case study about pricing strategy

Mastering the Pricing Case Study: A Comprehensive Guide

• Last Updated November, 2022

Setting the optimal pricing for products or services is important for a company as it directly impacts profitability. So every management consulting firm helps its clients with pricing strategies. The primary goal of a pricing case is to recommend a price that maximizes profit, taking costs for product/service and market considerations into account.

A typical pricing case interview would start something like this –

A manufacturer of kitchen knives sells a range of products, from low-end to professional, to customers at different price points. They’ve developed a new line of knives in collaboration with a celebrity chef and would like help setting the prices for these products.

Pricing cases might not seem straightforward initially, but with the right frameworks and practice cases, we will help you prepare for it.

In this article, we’ll discuss:

• Examples of pricing cases.
• The alternative pricing methods.
• How to approach a pricing case interview.
• An end-to-end pricing case example.

Let’s get started!

Pricing Case Examples

How to approach a pricing case interview, what are the most common pricing strategies, an end-to-end pricing case example, the relevant pricing strategy for our pricing case examples, 6 tips for solving a pricing case interview.

As companies mature, pricing becomes more complex because:

• Companies develop multiple products with different cost structures.
• Clients have different product/service needs and price sensitivities.

Pricing can also be a source for driving revenue growth if you can identify opportunities to price based on value to the customer or in a way that optimizes the tradeoff between revenue and costs. Let’s explore a few situations where consultants can help with pricing:

New Art Museum

A new modern art museum is scheduled to open next year in a major European city. The project lead has requested your help with the pricing of the admission tickets. He has two questions: How would you approach selecting a pricing method for the museum? What price would you recommend and why?

Nail the case & fit interview with strategies from former MBB Interviewers that have helped 89.6% of our clients pass the case interview.

Animal Healthcare

Our client provides healthcare services for animals and develops veterinary drugs. The client has recently developed a product that enables cows to increase milk production by 20%. They have turned to you to figure out how to price this new product in order to maximize profits.

California Municipality

Your client is a local municipality in California. The town recently built a complex of six parking lots, encircling a nearby community center and outdoor mall, which features shopping, restaurants, and some light attractions. In total there are 20,000 parking spots in these lots. Our client wants to maximize the profit it generates from the parking lots with a focus on revenue generation. How would you think about different types of pricing structures and revenue models for the parking lots?

In most pricing case questions, you’ll have to work through one or a combination of the following pricing strategies:

Most companies use a combination of these alternative pricing strategies to maximize profitability. For example, a manufacturer of diet pills that costs $10 to produce may be able to charge $100 per bottle if the target customers have low-price sensitivity and high perceived value (a savings of many hours working out in the gym and/or eliminating the negative health effects of being overweight).

Note that for these examples, multiple correct solutions are possible. The important thing in pricing case interviews is to back up your answer well with analysis and logic.

Relevant pricing strategies + sample approach:

• Since the costs of running the museum are mostly fixed (e.g., staff, maintenance, and utilities), a cost-based pricing strategy will not provide much insight. 
• The new museum should therefore use a combination of demand-pull and market-based pricing.
• Since the museum is new, they should set their pricing below the average market price in order to draw in early customers to check out the museum and spread awareness to their friends.
• Do a check that the proposed price point will cover a good portion of the museum’s costs with expected attendance numbers.
• Note that for a museum, ticket sales are probably not expected to fully cover costs. Exhibit sponsors, grants, and donations will be additional sources of funding.

Our client provides healthcare services for animals and develops veterinary drugs . The client has recently developed a product that enables cows to increase milk production by 20%. They have turned to you to figure out how to price this new product in order to maximize profits.

• The cost of making a dose is $30.
• The competition charges $300 per dose.
• Clients are willing to pay $300 per dose because the 20% increase in their revenues will more than offset the product’s price.
• Therefore, the client should set its price based on a combination of market-based pricing and demand-pull.
• The recommendation of whether to price above or below the competitor’s $300 price depends upon how our product compares to theirs. If the client’s product is superior in any way, we may be able to command a higher price. If we are entering the market late and with a comparable product, we’ll need to set our price lower in order to provide an incentive for customers to try our product.
• At $300, this will provide a very attractive gross margin of close to 90%.

Your client is a local municipality in California. The town recently built a complex of six parking lots, encircling a nearby community center and outdoor mall, which features shopping, restaurants, and some light attractions. In total there are 20,000 parking spots in these lots. Our client wants to maximize the profit it generates from the parking lots with a focus on generating additional revenue. How would you think about different types of pricing structures and revenue models for the parking lots?

• Costs are mostly fixed (staff salaries and bond payments for garage construction), so a cost-based strategy doesn’t provide much insight. 
• Competitive garages are priced similarly, but less convenient for shoppers.
• Excess capacity provides the opportunity to identify additional revenue sources by driving higher utilization of the parking spaces and offering customers additional services while parked in the garage. 
• Brainstorming options to increase revenue identifies a variety of options (offer monthly passes, charge stores monthly fees to validate customer parking, provide valet parking and car washing, use excess capacity for concerts, fairs, or other large events that require parking spaces.)
• Do a check that the proposed price point, including value-added services, will cover salary and bond payments.

Like any other case interview, you want to spend the first few moments thinking through all the elements of the problem. Also, there is no one right way to approach a pricing case study but it should include the following:

• Cost-based: What is the cost of making the product or delivering the service?
• Market-based: What is the pricing of a comparable product or service? Can we price above what the competition is charging?
• Value-based: What is the customer’s willingness to pay? Will we lose customers if we charge higher prices? Are there incremental services we could provide that customers would value?  
• What is the volume impact of the alternative pricing model? What is the incremental revenue expected?
• What significant costs will be incurred if the pricing model changes?
• What revenues and costs will be realized if value-added services are launched?
• It can be hard to raise prices once customers are used to a low price. Price anchoring (establishing a higher price but discounting it) may be needed for some time to transition customer expectations.
• What is the expected response from the competition?
• What is the impact on the brand if we reduce prices?
• What is the impact on volume if we increase prices?

Let’s go through the pricing case for the California municipality with 6 parking lots. Remember that the instructions said to focus on incremental revenue. As you develop your structure for the case, remember the key components of our pricing issue tree approach:

• Pricing strategies including offering value-added services
• Financial Impact

Tailor Your Pricing Case Approach for this Client

The first thing you will need to do in a pricing case study, as well as any other consulting case, is to ensure you understand the problem you need to solve by repeating it back to your interviewer. If you need a refresher on the 4 Steps to Solving a Consulting Case Interview , check out our guide.

Second, you’ll structure your approach to the case. Stop reading for a moment and consider how you’d structure your analysis of this case. We gave you some hints in our sample cases section. After you’ve outlined your approach, read on and see what issues you addressed, and which you missed. Remember that you want your structure to be MECE and to have a couple of levels in your Issue Tree . 

• What is the municipality’s cost structure? 
• How much revenue is required to cover costs?
• How much of a profit expectation does the municipality have? Do they want to generate as much revenue as possible or cover their costs and provide a service to their community at an attractive price?
• What are the municipality’s current pricing structure and prices?
• How do the municipality’s current prices compare to alternative parking options?
• What alternative pricing structures could the municipality use (hourly rates, daily rates, monthly rates, store validation, etc.)
• What non-price considerations are there? (Proximity to popular destinations, roof vs. no roof, lighting/safety, cleanliness)
• What services could the parking lots provide in addition to the parking spot?
• How much space would providing additional services require?
• How much revenue would they generate?
• What are the expected revenues of alternative pricing models?
• What are the expected revenues of value-based services?
• Would additional costs be incurred?
• How might customers react to alternative pricing models?
• To value-based services?
• How might competitors react?

Pricing Case Brainstorming Exercise

After you structure your approach, the interviewer asks you to brainstorm some revenue growth opportunities for the California municipality. Again, stop reading for a moment to do this exercise yourself because you’ll learn more if you do. When you’re done, note the ideas you didn’t consider. Few candidates hit every possibility, but to move on to the next round of interviews, you’ll definitely want to go beyond the straightforward responses. 

• Charge store owners for parking spots to offer free parking for visitors.
• Charge higher pricing for spots closest to the stores.
• Offer annual/monthly parking passes.
• Valet parking
• Car washing
• Quick car servicing (e.g., oil change)
• Locate public transportation/bus stops adjacent to the lots and provide parking to commuters at a monthly rate.
• Rent space to event attendees (e.g., sporting events, concerts, fairs).

When you ask about the municipality’s current pricing and parking space utilization rates, your interviewer provides you with the following exhibit and asks you to calculate the daily revenue. Note that the parking lot has two sources of revenue:

• Tourists/shoppers buying parking tickets for an hourly rate.
• Store owners buying monthly parking permits for their staff.

Calculation of current daily revenue:

• 3 hour parking: Revenue = (20,000 parking spots) * (30% of total lot occupancy for tourists/shoppers) * (75% of tourists/shoppers occupancy for 3hr parking) * ($2/hr) * (*3hrs) = $27,000
• 5 hour parking: Revenue = (20,000 parking spots) * (30% of total lot occupancy for tourists/shoppers) * (25% of tourists/shoppers occupancy for 5hr parking) * ($10 flat fee) * = $15,000
• Total tourist/shopper revenue – $42,000
• Store owners: Revenue = (20,000 parking spots) (5% lot occupancy for owners) *($240/month) (1/30 to convert to daily revenue) = $8,000
• Total tourist/shopper + store owner daily revenues= $50,000

Alternative Pricing Model: Store Validation

If we move to a store validation model, in which a store validates the ticket of any customer who buys something, the spots taken would increase to 10,000, or 50% of available capacity. This is because the cost of parking is currently a deterrent to customers shopping at this mall. More shoppers at the mall would be a significant benefit to store owners.

The cost per validation would be $5 to the store. Assume every person parking a car purchases something. The number of store owner permits would drop to 750 since store owners will likely decide to save money on permits to pay for visitor parking spots.

What would be the impact on daily revenue?

• Increase in the tourist/shopper revenues = $8,000 = (10,000 spots) * ($5 per spot) – $42,000
• Store owner revenues would decrease by $2,000= (750 permits) * ($240 per permit/30 days per month) – $8,000 
• Change in total daily revenue = + $6,000
• A good candidate will recognize that the increase of 12% in daily revenues is a positive move forward.

Risks to the Change to a Validation Pricing Model

Do you see any risks to a validation pricing model? Do you think you’re likely to run into any resistance? From which types of stores and why?

• Stores with low price per transaction (such as ice cream shops) will likely lose money if they pay for the $5 validation fee, therefore 100% of stores will not be willing to participate.
• An alternative validation model would be to charge stores based on a percentage of transactions or profits. This would get less pushback.
• Under the percentage model, there would need to be a cap on the price charged to stores. A 5% charge on an ice cream may be reasonable but a 5% charge on a $1000 handbag would not be.
• You could note that while the focus of this case is on revenue generation, the costs to run a validation model might be slightly higher because the municipality will need to process the validation numbers and bill the stores.

Recommendation

Lastly, provide your recommendation for the client. Try coming up with your own before reading our sample.

The California Municipality should proceed with the transition to the validation pricing model because it provides an incremental $6000 per day or an increase in revenue of 12%. While doing this, it should study the risk of pushback from store owners with low transaction value and the possibility of charging based on a percentage of the transaction. Additionally, the municipality should roll out revenue growth opportunities such as renting out excess capacity and offering value-added services (e.g., valet parking) over time.

Determine the relevant pricing strategy to apply (e.g., cost-based vs. market-based or demand pull).

Brainstorm all possible changes in pricing methodologies that might bring in additional revenue (e.g., hourly, daily, or monthly pricing, a store-validation model for our parking lot case), don’t forget that charging for value-added services could be part of a broader pricing & revenue generation strategy (e.g., oil changes, car wash for our parking lot case)., calculate the incremental revenues from suggested changes in pricing., always have an answer to whether to proceed or not., detail the risks associated with the pricing changes..

– – – – –

In this article, we’ve covered:

• Examples of pricing cases
• Approaches for solving a pricing case
• Different pricing strategies 
• Tips for solving a pricing case

Still have questions?

If you have more questions about pricing case study interviews, leave them in the comments below. One of My Consulting Offer’s case coaches will answer them.

Other people prepping for pricing case studies found the following pages helpful:

• Our Ultimate Guide to Case Interview Prep .
• Types of Case Interviews .
• Consulting Case Interview Examples .
• M&A Case Study Interview.
• Market Sizing Case Questions .

Help with Case Study Interview Prep

Thanks for turning to My Consulting Offer for advice on pricing case study interviews. My Consulting Offer has helped almost 85% of the people we’ve worked with to get a job in management consulting. We want you to be successful in your consulting interviews too. For example, here is how David  was able to get his offer from  Deloitte.

2 thoughts on “Mastering the Pricing Case Interview: A Comprehensive Guide”

In the Alternative Pricing Model: Store Validation

The original tourist/shopper revenue is $42,000 Under the alternative pricing model, (10,000 spots) * ($5 per spot) = $50,000, an $8,000 increase

The original store owner revenue is $8,000 Under the alternative pricing model, (750 permits) * ($240 per permit/30 days per month) = $6,000, a $2000 decrease.

The new total daily revenue = $56,000 Original daily revenue = $50,000

Shouldn’t the change in total daily revenue be = $56,000 – $50,000 = $6,000, a 12% increase?

I’m confused about the change in total daily revenue $2,000 and 4% numbers.

Yes, good catch! We’ll make the change. Sorry for the confusion.

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Effective pricing strategies in marketing for business success

In the bustling marketplace, setting the right price for your product or service can feel like navigating through a dense fog. However, understanding the importance of pricing strategies in marketing is akin to having a compass that guides you towards business success. Whether you’re launching a new product or revisiting an existing offering’s pricing model, the strategy you choose plays a pivotal role in how your brand is perceived, how competitive you remain, and ultimately, your bottom line.

Let’s delve into the nuances of pricing strategies in marketing, shedding light on why they’re not just about numbers but about understanding market dynamics, consumer psychology, and your business goals.

Understanding the importance of pricing strategies in marketing

In marketing, pricing isn’t just a figure tagged on a product; it’s a multifaceted strategy that demands careful consideration and planning. Pricing strategies are essential for several reasons.

Moreover, understanding what pricing strategy is in marketing involves recognizing its impact on consumer perception. Price is often seen as a quality indicator, and a well-thought-out strategy can enhance perceived value, encouraging customers to choose your product over competitors’. Additionally, flexibility is key in your pricing plan . The market is ever-changing, with fluctuating costs, varying consumer demands, and evolving competitive landscapes. A dynamic pricing strategy allows you to adapt to these changes, ensuring your product remains relevant and competitively priced.

The art and science of pricing require a deep dive into market research, competitor analysis, and introspection into your brand’s value proposition. It’s about finding that sweet spot where your price covers costs, earns a profit, and resonates with your target audience, compelling them to choose your product as their preferred solution.

Embarking on the journey of setting the right price for your offerings can feel like navigating a labyrinth. Yet, with a solid grasp of different pricing strategies and their applications, you’re equipped with a map to guide you through.

Different types of pricing strategies and their applications

From the allure of luxury goods to the practical appeal of everyday items, product pricing strategies are tailored to meet the demands of different market segments. For instance, value-based pricing focuses on a product or service’s perceived worth to the customer, making it ideal for offerings with unique benefits or superior quality. This approach is particularly effective for businesses with a strong brand identity or specialized services.

On the other hand, competitive pricing involves setting prices based on what competitors are charging. This method is crucial for companies in highly saturated markets, where price plays a significant role in consumer decision-making. It requires continuous market analysis to ensure your pricing remains attractive yet profitable.

