Académique Documents
Professionnel Documents
Culture Documents
U n i v e r s i t y
o f
C a l i f o r n i a
B e r k e l e y
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Table
of
Contents
1.
INTRODUCTION
3
1.1
WHAT
TO
FIND
IN
CCB
CASE
BOOK
3
1.2
HOW
THIS
BOOK
COMPLEMENTS
CCB
TRAINING
3
1.
Introduction-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐
1.1
What
to
find
in
CCB
Case
Book
A case is usually a business situation where the client is facing a difficult problem with the
company, a product, competitors or a new opportunity to explore and asks you to help address
some of the issues. It is an exercise for the firms to test your analytical thinking and to examine
how well you can handle problem-solving questions.
CCB Case Book is compiled with Cal's undergraduate interests in consulting in mind. For
undergraduate students, the prospect of analyzing and presenting a case in front of an interviewer
might be daunting. Worse, for a student not yet equipped with business training, it takes months
for him or her to transform into an analytical business decision-maker. Starting from the most
basic terminologies, concepts and analytical structures, this book shows you that problem-
solving skills can be trained. Moreover, for those who merely want to know about the industry,
this book is also a great read to determine whether consulting is actually right for you. If you do
not enjoy problem-solving case interviews, the likelihood that you will enjoy consulting is fairly
small.
What makes the book unique is also its richness in first-hand experience from various alumni
who had excelled in their case interviews as well as from professional consultants in the real-
world arena. They are the people who you will have a chance to have in-depth discussion with
during club events, who will act as your mentors. They were kind enough to share their insights
on specific cases selected from a range of top-notch consulting firms as well as from a range of
case types. This is to ensure a broad exposure to case questions and the diverse culture of firms.
Also, their narration on personal experience surrounding case interviews and recruitment will
hopefully mentally prepare you for your Big Day.
As an aspiring consultant, remember that competency exists not just in what you know. It is
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also evident by how you package your knowledge and how you present yourself both during and
outside of interviews. Subtleties are critical in establishing your credibility and effectiveness
with interviewers and ultimately with clients. Thus, CCB cultivates these subtleties through our
mentorship program and a series of professional events such as mock interviews, case
competition, and career workshops.
A very basic overview of an industry helps to more effectively tackle a case. At the very least
it helps you construct a framework that is most applicable to that particular problem context. For
examples, in the consumer goods sector, branding is an important driver of success. In the
pharmaceutical industry, generics manufacturers pose a major competitive threat. Having said
that, while spending a little time informing yourself about the basics of a few key industries
should improve your problem-solving ability, it is not necessary to master industry specifics or
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memorize industry data.
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+
Frameworks
One of the keys to performing well in case interviews is to demonstrate a structured thought
process in solving case problems. While different firms may use different terms to discuss how
to excel in case interviews, they all invariably suggest taking a structured analytical approach.
Structured analysis involves developing a logical framework to examine the business situation
presented, and methodically progressing through that framework until a recommendation that
addresses the case issue can be proffered (or until time runs out).
Although there are several different types of cases, every case should be tackled using an
analytical framework. A framework is nothing more then a mental outline of how you intend to
go about evaluating the case problem. Using a framework is important because it helps ensure
that your response will be structured, logical, and thorough. A framework should be applied
every time that a new strategic question is posed by the interviewer. Some firms will ask broad
strategic questions at both the opening of the case and two-thirds to three-quarters of the way
through the case. When this happens, the candidate should always stop and prepare a structured
methodology to work through the business question. Often, demonstrating the ability to bring
structure to ambiguity is just as important to the interviewer as the answer that is given.
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In order to understand whether or not the acquisition of Firm B by Firm A is a good idea, I'm
going to examine Firm A and B in terms of their competencies and cost structures (Company),
get a sense of the existing players in the market (Competitors and Collaborators), and understand
who they sell to (Customers). Uncovering this information will help me to determine whether or
not enough strategic synergies exist between Firm A and B to justify an acquisition.
The great benefit of using a framework is that it helps the candidate use time both efficiently
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and effectively. One must make sure that he is uncovering all the important details of the case
situation, while not straying into fruitless digressions. A framework keeps the candidate on track.
The framework can serve as a crutch if the candidate gets nervous, or can't decide on the next
direction of inquiry. What the framework should not do, however, is to distract the candidate
from sound business thinking. The less the interviewee thinks of the case as a game or a puzzle,
and the more the interviewee imagines the case as a real business challenge that he might face as
a manager (or consultant), the better off he will be. Cases often do not have simple answers, so
be sure to convey the richness of your business intuition and your Kellogg-honed thought
process, and your practical experience when providing your final recommendation.
We suggest that you become very comfortable with 2-3 general frameworks, and then adapt
them on the fly in the interview to suit the needs of the situation. One helpful way to strengthen
your framework facility is to run through the same case a few times following different
frameworks. See how the use of different thought schemas affects your analysis path.
[ First-Person ]
2.2 Preparation
+
Be
an
effective
interviewer
for
your
case
partner
[ 1. Prep yourself ]
[ 4. Ask questions ]
Best way to make cases interesting to provide necessary hints indirectly (e.g. by asking related
questions)
Follow the case flow as provided in the original format - it helps in objective assessment
Remember that there is no one answer to any case! A candidate can be creative enough to take a
new approach towards the problem.
As your interviewer presents your case, be sure to take careful notes on the numbers or other
facts given. (Always bring a notepad and a pen to a consulting interview.) If you plan on drawing
1
Vault Guide to the Case Interview
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graphs, add brownie points by bringing graph paper (which shows major foresight). Take notes
so you don’t have to ask your interviewer to repeat information.
2. Make no assumptions
As a case interviewee, you should never make any assumptions. Your interviewer will inevitably
leave things out of the case presented to you. (If an apple juice manufacturer has seen its
expenses rise dramatically, for example, your interviewer probably won’t mention the tree blight
that’s constricting the supply of apples.) You should assume the persona of an actual consultant
trying to learn about an assignment. You should also ask if the company has encountered a
similar problem, or what other companies in the field have done when faced with similar
situations. Your interviewer may not release that information but will be impressed that you
asked these sensible questions. Some good basic “professional” questions to ask, which apply to
most cases:
• Has the company faced this problem (or opportunity) before? If so, how did it react? What
was the outcome?
3. Ask questions
Your interviewer expects you to ask questions – as many intelligent questions as you need to
obtain an accurate picture of the relevant facts in the case. Many inexperienced case interviewees
make the error of asking their interviewer too few questions. They may be afraid that they will
look ignorant, or not wish to “bother” the interviewer. Remember – not asking questions is a
fatal error in a case interview. If you don’t know the first thing about the helicopter market, ask
how much it costs to manufacture a rotor. If you need to estimate the demand for a beef-flavored
potato snack in Wichita, Kansas, then feel free to ask the population of Wichita and environs.
