Management Consulting Case Study-Hybrid corn producer

Case Prompt:

Our client, a corn producer, has developed a new hybrid corn with a higher yield compared to the industry average. They want to determine the pricing strategy for this new hybrid corn. Currently, farmers typically save a portion of their harvest for planting, but in countries with high GDP, they purchase and plant hybrid corn with specific characteristics. The key characteristics for our client's hybrid corn are insect resistance and increased yield. Your task is to advise the client on how to price the new hybrid corn.

Exhibit:

- The new hybrid corn increases the yield from 80 bushels per acre (industry average) to 90 bushels per acre.

- Farmers sell corn at $10 per bushel.

- Regardless of using regular or hybrid seed corn, 2 bags of seed corn are needed per acre.

- The cost to the farmer per bag is $80.

- No additional costs are incurred by farmers when switching from regular seed corn to hybrid corn.

- The client has already covered the development costs in the R&D budget.

Complication:

A weather event that wipes out the crop has occurred 30 times in the last 150 years. Determine how this would impact pricing.

Background:

The client has developed a new hybrid corn with a higher yield and wants to determine the pricing strategy for the product. By considering the value to the customer and comparing it to the cost, appropriate pricing can be determined. The value to the customer is based on the additional yield per acre and the selling price of corn.

Analysis:

To establish the pricing strategy, the following factors should be considered:

1. Value to the Customer: Calculate the additional value provided by the new hybrid corn. With an increase in yield of 10 bushels per acre and a selling price of $10 per bushel, the value to the customer is $100 per acre. As only two bags of seed corn are needed per acre, the additional value per bag is $50.

2. Pricing Calculation: Based on the cost per bag, which is $80, the client can charge up to $80 + $50 = $130 per bag. However, it is advisable to leave room for market penetration and induce purchases, so a slightly lower price can be considered.

3. Market Perception: Given that research supporting the value of the hybrid corn has been published in a trusted magazine, selling the new product should not be challenging.

4. Weather Event Impact: The interviewer introduced a complication by stating that a crop-wiping weather event occurred 30 times in the last 150 years. As a result, the value to the farmer is reduced due to the uncertainty of the crop's survival. Assuming a 20% reduction in value, the maximum price per bag becomes $80 + (80% * $50) = $120.

Synthesis and Recommendation:

Based on the analysis, it is recommended to price the new hybrid corn at $120 per bag. This pricing strategy considers the additional value provided to the customer while leaving room for market penetration. It is crucial to launch the product as soon as possible to secure contracts with farmers before competitors introduce their versions of the product. The weather event complication reduces the value to the farmer and affects the maximum price per bag, reinforcing the need to launch quickly and capture market share.