For businesses looking to penetrate new markets or launch innovative products, penetration pricing can be a game-changer. By initially setting lower prices, companies can quickly attract a broad customer base, creating brand awareness and loyalty. As market presence grows, prices can be adjusted to reflect the product’s established value.

Moreover, pricing techniques such as dynamic pricing allow businesses to adjust prices in real time based on market demand, competition, and other external factors. This strategy is particularly beneficial for industries like travel and e-commerce, where prices can significantly influence consumer choice.

Understanding the wide array of pricing strategies for services and products is crucial for businesses aiming to stand out in their respective markets. Whether it’s adopting a skimming strategy to maximize profits from new technology or employing bundle pricing to increase a service package’s perceived value, the right strategy can dramatically impact your business’s success. As you navigate the complex world of pricing, remember that the goal is not just to set a price but to communicate your offerings’ value in a way that resonates with your target audience.

How do companies formulate a pricing strategy for success

Formulating a successful pricing strategy requires a deep understanding of market demand, customer behavior, cost structures, and profit margins. By analyzing these key factors, companies can develop a pricing approach that aligns with their business goals and resonates with their target audience.

Analyzing market demand and customer behavior

At the heart of any successful pricing strategy lies a thorough analysis of market demand and customer behavior. These elements serve as the compass points that guide businesses in setting prices that cover costs, generate profit, and resonate with the target audience. Analyzing market demand involves examining the broader economic environment, industry trends, and the pricing of similar products. It’s about gauging what the market can bear and how price-sensitive potential customers are.

Understanding customer behavior delves into the psychological aspects of purchasing decisions, recognizing the factors that motivate customers to choose one product over another.

This is where pricing tactics come into play. Strategies like psychological pricing , which involves setting prices that have a psychological impact on consumers, can significantly influence buying behavior.

Moreover, pricing strategies in marketing must adapt to the ever-changing landscape of consumer preferences and competitive pressures. Dynamic pricing allows businesses to adjust prices in real-time based on demand, competition, and other external factors, providing a powerful tool to respond to market changes and maximize revenue opportunities.

Incorporating cost structures and profit margins

Understanding cost structures is essential for developing a successful pricing strategy. It involves a thorough analysis of the fixed and variable costs associated with producing a product or delivering a service. This clarity ensures that the pricing strategy covers all expenses and contributes to a healthy bottom line. However, it’s not just about covering costs; it’s about understanding how these costs interact with pricing strategies to create value for both the business and its customers.

Profit margins represent the percentage of each sale that exceeds costs, essentially measuring the efficiency of a pricing strategy. By aiming for optimal profit margins, businesses ensure that they not only survive but thrive. However, setting these margins requires a delicate balance. Pricing too high might deter potential customers, while pricing too low risks undervaluing the offering and squeezing profits.

Integrating cost structures and profit margins into pricing strategies is an ongoing process. Market conditions change, costs fluctuate, and consumer preferences evolve. Therefore, regularly revisiting these elements and adjusting pricing accordingly is crucial for maintaining competitiveness and profitability.

Examples of successful pricing strategies in various industries

The landscape of pricing strategies in marketing is vast and varied, with each industry having its unique set of challenges and opportunities. Let’s explore some examples of successful pricing strategies across different sectors.

Case studies of effective pricing strategies in technology

In the technology sector, companies like Apple have mastered the art of premium pricing, where the perceived value of their products allows them to set higher price points, reinforcing their brand’s prestige. On the other hand, subscription-based services like Netflix have leveraged penetration pricing to initially attract a large subscriber base with affordable rates before gradually increasing prices as the value of their service became apparent to users.

Another notable example is the freemium model used by companies such as Spotify. By offering a basic service for free and charging for premium features, Spotify was able to attract a vast user base, capitalizing on the pricing strategy to convert free users into paying subscribers over time.

Examining pricing strategies in the service sector

In the service sector, where intangible offerings like expertise, time, and experience are traded, pricing strategies take on a unique complexity. Services often require a value-based pricing strategy, where the price is set based on the perceived worth of the service to the customer rather than the cost of delivery. This approach emphasizes the benefits and outcomes that the service provides, aligning the price with the customer’s expectations and willingness to pay.

Service sector pricing strategies may also incorporate dynamic or tiered pricing models to cater to different customer segments or adjust for demand fluctuations. For instance, a consultancy firm might offer different pricing tiers based on the scope of service, expertise level, and project duration, providing flexibility and options for clients with varying needs and budgets. Similarly, businesses like airlines and hotels often employ dynamic pricing, adjusting rates in real-time based on demand, seasonality, and booking patterns to maximize revenue and occupancy rates.

Adopting the right pricing strategies in the service sector ensures that businesses cover their costs, achieve desired profit margins, and strengthen customer relationships by aligning price with value. It requires ongoing market research, competitor analysis, and customer feedback to strike a delicate balance.

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- Katharine Paine

In 2019, Nestle earned half of its worldwide sales in America. It had a cumulative revenue of about 92.6 billion Swiss Francs that year. How was Nestle able to generate that much revenue ? What is their pricing strategy? Let’s find out!

Case Study on Nestle

Nestle was founded in Switzerland by Heinrich Nestle in 1866. Nestle is one of the oldest multinational companies. From the early stages, Nestle wanted to take advantage of growth opportunities in different countries. In 1905, it merged with Anglo-Swiss condensed milk, broadening its product range to include infant formulas and condensed milk. Nestle currently has 447 factories, with operations in 189 countries.

In this case study, we will focus on Nestle's pricing strategies. Pricing is the most important element for maximising revenues. According to Harvard studies, if there is a 1% improvement in pricing, it leads to an 11% increase in profits (approx.). If the pricing structure is incorrect, the business loses profit with each transaction made. Therefore, correct pricing is critical.

Nestle is a multinational brand with a present net worth of about $270 billion. The success that the brand has is due to its pricing strategy. The revenue of Nestle is continuously growing, this depicts the successful identification and placement of its products in the market. Generally speaking, Nestle’s products are pricier in comparison to the products of the retailing brand.

Nestle’s pricing strategy is fairly distinctive in contrast with other brands. It merely hinges on recognition which is attributed to the apparent quality of the product. Based on this quality and the attitude of the customers, Nestle assesses the pricing strategy it wants to implement.

Nestle’s pricing strategies

Here are some of the strategies implemented by Nestle in order to achieve its targets and goals.

Nestle Price skimming

Price skimming is a pricing strategy in which a company charges a high price initially and lowers it over time.

Nestle uses price skimming for some of its products when it enters the market of a country.

Nestle believed that the target consumers for Nescafe coffee were upper-middle-class consumers. Later, with the success of this approach and strategy, they lowered the prices and targeted the middle class.

Inexpensive pricing strategy

Amongst its wide range of brands, Nestle offers a fair price for quite a few of its brands and products. Pricing is based on market segmentation . Market segments generally involve a target audience.

Market segmentation is the practice to divide the target market into subgroups. It forms subsets depending on needs, psychographic, behavioral, and demographic criteria.

If Nestle is trying to target the mass market, then they implement an inexpensive pricing strategy instead of an expensive one.

This happened in the case of Nestle's Maggi noodles. It is considered affordable in comparison to other products of Nestle. However, if the price of Maggi is compared globally with other noodle brands, then it can be perceived as a little pricey.

Bundle price strategy

With time Nestle has understood that people do not usually do their groceries every day, instead, they prefer purchasing in bundles. Therefore, Nestle implemented the bundle packs approach.

Initially, Maggi was sold in a single pack but later on, Nestle offered a 16 pack which eventually increased the sales.

Penetration pricing strategy

Penetration pricing is a pricing strategy that an organisation uses to offer new products at lower prices in an attempt to attract more customers away from rivals.

When Nestle introduced a new flavor of Maggi instant noodles, they were sold at a low price of £2.25 to entice new customers. Nestle’s strategy was to lure more customers away from its rivals which offered alike flavors priced at £3.25. Nonetheless, when Nestle gained a greater customer base they increased the price to £3.

Psychological pricing strategy

Psychological pricing facilitates in creating a positive psychological influence on the consumer and attracts them to buy the product.

Nestle Aero bliss was sold for £8.99 instead of £9. This pricing strategy will have a positive psychological impact on the consumer and will encourage them to purchase the product.

Stock keeping units

Nestle does not want to lose any customers, so it has diverse pricing for every stock-keeping unit, allowing it to reach a bigger consumer base. From Maggi noodles to Cereals, Nestle has it all covered, whereby the company offers different sizes of packs.

Nestle’s cereal is slightly pricey in comparison to other brands. Hence, it started offering mini pouches for everyday consumption. This has made the pouches a lot cheaper than larger packs, hence allowing different segments of customers to buy Nestle’s products.

Discounts offered

Nestle offers discounts in various retail stores. Nestle products are often bundled and come with a 5% or 10% discount.

Coffee and creamer, as a bundle, is cheaper than buying the two items separately.

Competitive pricing strategy

Another general approach that Nestle follows is analyzing the pricing strategies of its rivals. Nestle has several brands and for every brand, it has separate departments that assess the pricing strategies of its rivals. Besides that, it examines the marketing style, sales, and innovation of rivals. The competitive pricing strategy assists in achieving Nestle's desired position as they acknowledge the preferences of the consumers.

Global pricing strategies of Nestle

Globally, Nestle attempts to ensure the pricing strategies that will assist it in achieving its financial objectives . These strategies typically involve the penetration and skimming strategy. The price of Nestle products automatically rises when they are exported to other regions. Alternatively, it also implements price skimming, as it sets a higher price at the start and then ultimately reduces the price based on the customer demand.

Over the years, Nestle has become one of the leading parent brands with successful divisions under its name. What has made Nestle successful with consumers is that it adapts to different pricing strategies according to the regions its selling and according to the product offered. It gives preference to the demands of its customers and tries to provide the best quality products at different price ranges so that all segments of consumers are able to afford its products, hence, increasing the sales and profits for the company.

Pricing Strategy of Nestle Company - Key takeaways

Nestle was founded in Switzerland by Heinrich Nestle in 1866.

Heinrich originally created Nestle for distributing milk food for newborns and found that it could be created from powdered milk, sugar, and other natural food.

Nestle is a multinational brand with a present net worth of about $270 billion. The success that the brand has is due to its pricing strategy.

Nestle’s pricing strategy is fairly distinctive in contrast with other brands.

Nestle uses various pricing strategies including price skimming, inexpensive and bundles pricing strategy, penetration pricing strategy, stock keeping units, psychological pricing strategy, discounts, and competitive pricing strategy.

Howandwhat, https://howandwhat.net/marketing-mix-nestle/

The Strategy Watch, https://www.thestrategywatch.com/pricing-strategy-nestle/

Price intelligently, https://www.priceintelligently.com/blog/bid/182007/6-must-read-pricing-strategy-quotes

StuDocu, https://www.studocu.com/my/document/tunku-abdul-rahman-university-college/pricing strategy/bbdt3193-pricing-strategy-for-the-company-nestle/18242524

Studymode, https://www.studymode.com/essays/Nestle-Pricing-Strategy-1058790.html

Iide, https://iide.co/case-studies/nestle-marketing-strategy/

Iide, https://iide.co/case-studies/marketing-mix-of-nestle/

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Frequently Asked Questions about Pricing Strategy of Nestle Company

What are the strategies of Nestle company?

What are the 5 pricing strategies?

Five major pricing strategies including price skimming, inexpensive and bundles pricing strategy, penetration pricing strategy, psychological pricing strategy, and discounts.

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Understanding your options: Proven pricing strategies and how they work

“The single most important decision in evaluating a business is pricing power,” Warren Buffet, CEO Berkshire Hathaway, once said. “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

As the quote reflects, pricing is the most powerful lever for driving or destroying the operating margins of a company. In our experience, effective pricing strategies and tactics can deliver a 2 to 7 percent increase in return on sales.

In an analysis of hundreds of companies and pricing approaches, we found four pricing strategies that deliver sustainable results (see Exhibit 1). Not every strategy will be relevant or even feasible for every company – much depends on the market context, the business strategy, and your own capabilities. Still, we’ve found that periodically reviewing strategic options is helpful in challenging established thinking and sparking new ideas about how to approach pricing.

A. Margin Expanders

For many companies in mature markets where there is heavy competition, the prudent and realistic pricing strategy involves small, incremental steps to improve margins, usually within the existing segments, products, and pricing structure. This can mean expanding margins through small regular price increases, defending against unnecessary giveaways, segmenting the offering, applying surcharges, passing on changes in cost to serve, and pricing in additional sources of value (e.g., service).  This approach allows companies to expand their profitability over time without disrupting competitive dynamics or customer expectations. To succeed, margin expanders must have clear insight into margin leakage (i.e., where, when, and how the “pennies roll off the table” and what the impact of that is) and relentless discipline in rectifying the issue.

Example—Dow Corning: Price and brand differentiation.

In the late 1990s and early 2000s, the silicone industry was seeing declining margins due to commoditization, unfavorable changes in legislation, and increased competition. As the company’s web site explains, Dow Corning did a deep analysis of their customer segments and discovered a large and emerging group of price-sensitive customers who were pulling prices down. Instead of succumbing to price pressure, Dow Corning introduced a different brand (Xiameter) with different service levels, different customer experience and lower price points. The tiered pricing and positioning strategy allowed Dow Corning to target a much broader part of the market while protecting the profits of its existing offering. 1

B. Pricing Disrupters

Companies in new categories or in categories under significant threat often look to bolder, disruptive pricing strategies to define or defend their business model. These approaches are often founded in a belief that more value can be unlocked for the customer and the supplier through a new model that reduces the downside or increases the upside for either party. These models can include profit sharing with customers, pricing agreements that factor in risk (e.g., cost-of-materials triggers), and changes in the unit sales model (e.g., per hour of use vs. per box). To succeed with this strategy, companies need to conduct in-depth analytics and model scenarios to understand the range of outcomes for both sides. In addition, they need to be thoughtful about how to manage the downside, how competitors will respond (disruptors can face dramatic reactions from competitors), and what to do if / when others follow suit. Companies can gain an early advantage by disrupting the pricing model, but keeping that advantage can be difficult.

Example—BASF: Change in business model by moving to a pay-for-results pricing model

BASF, like many of its competitors, used to sell car paint at a price per gallon to OEMs and automotive dealerships. Quite naturally, workshops wanted to keep paint consumption at a minimum to reduce costs, which led to lower-quality paint jobs, reflecting poorly on the customer and, by extension, on BASF. As BASF’s web site details, the company decided to go from being a paint supplier for automotive OEMs to a solutions partner with its customers to improve the final product, so they moved from price per gallon to price per painted car. Taking over the OEM’s paint shops to deliver painted cars also removed a distraction from the customers’ core business, allowing the car-painting process to become better managed. The impact? With the new pricing model, BASF reduced paint consumption per car by 20 percent and saw 20 percent higher margins and a 40 percent increase in its European market share.

C. Revenue Drivers

Pricing improvements that focus on growing revenue look at the pricing strategy as an enabler to bring in more business and drive deeper penetration in the existing customer base. This can mean providing introductory offers to bring in new customers, subscription models to build on an installed base, contracting to extend the lifetime value of a customer, and bundling to increase revenue per customer. Success in this model requires maintaining profitability (i.e., not giving away too much), keeping churn low, managing customer acquisition costs, and monitoring competitive dynamics to avoid price or share wars. “Freemium” pricing has quickly emerged as a popular pricing model in online service offerings. With the Internet pushing the marginal cost of content distribution close to zero, and a large number of new players competing for users, freemium pricing (giving the basic offering for free and charging for a premium version or additional content) has quickly caught on.

Example—Expensify: Freemium subscription model enabled fast market penetration.