You will often find that your interviewer will direct your line of questioning to a specific area,
but you must always be ready to control the conversation in case the interviewer does not direct
your reasoning. If you are unsure, simply ask the interviewer. For instance, if you find the
interviewer offering little direction as you move through your initial questions, you may wish to
ask, “I find the lack of a risk assessment to be a potential showstopper. Might I ask some detailed
questions about this?” Or you might say, “Given what you have told me about the situation, I
would like to find out more about the client’s current relationship with its distribution partner.
Would that be OK?” In this way, you take charge of the line of questioning without stepping on
the interviewer’s role.
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4. Listen to the answers you get
One interview warns: “Many candidates get so caught up in asking the perfect questions that
they don’t listen to the answers they receive. They go through a mental list of all the questions
they want to ask, and ignore the response
they got. That throws off their reasoning.”
Make sure you respond to the information
you receive and incorporate it into your
analysis.
It’s perfectly fine to take a minute to think through your answer – in fact, most interviewers find
it preferable. “Whenever I asked to take the time out to collect my thoughts,” reports one
consultant who’s undergone “dozens” of case interviews, “my interviewers always said, ‘Okay,
good, go ahead.’” On the other hand, while “a minute of deep thinking” is fine, “five minutes is
really overkill. You don’t want your interviewer waiting there for five minutes. The case is only
supposed to be 15 or 20 minutes.”
After you’ve selected your approach, don’t keep it a secret. Tell your interviewer what approach
you’re going to take. For example, you might say, “First, I’m going to discuss the Mexican and
Canadian markets. Second, I’ll ask about our entry strategy. Finally, I’m making a
recommendation.” “One of the most important things consultants have to do is present complex
ideas in a lucid manner,” explains one interviewer. “That’s why you should take time to explain
your reasoning. Not only will it impress your interviewer and allow you to confirm any
assumption that you’re making, but it will allow you to get your own thinking straight.”
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8. Think out loud
In order to navigate case interviews successfully, you will need to act quickly and confidently.
The business case is an opportunity to show the interviewer how you think. Your interviewer
wants to know that you can reason in a rapid and logical fashion. As you assess, compile, and
analyze the elements presented to you, be sure that you speak aloud and explain your reasoning.
This is the only way the interviewer can assess your performance.
You may not be entirely comfortable thinking out loud. So if you’re not feeling confident
thinking aloud, try practicing by yourself. Start with something simple like explaining aloud to
yourself how to change a tire or how you brush your teeth. Minimize “ums” and other fillers, so
that what you say is concise, direct and clear.
Next, try practicing on friends or family. Have them ask questions for which you must assess a
situation. For example, they might ask, “I’m not sure at which bank I should open a checking
account. What are the trade-offs between Bank X and Bank Y?” or “I’ve got $50 to spend on
groceries, so what should I buy?” Even speaking to yourself in front of the mirror will build your
confidence thinking “on the fly” while simultaneously speaking.
9. Present your thinking in a clear, logical manner. Where useful, use frameworks and
business concepts to organize your answer
You should develop a framework for assessing case interview questions which can be applied to
different situations. In general, in any situation you will want to:
Beyond this, you may choose any line of questioning or structure with which you feel
comfortable. As you practice, you will find yourself developing this framework unconsciously as
you attempt to gain clarity over a situation. Capture and package this framework, and have it
available by memory (or on paper if you wish) for use at any time.
Where useful, also use advanced business concepts and frameworks – such as Porter’s Five
Forces or Value Chain Analysis – (see the chapter on case frameworks) to help organize your
thoughts and impress your interviewer.
You have limited time in your case interview to make your point. If you are uncomfortable with
quickly summarizing your conclusions, think about being faced with this classic situation:
“A consultant working for a multinational corporation inadvertently bumped into the CEO of the
corporation while waiting for the elevator. As they got on the elevator, the CEO announced that
he was on his way to a Board of Directors meeting on the 34th floor. He then instructed the
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consultant to brief him completely on the major findings of the project in the time it took the
elevator to go from the 1st floor to the 34th floor.”
While this is no doubt an urban legend, it is extremely likely that you will encounter time-
pressured situations many times in your professional career, especially in consulting, where time
is a precious commodity. If you are taking a while reaching your conclusion, your interviewer
may ask you for the “60 second pitch.” Practice summarizing your answer in a minute or less.
Thus, market-sizing problems are often parts of bigger cases, such as market entry, industry
analysis, profitability, scaling, etc.
2
Weiss,
Allen.
"How
to
Determine
the
Size
of
Your
Market
–
Part
1."
MarketingProfs.com.
N.p.,
1
Jan
2011.
Web.
14
Jan.
2013.
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Before we dwell into the nitty-gritty of how to calculate market size, however, let’s be clear on
one thing: usually, interviewers do not know or care about the exact answer to these problems.
Interviewers are much more interested in the process that you used to arrive at your answer.
After all, a market size problem is often described as a back-of-the-envelope calculation, or a
guesstimate, so don’t stressed about exact numbers.
With that said, interviewers DO care about how you answer your question. Remember to always
be organized and state every assumption you make along the way. In other words, think out loud,
or better yet, draw diagrams. Also, try not to use too many decimals; round to the closest 10%
whenever you can (when in doubt, ask the interviewer for permission before rounding).
Now that we’ve gotten the basics down, let’s look at a sample case that will cover both the top-
down and the bottom-up approaches. But don’t let this example fool you into thinking that these
are the only ways of solving such cases. You’re free to bend the rules and make up your own
frameworks. Just remember to be creatively logical and structured!
+ A Sample Case
How big is the U.S. Disposable Diapers Market in annual revenue dollars?3
• Top-down approach
o Develop and state assumptions starting with the big picture and working
downward
o Talk to interviewers through your assumptions as you make them and let them
know why you’re using the numbers you picked
o Follow the cues from the interviewer
o Do a gut check with final number before committing to it (use common sense!)
3
Taken
from
the
Management
Consulting
Association’s
casebook,
Casing
Boot
Camp
(2006).
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• Bottom-up approach
o Develop and state assumptions starting at a lower level of detail
o Talk to interviewers through your assumptions as you make them and let them
know why you’re using the numbers you picked
o Follow the cues from the interviewer
o Do a gut check with final number before committing to it (use common sense!)
As you can see, both answers are radically different, proving that the answers don’t really matter
as long as your method is sound.
Okay, now that you’ve gotten your feet wet, let’s look at more thorough samples. Here’s a
market sizing case from the Final Interviewing Round at McKinsey in 2005. (Note how the
interviewee is using a top-down approach to crack the case.)
+ Practice Case 1
Piano Market Sizing4
Problem Statement
We’re going to look at the sales of Pianos in the United States. What do you think annual sales
(total revenues) are in the US for Pianos?
4
Taken
from
the
Columbia
Case
Book
(2006),
pages
26-‐28.
