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Case 8ook | 2011 ed|t|on

2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved


ke||ogg Case 8ook 2011 Ld|t|on
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Adam J. Louras (Kellogg Class of 11)
Ameed Mallick (Kellogg Class of 12)
Uri Kalir (Kellogg Class of 12)
Peter Manoogian (Kellogg Class of 12)
Craig DePriester (Kellogg Class of 12)
Mauricio Atri (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
We|come to the 2011 kCC Case 8ook!
!"#$% '() *+") ,--.
Consu|t|ng kecru|t|ng 1|me||ne
Cctober November December Ianuary Iebruary
ALrlum Pours/ resenLaLlons/
Coffee ChaLs
8esumes
uue
lnLervlews
Ianuary
?ou Are Pere
Lxam rep &
Lxams
WlnLer
8reak
lnLervlew
rep
reparat|on rocess
hase I:
MarkeLlng ?ourself
hase II:
8uslness Acumen
hase III:
Case rep
1h|s document conta|ns samp|e cases to use wh||e prepar|ng for |nterv|ews
3
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Contents
kCC 2011 cases
Add|t|ona| resources
now to use th|s book
4
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
1|ps for effect|ve pre- and post-case act|v|t|es
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Ask Lhe lnLervlewee lf Lhey wlsh Lo
focus on speclflc:
Case formaLs / concepLs
Levels of dlfflculLy
lndusLrles
lnform lnLervlewee whlch case you
plan Lo dellver Lo conflrm Lhey have
no prlor knowledge of Lhe case
Spend aL leasL 30 mlnuLes Lo revlew
Lhe case
lnLervlewer (dellverlng case) lnLervlewee (recelvlng case)
lnform your lnLervlewer lf you have
speclflc areas for lmprovemenL
Conflrm LhaL you have noL prevlously
done Lhe case your lnLervlewer ls
plannlng Lo dellver
uC nC1 read Lhe case ahead of Llme or
dlscuss Lhe case conLenLs wlLh peers!
8rlng plenLy of paper Lo Lake noLes!
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rovlde deLalled feedback (boLh
poslLlve and consLrucLlve) Lo
lnLervlewee ln a Llmely manner
Seek feedback from Lhe lnLervlewee
on your case dellvery
rovlde deLalled feedback (boLh
poslLlve and consLrucLlve) Lo
lnLervlewer ln a Llmely manner
Seek feedback from Lhe lnLervlewer
on your case performance
Log your performance in the case
tracker
3
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1he t|t|e page for each case conta|ns deta||s that w|||
|nform case se|ect|on
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1
Case tracker: rov|des overv|ew on case |nc|ud|ng |ndustry, format, and concepts
tested
2
Status bar: Inc|udes rat|ngs for quant |ntens|ty and structure (1 = |o, 10 = h|ghest), as we|| as
|ndustry |ogo, case format, and concepts tested
3
Gu|de to |nterv|ewer: Conta|ns the overv|ew of the case and a||ows users to determ|ne
whether they shou|d g|ve the case based on |ts attr|butes
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3
2
1
4
4
I|t quest|ons: Conta|ns 3 f|t quest|ons to beg|n the |nterv|ew. After f|t, then ask the case
quest|on
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The Clarifying answers page contains supplemental
information and a suggested guide to the cases flow
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1 2
1
C|ar|fy|ng answers: Conta|ns |nformat|on that |s NC1 re|evant to the ma|n so|ut|on path. 1h|s |s for
supp|ementary information such as: we do not know the competitive dynamics
or the market has been growing at GDP.
2
Gu|de to case: Lays out the |dea| structure for the case and |nc|udes h|nts on how to wa|k through
the |nterv|ew]handouts, as we|| as when to show them to the |nterv|ewee.
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The Key elements to analyze page contains the
ana|ys|s of the key case concepts
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1
Concept box: Inc|udes the key quest|on or ob[ect|ve assoc|ated w|th a ma|n case concept
tested. 1he |nterv|ewee shou|d natura||y move to ask|ng or address|ng the
|nformat|on in this box, but you may need to provide a little push at times.
2
Notes to |nterv|ewer: Conta|ns add|t|ona| |nformat|on that you may prov|de to the |nterv|ewee dur|ng
an |nvest|gat|on of the part|cu|ar case concept. 1h|s |nformat|on |s
CkI1ICAL to the |nterv|ewee so|v|ng the case both numer|ca||y and conceptua||y.
1
2
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1he rema|n|ng page types that may be |nc|uded |n a case are
more stra|ghtforward than the prev|ous three
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Note: Not ALL cases w||| conta|n pages of a|| types.
9
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
More |nfo on case format types
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2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
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2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
More |nfo on |ndustry |ogos
I|nanc|a|
Serv|ces
Sh|pp|ng &
1ransportat|on
keta|| A|r||ne
1ech &
1e|ecom
Med|a &
Lnterta|nment
Cther nea|thcare
Industr|a|
Goods
Lnergy
Consumer
roducts
1rave| &
Le|sure
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2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Case Score Sheet (Ior Interv|ewer)
13
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2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
now to Score (Interv|ewer)
14
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2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
13
Contents
kCC 2011 cases
Add|t|ona| resources
now to use th|s book
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
1ab|e of Contents
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2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Case tracker I|t uest|ons
Industry:
Consumer roducLs
Leve| of D|ff|cu|ty:
Medlum
Case Iormat:
lmprovlng proflLablllLy
Concepts be|ng tested:
! Mlcroeconomlcs
Case uest|on
Cur cllenL ls an esLabllshed food wholesaler LhaL ls Lrylng Lo lncrease proflLablllLy. 1he slLuaLlon ls LhaL our cllenL ls a
wholesaler of a varleLy of dlfferenL food lLems, and has a sLeady sLream of buslness and ls already proflLable, buL ls looklng Lo
unlock more proflLablllLy from lLs exlsLlng llnes of buslness
Pow can Lhey can besL lncrease proflLablllLy from Lhelr exlsLlng buslnesses?
Spend f|rst 1S m|n on f|t
1ell me abouL a Llme
when you falled.
Share me a Llme when
you faced a dlfflculL
slLuaLlon ln a Leam and
how you solved Lhls .
uescrlbe your mosL
rewardlng buslness
school experlence.
Gu|de to |nterv|ewer
1he case prlmarlly LesLs an undersLandlng of mlcroeconomlc
concepLs. As such, lL ls a llLLle blL more quallLaLlve and less
quanLlLaLlve Lhan Lhe average case.
1he lnLervlewee should focus on solvlng lnslghLs regardlng
elasLlclLy and proflL-lmprovlng prlce changes .
1he lnLervlewee should be able Lo come up wlLh Lhese
lnslghLs lf Lhey lnvesL some efforL ln undersLandlng prlce
elasLlclLy of demand and lLs relaLlonshlp Lo changes ln
revenues as prlce ls reduced.
Case 1: Iood Who|esa||ng Case
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17
By: Colby Maher (Kellogg Class of 03) & Professor David Besanko, Edited By: Mauricio Atri (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Gu|de to case ] Gu|de to handouts
Lxh|b|t 1 Pand ouL afLer lnLroduclng case CurrenL buslness
! WhaL observaLlons can be made from Lhls graph?
! lnLervlewee should make quallLaLlve assessmenLs abouL compeLlLlve
dynamlcs (nexL sllde), markeL poslLlons, and make lnferences abouL
poLenLlal causes/advanLages LhaL have caused Lhe change from
2000/2003.
Lxh|b|t 2 Pand ouL afLer solvlng exhlblL 1 Cross margln
! lf we have a graph wlLh gross margln on Lhe y-axls, whaL would go on
Lhe x-axls?
! use Lo lllusLraLe relaLlonshlp wlLh gross margln and prlce elasLlclLy.
lnLervlewee should draw a downward sloplng llne from Lhe Lop lefL
corner.
Lxh|b|t 3 Pand ouL afLer dlscusslng LxhlblL 2 LlasLlclLy/CM relaLlonshlp
! uemand elasLlclLy and gross margln do noL have Lhe lnverse llnear
relaLlonshlp LhaL we would expecL.
! ush Lhe lnLervlewee Lo make observaLlons from Lhls graph and ldenLlfy
the clients optimal strategy be in each of the four graph quadrants.
C|ar|fy|ng answers to prov|de
lndusLry CharacLerlsLlcs/MarkeL Lconomlcs
! Crowlng aL Lhe raLe of Cu
! SlgnlflcanL barrlers Lo enLry, no new
compeLlLors have enLered Lhe markeL ln
Lhe lasL several years
CllenL CharacLerlsLlcs
! CllenL ls currenLly Lhe lndusLry markeL
share leader
! Marglns are good, buL depend on
producL llne
! Cffers a range of hlgh-end and low-end
food producLs
! Consumers are hlgh and low-end hoLels
and resLauranLs
CompeLlLlve uynamlcs
! 1he dynamlcs (duopoly vs. fragmenLed
lndusLry) depend on Lhe reglon, buL
Lhere are key compeLlLors ln each
reglon
18
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
19
Compet|t|ve Dynam|cs
uslng LxhlblL 1, have a dlscusslon abouL Lhe compeLlLlve
dynamlcs and economlcs LhaL could push Lhe share galns
from 2000-2003.
Demand L|ast|c|ty
use LxhlblL 2 Lo have a dlscusslon abouL prlce elasLlclLy vs. gross
margln and Lhelr relaLlonshlp. When Lhls dlscusslon concludes,
use LxhlblL 3 for a dlscusslon abouL Lhe acLual relaLlonshlp.
Notes to |nterv|ewer
LxhlblL 1 - 1he cllenL ls Lhe leader ln a Lwo-company
ollgopoly ln norLh Amerlca, lLs blggesL markeL. lL ls ln a
hlghly compeLlLlve slLuaLlon ln Lurope, and an even more
compeLlLlve one ln Asla where lL has slmllar compeLlLors.
1here are Lhree ma[or polnLs Lo ldenLlfy: 1) glven Lhe
economles of scale and dlsLrlbuLlon LhaL are llkely prevalenL
ln Lhls buslness, lL helps explaln Lhe galns ln Lhelr lead ln
norLh Amerlca, 2) conversely, we would expecL Lhem Lo lose
markeL share ln Asla and Lurope for Lhe same reasons, and
3) Lhe lncrease ln overall share ln Asla makes sense glven
Lhe hlgh relaLlve growLh raLe ln Asla.
rlce compeLlLlon should be sofLer ln Lhe u.S. Lhan Asla due
Lo commandlng markeL share and fewer compeLlLors. lor
bonus polnLs, Lhe candldaLe could also menLlon LhaL Lhe
u.S. markeL may be more ferLlle ground for prlce leadershlp.
Notes to |nterv|ewer
LxhlblL 2 - Lhe candldaLe should ldenLlfy LhaL Lhe x-axls should
have prlce elasLlclLy, and Lhls should lead hlm/her Lo draw a
downward-sloplng sLralghL llne from Lhe upper lefL-hand corner
Lo Lhe lower rlghL-hand corner.
LxhlblL 3 - Lhe observaLlon from Lhe graph ls LhaL Lhere ls no
apparenL effecL from demand elasLlclLy on gross marglns. We
should leave prlclng alone ln CuadranLs l and lll, slnce Lhey are
behavlng accordlng Lo expecLaLlons. ln CuadranL ll, demand
elasLlclLy ls hlgh, yeL we have a hlgh margln, lndlcaLlng LhaL
Lhere ls room Lo cuL prlces and lncrease proflLs. ln CuadranL lv,
demand elasLlclLy and marglns are low, meanlng LhaL we can
ralse prlces Lo capLure addlLlonal surplus.
1hese lnslghLs regardlng elasLlclLy and proflL-lmprovlng prlce
changes are Lhe maln concludlng lnslghLs of Lhls case.
19
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
Cverall, our cllenL should engage ln a number of dlfferenL prlclng sLraLegles LhaL vary accordlng Lo
Lhe relaLlonshlp beLween gross margln/elasLlclLy LhaL varles by markeL.
1he cllenL should engage ln Lhe followlng changes:
CuL prlces ln CuadranL ll.
8alse prlces ln CuadranL lv.
MalnLaln prlclng sLraLegles ln CuadranLs l and lll because Lhey behavlng accordlng Lo
expecLaLlons.
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll qulckly ldenLlfy Lhe poLenLlal drlvers of changlng markeL dynamlcs by
conLlnenL and suggesL poLenLlal sLraLegles (l.e. prlce leadershlp ln norLh Amerlca).
AddlLlonally, a sLrong lnLervlew wlll lmmedlaLely grasp Lhe relaLlonshlp beLween gross margln/
elasLlclLy and be able Lo qulckly recommend relaLed sLraLegles from Lhe slLuaLlon shown ln LxhlblL
3.
20
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Exhibit #1: Clients share of sales by region, 2000-2003
21
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #2: Gross Marg|n
22
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #3: L|ast|c|ty-Marg|n
23
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
24
Case tracker I|t uest|ons
Industry:
1echnology
Leve| of D|ff|cu|ty:
Medlum
Case format:
MarkeL enLry
Concepts be|ng tested:
! MarkeL share
Case uest|on
Cur cllenL, ConeL, ls a uS-based lnLerneL Servlce rovlder (lS) LhaL ls conslderlng enLerlng Lhe Luropean markeL. 1hey
are currenLly Lhe domlnanL player ln Lhe uS wlLh Lwo revenue sLreams: a subscrlpLlon access fee and by Laklng a
percenLage of all e-commerce LransacLlons from subscrlbers.
Lxamlnlng Lhe Luropean markeL, ConeL has found LhaL Lhe markeL ls hlghly fragmenLed and rlpe for enLry. ?ou are golng
into a meeting with the CEO and have been asked to perform some quick back of the envelope calculations to
deLermlne Lhe poLenLlal proflLablllLy of enLerlng Lurope.
Spend f|rst 1S m|n on f|t
Pow compeLlLlve are
you?
WhaL do you belleve ls
Lhe downslde of
WhaL sorLs of Lhlngs
lrrlLaLe you Lhe mosL or
geL you down?
Gu|de to |nterv|ewer
1hls ls a very quanLlLaLlve case LhaL requlres Lhe
lnLervlewee Lo run Lhe numbers on Luropean
proflLablllLy.
1he candldaLe wlll need Lo ask for addlLlonal lnformaLlon
Lo solve Lhe problem. AfLer geLLlng Lhe lnlLlal calculaLlons
rlghL, Lhere wlll be a number of markeL changes Lhe
lnLervlewee wlll have Lo reacL Lo.
AfLer Lhe quanLlLaLlve porLlon ls compleLed, Lhere are
some open-ended quesLlons for Lhe candldaLe Lo answer.
Case 2: GoNet Internet Serv|ce rov|der
12+$'"3
8
4'02*'20)
4
5+0.)'
)$'0<8
7+0.)'
"(+0)
By: Adam Borchert and Joep Knijn (Tuck Class of 04), Edited By: Mauricio Atri (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Gu|de to case
arL 1 CuanLlLaLlve dlscusslon
! 1hls should be Lhe meaL of Lhe case and should be compleLed
before dlscusslng any general or quallLaLlve responses.
arL 2 CuallLaLlve dlscusslon
! AfLer navlgaLlng Lhe maLh, ask Lhe candldaLe Lhe followlng
quesLlons:
! 1) Pow could we reduce Lhe flxed cosLs of lnvesLmenL?
! 2) Would Lhere be any reason Lo conLlnue wlLh Lhe
lnvesLmenL even lf lL looks llke lL wlll lose money?
! 3) Are Lhere are any oLher rlsks/beneflLs LhaL ConeL should
conslder?
! 4) Pow would you sum up Lhe slLuaLlon and whaL ls your
recommendaLlon?
C|ar|fy|ng answers to prov|de
(rovlde Lhls lnformaLlon on requesL)
CompeLlLlve dynamlcs
! Plghly fragmenLed lndusLry
! no lnformaLlon abouL markeL
leaders or Lrends
Luropean lndusLry overvlew
! ConeL plans Lo capLure a base of
10 mllllon subscrlbers
! SubscrlpLlons wlll cosL $20/monLh
! 1he average ConeL subscrlber
purchases $1,800 of goods on Lhe
lnLerneL annually
! ConeL recelves 3 commlsslon
! llxed cosLs are $1 bllllon annually
! varlable cosLs are $110/subscrlber
annually
23
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Math quest|ons (1 of 2)
Math so|ut|on
1) 8evenues each year wlll be $2.48 for subscrlpLlon (10 mllllon subscrlbers x
$20/monLh x 12 monLhs) and commlsslons wlll be $340M (10 mllllon subscrlbes x
$1,800/year x 3 commlsslon) for a LoLal of $2.948.
llxed cosLs are $18 and varlable cosLs are $1.18 (10 mllllon subscrlbers x
$110/year) for a LoLal of $2.18 each year. roflLs are $840M and Lhe annual
proflL margln ls 40 ($840M/$2.18)
2) Annual revenues drop Lo $1.28 (10 mllllon subscrlbers x $10/monLh x 12 monLhs)
from subscrlpLlons, whlle commlsslons remaln consLanL aL $340M. 1oLal revenues are
$1.748. 8ecause LoLal cosLs remaln $2.18, we lose $0.368 by halvlng subscrlpLlon
charges, making the answer No.
AL Lhls polnL, ask Lhe lnLervlewee whaL Lhe elasLlclLy of demand ls ln Lhls
markeL and Lhe lmpllcaLlons for ConeL. 1he markeL should be hlghly elasLlc,
meanlng LhaL ConeL wlll noL wln over enough subscrlbers aL $20/monLh.
Math quest|on
1) lease deLermlne Lhe annual neL lncome (before Laxes) ln Lurope, glven Lhe currenL revenue model and seL of
assumpLlons. WhaL ls Lhe annual gross mark-up, ln percenLage?
2) ConeL [usL found ouL LhaL a new enLranL ls charglng $10/monLh and capLurlng markeL share. Can we lower our
fee Lo $10/monLh?
Math |nformat|on
10 mllllon
subscrlbers
$20 monLh
subscrlpLlon fee
$1,800/year of
onllne spendlng [
3 commlsslon
llxed cosLs: $1 bllllon
varlable cosL:
$110/year per
subscrlber
26
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Math quest|ons (2 of 2)
Math so|ut|on
3) 1o keep proflLs aL $8408, we know LhaL cosLs remaln aL $2.18 so revenue wlll need Lo be $2.948. SubscrlpLlon
revenue wlll be $1.28, so commlsslons need Lo be $1.748. 1here are 10 mllllon subscrlbers, so each subscrlber
need Lo brlng ln $174/year of commlsslon. AL 3, Lhey wlll need Lo buy $3,800/year ln goods ($174/3).
Ask Lhe candldaLe lf Lhls reallsLlc. 1he answer should be no.
4) 1o breakeven, we wlll need commlsslon Lo be $900M over 10 mllllon subscrlbers. 1haL ls $90/year per
subscrlber ($900M/10M), whlch means $3,000/year ln goods purchased onllne ($90/3). 1he candldaLe should
ldenLlfy LhaL Lhls ls also unreallsLlc, represenLlng more Lhan a 30 lncrease from lasL year.
3) 1o flnd Lhe answer here, we need Lo flnd lncremenLal revenue per subscrlber. Lach subscrlber brlngs ln
$174/year ($10/monLh x 12 monLhs + $1800/year x 3) aL a cosL of $110/year for a proflL of $64/year. 1hese
proflLs musL cover Lhe flxed cosLs of $18/year, so we musL brlng ln 13.623 mllllon cusLomers ($18/$64)
noLe: many people forgeL Lhe varlable cosLs durlng Lhe compleLlon of Lhls case.
Math quest|on
3) WlLh hlgh markeL elasLlclLy, ConeL wlll noL be able Lo charge more Lhan $10/monLh. Pow much would each
subscrlber have Lo buy on Lhe lnLerneL Lo keep proflLs aL Lhe same level as $20/monLh subscrlpLlon fees?
4) Pow much would each subscrlber have Lo buy on Lhe lnLerneL Lo enable us Lo break even?
3) Clven LhaL we cannoL charge more or reallsLlcally lncrease shopplng slgnlflcanLly, how many subscrlbers would
we need ln order Lo break even?
27
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
kesponses to the open-ended quest|ons:
1) Some poLenLlal ways (noL exhausLlve) Lo reduce flxed cosL: ouLsourclng capaclLy, leaslng neLworks, worklng ln speclflc
geographles, eLc.
2) ConeL may sLlll be lnLeresLed ln Lhls move as a way Lo break lnLo lnLerneL reLalllng and expandlng lLs subscrlber base. 8ased on
Lhe maLh Lhough, Lhls should noL be an aLLracLlve opLlon long-Lerm elLher.
3) Very open ended and reliant on candidates creativity.
4) 1hls ls very open-ended and should be evaluated based on the candidates argument, not answer. Based on initial estimates,
Lhls ls a very aLLracLlve markeL Lo enLer, buL wlLh prlce pressures and hlgh elasLlclLy Lhe markeL ls far less aLLracLlve. lf we are Lo
underLake Lhls lnlLlaLlve, ConeL needs Lo flnd ways Lo converL a much hlgher number of cusLomers or dlfferenLlaLe lLs producL,
whlch boLh requlre markeL research. 1here ls also poLenLlal Lo reduce cosLs or esLabllsh Lhls fooLhold as a loss leader, buL Lhese
requlre sLrong argumenLs from Lhe candldaLe.
8onus]Gu|de to an Lxce||ent Case
1hls case LesLs Lwo Lhlngs the interviewees comfort with numbers and ambiguity. An excellent case interview will result in an
lnLulLlve grasp on whaL ls belng asked qulckly and solld execuLlon on Lhe quanLlLaLlve porLlon of Lhe case.
ulLlmaLely, Lhe besL lnLervlewees wlll make a very sLrong argumenL uslng Lhe facLs provlded and supporL Lhe declslon Lo
lnvesL/noL lnvesL wlLh a sLrong buslness sense abouL Lhe cosLs and lmpllcaLlons of Lhe pro[ecL.
CreaLlve soluLlons beyond Lhose llsLed are posslble and encouraged, Lhough should be done wlLhln Lhe framework of Lhe
lnformaLlon avallable.
