Pricing
What should we charge? Pricing cases reward the candidate who leads with what the customer will pay rather than defaulting to cost-plus. This page covers the three methods, the price band that bounds the answer, elasticity, and the launch plays the casebooks leave out.
Ask a weak candidate to price something and they reach for cost plus a margin — the one method that ignores the only thing that matters: what the customer will actually pay. Cost tells you the floor you must clear, not the price you should charge. The skill in a pricing case is to bound the problem between cost and willingness-to-pay, then place the price deliberately for the objective — not to mark up a spreadsheet.
TL;DR · Key Takeaways
Key Takeaways
- You will pin the objective first — profit, share, breakeven, or brand — because the same product has a different right price for each goal.
- You will hold the three methods as cost (internal, the floor) versus competitor benchmarking and value/WTP (external, the ceiling), and lead with value rather than defaulting to cost-plus.
- You will bound the answer in a price band between cost and willingness-to-pay, using the competitor reference to anchor, before proposing any number.
- You will estimate value with creative proxies — savings, next-best alternative, cost of no solution — to justify a premium above cost via the value ladder.
- You will place the price below the ceiling for profit, reasoning about elasticity and the volume you give up, and recognise pricing as a lever inside Profitability and Growth cases too.
A pricing case gives you a product and asks what to charge — for a new launch, a relaunch, or a repricing. Like profitability, it is one connected decision: establish the objective, bound the viable range, choose a method to land within it, and sense-check against how demand responds. Get the logic right and the number follows.
Objective first, always
The same product can have three right prices depending on the goal. Maximising profit, grabbing market share, and signalling a premium brand each point to a different number. Pin down the objective before you compute anything — it is the lens that turns a range of viable prices into a single recommendation.
The three methods
There are three ways to price, and the cleanest way to hold them is internal-looking versus external-looking: cost (what it costs us) looks inward and sets the floor, while competitor benchmarking and value/willingness-to-pay look outward and define the ceiling.
The price band
Those methods together bound the answer. Cost is the floor — price below it and every sale loses money. Willingness-to-pay is the ceiling — price above it and nobody buys. The competitor reference price anchors where in that band the market expects you to sit. Find the band first; it turns an open question into a bounded one.
The value ladder
The most important method is value-based, and the clearest way to see it is as a ladder. You start at cost and climb — every rupee of price above cost has to be justified by something the customer values: a new utility, an innovation, higher quality, brand. Name those layers and you can defend a premium.
Build creative proxies for value
Interviewers rarely hand you willingness-to-pay — you have to estimate it. Use proxies: what does the customer pay for the next-best alternative, what does the product save or earn them, what is the cost of having no solution at all? "This software saves a 50-person team an hour a day, so it is worth roughly that much labour cost" is the kind of value reasoning that justifies a price far above cost.
What kind of product is it?
How you price depends on what you are pricing. A product with close competitors has a reference price to anchor against; a genuinely new invention has none, so you must build up from cost via the value ladder. And for a new launch, two opposite strategies — skimming and penetration — flow from the objective.
Why the best price isn't the highest
A common trap is to price right at willingness-to-pay. But profit is price times volume minus cost — and raising price sheds volume. The profit-maximising price sits below the ceiling, at the peak of the trade-off. How far below depends on elasticity: how sharply volume falls when price rises.
Don't confuse the highest price with the best price
Charging the maximum a few customers would pay can leave you with high margin and almost no volume — less total profit than a lower price that sells far more. Always reason about the volume you give up when you raise price. If demand is inelastic (essentials, few substitutes, loyal customers) there is room to push price; if elastic (discretionary, many substitutes) a rise can backfire.
Navigating it live
Put it together as a live path: objective, then product and customer, then bound the band, then triangulate the methods, then place the price for the goal with elasticity in mind.
Worked mini-case
Watch the method in action — note how the candidate refuses to start from cost, pins the objective, estimates value with a proxy, bounds the band, and lets elasticity and objective place the final price.
Pricing a new water purifier
An Indian appliance company has developed a new home water purifier with a filter that lasts twice as long as anything on the market. What price should they set?
Before a number, two questions. What is the objective — profit, share, or premium positioning? And is there anything directly comparable, or is this genuinely new? My hypothesis is it is a modification of an existing category (purifiers exist) with a real innovation (the long-life filter), so I have both a reference price to anchor on and a value story to climb above it.
The objective is profit, and yes — standard purifiers retail around ₹15,000. Where do you go?
Then I would bound the band. The floor is their unit cost — say it is ₹8,000 to make and they want a healthy margin, so they will not go below maybe ₹11,000-12,000. The ceiling is willingness-to-pay, and here the long-life filter is the value story. A normal purifier needs filter replacements costing, say, ₹2,000 a year; if this one halves that, it saves the customer roughly ₹1,000 a year, or ₹4,000-5,000 over its life. So a rational customer should pay up to about ₹4,000-5,000 more than a standard ₹15,000 unit — a ceiling near ₹19,000-20,000.
So you would price at ₹20,000?
No — that is the ceiling, not the best price. Two reasons. First, most customers do not fully rationalise lifetime savings, so I would not assume they will pay the entire ₹5,000 premium up front. Second, the objective is profit, not the highest price: purifiers are fairly elastic — there are cheaper substitutes — so pricing at the very top would lose a lot of volume. I would position it at a clear but not maximal premium, around ₹17,000-18,000: meaningfully above the ₹15,000 reference to capture the filter value and signal quality, but not so high that the volume loss outweighs the margin. I would also suggest testing two price points in a few markets before a national launch.
The candidate refused to start from cost, pinned the objective, used a value proxy (filter savings) to estimate the ceiling, bounded the band between cost and WTP, and then placed the price below the ceiling for elasticity and the profit objective — even proposing a price test.
Objective first, value proxy for the ceiling, then place below it for elasticity and goal.
Pricing is a lever, not an island
Pricing shows up inside other cases constantly. It is one branch of the revenue side of a Profitability tree, and a core organic lever in a Growth case (revenue per user). When a pricing question appears mid-case, the same logic applies — bound the band, lead with value, place for the objective — and naming that connection signals you see the whole picture.