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Suggested Answer Scheme
Answer should show a logical way of sizing the market. You need to make some assumptions,
and show your way of getting to an answer. Actual numbers aren’t as important as the logic
behind the method.
Candidate’s Response
I am thinking there are two types of piano buyers, personal households and institutions. Of those,
a certain percentage already owns a piano. Piano buyers, in a given year, would be divided into:
1) First-time piano owners
2) Upgrading an old piano or replacing a damaged piano
3) Adding a second piano (small for households, larger for institutions)
From there deduce how many are in the $75,000/year income bracket, as they are most likely to
purchase a piano (for example, 25% which equals 25 Million households.) Out of those 25
Million, 5% currently own a piano already (1.25 Million Pianos). If I assume every year, 2% of
the 25 Million will buy a piano, then there are 500K pianos sold to households every year.
Follow a similar logic for institutions – e.g. colleges, universities, symphonies, Carnegie Hall,
bars/businesses, etc. Assume that there are 1 million of these institutions, of which 20% (200K)
would want a piano. Of that, perhaps 5% buy a piano every year, or 10K pianos sold to
institutions.
Then, I would need to figure the average price paid per piano.
It is important to distinguish between new and used piano sales, as the price points are different.
In the New Piano market, I would think the low price for a piano is $5,000 and the high price is
$15,000, so the avg. price of a new piano is $10,000.
For a used piano, the low is probably $1,000 and new is $5,000, so the average price is $3,000.
I would venture that 20% of pianos sold are used and 80% are new for both households and
institutions. If this is the case, 102K total new pianos are sold and 408K used pianos are sold. To
make the numbers simple, use 100K and 400K. This leads you to $1B in new piano sales and
$1.2B in used piano sales, or $2.2B in total sales.
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+ Practice Case 2
This case demonstrates how one can approach an unfamiliar market sizing case by asking the
right questions.
Eye Surgery5
Problem Statement
Our client is a manufacturer of equipment for eye surgery. Specifically, the machines measure
deficiency in eyes, and the company also produces lasers for post-operational procedures and
adjustments. They don’t actually make the lasers or devices used for Lasik – rather, they are
complementary products for this procedure.
The global market for these devices is growing, but at a declining rate. As a result, the client
wants to get into a higher growth area, so they are looking at acquiring a company that makes
inter-ocular devices. These devices are used instead of Lasik but with similar effectiveness, and
they are used for two major categories of patients:
• Patients with cataracts
• Refractive surgery (to correct near or far sightedness)
How would you approach this opportunity? What would you look at?
Interviewee asked about the specifics of what the machines were so as to consider synergies
between the two companies and product offerings. There would be significant synergies and that
is a component of answering the case.
Given that we’re looking at a company with an existing product line that is exploring moving
into a related product line, we need to understand any links between the two. It is vital that the
interviewee demonstrates his acknowledgement of the risks of cannibalization and the benefits of
synergy between the old and new lines. Also key is to show an understanding of some of the
basics of M&A. High level, a framework looking into internal factors of both the target and
acquirer (such as culture, finances, and the synergies there might be between the two), external
factors such as market trends and competition, and customer factors (both doctors and patient
segments) is necessary. The interviewee should also remember the significance of the valuation
of the target- is it worth the asking price.
5
Taken
from
the
Columbia
Case
Book
(2006),
pages
48-‐50.
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This case is fairly simple if you hit the numbers – take your time and get them right. The overall
framework was very helpful as interviewee was able to reference it multiple times during a fairly
focused case discussion. The key is identifying that there will be different types of customers for
each offering, so suggesting ID-ing customer segments up front seemed to be a major plus.
Key Facts
• US population is roughly 300M
• 75% of the US population over 65 has cataracts
• US population is evenly distributed over 80 years, the same number of people are each
age
• When someone turns 65, they have a 75% chance of getting cataracts, and if they don’t
get it immediately they will never get it
• 1/3 of the population is near-sighted and ¼ of the population is far-sighted-> 175M
people need vision correction of some kind
• There are government caps on pricing for cataracts surgery and that there is substantial
competition from major national players.
• The refractive market is still very fragmented and growing rapidly – 1.5M surgeries/year
will grow to 3-4M as procedures become safer. Also, the patient pays 10x as much for
refractive surgery as a cataracts patient would pay.
Candidate’s Response
Interviewee: I would look into internal factors of both the target and acquirer (such as culture,
finances, and the synergies there might be between the two), external factors such as market
trends and competition, and customer factors (both doctors and patient segments). Related to all
of these would be the valuation placed on the company. If we could, I’d like to start with drilling
down on the customers.
Interviewer: OK, I like that. So let’s talk about the cataracts patients. If I were to tell you that
75% of the US population over 65 has cataracts, how many potential patients are we talking
about?
Interviewee: Well I know that 12% of the population is 65+, so let’s call that 10% for
simplicity. 10% of 300 million is 30 million. 75% of that is 22.5 million. But some of those
people might already have had surgery.
Interviewer: Good point. And it gets a little dicey because the segment would be skewed
towards 65. So here is a simplifying assumption – assume the US population is evenly
distributed over 80 years, the same number of people are each age. When someone turns 65,
they have a 75% chance of getting cataracts, and if they don’t get it immediately they will never
get it. What’s the market size thinking this way?
Interviewee: OK, so we have 300 million people over 80 years. That’s 3.75 million people in
each year age bucket. So it would be 3.75 million people turning 65 every year. If 75% of them
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get cataracts, that’s…roughly 2.9 people a year. Plus some percentage of the population already
over 65, I’m thinking right around 3 million people a year.
Interviewee: I don’t know a lot about cataracts, but it seems to. I’m not sure all of those people
currently get laser eye surgery currently, though.
Interviewer: Right. OK, now let’s turn our attention to the refractive surgery market. So your
research tells you that 1/3 of the population is near-sighted and ¼ of the population is far-sighted.
Assume that those numbers already include those who’ve had their vision corrected. How many
people are we talking about for the potential market size?
Interviewer: (Works out 4/12 + 3/12 = 7/12; 7/12 * 300 million people total = 175 [shortcut:
1/4 of 100 = 25, 25*7 = 175]) 175 million people.
Interviewer: Right. And it turns out that it translates to 1.5 million people a year actually
getting refractive surgery. So if we acquire this company and can position it as a cataracts
provider or a refractive surgery provider, which should we position it as? (note: the machinery
would be slightly different, enough so that it would be beneficial to go after one market or the
other).
Interviewee: OK, so I know that the cataracts market is around 3 million a year and the
refractive market is 1.5 million a year. But I don’t know anything about profitability so I can’t
really say. Can you tell me a bit about the markets?
Interviewee: So based on what we just discussed I’d like to target the refractive market.
Interviewer: Is there anything else you would want to know before making a decision to buy
the company?
Interviewee: I’d need to know more about the financials to give a clear answer. I’d also need to
better understand the synergies and how they’d be perceived in the market. However, it looks
promising given our examination of the market segments.