28
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
29
Case tracker I|t uest|ons
Industry:
Consumer Coods
Leve| of D|ff|cu|ty:
Medlum
Case format:
ueveloplng a new
producL
Concepts be|ng tested:
! MarkeL slzlng
! lnvesLmenL
! rlclng SLraLegy
Case uest|on
Cur cllenL ls a korean conglomeraLe named uanuL LhaL has acqulred a small 8osLon-based bloLechnology flrm
1he bloLech flrm acqulred has developed a chemlcal LhaL helps conLrol Lhe rlpenlng of produce. AfLer LesLlng, Lhls
chemlcal appears Lo work especlally well wlLh apples: lL allows apple orchards Lo harvesL earller and lL lmproves Lhe
overall quallLy of Lhe harvesL.
uanuL would llke Lo know lf Lhey should aLLempL Lo commerclallze Lhls chemlcal.
Spend f|rst 1S m|n on f|t
1ell me abouL a recenL
poslLlve Leam
experlence
Pow would you descrlbe
your learnlng ablllLy? ln
whaL klnds of slLuaLlons
are you fasL or slow Lo
learn?
uescrlbe Lhe lasL Llme
you put your foot in
your mouth.
Gu|de to |nterv|ewer
SLaLe Lhe lnformaLlon above, Lhe lnLervlewee should be
able Lo develop a varlanL of Lhe followlng quesLlon:
ls tbe motket slze lotqe eoooqb ooJ tbe estlmoteJ
ptofltoblllty blqb eoooqb fot uooot to ottempt to
commetclollze tbls cbemlcol?
ldeally, Lhe lnLervlewee should be able Lo break down Lhe
quesLlon lnLo Lwo parLs:
1. 1he mlnlmum requlred markeL slze
2. 1he need for proflLablllLy
key case sLeps:
1. Conflrm markeL aLLracLlveness by slzlng opp.
2. LvaluaLe orchard revenue and cosL sLrucLures
3. Project Danuts profitability
4. ldenLlfy quallLaLlve lssues Lo conslder
Case 3: Ma|ne App|es
12+$'"3
8
4'02*'20)
6
5.'3 4#=)
90#*) 4'%<
>$?)"'3
By: Adam Borchert and Joep Knijn (Tuck Class of 04), Edited By: Peter Manoogian (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
30
C|ar|fy|ng answers and case gu|de
Gu|de to case ] Gu|de to handouts
Conf|rm|ng market attract|veness Share wlLh lnLervlewee afLer
problng quesLlons are recelved (do noL share producL beneflL 1 yeL)
! ls Lhe markeL large enough Lo conLlnue?
Lva|uate orchard cost structures Do not share Product benefit
1 until the above section is determined
! Pow much lncremenLal proflL does our producL creaLe for an
apple orchard owner?
! AfLer Lhls, Lhe conversaLlon should Lurn Lo wheLher uanuL
should commerclallze glven lLs cosLs of producLlon
Commerc|a||zat|on cons|derat|ons Culde Lhe lnLervlewee Lo Lhen
consider Danuts production costs and determine how much can
proflL uanuL could capLure ln lLs prlclng
@ABC BA >@BCDE>CFCDG A0*(+0H 0)?)$2) "'02*'20)" I$)J' K+%)L
7+< ,) "(+0)H :#0"' #: '() #$')0?#)M)) +"." :-0 '()7 K0#-0 '- '()
*-"' "'02*'20)
C|ar|fy|ng answers to prov|de
CllenL CharacLerlsLlcs
! Only concerned about a test-market
ln Lhe sLaLe of Malne
CompeLlLlve uynamlcs
! no oLher compeLlLlve producLs on Lhe
markeL currenLly
Local lndusLry CharacLerlsLlcs/Lconomlcs
! Crowlng aL Lhe raLe of Cu
roducL beneflLs:
! 8educed cosLs Lhrough earller
harvesLlng
! lmproved apple ylelds
! SweeLer apples yleld more [ulce per
apple (less apples requlred Lo make
[ulce)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
Market s|z|ng
Pow blg ls Lhe apple markeL ln Malne?
uoes Lhls seem poLenLlally large
enough Lo conLlnue lnvesLlgaLlng Lhls
producL?
Cost sav|ngs
WhaL are Lhe cosL savlngs from uslng
Lhe chemlcal?
1he chemlcal allows Lhe farmer Lo
harvesL 10 days sooner
kevenue |ncrease
Pow much addlLlonal revenue wlll
farmers be able Lo generaLe?
WhaL ls Lhe LoLal proflLablllLy lncrease
(lncludlng cosL savlngs?
Note to |nterv|ewer
When asked, provlde Lhe followlng:
! Malne has 200 orchards
! Avg. annual orchard revenue ls
$30k/acre
! Avg. orchard has 100 acres of land
! Cnly one apple harvesL per year
lnLervlewee should calculaLe Lhe
markeL slze based on lnfo provlded:
($30k/acre x 200 orchards x 100
acres/orchard = 5600M)
1hls ls a slgnlflcanL markeL and
warranLs furLher lnvesLlgaLlon.
Notes to |nterv|ewer
When asked Lo quanLlfy Lhe
lmprovemenLs, provlde Lhe followlng:
! lL cosLs $1.3k/nlghL Lo malnLaln
crops for 100 acre orchard
! WlLh Lhe chemlcal, farmers are able
Lo harvesL crop 10 days sooner
lnLervlewee should calculaLe cosL
savlngs per year uslng Lhls
lnformaLlon:
($1.3k/day x 10 days / 100
acres = 51S0]acre]year)
ua||tat|ve Assessment
When asked Lo quanLlfy addlLlonal
revenue, provlde Lhe followlng:
! Our clients product improves the
conslsLency of red apples and
lmproves Lhe yleld by 10
! 1he sweeLness facLor ls esLlmaLed Lo
lmprove Lhe [ulce yleld by 3
! 23 of revenue comes from whole
apple sales, 73 from [ulce sales
lmproved yleld: ($30k/acre x 23 x
10 = 57S0]acre] year)
lmproved sweeLness: ($30k/acre x
73 x 3 = 51,12S]acre]year)
1oLal lmprovemenL (wlLh cosL
reducLlon) = 52,02S]acre]year
31
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
32
roduct rof|tab|||ty
If our product costs $100K per 200 acre farm, what will the farmers profit margin be if they buy
lL aL cosL?
WhaL should our cllenL sell Lhe producL for? ls a 30 margln reallsLlc?
Note to |nterv|ewer
Farmers incremental revenue/cost savings = $2,025/acre
roducL cosLs = $100k/200 acres = $300/acre
roflL margln = ($2023-$300)/$2023= 73
1he lnLervlewee should noLe LhaL Lhls ls an exLremely hlgh proflL margln for Lhe farmer and
reallze LhaL Lhere ls a slgnlflcanL opporLunlLy for proflLs wlLh Lhls producL.
! Pow much of Lhls beneflL can we capLure ln our prlclng?
! lnLervlewee should provlde a percenLage beLween 23 and 30. AnyLhlng hlgher
Lhan 30 should be quesLloned due Lo Lhe novelLy of Lhe producL and resulLlng lack of
soclal proof.
A 30 proflL margln for our cllenL would also reallze a 30 proflL margln for farmers. 1hls ls
absoluLely a reallsLlc prlce Lo seL, lf noL a llLLle low.
! Clven Lhe cosLs provlded, wlll we make a proflL? es
! lnLervlewee should calculaLe proflL: ($100,000 / 200 acres = $300/acre). Assumlng
$1,000 prlce per acre, gross margln wlll be S0. [($1,000 - $300) / $1,000]
key e|ements to ana|yze (cont.)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
33
So|ut|on & kecommendat|ons
Cverall, our cllenL should commerclallze Lhls chemlcal and prlce lL aL approxlmaLely $1,000 per acre Lo make a 30
margln.
Ask Lhe lnLervlewee lf Lhere are oLher non-flnanclal rlsks/beneflLs LhaL our cllenL should conslder.
A poLenLlal answer would noLe LhaL Lhe cllenL should conslder several quallLaLlve lssues:
ulfferenLlaLlon: WhaL ls our poslLlonlng?
LnvlronmenLal lssues: ls Lhere a rlsk of backlash and/or boycoLL from Lhe general publlc? Could Lhe u.S.
governmenL aLLempL Lo regulaLe our producL?
CperaLlonal reallLy check: uoes Lhe company have Lhe resources Lo do Lhls?
aLenLlng: ls Lhe producL already paLenLed? lf yes, Lhen when does lL explre? lf no, Lhen ls lL posslble Lo paLenL?
lf noL, Lhen can we paLenL Lhe manufacLurlng process?
8epresenLaLlveness of LesL markeL: uoes lL cosL less Lo cover apples ln oLher sLaLes?
SLraLeglc flL: ls Lhls opporLunlLy Loo small relaLlve Lo Lhe slze of Lhe cllenL?
8onus]Gu|de to an Lxce||ent Case
LxcellenL lnLervlewees need Lo address value-based pricing: the need to quantify added profits that our clients
producL wlll make for lts cllenLs and how much of LhaL money our cllenL can capLure.
AddlLlonally, a sLrong lnLervlewee wlll share several quallLaLlve lssues llsLed above Lo supplemenL Lhe recommendaLlon
Lo enLer Lhe markeL.
So|ut|on and recommendat|ons
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Case 4: Crr|ngton Cff|ce Supp||es (CCS)
34
Case tracker I|t uest|ons
Industry:
Consumer roducLs
Leve| of D|ff|cu|ty:
Medlum/Pard
Case format:
lmprovlng proflLablllLy
Concepts be|ng tested:
! CapaclLy expanslon
/conLracLlon
Case uest|on
Cur cllenL, CCS ls a leadlng manufacLurer of offlce producLs ln 1992, wlLh sales of $273M ln 1991. 1hey have sLrong
brands, lnvesL heavlly ln markeLlng / adverLlslng, and have grown Lhrough prod. llne exLenslons and four key acqulslLlons
CCS ls organlzed lnLo 3 auLonomous dlvlslons, buL shares manufacLurlng and markeLlng funcLlons. Shared cosLs (43 of
LoLal) are allocaLed on a of sales meLhod. 1here are Lhree planLs runnlng aL a currenL capaclLy uLlllzaLlon ls 30
AnalysLs predlcL CCS ls a poLenLlal acqulslLlon LargeL glven lLs sLrong balance sheeL buL weakenlng earnlngs. 1hey are
publlcly Lraded and have llLLle long-Lerm debL. As a poLenLlal lnvesLor, how would you lmprove lLs proflLablllLy.
Spend f|rst 1S m|n on f|t
name a Llme when you
have caved under
pressure. Pow dld you
recover?
uescrlbe a Llme you
have dlsagreed wlLh your
supervlsor.
Pow do you keep
abreasL of currenL
evenLs?
Gu|de to |nterv|ewer
1hls case comblnes publlc maLh wlLh key quallLaLlve
insights. At its core, this is a case about rapidly declining
proflLablllLy and flndlng ways (l.e. planL consolldaLlon) as
a way Lo lmprove lLs fuLure performance.
1he lnLervlewee should recognlze LhaL Lhls ls a
performance lmprovemenL case and wlll look for ways Lo
lmprove proflLablllLy. 1hey wlll have Lo use Lhe
lnformaLlon provlded up fronL Lo deLermlne LhaL capaclLy
conLracLlon ls Lhe prlme means Lo lmprove proflLablllLy.
8ecause Lhere are many poLenLlal avenues Lo explore,
Lhe lnLervlewer may need Lo nudge along Lhe
lnLervlewee.
12+$'"3
6
4'02*'20)
7
90-:#' >7K3
/+K3 CJK3
By: Andy Grieve (Kellogg Class of 01), Edited By: Peter Manoogian (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
33
Gu|de to case ] Gu|de to handouts
A sample case sLrucLure would lnclude Lhe followlng:
1) Examination of OOSs recent performance to deep-dlve
decllnlng proflLs.
2) ulscusslon of poLenLlal for poLenLlal for planL consolldaLlon.
3) A proflLablllLy analysls of planL consolldaLlon.
Lxh|b|t 1 Pand ouL afLer lnLervlewee asks abouL proflLablllLy
Lxh|b|t 2 Pand ouL afLer lnLervlewee concludes LhaL planL
consolidation is a worthy area for a deep-dive. This should be
evldenL from Lhe case lnLroducLlon, buL provlde hlnLs lf
necessary.
Lxh|b|t 3 lollowlng Lhe dlscusslon of planL closures, Lhe
lnLervlewee should ask abouL Lhe cosL sLrucLures abouL Lhe
varlous planLs.
! lf lnLervlewee asks abouL revenues, genLly suggesL Lo calculaLe
on a per Sku basls (e.q., toLal sales / LoLal Skus = $22k / Sku).
C|ar|fy|ng answers to prov|de
lndusLry Lrends
! u.S. Cfflce supplles markeL grew aL 3
CAC8 hlsLorlcally. ln 1990 and 1991, Lhe
markeL decllned aL 3/yr.
! SupersLore channel ls becomlng
lncreaslngly crlLlcal
! Calned 10 share pLs ln pasL 2 yrs
! 1yplcally dlscounL producLs 30
Lo small reLallers/dealers
! SupersLores are aggresslvely
subsLlLuLlng prlvaLe label producLs for
LradlLlonal brand names
CllenL CharacLerlsLlcs
! 8roader producL llne Lhan compeLlLors
(12.3k Skus vs. 4-3k for compeLlLors)
! ulsLrlbuLlon: 73 wholesalers, 13
supersLores, 10 end cusLomers
! MosL proflLable producL ls a hlgh-end
branded sLapler
! Staples, Inc. is OOSs largest customer
C|ar|fy|ng answers and case gu|de
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
36
rof|tab|||ty
uslng LxhlblL 1, have a dlscusslon
abouL why Lhe slopes for sales and
proflLs dlffer as Llme elapses
Capac|ty ut|||zat|on
uslng LxhlblL 2, quallLaLlvely
dlscuss Lhe poLenLlal opLlons for
planL consolldaLlon.
Notes to |nterv|ewer
LxhlblL 1 - lnLervlewee should noL
only be able Lo lnLerpreL Lhe daLa on
Lhls sllde, buL also come up wlLh Lwo
lnslghLs:
1) Lhe facL proflLs have been decllnlng
more sLeeply Lhan sales reflecLs Lhe
flxed-cosL naLure of Lhls buslness, and
2) Lhe reason LhaL sales dld noL grow
aL a fasLer cllp Lhan proflLablllLy durlng
Lhe 1980s llkely reflecLs a sLraLegy Lo
grow Lhrough acqulslLlons, whlch
prevenLed CCS from seelng Lhe galns
Lhrough economles of scale LhaL one
would normally expecL ln a buslness
such as Lhls
Notes to |nterv|ewer
lnLervlewee should recognlze Lhe
Chlhuahua planL ls close Lo havlng
capacity to produce OOSs 12.5K
Skus. LlLher CCS can close LhaL
planL and move all producLlon Lo
Lhe uS, or lL could close Lhe uS
planLs, dlsconLlnue 300 Skus and
move producLlon Lo Chlhuahua.
lnslghLful lnLervlewees wlll noLe
LhaL Chlhuahua ls Lhe mosL feaslble
sLraLegy, buL wlll ask Lo see flxed
and varlable cosL daLa, lf so, Lhen
produce LxhlblL 3.
|ant c|osures
uslng LxhlblL 3, crunch Lhe
numbers on Lhe proflLablllLy of a
posslble planL closure?
Notes to |nterv|ewer
1hey should have ldenLlfled LhaL
Lhe Chlhuahua planL ls Lhe mosL
feaslble, buL Lhere are some key
conslderaLlons.
key quest|ons to ask:
Pow would Lhls change revenues?
(currenLly $273M / year)
Pow would Lhls change producLlon
cosLs? WhaL are Lhey now?
Pow would Lhls change pre-Lax
proflLs (currenLly $23M /year?)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
37
Math quest|ons
1. Pow would consolldaLlng Lo Chlhuahua change revenues? (currenLly $273M / year)
2. Pow would Lhls change producLlon cosLs? WhaL are Lhey now?
3. Pow would Lhls change pre-Lax proflLs? (currenLly $23M /year)
Ca|cu|at|ons
1. 8evenues: Lach Sku earns annual revenues of $22k ($273M dlvlded by 12,300 Skus)
Lherefore, ellmlnaLlng 300 Skus wlll decrease annual revenue by $11M, or 4
2. rod. cosLs: Lach planL currenLly has Lhe followlng annual cosLs, LoLallng Lo $136M
Chlhuahua: $20M + ($4k * 4.3k Skus) = $20M + $18M = $38.0M
Mlchlgan: $13M + ($7.9k * 3k Skus) = $13M + $39.3M = $34.3M
new !ersey: $18M + ($8.3k * 3k Skus) = $18M + $23.3M = $43.3M
ConsolldaLlng revenues Lo Chlhuahua wlll reduce annual cosLs by 30 Lo:
Chlhuahua: $20M + ($4k * 12k Skus) = $20M + $48M = $68.0M
3. roflLs: We have reduced cosLs by $68M and lowered revenues by $11M, Lhus lncreaslng
proflLs by $37M, Lo a LoLal of $82M, whlch more Lhan Lrlples Lhem.
Ca|cu|at|ons
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
38
So|ut|on & kecommendat|ons
Cverall, our cllenL should ellmlnaLe 300 Skus and consolldaLe all producLlon Lo Lhe Chlhuahua planL Lo ralse annual
proflLs from $23M Lo $82M.
1he cllenL should also conslder several quallLaLlve lssues:
lmplemenLaLlon 1lmeframe: Wlll noL be done Lomorrow.
8elaLlonshlps wlLh unlon: lf organlzed labor ls parL of our producLlon employee pool ln Lhe Lwo planLs LhaL we
are golng Lo close, we wlll need Lo address LhaL slLuaLlon.
Changes ln ulsLrlbuLlon and Warehouslng: We wlll need a carefully-developed LranslLlon plan.
urchaslng: We wlll need Lo LranslLlon Lo a sLrong cenLral purchaslng deparLmenL, raLher Lhan smaller local
ones.
CulLure: CommunlcaLlng Lhe change properly ls key, and we wlll need Lo ensure LhaL morale does noL Lake
a nosedlve .
8onus]Gu|de to an Lxce||ent Case
LxcellenL lnLervlewees need Lo recognlze whaL macroeconomlc lssues are beyond Lhe scope of Lhe
clients control and then quickly dive into the plant consolidation, then analyze the cost structures
AddlLlonally, common sense and baslc famlllarlLy wlLh manufacLurlng operaLlons should gulde Lhe
successful lnLervlewee Lo some or all of Lhe quallLaLlve lssues provlded
So|ut|on and recommendat|ons
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 1: CCS Sa|es ] prof|t trend
39
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 2: Cverv|ew of CCS product|on p|ants
40
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 3: |ant operat|ng costs
41
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
42
Case tracker I|t uest|ons
Industry:
1ech & 1elecom
Leve| of D|ff|cu|ty:
Pard
Case format:
lmprovlng proflLablllLy
Concepts be|ng tested:
! CompeLlLlve
analysls
! CperaLlons
Case uest|on
Syzygy SupercompuLers ls a large lnLernaLlonal fully-lnLegraLed compuLers and communlcaLlons company wlLh annual
revenues of approxlmaLely $20 bllllon u.S.. ln Lhe pasL several years, Lhe company has seen a sLeady decllne ln proflLs.
1he CLC has asked us Lo look lnLo Lhls problem. Pow can Syzygy SupercompuLers geL back on Lrack?
Spend f|rst 1S m|n on f|t
WhaL ls Lhe slngle mosL
lmporLanL deLall ln your
resume?
WhaL ls Lhe leasL
lmporLanL deLall ln your
resume?
Why ls Lhe llfesLyle of
Lhls [ob rlghL for you?
Gu|de to |nterv|ewer
1hls case ls abouL a Lech company undergolng a decllne
ln proflLablllLy, desplLe a sLrong compeLlLlve poslLlon.
Syzygy has been overlnvesLlng ln 8&u relaLlve Lo lLs
reLurns and performance has suffered as a resulL.
1he lnLervlewee ls expecLed Lo go Lhrough Lhese general
sLeps whlle presenLlng a soluLlon:
1. Conflrm proflLablllLy lssues and ask Lo see
hlsLorlcal revenue and cosL lnformaLlon.
2. Ask Lo see markeL poslLlon and relaLed daLa.
3. 8eallze LhaL Lhls case ls golng Lo be declded
based on lnformaLlon regardlng Lhe producLs.
4. ldenLlfy Lhe maln lssue affecLlng proflLablllLy
the companys R&D spending
Case S: Syzygy Supercomputers
12+$'"3
3
4'02*'20)
7
90-:#' >7K3
/-7K3 N$;
AK"3
8y: Ldw|n Van Dusen, 8r|an Iox and Dav|d We|ch (Kellogg Class of 04), Edited By: Uri Kalir (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to Case
A sample case sLrucLure would lnclude Lhe followlng:
1) LxamlnaLlon of hlsLorlcal performance Lo deep-dlve decllnlng proflLs.
2) ulscusslon of markeL dynamlcs and compeLlLlve poslLlonlng.
3) ueep-dlve lnLo drlvers and proflLablllLy , ulLlmaLely leadlng Lo a dlscusslon of
SC&A
Necessary Informat|on that shou|d be g|ven on|y when spec|f|ca||y asked for by
|nterv|ewee:
PlsLorlcal cosLs, revenues and proflLs exhlblL 1
noLe LhaL Lhe lnLervlewee should be asklng for hlsLorlcal Lrends ln Lhe
companys profitability. If they are asking only for current profitability,
lnLervlewer should polnL Lhem ln Lhe dlrecLlon of hlsLorlcal Lrends
MarkeL daLa exhlblL 2 followed by exhlblL 3
lnLervlewer should glve Lhe lnLervlewee a few seconds Lo undersLand
sllde 2 and Lhen handouL sllde 3. lnLervlewer should ask lnLervlewee
whlch producL ln sllde 3 ls whlch (on sllde 2).
8&u spendlng daLa exhlblL 4 and exhlblL 3
1he candldaLe wlll naLurally ask abouL poLenLlal drlvers of proflLablllLy
(S&CA expense, CCCS, eLc.).
1hese exhlblLs should only be glven once Lhe candldaLe has ldenLlfled
R&D as a driver of Syzygys proflLablllLy.