Expensify, an online expense-reporting and management system established in 2008, uses a subscription model offering customers 10 free scans per month for its receipts-scanning and transaction-organizing service. Users can elect to upgrade to one of the tiered subscription models based on their needs. The service became hugely successful; by 2012 Expensify was used by over 100,000 companies.

D. Sales and Pricing Pioneers

Perhaps the most radical pricing strategy is to go after large-scale sales growth and radical margin change simultaneously. This is about more than just finding a new channel or replicating an established model from another sector; it’s a new way of thinking about pricing. Sales and Pricing Pioneers drive top-line growth by implementing completely different ways of working to find new pockets of growth and value, such as introducing new services or new business models that integrate new portions of the value chain. This approach is most often used in relation to new technological advances (e.g. tablets, apps, cloud computing) with the potential to disrupt the business environment. To succeed in this model, companies need to pay constant attention to balancing the objectives of sales growth with margin attainment while making selective adjustments to strategy when necessary.

Example: Rolls-Royce: New software advances to lure risk-averse customers.

The term “power-by-the-hour” first appeared in aircraft engine vocabulary in the 1960s. Rather than selling capital-intensive engines, Rolls Royce sold airlines “power-by-the-hour” contracts that charged a fee for every hour a plane flew. According to the company’s annual reports, it was an answer to the airlines’ capital shortage and its frustration with unpredictable service costs. It was a win for airlines since the more the plane flew, the more revenue they earned. Rolls Royce considered it a win, too, since the company had bolstered aircraft engine performance by acquiring software companies to collect cockpit data and monitor engines, allowing them to develop predictive maintenance technologies that kept aircraft flying more. In addition, Rolls Royce differentiated its services, offering four packages with increasing degrees of service. According to the company’s annual reports, the bundled solution increased customer loyalty with a more tailored offering (“Pay only for what you want”). This radical approach to pricing provided the company with underlying services revenue growth of 9 percent per year between 2004 and 2011 and led to a greater than 30 percent improvement in average time between engine removals.

Moving up the curve

While these four models show different pricing strategies, which strategy to choose depends on the depth of a company’s commercial capabilities, its customers, the marketplace, and the appetite for risk.

We have found that companies generally progress along three phases of a maturity curve, each with its own set of goals and necessary capabilities:

• Phase 1: Ticket to play. These companies have emerging-to-strong analytic capabilities that help them form and execute against a pricing strategy. They are aware of the pricing situation in the market and understand the pricing schemes of their competitors and of companies they aspire to emulate. This basic competitive intelligence, however, does not necessarily extend deeply into pricing, and companies at this level rarely have experts dedicated to pricing analytics and insights about pricing behaviors.
• Phase 2: Pushing the boundaries. Here companies are masters of the traditional pricing model and are experimenting with new variations—bundling, segmented offers, partnerships, etc. This approach requires more sophisticated capabilities and tools that move beyond analysis to developing even more granular views of prices and needs by product, customer, channel, and region. Those insights feed into product development, marketing messages, sales-force quotas, and overall company aspirations. These companies have instituted a systematic process for reviewing deal wins and losses, checking competitor pricing, understanding what customers want, and making the necessary price adjustments. Their pricing teams push to understand what is driving the customer. An effective organization in this phase has cross-functional teams who meet at least monthly to discuss pricing, analyze historical data, and decide on actions to take based on the insights derived from analysis
• Phase 3. Pioneering new models. Companies at this level have stretched the traditional pricing model as far as they can (or want to), and have decided to differentiate themselves with a new model. This requires a common commitment to the importance of pricing, dedicated pricing leaders, well-defined pricing processes, and performance management that supports those goals. These more innovative companies embrace a test-and-learn approach, where new pricing models are quickly tested on the front lines, results reviewed, and adjustments made. They understand that innovation doesn’t happen in a vacuum so they invest in experiments, learn from them, and develop a comfort with failure. In many cases, there are dedicated and nimble cross-functional teams tasked with driving innovation. When ready to commit to a new opportunity, for example, these companies are able to identify and secure the necessary talent (either from within the organization or outside) and get them on the job quickly. Speed and action are at the heart of these organizations.

Companies considering evolving and deepening their pricing capabilities need to understand how pricing fits into the business’s overall strategy. Only at that point does it make sense to evaluate various pricing models and develop a forward-thinking commercial organization that sets prices, and doesn’t just take them.

• Gary, Loren, " Dow Corning's Big Pricing Gamble ," Harvard Business School, Mar. 7, 2005.

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Hacking the Case Interview

Pricing consulting cases are one of the most common types of case interviews. You will most likely see at least one pricing strategy case in your upcoming interviews.

A pricing case interview may look something like the following:

Apple is about to launch their latest version of the iPhone. What is the optimal price that they should set for this new product?

Fortunately, pricing cases follow a predictable pattern. Once you have practiced a few pricing cases, you should be able to solve any pricing case interview.

In this article, we’ll cover:  

• A comprehensive pricing case interview framework
• The 7 steps to solve any pricing case interview
• A full-length pricing case interview example
• Recommended pricing case interview resources

If you’re looking for a step-by-step shortcut to learn case interviews quickly, enroll in our case interview course . These insider strategies from a former Bain interviewer helped 30,000+ land consulting offers while saving hundreds of hours of prep time.

Pricing Case Interview Framework

The best pricing case interview framework looks like the following:

The framework starts by looking more closely at the company and product. Understanding the company and product better will help you get a sense for how you should be pricing the product.

Afterwards, the framework covers the three different ways to price a product or service. We’ll cover each of these pricing strategies in detail so you can fully understand how to use this framework. You’ll likely use a combination of all three of these strategies to solve a pricing consulting case.

• Pricing based on costs

The simplest way to price a product is to look at the costs to produce a product and set a higher price. If the company has a specific profit margin figure in mind, they can set a price to reach their profit margin goals.

Example: If it costs Apple $200 to produce their iPhone and they are aiming for at least a 20% profit margin, they would need to price their iPhone for at least $240.

Pricing based on costs ensures that the company will be profitable from selling the product. It does not make sense to price a product lower than its costs because the company would be losing money on each sale.

Pricing based on costs sets the lower end of the pricing range you should consider.

• Pricing based on value provided

Pricing based on value provided is the most complex way of pricing. To price a product using this strategy, you need to identify all of the benefits that the product provides and quantify how much value these benefits provide to customers.

This will equal the customer’s maximum willingness to pay. For example, if a product provides $800 of value to the customer, they will not be willing to pay more than $800 for it. It does not make sense to price the product for more than this because no customers would buy it.

Example: The iPhone provides various benefits such as entertainment, productivity, communication, and status. If customers get $300 of value from entertainment, $200 of value from productivity, $400 value from communication, and $100 value from status, customers would be willing to pay a maximum of $1,000.

Pricing based on costs helps set the upper end of the pricing range you should consider.

• Pricing based on competition

Pricing based on competition will help you determine where in between your lower and upper range of prices you should price your product for. To price based on competition, you will need to identify competitor products that are substitutes for your product.

Pricing based on competition is based on two factors, the price that competitors set for their product and the customer’s maximum willingness to pay for their products.

The difference between these two numbers is the amount of value the customer captures from purchasing the competitor’s product. In economics terms, this is known as consumer surplus.

In order for customers to purchase your product, you will need to give customers more value than they get from purchasing a competitor’s product.

Example: Apple’s main competitor, Samsung, has a competing smartphone that they are selling for $400. This product provides customers a value of $600 from the benefits it provides. Therefore, customers get $200 in value from purchasing this product.

If Apple’s customers get a value of $1,000 from purchasing an iPhone, Apple will need to give customers at least $200 of value to make customers purchase an iPhone instead of a Samsung smartphone. Therefore, Apple can charge a maximum of $800 for their iPhone.

The 7 Steps to Solve any Pricing Case Interview

1. Understand the goal or objective of the company

The first step to solving any pricing strategy case interview is to determine the goal or objective of the company.

Most of the time, the company is looking to price a product to maximize profits. However, there are times when a company may be looking to maximize revenues, market share, or number of customers.

Your pricing strategy will differ tremendously based on the company’s specific goals. Therefore, it is important that you understand what the company’s exact goals are.

2. Develop a framework

Next, develop a framework to help you structure your approach to solving this pricing case.

Depending on how much context of the company or product that you have, you may also need to understand the company or product better. These could be the first one or two areas of your framework.

The rest of your framework should include the three different pricing strategies we have covered:

Make sure to walk the interviewer through your framework to see if they agree with your approach. They may provide feedback or offer a few suggestions.

3. Determine the minimum price point

Using the pricing based on costs strategy, determine what the minimum price point of your product should be. Remember, price needs to be greater than costs in order for the company to achieve a profit.

4. Determine the maximum price point

Next, use the pricing based on value provided strategy to determine what the maximum price point of your product should be.

Identify all of the benefits that the product provides customers. Then, quantify these benefits into a dollar value. The sum of the value of the benefits represents the customer’s maximum willingness to pay.

5. Determine the optimal price point

Afterwards, use the pricing based on competition strategy to determine which price point between your lower and upper price points is optimal.

Identify competitor products that are substitutes for your product. Quantify the benefits that competitor products provide customers and compare that to the prices they are set at.

The difference between these two values is the minimum amount of value that you need to give to customers in order for them to want to purchase your product.

6. Consider additional pricing factors

Now that you have an idea for the optimal price, you can consider additional pricing factors:

• Are there additional products that the company can cross-sell or up-sell?
• Can different versions of the product be sold at different price points?
•  How do you think competitors will respond to your pricing decisions?

All of these considerations may change the price point that you set.

• If you can cross-sell or up-sell additional products, you may be willing to lower the price of your product further if it means generating more overall profits
• If there are multiple customer segments with different needs and willingness to pay, it may make sense to have multiple versions of the product to sell at different price points
• If you set a price that undercuts competitors, they may also cut prices to compete with you. Therefore, you should anticipate the consequences of the price point that you set

For simple pricing cases, you may not need to look at any of these considerations. However, more complex pricing cases may require you to think more creatively or thoroughly on what other factors may dictate the price point the company should set.

7. Deliver a recommendation

At the end of the pricing case interview, you’ll synthesize all of the work you have done to deliver a clear, concise recommendation.

You should try to structure your recommendation in the following way:

• Recommend the optimal price point or price range
• Provide the two to three reasons that support this
• Propose next steps

Next steps can include areas of your framework that you have not covered yet, additional pricing considerations, or any open questions that you don’t have answers to.

If you can’t think of next steps, ask yourself what you would need to know to make you more confident in your recommendation. This is a helpful way to generate ideas for next steps.

Pricing Case Interview Example

Watch the video below for a comprehensive example of a pricing case interview. This example came from BCG’s interactive case interview library.

For more practice, check out our article on 23 MBA consulting casebooks with 700+ free practice cases .

In addition to pricing case interviews, we also have additional step-by-step guides to: profitability case interviews , market entry case interviews , growth strategy case interviews , M&A case interviews , operations case interviews , marketing case interviews , and private equity case interviews .

Recommended Consulting Interview Resources

Here are the resources we recommend to land your dream consulting job:

For help landing consulting interviews

• Resume Review & Editing : Transform your resume into one that will get you multiple consulting interviews

For help passing case interviews

• Comprehensive Case Interview Course (our #1 recommendation): The only resource you need. Whether you have no business background, rusty math skills, or are short on time, this step-by-step course will transform you into a top 1% caser that lands multiple consulting offers.
• Case Interview Coaching : Personalized, one-on-one coaching with a former Bain interviewer.
• Hacking the Case Interview Book   (available on Amazon): Perfect for beginners that are short on time. Transform yourself from a stressed-out case interview newbie to a confident intermediate in under a week. Some readers finish this book in a day and can already tackle tough cases.
• The Ultimate Case Interview Workbook (available on Amazon): Perfect for intermediates struggling with frameworks, case math, or generating business insights. No need to find a case partner – these drills, practice problems, and full-length cases can all be done by yourself.

For help passing consulting behavioral & fit interviews

• Behavioral & Fit Interview Course : Be prepared for 98% of behavioral and fit questions in just a few hours. We'll teach you exactly how to draft answers that will impress your interviewer.

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Pricing plays a crucial role in a company's profitability as it directly contributes to it. For this reason, establishing optimal prices for products or services is of great importance. Business consultants therefore assist their clients in developing pricing strategies.

A case study on pricing is an analysis focusing on the pricing of a product or service. It can stand alone or be part of a broader case, such as entering a new market .

In a case interview , you can approach this case type in three steps:

1. Investigate The Company

At the outset of your case, you should gain a solid understanding of your client's business model .

• What products does the company sell and where does the company stand in the market? For instance, is the company a market leader? In terms of volume or quality or both?
• What is the company’s key objective? Profits? Market share? Growth ? Brand positioning? Make sure to clarify the objective before starting the analysis.

2. Investigate The Product

After familiarizing yourself with the company's business model, it's time to learn more about the product . When examining the product, it's important to pay attention to the following aspects:

• Product differentiation: Analyze how the client's product differs from those of competitors. Explore not only the product's features but also its production processes and methods.
• Unique Selling Proposition (USP): Identify the unique selling point of the product. What makes it unique and attractive to potential customers?
• Alternatives and substitutes: Consider alternative or substitute products in the market as well. How do they compare to the client's product?
• Product lifecycle : Determine the stage of the product lifecycle. This can influence the pricing and marketing strategy.
• Predictability of supply and demand : Examine whether supply and demand for the product are predictable. This can help assess risks in pricing and take appropriate measures.

Once you've thoroughly assessed these aspects, you'll have a clearer understanding of the product and its positioning in the market, which will inform your pricing strategy recommendations.

3. Choose a Pricing Strategy

The choice of strategy depends on the information gathered in the first two steps. There are three important pricing strategies:

(1) Competitor-based pricing ( Benchmarking ): With this strategy, the price is determined based on the prices set by our competitors. So, you want to find out:

• Are there comparable products/services?
• If yes, how do they compare to the client's product?
• What are their prices? Important: Keep in mind that competitors are likely to adjust their prices once the client introduces their product.

(2) Cost-based pricing:

With cost-based pricing, the price of a product or service is set based on the accumulated item costs (break-even) plus a reasonable profit margin. This strategy varies by industry due to different cost structures and margins. Therefore, it's important to understand the specific customer costs before setting a price (taking into account fixed and variable costs ).

Although cost-based pricing offers a simple and transparent method, it does not consider the perceived value of the product or service to customers and may be less effective in certain markets. To determine customer willingness to pay, it's important to consider this and possibly break down the price into different components, such as a separate price for the product and delivery costs.

(3) Value-based pricing:

Value-based pricing is a strategic approach based on assessing the customer's perception of the product or the amount customers are willing to pay. Different customer segments may have different willingness to pay . This means that companies can set different prices for different customer segments by adjusting the perceived value to justify price changes.

A good example of this is the iPhone, a highly differentiated product for which customers are often willing to pay significantly more than the pure costs plus a "typical" margin. This illustrates how customers are inclined to accept a higher price for products they perceive as particularly valuable or differentiated .

Key Takeaways

From what we've learned previously, we can now extract the following insights as key takeaways:

• There are three key pricing strategies: Competitor-based pricing, cost-based pricing, and value-based pricing . Cost-based pricing alone is sometimes considered insufficient.
• Understand the primary objective of the company (profit, market share, growth, brand positioning) as the basis for the pricing strategy.
• Know the business model, products/services, and market position of the company and consider it in your strategic approach.

Understand the customers' willingness to pay and needs, and adjust the pricing strategy to customer preferences and market conditions.

You Are Looking for More Pricing Cases to Practice with?

Check out our recommended resources or browse the Case Library for all cases on this topic.

