Medium difficulty
Candidate-led case
This case investigates the visa pricing policy of a government agency in a fictional country
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Strategy
Public Sector
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VISA PRICING
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(‘Prosperland’) in the midst of digitizing their immigration system. Visa Pricing tests all elements of the
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case interview scorecard.
Problem definition
Your client is a government agency, the “Home Office”, of a Western, developed nation (“Prosperland”).
The Home Office is responsible for setting and administering immigration policy in Prosperland.
As part of its immigration responsibility, the Home Office sets the price for visas (including visitor visas,
student visas, and permanent immigration visas). The Home Office also manages the immigration
system (visa processing, border security, etc.), which costs the Home Office approximately $1.2 billion
each year. The cost of running the immigration system is funded by the fees from visa applicants and
other immigration services provided by the Home Office.
The Home Office is about to embark on a major digitization program to modernize the immigration
system, which is estimated to cost $2 billion over the next five years. This digitization program must also
be funded by the fees from visa applicants and other immigration services.
Your team has been asked to determine whether the Home Office can fund the digital
transformation by adjusting the prices of visas and/or selling additional visa and immigration
services and, if so, how?
Visa Pricing - 1/17
g)
Structuring
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Relevant Information
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Share this information upon request.
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Project objectives:
Funding the $2 billion digital transformation of the immigration system over the next 5 years
●
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Visa pricing and other immigration services:
Visa prices are set under legislation once per year, and cannot be changed dynamically (e.g., each
visa can have a single price listed transparently)
●
The Home Office has the legislative right to sell “add-on” products to visa applicants, as long as they
are related to the immigration system
Guidance for Interviewer
All candidates should identify the first three questions/drivers. Only exceptional candidates may identify
the fourth question/driver.
Possible answer
We have been asked to determine whether the Home Office can fund the digital transformation by adjusting
the prices of visas and/or selling additional visa and immigration services and, if so, how? To answer this, I
would:
1.
Determine the revenue shortfall (if any) based on the current product and price list (Driver 1)
a.
b.
2.
Annual operating expenses for the Home Office annually over the next five years
i.
Cost of digital transformation
ii.
Cost of annual maintenance of the immigration system
Annual revenue generated from visa products today
i.
Student visa (price & volume)
ii.
Visitor visa (price & volume)
iii.
Temporary work visa (price & volume)
Determine optimal visa prices and potential revenue uplift (Driver 2)
a.
Optimal price for student, visitor & temporary work visas based on price elasticity
Visa Pricing - 2/17
b.
Consider other opportunities to increase revenue to support the digital transformation (Driver 3)
4.
g)
Expedited visa processing
ii.
Priority border pass (e.g., global traveler)
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i.
Revenue generated from adjacent products/services
i.
Price of service
ii.
Anticipated uptake
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b.
Adjacent products/services
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a.
Consider how the Home Office should balance revenue gains against its competing priorities (Optional)
a.
Priorities of the Home Office?
i.
ii.
iii.
iv.
b.
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3.
Revenue uplift based on optimal price for student, visitor & temporary work visas
Digital transformation
Border security
Protecting domestic industries (tourism, education)
Domestic employment
Impact of price changes on these priorities?
i.
ii.
iii.
Would increasing the price of student visas impact the education sector?
Would increasing the price of visitor visas impact the tourism sector?
Would border security be impacted by potential price decreases?
Visa Pricing - 3/17
Driver 1: Determine the revenue shortfall (if any) based on the current product and price list
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Relevant Information
The digital transformation of the immigration system will cost $2 billion over the next 5 years. You
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●
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Share this information upon request.
can assume the cost is linear.
It costs the government $1.2 billion each year to maintain the immigration system.
●
Both the cost of digital transformation and the annual cost to maintain the immigration system must
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●
be paid for by revenue from visa applicant fees and other immigration products and services.
