Pricing case study: Prairiestead Seeds
Prairiestead Seeds has bred a corn seed that keeps most of its yield in a drought. The CEO wants a value-based price, but the extra value only shows up in drought years, and droughts are far more likely in some regions than others. The full solution is below: the structure, every exhibit, the math, a model answer and the mistakes to avoid.
- Type
- Pricing
- Difficulty
- Hard
- Length
- About 30 minutes
- Format
- Interviewer led
The case
The interviewer reads this aloud. Try it before you read on.
Our client is Prairiestead Seeds, a seed company that has bred a new corn seed that keeps most of its yield when there is a drought. In a normal year it yields the same as a standard seed. Prairiestead plans to launch it next season across its three sales regions, West, Central and East, and sell it at a premium per acre over its standard seed. The CEO wants the premium to reflect the value farmers get, but is stuck, because the value only appears if a drought actually happens. She has asked us how Prairiestead should price the new seed.
Facts the interviewer gives if you ask
- What does a farmer pay for standard seed today?
- About $120 of seed per acre. The new seed costs Prairiestead the same to produce, so the premium is extra profit.
- What corn price should we use?
- The client plans with $5 a bushel.
- Where do the drought chances come from?
- The client's own analysis of 30 years of weather in each region. Treat them as the best estimate.
- How do farmers decide whether to pay for a new trait?
- The client's farmer survey says farmers adopt a new trait if the premium is no more than half of the extra value they expect. Where they adopt, about 30% of corn acres in that region switch by year 3.
- Are there competing drought-tolerant seeds?
- Not for at least three years, in the client's view.
- Can Prairiestead charge different prices in different regions?
- It sells through regional dealers, and each sale is licensed to the farm's address. Prices could differ by region.
The solution, step by step
How the case runs in the interview, in 5 steps. Each step has the interviewer's question, the exhibit or data shown, and what a strong answer says.
- 1
Structure the problem
The interviewer asks: “How would you approach pricing the new seed?”
A strong structure
- 1Value to the farmer: extra yield in a drought, times corn price, times the chance of a drought
- 2Differences across customers: drought risk and acres by region
- 3Price structure: share of value captured, one national price or regional prices, adoption
- 4Risks: resale across regions, fairness, farmers' risk aversion, competitors
A strong answer
Value-based pricing: first the farmer's extra value per acre, which is the extra yield in a drought, times the corn price, times the chance of a drought, since in a normal year there is no gain. Then how that value differs across farmers, mainly by drought risk in each region. Then how much of the value to capture, given what farmers need to switch, and whether one national price or regional prices work better. Then risks: resale between regions, farmers' perception of fairness, risk aversion, and competitors. Also check Prairiestead's cost, which here is the same as standard seed.
- 2
Read the exhibits
The interviewer asks: “Here are the client's trial yields for the two seeds in normal and drought years. What does this tell you?”
Exhibit 1
Corn yield by seed in normal and drought years, client field trials
Average yield in bushels per acre from the client's multi-year field trials.
Corn yield by seed in normal and drought years, client field trials Seed Normal year (bushels per acre) Drought year (bushels per acre) Standard seed 200 120 Drought-tolerant seed 200 170 What to notice
- In a normal year both seeds yield 200 bushels an acre.
- In a drought year the new seed yields 170 against 120, 50 bushels more.
- So the value is $250 an acre in a drought year and nothing otherwise.
A strong answer
In a normal year both seeds yield 200 bushels an acre, so there is no gain. In a drought year standard seed falls to 120 and the new seed holds 170, 50 bushels more. At $5 a bushel, that is $250 an acre in a drought year and nothing otherwise. So the expected value per acre is the chance of a drought times $250, and it will differ wherever drought risk differs. The new seed also cuts how much a farmer loses in a bad year, from 80 bushels to 30, which matters to farmers beyond the average.
- 3
Do the math
The interviewer asks: “Here are corn acres and the chance of a drought year in each region. What premium would you charge in each region, and how does that compare with one national price?”
The interviewer adds
- Value capture: the CEO wants to charge 40% of the expected value.
- Adoption: farmers adopt if the premium is no more than half of their expected extra value. Where they adopt, 30% of the region's corn acres switch by year 3.
- If asked for a national price: use the acre-weighted drought chance and the same 40%.
Exhibit 2
Corn acres and chance of a drought year by sales region
Corn acres planted per year, millions, and the client's estimate of the chance that a year is a drought year, %.
Corn acres and chance of a drought year by sales region Region Corn acres (M) Chance of a drought year (%) West 10 40 Central 20 20 East 10 8 Total 40 What to notice
- Drought chances differ five-fold, from 40% in the West to 8% in the East.
- Central has half the acres at a 20% chance.
- The acre-weighted chance is 22%, which fits no region well.