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The pricing strategy guide: Choosing pricing strategies that grow (not sink) your business

Choosing the pricing strategy for your business requires research, calculation, and a good amount of thought. Simply guessing may put you out of business. Here's what you need to know.

Definition of pricing

What are pricing strategies.

• Importance of pricing strategy

Top 7 pricing strategies

• 3 real-world examples
• How to create your strategy
• Determine value metric
• Customer profiles & segments
• User research & experiments
• Bonus: 10 data-driven tips
• Industry differences
• Final takeaway

Pricing strategies FAQs

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Too many businesses set their pricing without putting much thought into it. This is a mistake causing them to leave money on the table from the beginning. The good news is that taking the time to get your product pricing right can act as a powerful growth lever.  If you optimize your pricing strategy so that more people are paying a higher amount, you'll end up with significantly more revenue than a business who treats pricing more passively. This sounds obvious, but it's rare for businesses to put much effort into finding the best pricing strategy.

This guide will cover everything you need to know about setting a pricing strategy that works for your business. 

Check out this introduction video made by the Paddle Studios team.

Price Intelligently is Paddle’s dedicated team of pricing and packaging experts for SaaS and subscription companies. We combine unrivaled expertise and first-party data to solve your unique pricing challenges, break the mold, and catapult your growth.  Learn more

Pricing is defined as the amount of money that you charge for your products, but understanding it requires much more than that simple definition. Baked into your pricing are indicators to your potential customers about how much you value your brand, product, and customers. It's one of the first things that can push a customer towards, or away from, buying your product. As such, it should be calculated with certainty.

Pricing strategies refer to the processes and methodologies businesses use to set prices for their products and services. If pricing is how much you charge for your products, then product pricing strategy is how you determine what that amount should be. There are different pricing strategies to choose from but some of the more common ones include:

• Value-based pricing
• Competitive pricing
• Price skimming
• Cost-plus pricing
• Penetration pricing
• Economy pricing
• Dynamic pricing

Pricing is an underutilized growth lever

Many companies focus on acquisition to grow their business, but studies have shown that small variations in pricing can raise or lower revenue by 20-50%. Despite that, even among Fortune 500 companies, fewer than 5% have functions dedicated to setting the best price possible. There's a missed opportunity in the business world to see immediate growth for relatively little effort. 

Navigating PLG billing and pricing? Read our latest guide on product-led SaaS

Because most businesses spend less than 10 hours per year thinking about pricing, there's a lot of untapped growth potential in optimizing what you charge. In fact, choosing the best pricing method is a more powerful growth lever than customer acquisition. In some cases, it can be up to 7.5 times more powerful than acquisition. 

The importance of nailing your pricing strategy

Having an  effective pricing strategy  helps solidify your position by building trust with your customers, as well as meeting your business goals. Let's compare and contrast the messaging that a strong pricing strategy sends in relation to a weaker one.

A winning pricing strategy:

• Portrays value

The word cheap has two meanings. It can mean a lower price, but it can also mean poorly made. There's a reason people associate cheaply priced products with cheaply made ones. Built into the higher price of a product is the assumption that it's of higher value.

• Convinces customers to buy 

A high price may convey value, but if that price is more than a potential customer is willing to pay, it won't matter. A low price will seem cheap and get your product passed over. The ideal price is one that convinces people to purchase your offering over the similar products that your competitors have to offer.

• Gives your customers confidence in your product 

If higher-priced products portray value and exclusivity, then the opposite follows as well. Prices that are too low will make it seem as though your product isn't well made.

A weak pricing strategy:

• Doesn't accurately portray the value of your product

If you believe you have a winning product, and you should if you are selling it, then you need to convince customers of that. Setting prices too low sends the opposite message.

• Makes customers feel uncertain about buying

Just as the right price is one that customers will pull the trigger on quickly, a price that's too high or too low will cause hesitation.

• Targets the wrong customers

Some customers prefer value, and some prefer luxury. You have to price your product to match the type of customer it is targeted towards.

Let's now take a closer look at the seven most common pricing strategies that were outlined above with more from Paddle Studios .

Click on any of the links below for a more in-depth guide to that particular pricing strategy.

1. Value-based pricing

With value-based pricing, you set your prices according to what consumers think your product is worth. We're big fans of this pricing strategy for SaaS businesses.

2. Competitive pricing

When you use a competitive pricing strategy, you're setting your prices based on what the competition is charging. This can be a good strategy in the right circumstances, such as a  business just starting out , but it doesn't leave a lot of room for growth.

3. Price skimming  

If you set your prices as high as the market will possibly tolerate and then lower them over time, you'll be using the price skimming strategy. The goal is to skim the top off the market and the lower prices to reach everyone else. With the right product it can work, but you should be very cautious using it.

4. Cost-plus pricing 

This is one of the simplest pricing strategies. You just take the product production cost and add a certain percentage to it. While simple, it is less than ideal for anything but physical products.

5. Penetration pricing

In highly competitive markets, it can be hard for new companies to get a foothold. One way some companies attempt to push new products is by offering prices that are much lower than the competition. This is penetration pricing. While it may get you customers and decent sales volume, you'll need a lot of them and you'll need them  to be very loyal  to stick around when the price increases in the future.

6. Economy pricing 

This strategy is popular in the commodity goods sector. The goal is to price a product cheaper than the competition and make the money back with increased volume. While it's a good method to get people to buy your generic soda, it's not a great fit for SaaS and subscription businesses.

7. Dynamic pricing 

In some industries, you can get away with constantly  changing your prices  to match the current demand for the item. This doesn't work well for subscription and SaaS business, because customers expect consistent monthly or yearly expenses.

Three real-world pricing strategy examples

Real-world pricing strategy examples are the best way for a business to better understand the above-listed pricing strategies. Evaluating other businesses' approaches can be a good starting point but keep in mind that the right pricing strategy is based on math, market research, and consumer insights. For now, let’s look at the pricing strategy examples of some of the biggest brands of today: 

1. Streaming services 

Have you noticed that you pay roughly the same amount for Netflix, Amazon Prime Video, Disney+, Hulu, and other streaming services? That's because these companies have adopted competitive pricing , or at least a form of it, called  market-based pricing .

2. Salesforce

When Salesforce first came out, they were the only CRM in the cloud. (It wasn't even called 'the cloud' back then!) Armed with ground-breaking deployment and a target customer of a large enterprise, Salesforce could charge what they wanted. Later, after they'd grown, they were able to lower prices so small businesses could sign up. This is a classic example of  price skimming . 

3. Dollar Shave Club

At one time, you couldn't turn on your TV without an ad for Dollar Shave Club telling you how much cheaper they were than razors at the store. Although an aggressive  marketing strategy  and advertising like that is unusual for the pricing model, they were nevertheless employing economy pricing. It worked out well for them. They were acquired by Unilever in 2016 for a reported $1 billion.

How to create a winning pricing strategy

In the beginning, the actual number you're charging isn't that important.

There are some exceptions, but for the most part, you should first be figuring out the range you're in: a $10 product, $100 product, $1k product, etc. Don't waste time debating $500 vs. $505, because this doesn't matter as much until you have a stronger foundation beneath you.

Instead, understanding the following is much more important:

• Finding your  value metric
• Setting your ideal  customer profiles and segments
• Completing  user research + experimentation

This video from Paddle Studios goes deep on mastering a winning pricing strategy.

Step 1: Determine your value metric

A “ value metric ” is essentially what you charge for. For example: per seat, per 1,000 visits, per CPA, per GB used, per transaction, etc. 

If you get everything else wrong in pricing, but you get your value metric right, you'll do ok . It's that important. Partly because it bakes lower churn and higher expansion revenue into your monetization.

A pricing strategy based on a value metric (vs. a tiered monthly fee) is important because it allows you to make sure you're not charging a large customer the same as you'd charge a small customer.

If you remember your high school or college economics class, the professor put a point on a demand curve for the perfect price and said “the revenue a firm gets is the area under that point.” The problem here is: what about all that other area under the curve?  You’re missing out on that revenue by charging a flat monthly fee.

“Good, better, best” pricing strategy is a bit more advantageous, because you end up with three points on our trusty demand curve, and thus more revenue potential. You see this problem among many eCommerce businesses and retailers whose products are constrained by being physical goods—the car with the basic package vs. the car with the stereo and sunroof vs. the car with everything. In software, it’s thankfully dying out, but you’ll still see it with mass-market products:  Netflix, Adobe Creative Cloud, etc.

A value metric, however, allows you to have essentially infinite price points—maximizing your revenue potential. In practice, you’ll never show infinite price points on your pricing page , sales deck, or mobile conversion page, but you may have a new customer come in at a certain level and then grow.

Value metrics also bake growth directly into how you charge because as usage or the amount of value received goes up (and those are not the same thing), the customer pays more. If they end up using or consuming less, they pay less (and thus avoid churning). This is why companies using value metrics are typically growing at  double the rate with half the churn and 2x the expansion revenue  when compared to companies that charge a flat fee or where the only difference between their pricing tiers are features.

To determine your value metric, think about the  ideal essence of value  for your product—what value are you directly providing your customer?

In B2B, it's likely going to be money saved, revenue gained, time saved, etc. In  DTC , it may be the joy you bring them, fitness achieved, increased efficiency, etc. Obviously, we can't measure all of these, but if you can,  and  your customer trusts your measurement (meaning you say you saved them $100 and they agree you saved them $100), that’s your value metric.

As an example, the perfect value metric for  Paddle Retain  (our churn recovery product) is how much churn we recover for you. We can measure this, and our customers agree to the measurement, so we can charge on that axis. Other pure value metric products include  MainStreet , which handles government paperwork to automatically get you back tax credits—you pay a percentage of the money saved.

Most of you won't have a pure value metric, so the next step is to find a proxy for that metric. Take for example  HubSpot ’s marketing product. Their pure value metric is the amount of revenue their tool drives for your business. This is hard to measure and hard for the customer to agree to in terms of what percentage of credit HubSpot deserves for revenue from a blog post. Proxies for HubSpot are things like the number of contacts, number of visits, number of users, etc.

To find the right proxy metric, you want to come up with 5-10 proxies and then talk to your customers and prospects. You’ll typically find 1-2 of these pricing metrics will be most preferred amongst your target customers. You then want to make sure those 1-2 also make sense from a growth perspective. Your larger customers should be using/getting more of the metric, whereas your smaller customers should be using/getting less of the metric. You also want to make sure the metric encourages retention.

When we look at HubSpot, if they were to primarily price on “number of seats”, folks could share a login and HubSpot wouldn’t make much more money on large customers vs. small. Ironically they wouldn’t get as many people invested in HubSpot, because there’d be friction to adding additional seats. Instead, if they give unlimited seats and price based on “number of contacts” there’s minimal friction to getting as many people into HubSpot as possible to do activities (e.g., blog posts,  email campaigns , landing pages, etc.) that then produce contacts.

The result: HubSpot’s marketing product’s value metric is “contacts”, which ensures growth is baked directly into how they make money. The usage drives the metric, which therein drives revenue. Most importantly customers small, medium, and large are all paying at the point they see the value and then can grow.

Some other examples:

• Wistia  charges by the number of videos or channels you use/have
• Zapier  invented the concept of zap (connection of software) and charge based on time to connect
• Theater in Barcelona charged based on the number of laughs
• Husqvarna  charges based on time for lawn care products vs. making you buy them
• Rolls Royce  charges per mile for airplane engines. They own the engines on the plane you own and do all the maintenance. Cool model.
• Fresh Patch  charges based on the amount of grass you want per month for your dog—yes they deliver grass to you monthly

As a side note, you should stop pricing based on seats for products where each seat doesn’t provide a unique experience. For instance, imagine you're an AE using a CRM. If you log into the account of the AE sitting next to you, you can’t really do your work because you are only seeing their leads and accounts. Conversely, if you were a marketing exec and were to log in to another marketing manager’s account in HubSpot, you could do all the work you need to. Thus, for the latter, seats are not the right value metric.

Per-seat pricing is a relic of the  perpetual license  era when we couldn’t measure usage or value enough within our products. We’re beyond that point, so use the above as a good litmus test.

Step 2: Determine your customer profiles and segments

The second key component of your pricing strategy is determining your target segment and ideal customer profile. We've all heard about personas, and you may be rolling your eyes at the concept, but most personas are useless because they aren’t quantitative enough. When used properly, quantified personas and segments are beautiful tools. The information needs to go beyond just cute names like “Startup Steve" with a cute avatar, and cute meetings where people tell you they’re targeting "developers."

To get quantified personas, you need to pull out a spreadsheet.  Here’s a template  you can use.

1. Columns: Customer profiles you're targeting

These can take many forms, but the ultimate goal is to be as specific as possible so that you not only know who you’re targeting but how to monetize and retain them. Pragmatically, you typically separate these customer profiles based on size or role (or both). For example, a marketing automation product may target the following profiles:

• Marketing leaders (Director and higher) at companies $1M to $10M
• Marketing leaders (Director and higher) at companies $10.01M to $50M
• Marketing leaders (Director and higher) at companies $50.01M to $100M

The point is you can’t be everything to all people and you need to understand who you’re targeting in order to make better decisions.

2. Rows: Characteristics of each profile to help you differentiate between them

• Most valued features
• Least valued features
• Willingness to pay
• Lifetime value (LTV)
• Customer acquisition costs (CAC)
• ... and any other metric or category you think could be useful

If you're just starting out or you don't have some of this data, it’s fine. Still fill it out though with your hypotheses. You know  something  about your customers.

Next, you then need to validate (or invalidate) the most pressing hypothesis in that spreadsheet based on the decisions you’re going to make. If you're going to validate a new feature for a particular segment, then that's where you should start. Price point the biggest question? Start by researching the price point with each of these roles/segments.

If you don't know who your key roles/segments are, there's no way in hell you’ll set up an efficient growth flywheel, let alone an optimized pricing strategy. Personas act as a constitution within your business to centralize your focus and arguments about direction.

If you don't do segment and persona analysis, you better be able to raise a ton of money. I guarantee you there's some persona or segment on some vision document or in that euphoric part of your entrepreneurial brain that is completely wrong for your business. I see it all the time. Even I—someone who thinks about segments and customer research all the time—fall prey to being an absolute idiot with who we should target.

When we built  ProfitWell Metrics (our free subscription metrics tool) I thought we were geniuses who were going to be billionaires. Turns out analytics products are terrible. Willingness to pay for them is terrible; retention for them is terrible; NPS is terrible. Everything is just terrible, mainly because customers don't appreciate graphs or at least aren't willing to pay much for them. When we did our research this became obvious and put us 18 months ahead of our competitors, pushing us to change up the positioning of the product to freemium, which has fueled our business ever since (oh and our NPS is 70, because we massively over-deliver a free product better than the paid competition).

Never underestimate the power of focusing on the customer through research. You should never, ever just do what they ask, but you need to be an anthropologist who knows them better than anyone else.

Step 3: User research + experimentation

Beyond your value metric and core segments, the monetization game becomes extremely tactical and research-based. Figuring out your price point involves researching those segments and then making decisions in the field. Same with discounting, add-on, and packaging strategies. The point: monetization is never finished because it’s the very essence of translating your value into an optimal framework for your target customer segments.

Practically this is why you should be experimenting with your monetization every quarter. Experimentation can get tricky and have a few quirks, but you’ll find it’s similar to most growth frameworks out there (which are all versions of the scientific method).

