Siemens Management Consulting

Business Case: Market Strategy for SiemensLights

(Fictitious case)
Copyright SMC

Used figures are fictitious. A case can always be solved in multiple ways; this is one possible suggestion. This case gives no insights about SiemensLights future real strategies. We would like to present a brief overview of how a case interview would be carried out during a typical interview day at Siemens Management Consulting.

1. Introduction Interviewer: Introduction to SMC and a brief introduction by SMC consultant You: Introducing yourself (about 5 minutes) Interviewer: A basic question on Siemens, e.g.: What business issues do you think Siemens and SMC have faced recently? You: An example would be strategy development in emerging markets, positioning of products and services 2. An In-depth Strategically Case Interviewer: Before we start with the case, I want to ask you what you know about SiemensLights? You: I know that SiemensLights is a subsidiary of Siemens and is part of the Industry Sector. The product portfolio is around lighting, e.g. LEDs (light-emitting diode), incandescent and halogen lamps. Interviewer: Yes, thats right. Let me give you some more insights about the business. SiemensLights is generally split into consumer products and professional products. Professional products include Light Management Systems for energy savings or adjustment of light color; floodlights for parks and automotive lightings. These are only some examples. But todays focus is within the consumer products of SiemensLights the home lightings. Main products in this field are incandescent lamps, halogen lamps, energy saving lamps and LED lamps. The oldest technology is the incandescent lamp, with high energy consumption and a lifetime of only approx. 1,000 h. This technology is e.g. not allowed in Germany anymore. In comparison energy saving lamps and LEDs need only a small portion of energy and their lifetime is about 10,000 h. If you have more questions about the portfolio or any technical questions please dont hesitate to ask, but todays case can be solved with basic knowledge about lighting. SiemensLights headquarter is located in Munich, but you can buy SiemensLights products around the world. To have an easier market entry and to have labor cost advantages the production facilities are located around the world too. The management of SiemensLights is facing many challenges. Thats why SiemensLights setup a worldwide improvement program to answer the most urgent questions. Siemens Management Consulting is supporting the improvement program, one SMC project leader and four consultants, in the

Business Case: Market Strategy for SiemensLights (Fictitious case) 2011 SMC

first phase analysis the project will be executed within the headquarter and the second phase implementation will be around the world. You are assigned to the module that is called PUSH World. The question from the management is very simple: Total SiemensLights consumer products home lightings revenue went down over the last years, how can we bring the revenue back on track?. Now it is your task to answer the question. You: Before I start I would like to understand a little bit more the current situation of SiemensLights. Interviewer: What do you like to know? You: Revenue is defined as price multiplied amount of products sold. First I would like to understand how these factors changed. Please give me some insights about the development of these two factors. Interviewer: We see a regional flat price development in real terms, but a regional increase in price in nominal terms, including inflation. And the amount of products sold is stable on a global base. You: It seems like there are not many changes in units sold and prices. At first view this looks strange, because sold units and prices are stable, nevertheless the revenue is decreasing. To go on I would first make a deep dive on the revenue and than on the prices. You also mentioned that units sold is a global figure and prices are regional. My approach will be to bring both information on the same level, my hypothesis will be that information on a global level will not help. I want to analyze both figures on a regional level. What about the regional sold unit development? Interviewer: Please find here our latest analysis of some selected countries. [Hand over of figures] These are only examples; you only need to work with these.

Country Germany South Africa Italia Russia Vietnam

Sold # unit development -13% +1% -8% +11% +2%

Country USA China Venezuela India Total

sold # unit development -10% +17% +1% +15% 0%

You: Please give me some time to understand the table. [30 sec later] My first impression, when looking at the table, is that there are huge regional differences countries with a negative unit development, some with a development around 1% and some that show huge growth. And the total is zero as mentioned before. It seems that the positive effects cannot compensate the negative effects. Looking at the countries there seems to be a correlation between stage of country development of a country and the unit development. Can I try to cluster the countries to achieve a better overview? Interviewer: Sure go ahead. You: [Making a drawing of three columns labeled Developed Countries, Emerging Countries and Developing Countries] Germany, Italia, USA can be allocated to Developed Countries. China, Russia, India to Emerging Countries and South Africa, Vietnam, Venezuela to Developing Countries. Is this ok, or did I allocate a country in an unfair matter? Interviewer: As this is a fictitious case that would be a reasonable allocation.

Business Case: Market Strategy for SiemensLights (Fictitious case) 2011 SMC

You: The units sold in Developing Countries are decreasing and increasing in Emergingand Developing Countries. It seems there is a shift in sold units: from Developed Countries towards Emerging- and Developing Countries. Is that conclusion right? Interviewer: Yes. You: Let me summarize; we know that the revenue is decreasing, the regional prices are stable and that there is a shift in units sold from Developed Countries towards Emergingand Developing Countries. This information does not help to explain the revenue decrease. Therefore I see two different ways to further elaborate the situation of SiemensLights. I can further look at the portfolio to understand the sold units in a better way or look now on the price side of the revenue decrease. Interviewer: Let me give you some additional insights about the regional prices.

