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Your company have just developed a new vaccine for COVID-19 and has passed the final testing round. How would you price it?
Assume your company is based in US. All other variables are the same as real life.
It seems there can be many market sizing + pricing strategy elements weaved in this case, and I am thinking of a structured way to approach it - especially given our objective is probably not maximising profit (ethnical consideration), and we might be able to sell to government which has a budget constraint as well.
Your company have just developed a new vaccine for COVID-19 and has passed the final testing round. How would you price it?
Assume your company is based in US. All other variables are the same as real life.
It seems there can be many market sizing + pricing strategy elements weaved in this case, and I am thinking of a structured way to approach it - especially given our objective is probably not maximising profit (ethnical consideration), and we might be able to sell to government which has a budget constraint as well.
You are on the right track! Make sure you bring up ethical concerns, as well as constraints regarding government funding. Govs might have funded the development and are requiring you to not price per potential, but at production costs.
Then state that if this is a true question for value based pricing, you would proceed as follows and lay out a structure to estimate value to receipients, also considering potential competitors moving in quickly that you need to benchmark against.
Lastly, state that beyond the ethical imparative and gov constraints, there might be a potential reputational damange if you actually should price to value that might hurt existing business after a public outcry. This looks very much like a question with a high risk of falling into a trap and you should overinvest in covering your back.
You are on the right track! Make sure you bring up ethical concerns, as well as constraints regarding government funding. Govs might have funded the development and are requiring you to not price per potential, but at production costs.
Then state that if this is a true question for value based pricing, you would proceed as follows and lay out a structure to estimate value to receipients, also considering potential competitors moving in quickly that you need to benchmark against.
Lastly, state that beyond the ethical imparative and gov constraints, there might be a potential reputational damange if you actually should price to value that might hurt existing business after a public outcry. This looks very much like a question with a high risk of falling into a trap and you should overinvest in covering your back.
Thanks, that's very insightful. I have a follow up question: How do we structure the tree? I was thinking 1) Define objective 2) Explore price under value/cost/competitor based pricing 3) Choose one pricing strategy given our objective. But it seems after we defined our objective (for example, not revenue maximisation but to establish a ethical brand image), then it seems we cannot price by value but better to go with cost. In this case should I still go through the value creation discussions? Another problem I have is how to price based on cost - normally in the COVID case, my approach is - aim to recover R&D in 2 years, assume a $xxx mn of Fixed cost and $xx Variable cost, then assume a coverage of 10% population each year (given capacity), with COVID disappearing in around 5 years (when the vaccine will no longer make money). Do you think it is reasonable? Kind of feel it's too simplistic... —
Anonymous A on Oct 08, 2020
1) "Especially given our objective is probably not maximising profit (ethnical consideration)". You are wrong here.
All companies have the objective of maximizing profits. All companies have the incentive to PRETEND that they don't.
If you do some reading, you'll see that a lot of these promises by vaccine companies to keep prices low only go until July, 2021...when less than 10-20% of the developed world population will likely have been vaccinated. These companies still want to make money
2) "The government has a budget constraint". Not at all! The government has tons of $ to throw at this problem! Operation Warp Speed threw billions at this. Heard of Kodak? Heard of their $765 Million Dollar Moment? So, the US government does not have a budget constraint in anything that involes 1) Public image (i.e. pandemic) and 2) Military
Sorry to burst the bubble there!
Now, given this news, you now know the objective is to maximize profits without appearing to in the context of a government willing to pay a lot. How does this change your framework :)
Clarifying questions are key here!
Eek. You have two very poor assumptions (sorry).
1) "Especially given our objective is probably not maximising profit (ethnical consideration)". You are wrong here.
All companies have the objective of maximizing profits. All companies have the incentive to PRETEND that they don't.
