2010
CasebookCONSULTING
INTERVIEW
PRACTICE CASES AND
GUIDE
CONSULTING CLUB
- 0 -
Table of
Contents1.
Introduction
3
2. 5 Steps to the Case
Interview
3. Types of Cases
4
6
4.
Frameworks
8
5. Practice
Cases
9
I. Pizzanomic
s
10
15
22
26
31
36
48
55
61
69
II. Gas
stationIII. Bidding on the
Olympics
IV. Wayne RooneyV. Strawberry
JamVI. Premium Home
Retailer
VII. Portable StorageVIII. Household Cleaners
Growth
IX. Household Cleaning
Services
X. College Football Program
- 1 -
Table of Contents
(cont.)XI. Self Check-
Out
XII. Oil Rig
76
80
XIII. Bio-Product
Growth
83
XIV. Li-Ion Battery
Separators
XV. VitaminCo
90
97
6. Key Facts
Review
104
106
107
7. Decimal
Calculations8. Rmended Cases From Old Casebooks
- 2 -
Introduction
An impressive resume and an appearance at a recruiting event may be enough to get
you an
interview, but if you want to get a job in consulting you need to learn to confidently
solve a
case. Luckily, case interviewing is a skill that can be learned with practice.
Additionally, case
interviewing can be a good way to learn about some of the problems consultants solve
and
whether a career in consulting is for you. If you enjoy case interviewing, you may be
on the
right career track.
Keep in mind that the case interview is not only about “cracking the case.” Consulting
firms are
often not just looking for the right answer, but for a logical and structured approach to
solving
the problem. Additionally, consulting firms are looking for candidates that can explain their
thoughts in a clear andpelling manner, are personable and friendly, and can perform
under
pressure. As a consultant, you will often be interacting with senior management, and
consulting
firms want to make sure you can handle it.
We hope you find the material in this casebook helpful. We he included cases from a
variety
of consulting firms to give you a sense of the different types of cases you may encounter.
Even
if not contained in this book, it is rmended that you review cases from firms with which
you are interviewing in order to gain a sense of that firm’s specific style.
He fun and good luck!
Your casebook
VP’s,Carlin Meleney (‘11), Jeremy Wilson (‘11), Reed Hansen (‘12), Marie
Lafkiotes (‘12)
- 3 -
5 Steps to the Case
Interview
Though case formats vary, these general steps often
apply:
1) Listen carefully to the question and write down everything the interviewer says.
Make sure
you ask them to repeat anything you missed. It is a good idea to a place on your
paper to write down the question the interviewer wants you to answer and potentially
how
they want you to determine the answer.
2) Clarify the question and objectives. After the interviewer is done with the
introduction,
repeat back to them the key facts and the question you are being asked to solve.
Often, it is
a good idea to ask, “Are there any other objectives?” as there are often additional
questions
the interviewer wants answered, and it is helpful to clarify these up front. Additionally,
it
can be helpful to determine the criteria you should use to answer the question – will
you be
calculating a profit margin or giving a subjective opinion?
3) Develop a framework. You want to sound organized as you answer the case, so ask
the
interviewer for a few minutes to write down a structure. A structure serves as a guide
as
you work through the case. It should be MECE – mutually exclusive collectively
exhaustive –
guiding you through all the important issues without repeating anything. Practice
writing
structures quickly – you don’t want to spend too much time writing during the
interview. A
minute is usually a good target. Once you are done writing your structure, turn it
towards
the interviewer and walk them through it.
- 4 -
5 Steps to the Case
Interview
4. Solve the case. Tell the interviewer where in your structure you would like to begin.
For
example, you may say, “First, I would like to know if revenue has been growing for the
last
two years.” In this part of the case, it is important that you are “driving” the case by
asking
for specific information and determining which calculations are necessary. You
should be
determining which facts are needed and asking for them. As you do calculations, be
sure to
verbalize what you are thinking and why; this will give the interviewer a chance to
steer you
in the right direction if you are off track. Listen to the interviewer, if they say “why do
you
think that calculation would help?” make sure you he a good reason for doing it. Don’t
forget that the interviewer isn’t just evaluating your analytical skills and try to stay
poised,
friendly and upbeat.
5. Conclusion. You need to gather your thoughts and give a rmendation. Often, the
interviewer will prompt you by saying something like, “The CEO wants to know
what you
think, take a minute to synthesize your thoughts.” Sometimes, you will need to
draw the
case to a conclusion yourself. When giving your conclusions, sound confident and
don’t
hedge. Often, a conclusion consists of 4 parts: 1. Conclusion 2. Reasons 3. Risks
4. Next
steps. Practice writing and explaining your conclusion in this format.
- 5 -
Types of
Cases
Though the five steps previously outlined apply to most case interviews, there are
many
types of cases. Often, a firm will he a specific style which most cases will follow.
Some
firms usually will give a number of charts during the interviewer, while others will give
a
narrative. First round interviews are often more quantitative, while later interviews
are
often more qualitative. It is a good idea to get familiar with the type of case given by
firms
you are interviewing with. 8 general types of cases include the following:
1. Standard Case: This is the mostmon type of case interview at the MBA level.
These
cases usually involve a broad business strategy problem such as market entry,
profitability,
industry analysis, acquisition etc. These cases can be either highly quantitative
requiring
extensive calculations or entirely qualitative.
2. Market Sizing: Moremon at the undergraduate level than at the MBA level. These
cases will ask the interviewee to determine an estimate of a given market size. It is
a good
idea to he general estimates of the US population, cities, states etc. to draw on
during
these cases.
and Control: McKinsey is generally the only consulting firm that will use this
case
type. In these cases, the interviewer will lead more so than in other cases, but it is
important to maintain control over the case. Often, market sizing or brain teaser type
questions will be embedded in the case.
- 6 -
Types of
Cases
4. Number Crunching: Some firms will give a candidate a booklet of facts and charts
and ask
the interviewer to flip through and answer a question or questions. Often, some of
the
information in the case is not helpful or misleading, and it is up to the interviewee to
determine what is what. Some calculation and chart interpretation may also be
required.
5. Read and Analyze: Some firms he given candidates a 1-2 page written case which
the
candidate is asked to read. The interviewee is then given a series of questions and
is asked
to draw on the information from the written case.
6. Presentation: These cases are easy to spot because the interviewer will often say,
“Pretend
you are going to give a presentation to the CEO of corporation x in 5 minutes….” The
interviewee will then often be given a few minutes to ask for information and a few
minutes
to draw up a few slides. Remember to make you slides easy to read and present then
in a
concise manner.
7. Practice Specific: Often, when interviewing for a specific practice area such as IT
Strategy,
CRM or HR, cases will be specific to the practice. For example, when interviewing
for IT
strategy, interviewees may be asked how they would go about soliciting software
vendors.
When interviewing for CRM, interview questions may focus on customer segments
or
pricing. It is important to he a thorough knowledge of the practice area you are
interviewing for.
8. Written: Especially during second rounds, some firms will give written instead of
verbalcases. These cases are similar to standard cases, but also test your
writing skills.
- 7 -
Frameworks
Though it is important to develop a framework specific to the case you are solving, hing a working
knowledge of a few standard frameworks is a good place to start. Some frameworks you may want to
review
include:
Framework
Ivy Case System Case in Point
By Marc
Cosentino
petitive
Source Notes
One of the mostprehensive and flexible case frameworks,
but will take some time to learn. Rmended reading by the
RCC.
Simpler that the Ivy Case system, but applicable to a wide
variety of cases. Make sure you are not copying this
framework
exactly as it is east for interviewers to spot. Also rmended
reading.
5 Forces
Strategy (Ch. 1)
By Michael Porter
McKinsey
7S
McKinsey prehensive framework to assess a business.
Profit and Loss How to Get into the Top Very simple case framework, best for profit
and loss Consulting FirmsBy Tim Darling cases.
4 P’s
5 C’s
Marketing Textbook Works well for marketing cases. Product, Price,
Place,
Textbook Also works well for marketing cases.
Customer,
pany,petition, Collaborators, Context.
- 8 -
Practice
Cases
CONSULTING CLUB
- 9 -
Pizzanomics (1
of 5)
RCC
Original
Guidance for interviewer and
information provided upon
request(1)
Problem statement narrative
An aspiring chef just moved to NY, and is trying to decide if it
makes more sense to get in on the new fad of high end pizza
places
with imported cheese and wood burning ovens, or open a more
traditional pizza place. Which type of pizza restaurant will be
more
profitable?
• Startup costs are the same to buy ovens and other
materials• Both types of restaurants need the same amount of space
to operate
• The traditional place uses locally sourced materials
(cheese,
sauce, etc) while the high end places imports mozzarella
from
Italy. The high end place also offers a different set of
topping
options.
• Both markets are equally developed at this
point• Don’t let the candidate start asking for numbers yet -- info
oncost and revenue in future
slides
- 10 -
Pizzanomics (2
of 5)
RCC
Original
Questions for the
candidate
• A good candidate will create a structure trying topare and contrast the revenue and cost structure of the two
options.
Before giving him the cost drivers, make him/her brainstorm on what the differences might mean. If they start
focusing on
non-pizza items, tell them to ignore that for now.
• Once they list out the cost drivers, give them the unit cost and number of units but not the totals (make them do
the
calculations) on the next page. Tell them the data is from two pizza places located close to the area where the
chef wants
to open his restaurant.
• Do the same for Profit numbers
- 11 -
Pizzanomics (3
of 5)
RCC Original
Cost
StructureHigh End Pizza
Place
Traditional Pizza
PlaceUnit Price
$5,500
$550
# Total
52 $286,000
Unit Price
$3,500
$800
# Total
52 $182,000
$9,600
$0
12 $60,000
Labor
Utilities
Wood
Rent
Labor
12
36
12
$6,600
$14,400
$72,000
Utilities
Wood
Rent
12
$400
$6,000
NA
$5,000
Pizza $4 72,000 $288,000 Pizza $3 23,000 $69,000
Toppings $100,000
Mi sc
1 $100,000
$25,000
Toppings
Mi sc
$25,000 1 $25,000
$30,000
Total $792,000 Total $375,600
Labor - High end place needs more employees due to higher volume and more prep work ($5,500 per week, vs.