Country Germany South Africa Italia Russia Vietnam

price across all products (in EUR) 10 1 9 3 1

Country USA China Venezuela India

price across all products (in EUR) 8 3 1 3

You: Thanks. [Taking 30 sec to understand the table] Allocating the price levels to my former cluster: Developed-, Emerging- and Developing Countries shows that Developed Countries have a very high market price; Emerging Countries are in a medium range and Developing Countries have a very low price level. Interviewer: What is your conclusion? You: The decreasing revenue is mainly driven from a shift from countries with a high price level to countries with a medium or low price level. Interviewer: Yes, that is right. Please think about some causes. You: To identify the causes for the revenue shift. I would like to look at the characteristics of each cluster and their buying preferences. To answer two questions: Why are units sold decreasing in Developed Countries and why are the units sold increasing in the other two clusters. Can you give me some insights concerning the clusters? Interviewer: When looking at your clusters, I can give you some trends, maybe that helps. The Developed Countries show a growth in the field of LED lights, market break in the field of incandescent lamps - Emerging Countries: positive developments in all product fields. Developing Countries: stable developments in all product fields. Does that help? You: Yes, that fits quite well to what I thought. In general I see in each cluster two effects on the units sold: the development in population & wealth and the buying habits of the consumers. In Developed Countries I dont see such growth in population compared to Emerging Countries. And in Developed Countries energy efficient is a huge trend and people are

Business Case: Market Strategy for SiemensLights (Fictitious case) 2011 SMC

very concerned about it. There demand is driven by products that have energy efficient characteristics. This is confirmed by your statement, that Developed Countries growth within LED lights. Products like incandescent lamps are not requested by the consumers anymore or even forbidden by law. But it seems like the growing demand for energy efficient products cannot compensate the reduction in other products. The second cluster, the Emerging Countries shows a strong population increase and wealth, that is in my opinion the main driver for the huge increase in sold units. These countries start to focus on energy efficient products. The third cluster, the Developing Countries show also a population increase and wealth, but they rely mainly on incandescent lamps. Their focus is not so much on energy efficient products due to the fast growth situation they have to shoulder. Interviewer: All good points. But please help me to understand why the units sold in Developed Countries is decreasing. Instead of incandescent lamps the customers will buy LEDs, there is no change in units sold, or? You: As you mentioned in your introduction and from my personal experience is that LEDs last longer than incandescent and therefore their replacement interval is longer and Developed Countries need to buy less. Interviewer: Thanks. Also the population development is a fair point, but due to todays time restrictions, please only focus on the, you called it buying habits. What about the future development? You: I think on hand we have to differentiate between countries that will change their buying habits in a short-term horizon and a long-term horizon and on the other hand between buying habits that focus on energy efficient products and that do not focus. In my opinion Developed Countries and Emerging Countries will change in a more short-term frame towards energy efficient products. Whereat for Emerging Countries the current need for energy efficient products is lower as for Developed Countries. As mentioned already for example their political regulations do not force for energy saving lights and energy efficient products are not as hip as in Developed Countries. Developing Countries will possibly change their buying behavior in a more long-term horizon, as their current focus is not into energy saving products. For them it is more important to have good lighting supply. Interviewer: And what is your key take away from this knowledge? You: In general the business is transforming towards energy efficient products. Interviewer: Ok, than SiemensLights should focus on energy efficient products to counteract the demand decrease and the problem is solved? You: I think the problem is more complex. The challenges and thus the solution strategies within the three clusters are different. As we have a shift from units sold to countries with a medium or low price level, SiemensLights should further push sales with their already available products in these countries, especially within Developing Countries, to increase market share. For Developed Countries and Emerging Countries the already available portfolio is challenging and might not be sufficient, as seen by the decreasing amount of units. Interviewer: Please further explain the words challenging and sufficient. You: Ok, let me give you an example for challenging. The main energy efficient light products I can think of are LED lights and halogen lamps. As mentioned before; compared to incandescent lamps they need less energy and in addition, as you said to the beginning, their replacement interval is much longer. I think the main driver for the business was the

Business Case: Market Strategy for SiemensLights (Fictitious case) 2011 SMC

regular exchange of light bulbs, lets say every year. With LED lights, SiemensLights is facing longer life-times, maybe 5 years or more until customers need to exchange their LED lights. This leads to a reduced need for a new LED light over time. SiemensLights needs to think about new ways that customers buy lights more regularly. And this leads me to the not sufficient portfolio. As it is challenging to force customers to buy LED lights more regularly SiemensLights should maybe develop products that will be exchanged in a shorter time frame not because of malfunction but due to their style is outdated or not hip anymore. I think about something like fashion that is changing every year, maybe illuminated glasses or mobiles. Interviewer: Great ideas. Now, please summarize your findings in a few words for the management and give recommendations. You: As seen in our market analysis the revenue is decreasing due to a shift from units sold from high price countries to countries with a medium or low price level. One big driver is that due to energy efficient products the replacement intervals are longer and therefore fewer units sold in high price countries. The challenges due to energy efficient products exist especially in Developed and Emerging Countries. Nevertheless Developing Countries will, maybe in a longer timeframe, shift to these products too. The only difference between the clusters is the pressure concerning the need for action. But in total SiemensLights is facing similar issues in all three clusters. As a counteraction I recommend to focus within Developing Countries on a further increase in units sold and an increase in market share. And for Developed and Emerging Countries a think about new products that will increase replacement intervals. Interviewer: Thanks so much. Lets move to the next part of the interviewyour questions? 3. Time for your questions

Remark: This public available recruiting case is fictitious, incl. SiemensLights business unit, their current situation and figures. In general our interviewer use cases that are derived from real SMC projects. At the end of the interview the interviewer will give you usually some insights about the real world solution.

Business Case: Market Strategy for SiemensLights (Fictitious case) 2011 SMC