A strong answer
Expected value per acre: West 40% times $250 is $100, Central 20% is $50, East 8% is $20. At 40% capture the regional premiums are $40, $20 and $8. National: the acre-weighted drought chance is (10 times 40 plus 20 times 20 plus 10 times 8) over 40, which is 22%, so $55 of value and a $22 premium. At $22 the East's premium is 110% of its $20 value, so the East doesn't buy. Revenue at year 3: national, 30% of West and Central acres, 3 million plus 6 million, 9 million acres times $22, $198 million. Regional: 3 million times $40, 6 million times $20, 3 million times $8, which is $120 million plus $120 million plus $24 million, $264 million on 12 million acres. Regional pricing earns $66 million more, a third more.
Every number, worked out30 calculations
Every number, worked out Number Worked out Result Extra yield in a drought (bushels) 170 − 120 50 Extra value in a drought year ($ per acre) 50 × 5 250 Standard seed loss in a drought (bushels) 200 − 120 80 New seed loss in a drought (bushels) 200 − 170 30 West expected value ($ per acre) 0.4 × 250 100 Central expected value ($ per acre) 0.2 × 250 50 East expected value ($ per acre) 0.08 × 250 20 West premium ($ per acre) 100 × 0.4 40 Central premium ($ per acre) 50 × 0.4 20 East premium ($ per acre) 20 × 0.4 8 Total corn acres (M) 10 + 20 + 10 40 Acre-weighted drought chance (%) (10 × 40 + 20 × 20 + 10 × 8) ÷ 40 22 National expected value ($ per acre) 0.22 × 250 55 National premium ($ per acre) 55 × 0.4 22 National premium as share of East value (%) 22 ÷ 20 × 100 110 National premium as share of Central value (%) 22 ÷ 50 × 100 44 West acres adopting (M) 10 × 0.3 3 Central acres adopting (M) 20 × 0.3 6 East acres adopting under regional prices (M) 10 × 0.3 3 National revenue ($M) (3 + 6) × 22 198 Regional revenue ($M) 3 × 40 + 6 × 20 + 3 × 8 264 Regional uplift ($M) 264 − 198 66 Regional uplift (%) 66 ÷ 198 × 100 33.3 Regional acres (M) 3 + 6 + 3 12 West farmer pays over ten years ($ per acre) 40 × 10 400 West farmer gains over ten years ($ per acre) 4 × 250 1,000 National acres adopting (M) 3 + 6 9 West revenue under regional prices ($M) 3 × 40 120 Central revenue under regional prices ($M) 6 × 20 120 East revenue under regional prices ($M) 3 × 8 24 - 4
Brainstorm the options
The interviewer asks: “What could go wrong with regional prices, and how would you handle it?”
A strong answer
Risks and fixes. Resale: farmers or dealers buying cheap Eastern seed for the West, so license each sale to a farm address, ship through regional dealers, and audit. Fairness: farmers comparing prices across regions, so explain prices by expected drought benefit and publish the method. Risk aversion and timing: Western farmers pay $40 in every year but gain only in drought years, so offer a drought-linked option, for example part of the premium refunded if no drought is declared, or a lower upfront premium with a payment after a drought harvest. Climate drift: drought chances can change, so revisit prices each season. Competitors: a rival trait in three years, so build loyalty and volume now. Borders: farms near a regional boundary. A strong candidate puts resale and farmer risk perception first.
- 5
Make the recommendation
The interviewer asks: “The CEO needs a pricing recommendation for next season.”
A strong recommendation
Price by region on expected value: a premium of $40 an acre in the West, $20 in Central and $8 in the East, 40% of each region's expected value of $100, $50 and $20 (the chance of a drought times $250). By year 3 that brings about $264 million a year of premium on 12 million acres, $66 million more than one $22 national price, which would under-price the West and exceed the East's whole $20 of value, so the East would not buy. Protect it with farm-address licensing through regional dealers to stop resale, and explain each price by the region's drought benefit. Risks: resale across regions, farmers who see a yearly charge for an occasional gain, and drought chances shifting. Next steps: test a drought-linked refund option with Western farmers, set the licensing rules, and revisit drought chances every season.
The model answer
A strong candidate's whole answer, as it sounds out loud. The marked phrases are explained below.
- 1Goal and structureConfirm cost is the same as standard seed, then value per acre, differences by region, capture and structure, and risks.
- 2Read the yields50 extra bushels only in drought years, $250 an acre, so value is drought chance times $250.
- 3Regional values and premiums$100, $50 and $20 of value, and $40, $20 and $8 premiums at 40%.
- 4National comparisonA 22% weighted chance gives $22, which shuts out the East: $198 million against $264 million.
- 5Risks and recommendationResale and farmers' perception, with licensing and a drought-linked option, then the recommendation.
Thanks. So Prairiestead has a corn seed that keeps most of its yield in a drought and yields the same as standard seed in a normal year. It launches next season in three regions, and the CEO wants a premium that reflects the value farmers get, even though the value only appears if a drought happens. Can I check Prairiestead's cost? Thanks, so the new seed costs the same to produce, which means the premium is all extra profit, and the price should come from the farmer's value, not from cost.