Interviewer: Excellent.
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Most of the business cases (if not all) come down to profitability problem at the end. An
interviewee will have to tackle either a pure profitability case or as a part of larger scale case at
one point during his/her interview process. This is also a very helpful framework to get used to
lay down your thoughts in an organizational manner and investigate them further one by one.
1) Bottom line: Gross sales minus taxes, 5) Gross sales: Total value of sales, before
interest, depreciation and other expenses deducting for customer discounts,
Also called net profit, net earnings or net allowances or returns.
income.
6) Net sales: gross sales minus returns,
2) Cost of goods sold (COGS): on an discounts and allowances.
income statement, the cost of purchasing raw
materials and manufacturing finished 7) Overhead: the ongoing administrative
products. expenses of a business, such as rent, utilities
and insurance.
3) Cost-based pricing: a pricing strategy in
which a product or service is priced 8) Price-based costing: a pricing strategy in
according to the cost of producing, which a product or service is priced
manufacturing or otherwise creating the according to what the market will bear, or
product or service. R&D and COGS are the what the consumer is willing to pay.
major determinants in this pricing strategy.
9) Transition phase: a phase of
4) Cost-benefit analysis: A technique development in which the company’s
designed to determine the feasibility of a earnings begin to mature and decelerate to
project or plan by quantifying its costs and the rate of growth of the economy as a
benefits. whole.
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+ A Sample Case
Palm Tree Plantation Exports6
Problem Statement:
Palm Tree Plantation Exports grows, sells and leases twenty different varieties of palm trees and
other tropical plants throughout the United States. They posted a net income of $95m, down
from $105m last year. Yet their market share grew by 7%. What’s going on and how can we turn
it around?
Whenever you get a question with numbers and the numbers are related, as in this case (net
income fell from $105m t o$95m), you should quantify the numbers. So instead of saying that
net income fell from $105m to $95m, or that it fell $10m, you should say the net income fell
about 10%.
Determine what’s going on and how you can turn it around. There are no other objectives we
need to be concerned with.
Because this is a P&L case, you should use E(P=R-C)M. Look at external factors first because
we want to find out if this is a company problem or an industry problem. Economic factors in
6
Case in Point (7th Edition) Case 1
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this case should include unemployment, mortgage crisis, housing starts, state and city budgets,
interest rates, and water and gas process. All those things are important not only to the company,
but to the industry as a whole.
Interviewers have a lot of information they want to give you but you need to ask for it. Did you
ask about industry growth trends? Competition? Changing landscape? Environmental factors like
drought and disease? Who are the main customers and what is their industry like (states’ and
cities’ budgets are down, housing starts are down, and shopping mall and office building
development is also down)?
Once you have a feel for the industry, go inside the parentheses to get a feel for the company.
Always start with the revenues. Ask, what are the major revenue streams and how have they
changed over time? What are the major costs, both fixed and variable and how have they
changed over time?
+ Practice Case 1
Bubble Gum Manufacturer7
Problem statement
You are a consultant working for a bubble gum manufacturer. The CEO of the gum
manufacturing company is concerned because his company is experiencing declining margin.
My questions to you are: (1) the reasons behind declining profitability (2) your suggestions for
improving profitability
Interviewer Information
If asked about cost composition, ask the interviewee to brainstorm potential cost buckets:
• COGS: gum, sugar, flavor, smell, color
• Labor
• SG&A
Raw material cost has not changed (i.e. the unit cost is the same but total cost could be different
depending on product composition. ***This is the key to the case so don’t give the information
7
Case Practice Wharton casebook 2007-2008
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about the unit cost to the interviewee too early in the interview.
Remember to push the interviewee so that she comes to the conclusion herself***)
Composition products:
• Flavored gum raw material: gum, sugar, flavor, color dye
• Flavorless gum raw material: gum, sugar, color dye
Gum, Sugar, and Color Dye raw materials are same in size for each of the two products.
Profitability has declined because sales of flavored gum have been increasing, which means that
raw material consumption is also increasing because flavored gum requires the additional flavor
component. This added with the fact that the price of flavored gum is the same as non-flavored
gum, means that, essentially, costs are now rising while revenues are not. To improve the profits
of the company, interviewee should come up with 4-5 suggestions (raising price of flavored gum,
sourcing cheaper flavors from other suppliers, negotiate with existing suppliers to reduce the
flavor cost, vertical integration of flavor manufacturing company)
Comments
The key focus of this case is in the product mix. Most interviewees may be really confused when
they get the info that sales have been raising and cost is constant. First, don't guide them into the
product portion right away b/c this is the topic that they should explore themselves. Logical
buckets that interviewees should explore are Sales trend, cost trend, cost composition, and
product mix. The conclusion should be concise as indicated in the logical conclusion section. For
the answers to the second question (how to improve profits), great interviewees would present
two types of options (short term (easy to implement, quick wins) would be to negotiate with
existing suppliers / look for other suppliers, long term (vertical integration)). When discussing
price change, you should ask interviewees risk regarding price increase and how they are
planning to cope with it. For example, customers may buy less of flavor gums b/c of price
increase. However, you can offer value-added product such as low-cal flavor gum & do
promotional/marketing efforts to justify price increase.
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+ Practice Case 1
Food services costs
Bain
A large fast food chain has hired Bain to improve the company’s profitability. You’re about to
have an initial brainstorming session with your team around your client’s options, and you want
to collect your thoughts first. How would you begin to tackle your client’s profitability problem?
Your interviewer wants to know that you have a structure in mind. An appropriate structure for
this case would be the profit equation. Be sure to state that to your interviewer.
Sample Response
At your case team meeting, your manager informs the team the customer is price sensitive, the
market is fairly saturated, and that the fixed costs are pretty stable. Thus Bain and the client
agree that the team should focus on lowering variable costs. Specifically the client wants to
reduce their spending on purchased items (items the client buys from others and then uses or
offers to their customers, like the meat in the hamburgers or the ketchup packets). Without
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knowing much more about the situation, what would you suggest are some ways to do so?
Which ideas seem the most attractive and why?
Purchased goods in this business fall primarily into 2 categories: food and packaging. Variable
costs are a function of: price and volume. Therefore, the client needs to reduce volumes
purchased or negotiate lower prices.
Food:
· We could negotiate lower food prices with our suppliers (consolidate our purchasing, etc.).
· We could look for cheaper ingredients. This sounds risky because it could lower the quality of
the food that we sell.
· We could reduce the volume used. For the same reason, this sounds risky because it would
change our recipes, one of our competitive advantages in producing winning recipes.
Packaging:
· We could negotiate lower prices with our suppliers or look for cheaper alternatives.
· We could reduce the volume used.
Recommendation:
· Most attractive ideas are: negotiating lower food prices or packaging prices, looking for
cheaper packaging materials, or reducing the volume used.
