Case Statement:
Your client is ISRO and after the successful launch of Chandrayaan-3, they have now ventured into space tourism, starting off with Moon. You’ve been tasked to come up with an effective pricing strategy.
C: This is a legit out-of-the-world experience we are offering here (both the candidate and interviewer laugh). Before I delve into this, I want to understand a bit more about our offering here?
I: So, ISRO has a new spacecraft and they plan to deploy it for space tourism. It will be a 120-day round-trip.
C: Is this 120 days inclusive of the training that needs to be imparted to tourists? Also, how many crafts do we have? What’s the occupancy per craft? Is there any downtime between two consecutive launches?
I: Good points, assume, that there is no maintenance period between two launches and no training required. We just have one spacecraft which can accommodate 10 tourists at once.
C: Ok. Just to make sure we are on the same page, it takes 60 days one-way and we aren’t spending much time on the moon. Also, do we have any competitors so far, I can think of SpaceX, Virgin Atlantic, Blue Origin etc. ?
I: You seem to know a lot about this but let’s keep this simple and assume we have no other players in the market.
C: Great. So one last thing, are there any objectives that ISRO has in mind, that I should focus on while pricing this service?
I: So, they want to break-even in the next 5 years.
C: Sure, so I would like to look at pricing this service through – Cost-Based and Value-Based pricing methods. Since, we don’t have any competitors, so that gets ruled out.
I: Yes, let’s start with cost-based approach first.
C: Alright, since we are looking at breaking even, I would want to get a better understanding of our Fixed and Variable costs involved here. Fixed costs would entail R&D costs, Salaries of scientists and personnel, and infrastructure required for this spacecraft such as launchpads, equipment, advertisements etc. As far as the variable costs are concerned, it would entail rocket fuel costs, contractual workers, one-time specialised launch equipment like boosters.
I: Our fixed costs are about 2000 crores and we incur 50 crores per flight.
C: So, we plan to breakeven in 5 years, effectively assuming 360 days in a year with a TAT of 120 days/flight, we have 15 flights. (Calculating)… we need to generate approximately 180 crores in revenue per flight, i.e. 18 crores/tourist.
I: Perfect, how do you wish to proceed ahead?
C: So, this 18 crores gives us the floor price. Onto, value-based pricing, we need to ascertain a similar experience using which we can ascertain our pricing. We can look at the time and effort cost associated in becoming an astronaut and triangulate from there.
I: That is one way, anything else?
C: Using first principles, we have a constraint on the supply here but I assume the demand is much more than that. Which gives ISRO the leverage to command the prices. We can look at blind auctions with floor bid of 18 crores, and then select top 10 individuals.
I: Yes, that sounds goods.
C: We can also survey our target group, assess their willingness to pay at different price levels and then using their sensitivity arrive at the optimum price point for us.
I: Thank you for all your suggestions, we’ll close the case here.
Background Information:
Client: Indian Space Research organization
Competitors: Assume currently there are no players with a similar offering
Customers: Top 1% of High net-worth individual
Location/Geography: India
Products: Lunar Space Craft, which will take people to the moon, do a touchdown and come back in 120 days
Case recommendations:
To price the baldness cure medicine at $500 to maximize profit in the Indian market, considering different income segments and their willingness to pay
