technology [PLEASE NOTE: This is a technically difficult case and should only be completed by those coming in as a Technology specialist, i.e. recruiting for McKinsey Digital, BCG Platinion, etc.] Our client is a multinational oil and gas company. While they are vertically integrated and have upstream, midstream, and downstream divisions, they have recently been experiencing competitivity issues in the upstream gas division, which brings in $1B in profits annually. Our client’s upstream division has offices in Australia and Indonesia. Their work is highly dependent on their IT systems, as they have to constantly monitor wells and pipes (pressure, hydrocarbon count, fluid makeup, etc.) The upstream division has two large legacy IT systems that are primarily used for downstream operations but have been modified for upstream purposes. These systems are managed by a central team in the US which is responsible for all IT issues across the business. They triage issues/enhancements and then manage development teams in India and Finland who complete the work.
4.5 5 60
| Rating: (4.5 / 5.0)

[PLEASE NOTE: This is a technically difficult case and should only be completed by those coming in as a Technology specialist, i.e. recruiting for McKinsey Digital, BCG Platinion, etc.] Our client is a multinational oil and gas company. While they are vertically integrated and have upstream, midstr ... Open whole case

Cutting Carbs - Divestiture in the Electrical Power Market

Solved 900+ times
Cutting Carbs - Divestiture in the Electrical Power Market Our client is Energy England, one of northern England’s largest electric utility companies. They were created over the past decade through an aggressive series of mergers of existing utility companies each specializing in a single energy generation source. Recently, the CEO has embarked on an initiative to return to the core of the business. She is looking to increase free cash flow and cash reserves in order to prepare the business for evolving future trends.   The following can be verbally provided to interviewee if asked: Energy England is made up of assets across the energy-generation space. These include coal, gas, nuclear, and wind We are looking to divest from just one of our previous acquisitions (i.e one target is sufficient) There are no specific goals/metrics – the client trusts our judgement
4.2 5 20
| Rating: (4.2 / 5.0)

Our client is Energy England, one of northern England’s largest electric utility companies. They were created over the past decade through an aggressive series of mergers of existing utility companies each specializing in a single energy generation source. Recently, the CEO has embarked on an initi ... Open whole case