C|ar|fy|ng answers to prov|de |f
Asked
Genera| Informat|on on Syzygy
! Cnly Lhe lnformaLlon LhaL has already
been glven. CLher lnformaLlon currenLly
unavallable.
Compet|t|ve Dynam|cs
! 1here are several players ln Lhe markeL,
buL everyLhlng has remalned sLable
from a compeLlLlve sLandpolnL.
rof|tab|||ty dr|vers
! CCCS, SC&A, and oLher proflLablllLy
facLors are on-par with Syzygys
compeLlLors (excepL for 8&u, abouL
whlch Lhe candldaLe should ask
speclflcally).
43
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
Interpret|ng Lxh|b|t 3 Notes on Lxh|b|ts 2 & 3 Notes on Lxh|b|ts 4 & S
1he x axls represenLs absoluLe markeL
share (AMS), whlch correlaLes wlLh
the height of Syzygys rectangles in
exhlblL 2.
1he ? axls represenLs relaLlve markeL
share (RMS), calculated as Syzygys
markeL share dlvlded by Lhe markeL
share of Lhe closesL compeLlLor. lf
Syzygy ls Lhe markeL leader, Lhls
number ls greaLer Lhan 1. lf Syzygy ls
noL Lhe markeL leader, lLs markeL
share divided by the market leaders
share wlll be lower Lhan 1. 1hls
correlaLes wlLh Lhe Lhe raLlo of Lhe
height of Syzygys rectangles to that of
competitors rectangles for each
producL ln exhlblL 2.
1he dlameLer of Lhe bubbles ls drlven
by Syzygys total revenues in that
caLegory, comprlsed of lLs markeL
share ln Lhe caLegory mulLlplled by Lhe
categorys size.
CorrecLly lnLerpreLlng slldes 2 and 3
wlll lead Lhe candldaLe Lo correcLly
ldenLlfy Lhe producLs on sllde 3:
roducL #1 ls cusLom
appllcaLlons
roducL #2 ls supercompuLers
roducL #3 ls Lelecom
equlpmenL
roducL #4 ls saLelllLes
roducL #3 ls operaLlng
sofLware
1he key lnslghL ln exhlblL 4 ls LhaL
Syzygy ls Lhe only ma[or compeLlLor ln
Lhls lndusLry whose 8&u spendlng ls
below the normative band
We would expect each companys
degree of Lechnlcal leadershlp Lo go
up as lL lnvesLs ln 8&u, buL Syzygy,
wlLh sllghLly more 8&u spendlng Lhan
Cray 8esearch and Sonlc Wave, en[oys
less of a percepLlon of Lechnlcal
leadershlp from lLs cusLomers
LxhlblL 3 bullds on Lhls polnL. 1he key
lnslghL ls Lhe absoluLe expense (noL
percenLage) Syzygy ls spendlng on
8&u. CorrecL analysls wlll show LhaL
Syzygy ls spendlng money on feaLures
that do not generate customers
willingness to pay. Syzygy is
spendlng money Lo develop feaLures
LhaL consumers are noL wllllng Lo pay
for.
44
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
1he candldaLe should be able Lo produce one of Lhe followlng lnslghLs:
CuL 8&u Lo ellmlnaLe spendlng on unnecessary cusLomer feaLures.
keep 8&u spendlng Lhe same, buL swlLch Lhe work Lo developlng feaLures LhaL consumers wlll be wllllng Lo
pay for aL a level LhaL ls hlgher Lhan Lhe 8&u expense lLself.
A second-order lnslghL from Lhe case ls LhaL Syzygy should exlL Lhe operaLlng sofLware buslness (producL #3 ln Lhls
case) since its small market share will conLlnue Lo erode as a resulL of economles of scale, neLwork economlcs and
Lhe experlence curve all worklng agalnsL lL.
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll
1ake a few seconds Lo fully undersLand each of Lhe complex graphs he/she ls glven before glvlng an answer.
lmmedlaLely ask abouL 8&u spendlng and noL go Lhrough CCCS or SC&A flrsL (Lhls ls a hl-Lech company, so
8&u spendlng should be looked-aL before oLher drlvers of proflLablllLy).
Conclude Lhelr recommendaLlon by noL only sLaLlng LhaL Syzygy should exlL Lhe operaLlng sofLware buslness,
buL also focus on Lhe caLegorles ln whlch lL ls Lhe markeL leader ln order Lo geL some or all of Lhose
economles Lo work for lL and agalnsL lLs compeLlLlon.
43
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Exhibit 1: Syzygys Historical Costs, Revenues and Profits
46
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 2: Wor|dw|de 1e|ecom Comput|ng Market (1oday)
47
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Exhibit #3: Syzygys Absolute vs. Relative Market Share
48
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Exhibit #4: Companies R&D vs. Degree of Technical Leadership
49
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Exhibit #5: Syzygys R&D Expenses and Selling Prices for
Supercomputers
30
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
31
Case tracker I|t uest|ons
Industry:
Medla & LnLerLalnmenL
Leve| of D|ff|cu|ty:
Medlum
Case format:
CpporLunlLy AssessmenL
Concepts be|ng tested:
! 8aslc nv
! 8reakeven analysls
Case uest|on
Cur cllenL ls a ma[or uS Lelevlslon neLwork LhaL ls Lrylng Lo flgure ouL how much Lo bld for Lhe 2018
WlnLer Clymplcs and has broughL you lnLo Lo help us flgure ouL Lhe rlghL bld. 1he WlnLer Clymplcs are a
huge deal and wlll requlre a slgnlflcanL amounL of caplLal Lo secure Lhe rlghLs. 8efore our neLwork blds
on the Winter Olympics, we want to make sure that weve considered all the right things.
Spend f|rst 1S m|n on f|t
Pow would you descrlbe
your problem solvlng
skllls?
uo you conslder yourself
a more vlslonary or
more pragmaLlc
thinker.and why?
WhaL dld you llke leasL
abouL your lasL [ob?
Gu|de to |nterv|ewer
1hls ls a very quanLlLaLlve case LhaL requlres Lhe
lnLervlewee Lo run Lhe numbers on an Clymplcs bld. 1he
candldaLe wlll have Lo declde poLenLlal ad revenue/cosL
lnformaLlon, as well as Lhe nv, Lo deLermlne bld slze.
1he candldaLe wlll need Lo ask for addlLlonal lnformaLlon
LhaL ls necessary Lo solve Lhe problem, raLher Lhan
relylng on Lhe lnLervlewer Lo dlspense lL. AfLer geLLlng Lhe
lnlLlal calculaLlons rlghL, Lhere are a loL of lmpllcaLlons
LhaL may change Lhe level of Lhe bld.
Lspeclally for less flnance-mlnded lnLervlewees, you may
have Lo help nudge candldaLes Lhrough Lhe maLh.
Case 6: W|nter C|ymp|cs 8|dd|ng
12+$'"3
8
4'02*'20)
4
O+"#* @9E
OPC
8y: Chr|s Dupre (Kellogg Class of 03), Edited By: Uri Kalir (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Gu|de to case
arL 1 CuanLlLaLlve dlscusslon
! Some of Lhe numbers are assumpLlons here are dlfflculL, so nudge
Lhe candldaLe along lf necessary.
! llrsL of all, Lhe candldaLe should flnd Lhe revenues from hosLlng
Lhe Clymplcs.
! 1hen, Lhe candldaLe wlll have Lo flgure ouL lf Lhls ls a good
lnvesLmenL. 1hey should ldenLlfy 3 cosLs (producLlon cosLs,
opporLunlLy cosLs, and Llme value of money). 8y facLorlng ln Lhese
cosLs, Lhe candldaLe wlll flnd ouL lf Lhe Clymplcs are worLh Lhe
lnvesLmenL.
arL 2 CuallLaLlve dlscusslon
! AfLer flndlng Lhe nv of $177M, ask Lhe candldaLe abouL
lnLanglble facLors, beneflLs, and rlsks. Some crlLlcal facLors:
! MlghL glve neLwork access Lo new vlewers
! 1here ls presLlge assoclaLed wlLh hosLlng Lhls evenL
! We can Lhe alr Llme Lo promoLe oLher programmlng
! CpporLunlLles for producL Lle-lns, supplemenLal revenue
! AfLer flnlshlng Lhe dlscusslon, ask Lhe candldaLe for a
recommendaLlon.
C|ar|fy|ng answers to prov|de
WlnLer Clymplcs schedule (16 days)
! uay 1 lrlday - Cpenlng ceremonles 3
hours of programmlng from 8-11 M
! uay 2-13 Cames 10 hours/day
! Weekday (9 12, 2 3, 7-11)
! Weekend (11 AM 9 M)
! uay 16 SaLurday - Closlng 3 hours of
programmlng from 8-11 M
8evenues
! no subscrlpLlon revenue, buL can keep
100 of adverLlslng revenue
! Ad raLes are $400k/30 second ad for
prlme Llme (M-l 7-11 M, all weekend)
and $200k/ad for non-prlme Llme
! MarkeL research has shown LhaL you
can lnclude no more Lhan 10 mlnuLes of
adverLlslng per hour.
CosLs
! $428,000,000 of LoLal cosLs
! CpporLunlLy cosL: $1M/hour
! 1lme value of money: 6 year lag for
recelpL of revenue
32
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Math quest|ons
Math so|ut|on
1) 1oLal revenues should be equal Lo $928M for Lhe pro[ecL.
rlmeLlme: Weekdays (M-l): 10 weekdays x 4 hrs/day x 10 mln/hr x 2 sloLs/mln
x $400,000/ad = $320M
non-prlme: Weekdays (M-l): 10 weekdays x 6 hrs/day x 10 mln/hr x 2 sloLs/mln
x $200k/ad = $240M
Weekend: 4 days x 10 hrs/day x 10 mln/hr x 2 sloLs/mln x 400k/ad = $320M
Cpenlng/Closlng: 2 days x 3 hrs/day x 10 mln/hr x 2 sloLs/mln x 400k/ad=$48M
2) Using the Rule of 72, we know that 72/rate of return means the number of years
Lo double our money. WlLh a slx year lag and a 12 WACC, we know LhaL all fuLure
cash flows musL be halved.
8evenues $928M - $428M of LoLal cosLs - $146M of opporLunlLy cosL (2 days x 3
hours x $1M/hr + 14 days x 10 hours x $1M/hr) = $346M
$346/2 = $177M ln presenL value (nv)
Math quest|on
1) CalculaLe Lhe revenue from broadcasLlng Lhe WlnLer Clymplcs.
2) lacLorlng ln cosLs, ls Lhls a good lnvesLmenL? llnd Lhe nv.
Math |nformat|on
8evenues
! $400k/ad for prlme
Llme (M-l 7-11 M,
all weekend) and
$200k/ad for non-
prlme Llme
! 10 mlnuLes/hour of
adverLlsemenLs
CosLs
! $428,000,000 of
LoLal cosLs
! CpporLunlLy:
$1M/hr
! WACC: 12
33
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
Whlle Lhe nv of Lhe pro[ecL ls $177M, Lhe facL LhaL Lhere are oLher lnLanglbles (new vlewers,
plugglng our programs, and presLlge) Lhe bld should [usL be $177M. Whlle Lhere ls no one correcL
answer, mosL answers should be ln Lhe range of $200M. lf Lhere ls slgnlflcanL flucLuaLlon from
$200M, Lhe candldaLe wlll have Lo provlde ln-depLh [usLlflcaLlons and make a concreLe argumenL.
8onus]Gu|de to an Lxce||ent Case
This case tests the interviewees comfort with numbers and understanding of how intangible
facLors may lnfluence flnanclal value. 1he bld process requlres anoLher level of undersLandlng
around game Lheory and whaL dynamlcs wlll ulLlmaLely deLermlne Lhe value of Lhe bld beyond nv.
ulLlmaLely, Lhe besL lnLervlewees wlll make a very sLrong argumenL uslng Lhe facLs provlded and
supporL Lhelr bld and explaln why Lhey moved Lhelr bld from Lhe nv flgure.
1here ls also a loL of room for creaLlvlLy for Lhe lnLervlewee Lo dlscuss oLher facLors, lncludlng
supplemenLal sLreams of revenue, lnLanglble facLors, and Lhlngs Lo conslder durlng Lhe bld process.
34
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
33
Case tracker I|t uest|ons
Industry:
Consumer Coods
Leve| of D|ff|cu|ty:
Medlum
Case format:
ueveloplng a new
producL
Concepts be|ng tested:
! Mlcroeconomlcs
! LlasLlclLy
! CusLomer sLraLegy
Case uest|on
Cur cllenL ls 8oLlsserle 8anch, a poulLry farmlng company LhaL speclallzes ln growlng chlckens for roLlsserle roasLlng. lLs
maln llne cusLomer segmenL ls comprlsed of large grocery chalns, who buy lLs chlckens Lo fresh roasL ln Lhe meaL
deparLmenLs of Lhelr grocery sLores. MarkeL research has revealed Lo 8oLlsserle 8anch LhaL more and more consumers
have begun buylng flavored roLlsserle chlckens recenLly.
8oLlsserle 8anch ls Lhlnklng of pre-flavorlng some of lLs chlckens for grocers. Should 8oLlsserle 8anch begln selllng Lhls
new producL?
Spend f|rst 1S m|n on f|t
WhaL are your Lop 9
weaknesses? (SLress 1esL
lf lnLervlewee geLs 9,
ask for 9 more unLll Lhey
cannoL answer)
Ck, whaL are 9 of your
sLrengLhs?
lmply LhaL lnLervlewee
answered Lhe sLrengLhs
much fasLer Lhan Lhe
weaknesses and ask,
why?
Gu|de to |nterv|ewer
1hls case ls slmllar ln sLyle Lo a Mcklnsey & Company 1
sL
round case ln LhaL Lhe lotetvlewet should drlve Lhe case.
1he case ls prlmarlly LesLs Lhe ldeas behlnd a new
producL lnLroducLlon and forces Lhe lnLervlewee Lo
conslder markeL LesLlng, proflLablllLy, eLc. before rolllng
ouL a new producL.
Because this is a Market Introduction case, the
lnLervlewee SPCuLu ask quesLlons abouL competltloo.
lor Lhe purposes of Lhls case, assume LhaL
8oLlsserle 8anch wlll only compeLe agalnsL
exlsLlng rlvaLe Label brands aL grocery sLores.
Case 7: kot|sser|e kanch
12+$'"3
6
4'02*'20)
S
5#*0-
90*3 C;+"3
/2"'3 4'%<
8y: 8r|an Iox (Kellogg Class of 04), Edited By: Adam Louras (Kellogg Class of 11)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to case and handouts
Case Structure Interviewees structure should include:
! voloe to costomets (qtocety cbolos) wlll tbey boy lt?
! keveooe ooJ cost lmpllcotloos of oew veotote
! CosL lncrease Lo cllenL ls offseL by prlce lncrease Lo grocers
! competltloo
! None. Competition freezes chicken so cant be pre-seasoned.
rompt 1 & 2 AfLer lnLervlewee walks Lhrough sLrucLure, ask Lhem:
! uo yoo tblok tbot qtocety tetollets woolJ be lotetesteJ lo pte-seosooeJ
cblckeos ftom kotlssetle koocb?
! no correcL answer, however, should be loglcally defended
! Aftet sevetol lotetvlews, lt totos oot tbot tbe qtocets ote vety lotetesteJ
in Rotisserie Ranchs proposed new product, but first they want to be
sote tbot tbe kotlssetle koocb cblckeos wlll sell well. now woolJ yoo
moke sote?
! 1he correcL answer ls Lo run a LesL markeL.
rompt 3 AfLer dlscusslng rompL 2, dlscuss Lhe resulLs of Lhe markeL LesL:
! Assumes LhaL Lhe demand funcLlon for 8oLlsserle 8anch chlckens ls
llnear.
! SLore 1 ls comparable Lo LesL sLore A and sLore 2 Lo LesL sLore 8
C|ar|fy|ng answers to prov|de |f
Asked
Industry Character|st|cs]Market
Lconom|cs
! letlsboblllty: redlcLlng demand for
cooked chlckens ls dlfflculL for grocers,
any lefLover cooked chlckens aL Lhe end
of Lhe day are Lhrown ouL, unLhawed
chlckens cannoL be re-frozen
C||ent Character|st|cs
! competltlve AJvootoqe: CllenL has
paLenLed process for sLerllely packaglng
chlcken, so LhaL lL wlll remaln fresh for
30 days, maklng freezlng unnecessary
! CllenL ls currenLly Lhe lndusLry motket
sbote leoJet ln roLlsserle-ready chlcken
! Four New Flavored Products to be
lnLroduced concurrenLly: 8arbecue,
lemon herb, Landorl and Lerlyakl
Compet|t|ve Dynam|cs
! no compeLlLlon ln new producL markeL
due Lo paLenLed process
36
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
Va|ue to Grocers
uo yoo tblok tbot qtocety tetollets
woolJ be lotetesteJ lo pte-seosooeJ
cblckeos ftom kotlssetle koocb?
Market 1est|ng
AfLer several lnLervlews, grocers are
interested in Rotisserie Ranchs
proposed new producL, buL flrsL Lhey
wanL Lo be sure LhaL Lhe chlckens wlll
sell well. now woolJ yoo moke sote?
Demand L|ast|c|ty
A LesL markeL launch for Lhe new
8oLlsserle 8anch 88C chlcken was
admlnlsLered (Pand ouL LxhlblL 1).
5boolJ tbe qtocets cotty oot ptoJoct?
rompt 1 Samp|e Answers
Sample YES response:
lobot cost keJoctloo: MeaL
department workers; dont need to
spend Llme seasonlng Lhe chlckens.
cooomles of 5cole: Seasonlng
cenLrallzaLlon, lower cosL.
ltoJoct cooslsteocy. CenLrally
managed, able Lo spend more on 8&u.
Sample No response:
loss of ulffeteotlotloo: Crocery chalns
dlfferenLlaLe by value-added .
Attooe to locol NeeJs: Llkely Lo be
beLLer aL gauglng consumer LasLes.
locteoses loveototy & 5kus.
rompt 2 Answer
1he correcL answer ls Lo run a LesL markeL
for Lhe new producLs.
1he candldaLe may begln golng lnLo
deLall on how Lhls LesL would be run.
CuL hlm or her off as soon as you are
comforLable LhaL Lhey undersLand
LhaL:
A pllot test sboolJ be too.
1be pllot oeeJs to bove some
coottol ot compotlsoo qtoop.
Notes on Lxh|b|t 1 & 2
uslng LxhlblL 1, lnLervlewee should calculaLe:
8eLall Margln ($):
SLore A: 23 x $4 = $1 er unlL
SLore 8: 23 x $3 = $0.73 er unlL
Cross roflL:
SLore A: $1 er unlL x 400 = $400
SLore 8: $0.73 er unlL x 1000 = $730
CannoL answer wlLh LxhlblL 1 alone, so Lhey
should ask for Control Group information:
Pand ouL LxhlblL 2 when Lhls ls asked
lnLervlewee should calculaLe (nC1L: Answer ls
Lhe same for boLh chlcken Lypes):
varlable Margln ($) 8oLlsserle:
SLore 1: 30 x $3.33 - $0.20 = $1 /unlL
SLore 2: 30 x $2.30 - $0.13 = $0.73 /unlL
Cross roflL 8oLlsserle:
SLore 1: $1 er unlL x 300 = $300
SLore 2: $0.73 er unlL x 800 = $600
37
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
Cverall, our cllenL should launch Lhe re-Seasoned 88C Chlcken producL and LesL oLher producLs because:
competltlve Necesslty: Consumers are spendlng more money on seasoned roLlsserle chlcken Lhan LradlLlonal roLlsserle
chlcken and Lhe markeL ls shlfLlng ln Lhls dlrecLlon
8eoeflt to Ctocets: Assumlng LesL markeL was represenLaLlve, Crocers can expecL Lo earn $100 Lo $130 more gross
profit using our clients product relative to their own Private Label
CannlballzaLlon ls noL an lssue because Lhe varlable marglns and gross proflLs are Lhe same on sLandard and
seasoned roLlsserle chlcken, l.e. shlfLlng from elLher of Lhese producLs Lo our cllenLs ls a neL beneflL
8eoeflt to clleot. Assumlng LhaL Lhe lncreased prlce Lo Lhe Crocers offseLs Lhe lncreased cosL of producLlon, our cllenL
wlll make more money due Lo lncreased sales of Lhe new chlcken
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll noLe:
1he beneflL Lo Lhe Crocers based on a llnear lnLerpreLaLlon of uemand, l.e. AL a $3.30 prlce polnL, sales are expecLed
Lo be 700 unlLs. 1hls glve a varlable margln of $0.873 /unlL and LoLal operaLlng proflL of $612.30
1he beneflL Lo Lhe Crocers as percenLages, l.e. SLore 1 would galn 33.3 and sLore 2 would galn 23 Lo Lhelr operaLlng
profit by shifting to our clients product.
oLenLlal scale beneflLs Lo our CllenL over Llme as more pre-seasoned chlckens are sold
Potential labor reductions by grocers as the workload is Outsourced down the value chain to our client
38
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #1: Market 1est of re-Seasoned 88 Ch|cken
$0.00
$0.30
$1.00
$1.30
$2.00
$2.30
$3.00
$3.30
$4.00
$4.30
400 1000
kot|sser|e kanch Market 1est of re-Seasoned 88 Ch|cken

A 8 Store:
2S 2S
keta||er
Marg|n:
39
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #2: Contro| Group Stores
60
Store 1 Store 2 Store 1 Store 2
Ch|cken 1ype 5tooJotJ 5tooJotJ Ch|cken 1ype 5tote 5eosooeJ 5tote 5eosooeJ
Week|y Sa|es $1,000 $2,000 Week|y Sa|es $1,200 $2,400
keta|| r|ce $3.33 $2.30 keta|| r|ce $3.99 $2.99
Season|ng Cost $0.00 $0.00 Season|ng Cost $0.20 $0.13
keta||er Marg|n 30 30 keta||er Marg|n ? ?
