Tessellate: Can We Raise Prices 14%?

Consulting

medium50 min0 submissions

Morgan Stanley

Scenario

Tessellate (developer tools, US) has not changed prices in three years while input costs have risen steadily. The CFO wants a 14% price increase across the board.

Current position.

Average selling price: $1625
Gross margin: 39%
Estimated price elasticity of demand: -2
Nearest competitor prices at $1885

Customer mix. Roughly 27% of revenue comes from large enterprise accounts on annual contracts with procurement teams; the remainder comes from smaller customers who buy on shorter cycles and switch more readily.

The Head of Sales is opposed, warning of "customer revolt". The CFO points out that margins have fallen every year since the last increase.

Supporting data

mix

smb revenue share pct: 73
enterprise revenue share pct: 27

market

price gap pct: -13.8
competitor price: 1885

economics

gross margin pct: 39
price elasticity: -2
average selling price: 1625
proposed increase pct: 14

derived hints

break even volume loss pct: 26.4

Your task

Advise on pricing. Provide:

Analysis — can the business sustain a 14% increase? Work through the volume the increase can afford to lose.
Risks — competitive response, churn concentration, contract timing.
Recommendation — a specific pricing structure and rollout plan.

Ready to move forward? Up next: Solstice Travel: Plenty of Demand, Nothing to BuyNext question

How you'll be graded

100 points, 60% to pass.

recommendation30
pricing analysis30
competitive dynamics20
customer segmentation20

Hint

Reveal suggested structure

Break-even volume loss — the volume a price rise can lose before profit falls: Δvolume = Δprice ÷ (gross margin + Δprice)
Predicted volume loss from elasticity: -2 × 14% = -28.0%.
Compare the two. If predicted loss is below break-even, the increase is profitable.
Segment — elasticity is an average across very different buyers.
Competitive response — what happens if the competitor holds price.
Design the architecture, then the rollout.