$3,500 per
week)Utilities – Traditional Pizza Place has higher utilities, because they use a gas oven vs. wood (priced per
month)
Wood -$400 per cord or wood, 3 cords needed per
monthRent – per month basis, also included furnishings, which is why the high end place is more
expensive.
Pizza – is the materials cost per pizza – don’t give out the number of pizzas here, just the unit
cost.
Toppings –Volume drives price differential here too
Miscellaneous – traditional pizza place sells more non-pizza items (drinks, pasta,
hamburgers, etc)
- 12 -
Pizzanomics (4
of 5)
RCC
Original
Revenu
eHigh End Pizza Place
Traditional Pizza
PlaceUnit Price # sold Total
$10 22,000 $220,000
$12 50,000 $600,000
72,000 $820,000
Unit Price # sold
TotalPlain Pizza
Specialty
Plain Pizza
Specialty
$13 11,000 $143,000
$ 12,000
$210,000
23,000 $353,000
Additional (drinks,etc) $70,000 Additional (drinks,etc) $90,000
Total Revenue
Total Cost
$890,000
$792,000
Total Revenue
Total Cost
$443,000
$375,600
Profit $98,000 $67,400
The high end pizza place sells many more pizzas, especially specialty. Strong candidates will notice that the high
end place
doesn’t make any additional profit on specialty, since there is no extra margin put in, only enough to cover the cost
of
toppings.
- 13 -
Pizzanomics (5
of 5)
RCC
Original
Next steps
• If the candidate is able to figure out the profitability, ask them to think about how they could increase profitability for
bothoptions
• High End
• Charge more, especially for specialty pizza (keep in mind there may be capacity issues at some
point, useyour discretion)
• Enter delivery business (may damage
brand)
• Sell more additional items• Traditional Pizza
Place • Decrease price on plain / specialty
• Start marketing program / frequent user
program
• This is based off an article in NY Mag,paring two pizza places, Motorino and Rocket
Joe’s
• •
•
- 14 -
Gas station (1 of
7)
BCG, Round
2
Guidance for interviewer and
information provided upon request(
Problem statement narrative
Your client is a gaspany that operates in a town with a
population of 1,000. There is only one other gaspany in this
town, and it is 1 mile away. The other nearest gas stations
are
outside town, and they are 20 miles away (see picture on
next
page).
1. What are the proposed groceries the gas station would
now
sell? (turn question around and ask the candidate).Likely answers include cigarettes, milk, snack
foods;
probably not fresh produce or healthy . Currently, the gas station is barely scraping by.
Profit is
essentially , our client was approached by a supermarket with
the
idea of selling groceries in the gas station. Our client is a
simple
businessman and has hired us to evaluate this proposal.
What
should our client consider?
3. If asked anything about the other gas station, the answer is
“wedon’t know, but assume they are
identical”Candidate should recognize that each gas station
serves
500 people.
- 15 -
Gas station (2 of
7)
BCG, Round
2
Map of area (not to scale)
- 16 -
Gas station (3 of
7)
BCG, Round
2
Framework
Additional questions for
candidate
Solution guide
What information would you want to consider when
deciding whether or not to sell groceries at this gas
station?
(You as interviewer are trying to get candidate to provide
this framework)
• Revenue: Increased revenue from selling groceries in
store;
more peopleing to buy gas from this station instead of
station B.
• Costs: Up front investment costs such as a freezer,
shelves,
etc. • Recurring costs such as labor will be minimal
since
same staff can handle gas and groceries.• Will there be any profit-sharing with the
grocery
store?
•petition: What is keeping the grocery store from going
to gas station B as well?
- 17 -
Gas station (4 of
7)
BCG, Round
2
Costs
Additional questions for
candidate
Solution guide
What kind of costs could there
be?
• Investment in freezers, shelves,
utilities.
• No increase in labor expected.
• Total increase in costs: one-time cost of
$.
- 18 -
Gas station (5 of
7)
BCG, Round
2
Revenue stream
Additional questions for
candidate
Solution guide
• Groceries: • People who shop here are probably not health
conscious,
since gas station groceries are not healthy. They are
probably also in a rush, and will make small purchases
(milk, cigarettes, jerky, etc.)
• What kind of people will shop for groceries
here?• How much do they spend per
year?
• Out of 1000 people, assume 500 will buy
grocerieshere at $200 per year per
person
• What else can be a source of
revenue? • -> $100,000 per year• Candidate should recognize that more people
willbuy gas here now. • Increase in gas sales: very important distinction:
people
won’t buy more gas, but more people will buy gas
here
(stealing customers from station B)
• What is the total increase in
sales? • We can steal 50% of station B’s customers
(250
people), who purchase $100 in gas per year -
>
$25,000 per year
• The gas station owner is a simple man and wants to
look atthis like a perpetuity. What does this work out
to?
• Total increase in sales per year:
$125,000.• (discount rate) r = 10% • As a perpetuity: $.
• (growth in cash flows) g =
0%
- 19 -
Gas station (6 of
7)
BCG, Round
2
petition and Should they do it?
Additional questions for
candidate
Solution guide
What would you advise the gas station owner to
do?
• This is a prisoner’s dilemma.
• If station A does it, it is value neutral, BUT, we can take
$250,000 away from station B (good). But what is
keeping
station B from retaliating and doing the same thing?
Remember, station A is barely scraping by. If station B
responds, we could go out of business since revenue
would
no longer cover the one-time cost (bad). If station B
does
not respond, then we can steal all customers from
station B
and be profitable (good).
• If A does not do it, station B might do it. Then station A
would lose $250,000 and it could go out of business
(bad).
• No matter which scenarios the candidate chooses,
push
hard for the other option and play devil’s advocate.
- 20 -
Gas station (7 of
7)
BCG, Round
2
Final Rmendation
Rmendation Risks Next steps
(based on what candidate
decides)
(based on what candidate
decides)
Try to form an exclusive contract with
the
grocery store.
Do it, and try to push station B out
of
business.
Station B might respond and bring
both
stations down.
Don’t do it, and hope station B
doesn’t
do it either.
Or Station A might miss out on
the
opportunity and lose first mover
advantage.
- 21 -
Bidding on the Olympics
(1 of 4)
BCG, Round
1
Guidance for interviewer and
information provided upon
request(1)
Problem statement narrative
Our client, a major TV Network, wants to know how much to
bid
on the TV rights for the 2016 Olympic Games. Bid will need
to be
paid in 2010.
• This only includes the rights to . programming,
overseasprogramming is out of scope
• Assume they will only show the Olympics on their one
flagshipchannel
The amount of programming is as
follows:
• Olympic programming will replace regularly
scheduledprogramming
• Prime Time is considered anytime after 7pm on a
weekday,
16 days total
and all day during the
Ceremonies on a Friday: 8pm –
11pm
14 days of programming for 10 hours a day,
9am – 12 pm, 2pm – 5pm, and 7pm -11 pm M
-F
11am – 9pm on the Weekends
• Interviewee should point out that the network will earn ad
revenue while the coverage is on, and hopefully will
consider
added viewership to the network as a whole due to
Olympic
coverage.
• Interviewee should consider the costs to put on the
event,Closing Ceremony on the following Saturday from 8pm –
11pm
and opportunity cost of ad revenue from other
program.
- 22 -
Bidding on the Olympics
(2 of 4)
BCG, Round
1
Breakdown of Ad Revenue during
Olympics
Prime Time Non Prime Time
Revenues $400k / 30
seconds of ads
$200k / 30
seconds of ads
Amount of Ad time 10 min / hour 10 min / hour
Breakdown of
Costs
Prime Time
Cost associated with $428 MM
coverage*
Opportunity Cost of
ad revenue from other
programming
$1M / hour
* This includes all fixed and variables costs for trel, equipment, salaries, etc. Don’t let the
candidate get
caught up in these costs.
- 23 -
Bidding on the Olympics
(3 of 4)
BCG, Round
1
Candidate should
calculate the total
revenue to be received
in 2016..
Revenues Programming hrs Minutes o f Ads Ad Revenue
Prime Time
Non Prime Time
86
60
860
600
860*400K *2=$688M
600*200K*2=$240M Total Revenue
=$928 Million
The *2 is because you
make$400K per 30 seconds
Event Costs
$428M
Opportunity Cost
Total Cost
=$574 Million
Total Profit in 2016
=$928M -$574M
= $354 Million
$1 M per
programming
hour ($146M)
… and the total
costs
Now, the candidate should think about Time Value of
Money
• Profit of $354 Million (Plus any additional bump for future viewership or required profit margin candidate may include) will be
received in2016, but bid must be paid in
2010.• If asked, give them a Cost of Capital of
12%
• A great candidate will recognize rule of 72, which states that you divide 72 by the interest rate to determine how long (in years)
it will
take an investment to double. 72 / 12 = 6, which is how long in the future we will receive our profits. Therefore, $354M in 2016
is worth
$177M in 2010.
- 24 -
Bidding on the Olympics
(4 of 4)
BCG, Round
1
Answer Guidelines
• The key takeaways from this case are
to: • Recognize time value
money• Understand and identify Opportunity
Costs• Make judgment on unknown information (how much value hing the Olympics will bring to
otherprogramming on the network)
• Great candidates will:
• Understand there are 10 weekday days and 4 weekend days (plus the opening and closing) and
not listout every day to calc hours for
programming• Know and use the Rule of
72
• Exact answers are irrelevant, though should be around $177 million, with well thought out
adjustments toincrease or decrease the
number.
- 25 -
Wayne Rooney (1 of
5)
Booz &pany, Round 1 (European Offices)
Guidance for interviewer and
information provided upon
request(1)
Problem statement narrative
You are working for the manager of Real Madrid. The
manager of
Manchester United is calling your client and offers to sell
Wayne
Rooney. How much would you advice Real Madrid to bid?
What is Real Madrid/Manchester
United?Real Madrssional soccer team based in Madrid
Manchester United: A professional soccer team based in
London
Who is Wayne
Rooney?An English soccer player. Widely considered the best English
player.