At this point in the brainstorming session, the VP adds that two years ago, the company launched
a program to centralize purchasing and successfully negotiated much lower prices. Therefore, it
is critical to determine if you could reduce the volume of goods that the client purchases. How
could you reduce the volume of purchased goods?
· Some good creative answers here include (but are in no way limited to):
· Can the client change the shape or size of food containers?
· Can the client packaging for families be consolidated?
· Can the client reduce the weight of the packaging while still protecting the food?
· Can the client reduce other qualities of the packaging including degree of color or logo
prevalence without sacrificing their brand?
· Can the client lock bathrooms so that non-customers do not waste toilet paper and towels?
· Can the client charge for extra condiments?
· Can the client reduce the size or number of napkins they purchase?
Bain focuses on components that make up large portions of a company’s costs: reductions in
these areas will have the largest impact on a client’s overall costs. Bain’s philosophy is to always
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focus on where the value is. At first glance, napkins would not appear to fall within this category
because they are so low cost. But there is a new napkin dispensing technology on the market that
you have heard about and think could save the client some money. You decide to investigate.
One way to reduce volume is to reduce how many napkins a customer takes. Customers in fast
food chains often take many more napkins than are needed for the meal, or actively hoard them
to take home. One action some chains have taken to combat this is to switch their napkin
dispensers from small metal dispensers (from which you pull napkins out in bunches) to larger
plastic dispensers (from which you pull napkins one at a time, like a reverse Kleenex box). These
dispensers are produced by major paper manufacturers.
Let’s assume your chain came to you with the following question:
· How much money could we save per year in the US from using the new type of napkin
dispenser in all restaurants?
What information would you like to know from the company? (Do not take into account the cost
of the dispensers for now.)
As you talk through the data points that you would need to gather with your colleagues, you
learn from a fellow AC who worked for a local restaurant that a case of 6000 napkins cost his
client $28. Thus, a reasonable price per napkin is about $0.005. Conduct your estimates as if
your client is similar to McDonald's in terms of the number of outlets.
Your manager calls you for a quick estimation of the market size before getting the actual data
from your client. Use creative approaches to hypothesize values for each of the above pieces of
information and then calculate the estimated savings.
The interviewer is not looking for you to know the values of each of these buckets, however it is
important for you to make reasonable estimates and be able to defend your answer. Were your
estimates near these, or did you at least take similar approaches?
Number of restaurants
Actual answer: ~12,000 McDonald's in the US.
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One estimation approach
Think of your hometown: How many McDonald's are there for the number of people? Assume
there is a McDonald's for every 20-25,000 Americans, with a population of ~275 million people
in the US, that would be 11-13,750 McDonald's.
Other approaches
· Estimate the entire fast food market and then estimate McDonald's share
· Estimate the area covered per McDonald's across the United States.
Note: With this approach, be careful to account for population differences between 10 square
miles of NYC and 10 square miles of Utah.
Actual answer
Fast food restaurants expect around 1,500 customers a day.
Other approaches
One might take this a step further during a case interview and attempt to segment these
customers. For example, one might assume 50% of the restaurants customers are drive-through
and 25% of the remaining takes their food "to go." Drive-through customers do not take, but are
given napkins. "To go" customers may be more likely to "hoard napkins" as they cannot go back
to the counter for more.
Note: This would influence potential answers to the next question - but for now, assume you did
not take this step and all customers are the same.
Actual answer
Five napkins with old dispensers and two napkins with prohibitive dispensers for a savings of
three napkins per customer.
Other approaches
Bain would send people to the chain to watch napkin taking behavior or call fast food restaurants
with both kinds of dispensers to find out how many napkins they go through a day.
Calculations
$0.005 per napkin x 3 napkins x 1500 customers x 365 days per year x 12,000 restaurants
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= $98.6M dollars saved in napkin purchases.
· How would you go about feeling comfortable with this figure and pressure checking your
assumptions?
·What would you want to flag for your manager as factors that might significantly alter the
answer?
· Looking at a comparable company’s operating income to see what percentage of the expense
napkins account for.
· Find out what your client currently spends per restaurant per year on napkins. Keep in mind
that with a company of this size any small changes in assumptions will significantly alter your
answer. Some things to flag for your manager:
· The chain you work for probably gets a significantly better deal on napkin pricing due to the
magnitude of their orders (in contrast to the single-location restaurant napkin price estimate you
received)
· Up to 50% of customers are drive-through and their napkin behavior should not change. This
would reduce the savings by up to 50%
· The three napkin reduction estimate needs refining. Perhaps a pilot program would need to be
done to see if the dispensers really have the desired effect
Assume you would need 10 dispensers per store for a total of 120,000 dispensers. Also note that
napkins in these dispensers cost more at a price of $.01 per napkin (remember it is the paper
companies that make the new dispensers). At what price per dispenser would the investment not
be worth doing?
120,000 x cost of dispenser + 2 napkins x .$01 per napkin x 1,500 customers x 365 days x12,000
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stores
=5 napkins x .005 per napkin x 1,500 customers x 365 days x 12,000 stores
The most you would be willing to pay per dispenser would be $273.
Note: In an actual case interview you can use round number estimates so that mental math is
easier.
Advantages:
Fewer napkins used per day leads to less restocking which may mean better customer service or
lower labor cost. Better relationship with paper manufacturer (potential for better pricing).
Disadvantages:
With the new dispenser locking you into a paper provider you may lose buyer power. There is
the potential for additional napkin price increases in the future.
Customer reaction: Will a customer find this to be poor service? What if he or she needs to grab
a handful of napkins after a spill?
Implementation:
Management will need to negotiate a contract that includes limits on future pricing.
Bain will need to do customer research and pilot programs to evaluate customer reaction.
And many, many more! As you can see, the keys to a good case interview are logical
assumptions, creative thinking, and basic quantitative ability. Take time to think through
problems and share your thought process with your interviewer and you will do great.
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Problem Statement
Our
client
is
the
Jamaican
Battery
Company.
Currently,
they
sell
car
batteries
throughout
the
Caribbean,
Africa,
and
Central
and
South
America.
Over
the
past
two
decades
they
have
been
eyeing
the
Cuban
battery
market.
However,
Cuban
Battery
Enterprise,
a
state-‐owned
battery
company
currently
has
100
percent
of
the
secondary
market.
The
reason
they
have
I00
percent
of
the
secondary
market
is
because
the
Cuban
Government
has
a
5o
percent
tariff
on
the
manufacturing
costs
and
shipping
costs
on
all
imported
batteries.
The
Castro
government
has
just
announced
they
will
be
lowering
the
tariff
on
batteries
by
5
percent
a
year
for
the
next
no
years
until
the
tariff
reaches
zero.
The
Jamaican
Battery
board
of
Directors
wants
to
know
the
size
of
the
Cuban
market
and
if,
when
and
how
they
should
enter
it.