Standard kot|sser|e Seasoned kot|sser|e
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
61
Case tracker I|t uest|ons
Industry:
lndusLrlal goods
Leve| of D|ff|cu|ty:
Medlum
Case format:
lmprovlng proflLablllLy
Concepts be|ng tested:
! CperaLlons
! AccounLlng
Case uest|on
Cur cllenL, 1arranL llxLures, ls a low-lnLenslLy manufacLurlng company LhaL produces dlsplay flxLures for reLall cllenLs. 1he
companys financial performance has deteriorated in each of the last three years. Specifically, they are concerned with
the companys falling Return on Investment (ROI).
1he CLC has asked us Lo look lnLo Lhls problem. Pow can 1arranL llxLures geL back on Lrack?
Spend f|rst 1S m|n on f|t
WhaL do you see as Lhe
mosL challenglng aspecL
of Lhls [ob?
1ell me abouL your
wrlLLen communlcaLlon
skllls.
WhaL are a couple of Lhe
besL and worsL declslons
you have made ln Lhe
pasL year?
Gu|de to |nterv|ewer
1hls case ls abouL lmprovlng proflLablllLy and requlres a
real undersLandlng of flnance Lo solve. 1here has been a
masslve lncrease ln worklng caplLal due Lo lnvenLory
bulld-up from an lncrease ln Lhe number of Skus.
1hls ls a shorL case, deslgned Lo be solved ln
approxlmaLely 13-20 mlnuLes. 1here are no slldes.
1he lmporLanL sLeps are:
LsLabllshlng a vlable sLrucLure (uslng 8Cl formula)
8reaklng down Lhe problem lnLo componenL parLs
ConLlnulng Lo examlne lssues unLll Lhe correcL
ones are ldenLlfled.
Case 8: 1arrant I|xtures
12+$'"3
8
4'02*'20)
7
AKK"3
N**'3
8y: Dav|d We|ch (Kellogg Class of 04), Edited By: Adam Louras (Kellogg Class of 11)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to Case
A sample case sLrucLure would lnclude Lhe followlng:
1) SLarL wlLh Lhe deflnlLlon of 8Cl and ldenLlfy Lhe poLenLlal areas for problems
2) ldenLlfy dlfferences ln proflLs over Lhe lasL few years
3) ldenLlfy caplLal employed and deep dlve lncrease ln worklng caplLal
Necessary Informat|on that shou|d be g|ven on|y when spec|f|ca||y asked :
roducL 1ypes:
costom Jlsploys (30 of Sales)- roduced only when an order ls placed and Lhe
paymenL ls recelved
5tooJotJ Jlsploys (30 of Sales) - Manufactured to open standard for display
slzes/Lypes and sLored ln lnvenLory (8ullL-Lo-sLock)
3 sLandardlzed producLs accounL for 80 of sales ln sLandardlzed producLs,
number of sLandardlzed producLs lncreased from 3 Lo 12 over lasL 3 years
asL 1hree ?ears of llnanclal erformance:
1otol keveooes: Crew by a 23, from $100M Lo $123M, equally across boLh Lypes
costs of ptoJoctloo (CCCS, labor, SC&A, eLc.): 8emalned sLable as a percenLage of
revenue [80]
cAl\. 1he company has no new lnvesLmenLs ln roperLy, lanL, & LqulpmenL
wotkloq copltol
1oLal Worklng CaplLal Lmployed Lhree years ago = $80M
1oLal Worklng CaplLal Lmployed Loday = $130M
lnvenLory levels have lncreased by 300 (prlmarlly ln flnlshed goods), from
$23 mllllon Lo $73 mllllon
C|ar|fy|ng answers to prov|de |f
Asked
Industry Character|st|cs]Market
Lconom|cs
! 1he markeL has grown aL 23 over Lhe
pasL Lhree years
C||ent Character|st|cs
! CllenL has remalned Lhe lndusLry motket
sbote leoJet ln dlsplays over Lhe pasL
Lhree years and has malnLalned 23
markeL share
Compet|t|ve Dynam|cs
! 1here are several players ln Lhe markeL,
buL everyLhlng has remalned sLable
from a compeLlLlve sLandpolnL
62
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
Def|n|t|on of kCI
1o begln Lhls case correcLly, Lhe lnLervlewee
musL undersLand Lhe componenLs of 8Cl
If the interviewee doesnt know the formula
for 8Cl, Lhe case ls dead, however, you should
gulde Lhe lnLervlewer Lo help Lhem pracLlce
Net rof|ts
1he lnLervlewee wlll llkely begln by dlscusslng
the top line of the ROI equation
neL roflL ls noL Lhe cause of Lhe 8Cl lssue as
shown from Lhe calculaLlon below
Cap|ta| Lmp|oyed
1he lnLervlewee should examlne CaplLal
Lmployed Lo flnd LhaL &L ls consLanL as no
CALx was employed, lnvenLory ls Lhe culprlL
Once identified, follow up with, What can
managemenL do Lo lmprove Lhe lnvenLory
Problem?
Notes to Interv|ewer
1he formula for 8Cl:
Notes to Interv|ewer
neL roflL can be calculaLed based on Lhe
lnformaLlon from Lhe prlor page as follows:
The companys absolute level of profits have
lncreased 23 durlng Lhe lasL Lhree years, so
Lhls ls noL Lhe cause of Lhe 8Cl lssue
Notes on Lxh|b|t 1 & 2
A llne-by-by llne examlnaLlon of a Lyplcal
Worklng CaplLal sLaLemenL wlll lndlcaLe all of
Lhe relevanL caLegorles of caplLal for purposes
of calculaLlng 8Cl.
8ased on Lhe daLa from Lhe prlor page,
followlng concluslon may Lhen be drawn:
1oLal Worklng CaplLal lncreased by $30M
because lnvenLory levels lncreased by
$30M
&L, A8, A, Cash eLc. are all sLable
oLenLlal Causes/flxes for lnvenLory lncrease:
rollferaLlon of sLandardlzed producL llnes
lnaccuraLe demand forecasLs resulLlng ln
excess safeLy sLock
CbsoleLe lnvenLorles of ouL-daLed producL
llnes.
ear 1 ear 3
kevenue 100M 123M
Cost of roduct|on 5 80M 100M
@)' 90-:#' 20M 23M
Cost of roduct|on of
kevenue 80 80
63
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
The clients ROI has fallen over the past three years due to a $50M increase in Working Capital caused by a 300%
lncrease ln lnvenLory. lnvenLory has grown because of:
1he lncrease ln Lhe 1oLal number of sLandardlzed producL Skus from 3 Lo 12
lnaccuraLe demand forecasLs resulLlng ln excess safeLy sLock
CbsoleLe lnvenLorles of ouL-daLed producLs
1o correcL Lhls lssue, Lhe cllenL should work Lo reduce lLs lnvenLory by:
WrlLe-off or work-down obsoleLe lnvenLory (Lhls wlll cause an lmmedlaLe hlL on proflLs, so managemenL may
be relucLanL)
lmprove demand forecasLlng Lo seL more reallsLlc safeLy sLock levels
Reducing the Standard product-llne down Lo Lhe Lop 3 producLs (80 of currenL sales)
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll:
rovlde creaLlve, loglcal reasons for Lhe lnvenLory lncrease
rovlde creaLlve, loglcal soluLlons Lo reduce lnvenLory
ueLall a coheslve demand forecasLlng plan LhaL would lmprove accuracy
Provide a plan to limit future product proliferation in the Standard product lines
64
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
63
Case tracker I|t uest|ons
Industry:
Consumer producLs
Leve| of D|ff|cu|ty:
Medlum
Case format:
ueveloplng a new
producL
Concepts be|ng tested:
! 8aslc nv
! MarkeLlng SLraLegy
! CperaLlons
Case uest|on
Cur cllenL, vlndaloo CorporaLlon, ls a small bloLechnology company LhaL has developed a new seed for
sugar beeLs, whlch produces Lwlce as much sugar as Lhe seeds LhaL are currenLly ln use. 1hey now wanL
Lo sell Lhe company, and wonder how much lL ls worLh.
Spend f|rst 1S m|n on f|t
WhaL do you read?
WhaL ls Lhe mosL
lmporLanL lssue faclng
Lhe lndusLry of your lasL
[ob?
uescrlbe your meLhods
of diagnosing clients
needs.
Gu|de to |nterv|ewer
1hls ls a valuaLlon case and, as such, has a loL of number
crunchlng. 1o calculaLe Lhe nv, Lhe lnLervlewee wlll have
Lo slze lLs lmpacL up and down Lhe value chaln and
deLermlne lLs value uslng assumpLlons abouL markeL
peneLraLlon and growLh raLes.
1here are also several lmporLanL quallLaLlve lnslghLs for
Lhe candldaLe Lo make, Lhe maln one of whlch ls LhaL Lhe
new Lechnology wlll halve Lhe land raLher Lhan doubllng
producLlon, whlch would cause an lmmedlaLe worldwlde
sugar gluL and rapldly falllng prlces.
Case 9: V|nda|oo Corporat|on
12+$'"3
8
4'02*'20)
4
O+"#* @9E
5.'3 4'%<
AKK"3
8y: 8en Wa|ter (Kellogg Class of 03), Edited By: Ameed Mallick (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to Case
A sample case sLrucLure would lnclude Lhe followlng:
1) SLarL wlLh undersLandlng of producL beneflLs and poLenLlal lmpacLs
2) ldenLlfy cosL sLrucLure and places ln value chaln where cosLs would drop
3) Calculate NPV of product to value Vindaloos product
8eeLs grown from Lhe new seeds wlll produce sugar ln a 1:2 raLlo raLher Lhan Lhe
currenL 1:1 raLlo. now 100 beeLs produce 100 pounds of sugar. 100 beeLs grown
from Lhe new seeds wlll now produce 200 pounds of sugar, or 2 lbs/beeL.
1he elasLlclLy of demand for sugar ls 1.
1he value chaln can be broken down lnLo four prlmary processes:
1. larmlng (planLlng, harvesLlng, and selllng beeLs), whlch ls 40 of cosL
2. 1rucklng, whlch ls10 of Lhe cosL
3. 8eflnlng, whlch ls 30 of Lhe cosL
4. ulsLrlbuLlon, whlch ls 20 of Lhe cosL.
larmland LhaL ls noL used for sugar can be repurposed Lo grow cabbage, whlch ls
currenLly one flfLh as proflLable as sugar.
1rucklng cosLs for sugar are 3 flxed and 93 varlable, wlLh Lhe varlable cosLs
dlrecLly relaLed Lo Lhe welghL of whaL ls belng Lrucked.
8eflnlng cosLs are all varlable, and lL wlll cosL 23 more per beeL Lo reflne Lhe
new beeLs Lhan lL cosL Lo reflne Lhe old beeLs.
1here are no cosL savlngs ln dlsLrlbuLlon from Lhe reduced volume.
C|ar|fy|ng answers to prov|de |f
Asked
Industry Character|st|cs]Market
Lconom|cs
! 1he markeL has grown aL Cu over Lhe
lasL few years. lL ls predlcLed Lo grow aL
2 annually.
! Sugar ls a maLure commodlLy. 1he
wholesale markeL ls $2 bllllon
worldwlde per year.
Compet|t|ve Dynam|cs
! We can assume a 100 markeL
peneLraLlon, slnce Lhere are no
compeLlng producLs, and Lhe efflcacy of
Lhe producL ls proven.
! 1here ls no lmmlnenL LhreaL of
compeLlLlon and a paLenL would proLecL
Lhe lnvesLmenL for a number of years
66
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Ca|cu|at|ons
Math so|ut|on
So|ut|on - Iarm|ng
1he producL allows farmers Lo grow Lhe same amounL of sugar on half of Lhe land. So we can
assume LhaL farmers wlll keep half of Lhelr land for sugar and repurpose Lhe resL of Lhe land for
growing cabbage. Previously, one acre of land produced X profits of sugar - now half an acre can
produce profits of X while the other half produces profits of .1X of profits from cabbage. Recall
LhaL cabbage ls a flfLh as proflLable as sugar currenLly - Lhls means LhaL lL wlll be only a LenLh as
profitable as the new sugar. Since profits per acre go from X to 1.1X, there is a 10% increase in
proflLs from farmlng.
Common m|stakes:
CandldaLes who Lhlnk LhaL farmers wlll [usL use Lhe same amounL of land and produce Lwlce as
much sugar have noL LhoughL Lhe quesLlon Lhrough. lf everyone ln Lhe world produced Lwlce as
much sugar as Lhey were produclng before, Lhere would be far more supply Lhan demand.
Math quest|on
WhaL are Lhe cosL savlngs/lncrease ln proflLs from farmlng?
67
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Ca|cu|at|ons (cont.)
Math so|ut|on
So|ut|on - 1ruck|ng
varlable Lrucklng cosLs, whlch represenL 93 of Lhe LoLal cosL sLrucLure, wlll decrease by 30,
leadlng Lo an overall cosLs savlngs of 93 x 30 = 47.3.
So|ut|on - kef|n|ng
8eflnlng cosLs drop by half because only half as many sugar beeLs are belng reflned. Powever, Lhen
there is a 25% increase in costs per beet. So the costs go from X to .5X to .625X, an overall
savlngs of 37.3.
So|ut|on D|str|but|on
1here are no cosL savlngs ln dlsLrlbuLlon.
Math quest|on
WhaL are Lhe cosL savlngs from 1rucklng, 8eflnlng, and ulsLrlbuLlon?
68
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Ca|cu|at|ons (cont.)
Math so|ut|on
Math quest|on
WhaL are Lhe LoLal cosL savlngs ln Lhe value chaln?
Step A Cost ort|on 8 Cost Sav|ngs We|ghted Cost
Sav|ngs (A x 8)
larmlng 40 10 4
1rucklng 10 47.3 4.73
8eflnlng 30 37.3 11.23
ulsLrlbuLlon 20 0 0
1oLal 100 20
69
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Ca|cu|at|ons (cont.)
Math so|ut|on
So|ut|on Net present va|ue of cost sav|ngs
Our clients product will save 20% a year in sugar costs - mulLlplled by $2 bllllon, LhaL cosL
savlngs comes ouL Lo $400 mllllon per year. 1he flnal quesLlon Lhen, ls how valuable ls LhaL?
Pere, lL would be valuable for Lhe candldaLe Lo know Lhe perpeLulLy formula, whlch ls:
value = Annual Cash/(r-g)
We are given the growth rate, g, as 2%. r or the discount rate is not given, but we can go
wlLh Lhe sLandard assumpLlon of 10. 1herefore Lhe company can be valued aL:
value = $400M/(10-2)
= $38
Math quest|on
Pow valuable ls Lhls producL?
70
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
This product will only allow our clients clients (sugar growers) to produce sugar more efficiently. It wont cause the
sugar Lo LasLe any beLLer or cause consumers Lo demand more of lL. 1herefore Lhe producL cannoL be expecLed Lo
grow revenue, buL lL wlll reduce cosLs. 1he value of vlndaloo CorporaLlon ls dlrecLly relaLed Lo cosL savlngs.
AfLer runnlng Lhe nv analysls, vlndaloo CorporaLlon should be valued aL $38.
1he lnLervlewee should also ldenLlfy a number of rlsks and poLenLlal beneflLs (l.e. adopLlon raLes, compeLlLlve
response, oLher uses eLc.) before maklng Lhelr flnal recommendaLlon.
8onus]Gu|de to an Lxce||ent Case
1hls ls a quanLlLaLlvely heavy case. Look for Lhe lnLervlewer LhaL ls qulckly able Lo ldenLlfy Lhe lmporLanL drlvers of
cosL and can crunch numbers qulckly and wlLh llLLle error.
AddlLlonally, an excellenL case wlll requlre less guldance from Lhe lnLervlewer, parLlcularly on nexL sLeps on geLLlng
Lhrough calculaLlons.
71
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
72
Case tracker I|t uest|ons
Industry:
Consumer Coods
Leve| of D|ff|cu|ty:
Lasy
Case format:
CpporLunlLy assessmenL
Concepts be|ng tested:
! CompeLlLlve
analysls
! CapaclLy
conLracLlon
Case uest|on
Cur cllenL, Zephyr 8everages, ls a dlvlslon of a large consumer producLs company. 1he dlvlslon produces frulL [ulces ln
Lhree forms, all under Lhe Zephyr name: chllled, [ulce boxes, and frozen concenLraLe. Zephyr had sales of $600 mllllon lasL
year, about 3% of the companys overall sales of $20 billion.
1he chllled segmenL represenLs $120 mllllon ln sales per year. Whlle [ulce boxes and frozen concenLraLe have been
conslsLenLly proflLable, chllled [ulces are only breaklng even ln good quarLers and are loslng money ln bad quarLers.
Zephyr has recelved a proposal from upper managemenL Lo sell Lhe chllled [ulces buslness. We need Lo help Lhem declde
wheLher or noL Lhls ls a good ldea.
Spend f|rst 1S m|n on f|t
WhaL do you do for fun?
WhaL dld you conLrlbuLe
ln your lasL [ob LhaL
made a dlfference Lo Lhe
organlzaLlon?
CuLslde of school and
work, whaL ls your
greaLesL personal
accompllshmenL?
Gu|de to |nterv|ewer
1hls ls a relaLlvely shorL case LhaL requlres Lhe candldaLe
Lo creaLe a hollsLlc sLrucLure for solvlng Lhe problem:
whaL does Zephyr do wlLh an underperformlng buslness?
lL can dlvesL chllled [ulces, sell lLs whole [ulce dlvlslon, or
remaln ln all lLs buslness. Any of Lhe Lhree posslble
soluLlons llsLed aL Lhe end can be argued, buL Lhe Lhlrd
soluLlon makes Lhe mosL economlc sense.
1he candldaLe wlll need Lo ask for addlLlonal lnformaLlon
LhaL ls necessary Lo solve Lhe problem, raLher Lhan
relylng on Lhe lnLervlewer Lo dlspense lL all aL once.
Case 10: 2ephyr 8everages
12+$'"3
1
4'02*'20)
8
/-7K3 N;"3
/+K+*#'<
8y: Ldw|n Van Dusen, 8r|an Iox and Dav|d We|ch (Kellogg Class of 04), Edited By: Ameed Mallick (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to Case
A sample case sLrucLure would lnclude Lhe followlng:
1) ldenLlfylng Lhe opLlons: sell chllled [ulce, sell all [ulce buslnesses, conLlnue on
wlLh all buslnesses
2) CuallLaLlve dlscusslon of compeLlLlve dynamlcs
3) ulscusslon of producL selecLlon/componenLs, as well as ways Lo cuL cosLs
When asked, the |nterv|ewer can revea| the fo||ow|ng add|t|ona| |nformat|on:
Chllled beverages are a $3 bllllon worldwlde lndusLry
1he Lwo largesL players have markeL shares of 40 and 23, respecLlvely.
Zephyrs market share, 12% makes it third in the industry.
1he Lwo markeL leaders are able Lo do more adverLlslng, couponlng, promoLlon,
and Lrade Lhan Zephyr ls able Lo do. We do noL know abouL Lhelr proflLablllLy,
buL assume lL ls poslLlve.
C|ar|fy|ng answers to prov|de |f
Asked
Industry Character|st|cs]Market
Lconom|cs
! lL has been growlng aL Cu Lhe lasL few
years and ls pro[ecLed Lo conLlnue LhaL
growLh raLe.
! 1he markeL for chllled [ulces ls
domlnaLed by moLhers wlLh young klds.
! 8rand name ls lmporLanL ln Lhls markeL,
as moLhers Lend Lo prefer rellable
producLs. Powever, Lhe brand premlum
musL be ln llne wlLh oLher branded
producLs and all branded [ulces sell ln
Lhe same prlce range.
! 1hls ls a hlghly prlce senslLlve markeL
LhaL loves coupons, promoLlons, eLc.
Compet|t|ve Dynam|cs
! 1hls ls a hlghly concenLraLed markeL.
1here has noL been a loL of change,
Lechnologlcal or oLherwlse, recenLly and
Lhere are no obvlous enLranLs.
73
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
74
Compet|t|ve Dynam|cs
uslng baslc lnformaLlon provlded, lnLervlewee should deep
dlve Lhe compeLlLlve dynamlcs ln furLher deLall.
roduct se|ect|on
uslng lnformaLlon abouL our producLs vs. our compeLlLors, Lhe
lnLervlewee should focus on dlscusslon abouL how Lo cuL cosLs.
Notes to |nterv|ewer
8elevanL lnfo:
8ad markeL poslLlon: 12 vs. 40 and 23
Assumed proflLablllLy dlfferences
ulsadvanLage on Lrade promoLlons
lnLervlewee should be able Lo see LhaL Zephyr ls aL a
serlous dlsadvanLage on all fronLs as a smaller company
LhaL ls boLh less proflLable and less engaged ln Lhe klnds of
Lrade promoLlons LhaL key cusLomers coveL. 1he overall
concluslon should be LhaL Lhls ls a weak compeLlLlve
poslLlon.
Notes to |nterv|ewer
8elevanL lnfo (when asked):
1he markeL leaders produce pure orange [ulce/blends
based on clLrus [ulces. Zephyr uses more elaboraLe
blends, usually wlLh a base of pear or peach [ulce (93
of lnpuLs) and flavor wlLh cranberrles, bananas,
mangoes, eLc. (Lhe oLher 3). ear and peach [ulce are a
slmllarly prlce Lo orange [ulce, buL Lhe oLher flavorlngs
cosL abouL Lwlce as much.
A planL ln Callfornla produces all producLs, chllled, [ulce
boxes and frozen. lL would be dlfflculL Lo flnd anoLher
use for Lhe planL wlLhouL a ma[or converslon.
1hls lndlcaLes LhaL, desplLe a dlsadvanLage, dlvesLlng ls noL
reallsLlc and Lhere may be room for cosL reducLlon based on
reformulaLlon Lo make Zephyr proflLable.
74
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
1here are three poss|b|e so|ut|ons, w|th no r|ght answer. 1he recommendat|on shou|d be we||-reasoned,
comprehens|ve, and |nc|ude as much re|evant |nformat|on as poss|b|e.
Sell Lhe chllled [ulce buslness. 1hls would, however, affecL Lhe [ulce and frozen concenLraLe buslnesses, as Lhere are
boLh adverLlslng and manufacLurlng synergles.