He plays forward.
In soccer, clubs generally pay a transfer fee to get players
out of
existing contracts. For prices for players of similar skill to
Wayne
Rooney, please refer to slide 3.
Information on how to price Wayne Rooney: see slide
2to 5
- 26 -
Wayne Rooney (2 of
5)
Booz &pany, Round 1 (European Offices)
Information on how to price Wayne
Rooney
Candidate should identify possible ways to price Wayne
Rooney:Two of several options:
• Benchmarking (see slide 3)
• Value-based pricing (see slide
4)
General Information (to be provided upon
request):Real Madrid’s president is absurdly rich. If he is convinced that Wayne Rooney is worth it, he will be willing to pay
any United’s jersey sponsor is AIG. Rumors he it that they might be in need for cash. However they are not willing to sell Wayne
Rooney
below fair value. Moreover candidate may assume several clubs to be interested in Wayne Rooney.
- 27 -
Wayne Rooney (3 of
5)
Booz &pany, Round 1 (European Offices)Benchmarking Wayne Rooney (information to be provided upon
request)
Transfer fees forparable players:
Name Year New Team Old Team Transfer Price
Kaka 2009
2006
2002
Real Madrid AC Milan
AC Milan
Inter Milan
65M Euro
46M Euro
45M Euro
Andrej Schewtschenko
Ronaldo
Chelsea London
Real Madrid
Additional information/considerations:
• How is the market for soccer players and especially world class strikers currently
doing?• Candidate may assume no significant changes from the transfer of strikers/offensive players listed above
• Are there other options both for Real Madrid and Manchester United?
• Candidate may assume that there are other forwards on the market while several clubs are interested in W.
Rooney
• National differences in markets for soccer players?• Candidate may assume homogenous market across
Europe• Where players listed above fairly
priced?• Candidate may assume that prices above represent fair market-value for these
players
• Where prices above paid for similar contract lengths?• Candidate may assume that all players signed a 5-year contract, which is also what we look at for M r. Rooney. Moreover the
candidate
may assume that the existing contracts of the players were similar in length and pay. - 28 -
Wayne Rooney (4 of
5)
Booz &pany, Round 1 (European Offices)
Valuing Wayne Rooney (Information to be provided upon
request)
Main Revenue
Streams
Expected impact of Wayne Rooney on profits in these areas (costs in these areas may be
assumed to
be fixed – not depended on purchase of Wayne Rooney)
Ticket Sales
Jersey Sales
Assume that the stadium is sold out for every game already. Hence there is no impact from
hing
Wayne Rooney on the team.
100 M Real Madrid fans worldwide
Assume 3% of fans buy a Rooney jersey (and would not he bought a jersey from another
player)
Profit per jersey (for Real Madrid): 30 EuroTotal profit: 5M* 30 Euro = 90M Euro
Candidate may assume that this is a one time effect only occurring in year 1 of Wayne
Rooney’s
for European
Cup
Performances
Chances of winning the Champions League increase by 5% due to Wayne
Rooney.
Bonus for winning the Champions League: 40M Euro
Incremental expected profit from Wayne Rooney: 2M Euro (5% of 40M)Bonuses for TV
broadcasts
Assume an additional 3M Euro per year in bonuses from TV since Real Madrid games
would be
broadcasted more frequently.
- 29 -
Wayne Rooney (5 of
5)
Booz &pany, Round 1 (European Offices)
Valuing Wayne Rooney
(continued)
Incremental profits (from previous slide) year 1: 95M Euro; after year 1: 5M
EuroIncremental profits for a 5-year contract, for the areas listed on previous slide: 100M
Euro
Incremental costs (Information to be provided upon
request):
• Salary for Wayne Rooney: 8M Euro per year
• Assume all other costs to be fixed
Resulting profit (candidate may assume a discount rate of
0%):60M Euro (100M – (5 years *
8M/year))
Risks: A good candidate will identify risks and discount the expected profit
accordingly, .:
• Injuries• Worse than expected/past performance of Wayne Rooney (. due to foreign, unfamiliar environment)
• Local fans at Manchester might be more receptive to Rooney as an English Player than supporters of
Real Madrid
- 30 -
Strawberry Jam (1
of 5)
Roland Berger, Round
1
Guidance for interviewer and
information provided upon
request(1)
Problem statement narrative
Your client produces strawberry jam for the US
market. It
experienced declining profits last year.
Industry:
- Industry profitability has been stable. The client is the
market
leader and has the strongest is unchanged
from previous years.
Roland Berger has been hired to investigate what causes
the
decline in profitability and what to do about it. Client’s profits:
- Client has been profitable in 2008 and before. Only in 2009
has
profitability been ’s product mix:
- (See slide 2 and
3)Customers/Consumers:
- Consumers are price sensitive, but brand
loyal.
Reasons for declining profitability:
- (See slide 4)
- 31 -
Strawberry Jam (2
of 5)
Roland Berger, Round
1
- 32 -
Strawberry Jam (3
of 5)
Roland Berger, Round
1
Additional Information on Product Mix (to be provided upon
request)
• Before 2009 the client only produced standard-shaped jars (small, medium,
large).• In 2009 the client introduced a belly-shaped
jar.• The belly-shaped jar has the same size as the medium standard jar.
• The belly-shaped jar sells at the same price than the medium-
shaped jar.
- 33 -
Strawberry Jam (4
of 5)
Roland Berger, Round
1
What causes the decline in
profitability
Candidate should brain-storm reasons for the decline in
example, the candidate can run through the value chain of the jam manufacturer to figure out where the change in product mix
effects the
profitability negatively.
Main areas to focus on (information to be provided upon
request):
Production:• When introducing the belly-shaped jar, the speed of the line filling the classes needed to be reduced. Otherwise classes broke when
filling them
with the jam• This lead to the necessity of overtime for line
operators
Distribution:
• Belly-shaped jars take more room per jar on the trucks. Additionally, belly-shaped jars are more likely to break during shipping than
medium-
sized jars.
Profitability:
• Profit on the belly shaped and medium (standard) size jars is
identical.
- 34 -
Strawberry Jam (5
of 5)
Roland Berger, Round
1
What should the client do? Solution guide
Candidate should provide a rmendation how to improve
the profitability considering the information gathered from
the
previous slides
Possible Rmendation
Eliminate belly-shaped jar
-
-
-
Profitability of belly-shaped jar is lower than
for
standard jarsConsumers are brand loyal and will switch back
to
standard jarsConsumers are price sensitive, hence it will be
difficult
to increase prices for belly-shaped jar
Risks: . losing high ground/brand leadership;petitors
introduce belly-shaped jars themselves
Other Possibilities:
- Adjust production and distribution to
increase
profitability of belly-shaped jars- Raise prices for belly-shaped jar (be aware of
price-
sensitivity of consumers)
- 35 -
Premium Home Retailer (1
of 12)
. Kearney, Final
Round
Problem statement narrative
“This economy has destroyed our profits” John Burnett, the
Chief
Merchandize Office at Premium Home remarked to himself as
he
read the past year’s annual results that were just released from
the
finance department. The CEO and Board are looking to me for
ideas, but how should I prioritize and think about various options
at my disposal. Should I reduce prices to increase sales.? I
can also
switch from domestic to foreign suppliers for my products to
reduce costs. What should I do?
- 36 -
Premium Home Retailer (2
of 12)
. Kearney, Final
Round
Guidance for interviewer and
information provided upon request
Guidance for interviewer and
information provided upon request
• Premium Home is a retailer specializing in selling
home
Premium Homes uses two
warehousesfurnishings and
accessories.
• One for Home & Kitchen and one for Furniture
• Warehouse space rented, but uses internal labor
• Product stored at warehouse until needed by
stores.
• Target audience medium to high-end of market
(mediancustomer household annual ie of $130-$200k)
•pany image stressed style, modernity, and luxury
• 800 stores across US
• Product shipped to stores through third-party
logisticspany
petitors • Premium Homes does NOT own
fleet• Department Stores
(Macys)• Specialized Chains (Crate & Barrel, Williams &
Sonoma)
Two divisions• Home & Kitchen (dinnerware, kitchen supplies,
bedding)
• Furniture (couches, dining room chairs, bedroom sets,
etc)
In last year revenue down 50%
• Customer unemployment up
• Customer trade down to mass merchandisers (Wal-
mart,Target)
- 37 -
Premium Home Retailer (3
of 12)
. Kearney, Final
Round
Interviewee Questions:
#1- Please calculate impact on gross profit if John were to
decrease
all prices 5% and assume a 30% increase in sales volume.
#2- What are the potential cost sings of switching to foreign
suppliers?
#3- What are some of the short and long-term risks
in
implementing your rmendations?
#4- Are there any assumptions Premium Home made that
you
would challenge or factors that merit further consideration?
- 38 -
Premium Home Retailer (4
of 12)
. Kearney, Final
Round
Question #2 Additional
Background
Question #1 Additional
Background
In recent promotion for new line of celebrity branded
cookware,
we saw 5% decrease in price resulted in 30% increase in
sales
volume.