Here is how I'd approach it. First, the value to a farmer per acre: the extra yield in a drought, times the corn price, times the chance of a drought, since in a normal year there's no gain. Second, how that value differs across farmers, which I'd expect to be mostly about drought risk by region. Third, how much of that value to charge and whether to use one national price or regional prices, given what it takes for farmers to switch. Fourth, the risks, like seed moving between regions and how farmers feel about paying every year for an occasional benefit.
Looking at the trial yields, in a normal year both seeds yield 200 bushels an acre. In a drought year standard seed drops to 120 and the new seed holds 170, so 50 bushels more. At $5 a bushel that is $250 an acre in a drought year and nothing in a normal one. So the expected value per acre is the drought chance times $250. It also shrinks a farmer's loss in a bad year from 80 bushels to 30, which a farmer worried about a bad year may value beyond the average.
Now by region. The West has a 40% chance of a drought year, so the expected value is 40% of $250, which is $100 an acre. Central is 20%, so $50. The East is 8%, so $20. At 40% capture, the regional premiums would be $40, $20 and $8 an acre.
Let me compare that with one national price. The acre-weighted drought chance is 10 million times 40 plus 20 million times 20 plus 10 million times 8, over 40 million acres, which is 22%. So the national value is $55 and the premium $22. The problem is that $22 is more than the East's whole $20 of value, 110% of it, so Eastern farmers won't buy. Meanwhile the West, with $100 of value, pays only $22. On revenue at year 3, with 30% of acres switching where farmers adopt, the national price wins 3 million acres in the West and 6 million in Central, 9 million acres times $22, which is $198 million. Regional prices win 3 million acres at $40, 6 million at $20 and 3 million at $8, which is $120 million plus $120 million plus $24 million, so $264 million on 12 million acres. That is $66 million more, about a third more.
So regional pricing is clearly better, but it has risks. The biggest is resale: someone buying $8 seed in the East and planting it in the West, where it is worth $100 an acre. Prairiestead can manage that by licensing each sale to the farm's address, selling only through regional dealers, and auditing. The second is how farmers see it. A Western farmer pays $40 every year but only gains in 4 years out of 10. Over ten years that is $400 paid for about $1,000 of extra corn, which is a good deal, but it may not feel like one in a wet year. A drought-linked option, like refunding part of the premium when no drought is declared, could help adoption. Drought chances may also shift, so the prices should be reviewed every season.
So my recommendation to the CEO is to price by region on expected value: $40 an acre in the West, $20 in Central and $8 in the East, which is 40% of each region's expected value. That brings about $264 million a year of premium by year 3 on 12 million acres, $66 million more than a single $22 national price, which would leave money on the table in the West and shut out the East. To protect it, license sales to farm addresses through regional dealers and explain each price by the region's drought benefit. The main risks are resale between regions and farmers who resent paying in non-drought years. Next steps are to test a drought-linked refund option with Western farmers, set the dealer licensing rules, and revisit the drought chances every season.
Why this answer works
Uncertain value is expected value
When a product only pays off sometimes, its value is the payoff times the chance it happens: 50 bushels times $5 times the drought chance.
An average price can fit no one
The 22% national average under-prices the West and is more than the East's whole value. When value differs five-fold, one price leaves money behind and loses a segment.
Price discrimination needs a fence
Regional prices only work if seed can't flow from cheap regions to dear ones. Farm-address licensing is the fence.
The phrases that do the work
“the price should come from the farmer's value, not from cost”
Pricing logic. Sets up value-based pricing from the first answer.
“the expected value per acre is the drought chance times $250”
The key formula. Turns an uncertain benefit into a number that can be priced.
“$22 is more than the East's whole $20 of value”
Why one price fails. Shows the national price doesn't just lose revenue, it loses a whole region.
“Over ten years that is $400 paid for about $1,000 of extra corn”
The farmer's view. Explains the price in the farmer's terms, which is how dealers will have to sell it.
Common mistakes on this case
- 1Valuing the seed at the full $250 a drought year, forgetting to multiply by the chance of a drought.
- 2Using one national average and missing that the East's value is only $20, below a $22 national premium.
- 3Pricing from production cost, which is the same as standard seed and says nothing about what farmers will pay.
- 4Recommending regional prices without a way to stop seed moving from the $8 East to the $40 West.
- 5Comparing premiums per acre but not revenue, which needs the adoption rule and acres: $264 million against $198 million.
Now run this case out loud
Soreno's AI interviewer gives you this case, shows each exhibit when you ask, follows up on your math and scores each part.
Questions people ask
Is Prairiestead Seeds a real company?
No. Prairiestead Seeds is an invented client, and every number is case data written for practice. The numbers reconcile, so you can check your math against the solution.
How long does this case take?
About 30 minutes out loud, the length of one interview case. It is rated hard.
How should I use this solution?
Try the case first. Read the prompt and the facts, write your structure and work the numbers, then compare each step with the walkthrough and the model answer.
Can I practice this pricing case out loud?
Yes. Soreno's AI interviewer runs this case with you, shows the exhibits when you ask, follows up on your answers and scores each part.