Here’s a good prioritization list of what business owners should attack in optimizing their  monetization strategy  once they have the core segments and value metric figured out:

Priority 1: Foundational [see above]

• Core customer segments
• Value metrics

Priority 2: Core

• Order of magnitude price point (are you a $10 product vs. a $500 product)
• Positioning and value props

Priority 3: Optimizations

• Add-on strategy
• Specific price point (are you a $10 product vs. a $11 product)
• Price localization/internationalization
• Discounting strategy
• Contract Term optimization

Priority 4: Growth accelerators

• Market expansion (going up or down market)
• Vertical expansion
• Multi-Product

Your true order of operations with monetization will vary, but for the most part, all companies should work through the foundational and core sections before moving to the optimizations and growth accelerators. If you’re larger or there’s a fire, you may start with an optimization. In fact, this is sometimes a good idea. Something more scoped like “price localization” can help get momentum, be a forcing function to clean up tech and experimentation stacks, and mitigate political conversations. Remember, monetization is something that’s important, uncomfortable, and something you likely don’t know much about, so progress is better than nothing. Start small. You can (and should) always do more.

Bonus: 10 rapid-fire pricing strategy tips rooted in data⚡

In case you're still hungry for more tips on nailing your pricing strategy and achieving maximum profitability, look no further. We've got you covered:

1. You should  localize your pricing  to the currency and willingness to pay of the prospect's region

• Revenue per customer is 30% higher when you just use the proper currency symbol
• Having different price points in different regions increases revenue per customer further, and is justified based on different consumer demands in different regions

2. Freemium is an acquisition model, not a part of pricing

• Think of  freemium  as a premium ebook driving leads, not another pricing tier
• Don't do freemium until you truly understand how to convert leads to customers, because you’ll end up increasing noise or false positives when you’re trying to figure out your segment beachheads. The best folks who deploy free typically don’t implement freemium until two to three years into their business. The exceptions to this notion are if you have a very specific need or network effect (eg., marketplaces, social networks, etc.) or if you have a top 50 growth person on your team.
• To be clear, we're not saying DON’T do freemium. we're saying it's a scalpel, not a sledgehammer that requires thought. A lot of people end up reading our articles on freemium and end up going, “Cool, let’s do freemium and we’ll be a unicorn.” I’m being pragmatic in that you need to realize freemium is fantastic, but doing freemium properly takes a lot of effort and nuance.
• Paid users who convert from free tend to have higher NPS, better retention, and much lower CAC .

3. Value propositions matter oh so much

In B2B value propositions can swing willingness to pay ±20%, in DTC it's ±15%

4. Don't discount over 20%

In some verticals discounting over 20% may be fine, but you're likely not in one of them (although you may think you are), but the size of the discount almost perfectly correlates with higher churn. Large  discounts  get people to convert, but they don't stick around.

5. For upgrades to annual discounts, don't use percentages and try offers

Percentages don't work as well as whole dollar amounts for discounts (ie., "one month" will work better than "X percent off"). Annuals see much lower churn rates.

6. Should you end your price in 9s or 0s? Depends on your price point

Ending your prices in 9s evokes a discount brand, making the customer feel like they're getting something. Ending in 0 evokes luxury or premium, making them feel like they're getting a high-end product. Studies on this for technology products are inconclusive. We have seen it increase conversion in lower-cost products, but retention isn't as good with those customers.

7. You should experiment with your pricing in some manner every quarter

This doesn't mean change you should the price point each quarter, but experiment with variable costs. More changes correlate with increasing revenue per customer. Like all things, focusing on something makes you improve it.

8. Case studies boost willingness to pay quite a bit

Social proof is important.  Case studies  that offer proof of the high quality of your products can boost willingness to pay by 10-15% in both B2B and in DTC.

9. Design helps boost willingness to pay by 20%

This graph didn't look this way 10 years ago when design didn't do much for willingness to pay. Today, affinity for a company's design can boost willingness to pay considerably.

10. Integrations boost retention and willingness to pay

The more integrations a customer is using, typically the higher their willingness to pay and the better their retention. I wouldn't charge for the integrations, but I'd use this as a tool to get people hooked in and paying more or buying different add-ons.

Pricing strategies for different industries

Pricing strategies are not one size fits all. Finding the proper pricing strategy is dependent on your industry, as well as your company's unique objectives. But to give you an idea, we've listed a couple of industries and strategies that are well suited for each other. 

SaaS/Subscriptions

For SaaS and subscription-based businesses, value-based pricing is the winner hands down. As long as your customers are willing to pay, you can charge much more than your competitors.  Because your price is based on how much customers will spend, it isn't artificially lowered like other methods that fail to account for that. 

We also like value-based pricing for B2B companies. Value-based pricing requires you to look outward and understand your customers better. This is good for finding the optimal price, but it's also good for building optimal relationships that will also help grow your company. 

No more price guessing, just pricing that works

Accurately pricing your product for maximum growth requires a lot of market research and even more expertise on how to conduct and analyze that research. Our Price Intelligently  service combines our years of experience in the field with powerful machine learning tools to understand your target customer base and what makes them tick. We know the data to collect, the questions to ask, and the people to ask them of. This is important because businesses in different stages of growth need different strategies for evaluating pricing. Additionally, every business has a unique set of potential selling points and a unique target audience to pitch to.

You need someone in your corner who knows how to evaluate pricing options for your specific businesses. With our help, you can be confident that your pricing strategy and chosen price points will unlock growth levers at your company that have been sitting idle, because they'll be tailored to finding and maximizing the value propositions that are unique to your business. 

Which pricing strategy is best? 

This depends on your business model. For SaaS and subscription companies, as well as many others, we recommend value-based pricing.

How do you determine the selling prices of a product?

First, find a pricing strategy that fits well with your business model and product. As you've seen, pricing strategies differ, but they all give clear instructions for how to use them to set prices.

What is the simplest pricing strategy?

Since you only need to add up the cost to make your product and add a percentage to it, cost-plus pricing is the simplest form of pricing to use.

What is a pricing curve?

A pricing curve is a graph that shows you the number of people who are willing to pay a given price for a product.

What are the 4 major pricing strategies?

Value-based,  competition-based , cost-plus, and  dynamic pricing are all models  that are used frequently, depending on the industry and business model in question.

Related reading

Pricing case interviews

An overview of the different types of pricing case interview questions with a full wallkthrough of a pricing case question from an ex-mckinsey & company business analyst..