Sell all of Lhe [ulce buslness. 1hls may be more feaslble, as Lhe buyer could capLure Lhe synergles, buL would noL be
Loo llkely Lo Lurn Lhe buslness around. 1he selllng prlce ls llkely Lo be low.
keep Lhe chllled [ulce buslness and rework Lhe lngredlenLs and cosLs. 1hls ls Lhe mosL feaslble opLlon, as evldenced
by Lhe success of Lhe compeLlLors. We are probably developlng exLra feaLures ln our lngredlenL mlx LhaL Lhe markeL
does noL wanL and ls noL wllllng Lo pay for. LllmlnaLlng or scallng back Lhose feaLures wlll probably allow us Lo cuL
cosLs wlLhouL affecLlng revenue.
8onus]Gu|de to an Lxce||ent Case
rospecLs who do well on Lhls case wlll have Lo be comforLable wlLh amblgulLy and wlLh a lack of perfecL
lnformaLlon. 1hey wlll qulckly grasp Lhe lssues and delve lnLo Lhe underlylng quallLaLlve dlscusslons, comlng up wlLh
a loL of addlLlonal rlsks/poLenLlal beneflLs for each opLlon.
CreaLlve soluLlons beyond Lhose llsLed are posslble and encouraged, Lhough should be done wlLhln Lhe framework
of Lhe lnformaLlon avallable.
73
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
76
Case tracker I|t uest|ons
Industry:
Alrllne
Leve| of D|ff|cu|ty:
Pard
Case format:
CpporLunlLy AssessmenL
Concepts be|ng tested:
! 8aslc nv
! CperaLlons
! MarkeL Slzlng
! CusLomer SLraLegy
Case uest|on
Cur cllenL ls A+Alrllne Co., Lhe Lhlrd largesL alrllne ln Lhe unlLed SLaLes by passengers carrled. 1hls week, we have been
flylng on our prlmary compeLlLor, Camma alrllne, and we noLlced someLhlng lnLeresLlng, Lhey sLopped accepLlng cash for
ln-fllghL food and beverage servlces and Lhey now only accepL ma[or credlL cards.
1be cO of A-Altlloe co. woots to koow, wby JlJ Commo Altlloe swltcb ftom o cosb & cotJ system to o cteJlt cotJ ooly
system, ooJ sboolJ we follow tbem?
Spend f|rst 1S m|n on f|t
1ell me abouL a Llme
when you had Lo ad[usL
a pro[ecL schedule
because you didnt have
all Lhe resources LhaL
you needed
uescrlbe a slLuaLlon ln
whlch you had Lo change
your communlcaLlon
sLyle Lo lnfluence
sLakeholders from
dlfferenL groups
Gu|de to |nterv|ewer
1hls case wlll force an lnLervlewee Lo rely on loglc,
buslness acumen, and sLrucLure
Commonly, Lhe lnLervlewee wlll ask a loL of quesLlons
abouL hlsLorlcal cosLs, revenues, eLc. 1h|s |s not the
correct approach to th|s quest|on.
1he savvy lnLervlewer wlll reallze LhaL Lhls ls a 8LlC8L vs.
Al1L8 comparlson of swlLchlng from a CASP & CA8u
sysLem Lo a CA8u CnL? sysLem. 1herefore, Lhe quesLlons
asked should focus on Lhe uLL1A, or Lhe cash changes
LhaL occur when Lhe swlLch ls made.
Case 11: A+ A|r||ne Co.
12+$'"3
8
4'02*'20)
8
O+"#* @9E
AKK"3
5.'3 4#=)
/2"' 4'%<
8y: Adam I. Louras (Kellogg Class of 11)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to case and handouts
Case Structure Interviewees structure should be a BEFORE vs. AFTER comparison of the
swlLch from CASP & CA8u Lo CA8u only and should lnclude:
! keveooe cbooqes. Loss of Cash Cnly cusLomers vs. lncrease ln CredlL Card cusLomers
! cost cbooqes. 8eneflL of Cash ManagemenL CosL 8emoved vs. lncremenLal CosL (lee)
of CredlL Card
! cosb llow cbooqes. lnLeresL and 1lme value of Money (1vM), and Worklng CaplLal
lmpacLs due Lo an lncrease ln collecLlon speed
Lxh|b|t 1 AfLer lnLervlewee walks Lhrough sLrucLure, Lhey wlll llkely ask quesLlons abouL
consumer purchase behavlor on alrplanes. Cnce you feel LhaL Lhey have ldenLlfled Lhe
need Lo do a markeL slzlng, hand ouL LxhlblL 1. (DC NC1 ALLCW kCUNDING)
! Ask tbe lotetvlewee to Jetetmloe tbe 1otol Motket 5lze lo (5) fot fooJ ooJ bevetoqe
potcboses oo oo ovetoqe fllqbt
! 1be lotetvlewee sboolJ colcolote tbe cukkN1 ollocotloo of potcboses (cosb
vs. cotJ) fot oo ovetoqe fllqbt.
! The interviewee should correctly identify that some of the current Cash
costomets wlll oot coovett to cotJ. B);; '()7 M) M#;; ;-") QPR3
Lxh|b|t 2 1he lnLervlewee should recognlze LhaL Lhere mlghL be a cosL savlngs due Lo Lhe
change. MosL lnLervlewees know LhaL Lhere ls a CredlL Card processlng fee buL do noL
reallze LhaL Lhere are many cosLs assoclaLed wlLh cash managemenL. Ask Lhem abouL
Lhe Lypes of cosLs A+Alrllne mlghL face under boLh processes before handlng ouL Lhe
exhlblL. When asked, explaln LhaL the tota|, per f||ght, sav|ngs from e||m|nat|ng
overhead due to Cash Management Cperat|ons |s 53S]f||ght
C|ar|fy|ng answers to prov|de |f
Asked
Industry Character|st|cs]Market
Lconom|cs
! cotJ use: 8oughly 99 of all consumers
purchase Lhelr alrllne LlckeLs uslng a
credlL card, l.e. all consumers on an
alrplane have a credlL card avallable Lo
Lhem.
C||ent Character|st|cs
! ltems 5olJ: Cnly food and alcohollc
beverage lLems are sold on A+Alrllne
fllghLs
! locotloos. 1hls ls a uS uomesLlc
declslon only. lgnore lnLernaLlonal.
Compet|t|ve Dynam|cs
! Camma ls Lhe only alrllne LhaL has
made Lhe swlLch, however all oLher
alrllnes are evaluaLlng Lhe swlLch.
! lor Lhe purposes of Lhls case, Camma
and A+Alrllne should be consldered Lo
be exacLly Lhe same ln all regards.
77
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
Changes |n kevenue
lnLervlewee wlll llkely begln wlLh Lhe correcL
assumpLlon LhaL revenue wlll be losL due Lo
unhappy, cash-only passengers
Cnce asked abouL how many are losL, hand
ouL Lxh|b|t 1 Lo do a markeL slzlng
Changes |n Costs
lnLervlewee should make menLlon of CosL
changes due Lo Lhe shlfL Lo a Card Cnly
sLraLegy.
Ask Lhe lnLervlewee Lo deLall Lhe Lypes of
cosLs LhaL mlghL be lnvolved before handlng
ouL Lxh|b|t 2
1VM & Work|ng Cap|ta|
Lxh|b|t 2 also shows LhaL Lhere ls a 30 day
Llme beneflL Lo collecLlng paymenL vla CredlL
Card vs. Cash
90-7K' Q. Ask tbe lotetvlewee to poolltotlvely
explolo tbe lmpoct tbls tlme sovloqs wlll bove
Notes on Lxh|b|t 1
uslng LxhlblL 1, lnLervlewee should calculaLe:
1. 1otol Nombet of losseoqets pet llooe
2. 1otol Nombet tbot lotcbose & 1otol 5peoJ (5)
J. cosb vs. cotJ 5peoJ - lO55
Notes on Lxh|b|t 2
LxhlblL 2 shows Lhe currenL operaLlons for
Cash ManagemenL and Card ManagemenL aL
A+Alrllne.
1he lnLervlewee should noLlce Lhe followlng
lnformaLlon:
Cash ManagemenL & Card ManagemenL boLh
have 2% fees associated, so this is a wash in
Lerms of savlngs.
Cash ManagemenL requlres addlLlonal
overhead, 7 LoLal employees per alrporL, LhaL
could be ellmlnaLed for furLher savlngs.
When asked, explaln LhaL Lhe LoLal, per fllghL,
savlngs from ellmlnaLlng overhead due Lo
Cash ManagemenL CperaLlons ls 53S]f||ght
Interv|ewee shou|d not|ce that the 53S
sav|ngs offsets the 53S |oss |n kevenue
(SllghLly more because Lhls lmpacLs boLLom
llne, buL lgnore margln)
ua||tat|ve Assessment
1he lnLervlewee should quallLaLlvely menLlon LhaL
Lhere are beneflLs Lo ellmlnaLlng Lhe longer cash
managemenL process:
1lme voloe of Mooey: A+Alrllne wlll recelve
Lhelr money 30 days sooner, and Lhls money
could be used Lo:
lnvesL ln lnLeresL earnlng accounLs or
growLh pro[ecLs
ay off suppllers early and Lake
advanLage of dlscounLs
ay down llnes of credlL fasLer
wotkloq copltol lmptovemeot. 530 per fllghL ln
change can be ellmlnaLed, Lhus freelng up cash
flow. AddlLlonally, Lhere wlll be a reducLlon ln
loss of cash due Lo LhefL and damage
nopplet costomets. 1he ma[orlLy of cusLomers
wlll be able Lo place and recelve Lhelr order
fasLer on Lhe plane whlch wlll also lncrease
sales
Seats Cccupants 8us|ness Le|sure
I|rst C|ass 16 16 16 0
Lconomy 144 108 43 63
B-'+; 160 124 S9 6S
# that urchase 1ota| urchase 5
8us|ness 26 $283
Le|sure 16 $97
B-'+; 42 5382
Cash Card 1ota|
Inf||ght 5 $103 $420 $323
Lose 1]3 of Cash Customers
# 5 New 1ota|
8us|ness 3 ($30) $420
Le|sure 1 ($3) $70
B-'+; 4 (53S) $490
78
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
Cverall, our cllenL, A+Alrllne, should swlLch Lo a CredlL Card only sysLem for ln-fllghL food & beverage because:
Ooootltotlve 8eoeflts: We calculaLed LhaL Lhere would be a loss of 3 buslness cusLomers and 1 economy cusLomer per
fllghL whlch amounLed Lo a 8evenue loss of $33. We also found LhaL we could save $33 ln overhead expenses by
ellmlnaLlng Lhe Cash ManagemenL process. ln sum, Lhe declslon Lo swlLch ls ln favor because Lhe savlngs are Lo Lhe
boLLom llne and Lhe revenue losses are Lop llne.
Ooolltotlve 8eoeflts. We also found LhaL we wlll recelve paymenL 30 days sooner by only accepLlng credlL cards. 1hls
lmproves our cash flow and could allow us Lo earn lnLeresL, pay down credlLors, or lnvesL ln pro[ecLs. AddlLlonally, by
reducing cash losses and eliminating Change tied up on airplanes, we can improve our Working Capital and also put
Lhls money Lo work for us. llnally, lL appears as Lhough cusLomers, ln general, mlghL acLually be happler because Lhe
speed of LransacLlons on Lhe alrplane wlll lmprove.
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll noLe:
uue Lo Lhe lncreased LransacLlon speed, probablllLy of purchase for boLh 8uslness and Lconomy passengers ln Lhe Al1L8 sLaLe
should go up due Lo a reducLlon ln frusLraLlon. 1he people on Lhe back of Lhe alrplane ofLen abandon a purchase lf lL Lakes Loo
long Lo place an order. Maklng change Lakes a loL of Llme!
Average purchase amounL should also lncrease. 1here ls a proven psychologlcal phenomenon LhaL shows how consumers who do
noL carry cash purchase less when a cash opLlon ls offered because Lhey feel gullLy uslng Lhelr card. A card-only opLlon ellmlnaLes
this guilt and consumers dont mind using the card.
8osloess Acomeo: 1he facL LhaL Camma Alrllne has already swlLched ls a clear lndlcaLlon LhaL Lhls ls a loglcal ldea.
79
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #1: An Average A+A|r||ne I||ght
80
A+A|r||ne 8oe|ng 737-800 Vers. 2 (738)
1ota| Seats 200
of Seats Load Iactor 8us|ness Le|sure
I|rst C|ass 23.0 100 100 0
Lconomy 73.0 80 30 30
that urchase Avg. Spend (5)
8us|ness 73.0 $10
Le|sure 23.0 $3
*noLe: llrsL Class assengers 8ecelve lree lood & 8everage
of In-f||ght urchases
Cash 20
Card 80
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #2: A+A|r||ne Cash & Card Cperat|ons
STEP 1:
Cash Handler
Loads Plane with
$50 in Change
AAirline Cash Management Process
STEP 2:
Flight Attendant
collects cash from
passengers and
gives change
AAirline Credit Card Process
31 Days Total Time
On Ground
In Flight
STEP 3:
Flight Attendant
Deposits Cash into
Flight Lockbox
STEP 4:
Cash Handler
collects Flight
Lockbox from
Plane (EOD)
STEP 6:
Armored Car
Service collects
cash
2% Fee on All Cash
Collected
STEP 5:
Flight Lockboxes
deposited to
Onsite Cash
Processing Center
STEP 7:
Armored Car
Service reconciles
cash for
counterfeit.
STEP 8:
Cash (Less Fees)
deposited to
AAirline Bank
Account
KEY
5 Cash Handlers per Airport
2 Employees in Onsite Cash Processing Center per Airport
STEP 1:
Flight Attendant
swipes credit card
in wireless
terminal
24 Hours Total Time
On Ground
In Flight
STEP 3:
Cash (Less Fees)
deposited to
AAirline Bank
Account
STEP 2:
Merchant Service
Receives and
processes Credit
Card
2% Fee on All Cash
Collected
81
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
82
Case tracker I|t uest|ons
Industry:
1ech/1elecom
Leve| of D|ff|cu|ty:
nard
Case Iormat:
lmprovlng proflLablllLy
+ 8educlng CosLs
Concepts 1ested:
! MarkeLlng SLraLegy
! CompeLlLlve
Analysls
! Supply/value chaln
Case uest|on
Cur cllenL, 8ell CompuLer lnc., ls Lhe second largesL C manufacLurer, by unlL sales, ln Lhe unlLed SLaLes. Cver Lhe pasL 3
years, 8ell has been galnlng markeL share and growlng revenue, buL aL Lhe same Llme, Lhelr neL lncome ls erodlng.
1he founder of 8ell has reLurned Lo Lhe company and Laken over as CLC. Pe has hlred us Lo deLermlne:
Why have our proflL marglns decllned?
What can we do to improve our profitability and reach our Full Potential?
Spend f|rst 1S m|n on f|t
WhaL skllls can you brlng
Lo Lhls poslLlon?
Clve me an example of a
buslness problem your
company faced and Lell
me how you solved lL.
WhaL oLher Lypes of [obs
are you conslderlng?
Why and how dld you
choose Lhe companles?
Pow do Lhey compare Lo
consulLlng?
Gu|de to |nterv|ewer
1hls case ls prlmarlly abouL producL mlx changes ln Lhe
C lndusLry comblned wlLh Average Selllng rlce (AS)
uecllnes resulLlng ln lower overall revenues for Lhe
lndusLry. CompeLlLors LhaL dld noL keep up wlLh cosL
reducLlons are faced wlLh LlghLer marglns
The interviewee should recognize that this is a Profit
Equation style question and use a version of the
following equation in their Framework:
roflL/unlL = rlce/unlL varlable CosL/unlL
llxed CosLs/unlL
varlous Lerms from Lhe C lndusLry are used LhroughouL
Lhe case and lL ls noL expecLed LhaL Lhe lnLervlewee
knows Lhese Lerms. Pelp as needed.
Case 12: 8e|| Computer Inc.
12+$'"3
8
4'02*'20)
10
5.'3 4'%<
/-7K3 N;"
42K /(+#$
8y: Adam I. Louras (Kellogg Class of 11)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to case and handouts
Case Structure Interviewees structure should be structured as a comparison of Bell
Computers financials from Before, i.e. 2005, and After, i.e. 2010. The interviewee
should note the Profit Equation and they should make the following inferences from
Lhe quesLlon seLup:
! keveooes ote qoloq op ooJ Motket 5bote ls locteosloq Anu Net locome ls qoloq Jowo
! 1bos. ltlces (A5ls) ote beloq teJoceJ to boy motket sbote. 1bls ls coosloq mote oolts
to be solJ, bot, wltb Net locome qoloq Jowo, lt ls cleot tbot *-"'" (+?) $-' 0)H2*)H '-
.))K 2K M#'( '() 0)H2*'#-$ #$ N49"3
Lxh|b|t 1-3 AfLer lnLervlewee walks Lhrough sLrucLure, Lhey should ask quesLlons abouL
Lhe componenLs of neL lncome, l.e. 8evenue and CosLs.
! nove o coovetsotloo wltb tbe lotetvlewee to fotce tbem to tolk tbtooqb tbe esseotlol
compooeots of tbe ltoflt pootloo tbot ote oeeJeJ to ooswet tbe poestloo.
! let tbe lotetvlewee Jtlve tbe cose. wbeo yoo feel tbot tbey bove oskeJ eoooqb
lofotmotloo oboot tbe followloq toplcs, qlve tbem tbe exblblt tbot sbows tbls
lofotmotloo.
! 5oles uolts xblblt 1
! ltlces xblblt 2
! costs xblblt J
Answer 1he lnLervlewee cannoL solve Lhls case wlLhouL all Lhree exhlblLs. Cnce Lhey
have glven you sufflclenL reason Lo hand Lhem each exhlblL, Lhey should drlve Lhrough
Lhe case Lo answer boLh quesLlons.
C|ar|fy|ng answers to prov|de |f
Asked
Industry Def|n|t|ons
! A5l: AS or Average Selllng rlce ls Lhe
Lerm used for Lhe average prlce sold by
Lhe company for a compuLer.
MulLlplylng unlLs sold by AS wlll glve
you LoLal revenue.
! clleot 5eqmeot: Cs deslgned for, and
sold Lo, reLall consumers elLher dlrecL or
Lhrough a reLaller llke 8esL 8uy.
C||ent Character|st|cs
! ltems 5olJ: Assume LhaL only hardware
ls sold as shown ln LxhlblL 1.
lnLervlewee could suggesL selllng
addlLlonal lLems such as prlnLers,
sofLware, warranLy servlce, eLc. Lo
lmprove proflL
! locotloos. 1hls ls a uS uomesLlc
declslon only. lgnore lnLernaLlonal.
Compet|t|ve Dynam|cs
! All compeLlLors face Lhe same ASs and
sell comparable producLs.
83
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
84
Market|ng Strategy
uslng LxhlblLs 1-3, Lhe lnLervlewee should be able Lo
deLermlne LhaL marglns are falllng due Lo producL mlx
shlfLlng and prlce decllnes
Compet|t|ve Ana|ys|s + Supp|y Cha|n
Using Exhibit 3, the interviewee should identify a Full Potential
lmprovemenL for 8ell Lo lmprove lLs marglns by copylng Lhe
sLraLegy of lLs dlrecL compeLlLors.
Notes to |nterv|ewer
The Interviewee should be able to answer the question, Why have our
profit margins declined? wlLh Lhe followlng raLlonale:
LxhlblL 1: ShlfL ln CllenL preference Lowards LapLops & neLbooks
LxhlblL 2: uecllnlng ASs for LapLops and Low ASs for neLbooks
LxhlblL 3: CosL poslLlon has remalned unchanged
1he lnLervlewee could answer Lhe quesLlon quallLaLlvely by lnLerpreLlng
LxhlblLs 1-3. 1o make Lhls case more quanLlLaLlvely focused, ask Lhe
lnLervlewee Lo calculaLe varlous meLrlcs for 2003 and 2010.
1he lnLervlewee should be able Lo calculaLe Lhe followlng uslng LxhlblLs
1-3 (Math ca|cu|at|ons on fo||ow|ng page):
neL lncome per unlL by producL Lype
8evenue by producL Lype and 1oLal 8evenue
CosL by producL Lype and 1oLal CosL
neL lncome by producL Lype and 1oLal neL lncome
Notes to |nterv|ewer
1he lnLervlewee should be able Lo answer Lhe quesLlon, What can we do to
improve our profitability and reach our Full Potential? wlLh Lhe followlng
CCS1 8LuuC1lCn sLraLegy:
Copy Paysus' sLraLegy for parL procuremenL Lo reduce Lhe bulld cosL of Cs
Copy 8acer's sLraLegy for ulrecL Labor Lo reduce Lhe labor cosL of produclng
Cs
Copy PC's sLraLegy for C&A Lo reduce Lhe LoLal company overhead
1he lnLervlewee could answer Lhe quesLlon quallLaLlvely by lnLerpreLlng
LxhlblLs 3. 1o make Lhls case more quanLlLaLlvely focused, ask Lhe
interviewee to calculate various metrics for Full Potential.