Today Premium Homes buys all of the products sold in
stores
from domestic suppliers• Suppliers either produce products in the US or act
aswholesaler/distributed for products produced
abroad• Suppliers pay for delivery of product to Premium
Homewarehouse
• Low order lead time (3-4 days on erage)
Purchase from foreign
suppliers• Purchasing domestics eliminates logistical
challenges ofinternational suppliers
• Tariffs, customs handling,
etc• Cheaper product cost due to lower wage
rates
• Reduce middleman wholesaler• Ifpelling case, we think we could buy up to 50% of
products from foreign suppliers
• Longer lead times required (2-3
months)• Need to hold more safety stock
inventory
- 39 -
Premium Home Retailer (5
of 12)
. Kearney, Final
Round
Table 1: 2009 Revenue Statement (Ms USD)
Revenue (Ms $)
Cost of Goods (includes warehouse, transportation,
etc)
Gross Profit
Home &
Kitchen
Furniture Total
1,000 $ 4,000
700 $ 2,950
300 $ 1,050
$
$
$
3,000 $
2,250 $
750 $
SG&A (fixed
costs)
Net Profit
$
$
1,480
(430)
Total Units Sold
(Ms)
50 1 51
- 40 -
Premium Home Retailer (6
of 12)
. Kearney, Final
Round
Table 2: Breakdown of Total Cost of Goods
($Ms)
Home & Kitchen
Furniture
Total
Total Cost of the Product
only
$
$
$
$
2,000 $ 675 $
2,675Total Warehiouse Handling/Storage Costs
Total Shipping/Handling from Warehouse to Stores
Total Product, Warehouse, Handing, & Shipping
Costs
150 $
100 $
20 $
5 $
170
105
2,250 $ 700 $
2,950
- 41 -
Premium Home Retailer (7
of 12)
. Kearney, Final
Round
Table 3: Current per Unit
Data
Total Units Sold
Home & Kitchen
Furniture
50
1
erage Product Cost per Uni t (Domestic
Suppliers)
Warehouse, Handling, and Storage Costs
Shipping and handling from Warehouse to
Stores
$
$
$
40 $ 675
3 $
2 $
20
5
- 42 -
Premium Home Retailer (8
of 12)
. Kearney, Final
Round
Table 4: Data for Switching to Foreign
Suppliers
Home & Kitchen
Furnitureerage per Unit Cost of Product Only
International Shipping and Handling Cost; From Supplier to Preium Home Warehouse
(per unit)
Tariff (% of Product Cost Only)
$
$
20 $ 495
5 $
10%
50
26%
Ms of units needed in inventory due to increase in lead
times
- 43 -
Premium Home Retailer (9
of 12)
. Kearney, Final
Round
Table 5: Data onpetitors ($Ms) Premium Homespetitor Apetitor Bpetitor C
Revenue
COGS
Gross Margin
SG&A
$
$
$
$
$
4,000 $
2,950 $
1,050 $
1,480 $
(430) $
4,500 $
3,000 $
1,500 $
1,350 $
150 $
5,000 $
3,200 $
1,800 $
1,400 $
400 $
3,000
2,000
1,000
930
Net Profit 70
# of Stores
# of Suppliers
Cost of Capital
800
5,000
10%
700
3,000
9%
850
2,000
10%
500
2,500
9%
- 44 -
Premium Home Retailer (10
of 12)
. Kearney, Final
Round
Question #1
Base Home & Kitchen Furniture
TotalRevenue ( Ms $)
Cost of Goods (includes warehouse, transportation,
etc)
Gross Profit
SG&A (fixed costs)
Net Profit
$
$
$
3,000 $ 1,000 $
4,0002,250 $
750 $
700 $ 2,950
300 $ 1,050
$ 1,480
$ (430)
Base Case Units Sold
Base Case Price per
Unit
5% Price Reduction
30% Increase in Units
COGs per Product
60 $ 1,000
57 $
45 $
$
$ 950
700$
5% Price
Reduction
Home & Kitchen Furniture
TotalRevenue ( Ms $)
Cost of Goods (includes warehouse, transportation,
etc)
Gross Profit
SG&A (fixed costs)
Net Profit
$
$
$
3,705 $ 1,235 $
4,9402,925 $
780 $
910 $ 3,835
325 $ 1,105
$ 1,480
$ (375)
Gross Profit
Improvement
$ 55
- 45 -
Premium Home Retailer (11
of 12)
. Kearney, Final
Round
Question #2
Solution Home & Kitchen Furniture Total
Base Case Units Sold
Percent of Units Impacted
50%
50%
Foreign Supplier Costs
Product
Shipping (to warehouse)
Tariff
Shipping (Warehouse to Stores)
Warehouse, Handling, and Storage
Costs
Total Variable Cost
$
$
$
$
$
$
$
$
$
$
$
$
Original Variable Cost per
Unit
Sings per Unit
$
$
$
$
$
$
$ &L Sings
Additional Inventory Units
Extra Inventory Cost
$ $ $
Inventory Carry Cost
(10%)
$
- 46 -
Premium Home Retailer (12
of 12)
. Kearney, Final
Round
Sample Solution
Elements
Question #4
Question #3
• Price Cut
• Brand image hurt
• Price elasticity- That 5% price cut in Kitchen & Home
and
Furniture will he same impact as new line of celebrity
cookware.• Can suppliers provide 30% more units
• Can third-party logistics transport extra
volume
•petitor response?
• Are foreign products same quality as domestic
suppliers?
• What if we raised prices?
• Foreign Supplier
• Brand image hurt
• Inventory Stockouts
• Can warehouse hold additional inventory
• Case warehouse staff manage extra
inventory• Do we he skillset to manage imports (tariffs,
customers, etc)
• Lead time volatility unknown
• Can’t respond to changes in market as
quickly
- 47 -
Portable Storage (1
of 7)
Bain, Round 1
Guidance for interviewer and
information provided upon
request(1)
Problem statement narrative
Your client is a US storagepany that rents out storage space at
its own facilities. It is considering entering into themercial
portable storage market where it would deliver the storage unit
to
you, allow you to rent it for as long as you need it, and then pick
up
the container when you are done with it. Your objective is to
determine if thepany should enter this market.
• Storage containers are old freight shipping
containers• Assume entry into 1 test market
• Assume that this is a new offering so you would capture
100%
of the market share
• Who are the target customers for this kind of
offering?• Make the candidate brainstorm target customers before
giving
them the following:•mercial
• Retail
• Manufacturing
• Office moves
• Small businesses with Seasonal
spikes
- 48 -
Portable Storage (2
of 7)
Bain, Round 1
Questions for the
candidate
Acceptable
Answers
How might we identify demand for this
offering? • Monitorpetitors
• Identify what portions of existing contracts are
short-
term, use very little space, or store large items
infrequently• Assume that revenue structure is as described in
table
below (10 week contract, $300 per week, 50 weeks
in a
year, 80% utilization)
• Actual revenue structure (to be given after
candidatebrainstorms):
• 80% of pods are utilized
• erage length of contract is 10 weeks
• Price is $300 per week
• Each of the pods is utilized all year (5
cycles)
- 49 -
Portable Storage (3
of 7)
Bain, Round 1
Questions for the
candidate
Acceptable
Answers
What might be some of the
costs? • Storage
• Labor
• Trucking
• Marketing
• Management
• Acquisition
• Insurance
• Utilities
- 50 -
Portable Storage (4
of 7)
Bain, Round 1
Actual Cost Details to Be Given to
Candidate
• Acquisition cost = 15k per
unit• 400 units needed
• $4 per mile
• g of 500 miles
• Storage cost = 200k per
year
• Overhead = 100k per year
- 51 -
Portable Storage (5
of 7)
Bain, Round 1
Calculations
effective Total Cost
Annually
Per Unit Cost # of units units Y1 Y2-
Y5
400 $6,000,000
Costs Y1-Y5 Total
$6,000,000Storage Unit
Acquisition
Transportation*
Storage Costs
Overhead
$15,000 400
320$4 per mile 1600 $3,200,000 $3,200,000
$16,000,000$200,000
$100,000
$200,000 $1,000,000
$100,000 $500,000
Total
Costs
$9,500,000 $3,500,000
$23,500,000
Revenue
# of Units 320
length of contract
Price
Cycles/Yr
10 weeks
$300 per week
5
Total Revenue $4,800,000 $4,800,000
$24,000,000
*Transportation: $4/mile x 500 miles round trip per rental x 5 rentals per year for 320
units
- 52 -
Portable Storage (6
of 7)
Bain, Round 1
Questions for the
candidate
Acceptable
Answers
What might be some ways of increasing the
margin? • Lower prices for longer term
contracts
• Repeat customer pricing• Decrease overhead
• Acquire units more cheaply (overseas,
etc.)
- 53 -
Portable Storage (7
of 7)
Bain, Round 1
Rmendation
Enter the market. Profits will be negative in the first year but profitable over 5 years using a simple
payback
calculation. Long-term, expand into additional geographic markets.
Tips to make this case more
difficult:• Require interviewee to discount cash
flows• Require more brainstorming
• He interviewee create an entry strategy (markets where demand is high but g mileage is
low)
- 54 -
Household Cleaners Growth
(1 of 6)
BCG Round
1
Guidance for interviewer and
information provided upon request
Problem statement narrative
Your client is a global consumer packaged goodspany —Grime
Co.
This case is about growth both through internal actions and
through acquisition. Initially, the candidate should brainstorm an
array of possible growth strategies. Eventually, he or she will he
to drill down on new products and acquisition, in addition to
considering market growth. Then, she or he will he to evaluate
two targets, demonstrating an understanding of positive and
negative synergies. Without considering market growth, organic
growth, and inorganic growth —and without exploring synergies
in
acquisition — the candidate will not be able to solve the case.
Grime Co. makes paper products (like paper towels), home
cleaning products, and laundry care products. Thepany's
Board of Directors has set an aggressive net sales target of
$2
billion by 2015 (four years). Currently, net sales are at $1
billion.
The CEO hase to you to ask for , our client would like you evaluate thepany's
position and to help develop a strategy to deliver top-line results
of
$2 billion by 2015.
Additional information:
• Thepany has a strong stance on sustainability
Net sales: Retail sales minus trade spend. Trade spend is
what
manufactures pay distributors or retailers to incentivize them
to
sell their products to end consumers.
• Sales are divided evenly between the three categories —
33%
• Thepany has low profit margins and does not want to
take on additional debt, so cash ailable for investment is
about $300 million. (Be sure not to say “for acquisition”.)
If the candidate asks which growth strategies Grime Co.
has
considered, the interviewer should prompt her or him to
brainstorm various options — see next slide.
- 55 -
Household Cleaners Growth
(2 of 6)
BCG Round
1
The candidate must touch on market growth, new products, and acquisitions to solve the case — in any
order. The
following structure is how the candidate may organize information. Profit or cost should not be part of the
the candidate should
explore:
Information provided upon request
Market growth: Growth through
maintaining
market share in a growing market
When the candidate asks, reveal that market growth alone will bring sales to
$
billion by 2015. Specifically, thepany is growing overall at 10% and expects
to
maintain a constant market share. (10%pounded over four years is roughly
$500 million incremental.) In the interest of keeping this case shorter, the
candidate does not he to calculate this. If the candidate asks about
categories,
tell him or her that growth is about the same in all three.
