Puzzled by pricing in commodities market

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

Competitive response cases are a special type of case you might encounter in your case interview. In these cases, you either have to analyze how your client should respond to a competitor's strategy or predict how competitors will react to your client's strategy. This type of case helps you understand competitive dynamics better and develop effective strategies for competitive responses.While competitive cases are rare on their own, similar to Mergers and Acquisitions (M&A), they often appear as part of a larger business problem. By working on competitive response cases, you learn not only how to make the right strategic decisions, but also how to ensure your client's long-term competitiveness.👉 Want to solve a competitive response case? Choose from over 30 exciting cases in our Case Library! 🚀 How to Approach Competitive Response CasesTo successfully tackle a competitive response case, follow these three steps:1. Analyze the Current Competitive SituationBefore giving any recommendations, it’s essential to fully understand the current competitive situation. Key aspects to investigate include:Description of the competitor’s product: What exactly does the new product offer? How does it differ from your client's existing products?Customer relevance: How important are the new features to customers? How do they influence purchasing decisions?Competitor’s goals: What is the competitor trying to achieve with the new product? Are they aiming for higher prices or trying to gain market share?Motivation behind the launch: Why did the competitor introduce this product? Has customer preference changed, or are there new technological advancements?Target market: Which market segment is targeted by the new product, and how is this segment expected to react?Client’s resources: Does your client have resources or capabilities that could be used to respond to the new product, such as expertise, financial resources, production facilities, or strategic partnerships? 2. Develop Strategies to Respond to the Competitive SituationBased on your analysis, consider various strategic options. Possible responses to the introduction of a new competitive product could include:Optimize the product: Think about how to make the current product more attractive. This could be through product changes, market repositioning, or increased marketing efforts. Strengthening customer loyalty or increasing switching costs could also be effective.Develop a new product: Consider introducing a new product that competes with the competitor’s product. Alternatively, think about acquiring or partnering with the competitor or imitating their successful product features.Wait: In some cases, it might be wise to wait and gather more information before making a final decision. This strategy could be useful if you need more detailed market analysis or additional developments. 3. Formulate a RecommendationBased on your analysis and evaluated strategies, formulate your final recommendation. Consider both the short-term and long-term impacts of the proposed actions on your client's competitiveness and success. Key Insights on Competitive Response Cases💡 Understand and analyze the differences between the competitor's new product and your client’s product, as well as the relevant customer needs.💡 There are various response options such as product optimization, new product development, or waiting. Choose the right strategy based on your analysis.💡 Consider both short-term and long-term impacts on the client's competitive position and strategic goals.By following this structured approach, you can demonstrate in your case interview that you not only understand the competitive situation but also provide well-founded and strategic recommendations. Practice Competitive Response CasesTo wrap up, we have two Competitive Response Cases for you to apply your newly learned knowledge. Good luck! 🍀Deloitte Case: FootloosePrepLounge Case: The Madhouse Animation Crisis