, ex-McKinsey & Company, Founder at Forkright Published: August 25, 2021 | Last updated: March 28, 2024 Example pricing cases | Pricing frameworks | Full case example Amongst the many archetypes of case interview questions – such as profitability case interviews and market sizing case interviews, discussed in other Rocket Blocks blog posts -- pricing case interviews are one style that come up time and time again. The high-level goal of a pricing question is to use a variety of data to triangulate the optimal price for a client’s offering, or to explain why a given price may be suboptimal. There are three common formats for pricing drills, one of which you are reasonably likely to come across as you march your way through the dozens of interviews often required to land an offer: Set a price for a new product, service, or market: These questions take the form of a go-to-market strategy, sometimes involving an extant business unit that is looking to expand its offerings and other times involving the launch of a brand-new business unit or subsidiary. Less commonly, you may be asked to determine pricing for an existing product or service as the client expands into a market where it doesn’t have a presence today – though questions in this format are more likely to touch on pricing as one piece of a broader market entry strategy, with less time and energy spent on pricing strategy alone. Evaluate a proposed change to the price of an existing product or service: These questions are usually anchored to the goal of either growing revenues or expanding margins. Sometimes an interviewer will be more interested in your analysis of price elasticity (i.e., how sensitive demand is to a change in unit price) to determine whether a price increase (or decrease) will successfully grow overall revenues. Other times, the interviewer will be more focused on how you think about price in conjunction with changes in cost – including potential variable cost increases to support a price change (e.g., through increased marketing expense to justify a pricing increase to customers) and fixed cost defrayment as price interplays with volume. Explain a change in prices observed in the market: These question formats are focused on assessing your understanding of how price, volume, and profit interact. Expect charts and data to analyze. This question format is differentiated from the first two formats in that it’s more focused on helping a client understand market behavior than it is on setting the client’s own prices. That said, don’t forget to tie it back to the client in the end, and provide a specific recommendation on how the client should respond to the market behavior – be it by increasing prices, decreasing prices, or holding them steady. Pricing case interview questions are popular because they allow an interviewer to evaluate a candidate’s fluency with one of the key levers of profitability, while also allowing the candidate to demonstrate their understanding of how price interplays with demand to shape market forces. Example pricing cases (Top) Read through the following examples of pricing interview questions to make sure you can identify them in all their forms: “Your client is launching a new fast casual restaurant banner, offering better-for-you salads and grain bowls. Their thesis is that they can differentiate the brand based on a social responsibility message, emphasizing environmental stewardship and employee pay & working conditions. This model obviously carries higher input costs than their competitors. How much should they charge customers for each meal they sell?” Note that this question is asking you to set a price for a new product that is differentiated from the market and thus requires fresh pricing analysis. This is the case that we will solve in the full example case below. “JetSmart airlines, like all major commercial carriers in the US, saw customer traffic decline precipitously during the height of the COVID-19 pandemic in 2020. Management is desperate to grow revenues, and brings you in to evaluate whether a price drop of up to 50% will improve volume and flatten or reverse the revenue decline.” Note that this question is asking you to evaluate a proposed change to the price of an existing service . You should expect to come up with a go / no-go decision on a price reduction, as well as a specific percentage reduction to pre-pandemic fares. “In Q2 2021, commodity lumber futures in the United States spiked to $1,671 per board foot, up from $701 at the start of the year, due to a tightening of lumber supply on the market. As furniture manufacturers see profits get squeezed, how are they likely to respond, and how much of the lumber cost increase will be passed on to consumers in finished furniture prices?” Note that this question is asking you to explain a change in prices observed in the lumber market, and hypothesize about how those shifts are likely to impact equilibrium pricing in the finished furniture market. 💡 Shameless plug: Our consulting interview prep can help build your skills Pricing frameworks (Top) As you likely know, in case interviews there’s no such thing as a one-size-fits all framework for any given type of question – and the same, unfortunately, holds true for pricing problems. That said, applying a combination of the following three strategies – and often all three – can help set you on the right path. Don’t forget to customize this framework to the specifics of the question at hand. Three key strategies for price setting: Competitive benchmarking: This is the gold standard in pricing. Knowing where similar products and services are priced is the foundation for pricing your own. This effectively allows you to piggy-back on years of real-world price discovery by the competitors that came before you. Often the close competitors are obvious – for example, if you were asked to price a new ridesharing service, you could probably easily think of Uber and Lyft to benchmark – but more distant alternatives can also be indicative, especially when close comps don’t exist – for example, by benchmarking the prices of public transit or the amortized cost of car ownership. Cost analysis: Think of cost analysis as uncovering the minimum price you can afford to charge. By adding up the components costs of delivering your offering, you can determine the breakeven price you would have to charge to avoid losing money. From there, you can add the client’s target contribution margin on top of the costs to determine the minimum acceptable price. Margins vary widely by industry, but many industries see contribution margins in the 10-30% range. It’s worth noting that while price generally must exceed costs, this isn’t always true. You may want to consider whether engaging a loss leader is a viable strategy for driving profitability in other areas. For example, the under-market $4.99 rotisserie chicken at Costco is sold at a loss as part of a strategy for keeping foot traffic high. Willingness to pay: To the extent that cost analysis dictates the minimum price, determining customer willingness to pay can set the ceiling for maximum price. To do this, consider customer price elasticity – for example, you might survey customers to ask how much they would pay for theoretical products or try rolling out different prices for the same product in different markets, to assess the impact on demand. Analyzing willingness to pay is a thorny problem which can become hugely complex – think airline seat-level dynamic pricing models, for example – so unless you’re going into the interview with expertise on the subject, stick to the basics. Full case example (Top) Now, let’s work through the case we introduced earlier step-by-step, using the three-pronged framework above. As always, your first step is to structure, structure, structure. You should jot down the key information as you are given it, and then you might list out the three approaches you are going to engage on your page. Benchmarking: It sounds like the client is looking to launch an offering unlike (and higher cost than) those already on the local market. Given this, we should understand that we’re benchmarking an alternative product, rather than a direct competitor. You might ask who the closest existing competitors are, and where their meals are priced. You’re likely to be read out some numbers and tasked with some mental math (ugh) or given some printed data which may involve more complex arithmetic. Let’s say you run the math, and determine that these competitors are priced at $10.50 per meal on average. Remembering that these competitors are working with a lower cost structure, you might ask what their contribution margin is, for additional triangulation, and learn that they’re working with a 20% margin Cost Analysis: Shifting tacks, you work on identifying the major variable costs (you might list out food cost and labor) and fixed costs (you might list out occupancy and store-level SG&A). When you probe on competitors’ base costs for each cost bucket, your interviewer might give you a full P&L for a sample competitor. There you discover aggregate per-unit costs of $8.50, of which $3.15 comes from labor and $2.60 comes from food cost. Absent more information, you decide to estimate the increase to these two cost buckets under the client’s new business model. Let’s say you use +20% for each, giving (rounded!) increases of $0.65 and $0.50, respectively. Adding these increases to your base cost of $8.50, you find your new unit cost to be $9.65. You note that holding flat at the market price of $10.50 would leave you with a contribution margin of less than 10%. Willingness to pay: You might observe that the client’s thesis on the value proposition is unproven, and suggest the client conduct some market research to determine whether customers in fact care about social responsibility, and if so, how much more they would be willing to pay for a meal that meets these values (e.g., via a survey). In response, you are told that customers reported being willing to pay up to 20% more for an environmentally-responsible lunch and up to 15% more to a restaurant that treats its staff fairly. Running the math, you note that a 15-20% hike from the market price of $10.50 is approximately $12.00-12.50, which would give a 20% or higher contribution margin on your new costs of $9.65. Don’t forget that your final task is always to provide a specific, actionable recommendation. Synthesizing your three approaches together, you are likely to conclude that an above-market price for your differentiated product is necessary – after all, your costs are higher and customers seem willing to pay a premium for your offering. Given that any price premium is likely to hit volume, you might suggest the client only take an ~15% price increase to $12.00 per meal. This still leaves you with a competitive 20% margin – better to maximize profitable traffic up front, you reason, than turn off potential customers with sticker shock by trying to be too greedy up front. This case demonstrates the usefulness of having this pricing framework in your pocket – giving you a simple heuristic to structure your work as you triangulate optimal pricing. All that said, don’t expect every case to fit into this framework exactly – every interview question is unique, and the only way to gain fluency with this approach is to practice until you can tailor the framework effortlessly. Read this next: Full cases from RocketBlocks 29 full cases from consulting firms Profitability case interviews Market entry case interviews M&A case interviews Weird and unusual case interviews Market sizing case interviews PE due diligence interviews Supply chain case interviews Digital transformation consulting cases See all RocketBlocks posts . Get interview insights in your inbox: New mock interviews, mini-lessons, and career tactics. 1x per week. Written by the Experts of RocketBlocks. P.S. Are you preparing for consulting interviews? Real interview drills. 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A Strategic ‘Deep Dive’ Into Pricing To Capture Unrealized Profit Industry: manufacturing. Achieving Market Access for a Novel Ultra-Orphan Treatment Industry: pharmaceuticals. Addressing Lost Revenues with Value-Based Guidance Industry: publishing. Aligning Pricing Strategy with Delivered Value in Online Marketplace Industry: e-commerce. Applying Value-Based Pricing for Museum Growth Industry: hospitality & tourism. Assessing the Impact of Pricing with a KPI Tool that Monitors Business Performance Building a Data & Analytics Driven Pricing Strategy Industry: restaurant & qsr. Building a Pricing Structure to Monetize a New Digital Solution Industry: digital publishing. Building a Subscription Licensing Pricing Strategy Industry: software & hardware. Combating Food and Labor Costs with an Effective Price Increase Conducting Pricing Transformation to Uncover Millions in Revenue Industry: oil & gas. Coordinating price across the product & service mix for revenue growth Industry: professional associations. Customer Retention and Increased Revenues When Consolidating and Restructuring Products Industry: information publishing. Designing Dynamic Pricing Model for an Ecommerce Platform Developing a Financial Value Mapping Tool to increase authority in customer negotiations Developing a Pricing Strategy that Grows Profits and Guest Count Developing an Optimal Pricing Strategy for New Product Launches Developing Pricing Strategy and a Value-Based Pricing Process Industry: publishing & digital content. Generating Optimized Menu Prices with Pricing Science Growing Profits and Protecting Brand Value with a Cohesive Pricing Strategy Industry: apparel. Improving Bottom Line Results With a Transformative Pricing Strategy Industry: foodservice. Improving profitability across national markets by analyzing and understanding true net prices Improving Underlying Pricing Capabilities to Drive Millions in Margin Growth Nationally Industry: distribution & wholesale. Increasing Portfolio Value with Pricing Transformation Industry: private equity, our recent white papers, improving b2b pricing strategy. This white paper demonstrates how an effective B2B pricing strategy can improve your company’s bottom line and profitability in the long-term. How to Automate Your Pricing Infrastructure The purpose of this 18-page white paper is to demonstrate how having the right pricing automation software can maximize business profitability in the long run. Make Pricing Your Ally: How to Put Value Back on the Menu The purpose of this 19-page white paper is to demonstrate how having a right pricing strategy in place optimizes long-term profits while maintaining the balance between value and price. SUGGESTED TOPICS The Magazine Newsletters Managing Yourself Managing Teams Work-life Balance The Big Idea Data & Visuals Case Selections HBR Learning Topic Feeds Account Settings Email Preferences Share Podcast How to Build a Better Pricing Strategy Hint: It’s all about good market research. Apple Podcasts With rapidly changing markets and emerging technologies, setting the right price is harder than ever. But pricing strategy consultant Rafi Mohammed tells HBR IdeaCast host Sarah Green Carmichael that it’s possible to make better decisions about pricing if you understand how pricing and demand interact in your business and you have good market research to guide you. “The front line really has a lot of intuition on what customers are willing to pay. [They have] a lot of market research that they can share with the people who set prices to help set the right price,” he explains. Key topics include: pricing strategy, dynamic pricing, market research, supply and demand, innovation, media, entertainment, professional sports, and the travel and tourism industry. HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week. Listen to the original HBR IdeaCast episode: Pricing Secrets of Ticket Scalpers (July 2011) Find more episodes of HBR IdeaCast Discover 100 years of Harvard Business Review articles, case studies, podcasts, and more: HBR.org ANNOUNCER: HBR On Strategy. HANNAH BATES: Welcome to HBR On Strategy , case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business. With rapidly changing markets and emerging technologies, how can you make sure you’re setting your prices right? Today, we bring you a conversation with pricing strategy consultant Rafi Mohammed.  In this episode, you’ll learn how pricing and demand interact, and how dynamic pricing differs across a range of industries – from music and sports to airlines, hotels, and even online shopping. You’ll also learn why your frontline workers can be a valuable source of market research to help you set the right price.  This episode originally aired on HBR IdeaCast in July 2011. And just a note — we recorded this by phone. While the audio quality isn’t great, the conversation is. I think you’ll enjoy it.  Here it is. SARAH GREEN: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Sarah Green. Today we’re talking about something that affects every business, pricing. But we’re looking to the fringes of ticket scalping for some advice. I’m talking with Rafi Mohammed, who is a pricing strategy consultant and author of The 1% Windfall: How Successful Companies Use Price to Profit and Grow . He also blogs for HBR.org, and, so I hear, gets a lot of great tickets on the secondary market. Rafi, thanks so much for joining us today. RAFI MOHAMMED: Sarah, thank you. It’s always enjoyable to discuss pricing. SARAH GREEN: Yes, especially when it’s something as much fun, I think, as either summer concerts or playoff tickets. But before we get into the ins and outs of that, I have to ask, why is there a scalping market at all? Shouldn’t sports teams, musicians, shouldn’t these people be charging more in the first place? RAFI MOHAMMED: It’s a great question. Why should the people who should be getting the revenue, why aren’t they capturing it? And there’s a couple of key reasons. And the first is, there’s just a great deal of uncertainty when a ticket price is set, whether it’s for a baseball game that the Red Sox are doing well or not, or even a rock concert. The Rolling Stones can be very hot in some cities and not so hot in other cities. And so, one of the key reasons is due to this uncertainty, many sports teams and musicians tend to be conservative, and set a low price. The second key reason is there’s generally a hesitancy to set prices too high, because there’s a brand or goodwill associated with these entities, and they don’t want to set prices too high to damage that. And the third sort of interesting thing is that demand comes in waves. So, when tickets go on sale, there’s a lot of demand initially, but there’s also more demand over time. So, for instance, in the music market, the sort of rule of thumb is whatever you sell in the first five days, you double that, and that’s going to be your total attendance. So, there’s this disconnect between selling and when the demand arrives. So, a lot of times people just speculate and buy tickets, and they buy it up when tickets go on sale and later sell them to people who want tickets at a later date. And finally, it’s important to remember that the scalping market, while generally people think of it as a way to capture higher prices, the scalping market also does set lower prices when demand is low, and that’s a good way for ticket prices to be lowered. And generally speaking, teams and musicians are somewhat wary of lowering prices once they’ve set it. So, for those four key reasons, that’s why there’s an existence of a scalping market today. SARAH GREEN: So that’s interesting. And it’s a good point at the prices can also be lower from a scalper sometimes. But isn’t there a way for teams to learn from the scalping market, and to implement that kind of flexible strategy on their own? RAFI MOHAMMED: Exactly. And this is the new wave of ticket pricing in the future. And so, for instance, now the scalping market is about $3 billion a year. So, if there’s some way the teams and musicians can capture that, that’s great extra revenue to make. And so. the new way of thinking about pricing for these events is dynamic pricing. So, much like an airline or a hotel, you fluctuate price based on how demand is going. And so, it makes intuitive sense, but I think what most people miss on this is demand is very different. So. for instance, demand for a flight from Boston to LA, there’s actually nine non-stops a day. And in fact, I looked for Thursday. The prices for these non-stops range from $369 to $2,278. So, what happens is if I’m an airline and I have low capacity, I can just lower my price, and steal customers from other flights. And so that’s how dynamic pricing typically works for hotels and airlines. So, you have to remember, for rock concerts or sports teams, you’re not stealing demand from other places. So, generally there’s a fixed demand, and what you try and do is get the right price given the current demand structure. You can’t steal customers from– it’s rare to steal it from other events. So, that’s a key difference. SARAH GREEN: That does seem like a key point. Like, for instance, if I’m a Red Sox fan, I wouldn’t necessarily go to see the Yankees just because they were cheaper. RAFI MOHAMMED: Exactly. Exactly. But if you were going to LA, and there was a price difference between $369 to $2,278, if you’re keeping your eye on your budget, you might, instead of going on your favorite flight, go on an earlier light and save a lot of money. SARAH GREEN: So how should people in the entertainment industry, who are in this event-driven business, how should they try to implement some of this knowledge on dynamic pricing? RAFI MOHAMMED: It’s a great question. So, first of all, obviously when demand is a little higher than what you expected, that’s the best case scenario. So, all of a sudden the Rolling Stones come to town and demand is much higher. Well, you can constantly, over time, play with prices to capture the highest amount of revenue. So, in that case, that’s fine. But getting to your Yankees game analogy, when demand is low, and it’s lower than expected, what do you do? And there’s two key things. The first is that you’re getting people coming to your site, the existing demand coming to your site. And if demand is low, intuitively people might think to make all prices cheaper. But I think if people are coming to the site to buy a ticket, they’re interested, and I would focus on trying to upsell into higher-priced seats. So they’re interested. They wouldn’t normally sit in the best seats, but if you have an attractive price, you might be able to get more money out of people who have an interest, who have a demand. And the second thing that you have to do, and I haven’t seen anyone discuss this, is that for low demand events, you have to have a way to let consumers know that, gee, we’ve lowered our prices. So, if I’m interested in going to a rock concert, I’m not going to go to the website 10 or 12 times to see what the prices is. But if I know, much like on Broadway, that the day of, that they lower prices for some Broadway shows, there has to be an event that consumers will know, oh, maybe I should go back and check and see what the price is. So, those are the two ways to think about dynamic pricing when demand is high or demand is lower than expected. SARAH GREEN: That’s interesting. So, I want to, if we can, get into an example here of maybe a team or a musical act trying to implement this and see how well it’s working. Is there anyone on your radar screen who’s either doing something that’s working, or maybe doing something that you’d want to avoid? RAFI MOHAMMED: Right. Sure. Well, the classic example is that the San Francisco Giants did a test market for dynamic pricing a couple of years ago. And what they did is, in certain sections, they would lower and increase price. And what they found is that, in these sections, the revenue increased by 20%. So that sounds like a really great figure, doesn’t it? But here’s where I think that they missed the boat on, is this notion of cannibalization. And it’s not just for tickets. It can be for any product. People tend to say, oh, well, we lowered the price, and we got more people