Value based pricing
Vlad has outlined the overall approach to pricing in his answer, I want to focus a little more on one aspect - value based pricing. This is the one that is key to most pricing based cases you will come across whether in an interview or in an actual live case.
Value based pricing is based on the principle that the best way to price a product (i.e. where the marginal utility derived from consuming a product is equal to the marginal cost of producing it) is to price it at the highest willingness to pay. It is worth noting that this willingness to pay differs across users and in an ideal world, you would charge each consumer the price they want to pay (the most common example of this being pricing in airlines - basic economy, economy, economy plus, business and first class).
When solving cases related to optimally pricing a product, you will often have to think of ways to come up with prices for a product. Below are some common ways to do so
- If the product is similar to ones in the market you will have to look at how competitors are priced
- If it has improvements/relevant differences (say a drug with better targeting mechanisms than current drugs) then some things to look at are
- Scope of improvement - for example if instead of 3 injections a month you ony need to take one injection every month you can price the drug at at least 3x price of current drug in the market
- Willingness to pay - this can be judged through surveys, A/B testing, pricing the value to the customer (e.g., If it saves 5 hours, you can assume that each hour is worth at least say $30 and 5 hours $150, etc.
- If the product is completely new (e.g., immunotherapy in cancer, iPhone when it launched etc.) you can look at:
- How did previous industries think about price disruptions when they first launched
- Do you want access to all or few core clients. e.g., a digital platform like facebook first needs scale and relevance before becoming a key product and so is free to start, something like a tesla may prefer a wow factor and is priced accordingly. All of these are industry and product specific
- Barriers to entry - how difficult is it for others to enter by copying your product/do you have an IP. The easier it is the closer you have to price to the cost of making it
- How will you price differentiate if it is relevant (e.g., launching google pixel 3 and google pixel 3a with less premium features)
As you can see there are many elements to a pricing case, so it is helpful to read up on the theory and research cases that have looked at pricing, especially from a value base pricing perspective