A
section
of
the
candidate's
response
—
We're
switching
hats
again.
You
are
now
back
to
advising
the
Jamaican
Battery
Company.
You
have
seen
that
the
Cuban
Battery
Enterprise
has
upgraded
its
plant,
increased
its
distribution
channels,
formed
a
joint
venture
with
the
Cuban
Tire
Enterprise
and
has
launched
a
nationalistic
marketing
campaign.
Do
you
now
enter
the
Cuban
battery
market,
if
so
how?
Whenever
you
enter
a
new
market
there
are
several
things
you
need
to
examine.
Who
are
the
major
players?
What
size
market
share
do
they
have?
How
are
their
products
or
services
different
from
ours?
And
are
there
any
barriers
to
entry?
The
major
player
is
the
Cuban
Battery
Enterprise.
They
have
100
percent
of
the
market.
Two
years
ago,
their
products
were
inferior,
but
today
they
are
very
similar.
The
tariff
was
a
barrier
to
entry,
but
now
it
looks
as
if
access
to
distribution
channels
could
be
a
threat.
I've
learned
that
there
are
three
main
ways
to
enter
a
market.
Start
from
scratch,
buy
your
way
in.
or
form
a
joint
venture.
I'd
like
to
do
a
quick
cost
benefit
analysis
of
each.
Starting
from
scratch
would
be
a
fine
strategy
if
we
can
define
our
distribution
channels.
If
the
Cuban
firm
has
all
the
gas
stations
tied
up
and
have
built
tire
and
battery
stores,
then
our
distribution
means
are
limited.
Plus,
selling
17,000
batteries
a
year
might
not
justify
an
investment
of
building
our
own
battery
stores.
8
Case in Point (4th Edition) Case 13
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The
second
strategy
is
to
buy
our
way
in.
Since
this
is
a
communist
country
there
isn't
a
lot
of
buying
opportunity.
If
we
were
going
to
buy
anyone,
it
would
have
been
the
Cuban
Enterprise.
And
we
should
have
bought
it
when
they
were
a
mess
and
not
a
formidable
competitor.
The
third
way
is
to
form
a
joint
venture.
lf
I
work
under
the
assumption
that
there
are
no
independent
battery
distributors,
then
my
first
choice
is
to
form
a
joint
venture
with
one
of
the
tire
companies
that
are
entering
the
market.
My
guess
is
that
there
will
be
several
tire
companies
and
battery
companies
jumping
in,
so
we
need
to
be
part
of
that
coalition.
A
sample
of
market
segmentation
leading
up
to
product
differentiation
Imagitas9
Problem Statement
Imagitas has a contract with the U.S. Postal Service to deliver a booklet called "the Mover's
Guide". It has helpful hints on how to move and coupons to stores and services that the mover
will need when moving. Imagitas also sends a "Welcome Kit" to the mover's new address with
coupons and information that she might find helpful in her new neighborhood. Imagitas saves the
U.S. Postal Service over $12 million dollars a year while making over $50 million in ad
revenues. Imagitas now needs a strategic plan to reach the college market.
I can think of five segments to this market. Heading to school for the first time, heading back to
school, moving back home with their parents for the summer, moving to a new city for a summer
internship and moving to a new city for their first job. The three that I'd like to focus on first are
heading to school for the first time, heading back to school-each year, and moving to a new city
for their first job.
Heading to school for the first time is a great opportunity for a very strong Mover's Guide
package if sent early enough before the parents go shopping. Coupons for Linens & Things and
The Gap might be good additions to the Mover's Guide.
When the student arrives on campus, the Welcome Kit can be unique with a strong mix of
national and local coupons, if segmented by school or city. Coupons should be for "room stash",
batteries, pizza, dry cleaners, that sort of thing.
9
Case in Point (4th Edition) Case 28
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With the group that is heading back to school, I'd focus mostly on the "Welcome Kit". If
Imagitas can segment by school or city, then they can get a large number of local merchants as
well as national chains.
Finally, there is the group that is moving to a new city for thee first job. Again, this gives us a
great opportunity to weigh heavy on the "welcome Kit". This group will need everything and
now has a paycheck to pay for it. National retailers like Create & Barrel and Linens & Things
should jump on it.
+ Useful frameworks
The most typical strategic questions center on whether or not a new market is appropriate for a
client. Sometimes, the focus is on the theoretical analysis of whether or not to enter; other times,
the key is to focus on practical methods of entering a market. Often, these are combined into one
case, where the first part is spent analyzing a market and the second part is devoted to developing
a specific entry strategy.
A direct framework:
Major
players,
market
share,
strengths
and
weaknesses,
profitability
(quantitative)
Current Market Product differentiation
-Size
-Growth Rate
-Customer Barriers to entry / Barriers to exit
Segmentation
Start from A
cost
benefit
analysis
of
scratch each
If yes, how? Acquisitions
(as
demonstrated
above)
Entering Joint Venture
No
Associated questions:
Step 4: If we decide to enter the market, we need to figure out the best way to become a-----------
player-------------------------------------------------------------------------------------------------------------
Supplemental Frameworks
“Four Cs” for exploring the theory behind a - Proposing a market entry strategy-------
strategy---------------------------------------------
Customer-------------------------------------------
Segment every time
Cannibalization issues
Competition --------------------------------------- Start from scratch --------------------------
Barriers to entry Time to market?
Number and strength of competitors Can we grow the capabilities we need?
Market share
Quality
Types of companies in market License/partner with another company-
Competing for end users or intermediaries Or joint venture (“JV”)-------------------
Company ------------------------------------------- Partnership issues
Costs of new project Conflicting goals
Ease of changing to new project/strategy Cultures
Channels------------------------------------------- Synergies
What do we use
What could we use
What do others use
Costs/benefits of different channels
10
Taken
from
Fuqua
School
of
Business
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+ A Sample Case
Problem Statement:
Our client is a large grocery chain throughout Texas. Their stores are concentrated suburbs
outside all the major cities in Texas: Dallas, Arlington, Fort Worth, Houston, Austin, Galveston,
San Antonio, Amarillo, Corpus Christi, El Paso and Padre Island. They are looking to grow the
company — but only in Texas. They feel that they have saturated the grocery market in the
suburbs and have dismissed the idea of opening up stores downtown.
They already have an online grocery ordering and delivery service, so they are thinking of
entering into the convenience store business. Is this a good idea? If so, how best to enter the
market?
Sample Response:
Basically, a large Texas-based grocery chain wants to explore the possibility of entering the
convenience market. We need to determine if this is a good idea, and if it is, how best to enter
this new market?
11
From
Wharton
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in
Point
(4th
Edition)
Case
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— That's right.
Besides the ones stated above, are there any other objectives I should be aware of?
— No.
Talking in broad strokes, I'd like to figure out why the company wants to expand, what the
current convenience store market is like, and then discuss ways to enter that market. Does that
sound like a good idea?