●
Exhibit 1 should be shared if candidate requests information on the current prices of visa products
●
Other than the three visa products shown in Exhibit 1 – student, visitor and work visas – the Home
Office does not monetize any other visa products or services
Guidance for Interviewer
The candidate will need to quickly calculate revenue from visa products under the current pricing system
and compare this to the funding requirement. The quicker that a candidate can identify the shortfall, the
faster they can proceed to the more complex analysis around price elasticity in Driver 2.
Possible answer
First, I would like to understand how much revenue we generate from our current suite of visa products
at today’s prices. This will help me understand the extent of the shortfall (if any) that must be met by
adjusting visa prices or launching new visa products and services.
Based on Exhibit 1, it appears we have three main visa classes, each at a different price point. Based on
the price of visas and the number of applicants we can calculate the total revenue generated by each
visa class as follows:
Visa Type
Visitor Visa
Student Visa
Temporary Work Visa
Price in Year 0 (Today)
$150
$650
$2,300
# applicants in Year 0
(Today)
7,500,000
56,000
22,000
=$150 x 7,500,000
=1,125,000,000
=$650 x 56,000
=$36,400,000
=$2,300 x 22,000
= $50,600,000
Revenue
Visa Pricing - 4/17
Based on this, our current visa products generate $1.212 billion per year.
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digital transformation will cost $2 billion over 5 years. Assuming this cost is linear, this implies that the
annual cost of the digital transformation is $400 million (2 billion / 5 years).
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In addition to funding the digital transformation, the Home Office must support the annual cost of
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managing the immigration system ($1.2 billion per year). Looking at these together, we can see that the
Home Office will need to generate $1.6 billion each year (1.2 billion + 400 million) from their visa
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products and services.
This implies that there is a ~$400 million annual shortfall.
Visa Pricing - 5/17
g)
I will now compare this to our funding requirements to understand any shortfall. I understand that the
Temporary Work Visa
Visas for those visiting
Prosperland for the
purpose of tourism. Valid
for 90 days. Single entry.
Does not grant any work
authorization
Visas for those visiting
Visas for those visiting
Prosperland for the
Prosperland for the
purpose of Study. Valid
purpose of temporary
for the duration of an
employment. Requires
approved course. Multiple sponsorship from an
entries permitted. Does
employer.
not grant work
authorization (except
approved employment to
further studies).
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Student Visa
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Description
Tourist Visa
g)
Exhibit 1: Current visa products and prices
Price in Year 0 (Today)
$150
$650
$2,300
# of applicants in Year 0
(Today)
7,500,000
56,000
22,000
Visa Pricing - 6/17
Driver 2: Determine optimal visa prices and potential revenue uplift
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Exhibit 2 should be shared if the candidate requests information on willingness to pay
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Guidance for Interviewer
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An excellent candidate will hypothesize about the nature of price elasticity for these visa products, based
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on the likely purchasing behavior of applicants.
Possible answer
As identified in Driver 1, there is a ~$400 million annual shortfall.
I will look to see if we could meet this shortfall by adjusting the price of our existing visas – visitor,
student, and work visas. Because of price sensitivities, I understand that as we increase prices, we may
observe a decline in the volume of applicants (and vice versa). Therefore, I will need to understand the
relationship between price and volume for the different visa classes.
My hypothesis is that the demand for visas will not be highly sensitive to changes in price, because visas
are typically a small proportion of the overall cost of a visit (e.g., compared to the cost of accommodation,
international flights, cost of attending a study program etc.). Additionally, in the case of work visas, this
cost may be borne by employers who are likely to be less price sensitive than individuals. Also, aside
from visiting a country other than Prosperland, there are no substitutable goods for visas.
To validate this hypothesis, I will use Exhibit 2 to identify the price at which total revenue is maximized
and compare that to the price today. Total revenue is maximized at the apex of the curve.
Therefore, looking at Exhibit 2, I can see that the total revenue for visitor visas is maximized at $130.
