01 · Recognize

Pricing

What price, or what pricing model, should we choose?

You are in this case when

  • The lever on the table is price, a discount or a subscription tier.
  • Someone asks what customers would pay rather than what it costs.

02 · Structure

Which drivers matter?

What price, or what pricing model, should we choose?
  1. 01

    Customer value

    Willingness to pay

    Segment price sensitivity and the alternatives customers compare against.

  2. 02

    Economics

    Contribution × volume

    Unit cost, capacity, break-even volume and margin at each candidate price.

  3. 03

    Market & rollout

    Response and test

    Competitor reaction, channel conflict, bundles and a reversible pilot.

Contribution = (price − variable cost per unit) × units

03 · Solve

Work the scratch sheet.

Illustrative practice scenarioA gym has 1,000 members paying $40 a month; variable cost is $8 a member. It considers a 10% price rise to $44 and expects 8% of members to leave.

  1. Contribution today($40 − $8) × 1,000 = $32,000 a month
  2. Contribution after the rise($44 − $8) × 920 = $33,120 a month
  3. Change$33,120 − $32,000 = +$1,120 (+3.5%)
  4. Churn that breaks even$32,000 ÷ $36 = 889 members, so up to 11.1% can leave

The rise pays as long as fewer than about 11% of members leave. The real question is which members leave: the heavy users or the ones who never came.

Work backward from an answer

If the answer is “raise the price 10%”, fewer than about 11% of members can leave. So the first question is which members are price-sensitive, not whether the number is round.

04 · Recommend

Make the call in three buckets.

Answer

Raise the price to $44 for new members first; grandfather current members for a quarter.

Because · ties to the hypothesis

Contribution rises 3.5% at the expected churn and survives up to 11% churn.

Next steps & risks

Pilot in two locations and watch who leaves. Risk: the leavers are the frequent users whose referrals drive sign-ups.

“I would test the volume response by segment before applying one price to every customer.”

Watch for: A price rise can lift margin and cut volume at once. Willingness to pay is not cost plus a markup.

Log this case in My Harper →

Special sauce

Bring a real company into the room.

pricing · LuxuryHermès

If demand rises 20%, would another workshop or faster artisan training unlock more output? Ask for hours per item, training time and reject rates.

Read the story →pricing · Media & subscriptionsNetflix

Would you fund a second season if viewing is high but subscriber retention barely changes? Identify the comparison group before calculating the return.

Read the story →

Three terms to use

Price elasticity
Percentage change in quantity divided by percentage change in price.
Willingness to pay
The most a segment would pay for this offer under these conditions.
Contribution margin
Price minus variable cost per unit, times units.

Original Harper practice examples; every figure is illustrative. Adapt the questions to the client’s objective, timing and constraints.