— Possibly. I wouldn't have done it like that, but let's see how you make out.
I assume the reason or reasons Texas Star is entertaining this notion is because A) they have
excess cash on hand and want to see if this is a better return on investment than a money market
or other investments they've looked at, B) they want to increase their market share of the Texas
in-store food business, C) there has been a decline in their existing business, maybe because of
shrinking sales or higher costs, and or D) they see this as a growing market.
— Sure.
I know that there's plenty of competition with 7Eleven, Christy's, Dairy Mart, White Hen, The
Red Apple and Utote-um, just to name a few. Can you give me any market share information?
— I can tell you that the leader is 7Eleven and that they did over $3 billion in sales last year.
That includes both in-store merchandise and gasoline sales, but I don't know what their market
share is.
— Over 58,000 in the U.S. and Canada. But I don't think that's relevant.
You're right. The proper question should have been how many of those stores are in Texas and
how many convenience stores are there in Texas?
I can't think of any barriers to entry, so I'll assume that's not a concern.
Well, the first one was location. Which leads me to the next question. How do we plan to enter
the market? We can start from scratch, buy our way in or do a strategic alliance.
I'd like to come back and visit this question in a minute. However, we would need to look at the
real estate market and see what kinds of locations are available. We may want to see if there is a
small chain of existing stores with good locations but poor management that we could take over.
— What else?
Next on the list was price. This is where I think we make our mark. People pay for convenience.
Prices are high because costs are high because stores tend to buy many items in low volumes.
One of our advantages is that we already buy large amounts of all the products we would sell in
the store, so we have economies of scales working for us. We should be able to leverage our
current value chain components.
— Let's call a time out for a second. Never use jargon or phrases that you don't understand. If
you do it in an interview, then I'll assume that you will do it in front of a client. It's easy for the
interviewer to lose trust in a candidate, because I can't trust you in front of a client. Now it just so
happens that I like you and that you are doing really well on the question, so I’m going to
pretend that I didn't hear that. Continue. Where were we?
We were discussing price. If we can price our items somewhere between what we charge in our
grocery stores and what our-competitors charge in their convenience stores we could drive in
traffic. For instance, if I buy a gallon of milk at the grocery store it costs me $2.95. If I buy that
same product in a convenience store, it costs me $3.95, a dollar more. If we could price it at
$3.49, that's a significant enough difference where it would drive people into the store. In
addition, I'm assuming that Texas Star, like most large grocery stores, has store-label items, such
as their own brand of peanut butter. Those items sell for significantly less than the traditional
name brands, so the price difference would be even greater. We could offer all the traditional
convenience store items while adding things like a salad bar and prepared gourmet meals. This
could change the genetic code of convenience store retailing.
Let's look at the company's resources and capabilities. We buy in large volume, we have the
management team, the marketing team, trained workers, name recognition, and we have an
untraditional marketing channel through our existing stores. I don't think that there would be any
cannibalization of existing grocery store sales, because items would still be less expensive in the
grocery store. In fact, we could cross market and offer coupons to try our convenience stores.
The last thing on my list was brand loyalty. Texas Star obviously has a strong following, a
commitment to Texas and, I'm guessing, to local communities.
Texas Star is looking to expand. Their idea of getting into the convenience store market is a
viable one. This market will continue to grow and there are no major barriers to entry. It will
allow Texas Star to build on their name recognition and take advantage of the organization's
existing resources and capabilities. They can offer lower prices and store-brand items, cross
market with their grocery stores and offer new items to traditional convenience store fare.
The best way to enter the market is to look for a small chain that has good locations but bad
management. Buy the chain, change the name and bring in your own management. All stores
should be in close proximity to a Texas Star grocery store. If they can't find a buy-out target,
they should start from scratch.
And I just want to restate that it is a combination of name recognition, location and prices that
will make this idea a success.
— Okay, well that was pretty good. Now you got me thinking. Texas Star, as you can tell is
always looking for new ways to increase their revenue streams. They are also considering
opening an in-store bank. No other competitors in their area are currently doing it. What do we
need to be thinking about?
Again, they are entering a new market. There are a number of things that they need to figure and
decide. First, do they have the space in their stores or will they have to construct additional
space? Also, if they do have the space, we need to think about whether that space can be used
more effectively. How much space is needed? . _
— It's the equivalent of a florist department, and we already have one of those. And yes, we do
have the space for this. It would take some remodeling, but nothing significant. We need to look
at who the major players are; what size market share they have; will our products or services be
any different from our competitor's, and if there are any barriers to entry.
That there's‘ plenty of competition and that our products or services might be basic compared to
our competitors. All we really have to offer them is convenience. Hopefully, there will be
increased traffic at the grocery stores due to the bank. But now, with ATMs, debit cards and cash
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back the basic services are easily covered. I'm thinking that we need to figure out how best to
enter the market and determine if this makes sense.
There are three ways to enter the market: start from scratch, buy our way in, and a joint venture.
What are the costs in each of theses options? What are the potential revenue streams and how do
they differ, and what is the risk associated with each?
Starting from scratch will be time consuming and somewhat expensive. We'd have to hire new
people with experience in banking to run the organization. There might be some barriers due to
federal and state banking regulations, which might take some additional time. And if it fails or
doesn't live up to expectations, it could damage the overall Texas Star brand. On the other hand,
we already have locations and our rent would be minimal. Revenues will come from bank
transactions and possibly increased grocery sales. However, I'm not convinced that this is the
best way.
Buying our way in would mean buying an existing bank and taking over their business. We
would already have the people in place, a number of existing locations, and some brand
recognition. It might be expensive. We would have to do due diligence on the entire bank and the
banking industry. We might be able to sell some of the branches to other banks to help reduce
any debt we would incur. This would be really jumping in with both feet.
The third way would be a joint venture with an existing bank. I think this is the simplest solution
and holds the least risk to profits and our brand. We would just lease space to the bank for a
monthly fee. We would have to weigh the rental income against the remodeling costs.
I would tell Texas Market that if they feel that having a bank branch in their grocery stores
would result in increased traffic and maybe higher sales, they should form a joint venture with an
existing bank and keep risk to a minimum and lease out the space. Starting from scratch or
buying an existing player is expensive and risky. We currently know nothing about the industry
and a failure could hurt the Texas Star brand.
Comments
Besides getting into trouble for using business jargon that he did not know, the interviewee did
pretty well. He laid out his strategy upfront and stuck to it, but also added ways that the client
could differentiate itself from the competition. He seemed to roll into the banking part of the case
with a little more confidence.
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+ Practice Cases
S SOFTWARE13
Problem Statement
An US software company wants to offshore its engineering/designing unit to India, as well as to
penetrate into the India software engineering market. Should they do it?
Market Share – the company is the industry leader in US with close followers chasing behind.
Profitability – declining (unknown reason, but increasing labor costs can be a reasonable
assumption).