This implies that to maximize revenue I should lower the price of visitor visas from $150 to $130 as
shown here:
Old
Price
Revenue
New
150
130
$1,125,000,000
$ 1,235,000,000
= 1,235,000,000 - 1,125,000,000
= $110,000,000
Difference
What this tells me is that by lowering the price I stimulate additional demand (i.e., the applicant number
increases) more than enough to offset the reduction in unit price.
Visa Pricing - 7/17
New
Price
650
Revenue
$36,400,000
700
$38,500,000
= $39,900,000-$36,400,000
=$2,100,000
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Difference
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Old
g)
For student visas, I can see that the total revenue is maximized at $700 as follows:
This tells me that while the total number of applicants might fall when I charge $700, this is more than
offset by the increase in unit price of $50 per unit. However, the total revenue impact is smaller, and will
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only result in an increase of $3.5 million per year.
For temporary work visas, I can see that total revenue is maximized at $10,000. This implies that I should
increase the price of temporary work visas from $2,300 to $10,000. In doing so, I can raise total revenue
from $50.6 million to $180 million, which is an increase of ~$129 million per year:
Old
Price
Revenue
Difference
New
2300
10,000
$50,600,000
$180,000,000
=$180,000,000-$50,600,000
=$129,400,000
In total, this would generate an additional ~$243 million per year. This is not enough to offset the cost of
digital transformation, and therefore I must look for additional revenue levers.
Visa Pricing - 8/17
Exhibit 2: Willingness to pay for various visa types
Visitor Visa
$1,235,000,000
$1,000,000,000
$990,000,000
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$800,000,000
$1,125,000,000
$600,000,000
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Total Revenue
$400,000,000
$200,000,000
$0
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Total Revenue
$1,200,000,000
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$1,400,000,000
$110.00
130
Price
Visa Pricing - 9/17
150
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100,000,000
Total Revenue
50,600,000
$2,300
g)
168,000,000
180,000,000
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200,000,000
180,000,000
160,000,000
140,000,000
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
0
$5,000
$10,000
12,000
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Price
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Total Revenue
Temporary Work Visa
Driver 3: Consider other opportunities to increase revenue to support the digital transformation
Relevant information
Provide the following information only if requested by the candidate:
●
The United Kingdom offers a “Super Priority Service” which provides visa processing in under 2
working days. The cost of this product is $800.
●
The United States offers “Global Entry”, a program that allows expedited border clearance for preapproved, low-risk travelers. Global Entry costs $170 per year.
●
A recent study by the Home Office indicates that 60% of visa holders visiting Prosperland on visitor
visas come to Prosperland for the purpose of tourism. The remaining visitor visa holders visit
Prosperland for the purpose of business.
●
If the candidate attempts to benchmark uptake of expedited visa processing, point out that a small
proportion of about 1% across all visa classes are likely to take up the product.
Guidance for Interviewer
This question tests the candidate’s ability to think creatively in a low-data context. Throughout this
question, you should encourage the candidate to make sound assumptions about the estimated number
of users for each visa product or service. You should also encourage them to think of potential
benchmarks for the price point we could charge for this visa product or service.
Possible answer
Visa Pricing - 10/17
Even after adjusting the prices of visitor and temporary work visas, the Home Office will still not generate
enough additional revenue to fund the digital transformation. Therefore, I would like to consider other ways
g)
for the Home Office to generate enough revenue to support the digital transformation.
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To do so, I would like to first consider what other opportunities might exist for visa products and services. To
generate these ideas, I am thinking about pain points in the current visa and immigration that we could solve
by launching new products and services. Some pain points might include speed of visa processing and time
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taken to clear some of the immigration requirements at the border.
I am also considering what products are offered by other countries that have successfully generated revenue
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for their equivalent agencies. I recall that the US offers a program (“Global Entry”) which allows members to
fast track through immigration. Based on this, I would like to evaluate the following opportunities for visa
products and services:
●
Expedited visa processing: We could offer visa applicants the ability to receive their visa in faster than
average processing time. This would be of value to last minute visa applicants, or those who needed to
travel urgently and would be willing to pay more for this peace of mind.
