Strategy & operation case study

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 CompanyAt 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 ProductAfter 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 StrategyThe 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 TakeawaysFrom 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.👉 Company Case by INVERTO: VacuLuxe Innovations' Supply Chain Makeover👉 Expert Case by Hagen: Retail Banking Profitability👉 PrepLounge Case: Deep Water Rescue

The concept of the Blue Ocean Strategy (sometimes referred to as Value Innovation, Differentiation Strategy, Uncontested Market Space) was introduced to the world by W. Chan Kim and Renée Mauborgne in their groundbreaking book, "Blue Ocean Strategy," published in 2005. Through their innovative strategic approach, they challenged traditional business thinking and competition dynamics.The Blue Ocean Strategy advocates for the generation and seizure of new demand in untapped or uncontested market spaces, often referred to as "blue oceans." These are areas of the market where the company is the sole player, thus avoiding competition and enjoying greater profits and growth.In stark contrast to the blue oceans, we have what is known as the "red ocean" - the existing market space. This is called a red ocean because it's perceived to be bloody due to fierce competition. In a red ocean, companies strive to outperform their rivals to grab a greater share of existing demand. The competition is cutthroat, and the market space gets crowded, leading to diminishing profits and growth.The Blue Ocean vs. Red Ocean StrategyThe Blue Ocean Strategy, therefore, represents a shift from this destructive competition towards a more constructive, creative form of market development. It encourages businesses to explore beyond the known boundaries of the industry and create new markets, thus making the competition irrelevant.Weighing the Pros and Cons of the Blue Ocean StrategyTo maximize the benefits of the Blue Ocean Strategy and mitigate potential pitfalls, a balanced understanding of its pros and cons is vital:Pros:New Market Creation: By focusing on untapped markets, companies following the Blue Ocean Strategy can create and capture significant new demand.Reduced Competition: As the markets are essentially uncontested, there's less competition and therefore a greater opportunity for growth and profits.Innovation Encouragement: The strategy encourages innovation and creativity, pushing companies to explore outside their typical market boundaries.Cons:Risk of Failure: Given the focus on unexplored territories, there's a higher risk of failure due to unknown market dynamics and customer preferences.Implementation Challenges: The implementation of the Blue Ocean Strategy requires significant organizational change, which can be challenging to manage and execute.Protection of the Blue Ocean Strategy: Once a blue ocean is discovered, maintaining it can be difficult as other firms may eventually enter the market.Unlocking Growth Potential with the Blue Ocean StrategyUnderstanding the Blue Ocean Strategy is critical for consultants, as it provides a different perspective on growth and competition. It allows consultants to guide their clients towards identifying and creating new market spaces, fostering innovation, and capturing new demand. The strategy presents a unique approach to achieving sustainable growth and profitability, making it a valuable concept in a consultant's toolkit. However, its potential risks and challenges necessitate careful planning, research, and execution.