The interviewee should be able to calculate Bells Full Potential using
LxhlblLs 1-3 (Math ca|cu|at|ons on fo||ow|ng page):
neL lncome per unlL by producL Lype
8evenue by producL Lype and 1oLal 8evenue
CosL by producL Lype and 1oLal CosL
neL lncome by producL Lype and 1oLal neL lncome
84
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Math So|ut|ons
Math art I
8LLL I200S
ueskLop
Cs
LapLop
Cs
neLbook
Cs Servers CLher 1C1AL
unlLs Sold (k) 20.0 10.0 0.0 3.0 3.0 40.0
AS $1,000.0 $2,000.0 $0.0 $3,000.0 $230.0
Cu 800.0 800.0 0.0 800.0 200.0
Nl/uolt 5200.0 51,200.0 50.0 52,200.0 550.0
8evenue ($M) $20.0 $20.0 $0.0 $13.0 $1.3 5S6.3
1oLal CosL ($M) 16.0 8.0 0.0 4.0 1.0 529.0
Nl (5M) 54.0 512.0 50.0 511.0 50.J 527.3
ltoflt Motqlo 20.0X 60.0X 7J.JX 20.0X 48.4
8LLL I2010
ueskLop
Cs
LapLop
Cs
neLbook
Cs Servers CLher 1C1AL
unlLs Sold (k) 30.0 30.0 3.0 10.0 3.0 80.0
AS $1,000.0 $730.0 $300.0 $3,000.0 $230.0
Cu 800.0 800.0 800.0 800.0 200.0
Nl/uolt 5200.0 (550.0) (5J00.0) 52,200.0 550.0
8evenue ($M) $30.0 $22.3 $2.3 $30.0 $1.3 586.3
1oLal CosL ($M) 24.0 24.0 4.0 8.0 1.0 561.0
Nl (5M) 56.0 (51.5) (51.5) 522.0 50.J 52S.3
ltoflt Motqlo 20.0X (6.7X) (60.0X) 7J.JX 20.0X 29.3
8LLL Iu|| otent|a|
ueskLop
Cs
LapLop
Cs
neLbook
Cs Servers CLher 1C1AL
unlLs Sold (k) 30.0 30.0 3.0 10.0 3.0 80.0
AS $1,000.0 $730.0 $300.0 $3,000.0 $230.0
Cu 330.0 330.0 330.0 330.0 200.0
Nl/uolt 5650.0 5400.0 5150.0 52,650.0 550.0
8evenue ($M) $30.0 $22.3 $2.3 $30.0 $1.3 586.3
1oLal CosL ($M) 10.3 10.3 1.8 3.3 1.0 527.3
Nl (5M) 519.5 512.0 50.8 526.5 50.J 5S9.0
ltoflt Motqlo 65.0X 5J.JX J0.0X 88.JX 20.0X 68.4
Math art II
kesu|ts:
ueskLop
Cs
LapLop
Cs
neLbook
Cs Servers CLher 1C1AL
nl ($M) lmproved $13.3 $13.3 $2.3 $4.3 $0.0 533.8
CosL er 8ox
8educed $430.0 $430.0 $430.0 $430.0 $0.0
83
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
8ell CompuLer lnc., and Lhe C lndusLry, have faced flve years of Average rlce decllnes ln Lhe LapLop producL
segment. At the same time, Client or retail consumers have shifted their preferences towards Laptops, and a new
producL segmenL called neLbooks. 8ecause 8ell CompuLer has noL reduced Lhelr cosLs over Lhls same Llmeframe,
proflL marglns and neL lncome have deLerloraLed desplLe lncreases ln 8evenue.
ln order for 8ell CompuLer lnc. Lo reLurn Lo proflLablllLy, Lhey musL reduce Lhelr cosL per unlL sold. 1he besL
approach we ldenLlfled was Lhrough an analysls of our compeLlLors. uslng our compeLlLors llne-lLem cosLs as a
benchmark, we could poLenLlally reduce our cosL per box by $430. 1hls amounLs Lo a LoLal neL lncome
lmprovemenL of roughly $34M.
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll noLe:
AddlLlonal ways Lo lmprove neL lncome by selllng compllmenLary, hlgh margln producLs such as:
rlnLers
SofLware
arLs upgrades
WarranLles
AddlLlonal ways Lo cuL cosLs, such as:
Sku 8aLlonallzaLlon (8educlng Lhe number of producL models)
86
!"#$%$& '( )*+,-.& /$" %*012,+34 %5 6-7$4077
809:04& ;+* <==> 14, <='=
)? @4$&7ABC 8+D, $4 <==> )? @4$&7ABC 8+D, $4 <='=
! " # $%$ % % & ' ( $ % ) $ # $
* +,-- ./))011 20345)6%31 2)5" 7)) 8%1'64 8/4/9:/$
;<
!=06/> =/6"00# ?24 $%$ 306 /@%46 %3 +,,AB &C6'/9( D90$5E64 %3E)5$/ ?0E#/6 ?24 F3$
2F)E5)F6094
!"#$%$& E<( F8)7 %5 6-7$4077 809:04& <==> 14, <='=
$3,000
Servers
2,500
1,500
2,000
1,000
1,500
Laptop PCs
Desktop PCs
0
500
Other
Netbook PCs
Laptop PCs
0
2005 2010
! " # $%$ % %
* +,-- ./))011 20345)6%31 2)5" 7)) 8%1'64 8/4/9:/$
;;
!=06/> =/6"00# ?24 $%$ 306 /@%46 %3 +,,A
!"#$%$& G( FH9I )0* @4$& ?+7& 6*012,+34 +; 1 J072&+K )? ;+* 60DD
A=>LM'=LC 14, N+K G ?+:K0&$&+*7
100%
Net
$1,000
Net
$1,000 $1,000 $1,000 $1,000 $1,000
80
Net
Profit
Marketing
G&A
Net
Profit
Marketing
Net
Profit
Net
Profit
Net
Profit
60
G&A
Direct
Labor
G&A
Direct
L b
Marketing
G&A
Marketing
G&A
Marketing
G&A
Direct
L b
40
Parts
Labor
G&A
Direct
Labor
Direct Labor
Labor
20
Parts
Parts
Labor
Parts
Parts Parts
0
Bell 05' Bell 10' Bell Full
Potential?
Haysus 10' Racer 10' HC 10'
!=06/> G/9:/94H IFD60D4H F3$ =/6"00# ?90$5E6 6JD/4 'F:/ 6'/ 4FK/ E0464 D/9 53%6B
* +,-- ./))011 20345)6%31 2)5" 7)) 8%1'64 8/4/9:/$
;L
'0M/:/9H =/6 N3E0K/ M%)) :F9J "F4/$ 03 7G?O
&C6'/9( D90$5E64 'F:/ F 606F) 2?P 0Q R+,,
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
12+$'"3
S
4'02*'20)
S
/0)+'#?#'<
>$?)"'3
5.'3 4'%<
Case tracker I|t uest|ons
Industry:
Lelsure
Leve| of D|ff|cu|ty:
Med|um
Case format:
lncreaslng sales
Concepts 1ested:
! CreaLlvlLy
! lnvesLmenLs
! MarkeLlng sLraLegy
Case uest|on
Cur cllenL, Arbor Pouslng, ls a leadlng provlder of shorL Lerm and Lemporary corporaLe houslng. roflLs have remalned
sLeady Lhe pasL few years, and Arbor was recenLly purchased by a prlvaLe equlLy flrm LhaL has broughL ln new
managemenL. 1he new CLC has been charged wlLh lncreaslng sales ln order Lo meeL managemenLs growLh LargeLs for Lhe
nexL few years.
WhaL can Arbor Pouslng do Lo lncrease revenues, whlle remalnlng proflLable?
Spend f|rst 1S m|n on f|t
1ell me abouL a Llme you
made an unpopular
declslon.
WhaL role do you play on
a Leam?
1ell me abouL a Llme ln
your llfe when you have
made a dlfference.
Gu|de to |nterv|ewer
1hls case ls deslgned as an assessmenL of several
compeLlng opLlons Lo generaLe growLh
1he lnLervlewee should seL up a sLrucLure Lo ldenLlfy
several sources of new revenue:
lncrease peneLraLlon wlLh exlsLlng cusLomers
8ewards rogram
AdverLlslng
Caln new cusLomers
1he lnLervlewee should geL creaLlve, Lhere are a few
answers for whlch Lhere ls sLrucLured quesLlons buL we
should allow Lhe lnLervlewer ample opporLunlLy Lo
develop creaLlve opLlons
Case 13: Arbor nous|ng
90
8y: Ameed Ma|||ck (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to case and handouts
Case Structure lnLervlewee should be looklng Lo bralnsLorm several ldeas for growlng
sales ln Lhe flrsL half of Lhe case. As Lhe dlscusslon conLlnues, we should look Lo provlde
speclflc exhlblLs and ask LargeLed quesLlons abouL Lhe Lradeoffs beLween new opLlons
Lxh|b|t 1 AfLer dlscusslng Lhe poLenLlal currenL cusLomers and lndusLrles (should be lefL
up Lo creaLlvlLy of lnLervlewer), provlde exhlblL 1:
! wbot tteoJs Jo yoo see lo oot mlx of clleots?
! wbot petceotoqe of 2008 olqbts stoyeJ/teveooe comes ftom ltofessloool 5etvlces?
Lxh|b|t 2 1he second half of problem presenLs several opLlons LhaL can be pursued.
Clven Lhe consLralnLs of Lhe buslness, Lhe lnLervlewee musL choose Lhe opLlmal course
of acLlon for lncreaslng lnLernal growLh (seLLlng aslde growLh opporLunlLles wlLh new
cusLomers)
! rovlde clarlfylng daLa as requesLed (llsLed ln soluLlons)
! wblcb optloo sboolJ we potsoe?
1here ls an opporLunlLy Lo have a dlscusslon aL Lhe end of Lhe case Lo ldenLlfy new
cusLomers wlLh new lndusLrles.
Answer The final question to be posed is: Summarize the case and suggest a course of
action for Arbor Housings CEO to take. The interviewee should stick with their
proposed lnLernal growLh opLlon, and also as a bonus ldenLlfy Lhe poLenLlal of movlng
lnLo new lndusLrles
C|ar|fy|ng answers to prov|de |f
Asked
Industry Def|n|t|ons
! CorporaLe Pouslng are fully furnlshed
shorL Lerm or Lemporary aparLmenL
sLyle accommodaLlons
C||ent Character|st|cs
! Arbor owns many of Lhelr locaLlons, and
leases vacancles ln oLher aparLmenL
bulldlngs 1hough lL ls a valld polnL Lo
ralse capaclLy quesLlons, assume LhaL
capaclLy needed for growLh ls leased
and ma[or lnvesLmenL ls noL requlred
! 1hls ls a uS based case, Arbor has
locaLlons ln all ma[or clLles
! nlghLs SLayed ls a common meLrlc our
flrm uses as a proxy for 8evenue
Compet|t|ve Dynam|cs
! We compeLe agalnsL hoLels and
aparLmenL bulldlngs LhaL offer shorL
Lerm leases. lor Lhls case we can lgnore
Lhe effecL of compeLlLors LhaL also offer
corporaLe houslng
91
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
92
Current kevenues
uslng LxhlblLs 1, lnLervlewee musL ldenLlfy currenL buslness
mlx, noLlce Lrends ln Lhe charL, solve some maLh quesLlons,
and ldenLlfy fuLure opporLunlLles.
enetrat|on w|th ex|st|ng customers
uslng LxhlblL 2, lnLervlewee should selecL Lhe besL opLlon based
on Lhe numbers provlded:
Notes to |nterv|ewer
1he flrsL parL of Lhe answer Lo Lhls quesLlon should be quallLaLlve, you
should probe Lhe candldaLe as Lo why Lhey Lhlnk cerLaln lndusLrles have
seen a decllnlng nlghLs sLayed whlle oLhers have remalned sLeady
Some suggesLed answers, noL necessarlly rlghL or wrong
rofesslonal Servlces: due Lo an economlc slowdown flrms had less
pro[ecLs ln 2008 and 2009 buL have been recoverlng ln 2010
Lnergy: has remalned sLeady, poLenLlally due Lo longer Lerm
pro[ecLs cllenL needs flucLuaLe less
1ravel & Lelsure: has decreased wlLh dlsposable lncome
8elocaLlon: sLeadlly lncreaslng, poLenLlally famllles are movlng Lo
new clLles Lo flnd new [obs or conLracLs
WhaL percenLage of our buslness ls rofesslonal Servlces ln 2008?
AN5wk. 40X.
As a follow up quesLlon: WhaL lndusLrles are noL represenLed ln Lhls
charL, where you Lhlnk Lhere ls opporLunlLy?
Notes to |nterv|ewer
1he lnLervlewee should noLlce LhaL Lhey need Lo know how much revenue
Lhe company currenLly has and how much an addlLlonal nlghL CosLs
Assume each nlghL SLayed ls worLh $200 ln revenue and cosLs $130
1herefore, based on 100MM nlghLs sLayed ln 2010, a 1 lncrease ln
nlghLs sLayed ls worLh $200MM ln revenue and $30MM ln proflL
1here ls a 30 chance of a good or bad economy. 1he lnLervlewee should noL
assume Lhelr own number buL should ask for Lhls number.
Clven Lhe lnformaLlon provlded, a case can be made for compeLlng opLlons:
1he Ad campalgn has Lhe hlghesL expecLed reLurn, buL a 30 of no
beneflL (wlLh a $100MM up fronL losL)
key AccounLs ls Lhe safesL move, wlLh no posslblllLy of a loss
Speclal lncenLlves ls Lhe rlsklesL opLlon, and wlLh Lhe same payoff as
8ewards ls noL a safe beL
Assumlng 8lsk neuLrallLy, we would employ Lhe ad campalgn, Lhough
quallLaLlve answers can Llp Lhe scales Lowards oLher opLlons.
92
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Math So|ut|ons
Lxh|b|t 2 pred|ct|ng 2011 prof|t, assum|ng 5100MM n|ghts stayed |n 2010
lf Lconomy ls 30 llkely Lo be good (30 Llmes expecLed value of each ouLcome):
8ewards = $100MM expecLed proflL (230*30 + 30*30 - 30 cosL)
AdverLlslng = $130MM expecLed proflL (300*30 + 0*30 - 100 cosL)
key AccounL 8ep = $49MM expecLed proflL (30*30 + 30*30 - 1cosL)
Speclal lncenLlves = $100MM expecLed proflL (300*30 + (-230)*30 - 10cosL)
Up front programCost GoodLconomy 8ad Lconomy
8ewards/olnLs rogram $30MM 3 lncrease =
$18 8evenue, $230MM
ConLrlbuLlon
1 lncrease =
$200MM 8evenue, $30MM
ConLrlbuLlon
AdverLlslng Campalgn $100MM 10 lncrease =
$28 8evenue, $300MM
ConLrlbuLlon
no effecL
Plre key AccounL
8epresenLaLlves
$1MM 1 lncrease =
$200MM 8evenue, $30MM
ConLrlbuLlon
1 lncrease =
$200MM 8evenue, $30MM
ConLrlbuLlon
CreaLe speclal Sales lorce
lncenLlves Lo focus on growLh
$23MM 10 lncrease =
$28 8evenue, $300MM
ConLrlbuLlon
3 decrease =
$18 8evenue losL, $230MM
conLrlbuLlon decrease
93
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
The first part of the case doesnt have a real answer, it should simply be a conversation about potential options for our clienL
LxhlblL one ls a baslc maLh warm up, and anoLher opporLunlLy for Lhe lnLervlewer Lo dlsplay quallLaLlve creaLlvlLy
llnally, dependlng on Lhe rlsk proflle of Lhe cllenL (whlch Lhe lnLervlewer can elLher assume or ask for) Lhere can be a case
made for all Lhe compeLlng opLlons
lf we need Lhe hlghesL reLurn posslble and we are rlsk neuLral, Lhe ad campalgn sLlll ls Lhe besL opLlon desplLe Lhe
hlgher up fronL cosL compared Lo key lncenLlves
lf we are rlsk averse, key AccounLs are Lhe besL opLlon wlLh low cosL and no downslde
1he 8ewards program offers a modesL reLurn buL does noL offer as favorable reLurns as Lhe ad campalgn, lL would be
a viable option if we dont think we can raise the capital required for higher cost options
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll noLe:
1hls ls a loosely sLrucLured case and encourages creaLlve responses.
1here are markeLs LhaL we could move lnLo noL menLloned: CovernmenL, LducaLlon (Plgher Ld), LnLerLalnmenL (1v &
Movles), ConsLrucLlon, PealLhcare eLc.
Some of Lhe proposals wlll galn new cusLomers ln addlLlon Lo lncreaslng exlsLlng cusLomer sales. lor example,
Advertising and a Rewards program could be appealing to potential customers that dont use our product.
94
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 1: Annua| n|ghts stayed (MM) 2006-2010
0
10
20
30
40
30
60
rofesslonal
Servlces
Lnergy 1ravel and
Lelsure
8elocaLlon
2006
2007
2008
2009
2010
rofesslonal Servlces lnclude ConsulLlng, AccounLlng/AudlL, lnsurance, Law,
93
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 2: Increas|ng penetrat|on |n current c||ents
Up-front program
Cost
Good Lconomy 8ad Lconomy
8ewards/olnLs
rogram
$30M 3 lncrease ln
revenue wlLh
exlsLlng cusLomers
1 lncrease ln
revenue wlLh
exlsLlng cusLomers
AdverLlslng
Campalgn
$100M 10 lncrease ln
revenue wlLh
exlsLlng cusLomers
no effecL
Plre key AccounL
8epresenLaLlves
$1MM 1 lncrease ln
revenue wlLh
exlsLlng cusLomers
1 lncrease ln
revenue wlLh
exlsLlng cusLomers
CreaLe speclal Sales
lorce lncenLlves Lo
focus on growLh
$10MM 10 lncrease ln
revenue wlLh
exlsLlng cusLomers
3 decrease ln
revenue wlLh
exlsLlng cusLomers
96
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Case tracker I|t uest|ons
Industry:
PealLh Care
Leve| of D|ff|cu|ty:
Med|um
Case format:
MarkeL enLry
Concepts 1ested:
! 8reak Lven analysls
! MarkeLlng
sLraLegles
! CrganlzaLlonal
changes
Case uest|on
Cur cllenL, Shermer harma , ls a venLure backed sLarL-up harmaceuLlcal company. Cver Lhe pasL 13 years, Shermer has
been developing a molecule that has been approved by the FDA to cure Alzheimers with 90% efficacy.
Shermers owners have hired us to determine:
Pow should we sell our producL?
ls our producL golng Lo be proflLable?
Spend f|rst 1S m|n on f|t
Clve me an example of a
Llme you had Lo change
someones mind.
WhaL are Lhe mosL
dlfflculL or challenglng
declslons you have made
recenLly?
ln whaL klnd of work
envlronmenL are you
mosL comforLable?
Gu|de to |nterv|ewer
1hls case ls focused on 2 quesLlons, can you deLermlne
whaL lL Lakes Lo launch a new producL proflLably Lhrough
a cosL beneflL analysls, and can you Lhlnk Lhrough Lhe
lmpllcaLlons of sLarLlng a Sales & MarkeLlng organlzaLlon
from scraLch
1he lnLervlewee should be gulded Lowards 2 prlmary
opLlons for Lhe Sales & MarkeLlng quesLlon
1. SLarL your own sales force
2. ConLracL sales
8onus sales force answer ls sell Shermer Lo a larger flrm
roflLablllLy wlll cenLer on Lhe lnLervlewees ablllLy Lo read
Lables and daLa on Lhe markeL and our markeL share.
97
Case 14: Shermer harma
8y: Ameed Ma|||ck (Kellogg Class of 12)
12+$'"3
7
4'02*'20)
8
OPC
5.'3 4'%<
A0%3 /(%3
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to case and handouts
Case Structure lnLervlewee should focus on Lhe quesLlons separaLely. llrsL we wlll
bralnsLorm how Lo sell our producL and ask quesLlons Lo geL afLer Lhe cosLs of a sales
force (LxhlblL 1). An opLlonal mlddle sLep ls a braln Leaser Lo deLermlne Lhe slze of Lhe
Alzheimers market. (provide answer of 5MM at the end of the exercise. They then
need Lo ask abouL Lhe cosLs and revenues from our new producL (LxhlblL 2).
Lxh|b|t 1-3 AfLer lnLervlewee walks Lhrough sLrucLure, Lhey should ask quesLlons abouL
Lhe cosLs of sales and Lhen ulLlmaLely Lhe proflL equaLlon.
! If the interviewee isnt getting to the question on the 3 Sales Force options, guide
tbem bock towotJ tbls ooJ ptovlJe exblblt 1.
! nove o coovetsotloo wltb tbe lotetvlewee to fotce tbem to tolk tbtooqb tbe esseotlol
compooeots of tbe ltoflt pootloo tbot ote oeeJeJ to ooswet tbe poestloo.
! let tbe lotetvlewee Jtlve tbe cose. wbeo yoo feel tbot tbey bove oskeJ eoooqb
lofotmotloo oboot tbe followloq toplcs, qlve tbem tbe exblblt tbot sbows tbls
lofotmotloo.
! 5oles fotce optloos xblblt 1
! keveooes vs costs xblblt 2
Answer 1he numbers reveal LhaL our producL wlll be proflLable. Powever, a crlLlcal
quesLlon wlll be Lhe sales channel, whlch ls why Lhey need Lo deLermlne Lo use conLracL
sales ln order Lo be proflLable. lL ls also correcL Lo sLaLe LhaL Shermer should sell Lhe
producL Lo a larger flrm, buL Lhe second half of Lhe case should be under Lhe assumpLlon
LhaL Lhe owners declde Lo do conLracL sales.
C|ar|fy|ng answers to prov|de |f
Asked
Industry Def|n|t|ons
! Our product is a pill that cures Alzheimers,
an lllness LhaL currenLly has no LreaLmenL
LhaL cures or sLops Lhe progress of Lhls
dlsease
! Alzheimers is a degenerative, terminal
dlsease LhaL causes senlllLy and demenLla.
30 MM people suffer worldwlde
! Sales would be focused on neurologlsLs and
CerlaLrlc psychlaLrlsLs (noL Lhe consumer of
Lhe producL)
C||ent Character|st|cs
! We dont have a Sales or Marketing
organlzaLlon, Lhe company has purely been
a research flrm Lo Lhls polnL.
! luA approval, eLc has been granLed
Compet|t|ve Dynam|cs
! We wlll noL focus on compeLlLlve response
durlng Lhls case as we are Lhe only flrm LhaL
has a cure for Lhls lllness and wlll be for Lhe
nexL 3 years
98
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
99
Market Lntry
uslng LxhlblLs 1 Lhe lnLervlewee should be able Lo
deLermlne LhaL conLracL sales ls Lhe besL flnanclal opLlon
rof|tab|||ty
uslng LxhlblL 2, Lhe lnLervlewee should deLermlne LhaL our
producL wlll be proflLable uLlllzlng elLher Lype of sales force.
Notes to |nterv|ewer
The question boils down to realizing that our clients
compeLencles are rooLed ln developlng a producL, noL Sales and
MarkeLlng. 1he correcL approach ls Lherefore Lo conLracL sales or
sell Lhe company
1he quallLaLlve approach Lo Lhe answer ls approprlaLe, buL once
Lhe lnLervlewee has dlscussed enough of Lhe lnpuLs, exh|b|t 1
should be shared:
1here ls mlsslng daLa ln Lhe charL LhaL should be easy Lo
calculaLe (soluLlons provlded)
A Lhlrd opLlon wlLh no aLLached daLa would be Lo sell Lhe
company Lo a larger flrm, Lhls ls an approprlaLe dlscusslon Lo have
and lf prompLed Lhe lnLervlewee should dlscuss Lhe Lradeoffs of
Lhls more quallLaLlvely
A conLracL sales organlzaLlon ls Lyplcally less effecLlve Lhan
lnLernal sales, Lhough mosL lnLervlewers wonL plck up on Lhls and
slmply glvlng Lhe flnanclal answer ls approprlaLe
Notes to |nterv|ewer
?ou should leL Lhem slze Lhe markeL as a flrsL sLep, buL Lhen provlde
Lhe acLual number of 3MM.
