Estimation question
Should Amazon increase the price of Prime Membership? If so, estimate the revenue generated or lost.
- Estimation
- Hard
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What this question tests
Estimation combined with a strategic recommendation on price elasticity.
How to approach it
- State assumptions: current subscriber count, current price, and the proposed price increase.
- Estimate revenue gain from existing subscribers who stay at the higher price.
- Estimate subscriber loss from price sensitivity using an assumed churn rate, e.g. 5% for a 20% hike.
- Net the gain against the loss to see whether total revenue actually increases.
- Recommend based on the math, not just intuition.
- Note qualitative risks, e.g. brand perception or competitor response, even if the math favors an increase.
What a strong answer includes
- States clear assumptions for subscriber count, price, and churn elasticity, flagged explicitly as assumptions.
- Shows the netting math: revenue gained from retained subscribers minus revenue lost from churned ones.
- Reaches a clear conclusion, with the reasoning shown, rather than staying noncommittal.
- Notes non-revenue risks, like brand goodwill, even if the math favors an increase.
Common mistakes
- Giving only the price increase's upside without modeling churn or elasticity.
- Asserting a final recommendation with no visible math.
Likely follow-up questions
- How would you test the actual price elasticity before a full rollout?
- What would change your recommendation?
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More questions from Google
Learn the skill behind it
Chapters of the AI PM course that teach what this question tests.
- Chapter 2: Data fluency: SQL, logs, and reading the truth yourself
- Chapter 9: Prove it paid off: outcomes, economics, and pricing
- Chapter 14: Get the job: the AI PM interview loop