A pricing case asks what a client should charge and why. This page works four practice prompts through to a recommendation, each with the arithmetic shown, because pricing is the case type where the calculation most often carries the answer and where candidates most often reason qualitatively about a question that has a number in it.
Attempt each prompt before reading the solution. Twenty-five minutes, structure written down, arithmetic on paper. For the underlying method, see the pricing case interview guide. All figures below are fictional and constructed for practice.
The calculation to do first, every time
Before discussing whether a price change is wise, work out what it requires. For a price cut:
Required volume increase = current contribution ÷ new contribution − 1
The reason this matters is that a discount comes out of contribution, not out of revenue, and contribution is a much smaller number.
| Price | Variable cost | Contribution | 10% discount → new contribution | Volume increase needed |
|---|---|---|---|---|
| $100 | $40 | $60 | $50 | +20% |
| $100 | $60 | $40 | $30 | +33% |
| $100 | $80 | $20 | $10 | +100% |
The same 10 per cent discount requires a fifth more volume in a high-margin business and twice the volume in a low-margin one. A candidate who states this before evaluating the proposal has framed the case correctly in thirty seconds.
Case 1: The discount that has to work too hard
Prompt. A speciality food producer sells a premium product at $12 a unit with variable costs of $7.20. Volume has been flat for two years. The commercial director proposes a 15 per cent price reduction to drive growth, expecting volume to rise by about 20 per cent. Should they do it?
Solution
Break-even first.
- Current contribution: $12 − $7.20 = $4.80
- New price: $12 × 0.85 = $10.20
- New contribution: $10.20 − $7.20 = $3.00
- Required volume ratio: $4.80 ÷ $3.00 = 1.60, so volume must rise 60 per cent to hold profit flat.
The commercial director expects 20 per cent. At 20 per cent, profit falls: contribution per unit drops by 37.5 per cent while volume rises 20 per cent, so total contribution moves to 0.625 × 1.20 = 0.75 of its previous level — a 25 per cent fall in profit.
Then ask why volume is flat, because the discount is a proposed answer to an undiagnosed problem. If volume is flat because the product is priced above what the segment will pay, a cut may work. If it is flat because distribution has not expanded, or because a competitor has better shelf placement, then price is not the constraint and cutting it removes margin without addressing anything.
Recommendation. Do not cut. The proposal needs three times the volume response it expects. Diagnose the flat volume first — distribution coverage, availability, whether lost customers cite price — and if price is genuinely the barrier, test a targeted mechanism such as a trial pack or a volume threshold rather than a permanent list price reduction, which is hard to reverse and signals the product was overpriced.
What this case tests. Whether you calculate before you evaluate, and whether you notice that the price change is a solution proposed for an undiagnosed problem.
Case 2: Pricing a product with no comparator
Prompt. A medical equipment manufacturer has developed a diagnostic device that reduces the time to a result from three days to twenty minutes. There is no directly comparable product. Manufacturing cost is $400 per unit. What should they charge?
Solution
Cost gives a floor and nothing else. There is no competitor to anchor on. This is a value-based pricing case, which means the price comes from what the change is worth to the buyer.
Identify the buyer’s economics. The buyer is a clinic. What does moving from three days to twenty minutes change for them?
- Repeat visits avoided. If the current process requires a second appointment for results, and a clinic runs 1,500 of these tests a year with, say, 60 per cent requiring a follow-up visit, that is 900 appointments. At a cost of roughly $60 per appointment slot, $54,000 a year.
- Faster treatment start. Real clinical value, but hard to price and it accrues to the patient and the payer rather than the clinic. Note it as a supporting argument rather than a number.
- Throughput. Freed appointment slots can be filled with billable work — this may be worth more than the cost avoided, and is worth asking about.
Set the price against the value share. If the device is used for three years and delivers $54,000 a year of avoidable cost, gross value is roughly $162,000. A manufacturer typically captures a portion of the value it creates, leaving enough for the buyer to have a clear reason to switch. At a third, that suggests roughly $50,000 per device, against a $400 manufacturing cost.
That ratio looks extreme and is normal in this category, because the price reflects the value delivered rather than the cost of production.
Then check adoption barriers. A $50,000 device is a capital purchase requiring budget approval, which slows the sales cycle considerably. This is where a pricing model change earns its place: charging per test at, say, $40 with the device placed free converts a capital decision into an operating one and accelerates adoption. At 1,500 tests a year that is $60,000 a year — more revenue over three years, arriving sooner, with a lower barrier.
Recommendation. Price on value, not cost, and lead with the per-test model to remove the capital approval barrier. Validate the $54,000 with two or three clinics before committing, since the whole structure rests on the follow-up visit rate.