1he flrm requlres LhaL 8&u cosLs be recovered by ?ear 3 of Lhe producL
(a wlndow before whlch Lhere wlll be no compeLlLlve response)
We can lgnore nv for Lhls quesLlon and [usL assume a sLralghL llne
amortizationinterviewee should come to this conclusion on their
own, buL course correcLlng ls okay lf Lhey geL sLuck
CrlLlcal lnformaLlon on Lhe exhlblL should be provlded as Lhe
lnLervlewee asks, Lhough should only be volunLeered lf Lhe lnLervlewee
ls sLuck
We can lgnore Lax, however a good lnLervlewee wlll ask abouL lL, and
dolng so would reallze we sLlll hlL our proflL LargeLs by year 3
ManufacLurlng & ackaglng cosLs are lncluded ln Lhe Cross Margln
99
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Math So|ut|ons: Lxh|b|t 1
Deve|op own Sa|es Iorce Contract Sa|es Iorce
ercenL of vlslL focused
on our producL
100 30
Annual fully loaded cosL
per Sales 8ep
$200k n/a
CosL per sales call SQTU IISVUU.WXYLPQUUL $60
1oLal calls requlred QUU. I"(-2;H ,)
+".)HP%#?)$L
VUU. IQUU.WVL
1oLal Sales 8eps needed 83 QTU IXYWVL
1oLal annual Selllng CosL SQT55 ISVUU.WXYL SQV55 ISZUWVUU.L
100
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Math So|ut|ons: Lxh|b|t 2
ear 1 ear 2 ear 3 ear 4 ear S
ro[ecLed MarkeL
peneLraLlon
3 10 23 40 60
1oLal users VYU. IY[WY5L YUU. IQU[WY5L Q3VY55
IVY[WY5L
V55 I\U[WY5L R55 IZU[WY5L
1oLal Cross Margln SVYU55
IVYUWSQUUUL
SYUU55
IYUUWSQUUUL
SQ3VYO
IQ3VY55WSQ.L
SVO IV55WSQ.L SRO IR55WSQ.L
AmorLlzed 8&u CosLs SRUU55
ISQ3YOPYL
SRUU55
ISQ3YOPYL
SRUU55
ISQ3YOPYL
SRUU55
ISQ3YOPYL
SRUU55
ISQ3YOPYL
Selllng CosLs SQV 55 I:0-7
)J3QL
SQV 55 I:0-7
)J3QL
SQV 55 I:0-7
)J3QL
SQV 55 I:0-7
)J3QL
SQV 55 I:0-7
)J3QL
C & A CosLs $23 MM $23 MM $23 MM $23 MM $23 MM
neL lncome ISXT55L SQZR55 S]QR55 SQ3ZZRO SV3ZZRO
1ota| Market SMM
Annual gross margln per user $1000
8&u CosL $1.38
C&A cosL $23MM
*uaLa aL lefL Lo be
provlded as Lhe
quesLlons are asked
by lnLervlewee
101
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
Shermer Pharmas core competency is their research focus. The plausible argument can be made that they should
sell Lhe company Lo a larger flrm LhaL has Lhe approprlaLe capablllLles LhaL lL Lakes Lo markeL and sell a producL.
1hough Lhls mlghL be Lhe rlghL answer, Lhe cllenL lsn'L always golng Lo do Lake Lhe opLlmal approach, parLlcularly
when it comes to ownership of the firm. We need to be flexible to account managements wishes
Assumlng Lhe owners declde noL Lo sell Lhe company, conLracL sales ls Lhe nexL besL opLlon, LhaL glves us Lhe besL
scenarlo when deLermlnlng overall proflLablllLy of our producL.
1he laLLer half of Lhe case ls slmple maLh, deLermlnlng a & L for our producL and comlng up wlLh Lhe correcL
answer LhaL Shermer can be proflLable.
Ask for hlgh level analysls aL Lhe end of Lhe case, whaL else should be conslder before engaglng Lhls plan?
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll noLe:
1here ls an opLlon Lo sell Lhe company, even Lhough Lhere ls no daLa provlded Lo supporL Lhls concluslon
Some of Lhe numbers glve an obvlous answer before needlng Lhe exacL calculaLlons
Challenglng Lhe lnLervlewer on Lhe effecLlveness of a conLracL sales organlzaLlon ls a bonus. A quallLaLlve argumenL can
be made LhaL for an addlLlonal $3MM a year, we can reallze Lhe beneflL of a more effecLlve sales force, Lhls lsn'L Lhe
flnanclally correcL answer buL may be Lhe rlghL Lradeoff glven Lhe relaLlvely mlnlmal lmpacL Lo Lhe boLLom llne vs.
revenues of $38
$1000 per year for a llfe savlng cure for a currenLly lncurable allmenL ls deflnlLely under prlced!
102
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 1: Sa|es force opt|ons
Deve|op own Sa|es Iorce Contract Sa|es Iorce
ercenL of vlslL focused
on our producL
100 30
lully loaded annual cosL
of 1 sales rep
$200k n/a
CosL per sales call $60
1oLal calls requlred
1oLal Sales 8eps needed 83
1oLal annual Selllng CosL
103
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 2: Annua| Net Income
ear 1 ear 2 ear 3 ear 4 ear S
ro[ecLed MarkeL
peneLraLlon
3 10 23 40 60
1oLal users
1oLal Cross Margln
AmorLlzed 8&u
CosLs
Selllng CosLs
C & A CosLs
neL lncome
104
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
103
Case tracker I|t uest|ons
Industry:
Lelsure
Leve| of D|ff|cu|ty:
Med|um
Case format:
CpporLunlLy AssessmenL
Concepts 1ested:
! lnvesLmenL
! 8reakeven analysls
Case uest|on
Cur cllenL owns a large hoLel chaln and ls Lhlnklng abouL lnvesLlng ln an add-on for a waLerpark on one of lLs properLles.
1hls has been LesLed ln some places and has a loL of poLenLlal beneflLs: famlly frlendly, year-round avallablllLy, and
poLenLlal Lo brlng ln new cllenLele. 1hey have done a loL of work surveylng Lhelr chaln and belleve LhaL Lhey have found
Lhe rlghL hoLel Lo experlmenL wlLh a waLerpark add-on. CurrenLly, Lhls hoLel has a loL of buslness Lravelers, buL our cllenL
belleves lL would also be aLLracLlve for famllles.
Cur cllenL ls nervous abouL Lhe caplLal requlred Lo bulld Lhe add-on and wanLs Lo make sure LhaL Lhey are maklng Lhe
right investment. Thats why we brought you on board. What do you think?
Spend f|rst 1S m|n on f|t
1ell me abouL a Llme
when youve had a
confllcL wlLh a
LeammaLe.
Pow would your frlends
descrlbe you?
Pow would you compare
our lndusLry wlLh oLhers
you are lnLeresLed ln?
Gu|de to |nterv|ewer
1hls case forces Lhe lnLervlewee Lo focus on Lhe rlghL
lssues and can be Lrlcky. 1he candldaLe wlll need Lo
lgnore compeLlLlve poslLlonlng and focus on Lhe
proflLablllLy of Lhe waLerpark. 1he waLerpark should
recoup lLs lnvesLmenL and can even charge a premlum.
1hey wlll need Lo ask Lhe rlghL quesLlons abouL Lhe
lnvesLmenL, lLs buyback perlod, and make assumpLlons
abouL vacancy.
1here are also loLs of poLenLlal rlsks and beneflLs LhaL a
greaL lnLervlewee wlll recognlze LhaL allow Lhem Lo
conslder Lhe case on anoLher level of deLall.
Case 1S: nosp|ta||ty Co
12+$'"3
S
4'02*'20)
S
>$?)"'3
OPC
8y: Cra|g Der|ester (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ew gu|de||nes
1hls ls a slmple proflLablllLy calculaLlon (roflL = 8evenue CosLs) for Lhe
lnvesLmenL of a waLer-park add on. Many candldaLes wlll focus on Lhe revenue
slde, buL we need Lo back lnLo Lhe mlnlmum amounL Lhe hoLel bos Lo charge Lo
break-even on lLs lnvesLmenL ln Lhe payback perlod.
A sample case sLrucLure would lnclude Lhe followlng:
1) CosL sLrucLure - ldenLlfy Lhe cosLs (flxed and varlable) as well as Lhe relevanL
payback perlod for Lhe lnvesLmenL.
2) 8reakeven analysls - 8ased on Lhe esLlmaLed room raLes and payback perlod,
ldenLlfy how much Lhe hoLel would have Lo charge (flxed + varlable cosLs) for
each room Lo breakeven over Lhe llfe of Lhe lnvesLmenL.
3) AddlLlonal rlsks and beneflLs CuallLaLlve assessmenL of oLher poLenLlal
beneflLs/lssues LhaL may arlse from Lhe lnvesLmenL.
C|ar|fy|ng answers to prov|de
(lgnore any dlscusslon of compeLlLlon or
markeL dynamlcs)
CompeLlLlve dynamlcs
! 1here are no compeLlLors lmmedlaLely
nearby for a waLerpark
! We have no lnformaLlon abouL
compeLlLors
! 1here ls no posslblllLy for a compeLlLlve
response ln Lhe shorL run
MarkeL lnformaLlon
! Cur cllenL has done proper dlllgence
and has deLermlned LhaL Lhls ls Lhe
! We do noL have any speclflcs abouL Lhe
markeL and are unable Lo conducL
addlLlonal survey daLa
PoLel characLerlsLlcs
! Hotels normal clientele is business
Lravelers, buL we belleve LhaL Lhls
waLerpark wlll brlng ln famllles as well
106
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Math quest|on and so|ut|on
Math so|ut|on
1he maLh ls abouL backlng lnLo how much Lhe hoLel needs Lo charge per room over Lhe course of Lhe
Lhree years Lo recover lLs lnvesLmenL. 1he lnLervlewee needs Lo lgnore Lhe varlable cosL and focus on
how Lo spread Lhe flxed cosL of Lhe lnvesLmenL over Lhe payback perlod.
$6 mllllon lnvesLmenL / 3 years = $2 mllllon / year ln revenues
400 rooms X 50% vacancy X 350 days (dont use 365) year = 70,000 rooms per year
(Many candldaLes wlll sLruggle wlLh Lhls, Lry Lo comblne cosLs, and wlll make Lhe dlfflculL on
Lhemselves. LeL Lhem sLruggle for a few mlnuLes before helplng).
$2 mllllon/year dlvlded by 70,000 rooms/year = 28.6, or abouL $30/nlghL ln flxed cosL
1he candldaLe should add Lhls wlLh Lhe varlable cosL for around $70/nlghL LoLal for Lhe Lhree year
perlod. lf Lhey do noL lnLerpreL Lhe number lmmedlaLely, ask Lhem whaL Lhey Lhlnk abouL Lhe
$70/nlghL LoLal.
Math quest|on
Pow much wlll Lhe hoLel need Lo charge per room Lo recoup lLs cosLs?
Math |nformat|on
lnvesLmenL:
! $6 mllllon
lnvesLmenL
! ayback ln 3 years
PoLel:
! 400 rooms
! WlLh waLerpark, 30
vacancy on average
for Lhe year
CosL sLrucLure:
! lnvesLmenL ls flxed
cosL
! varlable cosL ls
$40/nlghL per room
107
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
r|c|ng dec|s|ons
Pow should we lnLerpreL Lhe
breakeven polnL on Lhe hoLel cosLs?
Pow do we Lhlnk abouL prlclng?
Cther revenue streams
WhaL oLher poLenLlal
beneflLs/revenue sLreams mlghL Lhls
have?
otent|a| r|sks and |ssues
WhaL are Lhe poLenLlal rlsks and lssues
assoclaLed wlLh ?
Notes to |nterv|ewer
1he lnLervlewee should reallze $70 ls
an exLremely low number, especlally
conslderlng LhaL famllles may be
sLaylng aL Lhe park.
1hls wlll also ask Lhe lnLervlewee Lo
gauge Lhls number agalnsL Lhe real
cosL of hoLels and Lhelr personal
experlences.
8eallsLlcally, Lhe hoLel wlll be able Lo
charge slgnlflcanL premlum ln addlLlon
Lo coverlng lLs baslc cosLs.
1here are Lwo opLlons: charge an
addlLlonal fee for waLerpark enLry or
make lL all-lncluslve wlLh hoLel fee.
Notes to |nterv|ewer
1here are a loL of poLenLlal places Lo
go here, buL here are some ldeas:
Charglng admlsslon enLry
lood/resLauranLs aL Lhe park
romoLlonal Lle-lns
Merchandlse/swlm sulL
apparel
Lxpanslon Lo oLher hoLels
Notes to |nterv|ewer
Slmllarly, Lhere are a loL of poLenLlal
rlsks:
ManagemenL compeLency (do
we have any experlence?)
8egulaLory/lnsurance rlsks
PealLh/llLlgaLlon rlsks
assoclaLed wlLh Lheme parks
CompeLlLlve response
AllenaLlng buslness cusLomers
wlLh famlly frlendly
aLmosphere
108
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
1hls pro[ecL should be underLaken. Whlle Lhere are a number of poLenLlal rlsks and conslderaLlons (lncludlng
compeLlLlve dynamlcs), Lhe economlcs are exLremely aLLracLlve and Lhe prlce ($70/room) Lo earn back our
lnvesLmenL ls relaLlvely low for almosL any hoLel, much less one wlLh Lhese amenlLles.
1he lnLervlewee should make a solld case for Lhelr recommendaLlon, uslng Lhe oLher poLenLlal avenues for proflL
and Lhe low payback prlce as key polnLs for lLs underLaklng.
Whlle Lhe model answer suggesLs underLaklng Lhe lnvesLmenL, lf an lnLervlewee has a compelllng, loglcal sLory on
why Lhe rlsks ouLwelgh Lhe beneflLs, lL should be [udged on lLs own merlLs. lL would have Lo be a powerful argumenL
Lhough.
8onus]Gu|de to an Lxce||ent Case
This case is defies a lot of candidates expectations, with a lot of them really focusing on competitive/market
dynamlcs. An excellenL lnLervlewee wlll geL Lo Lhe maLh qulckly by focuslng on Lhe lmporLanL lssues: reLurnlng Lhe
lnvesLmenL.
Additionally, an excellent interviewee will interpret the breakeven point as low. Asking them to interpret these
numbers provldes a good check of buslness [udgmenL. lurLhermore, an excellenL lnLervlewee wlll provlde a loL of
creaLlve rlsks/beneflLs from Lhls lnvesLmenL as well.
109
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8y: Maur|c|o Atr| (Kellogg Class of 12)
Case tracker I|t uest|ons
Case uest|on
8ock Lnergy, an Cll & Cas company, ls evaluaLlng Lhe purchase of one of Lhree oll flelds ln LaLln Amerlca. AfLer purchaslng
Lhe rlghLs Lo exLracL oll from one of Lhese flelds, 8ock Lnergy wlll ouLsource Lhe drllllng acLlvlLy. ?ou have been broughL ln
Lo ldenLlfy Lhe besL lnvesLmenL for 8ock Lnergy.
now woolJ yoo evoloote tbe tbtee oll flelJs, ooJ wblcb oll flelJ sboolJ kock oetqy potcbose?
Spend f|rst 1S m|n on f|t
WhaL are you mosL
proud of?
uescrlbe a Llme aL
kellogg where you
worked wlLh a Leam Lo
achleve a challenglng
goal
Gu|de to |nterv|ewer
Maln sLeps Lhe lnLervlewee should Lake:
lndenLlfy days lL Lakes Lo drlll one well ln each reglon, uslng
Lhe depLh and peneLraLlon raLe provlded
AfLer Lhls, he/she should be able Lo quanLlfy Lhe cosL
assoclaLed wlLh drllllng one well
1he prlce and barrels exLracLed by day wlll allow Lhe
lnLervlewee Lo esLlmaLe Lhe LoLal revenue and proflL by well.
lL ls essenLlal Lo conslder LhaL ln 1 year you can produce
dlfferenL number of wells by 8eglon, and LhaL you have
llmlLed amounL of rlgs
AfLer achlevlng Lhe calculaLlons, Lhe lnLervlewee should
conslder oLher facLors, rlsks LhaL could affecL Lhe declslon
lnvesLmenL such as, pollLlcal rlsks, labor cosLs, dlfference ln
oll quallLy, lnsurance cosLs, of fuLure oll prlces
Case 16: kock Lnergy
110
12+$'"3
4'02*'20)
S
>$?)"'3
/0)+'#?#'<
7
Industry:
Lnergy
Leve| of D|ff|cu|ty:
Med|um
Case Iormat:
CpporLunlLy AssessmenL
Concepts 1ested:
! lnvesLmenLs
! CreaLlvlLy
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Gu|de to case ] Gu|de to handouts
art 1 Pand ouL exhlblL #1 afLer lnLroduclng case
! 1hls handouL should lead Lhe lnLervlewee Lo undersLand LhaL each
reglon wlll have dlfferenL geologlcal characLerlsLlcs whlch wlll affecL Lhe
drllllng Llme, producLlon, revenues and cosLs for 8ock Lnergy
art 2 roflLablllLy
! Clve ouL Lhe currenL spoL prlce and ask Lhe lnLervlewee Lo work ouL Lhe
proflLablllLy for each fleld, and noL only by well.
! 1he answer wlll be a funcLlon of Lhe lnvesLmenL, varlable cosLs, and
quanLlLy of oll exLracLed by fleld. 1hls lasL varlable wlll depend on Lhe
number of wells drllled ln one year.
art3 Concluslon and oLher lssues
! 8ock Lnergy should choose Lo buy Lhe rlghLs for keg|on 2 because lL wlll
offer Lhe besL proflLs, buL Lhere are oLher facLors LhaL could lmpacL Lhe
declslon Lo lnvesL:
! lnsurance cosLs
! ollLlcal sLablllLy of Lhe reglon
! Labor conLracLs and unlons
! volaLlllLy of oll prlces
! Cll quallLy dlfferences
C|ar|fy|ng answers to prov|de
lndusLry CharacLerlsLlcs/MarkeL Lconomlcs
! 1he rlghLs belng offered Lo 8ock Lnergy
glves Lhem Lhe rlghL Lo drlll durlng 1
year, and produce oll for 20 years.
Assume LhaL no oll ls produced unLll Lhe
beglnnlng of year 2.
! 8ock Lnergy can geL Lhe drllllng
operaLor Lo deploy a maxlmum of 10
rlgs ln each of Lhe reglons
! 1he cosL of Lhe rlg day lncludes crew,
consumables and servlces
! Any amounL of oll belng exLracLed wlll
be sold aL Lhe spoL markeL prlce of Lhe
momenL
! lor slmpllclLy assume LhaL Lhe oll wells
wlll produce Lhe same amounL of oll for
Lhe nexL 20 years wlLh no malnLenance
cosLs
! 1he rlghLs Lo exLracL oll cosL $40M ln
each reglon
111
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
112
rof|tab|||ty - uant|tat|ve ana|ys|s
WhaL are Lhe cosLs and expecLed revenues of each
lnvesLmenL opLlon? WhaL lnvesLmenL opporLunlLy should
8ock Lnergy pursue?
ua||tat|ve Issues
Lven Lhough Lhe numbers make keg|on 2 Lhe besL lnvesLmenL,
Lhere are oLher lssues LhaL would need Lo be analyzed by 8ock
Lnergy Lo fully undersLand Lhe rlsk of Lhe lnvesLmenL
Notes to |nterv|ewer
LxhlblL 1 1hls exhlblL should glve Lhe lnLervlewee enough
lnformaLlon Lo ldenLlfy Lhe number of wells and Lhe amounL
of LoLal oll LhaL could be exLracLed from each fleld, as well
as Lhe per well yearly producLlon. M|ss|ng Spot r|ce = 5S0
1here are Lhree ma[or polnLs Lo ldenLlfy: 1) 1he average well
producLlon ln 8eglon 3 ls Lhe largesL of all reglons, buL you
can only drlll 33/30 Lhe number of wells you can drlll ln
8eglon 1&2. 2) varlable cosLs on a per well basls show
8eglon 1 as Lhe mosL proflLable. 3) neverLheless, Lhe
number of wells you can achleve durlng Lhe flrsL year are
dlfferenL ln each reglon and Lhere ls a flxed cosL, so keg|on 2
wlll be Lhe mosL proflLable for 8ock Lnergy
1he yearly proflLs wlll be (CalculaLlons on nexL page):
8eglon 1 = 30M, keg|on 2 = 68M, 8eglon 3 = -4M
Notes to |nterv|ewer
There are several qualitative issues that need to be considered
when decldlng Lo make an lnvesLmenL llke Lhls, and Lhe
lnLervlewee ls expecLed Lo menLlon and analyze Lhe lmpacL of aL
leasL Lwo of Lhese:
! lnsurance cosLs: CounLrles have dlfferenL regulaLlons and mlghL
dlffer on Lhe requlred lnsurance coverage LhaL an Cll & Cas
company wlll need Lo hold. LlablllLy caps could vary by counLry,
affecLlng Lhe lnsurance cosL
! ollLlcal sLablllLy of Lhe reglon: Accesslng a well slLe could become
a challenge ln pollLlcally unsLable reglons. CLher properLy rlghL
rlsks could also affecL Lhe rlsk belng bared by Lhls flrm
! volaLlllLy of oll prlces: rlces below $27 wlll make all Lhe 8eglons
have a negaLlve reLurn
! Cll CuallLy: ulfferences ln Cll quallLy could have an lmpacL on Lhe
spoL prlce
112
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Math quest|on and so|ut|on
Math so|ut|on
1|me to comp|ete a we|| = (uepLh/eneLraLlon 8aLe): 8eglon 1 = 60, 8eglon 2 = 90, 8eglon 3 = 180
roduct|on per we|| by reg|on = ually producLlon * 360 days: 8eglon 1 = 36k, 8eglon 2=72k, 8eglon 3= 108k
Cost per we|| = uays Lo compleLe well*CosL per rlg day. ear|y kevenue per we|| = rlce * # barrels per year. Number of we||s per year =
360/(1lme Lo compleLe a well) * number of rlgs. roflL Margln = (roflL per well)/(cosL per well). 1ota| kevenue =(?early 8evenue) *( number of
wells per year). 1ota| Cost = (CosL per well)*(number of wells)+(8lghLs Lo exLracL oll). rof|t = 1oLal 8ev 1oLal CosL.
