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16 McKinsey, Pricing

Session 16: Pricing Cases

There is no framework for pricing, but there is a simple way to approach pricing problems.

Candidates are too often, incorrectly, taught that there are just 4 pricing strategies: product-based, cost-based, market-based or competition-based. In reality, there are a lot more different pricing strategies.

What happens if the solution to the case does not require one of these 4 pricing strategies?

So learning four is worthless and trying to memorize 60+ strategies is inefficient and counter to the managing consulting approach to understand and develop solutions from first-principles.

So what must a candidate do?

Pricing is an instrument of strategy, and is one of the tools deployed to achieve a strategic/operational objective. Strategy should be the starting point for pricing cases. Thereafter, one needs to consider the consumer appetite for the price, competitive parity and response, and finally, the margin objective. We need to teach Samantha how to apply these 4 considerations to any pricing case, and how to do the calculations in a pricing case. The technique is very easy to understand once it is taught, since it combines the strategy and calculation of pricing cases.

In these cases we hope to explicitly show candidates how to combine the estimation, brainstorming and full case techniques to solve complex problems. While we have been combining these techniques in earlier sessions, we expect to explicitly demonstrate how to merge them here. Candidates need to recognize when to use these techniques without prompts from the interviewer.

The one-sentence test a clever technique we developed for Felix to help her provide concise answers. We now use this technique with all candidates.

In the session descriptions which follow, we are using one description for 4 different candidates. Yet candidates do not perform the same, and while the descriptions are mostly accurate, there will be some differences as a few cases are brought forward, others moved back or candidates fail to prepare adequately. While these differences are minor, they sometimes occur.

Cases questions taught in the session:

Felix’s cases recorded in the session; German manufacturing hypotheses development, Brainstorm why fragmentation of steel suppliers is a problem in a bear metals market, Estimate the amount of steel entering Brazil/annum via cars, Healthcare article discussion, Brainstorm the pro’s and con’s of leasing versus selling aluminium, Estimate the approximate new price if aluminium was leased and not sold, BCG Metals sector data interpretation & One-sentence test.

Sanjeev’s cases recorded in the session; Singapore tourism trend hypotheses development, Brainstorm how Times Square can increase the number of tourists, Estimate the number of tourists to Times Square in a day, Oil & Gas article discussion, BCG Tourism sector data interpretation & Explain the strategy behind Starbucks raising prices 8 cents, in a recession and with extreme competition from MacDonalds.

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