●
Border fast track: We could offer the ability to go through immigration / customs faster than the average
traveler. This would be of value to frequent travelers or business travelers who are willing to pay for the
ability to fast track through immigration.
Next, I would like to estimate the revenue we could generate from these visas. To do so, I will need to
estimate how many people are likely to use this product each year and multiply that by the price we can
expect to pay for this product.
Product / service
Est. # of users
Price
Expedited visa
I expect only a small fraction of visa
Based on the UK price for the
Est. revenue
($)
= $800 x
processing
applicants to require expediated
“Super Priority” product, I
~76,000
visa processing. This is because,
estimate we could charge
most people plan travel in advance,
$800.
and only a small proportion make
last minute or urgent trips and
would be willing to pay for
expedited processing. Therefore I
will conservatively assume a 1%
uptake across all visa classes
(visitor, student, temporary work).
Visa Pricing - 11/17
= ~$61
million
Therefore, using the applicant
figures from Exhibit 1, we can
calculate ~76,000 users as follows:
g)
Tourist visa: 0.01 x 7,500,000 =
Student visa: 0.01 x 56,000 = 560.
Temporary work: 0.01 x 22,000 =
220.
Based on the US Global
frequent business travelers. As a
Entry program I believe we
result, I expect 0% uptake from
can charge $170 per year for
student visa holders. I also expect
= 600,000 x
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I expect the users of this visa to be
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Border fast track
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75,000.
this program
$170
= $102 m
most temporary work visa holders
to visit Prosperland for extended
periods of work.
I know from a recent study that 40%
of visitor visa holders visit
Prosperland for the purpose of
business. Of those, a smaller
proportion will be frequent business
travelers (~20%). Therefore, we can
estimate that ~600,000 people will
use the border fast track service
(0.2 x 0.4 x 7,500,000).
Based on this analysis I would recommend the Home Office launch both expedited visa processing and
border fast track services in order to generate an additional $163 million annual revenue to support the
digital transformation of the immigration system. This additional revenue, combined with the additional
revenue resulting from price changes, will generate an additional $406 million annually in total to offset the
annual cost of the digital transformation.
As next steps, I would begin to validate and design these new visa services. This process would include
broad consultation with relevant stakeholders to ensure there was broad public support for introducing tiered
immigration services. Additionally, further work will be required to design and implement these services.
Visa Pricing - 12/17
Practice daily with the Math Drills in the Interview Prep
Course
Visa Pricing - 13/17
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Need to improve your numeracy?
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(Optional) Driver 4: Balancing immigration objectives
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Relevant information
Provide the following information only if requested by the candidate – The education industry is
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Prosperland’s largest service industry. The industry primarily consists of welcoming international
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students into tertiary education systems (universities and vocational programs). Prosperland faces tough
competition for international students from other countries in the region who typically price their student
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visas at a discount to Prosperland.
Guidance for Interviewer
First, the candidate should develop a framework that helps them tease out the implications of price
changes / product launches on the various objectives of the Home Office. A good candidate will create a
MECE (mutually exclusive, collectively exhaustive) framework.
Next, the candidate should use this framework to guide a discussion of potential trade-offs to these
objectives. Strong candidates will be able to push to real insight, making informed trade-offs between the
various aims of government, recognizing that there will be no perfect solution.
Possible answer
While it is important for the Home Office to generate revenue to fund the digital transformation, it is important
to weigh this consideration against its broader objectives.
With this in mind, the Home Office needs to weigh the following objectives:
●
Digital transformation: Funding the digital transformation of the immigration system
●
Border security: Ensuring the safety and security of Prosperland by ensuring dangerous people are
not granted entry at the border.