Cost – R&D is the major cost and Indian engineers are estimated to be 1/4 of the cost of the US
engineers with the same technical capability.
13
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Customer –
• Has a strong existing customer base in the US.
• Customers care about the quality of service, but are also considering lowering cost in the
long run. A strong candidate should follow up with questions about customer
segmentation.
• Most of S Software’s clients are medium to large companies in US.
• The most profitable clients are large companies in developed countries where S Software
already has a strong base.
• S Software doesn’t have any international presence yet.
Competition – US
• Key US competitors are all off-shoring in order to lower the cost.
Competition – International
• The growth of the international market is impressive compared to the more mature and stable
US market.
• Key competitors are expanding their international business aggressively.
• India is one of the fastest growing international markets as well as the one with the largest
market size.
A strong candidate will get the hint that entering the international market, especially the India
market, is critical for the company to both fulfill current customer’s emerging needs of cost
saving and grow its future business. He/she should then start to compare the competitive
advantages between large US companies off-shoring and local Indian players.
Conclusion
The short answer is “Yes”. The situation falls into the upper left corner of the matrix because
• In the long-run, even current customers with established relationship will need to look for
cheaper alternatives. S Software can offshore its R&D to lower the cost but still keeps its
customer service team in the US to maintain the high service quality.
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• Although clients in the developed country are more profitable, the actual growth of the market
is limited. Developing markets like India might not be as profitable as the US, but with the
huge and growing market size, even capturing a small percentage of the market can provide
substantial profits.
• S Software might lack knowledge of the Indian market, but its strong customer relationship
management skills, large existing customer bass, and the understating of unique customer needs
can be further leveraged in India. In addition, hiring local talent or partnering with local
companies can help solve the concern of the lack of local knowledge.
• The legal risk as well as the political risk in India can be considered low.
BCG Round 1
Problem Statement
Your client is a U.S. Textile Manufacturer. They have recently developed a new technology for
making Lithium Ion battery separators. Is this an attractive industry? And should your client
enter the market?
Interviewer Information
• Your client has no prior experience or knowledge of the battery separator market
• Battery separators are an integral part of the lithium ion batteries. They need to be thin and
provide a medium for charged particles to pass between the cathode and anode (positive and
negative terminals).
• We do not know if our technology is better than existing technology.
• Your client had $250 million in sales last year.
• No current patent, but we can get a patent on our technology.
• Safety is a big issue in this industry and so there is a very expensive 1-year certification
process.
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After the structure, allow the candidate to ask for data. Feel free to push them on the definition of
an attractive Industry – sustained profitability.
+ Practice Case 1
Zenith Hotel14
Bain Round 1
Problem statement:
Zenith Hotel is a global hotel chain with 50 hotels in 20 countries. The company is evaluating the
construction of a new hotel in the Bahamas. Zenith has come to us asking whether it should and
can move forward with the project
Interviewer Information:
This case is extremely straightforward and open ended. The interviewer read the problem
statement and waited for the candidate to drive the rest of the case. No exhibits were introduced.
This was primarily a case about feasibility, so the discussion should focus on an internal /
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external analysis of the company’s plans with two math problems to solve.
Key elements of analysis to solve the case Possible follow-up and guidance to
interviewer
Internal
External
Competition
Consumer demand Regulatory/country-specific issues are not a
Regulatory/other issues concern
Feasibility
Question 1 - Breakeven
How much would Zenith need to charge on average per room to break even?
3,600 people per month/50,000 people per month = 7.2% market share
Sample Recommendation
Zenith should proceed with the construction of the hotel. As a global hotel chain, gaining a 7%
market share in the Bahamas seems like a reasonable goal.
Risks
It seems overly aggressive to assume that hotel rooms will be occupied 350 days a year for the
breakeven calculation.
Next steps
Examine consumers’ willingness to pay $500/night for a Zenith hotel room in the Bahamas.
+ Practice Case 2
15
Disaster Remediation
Length: Medium (30 Minutes)
Problem Statement:
Your client is a US-based provider of fire and water remediation services, which primarily
provide extensive cleaning in the aftermath of damages related to burning and flooding. The
company is typically hired by insurance companies on behalf of consumers and businesses.
While this existing business is quite profitable, your client has asked for counsel on whether to
enter the US residential cleaning market (traditional housecleaning, which typically takes place
2-4 times per month.)
The US market for housecleaning services is roughly $50 billion (see pre-case), with stable
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growth of 4%.
• These households can be roughly split in half according to whether they earn more than
$75,000 per year
• Estimate the willingness to pay for housecleaning services at 40% of households making more
than $75,000 per year and 10% of households making less than $75,000 per year (interviewer
to confirm)
• [50 million households] x [40%] + [50 million households] x [10%] = [25 million purchases
per year]
• Assumed annual housecleaning fees of $2,000 (interviewer to confirm) = market size of $50
billion
Competition:
• National Players (10% of market) – Includes national housecleaning companies such as “Dial-
A-Maid”
• Regional Players (20% of market) – Includes regional services such as “Joe’s Chicago
Cleaning Service”
• Individuals (60-70% of market) – Includes individuals who are often not part of a formal
organization
Customers:
• Customer purchase criteria generally range along a spectrum with “price” and “quality” on
each end.
• Buyers from National Players typically rate “quality” as most important, buyers from
Individuals typically rate “price” as most important, and buyers from Regional Players consider
a mix of both.
Profitability:
The average price for a 5-hour housecleaning job is $75 (based on data from National Players)
Client labor costs are roughly $10 per hour and one job consumes roughly $5 worth of cleaning
supplies
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Synergy Considerations:
o The client could leverage its client contacts and customer service ratings in the
cleaning market.
o However, the sales process for cleaning services is quite different (no sales via
insurance companies).
Sample Recommendation:
The US market for housecleaning services is large and attractive, and the client has transferable
skills, client contacts, and customer service capabilities that would facilitate a relatively smooth
market entry.
A preliminary margin analysis suggests that the client could operate profitably against the
National Players for the quality-conscious customer segment: ([$75 price] – [5 hours x $10
hourly labor costs] – [$5 cleaning costs]) / [$75 price] = 27% profit margin.
Despite these favorable indications, the client will need to develop a tailored value proposition to
quality-conscious customers and anticipate likely competitor reactions before proceeding with
full market entry.
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Problem Statement
You are assisting a regional Bell operating company (RBOC) that has been attempting to
diversify its business lines outside of the traditional telephone business. Unfortunately, it has
been unsuccessful in a number of previous new ventures, including real estate, financial services,
and software. This time, the client is considering an opportunity to get into electronic home
security. The attractive features of this industry include:
• Relates well to phone company’s core business (phone lines, operator services, installation
services)
• No big players in the industry (largest five firms have combined total of less than four percent
market share)
• Large potential demand (only ten percent of residences have security systems)
• The Question: Is this a good opportunity? What do we need to know to assess the opportunity?