1
Organic growth: Actions taken within
the
organization to drive revenue.
Examples:
The candidate must cite new products: it is the only organic growth strategy
that
is viable for our client in this case. The interviewer should provide logical
reasons
to why the other options are not ailable at this time.
• Price adjustments to drive volume
• Increased advertizing
• Expansion into new geographies
• Vertical integration
• Promotions and deals
• Negotiation for better placement
• New products
Our client has a new toilet cleaning product in development that analysts
believe
will do well. The following details should be provided by request:2
3
• Product is near launch — hits shelves in a months
• Price will be $5 a unit, but requires 20% trade spend per product to
reach
volume target• Expected to sell 40 million units on erage per year
Interviewer should steer candidate to
explore
new products
No other investment is required — sunk cost. (See slide 3 for
calculations.)
Inorganic growth: Growth through
acquisition
or joint venture
The candidate must identify growth through acquisition: Our client’s
Corporate
Development department has identified two high-priority acquisition targets
—
Organoclean and Home Defense Inc. (See slide 4 for detailed
information.) - 56 -
Household Cleaners Growth
(3 of 6)
BCG Round
1
The candidate must determine how much top line growth can be
achieved
through the launch of the new product.
2 New Product
Calculations
Current Net Sales
Net Sales in
20151
Deficit
$1 billion
$ billion
$500 million
Price2 $5 per unit
$4 per unit
40 million
Trade spend 20%- =
x
=
g. units per year
Net sales per yearNew product
New deficit
$160 million
$340 million
$160 million
1. $500 million incremental achieved through market growth, as cited on the previous slide 2. Data presented to candidate from previous slide; these are just calculations
- 57 -
Household Cleaners Growth
(4 of 6)
BCG Round
1
Acquisition Calculations:
Sales
Forecast
The candidate must determine which property our client should
purchase.
Candidate should request each data set: sales, products and growth
3
Organoclean (Private)
Organic household
cleaners
$150 million
Home Defense Inc. (Public)
Household cleaners, bug
control
$200 million
Target
Products
Sales
10% 20%Growth rate
2011 sales $165 million
$ million
$ million
$ million
$240 million
$288 million
$ million
$ million
Instruct candidate to round
to the nearest $10 million
Rounded 2015
sales
$220 million $410 million
With a deficit to the 2015 sales target of $340 million, the candidate might be tempted
to
choose Home Defense Inc. as the better acquisition target. (Remember that our client
only
has $300 million ailable for purchases, so a quick sales multiple as a potential
acquisition price suggests our client can only buy one of the two.) If asked, confirm
that our
client can only buy one.
However, the candidate must
also consider positive and
negative synergies before
choosing a target…
- 58 -
Household Cleaners Growth
(5 of 6)
BCG Round
1
Acquisition Calculations:
Synergy
Considerations
The candidate must determine which property to purchase.
Candidate should brainstorm synergies and calculate financial
impact.
3
OrganocleanA good interview will cite several of
these
as potential synergies. Push the
candidate along until he or she lands on
both distribution and values:
Our client believes it can leverage its Europe distribution
network to
generate additional sales: $500 million deficit
- $160 million new product
- $220 million Organoclean
2015
- $120 million Europe sales
• Distribution synergiesP
O
S
I
T
I
• Procurement synergies
• Manufacturing synergies
• Back-office synergies
• Co-branding new
products
• Scale synergies
• $40 million year one1
• Should triple in 4 years
0 deficit to 2015 target=
V
E Home Defense Inc.
N
E
G
A
T
I
Our client will not sell harmful chemicals, and all of Home Defense’s
bug
killers fall into this category. They cannot be reformulated or sold.
Our
client would he to discontinue these products
• Corporate culture
mismatch
• Anti-trust issues
• Mission or values clash
• Brand dilution
$500 million deficitV
E - $160 million new product
- $410 million Home Defense
2015
Synergies impacting Organoclean and Home
Defense
• 25% of sales are
bug $ million lost
sales
+killers
$ million deficit to 2015 target1. Candidate can consider year 1 today =
- 59 -
Household Cleaners Growth
(6 of 6)
BCG Round
1
At this point, the candidate should realize that Organoclean is the best option between the two, and that together
with the
launch of the new product and market growth, Grime Co. will hit its 2015 net sales target of $2 billion
Although market growth and the launch of a new toilet product should get Grime Co. to $ billion in
net
sales by 2015, the $2 billion net sales target will not be met. Therefore, Grime Co. will he to pursue
growth
through acquisition. Of the two targets preferred by the client — and since Grime Co. can only buy one
— we
rmend purchasing Organoclean. The growth of thepany coupled with positive distribution synergies
will allow Grime Co. to reach its 2015 target.
Rmendation
Risks and Mitigation
Next Steps
• Growth trajectory of target could change
• Price of target could be too high to
afford
• Verify growth estimates
• Use DCF valuation to determine best
price• Target could be unprofitable — risk of sales
focus
• Gain access to data room and review
financials• Using all ailable cash limits other investments
• Doubling in size itself could be a risk — too
fast
•pare purchase against NPV of other projects
• Make sure to update systems to match growth
• Verify assumptions and assign
roles
• Draft pre-diligence plan• Establish contact with target
• Conduct detailed valuation and determine
BATNA• Roll out new product
- 60 -
Household Cleaning Services
(1 of 8)
BCG, Mock interview
Guidance for interviewer and
information provided upon
request(1)
Problem statement narrative
Your client, Restoration Co., is a fire and water remediation
pany, that specializes in extensive cleanup in the aftermath of
fires and floods. They are currently hired by insurancepanies
on behalf of those affected by these disasters. While this
existing
business is quite profitable, they are looking to expand into the
residential cleaning market (typical household cleaning, such
as
vacuuming, dusting, etc.). They hee to BCG with two
questions:
1. The client is only looking at the US right now (all of
it)
2. US population is 300MM3. There are 100MM households in the
US4. US residential cleaning market is growing steadily
with
. Their main goal is to enter the market
profitably.
1. What is the size of the residential cleaning
market?
2. Should thepany enter this market?
- 61 -
Household Cleaning Services
(2 of 8)
BCG, Mock interview
Market sizing question
Additional questions for
candidate
Solution guide
• If candidatees to 100MM households, Candidate should realize that the higher ie people will
he a higher WTP. Make the candidate guess first, then
give the answer:
• Question for candidate: How would you segment
thismarket?
• Above $75K: 40% willing to pay for
service
• Answers may include: types of homes
(response:
good idea, but assume all home types are
equivalent); geography (good idea, but assume
all
geographic locations are same)
• Below $75K: 10% willing to pay for
service
• Answer we are looking for: socioeconomic status
(.
household ie): Assuming households can be
split in half according to whether they earn more or
less than $75,000, what would you estimate the %
willingness to pay (WTP) for each segment?
- 62 -
Household Cleaning Services
(3 of 8)
BCG, Mock interview
Market sizing question
(cont.)
Additional questions for
candidate
Solution guide
Given this information, what is the size of the
market?
• 50MM * 40% + 50MM * 10% = 25MM purchases per
year.• However 25MM is not the market
size!• Candidate should ask what typical cleaning prices
are:
$2,000 per year on erage.
• Market size: $50B.
• Interviewer should say, “That’s a pretty big number”
simply
to test whether candidate is sure of his/her math. Look
for
floundering.
- 63 -
Household Cleaning Services
(4 of 8)
BCG, Mock interview
Should they enter the
market?
Additional questions for
candidate
Solution guide
How would you go about figuring out whether to enter
the
market?
Candidate should ask aboutpetition:
• National players (10% of market)
• Regional players (20% of market)
• Individual players (70% of
market)
Candidate should also ask about customer
preference:
• Ranges on a scale from “quality” to “price”
• National playerspete on quality• Individual playerspete on price
• Regional playerspete on both
- 64 -
Household Cleaning Services
(5 of 8)
BCG, Mock interview
Should they enter the market?
(cont.)
Additional questions for
candidate
Solution guide
Where should Restoration Co. position itself on this
spectrum?
Restoration Co. should position itself based on
quality:• It currently does extensive cleanup after
disasters;
surely it can handle regular cleaning.• It does not want to dilute its brand name.
• It does not want to enter into a pricing war with a
highly segmented market (70% of marketpetes
on price, and these are individuals).
• Bonus: candidate should recognize that market size
goes
from $50B to $5B (10%)
- 65 -
Household Cleaning Services
(6 of 8)
BCG, Mock interview
Should they enter the market?
(cont.)
Additional questions for
candidate
Solution guide
How would you figure out the profitability of national
players? • Revenue: $75
• Revenue: erage price for a cleaning service is
$75.
• Cost: $55 ($10 * 5 + 5)
• Cost: $10/hour on labor; $5/job on cleaning supplies
(these
• Profit: $20
are all-inclusive costs) • Ask candidate what the profit margin is:
27%• When asked: erage cleaning lasts 5 hours.
- 66 -
Household Cleaning Services
(7 of 8)
BCG, Mock interview
Should they enter the market?
(cont.)
Additional questions for
candidate
Solution guide
Anything else to consider before making your final
rmendation, such as how to separate ourselves from
thepetition?
• Candidate shoulde up with ways to separate
Restoration Co. from itspetition:
• Using premium cleaning supplies (such
assustainable chemicals, scented shampoo,
etc.)• Performing a survey of the house to assess
for
potential fire or flood hazards.• Offer a free cleaning first.
• Bad idea: enter into a pricing war in a segment
that
petes on quality.
- 67 -
Household Cleaning Services
(8 of 8)
BCG, Mock interview
Final Rmendation
Rmendation Risks Next steps
Enter the market: Market size is
$50B
(even better: $5B), and margins are a
healthy 27%, since we willpete on
quality with the national players.
27% margin needs to be put in context
of
current business
Review financing and up-front
costs
How can we use our current client
book
to jump start business?
Possible brand dilution
- But let’s offer only quality products
How will our sales model change
(currently relies upon insurance
panies, will change to door to door
marketing)?
