From the course: How to Succeed in a Case Study Interview

Common cases: Pricing

From the course: How to Succeed in a Case Study Interview

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Common cases: Pricing

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- Okay, here's what I need to solve for. It's 2015 and there's a new phone coming out. It has a lot of hype around it. From preliminary research, we found that 20% of buyers will pay up to $800, 40% will pay up to $600, and the rest will pay up to $400. How would you price this product at launch? - And there can only be one price at launch, right? - Yes. - And what's the company's main goal with the launch? Are they trying to maximize profits or just get the phone in more people's hands, create buzz? - Probably, profit. - Okay, what's the average competitor's phone? I know this phone's different, has different benefits, but what would a comparable phone cost? - Their competitors priced their similar phone at $500. - Okay, and is the company looking to maximize on any other income opportunities, let's say, accessories, data plans, or recurring charges? - No, for the purposes of this launch, they're solely focused on the hardware. - What's the cost of the phone? - $300. - [Interviewee] Is that fixed or variable? - Variable. - Are there any fixed costs? - [Interviewer] Nope. - Okay. All right, so let's go back to the original prompt. Company wants to maximize profits, right? In that case, I'm going to create a chart that will show each pricing option. Now, based on my calculations, we'd subtract the price of the phone and the cost of the phone. That'll give us total profit per phone. Add in the volume indicated based on people's willingness to actually buy, and that'll lead to the profit, which the company is trying to focus on. Taking all of that into consideration, I think the best pricing option is going to be $600. $600, willingness to buy is at 60%. That gives us $180 in profit, and that is going to be $80 more than any of these other pricing options. Also, just from a standing standpoint, we think about the fact that other companies are selling their phones at $500. If we're selling ours at $600, that's $100 premium. And with that, it makes this phone top of the industry. - Great, thanks for that explanation. Great work.

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