●
Protecting domestic industries (tourism, education): Ensuring the ongoing success of domestic
industries (which support the effectiveness of government via taxation)
●
Domestic employment: Protecting domestic jobs in Prosperland
I will use this framework to evaluate potential price changes.
Policy change
Digital
Border Security
Transformation
Visa Pricing - 14/17
Protecting Domestic
Domestic
Industry
Employment
Strongly positive –
Neutral – Changing
Strongly positive –
Somewhat
visitor visa
Decreasing the
the price of visitor
Decreasing the
positive – By
price of the visitor
visas is unlikely to
price of visitor visas
growing the visitor
visa will allow us to
impact border
will increase the
industry, there may
generate additional
security
number of visitors
be additional
revenue (see
to Prosperland
domestic jobs in the
analysis above).
which will have a
visitor industry
positive impact on
created.
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tourism industries
g)
Decrease price of
such as hospitality,
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accommodation
and airlines.
Increase price of
Moderately
Neutral – Changing
Strongly negative
Somewhat
student visa
positive –
the price of student
– By increasing the
negative – By
Increasing the price
visas is unlikely to
price of student
harming the
of student visas will
impact border
visas, the Home
education industry,
generate some
security
Office will dampen
there may be a
additional revenue,
applicant demand.
reduction in
but much less than
This would be very
education sector
can be gained from
bad for
jobs.
increasing the price
Prosperland’s
of either visitor or
education sector
temporary work
which competes
visas.
fiercely for
International
students with other
countries. Since
Prosperland’s
student visa is
already more
expensive than
other nations, any
further increases
could disincentivize
potential
international
students.
Increase price of
Strongly positive –
Neutral – Changing
Mildly negative – If
Strongly positive –
temporary work
Raising the price of
the price of
temporary work
By making it more
visa
temporary work
temporary work
visas become
expensive for
Visa Pricing - 15/17
visas is unlikely to
prohibitively
employers to bring
largest impact on
impact border
expensive,
in foreign
revenue (as shown
security
employers may be
employees, they
unable to bring in
may be more likely
uniquely qualified
to hire domestic
labor from overseas
workers which is
that is required to
good for
grow their business.
Prosperland’s
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above).
g)
visas will have the
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domestic labor
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force.
Based on this analysis, adjusting the price of visitor and temporary work visas are consistent with the Home
Office’s broader immigration objectives. However, the revenue benefits of raising the price of student visas is
unlikely to outweigh its harms to the education sector.
Visa Pricing - 16/17
Synthesis
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Possible answer
We’ve been asked to recommend a visa pricing framework that generates enough revenue to fund the digital
transformation, in addition to the ongoing cost of running the immigration system, without harming any of our
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broader immigration objectives.
Based on this, we recommend the following actions by the Home Office to raise an additional $406 million to
objectives:
1.
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offset the annual cost of the digital transformation, while also delivering on our broader immigration
Raise the price of temporary work visas from $2,300 to $10,000. Because this visa class is highly
inelastic, we can raise prices without overly diminishing demand. This unlocks an additional $129 million
in revenue that can go towards funding the digital transformation.
2.
Decrease the price of visitor visas from $150 to $130. By lowering the price of visitor visas, we can
stimulate additional demand for visitor visas. This not only unlocks an additional $110 million in revenue
to support the digital transformation, it is also good for our tourism industry which benefits from an
increase in annual visitors (who spend money on accommodation, hospitality, etc.),
3.
Do not change the price of the student visa. While increasing the price of the student visa from $650 to
$700 could generate an additional $3.5 million in revenue, we are concerned this will hurt our education
sector. The education sector is Prosperland’s largest service industry
4.
Launch an expedited visa processing product and a border fast-track product. This will generate an
additional $163 million in annual revenue.
As a next step, the Home Office should ensure these visa adjustments have broad support from the
Prosperland population and key stakeholder groups to ensure their passage into law.
Visa Pricing - 17/17