Need to separate our
business- But go with ideas mentioned on
the
slide before
- 68 -
College Football Program
(1 of 7)
RCC
Original
Guidance for interviewer and
information provided upon request
Problem statement narrative
Our client is a public university that is considering adding
an
inter-collegiate football team to its athletic program. They he
asked us to help them determine if this is a good idea.
This is a two part case that will test a candidate’s
understanding of
basic financials, market entry analysis, etc. It can be given as
a
McKinsey mand and control) case or as a more standard information provided upon request:
• Enrollment is 10,000 students
• The school is near a city of 1 million residents
• The school is located in the Southern US where football is
very
popular.
• The school feels that adding a football program has many
benefits including increased exposure and brand
awareness,
school pride, enhanced “college” experience for students,
improved connections with alumni, and additional revenue.
• The school currently participates in 16 men’s and women’s
sports including basketball, track & field, baseball.
• Their only financial requirement is to break even. They are
interested in the intangible benefits listed above.
• Longer term, they hope to pay for a new stadium and use
football to subsidize other sports programs on campus
- 69 -
College Football Program
(2 of 7)
RCC
Original
The candidate will need to explore both revenues and costs associated with the new program in order to determine
if the
program can break-even. A good structure will likely include intangibles (such as improved college experience for
students)
but that will not be needed to solve this the candidate should
explore:
Information provided upon request
Sources of
Revenue:
-Tickets
Student Fees: Abination of tuition and student fee increases will raise
$250/student/year.
- Student Fees
- Concessions
Game Guarantees: They expect to be paid $300K per away game. There
are 6
away games.- Apparel/Licensing
- TV/Radio Broadcasting
Rights
Ticket Sales: $25/home game. There are 6 home games. They
expect an
attendance of 7,000 per game in season 1 (excluding student
attendance).
Alumni Support: They expect to receive alumni support of
$1,000,000/year
Costs: could be broken down between
capital
and operating costs. Focus the candidate
on
operating costs for the first half of this case.
• Financial Aid/Scholarships: They will need to provide financial aid to
52
football players. Financial aid includes tuition/fees, books, room &
board.
Tuition/Fees is $14K per student/year. Room & Board is
$12K/player/year.
Books cost $2K/year.
Cost categories could include:
-Coaching and Support Staff
Salaries
-Stadium Costs (capex or rental)
-Equipment/Uniforms
The Head Coach will make $500K/year. He will hire 8 assistants at an
erage
of $125K/year.
The team will require support staff such as trainers, tutors, etc. The
school
estimates 25 new employees at an erage cost of $60K/year.
Trel to away games will cost $80K/game.
•
•
-Trel •
•-Financial
Aid/Scholarships
Recruiting costs will be
$200K/year.• It costs $1,500/year/player for uniform and equipment costs. 80 total
players.
• The school can rent a small stadium from the city for $100K per game.
- 70 -
College Football Program
(3 of 7)
RCC
Original
Revenue
Calculation
Cost Calculation
Student Fees
10,000 students x $250 = $
Million
Financial Aid
52 scholarship players x ($14K + $12K + $2K) = $
Million
(round to $ Million if they ask)Game Gurarantees
$300K/game x 6 away games = $
Million
Total Salaries: $500K (HC) + 8 x $125K (Assistants) + 25 x
$60K(staff) = $3 Million
Ticket Sales
$25/game ticket x 6 games x 7,000 attendees = $
Million
Trel: $80K x 6 = $480K (round to $500K)
Alumni Support Recruiting Costs:
$200K/year$1 Million/Year
Equipment Costs: 80 players x $1,500 = $120K (not all
players getTotal Revenue in Year 1: $
Million
financial aid, hence the difference in # of
players)
Stadium Rental: 6 home games x $100K =
$600K
Total Costs in Year 1: $
Million
The candidate should recognize that the program can break even with the given set of assumptions. To make more
difficult, reduce
attendance or alumni support during first year and provide attendance growth figures to make math more difficult.
- 71 -
College Football Program
(4 of 7)
RCC
Original
Guidance for interviewer and
information provided upon request
Question 2 For Candidate (if time
allows)
Now, let’s assume that our client went ahead with implementing
the football program. The team has had surprising success and
has
gained the attention of a more powerful athletic conference
(league). Gaining membership into this conference would
drastically raise the profile of the school and lead to increased
revenue streams.
***If short on time, skip to Question 3 and give student time
to
wrap-up with conclusion.
The candidate will need to evaluate the financial impact of
building
a new stadium and will likely he a number of follow-up
questions.
However, in order to gain acceptance into the conference, the
school needs a bigger stadium. Your client wants to build a
25,000
seat stadium on-site. Is this a good idea?
Before giving cost information, encourage the candidate to
brainstorm the drivers of stadium construction costs. Also,
ask
them how they might determine this.
Potential Cost Drivers:
• Site selection
• Local labor ailability and costs
• Size of stadium
• Features such as press box, luxury box seats, playing
surface, etc.
• Overall quality
Potential ways to estimate costs:
• Investigate what other schools he done
• Speak with contractors
• If building a large stadium, talk to professional
teams
- 72 -
College Football Program
(5 of 7)
RCC
Original
Guidance for interviewer and
information provided upon request
Stadium financial data provided upon
request
Incremental Revenue:
• They are considering building a 25,000 seat
stadium.
• Estimated construction costs are $40 million.
• Assume the school is not capital constrained.
• Ticket prices for the new stadium will be $35/person
• Assume 50% of student population attends the
game.
• Students don’t pay for tickets (because of student
fee).
• They expect stadium to be 80% full on erage.
• 6 home games per year.
80% full stadium x 25,000 capacity = 20,000
attendance/game
50% of students x 10,000 students = 5,000 students/game
Paid attendance = 20,000 – 5,000 = 15,000/game
Annual Attendance = 15,000 x 6 = 90,000
New ticket revenue = 90,000 x $35 = $ million
Old ticket revenue = $ millionIncremental revenue = $
million
• Assume no other uses he been explored.
• Stadium will be paid for over 20 years with no interest due
to
government subsidy ($2million/year).
Incremental costs:
$2 million (loan repayment )+ 100,000 x 6 (operating
expenses) =
$ million• Ticket prices will be raised to $35 ($10 increase)
• Operating costs will increase $100K/game
• Alumni support, student fees, and game guarantees
are
unchanged
Incremental Loss: $500K/year without an additional source of
revenue such as a guarantee payment from the new
conference.
The school needs a guaranteed increase in revenue of at
least
$500K/year.
- 73 -
College Football Program
(6 of 7)
RCC
Original
Guidance for interviewer and
information provided upon request
Question 3 For
Candidate
Can you think of additional ways to make the football
program
more profitable?
This is a brainstorming question. Some answers could
include:
• Work with uniform/apparelpanies to secure free uniforms
• Add advertising to the stadium
• Concessions
• Using an external marketing firm to increase demand
• Television/Radio broadcasting rights
• Indirectly, football may lead to increased student enrollment
• Negotiate for higher guarantees for away games
• Reduce number of support staff
• Structure coachingpensation to make it performance-based
• Apparel licensing and sales
• If they build a stadium, they can rent it out for other
events
This is a not aprehensive list. To increase pressure, push the
candidate to give more than 2-3 ideas. Even if they give a good
list,
ask if they can think of anything else.
- 74 -
College Football Program
(7 of 7)
RCC
Original
If the math is done correctly, the candidate will see that adding a football team breaks even (barely) which
satisfies the
client’s financial criteria. Here is a sample rmendation. Other good rmendations are possible.
Our client should proceed with starting a football team . They should be cautious about building a
football
stadium on-campus if an opportunity to join a more prestigious conference arises unless they receive
reasonable assurances of substantial increased revenue. While the direct financial rewards of adding a
football
program don’t appear to be great initially, the program can break-even and increase the visibility of the
university and enhance the collegiate experience of its students which are two goals of our client.
Rmendation
Risks and Mitigation
Next Steps
• Attendance may be lower than
expected
• Cost of stadium could be too high.
• Sell season ticket packages before starting
team
• Continue to rent or partner with city to build
multi-purpose stadium.
• Verify assumptions and assign roles
• Begin recruiting head football coach
• Publicize plans with prominent alumni to being getting
donations
• Being process of increasing student fees• Start talks with city to arrange use of rented
stadium.
- 75 -
Self Check-Out (1
of 4)
RCC
Original
Guidance for interviewer and
information provided upon request
Problem statement narrative
Our client is a large retailer. They would like to add self check-
out
stations to their stores. They he asked us to help them
determine if this is a good idea. If it is, they want to know how
much it will cost and what the expected sings will be.
• Their primary objective is to reduce costs and improve
profit.
• They do not want to lose customers due to this initiative.
• Ignore potential revenue benefits such as increased store
traffic.
• The client will only invest if there is a 2 year payback
(undiscounted)• They he approximately 900 stores nationwide.
• Annual revenue is $20 Billion.
• Cost structure data is ailable on the next slide.
• They he almost no experience with self check-out
stations.
• Assume no capital constraints.
.
- 76 -
Self Check-Out (2
of 4)
RCC
Original
The candidate will need to explore costs and sings associated with the new program in order to determine if the
program
can break-even. A good structure should include customer tastes. A great structure will also include efficiency of
self
check-out the candidate should
explore:
Information provided upon request
Impact on
Costs:
• The erage store has 16 cashiers per shift.
• Current Cost Structure
• Required Investment
• Expected Sings
• They make $ Assume they work 8 hours per day.
• It is okay to ignore overtime, benefits, etc.
• Total cost of each machine is $50K. This includes installation.
• Assume annual maintenance is negligible. It can be ignored for this
case.
• One employee can oversee four (4) self check-out machines.
• The store operates on 2 shifts: 8 am- 4 pm and 4 pm to midnight.
• Assume constant flow of customers. No peak.
1
• Assume 350 days/year.
Utilization of New
Machines
• Customer
Preferences/Tastes/Ability
• Number of items to scan
• Size of items to scan
• 10% of customers surveyed stated they would not use the new machines
and
would prefer to shop elsewhere if forced to do so.