to buy. But what you have to take into account is the fact that some people would have bought at the higher price. So, let’s go back to the San Francisco Giants. If they have an experimental section and they drop the price, why would I buy a ticket in the next section over that’s at a much higher price? So, if I were going to buy that ticket, I would say, well, gee, I can save $10 by going to the experimental section. Why not? So, my hunch is that there was a lot of cannibalization going on, and that 20% figure really didn’t represent new revenue, getting people price sensitive, in the door. My hunch is that the majority of this increased 20% came from people who would have actually paid a higher price. That’s a negative of dynamic pricing that I don’t think has been satisfactorily accounted for. SARAH GREEN: So, we’ve been talking about dynamic pricing across a range of industries, sports, music. You mentioned hotels. You mentioned airlines. And I think it has seeped even further, even more than we know, into other industries, especially since online shopping makes it pretty easy for online retailers to figure out what kind of shopper you are, and what you might be willing to pay. Is there any industry that you think if safe from dynamic pricing, or are we just going to be all getting different prices all the time in the future? RAFI MOHAMMED: Well, Amazon. In my experience with Amazon, they do change prices. So, by the day, for instance, I see that my book price goes from $18 to $20. And so, they definitely change prices. Several years ago, they did get caught up in a pricing scandal, where they were offering different prices to different consumers at the same time. So, people are like, gee, I just bought this DVD, and I paid this. And someone else would say, I bought it at the same time. I paid a very different price. And so after that, there was a lot of discussion about this. Amazon came out and said that, we aren’t going to offer different prices to different customers at the same time. So, what they didn’t say is that, we are not going to vary prices over time. They just said they were going to stop that practice. So, what you are seeing on the web is that, since it’s a great experimental venue and you could see how people react, you are going to see on the web more price experimentation by all types of retailers, to try and figure out what is exactly the right price for products. SARAH GREEN: So as companies like that start experimenting, I think part of the reason it’s useful, for instance, to talk about ticket scalping is that it becomes obvious when you’re leaving money on the table, because, well, either people are willing to pay more or they’re not, or, as you mentioned at the beginning, they’ll pay less. So, it’s sort of easy to see how close you are to the mark by how close you are to that secondary market. But if you are in a business where your product or service doesn’t get quote, unquote “scalped,” how do you know if you’ve got it right? RAFI MOHAMMED: I always ask people on the front line, because they deal with customers. And oftentimes people on the front line can tell you a lot of people would have paid a lot more, or we’re getting a lot of people who are very interested, they take the product off the shelf. They’re interested, but once they see the price, they put the product back. So, there’s the two ways of doing it, one, a market research type, which we discuss on the Amazon by varying prices. Or second, I feel that the front line really has a lot of intuition on what customers are willing to pay. And that front line has a lot of market research that they can share with the people who set prices to help set the right price. SARAH GREEN: That’s interesting. It’s always interesting to know how much of this always comes back to those people on the front line. So, I can’t let you go without going back to ticket scalping, and just asking the question that I know is on everyone’s minds. How do I get the best deal on tickets that I want? RAFI MOHAMMED: Well, you know, we can’t tell all the secrets, but I’m happy to share some of the key secrets. And it really comes down to uncertainty, and how you deal with uncertainty. And it’s been my experience that the closer you get to an event, whether it’s a rock concert or a sporting event, you see prices go down. And so obviously, if you’re taking a significant other, or celebrating a very important event, or going out with clients, you really don’t want to be sweating it out until the last second and hoping that prices are going to go down. So, that goes back to the notion of value. So, I value the certainty of having great tickets to the Rolling Stones or the Red Sox versus the Yankees. So, I’m willing to pay a premium just to get that certainty. But much like what you see in life, and in pricing in general, if you’re willing to wait it out and deal with the uncertainty, you can get the best tickets at face value, if not lower, if you wait until the very last minute. SARAH GREEN: So, just a little negotiating ploy there. RAFI MOHAMMED: It’s not really negotiating, but it’s sort of as events get nearer, I have this theory that people often buy tickets for their friends. And I think the older that you get, the more of life’s obstacles that you face, and at the end, oftentimes friends can’t make it. And so I often see, when I’m going to a show or a sporting event, people are like, oh, my friends were supposed to come, but now we have two extras. And since there’s so many people in that situation, the market has set a lower price. So that’s really the key to getting the best tickets at the lowest price. And what’s always surprising to me, when I go to these events or I’m looking for tickets at the last minute, is how good of a seat comes up. It’s shocking that, generally speaking, the day of, or two days before, you’ll see on craigslist or eBay, tickets in the first 10 rows that you can get at face value, and if you bargain a bit, even lower. SARAH GREEN: Well, it’s excellent, excellent advice. Rafi, thanks so much for talking with us today. RAFI MOHAMMED: Thanks so much, Sarah. I appreciate it. HANNAH BATES: That was pricing strategist Rafi Mohammed – in conversation with Sarah Green Carmichael, former host of the HBR IdeaCast . If you liked this episode, check out HBR Ideacast on Apple Podcasts, Spotify, or wherever you get your podcasts. They release new episodes every week. HBR On Strategy will be back next Wednesday with another hand-picked conversation about business strategy from the Harvard Business Review. And in the meantime, we have another curated feed that you should check out: HBR On Leadership . And visit us any time at HBR.org, where you can subscribe to Harvard Business Review and explore articles, videos, case studies, books, and of course, podcasts, that will help you manage yourself, your teams, and your career. This episode of HBR On Strategy was produced by Anne Saini [“Sanny”] and me, Hannah Bates. The show was created by Anne Saini, Ian Fox, and me. Special thanks to Maureen Hoch, Adi Ignatius, Karen Player, Anne Bartholomew, and you – our listener. See you next week. Subscribe On: Latest in this series This article is about strategy. Pricing strategy Partner Center Harvard Business School → News Story → What went wrong at JC Penney? After a successful stint at Target, when Ron Johnson led Apple's retail efforts from 2000 to 2011, it seemed that he could do no wrong. But the winning streak came to a well-publicized end during his two years at JCP, when everything he tried seemed to backfire. Sales last year fell by 25%, resulting in a net loss of $985 million. In a recent interview, Harvard Business School marketing expert provided some analysis. To get some perspective, what kind of situation did Ron Johnson face when he became CEO of JC Penney in June 2011? At that time the economy was just barely coming out of the Great Recession. Sales had been declining for a while. In the period from 2009 to 2011, they were down from almost $18 billion to $17 billion. That comes out to sales of about $150 per square foot, which is probably in the lower third of department store sales, if not the lowest. In contrast, competitors like Macy's and Kohl's have sales of around $220 or $230 per square foot. Most striking, if you look at JC Penney over the long term, it seems to me that they have lost their identity. With more than 1,000 stores and great locations in malls across the country, it used to be the department store for middle-income families, especially for men's and women's apparel, children's ware, and home goods. It was particularly well known for home goods and children's ware. And once the family went there, they also shopped for men's and women's apparel, which accounted for almost half of sales. They had a very strong private label program, and to their credit, previous management had worked hard to manage costs and shorten the supply chain. That was JC Penney historically. But over time, the retailer lost its identity. It was not clear why someone would go there in the face of all the other available options, from low-end Walmart and discounters like TJ Maxx to Kohl's, Macy's, and Target. Beyond that, there are plenty of specialty stores such as The Gap and Gymboree. That's a full plate of problems. What did Johnson do? To fix the problem of sameness and make it appealing for customers to come into the store, he came up with the idea of unique boutiques within each JC Penney -- the store-within-a-store concept. He added services in the middle of the store where, for example, people get their nails done. He focused more on the more affluent -- something that is harder to do in a bad economy, since you're spending more money to attract a new demographic that isn't showing up fast enough. Meanwhile, your old demographic is deserting you, putting you between a rock and a hard place. He also tried to deal with department stores' biggest problem, promotional pricing, or what we often call high-low pricing. When Johnson took over JC Penney, fifty to seventy percent of all sales were at discounted prices. Here's how it works. You start off pricing something at $100, but you end up selling it at, say, $50. All the actual sales take place at 50 bucks. The problems that high-low pricing causes are tremendous. Customers come into the store, they look at the new merchandise, and they look at the prices. They like the merchandise, but don't like the price, and so they don't buy. As a result, this new merchandise sits on the shelves. The first markdown takes place after six weeks, and only then does the merchandise begin to move. So for six weeks, not much happens. You're wasting your real estate and capital. Johnson comes in and says we're not going to play this game. Why not sell at $50 right away? Customers, on the other hand, are accustomed to shop for discounts, especially lower- and middle-income families, while the boutiques didn't want their brands diluted by discount pricing. The depths of the recession made this everyday-low-prices strategy difficult to carry out. Customer traffic dropped sharply, and without that, JC Penney and Johnson were clearly in trouble. If customers had had more disposable income and felt better about the future, he might have had more time to work things out -- three years instead of two. But reality created a different scenario. Sales fell like a rock. Under those circumstances, it's difficult, if not impossible, to attract vendors to carry out the store-within-a-store concept. If cash is in short supply, they're worried about getting paid, not to mention their concern about the diminished reputation of the overarching brand. Finally, the corporate governance brouhaha in the midst of the back-to-school season couldn't have come at a worse time, except for the holiday season. I know it's impossible to predict the future, but what might lie ahead for JC Penney? They might be able to get a couple of billion dollars in loans. That way, if they can manage their cash flow, have liquidity, and if the economy is in a better place, they can stabilize the company for the next 12 months. Then they might have a shot at answering the multi-billion-dollar question: What is a viable strategy for the future of JC Penney? A few years ago, it seemed to me that the best strategy that JC Penney could pursue was to go after the Sears customer, who is on the whole dissatisfied. The two chains have the same demographics and similar merchandise. If Penney can steal the Sears customer, then at least in the short run that might be a way to grow the business. No matter what, someone has to articulate a new and improved strategy, but right now, amid all the distractions, that isn't happening. That is very bad news for a once significant retailer and the thousands of men and women who work there. , March 2012 Case Study: by Rajiv Lal and Laura Winig Case Study: by Elie Ofek and Jill Avery Post a Comment Comments must be on-topic and civil in tone (with no name calling or personal attacks). Any promotional language or urls will be removed immediately. Your comment may be edited for clarity and length. 13 Sep 2024 Harvard Business School Diversity, Equity, and Inclusion in and out of the HBS Kitchens Harvard business school rock center for entrepreneurship announces 2024-2025 entrepreneurs-in-residence, venture capital advisors, and lawyers-in-residence. 10 Sep 2024 HBS Working Knowledge What Happens When Business Owners Turn to ChatBots for Advice The trump-harris debate: do presidential debates change voter preferences. →   Visit Newsroom My PM Interview - Product Manager Interview Question Answers Business Case Study: IKEA's Billion $ Pricing Strategy Ikea : how to grow sales by 200% using pricing strategies. IKEA has now become one of the most innovative companies of the 21st century in the furniture and furnishing industry. And, the most astounding thing about IKEA is that, in spite of furniture being a highly localized business, IKEA has been the pioneer in turning the furniture business into a global success and today, IKEA draws revenue of $45 billion from 445 stores spread across 30 countries . What’s more important to note is not the growth of the company but the fact that IKEA taught the world how to use the most powerful psychological tactics to exponentially increase sales and today, we are going to discuss one such strategy that makes IKEA stand apart from the competition. And, no matter which business you are in, no matter which field you are in, you can use these powerful psychological strategies to double your profits at 0 costs. My PM Interview - Product Manager Interview Question Answers is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber. IKEA’s Pricing Strategy What is the strategy? How does it make IKEA stand apart from the rest of the competition? How can we use them to double our profits? The answer to this lies within a fascinating experiment conducted by Dan Ariely with the students at MIT . In the first iteration, Dan went to his class of 100 students and asked them to choose between subscription plans for the international magazine called The Economist . So, the three options were, A digital version for $59 , The print version for $125 , The print and digital versions for the same $125 . As it turns out the 16% of students wanted the digital version, 0% wanted the print version for $125, 84% chose the print plus digital version. So, for the second iteration, he makes a small change, he thought since nobody is buying the second option, then why keep it there in the first place. So, he removed the $125 print option and presented the same question to another class of 100 students. Now technically, by eliminating the option that nobody chose, the results are not supposed to change. Well, in the second scenario the result changed drastically. This time, only 32% of the students opted for print plus digital version and 68% of them just opted for the just digital version subscription . And, that is when Dan realized that something is magical about this unnecessary option that made such a huge difference in the choice of the customers and that is what we call The Decoy Effect . The decoy effect says that the consumers change their preferences between 2 options when presented with a third option which act as an unattractive option just to make the other option look extremely fascinating. Now, when we talk about the Decoy Effect, people think about the popcorn example wherein in the movie houses, you get popcorn of small, medium, and large at a price of rupees 300, 650, and 700. Now, because of the Decoy Effect, people tend to choose the 700 rupees variant. Now, although it is technically correct, it is the worst possible example to use. Why? Because if we look at the underlying message that is being communicated to the customers, this is what the options indirectly tell the customers: Option A: Overpay for the popcorn Option B: Extremely overpay for the popcorn Option C: Extreme overpay for the popcorn with a little extra popcorn And, the basic flow over is that the prices over here can in no way justify the value for the popcorn. Therefore, by default, making the purchase of that popcorn becomes a painful experience. This is a reason, why, we often feel guilty for buying popcorn. And, even some people would not even think about buying popcorn at the theatre. Now, when this is done in a close and compulsive environment like a theater, it will definitely work, but if the same strategy is used in the free market, this strategy will backfire in a terrible way. And, if you give your customer this kind of painful experience while paying for your product, the customers will never buy from you. And, it will eventually result in heavy losses. IKEA’s Decoy Effect That is where IKEA’s genius application comes in. IKEA places 3 cabinets for you. Let’s suppose they are named as cabinets A, B and C. A costs $40, B costs $60 and C costs $65. Option A is very small with a very small cabinet, with a very smooth movement but it’s got very small space plus the material used would be very ordinary. Option C will be a very large cabinet with premium hands, premium material and most importantly, it will offer large storage space, along with that, you will also get a $10 worth of compartment as complimentary if you buy option C. Now, then there is option B, as large as C, but it is made out of ordinary material, does not have premium handles, and will not get complimentary compartments. And, here’s where the catch comes in, if you look at the underlying message, that IKEA is trying to communicate using its product, here’s what they say. Option A says, here’s a budget product with a great value for money, Option C says, here’s a premium product with a large space plus delightful complimentary product, so, high value for money, and lastly, option B, which is almost the same price, but without premium built quality without complimentary compartments. So, not so much of a value for money as compared to option C. so, this way option B act as a decoy, so that, when comparing option B with option C, option C looks like an amazing deal. Now, while most sellers only think about the people who directly buy option C, IKEA understands that a 22-year-old boy, who just moved into the city, will not be able to afford a $65 product, which is why he would buy a $40 product. But, when he does, IKEA wants to make sure that he does not regret the purchase. So, even though, it’s a low-margin product in the race of upselling, IKEA will never ever try to rip off its customers who’ve got low purchase power. And, the best part is, the decoy effect over here does not just make option C look great, it also made option A look great. Because the customers feel like, they would have overpaid by choosing option B, which is 50% costlier as compared to option A. So, by default, the budget buyer buys the smaller drawer set, and the premium customers, buy the $65 product. Why? Because they compare it with the decoy. And, this clean execution of the decoy effect gives IKEA brand 3 wonderful superpowers: Irrespective of their purchase, both types of their customers get valued for their money. The premium customers have been tactfully influenced to buy the $65 product. And, because the $60 product was such a bad deal, the premium customers actually feel very good about the purchase. And, most importantly, when the 22-year-old boy, is extremely satisfied with his $40 purchase. Tomorrow, when he grows up and makes a handsome income, he will again choose IKEA, but, this time as a premium customer. Because, he was given value for money that he was promised, even at the $40 price tag. Therefore, the customer retention of the IKEA brand increases to a large extent. This is actually how the decoy effect is applied. So, while most sellers use pricing strategy with the sole intent to upsell. The IKEA team constantly keeps learning and carefully deploys its strategies in such a way that it drives profit, but, at the same time, it retains its brand value. And, the wittiest thing over here is that IKEA does this literally for every single one of its 12,000 products, starting from affordable drawers all the way up to the premium beds and even wardrobes. Now again, this might look easy to some people but here’s something that nobody will tell you if you take a step back guys, you would realize it is extremely difficult to maintain this fine balance between profit and brand value. Especially, when you are as big as IKEA, with 445 stores spread across 30 countries with 2.1 billion visitors who are coming from different cultures from all across the world. And, the only reason, they’re able to execute this strategy is because of IKEA’s powerful philosophy of democratic design and lifelong learning culture . Every time, IKEA enters a country, the IKEA team specifically studies every little aspect of that place, starting from the average balcony size, all the way up to the average spoon size. This is done just so that, IKEA could fit into the cultural framework of any country. Therefore, even when you apply this strategy, always make sure that you constantly keep learning about the customer’s reactions and keep a very close eye on the customer’s culture, purchase power and their spending habits. Because only then, one can understand, how to strike a balance between profit and brand value. Steps to apply the Decoy Effect Here are 5 very important steps that are needed to be followed when applying the Decoy Effect to products: Do a research and find out, which is the most popular and profitable product in your store. If it is a premium product, find a budget substitute for the same product such that people who cannot afford the premium one can still fulfill their needs with a budget one. Why? because budget customers will soon become your premium customers. Therefore, engaging with them should never ever be underestimated. The next step is to create a decoy. The most important is that decoy must not be a degraded version of your premium product. However, the premium product should have a way better offering than your decoy, so, if you are selling drawers, it’s ok to have a non-premium material, but it shouldn’t be like the drawers are rigid and they’re really badly functional because even the decoy is going to reflect the brand value. So, always try to make the premium product more attractive with the complementary offering rather than, purposefully, degrading the decoy. This step would be to price your product in such a way that the premium product looks way better than the decoy and the budget product. Option A looks like the obvious choice for the customers with a lower choice power. This way, your high-margin product would look extremely lucrative driving very high sales and at the same time, the budget customers will also be very happy to get the value for their money. In fact, those people will be even happier because they didn’t have to pay 50% extra just to get a bad deal on the decoy. Lastly, do not add more than 5 products and make sure that the price of the decoy is very close or even equal to the premium product. This is how, one can apply the decoy effect to their products and when done right, it can increase both, your conversion rates and both your profit margins to a large extent. Disclaimer: In the greed of more profits, please don’t use misuse the decoy effect. Because, always remember, in a free market, the customers are just one step away from leaving you forever. To help you with your Product Manager interview preparations, we have compiled a complete list of the most asked  Product Management Interview Questions and Answers at companies like Facebook, Google, Amazon, Microsoft, Netflix, etc. Now get, Full Access to All PM Interview Questions and Detailed Answers for a Year! 