Scribd
Upload
84 views5 pages

4 - Medium - Fertilizer Innovation

The client has developed a product called "Green Nutrient" which allows variable fertilizer rates to help farmers reduce over-use and increase yields. The document provides information on product benefits, costs, and the agricultural market. It seeks a pricing strategy and go-to-market approach. The candidate should analyze pricing options, identify the most profitable customer segments, and recommend a strategy to target large and medium farms at $32K per unit to maximize profits.

Uploaded by

Pankazz KR
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
84 views5 pages

4 - Medium - Fertilizer Innovation

The client has developed a product called "Green Nutrient" which allows variable fertilizer rates to help farmers reduce over-use and increase yields. The document provides information on product benefits, costs, and the agricultural market. It seeks a pricing strategy and go-to-market approach. The candidate should analyze pricing options, identify the most profitable customer segments, and recommend a strategy to target large and medium farms at $32K per unit to maximize profits.

Uploaded by

Pankazz KR
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 5

Case 13: Fertilizer Innovation, McKinsey (Round 1)

Problem Statement

 Your client is an agricultural products manufacturer. They invented a product called “Green Nutrient”.
This is going to help the farmers by allowing a variable fertilizer rate. The company is interested in a
pricing strategy and go-to-market options.

Type of Case Interviewer Guidance

 Industry: Industrial Goods  In this case the candidate should first focus on
understanding the product followed by a quantitative
 Difficulty: Medium assessment of the product’s benefits to various customer
segments
 Format: Pricing  This should be followed by a qualitative discussion of the
various pricing mechanisms and other components of the
 Concepts Tested: EVC, Price go-to-market strategy, such as placement and promotion
Discrimination, Market
Segmentation
Clarifying Information and Case Guidance

Clarifying Information on Request Interviewer Guidance to Case and Exhibits

 “Green Nutrient” measures the amount of fertilizer  Provide information only when asked
required, allowing for a “variable fertilizer rate”  Candidate should clarify if the product is a device or the
 Two main benefits: Reduces over-use (reduce costs) fertilizer itself
and increase under-use (increase yield)
 Benefit #1: 20% reduction in fertilizer cost per
acre. 1 bag / acre @ $15/ bag.
 Benefit #2: Improve yield 2%. Current average
yield: 100 bundles/ acre @$ 2.5/ bundle
 No competition
 Farm size average about 400 acres
 1,000 Large farms: 1,000 acres
 3,000 Medium farms: 400 acres
 6,000 Small farms: 200 acres
 Product lasts 10 years
 Product production cost: $10K per unit
 Unit works the same regardless of farm size
 Discount rate: 0%

176
Possible Framework

Framework

Different pricing methods


 Economic value to customer – savings from reduced fertilizer use, increased revenue form yield improvement
 Cost plus – variable cost per unit, margin of similar product
 Competitor based (market) – price of similar product, margin of similar product
Go-to-market strategy
STP Analysis
 Market size and segments by size of farm
 Value proposition for each segment
 Profitability analysis for each segment to decide targeting
4P Analysis
 Placement – Agriculture product retailers, direct to farmers, big box retailers, online etc.
 Promotion – Trade journals, trade shows etc.

Interviewer guidance: candidate should argue the pros and cons of each pricing method and decide that EVC is
the best way to go.
Give bonus points if candidate mentions price discrimination or price skimming.

177
Math Questions and Solutions

Math Question

 Pricing analysis (Interviewee led)

Math Solution

 EVC/Acre
 $3.00 fertilizer savings per acre (20% * $15)
 $5.00 yield increase ($2.5 * 100 * 2%)
 Maximum WTP per acre: $8.00 per acre
 WTP for each farm type: Small - $16K ($8 * 200), Medium - $32K, Large - $80K

 Customer segment analysis:


 Large: If we price the product at $80k we sell 1000 profit $70M
 Large & Medium: If we price the product at $32k we sell 4000; profit $88M  BEST OPTION
 All farms: If we price the product at $16k we sell 1000 profit $60M

178
Conclusion

Recommendation Next Steps

Recommendation  Market analysis on actual WTP and


 Our client should price the device at $32K/unit and target competitive response
the large and medium farm. This will allow our client to  Research on channels and promotion
maximize profits. schemes
Risks (Make sure interviewee mitigates)
 New entrant comes to market in next 10 years who may
price more competitively
 Customers may not be willing to pay EVC

Excellent Case Answers

 Skimming: start by pricing at $80k and then $32k and then $16k
 Offer a service to the farms at up to $8/acre that will achieve a price discrimination based on acreage
(perfect price discrimination)

179

You might also like