• Empirical research (with other retailers) suggests that when a customer
has
more than 15 items, they prefer a cashier to self check-out stations. This
applies to 15% of check-outs.
2
• Learning curve of
customers
• Assume no learning curve effects for this calculation (although candidate
can
bring it up in rmendation/next steps)
- 77 -
Self Check-Out (3
of 4)
RCC
Original
Sample
Calculations
Each machine ses 1/4 of an employee per shift. Since there are two shifts per day, each machine ses 1/2 an employee
per day.
350 days x 16 hours/day x $10/hour = $56,000 in annual sings per machine.
You can not replace all cashiers because of some customer preferences and due to order size. 25% of current cashiers must
be retained
for these purposes. Each store will replace 3/4 of its check-out lanes with these machines: 3/4 x 16 =12 machines per store.
900 stores x 12 machines = 10,800
machines
Total cost = 10,800 x 50,000 = $540 Million total investment
Total expected annual sings = 56,000 per machine x 10,800 machines = $
Million
- 78 -
Self Check-Out (4
of 4)
RCC
Original
At this point, ask the candidate to take a minute to wrap up their analysis and provide a rmendation. They should
keep in mind the original question which is to determine if this is a good idea, how much it will cost, and what the
expected
sings will be.
The client should go ahead with implementing self check-out stations at its stores because each
machine will
se them $56K per year. This represents a payback of slightly less than one year.
Rmendation
• Its an investment of nearly $500 million so they may want to consider a trial run and may
implement the
machines in phases.• The stations may not be as popular with customers as expected. Phasing in will reduce capital at
risk and
allow thepany to modify plans accordingly.
• Employees may resist the change, especially with co-workers losing their job. Thepany will need to
engage in a PR campaign and highlight that thepany’s survival depends on its profitability. If they
don’t
do it theirpetitors will gain a cost advantage.
Risks and Mitigation
Next Steps
• Assign project manager and draft project plan.
• Conduct in-store testing.
• Engage PR firm to help with internal (employee)munications and guard against external
backlash.
- 79 -
Oil Rig (1 of
3)
McKinsey, Round
2
Guidance for interviewer and
information provided upon
request(1)
Problem statement narrative
Oil Co is a holdingpany that manages a portfolio of
panies related to oil exploration. The portfolio can be
segmented as:
• Thepany is not willing to divest any of its holdings.
• Its existing contracts with otherpanies (under segment 2)
are iron clad and cannot be modified.
• An oil rig managed and operated by Oil Co.
• A group ofpanies (including Oil Co.) that he a
proportional stake in an oil rig, with eachpany sharing
costs and profits.
• Profitability is Oil Co.’s only
concern.• All oil rigs are operated offshore.
• Thepany does not know of any new areas to explore and
set up an oil rig.
• Oil Co. is a Britishpany.
Oil Co. wants to increase its profitability and hase to
McKinsey for ideas. What are the key areas you would look
at to
help thepany?
The candidate should recognize this is a cost sings case,
since
there are no incremental revenue streams ailable.
- 80 -
Oil Rig (2 of
3)
McKinsey, Round
2
Cost cutting ideas
Additional questions for
candidate
How would you cut costs on an oil
rig?
These options are not ailable:
• Closing rigs
• Changing schedules to increase work time
• Exploring new areas to drill
• Increasing the width of the pipe to bring up more
oil
• Changing contracts with partners
These are the only options ailable. Everything else should be “shot down”. Feel free to play a bad cop and push the
candidate
for more ideas:• Reducing operating expenses.
• Reducing cost of transporting goods to and from the oil
rig.
- 81 -
Oil Rig (3 of
3)
McKinsey, Round
2
Cost cutting ideas
(cont.)
Additional questions for
candidate
Solution guide
Transportation costs Transportation costs:
• Currently 50MM GBP per year
• Can be reduced to $100,000 per
day
• 50MM GBP = $75MM (current
cost)
• $ * 365 = $
• Sings: $: What are the sings?
• When asked: FX rate is $ GBP
• When asked: Rig operates 365 days per
year
Operating costs:
• 30% * 40MM = $12MM
Operating costs: Total sings: $
Total % sings: 44% ( Currently $40MM
• Can be reduced by 30%
• Question: What are the sings?
What are the total sings? As a %?
- 82 -
Bio-Product Growth (1
of 7)
BCG, Round
1
Guidance for interviewer and
information provided upon request(
Problem statement narrative
Your client is a chemicalpany, ChemCo. Due to stagnant
growth in the chemicals segment, they decided to create a high
growth bio-products segment. This segment sells these
products
to universities and labs primarily for use in drug development.
Revenue for the new segment has been growing at 3-5% per
annum for the last few years. The CEO is unhappy with this
and
wants to achieve 10% growth in revenue in the next year. You
he
been hired to help bridge this gap and achieve this target.
1. Last year bio-products segment accounted for $300
million inrevenue
2. Bio-products industry has been growing at 10%, hence
theCEO’s target
A good structure will include:
Industry (growth and trends)
Client (growth and trends, limitations on growth, product mix)
Growth Strategies (geographies, channels, acquisitions,
product
mix, R&D)
- 83 -
Bio-Product Growth (2
of 7)
BCG, Round
1
Framework
Additional questions for
candidate
Solution guide
After the structure, when the candidate asks for
Industrypetitor information provide Exhibit 1.
• Some implications of Exhibit 1
include:
• ChemCo is “over-diversified”• Could he achieved diseconomies of scope
• Scale operations could be more efficient
• Inefficient use of resources:
Allow the candidate to make some insights, push them if
necessary. Eventually get them to consider the use of
R&D.
What are the implications of R&D from that slide?
• Sales and Marketing
• Research and
DevelopmentGive them Exhibit 2. • Some implications of Exhibit 2 include:
• ChemCo is below market trend
• C7, C5 & C3 could be studied to understand
efficient
R&D• Inefficient use of R&D funds
• Could eliminate inefficient R&D or spend more
due
to high correlation between R&D and revenue
- 84 -
Bio-Product Growth (3
of 7)
BCG, Round
1
Additional questions for
candidate
Solution guide
Lets look further into R&D Candidate SHOULD use Exhibit 2 to project revenues based
on
new R&D/category. If they don’t, ask them for their
assumptions.
You can then choose to push them to use Exhibit 2 or
continue
with their methodology.
We he:
• 5 Strategic Products
• Revenue = $200M
• R&D = $10M
• 15 Non-strategic Products
• Revenue = $100M
• R&D = $20M
Slide 2 indicates that if we spend $6 million in R&D per
category
($30 million for 5 strategic categories), then projected
revenue
per category is $70 slide 6 of 7 for projected revenues using this
forecast
methodology.
So what should we do?
Answer: Reinvest R&D into strategic
products
Then:
1. Revenue for non-strategic products will decrease to
zero
over 5 years
2. Revenue for strategic products will ramp-up over 3
years
- 85 -
Bio-Product Growth (4
of 7)
BCG, Round
1
Exhibit 1:petitor Revenues and Product Mix
380400
350
300
250
200
150
100
50
316
300
250 240
185
125
67
C7
36
C8
0
C1 C2 ChemCo C3 C4 C5 C6
C1 C2 ChemCo C3 C4 C5 C6 C7 C8
Revenue ($ millions)
# of Product
Categories
380 316
6
300
20
250
4
240
7
185
4
125 67
2
36
16 3
- 86 -
Bio-Product Growth (5
of 7)
BCG, Round
1
Exhibit 2: Industry Revenue against R&D
Spend
70
60
50
40
30
20
10
0
C3 C1
C5 C2
C4 C6C7
C8
ChemCo
0 1 2 3 4 5 6
R&D per Category
($millions)
- 87 -
Bio-Product Growth (6
of 7)
BCG, Round
1
Since we are projecting $70M in revenue per strategic category we will ramp up from $200M to $350M
over 3
years and then stay constant.
For the non-strategic products the revenue will decrease from $100M to $0 evenly over 5 years.
REVENUE
PROJECTIONS Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Strategic Categories
Non-Strategic
Categories
TOTA L
$200
$100
$300
$250
$80
$300
$60
$350
$40
$350
$20
$350
$0
$330 $360 $390 $370 $350
Note:
This is the best method for projecting revenue, however the candidate may choose another method.
There
should at least be a logical reason for their methodology. Additional methods could include a linear
increase -
$10M in R&D generated $200M in Revenue, so $30M in R&D will generate $600M in Revenue.
- 88 -
Bio-Product Growth (7
of 7)
BCG, Round
1
• Our client should reorganize their R&D efforts to focus on the 5 strategic products. This will achieve
the 10%growth in year 1 from $300M to $330M. In the long run we should consider focusing our future R&D
as well.
Sample
Rmendation
• We he only reviewed by strategic vs. non-strategic. We may be missing good products by not looking at
the
individual product categories.
• Assumption that R&D is the only factor that influences revenue. If we don’t get $70M per category, the
growth
target will not be achieved.
A solid interview will
address other
potential risks…
• Look into revenue and R&D by product to get granular
details.• Consider sixth product for future growth possibilities, but beware of over-diversification again.
• Considerpetitive analysis to understand what 4-7 product categories everyone else focuses
on.
And suggest next
steps…
- 89 -
Li-Ion Battery Separators (1
of 7)
BCG, Round
1
Guidance for interviewer and
information provided upon
request(1)
Problem statement narrative
Your client is a . Textile Manufacturer. They he recently
developed a new technology for making Lithium Ion battery
separators. Is this an attractive industry? And should your
client
enter the market?
• 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).
A good structure will include:
• Industry analysis (five forces, profitability,petition,
customers)
• Client (patents, experience, etc)
• How to Enter (JV, Greenfield, Acquisition, Licensing)
• Exit strategies
• 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
- 90 -
Li-Ion Battery Separators (2
of 7)
BCG, Round
1
Additional questions for
candidate
Solution guide
After the structure, allow the candidate to ask for data.
Feel
free to push them on the definition of an attractive Industry
–
sustained profitability.