If you do some reading, you'll see that a lot of these promises by vaccine companies to keep prices low only go until July, 2021...when less than 10-20% of the developed world population will likely have been vaccinated. These companies still want to make money
2) "The government has a budget constraint". Not at all! The government has tons of $ to throw at this problem! Operation Warp Speed threw billions at this. Heard of Kodak? Heard of their $765 Million Dollar Moment? So, the US government does not have a budget constraint in anything that involes 1) Public image (i.e. pandemic) and 2) Military
Sorry to burst the bubble there!
Now, given this news, you now know the objective is to maximize profits without appearing to in the context of a government willing to pay a lot. How does this change your framework :)
Clarifying questions are key here!
(edited)
Hi Ian, thanks so much for pointing them out - it actually makes a lot of sense. In this case, I could probably think of a few pricing strategies (like price discrimination, of offering low price for basic vaccine and charge a very high price for more effective ones, or to negotiate a packaged deal with government where the vaccine is priced lower but additional services has a high price. Just some thoughts that I currently have.) But I'm wondering how I could approach this question and probably evaluate these options in a structured way, instead of just throwing ideas here, given there is a lot to consider. Thanks again for answering my question in the first place! Hope to hear your opinion on this as well. —
Anonymous A on Oct 08, 2020(edited)
Hi there! Yes, a lot of these things just require practice and reading to better understand :) —
Ian on Oct 08, 2020
So, right now you have a lot of "ideas". Great ideas, but unstructured ones as you've pointed out! Fundamentally, you're evaluating what ideas will make the most profit while ensuring good PR/reputation. —
Ian on Oct 08, 2020
Your structure could honestly be done in many ways...this one is very subjective. So, you could have 1) Determine pricing method (cost v value v benchmarking) 2) Determine level of pricing based on method 3) Look at logistics of implementing —
Ian on Oct 08, 2020
Or, it could be 1) Market / Customer identification (could be clarifying Q too...gov will buy) 2) Determine WTP (willingness to pay) 3) Evaluate appropriate % of WTP to charge in order to maintain good PR —
Ian on Oct 08, 2020
^very quick brainstorming but you get the idea! —
Ian on Oct 08, 2020
Pricing case studies can either stand alone or be a part of another case study. You can crack pricing Case Interview in three steps: Investigate the company; Investigate the product; Choose a pricing strategy
MBMC Case: Exploring future Business Models on Four WheelsAs 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 your personal brand and cultivate relationships with the top management.
Your client on your current project, the C-Class model series responsible, asks you to explore new profit pools and business opportunities regarding optional equipment.
Initially, you shall structure and explore potential business models, and discuss necessary conditions and implications of these business models. In a next step, you shall identify possible options and prepare them for decision. And of course, the client is interested in your recommendation.
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 ... Open whole case
Struktur Management Partner Case: Automotive Turnaround während CoronaDein Klient ist ein spezialisierter Lösungsanbieter für komplexe Leichtbaugruppen aus Metall für die Automobil-, Luft- und Raumfahrtindustrie.
Im vergangenen Jahr wurde erstmals ein negatives Betriebsergebnis erwirtschaftet. Die Geschäftsführung beauftragt Dich, ein realistisches Zielbild für Phoenix zu erstellen und dafür notwendige Maßnahmen zu definieren. Du reportest direkt an die Geschäftsführung:
Wie kann Phoenix gerettet werden?
Dein Klient ist ein spezialisierter Lösungsanbieter für komplexe Leichtbaugruppen aus Metall für die Automobil-, Luft- und Raumfahrtindustrie.
Im vergangenen Jahr wurde erstmals ein negatives Betriebsergebnis erwirtschaftet. Die Geschäftsführung beauftragt Dich, ein realistisches Zielbild für Phoen ... Open whole case
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.
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
Simon-Kucher Case: GST Cruise CompanyCruise 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.
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
Bank envelopeYour 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?
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
The MBB Case Interview School 
The U.S. Pharmaceutical Industry – An In-Depth Overview by Udayan 
