Interviewer view · keep this screen to yourself
Pricing a money-saving industrial part in Germany
You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.
Case timer
00:00
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
A German company has a new part that costs EUR 200 to make (variable cost) and saves the customer EUR 1,000 a year in energy for five years. The customer's current part costs EUR 300. There is no direct competitor. The table below compares the two parts. How should the new part be priced?
The prompt refers to Exhibit 1. After reading it, say: "Open Exhibit 1 now."
Format note: Interviewer-led: the interviewer shows the comparison table and asks for a cost-based price, then the value to the customer, then a recommended price.
2. Answers to clarifying questions
Give these answers only if the candidate asks. If they ask something not listed, give a sensible answer or say it does not matter here.
If asked: What do customers use today instead?
Answer: A standard part that costs EUR 300 and gives no energy saving.
If asked: How sure are the savings, and do all customers get them?
Answer: Tests show EUR 1,000 a year for five years in large plants; smaller plants save less.
If asked: How do customers judge purchases like this?
Answer: Their finance teams want the extra spend paid back within two years, and they discount future savings at about 10 percent a year.
3. The hypothesis a strong candidate states
Listen for an early, testable guess like this one. It does not need to match word for word.
The part creates far more value than it costs to make, so my hypothesis is that value, not cost, should set the price, and the practical limit is the customer's two-year payback rule.
4. A model structure
Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.
- Cost floor, value ceiling, and a price the customer accepts
- Cost floor and a cost-plus reference
- Key: Value ceiling: alternative price plus savings in today's money
- Chosen price: customer payback and our contribution
Exhibit 1
The prompt uses this exhibit, so the candidate opens it right after you read the prompt ("Show exhibit 1" on their screen).
| Item | Current part | New part |
|---|---|---|
| Purchase price (EUR) | 300 | To be set |
| Energy saving (EUR a year) | 0 | 1,000 |
| Useful life (years) | 5 | 5 |
| Our variable cost (EUR) | Not our product | 200 |
So-what
The new part costs little to make but saves EUR 1,000 a year for five years, so its value to the customer is far above its cost.
5. The working, step by step
Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.
Step 1: Cost-plus reference
What a strong candidate does: A cost-plus approach might add a 25 percent markup to the EUR 200 cost.
Cost-plus price (EUR): 200 × 1.25 = 250
Step 2: Markup versus margin
What a strong candidate does: At EUR 250, profit of EUR 50 is a 25 percent markup on cost but only a 20 percent margin on price.
Margin at EUR 250 (%): (250 - 200) ÷ 250 × 100 = 20
Step 3: Savings before discounting
What a strong candidate does: EUR 1,000 a year for five years.
Undiscounted savings (EUR): 1,000 × 5 = 5,000
Step 4: Savings in today's money
What a strong candidate does: Discount each year at the customer's 10 percent rate: 1.21 is 1.1 x 1.1, 1.331 is 1.1 x 1.1 x 1.1, and so on.
Present value of savings (EUR): 1,000 ÷ 1.1 + 1,000 ÷ 1.21 + 1,000 ÷ 1.331 + 1,000 ÷ 1.4641 + 1,000 ÷ 1.61051 = 3,791
Step 5: Economic value to the customer
What a strong candidate does: The price of the alternative plus the savings in today's money: about EUR 4,100 is the most a rational customer would pay.
EVC (EUR): 300 + 3,790.79 = 4,091
Step 6: Customer payback at EUR 1,500
What a strong candidate does: At EUR 1,500 the customer pays EUR 1,200 more than for the old part and saves EUR 1,000 a year.
Customer payback (years): (1,500 - 300) ÷ 1,000 = 1.2
Step 7: Our contribution at EUR 1,500
What a strong candidate does: Price minus variable cost. This is contribution, not profit: development and sales costs still have to be covered.
Contribution per unit (EUR): 1,500 - 200 = 1,300
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
Price on value, at about EUR 1,500. First, that is far above a cost-plus price of EUR 250 and well below the customer's value of about EUR 4,100 (the EUR 300 alternative plus about EUR 3,800 of savings in today's money), so both sides gain. Second, the customer earns back the extra EUR 1,200 in 1.2 years, inside its two-year rule. Third, we earn EUR 1,300 of contribution per unit toward development and sales costs. Offer a lower-priced version for small plants, where savings are lower.
Risks a strong answer names: Savings in real plants may be lower than in tests; A competitor may copy the part within a few years, pushing prices down.
Next steps: Confirm savings with three pilot customers; Set prices by plant size.
Strong versus weak
A strong answer
Anchored on the customer's next-best alternative and discounted savings, then chose a price that passes the customer's payback rule.
A weak answer
Added a 25 percent markup to the EUR 200 cost and stopped at EUR 250.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
Total
0 out of 25
Score all five criteria to see the band and the feedback template.