A good analysis will consider the
following:
• Barriers to Entry (HIGH)
• High switching costs between suppliers
• Expensive certification process
• Existing customer relationships
• Supplier Power (HIGH)
• Provide the exhibits when the candidate asks
theappropriate questions. • Can charge premium price for certified safe
product
• Existing relationships• Rivalry (LOW)
• Limitedpetition due to existing relationships
• Profitable
• Price drop in separators less than price drop for rest of
battery
ponents
• Pose the problem again after they he the exhibits - Is
this
an attractive industry?
• Becauseponent costs he decreased at the same rate this
indicates higher margins for separators
- 91 -
Li-Ion Battery Separators (3
of 7)
BCG, Round
1
Li-Ion Battery Separator
Manufacturers
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1%
4%
7%
9%
25% C7
C6
C5
C4
C3
C2
C1
26%
28%
Market Share
- 92 -
Li-Ion Battery Separators (4
of 7)
BCG, Round
1Customer Supply
Base
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
C7
C6
C5
C4
C3
C2
C1
Sony LCG Sanyo Other
•Customers generally he a primary supplier and a secondary supplier
•Industry characterized by strong supplier relationships given safety
concerns
- 93 -
Li-Ion Battery Separators (5
of 7)
BCG, Round
1
Batteryponent Prices
2000 2010
Cathode
Anode
$8
$2
$4
$1
Separator
Other
$3
$7
$2
$3
TOTAL $20 $10
Note: Costs he decreased at the same rate for all batteryponents.
- 94 -
Li-Ion Battery Separators (6
of 7)
BCG, Round
1
Additional questions for
candidate
Solution guide
A good analysis will consider the
following:
• Green Field:
• Pros – Management Control
• Cons – Expensive and timely
• Joint Venture:
So, should we enter the Li-Ion Battery Separator Market?
(The
candidate must realize that this question must also cover
“how should we enter ”. If they do not go down this route,
direct them with the additional questions.)
• Pros – Easier and
quick• Cons – Limited control, finding partner
• Acquisition:
• Pros – Quicker, Management Control
• Cons – Culture clashes, buyer’s curse
(overpaying)
• License/Sell
• What are the possible ways to
enter?
• What are the pros and cons of
each?
• Pros – Easier, lessmitment to new market (get your milk
without the cow)
• Cons – finding buyers
- 95 -
Li-Ion Battery Separators (7
of 7)
BCG, Round
1
• Our client should License the technology due to a lack of knowledge and experience in the Li-Ion
Battery
Separator market, existing buyer-supplier relationships, and the expensive certification process inherent
in the
industry.
Sample
Rmendation
• No industry experience
• Existing manufacturers will not want to change
technology
• No discussion on benefits of new technology
A solid interview will
address other
potential risks…
• Understand technology and value proposition to manufacturers
• Patent technology and determine licensing fee
• Identify interested manufacturers and develop interest from customers (Sony, LCG,
Sanyo, etc.)
And suggest next
steps…
- 96 -
VitaminCo (1 of
7)
Bain, Round 1
Guidance for interviewer and
information provided upon
request(1)
Problem statement narrative
Your client is VitaminCo, a producer of vitamins/pills. They
sell
their products primarily to healthstores and pharmacies.
They
are now considering entering the healthfoods and
beverages
market and are wondering if this is a good idea. What
should
they do?
• Healthfoods and beverages include granola/protein
bars,
gatorade, etc.• Client operates in the US.
• VitaminCo has 10% share of vitamin
market
A good structure will include: • Provide Exhibit 1 in response to any questions on growth or
market size
• Provide Exhibit 2 in response to any questions on market
share
orpetition
• Industry Analysis (growth, profitability,petition)
• Method of entry (JV, Acquisition, Greenfield)
• Other (Initial investment, Synergies,petitive response)
• Provide Exhibit 3 in response to questions on VitaminCo’s
sales
or operations
• Assume the healthfoods and beverages industry is
profitable
• No expected synergies – current vitamin facilities cannot
produce the health bars and drinks that we would want to
sell
• If interviewee asks, VitaminCo has access to a large
amount of
capital.
- 97 -
VitaminCo (2 of
7)
Bain, Round 1
Exhibit 1: Market Size
($B)
CAGR
5%
2009
2006
15%
-
2007 2008
VitaminsHealthfoods
- 98 -
VitaminCo (3 of
7)
Bain, Round 1
Exhibit 2:petition and Market Share
$18 Billion $5 Billion
100%
90%
Other
80%
70%
60%
50%
Health Focus
VitaminCo
Other
Pills Inc.
40%
30%
20%
10%
XYZ Food &
BevHealth FocusDrinkade
NutriOne
Food Inc.
ABC Vitamin
Health Foods and
Beverages
Vitamins
- 99 -
VitaminCo (4 of
7)
Bain, Round 1
Exhibit 3: VitaminCo’s Operating Statements ($
millions)
Year
Revenue
2005 2006 2007 2008 2009
$ 470 $ 470 $ 480 $ 490 $ 500
$ 230 $ 239 $ 231 $ 226 $ 222
$ 70 $ 68 $ 72 $ 78 $ 75
COGS
SG&A
Sales & Mkting $ 105 $ 100 $ 110 $ 145 $ 190
Net Inc ome
Margin
$ 65 $ 63 $ 67 $ 41 $ 14
% % % 8. 4% 2. 7%
- 100 -
VitaminCo (5 of
7)
Bain, Round 1
Solution guide
Exhibit 1
• This shows us that the healthfoods and beverages market is significantly larger than the vitamins
market.
• Furthermore, growth is much healthier in the healthfoods and beverages market.
Exhibit 2
• The healthfoods and beverages market is highly fragmented.
• Largest player has 15% share of market
• Health Focus is only player in both industries. Sets a precedent for operating in both markets.
• Consider discussion on how Health Focus entered the markets. Which segment they entered first. How quickly they
grew and
captured market share.
Exhibit 3
• Sales and Marketing he increased without driving an increase in
revenue.
• Vitamin Co’s revenue growth has been less than industry-wide level of
5%.
- 101 -
VitaminCo (6 of
7)
Bain, Round 1
Additional questions for
candidate
Solution guide
So should we enter? VitaminCo should enter because:
• Stagnant revenue for
VitaminCo• Low growth in vitamin market
• Assumed profitability of Healthfoods segment
• Highly fragmented nature of health food
industry
VitaminCo should enter by acquisition
because:
• Fastest and easiest
And, how should VitaminCo
Enter? • No synergies in current
facilities
VitaminCo should acquire
HealthFocusWho would you rmend they acquire? • Small enough that they could potentially afford
• Will drive growth in Vitamins since that is area of
stagnation
• Other options are “small” players in “Other” category
- 102 -
VitaminCo (7 of
7)
Bain, Round 1
• VitaminCo should enter the healthfoods and beverages market through an acquisition of HealthFocus.
This willdrive growth in both Vitamin and health food
segments.
Sample
Rmendation
• In any acquisition there is a risk of overpaying. We could look at other players to try identify a low
performer
with high potential.
• May start a bidding war from otherpetitors in Vitamin industry looking to diversify into the health foods
segment.
A solid interview will
address other
potential risks…
• Look into access to capital – HealthFocus’s total revenues are higher than VitaminCo’s total revenues and
so may
be difficult to get capital
• Consider line of products that are most profitable to finalize the acquisition target
• Look into Vitamin operations to see why VitaminCo’s growth is lower than industry standard and find
methods
for growing the business.
And suggest next
steps…
- 103 -
Key Facts
Review
A selection of facts that can be useful to review before case interviews. You don’t he to
know the exact population of Canada, but you should at least be able to get in the ball
park.
Numbers that occurmonly in cases such as the population of the . you should
memorize.
Additionally, use numbers that work with the math you are planning to perform. For
example, if
you are estimating the population of the . and you he to divide by 4, use 280 MM
rather
than 300 MM.
Doing math quickly in your head can impress interviewers and make you sound more
confident.
Additionally, we would rmend you develop a system to keep track of zeroes while you are
doing your calculations. You don’t want to get tripped up because you get 1 million
instead of
10 million!
Lastly, get in the habit of taking second to think before you speak. It is better to take an
extra
few second and be right than to blurt out the wrong answer. Remember, the
interviewer is
evaluating whether they would befortable putting you in front of a client!
- 104 -
Key Facts
Review
Location
World
China
India
Europe
.
Brazil
Japan
Mexico
France
Canada
Australia
New York
City
Los Angeles
Chicago
Population
7 B
Metric
g. Household Size
erage HH Ie
% With Internet Access 92%
%puter in Home
Corporate Ta x Rate
Corporate Discount Rate 10%
Wal-Mart Revenue
Wal-Mart Profit
Exxon Mobile Revenue $275
B
Exxon Mobile Profit
% Americans Over 65
Value
$47, B
B
800 M
310 M
200 M
130 M
107 M
65 M
34 M
22 M
8 M
80%
40%
$408 B
$14 B
$19 B
13 %
% Americans Under 20 27
%
erage GDP Growth US 4 %
erage Inflation US
4 M
3M %
- 105 -
Decimal
Calculations
Many decimal calculations can be made easier by remembering a few numbers. For example, if
you
know that 1/8 is .125, it will be easy to calculate 3/8 = 3*.125 = .375. Numbers divided by 7 are
also easy
to calculate once you memorize the number sequence 142857.
1/7
2/7
3/7
4/7
5/7
6/7
.142857
.285714
.428571
.571428
.714285
.857142
½ .5
1/3
¼
.333
.25
1/5
1/6
1/7
1/8
1/9
.2
.166
.142857
.125
.111
- 106 -
10 Rmended Cases From Old Casebooks
1. UPS Italy, Columbia 2007
Case 32. Wind Turbine, Ross 2009 Case 2
3. Airport Parking, Ross 2009 Case 3
4. Jamaican Land, Wharton 2008 Case 7
5. Office Vending Services, Ross 2008
Case 2
6. Apache Helicopter, Ross 2008 Case 8
7. Airplane Deicing, Ross 2006 Case 4
8. Regina Jet, HBS Case 169. All-Mart, Wharton 2008 Case 14
10. Cash Rich Energy Co, Wharton 2008
Case 18
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