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How would you improve Facebook Stories? How would you improve usage of Facebook Groups? How would you improve Yelp? List of all Product Improvement Questions and Answers Product Design How to Answer Product Design Questions? How would you solve Dog Poop problem? How would you go about designing a new location-sharing app for Google? How would you design a bicycle renting app for tourists? How would you design a bookshelf for children? Is there a user that is not well served by Amazon.com? Design an ATM for the Blind Design Facebook Movies Design a Vending Machine for the Blind people Design an app for the California’s Department of Motor Vehicles Design and Monetize an ice-cream stand in Central Park Design Netflix for Senior Citizens Design a product to improve Teenage Health How to easily come up with User Pain Points? How to easily Segment Users? How would you critique a product’s design? 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Which apps do you use on your cellphone on a daily basis and why? [FREE] How to Answer Estimation Questions? Estimate the Number of ATMs in India [FREE] Estimate the total number of Airplanes in Air [FREE] Estimate the Total number of Videos on YouTube Estimate Google AdSense revenue Estimate Mobile Ad Revenue for Facebook How much storage space do you need to store all the information from Google maps? Estimate the Number of Self-Driving Cars Estimation: How much do Gmail users cost Google? 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Estimate the storage space is required to host all the images of Google Street View Estimate the total number of Uber Rides Estimate the Number of Queries Answered by Google per Second Estimate the number of orders delivered by Swiggy Common Mistakes to avoid while Answering Estimation Questions Product Metrics How to Answer Product Metrics Questions? How would you measure the success of Lyft Shuttle? How would you evaluate the success of Reactions on Facebook? How would you evaluate the success of Instagram Stories? [FREE] How would you set goals for Facebook Events? How would you measure the success of Gmail? How would you measure the success of Amazon Echo? How would you measure the success of Facebook Stories? Success Metrics for Airbnb’s Experiences feature How would you evaluate the success of Instagram Ads? How would you evaluate the success of a Payment Gateway Product? How would you measure the success of Google Photos? Measure the success of Facebook Save feature The Ultimate List of Product Metrics: Measure & Optimize Common Mistakes to avoid while Answering Product Metrics Questions Product Pricing How to Answer Product Pricing Questions? How would you price an Apple Home device? Common Mistakes to avoid while Answering Product Pricing Questions PM Interview Experiences Facebook - Product Manager Interview Questions [FREE] Microsoft - Product Manager Interview Questions [FREE] Amazon - Product Manager Interview Questions [FREE] Google - Product Manager Interview Questions 1 [FREE] Google - Product Manager Interview Questions 2 [FREE] LinkedIn - Product Manager Interview Questions [FREE] Uber - Product Manager Interview Questions [FREE] Lyft - Product Manager Interview Questions [ FREE ] Spotify - Product Manager Interview Questions [ FREE ] Junglee Games - Product Manager Interview Experience. [ FREE ] UpGrad - Product Manager Interview Experience. Vedantu - Product Manager Interview Experience. CarDekho - Product Manager Interview Experience. Priceline - Product Manager Interview Experience. Flipkart - Product Manager Interview Experience. Nykaa - Product Manager Interview Experience. Uber - Product Manager Interview Experience. Product Launch How to Answer Product Launch Questions? [FREE] How would you launch Lyft in India? How would you launch Google’s driverless car service? Common Mistakes to avoid while Answering Product Launch Questions PM Technical Interview How to Answer Product Manager Technical Interview Questions? What happens when you type a URL in the browser? How does TinyURL work? Design a simple Load Balancer for Google.com Common Mistakes to avoid while Answering Product Manager Technical Questions A/B Testing What A/B tests would you run to increase the number of messages sent and received on WhatsApp? Decide between displaying Facebook’s ‘People You May Know’ or an Advertisement? Common Mistakes to avoid while Answering AB Testing Questions Product Execution How to Answer Problem Solving Questions? Drop in App Open Rate of Instagram Decline in TikTok Usage Decline in Flipkart's Cart Additions Uber Product Manager Interview - Increase in Cancel Rates Decline in Facebook Groups Usage Drop in Netflix's Key Metric What would you do if there is a High Acquisition but Low Retention? Common Mistakes to avoid while Answering Product Manager Problem-Solving Questions How to Answer All Types of Product Execution Questions? Product Roadmap How to Answer Product Roadmap Questions? How would you prioritize new product features for Facebook? Product Roadmap: Micro-Tragedy in Ride-Sharing App Product Strategy How to Answer Product Strategy Questions? Which channels would you use to increase top-of-the-funnel activities for Duolingo? Should Facebook consider getting into the Travel industry? How would you launch Facebook's Dating Platform? Should Facebook consolidate its messaging apps? What are some alternative uses for chopsticks besides eating? The 99 Effect: Psychological Pricing Strategy to Boost Sales Common Mistakes to avoid while Answering Product Strategy Questions Product Trade-off How to Answer Product Tradeoff Questions? Google Product Manager Interview [FREE] Google Product Manager Interview Guide 1 Google Product Manager Interview Guide 2 Google Product Manager Interview Guide 3 Google - Product Manager Interview Questions 1 Google - Product Manager Interview Questions 2 Facebook Product Manager Interview [FREE] Facebook Product Manager Interview Guide - Part 1 Facebook Product Manager Interview Guide - Part 2 Facebook - Product Manager Interview Questions Business Case Studies [FREE] BharatPe's Billion $ Business Strategy Spotify vs Apple Music vs YouTube Music War IKEA's Billion $ Pricing Strategy ZARA's Billion $ Business Strategy Airtel-Jio Rivalry: How Airtel is beating Reliance Jio? Walmart - The Billion $ Empire Amul's Strategy during the Pandemic Will Netflix survive the competition? Frameworks for Structured Product Thinking [FREE] 106 Principles of Product Design Psychology Mission Statements of Top Tech Companies [FREE] 100+ Product Manager Interview Questions [FREE] PM Interview Questions from your Work Experience [FREE] Connect with us on social media: LinkedIn Page: https://www.linkedin.com/company/my-pm-interview/ LinkedIn Group: https://www.linkedin.com/groups/13979119/ Instagram: https://www.instagram.com/mypminterview/ Facebook: https://www.facebook.com/mypminterview Twitter: https://twitter.com/mypminterview_ YouTube: https://www.youtube.com/@mypminterview/ Email: [email protected] or [email protected] Discussion about this post Ready for more? For the best Oliver Wyman website experience, please upgrade your browser to IE9 or later Global (English) India (English) Middle East (English) South Africa (English) Brazil (Português) Canada (English) Canada (Français) China (中文版) Japan (日本語) Southeast Asia (English) Belgium (English) France (Français) Germany (Deutsch) Italy (Italiano) Netherlands (English) Nordics (English) Portugal (Português) Spain (Español) Switzerland (Deutsch) UK And Ireland (English) Although inflationary pressures have eased over the past few months, consumer price sensitivity remains high. In fact, the Federal Reserve’s July Beige Book noted that consumers continue to seek out discounted items or limit their purchases despite moderate price increases. While shoppers have always been interested in attractive prices, their interest in shopping at stores that offer better value for the money is on the rise, according to our most recent Consumer Perception Survey . Retailers delivering on that promise are likely to increase their market share, while those that struggle may see their consumer erosion. It's critical that retailers adopt new strategies to address this value equation. One effective way to do that is with consumer-centric pricing, which allows retailers to adapt quickly to evolving consumer expectations. Traditional pricing strategies have limitations Retailers have several levers to pull when it comes to managing their pricing strategy. Each level of the value stack, as shown in Exhibit 1, differs in its degrees of short-term elasticity and long-term perception impact. A lever such as base pricing has a broad reach as it affects the prices of many items and is visible over time. However, its elasticity is limited since not every customer is interested in the same item, and it cannot be adjusted in the same way for everyone. Personalized coupons provide a higher return on investment per dollar of discount spent but reach fewer customers and do not help drive perception broadly — especially if the customer does not see the offer. Historically, retailers have managed these levels in isolation, without considering how a change in one part of the stack might affect another. Strategies for effective pricing in retail Maintain an everyday price gap. Follow a reactive base price strategy and, for example, set prices to stay X% above/below a certain reference price of a discount competitor. Depending on the movements of the reference, this approach often requires a significant investment as a price move is executed across a broad set of items, usually without a relative improvement compared to the reference point. Focus on promotional programs Run temporary discounts to promote the right set of items in such a way that the price discount is compensated for by higher volume as well as other secondary effects like a sales halo on non-promoted items. Potential risks include running promotions that are not effective, essentially investing too much money that the promotion cannot recoup, while also training customers only to shop during promotional periods. This approach also comes with additional supply chain stress as product volumes swing in parallel to promotional activity. Use targeted personalized offers Deploy personalized offers , presenting shoppers who participate in a company’s loyalty program with custom opportunities not available to other customers. While this usually leverages personal data to find the best and highest elasticity opportunity for each customer or customer group, it can cause double-dipping if the company is already running a mass promotion or executing a base price shift at the same time. Embracing a consumer-centric pricing strategy A more strategic and holistic approach to pricing management can enable retailers to be far more responsive to consumer demands and constantly shifting market dynamics. Customer-centric pricing offers a coordinated approach across levers and is the optimal setup to deliver sustainable value to shoppers and shareholders. The impact on customers and sales trajectory can be significant. Successfully running a customer-centric pricing program requires having the right resources, processes, and support systems in place. We recommend the following three steps before embarking on a customer-centric pricing journey: Understand the trade-offs between short-term and long-term elasticity To effectively translate a target average price into the required base price, promotion, coupon, and personalized offer activities, retailers must have an analytical setup that correctly disentangles overlapping effects, provides accurate elasticity estimates, and considers parallel price activities of substitute or complementary items. Based on our past projects, the long-term elastic impacts of a price change can be two times the near-term elasticity. Optimize value strategy across levers to achieve the net price To ultimately deliver value with price moves, retailers need to define a strategy upfront, ideally category-by-category to align on intended regular and promo pricing. This includes detailed, bottom-up financial modelling on the trade-offs of category targets, and scenarios of promotional activity to fund base price changes, ideally supported by a technical asset to model pricing scenarios rapidly. Measure value strategy into an ongoing visibility and control process Given the additional complexities of managing several levers in parallel, a customer-centric pricing approach requires organizational discipline and control measures. Retailers should create accountability for shelf-price gaps and relevance of net price in a rigorous governance. Implementing customer-centric pricing — a grocery retailer case study In a prior project, we helped a grocery retailer transition from a legacy pricing approach, which relied heavily on promotions, to a customer-centric one. Initially, the client was losing market share and customer value perception, feeling pressured to continuously run promotions and spend margin dollars to compete against discount competitors. Across a broader value transformation effort, we helped pivot in several customer-centric ways: Restructured retail pricing by ending in-store temporary price reductions and focusing base price activity on items where the discount competition was weaker. This was bundled with differentiated marketing messaging. Invested in loyalty programs to address customers directly and with higher ROI measures, including an increased level of buy-more-save-more programs to push volumes. Restructured vendor funding agreements to focus on base rather than promotions, including rewarding vendors who brought more funding into the base with better promotional pricing. Wrapped tactical changes in an updated planning function to analytically assess every promotion event with advanced machine learning techniques, as well as new governance processes to discuss, align, and regularly report on value promotion. The outcome was a win for both financial performance and the customer experience. After protecting margins and lowering prices by 8%, volumes of non-promoted items increased by 14%, overall sales grew by 1%, and the relative price index versus the discount competitors narrowed by multiple percentage points. While the exact implementation will differ based on each retailer’s situation, this example of introducing customer-centric pricing can certainly serve as a blueprint for competitors in today’s retail market to ensure an attractive proposition while delivering financial success.   Harnessing Risk Industry Transformation Retail and Consumer Goods Bobby Gibbs and Holger Kirschbaum Why Generative AI-Powered Stores Are The Future Of Retail Learn how generative AI will impact store operations with accessible and ready-to-implement use cases that can generate high impact. 4 Grocery Retail Trends And How To Win Back Customers Explore how grocers are adapting to consumer behavior shifts and market trends. Learn about the “fair-trade-line” concept that’s shaping retailer performance. 8 Lessons To Master Personalization In The Retail Industry Discover how personalization can revolutionize retail. Gain insights on driving engagement with tailored offers and leveraging artificial intelligence. Tech Solutions For Retail Merchandising Success Understanding how technology can help mitigate the risks of economic and geopolitical factors, as well as the growth of rising labor and energy costs. 270 COMMENTS Mastering the Pricing Case Study: A Comprehensive Guide Most companies use a combination of these alternative pricing strategies to maximize profitability. For example, a manufacturer of diet pills that costs $10 to produce may be able to charge $100 per bottle if the target customers have low-price sensitivity and high perceived value (a savings of many hours working out in the gym and/or eliminating the negative health effects of being overweight). The Good-Better-Best Approach to Pricing Rafi Mohammed is the founder of Culture of Profit, a consultancy that helps companies develop and improve their pricing strategies. He's also the author of The Art of Pricing: How to Find the ... In-depth Case Studies: How Companies Turned Their Pricing Strategies Around In this article, we explore case studies of three companies that turned their pricing strategies around, providing valuable lessons and insights for your business. Case Study 1: Apple's Premium ... Pricing strategy You can't form a pricing strategy without it. Save; Share; Buy Copies; August 21, 2015; Suppliers—Manage Your Customers. ... Strategy & Execution Case Study. Jose Gomez-Ibanez; 11.95. View Details. Pricing Case Study: How to Write and Analyze a Pricing Case Study Identifying the Key Questions to Address. 3. Collecting Relevant Information for the Case Study. 4. Examining the Factors Influencing Pricing Decisions. 5. Communicating the Results of the Case Study. 6. Assessing the Effectiveness of the Pricing Strategy. Pricing strategy Strategy & Execution Case Study. Harborne W. Stuart Jr. 5.00 ... A closed-end mutual fund's decision to study option trading provides an opportunity to study the profit profile and pricing of ... Five strategies to strengthen software pricing models Pricing-specific incentives can help software companies align sales efforts with the overall pricing strategy. As the case study in Exhibit 4 illustrates, this approach can encourage sales reps to negotiate the best possible pricing outcomes for the company. 4. Case study: Turning pricing complexity into a price advantage that Pricing complexity—thousands of products for tens of thousands of customers—made it difficult to develop a manageable fact base for sales reps and get to a level of detail that would unlock pricing opportunities. Here are the stages that were successful for this multinational chemicals company: 1. Build an analytics engine. PDF Pricing Case Study: Analyzing the Impact of Dynamic Pricing Vs ontrols, after 52 weeks of pricing in this market, the incremental stop percentage was 1.3%. For customers paying less than. a $1.50 weekly rate, the average increase was tailored, by client request, to. be around 90%. For these customers, the incremental stop percentage was approxi-mately 3.8%. On the other end of the spectrum, subscribers who ... Pricing Strategies In Marketing: Drive Business Success Case studies from technology and services sectors demonstrate the success of various pricing strategies, from premium pricing and subscription-based models to dynamic and tiered pricing. These examples highlight the importance of adapting strategies to each sector's unique challenges and opportunities. Pricing Strategy of Nestle Company: Case Study & Analysis In this case study, we will focus on Nestle's pricing strategies. Pricing is the most important element for maximising revenues. According to Harvard studies, if there is a 1% improvement in pricing, it leads to an 11% increase in profits (approx.). If the pricing structure is incorrect, the business loses profit with each transaction made. Understanding your options: Proven pricing strategies and how they work A. Margin Expanders. For many companies in mature markets where there is heavy competition, the prudent and realistic pricing strategy involves small, incremental steps to improve margins, usually within the existing segments, products, and pricing structure. This can mean expanding margins through small regular price increases, defending ... Pricing Case Interview: Step-by-Step Guide Learn Pricing Case Interviews in Under 10 Minutes. Watch on. 1. Understand the goal or objective of the company. The first step to solving any pricing strategy case interview is to determine the goal or objective of the company. Most of the time, the company is looking to price a product to maximize profits. How to solve Pricing Case Studies in Consulting Interviews 3. Choose a Pricing Strategy. The choice of strategy depends on the information gathered in the first two steps. There are three important pricing strategies: (1) Competitor-based pricing ( Benchmarking ): With this strategy, the price is determined based on the prices set by our competitors. So, you want to find out: Pricing strategy The pricing decision, one of the most important in business, is also one of the least understood. Many industrial companies, according to this author, habitually set prices reflexively on the ... Pricing strategy guide: 7 types, examples, & how to choose Step 1: Determine your value metric. A " value metric " is essentially what you charge for. For example: per seat, per 1,000 visits, per CPA, per GB used, per transaction, etc. If you get everything else wrong in pricing, but you get your value metric right, you'll do ok. It's that important. Case Study on multi-product pricing strategy Published May 27, 2023. Pricing is what you charge your customers for your products, and product pricing strategy is how you determine what that amount should be. In 2021 I was part of a group ... Pricing at Netflix In spite of the heightened competition in the streaming industry, some analysts and customer willingness-to-pay surveys suggested that Netflix had the opportunity to implement another rate hike in the near future. By May 2020, Netflix must decide whether to increase prices again, or whether it should consider a different pricing model altogether. Pricing case interviews Let's say you use +20% for each, giving (rounded!) increases of $0.65 and $0.50, respectively. Adding these increases to your base cost of $8.50, you find your new unit cost to be $9.65. You note that holding flat at the market price of $10.50 would leave you with a contribution margin of less than 10%. Setting your price: case study Here is a great case study that walks you step by step through how one company went about setting their pricing. ... Putting Your Pricing Strategy into Action 6. Putting Your Pricing Strategy into ... Pricing Case Studies and Whitepapers Make Pricing Your Ally: How to Put Value Back on the Menu. Pricing Case Studies Our Recent White Papers This white paper demonstrates how an effective B2B pricing strategy can improve your company's bottom line and profitability in the long-term. The purpose of this 18-page white paper. How to Build a Better Pricing Strategy HBR On Strategy curates the best case studies and conversations with the world's top business and management experts, to help you unlock new ways of doing business. New episodes every week. What went wrong at JC Penney? Case Study: J.C. Penney's "Fair and Square" Pricing Strategy by Elie Ofek and Jill Avery. Post a Comment. Comments must be on-topic and civil in tone (with no name calling or personal attacks). Any promotional language or urls will be removed immediately. Your comment may be edited for clarity and length. Business Case Study: IKEA's Billion $ Pricing Strategy So, the three options were, A digital version for $59, The print version for $125, The print and digital versions for the same $125. As it turns out the 16% of students wanted the digital version, 0% wanted the print version for $125, 84% chose the print plus digital version. Retail Pricing Strategies To Drive Financial Success Retailers have several levers to pull when it comes to managing their pricing strategy. Each level of the value stack, as shown in Exhibit 1, differs in its degrees of short-term elasticity and long-term perception impact. ... Implementing customer-centric pricing — a grocery retailer case study. In a prior project, we helped a grocery ... assignment homework phd report resume review speech thesis