What this case tests. Whether you can build a price from the buyer’s economics when there is no market reference, and whether you consider the pricing model as well as the level.
Case 3: Designing a tier structure
Prompt. A business software company charges a flat $80 per user per month. Analysis shows that its largest customers use roughly four times the features of its smallest, but pay the same rate per user. They are considering tiering. How should they design it?
Solution
Tiering works by separating customers who differ in willingness to pay. The design question is therefore: what is the fence? What stops a customer who would pay $150 from buying the $50 tier?
Identify the separating variable. It must correlate with value received and be hard to game. Candidates:
| Fence | Correlates with value? | Gameable? | Verdict |
|---|---|---|---|
| Number of users | Weakly — a small team can be high-value | Yes, by sharing logins | Poor alone |
| Feature access | Yes, if the advanced features are genuinely advanced | No | Strong |
| Usage volume | Yes | Hard to game | Strong |
| Support level | Partly | No | Useful as a secondary fence |
The strongest structure usually combines a feature fence with a usage fence, because each catches customers the other misses.
Then check the migration risk, which is where tiering usually goes wrong. Existing customers all pay $80. Under a new structure some will land on a $50 tier. If 40 per cent of the base migrates down and only 20 per cent migrates up, revenue falls even if the structure is well designed.
Work it. Assume 1,000 customers at $80: $80,000 a month.
- 30 per cent move to a $45 basic tier: 300 × $45 = $13,500
- 50 per cent stay at roughly $80 in a standard tier: 500 × $80 = $40,000
- 20 per cent move to a $160 premium tier: 200 × $160 = $32,000
- Total: $85,500, a 7 per cent increase.
That is a modest gain, and it is sensitive to the split. If the basic tier is too generous and 50 per cent migrate down, revenue falls.
Recommendation. Tier on features plus usage, set the basic tier deliberately narrow so that migration down is unattractive to anyone getting real value, and grandfather existing customers on their current rate for a defined period to avoid a churn event at launch. Model the migration split before committing, because the design is only as good as the fence.
What this case tests. Whether you understand what tiering is for, and whether you check that the new structure does not cannibalise the customers already paying well.
Case 4: The price move in a concentrated market
Prompt. Two firms hold roughly 80 per cent of a regional building materials market between them. Our client, the smaller at 30 per cent share, is considering a 5 per cent price increase to recover input cost inflation. Should they?
Solution
In a concentrated market, the competitor’s response is the case. A price move by one of two significant players is not a unilateral decision.
Three outcomes, and the client’s position under each:
| Competitor response | Likely outcome for the client |
|---|---|
| Follows the increase | Both recover margin; best case, and plausible if the competitor faces the same input inflation |
| Holds price | Client loses volume to the competitor; how much depends on switching cost |
| Cuts price | Damaging for both, and unlikely unless the competitor sees an opening to take share permanently |
Assess which is likely. If input inflation is industry-wide — and in building materials it usually is — the competitor faces the same pressure, which makes following considerably more likely than in a case where the client’s costs alone have risen. That is the key judgement, and it comes from a clarifying question rather than an assumption.
Work the exposure if the competitor holds. At 30 per cent share in a market where switching costs are low, a 5 per cent price gap could move meaningful volume. If the client loses 15 per cent of volume and gains 5 per cent on price, with contribution at 25 per cent of revenue: contribution per unit rises by 20 per cent (5 points on a 25 per cent margin), volume falls 15 per cent, so total contribution moves to 1.20 × 0.85 = 1.02 — roughly flat. The client survives the bad case, which is the useful finding.
Recommendation. Proceed, but sequence it to reduce the risk. Move on a subset of products first — those where switching is hardest or the client is differentiated — rather than across the range. That tests the competitor’s response at limited exposure and leaves a retreat available. State clearly that the client should not signal the increase publicly in a way that invites a coordinated response, since that raises legal issues that fall outside the analysis and should be flagged to counsel rather than reasoned around in an interview.
What this case tests. Whether you treat pricing in a concentrated market as an interaction rather than a decision, and whether you model the downside before recommending the move.
The habits these cases build
Calculate the break-even before you evaluate. Say which of cost, competitor or value you are anchoring on and why. Consider the pricing model, not only the level — per-unit, subscription, usage, tiered — because it often matters more. Give the competitor a move in any concentrated market. And name the assumption the answer is most sensitive to before you are asked.
More worked cases across other formats are in the case study library; the arithmetic is covered in case maths techniques; and the case interview hub sets out where pricing sits in a full preparation plan.