Math quest|on
WhaL are Lhe flrsL proflLs durlng Lhe flrsL year of producLlon (l.e. 1
sL
year spenL on drllllng, and producLlon beglns ln 2
nd
year)
ConcepL keg|on 1 keg|on 2 keg|on 3
lnvesLmenL CosL (8lghLs Lo exLracL oll) $ 40,000,000 $ 40,000,000 $ 40,000,000
CosL per well $ 300,000 $ 900,000 $ 3,600,000
?early 8evenue per well $ 1,800,000 $ 3,600,000 $ 3,400,000
roflL per well $ 1,300,000 $ 2,700,000 $ 1,800,000
roflL margln per well 300 300 30
number of wells per year
(360/60) = 7 x 10 8lgs =
60 40 20
1oLal 8evenue $ 108,000,000 $ 144,000,000 $ 108,000,000
1oLal CosL $ 38,000,000 $ 76,000,000 $ 112,000,000
rof|t 5 S0,000,000.00 5 68,000,000.00 5 (4,000,000.00)
113
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
8ock Lnergy should lnvesL ln buylng Lhe rlghLs for 8eglon 2
lL ls lmporLanL Lo recognlze LhaL even Lhough Lhe proflL margln for 8eglon 1 ls slgnlflcanLly hlgher
on a per well basls, Lhe reLurn of Lhe lnvesLmenL depends on Lhe LoLal number of wells LhaL you can
drlll ln Lhe flrsL year and Lhe upfronL cosL for Lhe rlghLs Lo exLracL oll ln LhaL 8eglon
AddlLlonally, Lhe lnLervlewee should be able Lo ldenLlfy oLher quallLaLlve aspecLs of Lhe lnvesLmenL
LhaL mlghL affecL Lhe declslon Lo lnvesL ln a cerLaln 8eglon
8onus]Gu|de to an Lxce||ent Case
An excellenL answer would menLlon and brlefly summarlze Lhe lmpacL of lncludlng an expecLed
value analysls, whlch would asslgn dlfferenL probablllLles of exLracLlng Lhe expecLed barrels per day
114
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #1: C|| I|e|d prof||es, 2010
20
30
20
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
8eglon 1 8eglon 2 8eglon 3
Dr||||ng rates by keg|on
1200
2700
3600
0
300
1000
1300
2000
2300
3000
3300
4000
8eglon 1 8eglon 2 8eglon 3
Average depth of we||s by keg|on
Average depLh (meLers)
M
e
L
e
r
s
/
d
a
y
A
v
g
.

u
e
p
L
h

(
m
e
L
e
r
s
)
keg|on 1 keg|on 2 keg|on 3
number of 8lgs LhaL would operaLe 10 10 10
Average well producLlon (barrels per day) 100 200 300
CosL per rlg day ($uS) $3,000 $10,000 $20,000
113
*Note: Wells are continuously dug for only one year and then oil is extracted going forward. Wells are dug by Rigs.
Cnce a Well has been compleLed, Lhe 8lg moves on Lo dlg anoLher well.
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Case tracker I|t uest|ons
Case uest|on
Crange 8eLaller Co. (C8C) manufacLures, lmporL/exporLs and dlsLrlbuLes h|gh-end world known brands and
conservaLlve/LradlLlonal apparel brands ln several counLrles ln LaLln Amerlca. C8C ls conslderlng enLerlng a new counLry
ln LaLln Amerlca, and you have been hlred Lo deLermlne wheLher Lhey should enLer Lhls new markeL or noL.
Dont mention this until they have determined to enter the market: WhaL would be Lhe besL enLry sLraLegy?
Spend f|rst 1S m|n on f|t
Ask lnLervlewee Lhe
name of a flrm wlLh
whlch Lhey have an
lnLervlew, Lhen ask Why
Lhls flrm?
1ell me abouL a Llme
when you led a Leam
Lhrough a challenge
Gu|de to |nterv|ewer
1hls case LesLs Lhe ablllLy Lo undersLand buslness concepLs
and quanLlfy Lhe poLenLlal beneflLs and rlsks of enLerlng a new
markeL.
1he lnLervlewee should be able Lo slze Lhe poLenLlal markeL,
dlsLlngulsh dlfferenL Lype of cusLomer segmenLs, and ldenLlfy
enLry sLraLegy for Crange 8eLaller Co.
AddlLlonally, Lhe lnLervlewee should ldenLlfy some assoclaLed
rlsks and poLenLlal ways Lo mlLlgaLe Lhem
Pand ouL exhlblL #1 Slze of poLenLlal markeL and cusLomer
segmenLs
Pand ouL exhlblL #2 Current players share and margins
AfLer quanLlfylng Lhe slze of Lhe opporLunlLy and Lhe ldeal
sLraLegy Lo enLer Lhls markeL, Lhe lnLervlewee should ldenLlfy
quallLaLlve aspecLs of enLerlng Lhls new markeL
Case 17: Crange keta||er Co.
12+$'"3
S
4'02*'20)
S
5.' 4#=)3
5.'3 4'%<
/0)+'#?#'<
116
Industry:
8eLall
Leve| of D|ff|cu|ty:
Med|um
Case Iormat:
MarkeL LnLry
Concepts 1ested:
! MarkeL Slzlng
! MarkeLlng SLraLegy
! CreaLlvlLy
8y: Maur|c|o Atr| (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Gu|de to case ] Gu|de to handouts
art 1 Pand ouL afLer lnLroduclng case
! ls Lhere a markeL opporLunlLy for C8C? WhaL ls Lhe slze of Lhe relevanL
markeL? lnLervlewee should quanLlfy Lhe slze of Lhe markeL for
fashlon/hlgh end and conservaLlve/LradlLlonal apparel
! AddlLlonally, Lhere should be lnslghL abouL Lhe mosL aLLracLlve cusLomer
segmenLs Lo LargeL
art 2 Pand ouL LxhlblL 2 afLer solvlng LxhlblL 1
! 1he daLa should lead Lhe lnLervlewer Lo recognlze LhaL Lhe hlgh-end
fashlon markeL ls probably drlven by brand and/or oLher facLors besldes
prlce. 1he marglns are more aLLracLlve. C8C should be able Lo leverage
the world known brands to attract customers in this segment.
Additionally, by targeting young adults and teen & children it can
serve +80 of Lhe markeL
! ln Lhe conservaLlve/LradlLlonal markeL, Lhere seems Lo be sLronger
compeLlLlon, whlch ls probably drlven prlmarlly by prlce. Achlevlng low
cosLs ln Lhls markeL by lmporLlng would be unllkely due Lo Larlffs, and
local manufacturing would probably require significant fixed (plants, )
and variable (labor, ) costs
art3 WhaL oLher elemenLs should C8C conslder ln lLs declslon Lo enLer
Lhls markeL?
C|ar|fy|ng answers to prov|de
Industry Character|st|cs]Market Lconom|cs
! Macroeconomlc ouLlook ls poslLlve ln
Lhe new markeL
! ulsLrlbuLlon channels are prlmarlly
deparLmenL sLores, free sLandlng polnLs
of sale, and onllne sales
C||ent Character|st|cs
! CllenL ls currenLly Lhe Lhlrd blggesL
apparel reLaller and has focused on l/P
and 1/C brands for over 30 years
! C8C has LradlLlonally LargeLed Plgh-Lnd
cllenLs, men and women of ages 13-40
117
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
1op|c 1 be|ng tested
WhaL ls Lhe poLenLlal of Lhe markeL for Lhls
apparel brand?
wbeo oskeJ, ooswet tbe followloq. Okc bos
ttoJltlooolly totqeteJ ^#%(6C$H clleots, meo
ooJ womeo of oqes 15-40
1op|c 2 be|ng tested
WhaL could Lhe cllenL drlvers be for each
segmenL?
Should C8C compeLe ln boLh segmenLs, one
or nelLher?
1op|c 3 be|ng tested
WhaL channels would you use Lo enLer Lhe
markeL
WhaL oLher elemenLs need Lo be
consldered?
Notes to |nterv|ewer
WlLh LxhlblL 1, you can esLlmaLe Lhe
slze of each markeL: value urlven
(243M), ConservaLlve (133M), lashlon
& Plgh-end (103M)
AlLhough Lhe hlgh-end markeL ls
smaller (103M) Lhan Lhe conservaLlve
markeL (133M), lLs concenLraLed ln
Lwo cusLomer segmenLs LhaL accounL
for ~70-80 of Lhe markeL, whlch
would make enLry efforLs slmpler and
more focused.
value urlven apparel ls noL someLhlng
ln whlch C8C focuses, so Lhey should
noL enLer Lhls segmenL
Notes to |nterv|ewer
1he lashlon/Plgh-end markeL seems
Lo be drlven by facLors such as brand,
tteoJloess lLems, asplraLlon aspecLs,
or slmllar. Assumlng manufacLurlng
cosLs are slmllar, players seem Lo be
able Lo charge more for producLs LhaL
have a brand recognlLlon
1he 1radlLlonal markeL appears Lo be a
prlce senslLlve markeL, drlven by cosL.
Assumlng LhaL C8C has no cosL
advanLages over local players, Lhls
seems llke a less aLLracLlve markeL
(Larlffs, or lnvesLmenL cosL would drlve
C8C prlces up)
C8C should only enLer Lhe l/P markeL
Notes to |nterv|ewer
C8C should probably enLer Lhe markeL
by dlsLrlbuLlng Lo deparLmenL sLores
coupled wlLh onllne opLlons, llmlLlng
cosLs of LesLlng Lhe markeL. Cnce Lhls
has proven successful, C8C should
Lhlnk abouL rolllng ouL a serles of free
sLandlng sLores, beglnnlng by flagshlps
sLores for Lhe brand whlch wlll help
Lhem poslLlon ln Lhe new markeL
Some of Lhe oLher elemenLs LhaL
could be consldered are: new
organlzaLlonal sLrucLure, lnvesLmenLs
ln adverLlslng, LransporLaLlon Llmes
and cosLs , and exchange raLes rlsk
118
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
C8C should enLer Lhe lashlon/Plgh-end market. It should be able to leverage the world known
brands to position itself in this market as an attractive option for the young adults and teens &
children segments.
1o enLer Lhls markeL, C8C should focus on deparLmenL sLores flrsL Lo LesL Lhe markeL wlLh low rlsk.
lL could enLer Lhe deparLmenL sLores and onllne channels wlLhouL Lhe need of a local parLner.
Cnce Lhe markeL has been LesLed, lL could be convenlenL Lo acqulre/form a !v Lo bulld an
lndependenL sLore neLwork
8onus]Gu|de to an Lxce||ent Case
An excellenL answer should menLlon lnvesLmenLs cosLs, manufacLurlng cosLs, LransporLaLlon cosLs,
and exchange raLe rlsks. lf cosLs are expensed ouLslde of Lhe new markeL, Lhere are opLlons Lo
mlLlgaLe exchange raLe rlsks by buylng currency flnanclal opLlons
119
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #1: Appare| market
49
31
21
0
10
20
30
40
30
60
70
80
90
100
MarkeL Share
lashlon/Plgh-end
1radlLlonal/ConservaLlve
value urlven
MarkeL Share (revenue)
$300M
70
30
43
40
24
33
34
20
6
13
21
40
0
10
20
30
40
30
60
70
80
90
100
Senlors AdulLs ?oung AdulLs 1eens &
Chlldren
lashlon/Plgh-end 1radlLlonal/ConservaLlve value urlven
MarkeL share by cusLomer
segmenL (revenue)
120
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #2: Current p|ayers
CurrenL players ln Lhe lashlon/Plgh-end markeL
Conservat|ve]
1rad|t|ona| |ayer 1 |ayer 2 |ayer 3 |ayer 4 |ayer S
MarkeL share 21 18 19 21 21
Cross Margln 21 22 20 23 20
CperaLlng Margln 11 12 10 13 10
CurrenL players ln Lhe ConservaLlve/1radlLlonal markeL
Iash|on]n|gh-end |ayer 1 |ayer 2 |ayer 3
MarkeL share 40 26 34
Cross Margln 70 43 33
CperaLlng Margln 43 18 30
121
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
122
Case tracker I|t uest|ons
Industry:
llnanclal Servlces
Leve| of D|ff|cu|ty:
Med|um
Case Iormat:
lmprovlng proflLablllLy,
8educlng CosLs
Concepts 1ested:
! Supply/value chaln
! MarkeLlng sLraLegy
! CusLomer sLraLegy
Case uest|on
Cur cllenL, vlLallLy lnsurance, ls a leadlng provlder of supplemenLal lnsurance producLs ln Lhe unlLed SLaLes.
vlLallLy agenLs parLner wlLh companles Lo offer Lhelr employees opLlonal, supplemenLal lnsurance for such condlLlons as
llfe, cancer, eLc.
vlLallLy has undergone falrly sLeady growLh ln Lhe pasL Lwo years, buL Lhey suspecL LhaL some of Lhelr cosLs may be ouL of
whack. ls tbls loJeeJ ttoe, ooJ, lf so, wbot sboolJ tbey Jo oboot lt?
Spend f|rst 1S m|n on f|t
Clve me an example of
when you had Lo
moLlvaLe oLhers who dld
noL reporL Lo you
Pow would a frlend, or a
professor who knows
you well, descrlbe you?
Gu|de to |nterv|ewer
1hls case ls prlmarlly abouL dlagnoslng Lhe source of cosL
lncreases for an lnsurance flrm and Lhen deLermlnlng
wheLher Lhose lncreases are [usLlfled by lncreased proflLs
1he case ls falrly sLrucLured ln LhaL Lhe lnLervlewee wlll
need to peel back the layers of this case in the
followlng process
8ecognlze LhaL sales cosLs are ouL of whack
ldenLlfy Lhe shlfL ln sales conLesL mlx for 2010
LvaluaLe Lhe effecLlveness of Lhe new conLesL mlx
WlLh any cosL reducLlon case, an lnLervlewee may seek
lnformaLlon on oLher cosL drlvers. lf Lhls occurs, pollLely
Lell Lhe lnLervlewee noLhlng else exlsLs and Lhen refocus
Case 18: V|ta||ty Insurance, Inc.
12+$'"3
6
4'02*'20)
7
D)H2*#$%
*-"'"_
K0-:#'
8y: eter Manoog|an (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
123
C|ar|fy|ng answers and case gu|de
Gu|de to case ] Gu|de to handouts
Lxh|b|t 1 rovlde once lnLervlewee recelves clarlfylng lnformaLlon
(lefL pane) and asks for more deLall on cosLs
lotetvlewee sboolJ tecoqolze tbe followloq.
! All llne lLems excepL for sales cosLs growlng aL 10 per year
! Sales cosLs grow aL 10 from 2008 Lo 2009, buL aL 43 from 2009
Lo 2010 (whlle premlum growLh remalns aL 10)
! SLronger lnLervlewees wlll qulckly noLe LhaL someLhlng ls sLrange
w/Lhe 2010 sales cosLs, buL wlll calculaLe Lo conflrm
! llnally, proflL marglns are decllnlng slgnlflcanLly from 09-10,
suggesLlng LhaL Lhe lncrease ln sales cosLs ls noL paylng off
Lxh|b|t 2 rovlde lf lnLervlewee asks abouL Lhe value chaln or selllng
process. lf Lhe lnLervlewee asks abouL Lhe new conLesLs focused
on premlum, provlde Lhe followlng lnformaLlon:
! Vitality launched a contest called Sweeps Week that aimed to
drlve lncreased premlum ln weeks LhaL were LradlLlonally low
volume for Lhe company. vlLallLy pald an exLra 10 commlsslon
on all premlum booked ln Lhose Lwo weeks.
! Sales agents thought Sweeps Week was a great contest
! We have no lnfo on Lhe addlLlonal Lwo conLesLs on new accounLs
Lxh|b|t 3- rovlde lf lnLervlewee asks for furLher deLall on Lhe
effectiveness of Sweeps Weeks
C|ar|fy|ng answers to prov|de
C||ent Character|st|cs
! vlLallLy ls Lhe leader ln lLs caLegory and
has over 10k fleld sales agenLs
! vlLallLy sells all pollcles Lhrough lLs fleld
sales agenLs who are solely compensaLed
on a commlsslon of LoLal new premlum,
deflned as premlum from new cusLomers
or addlLlonal premlum (up-sell) from
exlsLlng pollcyholders
! ln addlLlon Lo Lhe commlsslon, shorL Lerm
prlorlLles are ofLen communlcaLed vla
sales conLesLs LhaL focus on a parLlcular
cusLomer segmenL or acLlvlLy
! Ma[or cosLs: sales, C&A, and adverLlslng
Compet|t|on
! vlLallLy has a few oLher compeLlLors ln Lhls
markeL who have seen slmllar growLh, buL
vlLallLy ls a leader ln Lhe space and Lhus
compeLlLlon ls noL Lhe focus
Industry trends
! MaLure markeL
! AgenL Lurnover ls very hlgh on a yearly
basls (Lhough was lower durlng Lhe
recesslonary perlod)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
124
key e|ements to ana|yze
Supp|y]va|ue cha|n
As seen ln Lxh|b|t 2; Vitalitys sales agents are engaged
ln several acLlvlLles along Lhe sales process, and LhaL
new premlum can be generaLed ln many ways.
1he lnLervlewee should recognlze Lhe shlfL ln conLesL
mlx from 2008/09 Lo 2010. Coupled wlLh Lhe addlLlonal
lnformaLlon provlded ln Lhe prevlous sllde, Lhe
lnLervlewee should reallze LhaL vlLallLy has shlfLed lLs
focus more Loward LoLal premlum and new accounLs ln
2010
Market|ng strategy
Lxh|b|t 3 shows weekly premlums for all of vlLallLy from 2008
2010. 1he charL ls shown ln a way LhaL compares each
years actual premium to the average of historical premium
for that year, so as to provide for a benchmark comparison.
The Sweeps Week contest launched in 2010 is shown in
weeks 4 and 20 ln Lhe charL, and clearly ylelds hlgh premlum
volume for Lhose parLlcular weeks. Powever, lL ls done aL Lhe
expense of Lhe weeks surroundlng Lhe sweeps week.
This implies that agents may be gaming the system by
pushlng/pulllng sales lnLo LhaL week Lo earn Lhe conLesL $$
Notes to |nterv|ewer
Assume Lhe Lypes of conLesLs run ln 2008 and 2009 were
falrly slmllar
uo noL share Lxh|b|t 3 unLll Lhe lnLervlewee recognlzes
Lhls shlfL ln mlx and beglns asklng quesLlons abouL Lhe
new programs
Notes to |nterv|ewer
If asked, confirm that agents have authority to book sales
whenever Lhey wanL by lnfluenclng Lhe enrolmenL Llmlng by
up Lo one week
SLrong lnLervlewees wlll also recognlze LhaL, desplLe noL
havlng charLs Lo supporL lL, a shlfL ln cusLomer focus Loward
acqulrlng new accounLs ln 2010 wlll llkely also hlnder proflL
marglns, as acqulrlng a new cusLomer cosLs conslderably
more Lhan reLalnlng (or up-selllng) an exlsLlng cusLomer
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
The interviewee should conclude that Vitality overspent in 2010 on the Sweeps Week sales contest, thus hurting
lLs proflLablllLy
LxhlblL Lhree lndlcaLes LhaL Lhe conLesL lnfluenced Lhe sales force Lo conducL undeslrable selllng pracLlces by
pushlng / pulllng forward buslness Lo earn Lhe exLra commlsslon
Further, the contests focus, driving new premium was duplicative with that of the main commission system,
Lherefore lL dld noL add much value
Recommendation: eliminate Sweeps Week for 2011 and potentially repurpose those funds toward an activity that
ls noL already covered by Lhe maln commlsslon sLrucLure
lL ls unclear wheLher we should remove Lhe lncreased conLesLs on new accounLs, as Lhls could be a new cusLomer
focus LhaL we do noL know abouL
8onus]Gu|de to an Lxce||ent Case
SLrong candldaLes wlll make Lhe followlng observaLlons:
8ecognlze LhaL Lhe llkely decllne ln proflL margln from 2009 Lo 2010 ls llnked Lo Lhe abnormal lncrease Lo
sales cosLs
That the contest mix in Exhibit two is similar to a firms marketing mix, especially given that the sales
channel has already been esLabllshed as Lhe maln markeLlng channel for Lhese producLs
SuggesL LhaL Lhe added conLesLs on acqulrlng new accounLs wlll also decrease proflLablllLy because acqulrlng
new cusLomers ls more cosLly Lhan reLalnlng exlsLlng ones.
123
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 1: V|ta||ty |nsurance resu|ts and ma[or costs
126
V|ta||ty |nsurance key resu|ts and costs (I|gures |n 000s)
2008 2009 2010
AccounLs converLed 300 330 603
1oLal pollcyholders enrolled 1,300 1,630 1,813
1oLal premlum from pollcyholders $2,300,000 $2,730,000 $3,023,000
1oLal cosLs
Ceneral and AdmlnlsLraLlve $30 $33 $38
Sales $230 $273 $400
AdverLlslng $23 $28 $30
roflL margln 9.30 9.40 8.30
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 2: V|ta||ty |nsurance sa|es process
127
# of oqeot focoseJ soles cootests totqeteJ ot tbese levetoqe polots oo tbe sellloq ptocess
2008 N/A 2 4 1 2
2009 N/A 2 4 1 2
2010 N/A 4 0 1 4
Y
e
a
r
n|re new
agents
Acqu|re new
accounts
Ga|n act|ve
po||cy
ho|ders
keep
accounts
act|ve
roduce
resu|ts
(rem|um)
keact|vat|ng
dormant
account
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Exhibit 3: Snapshot of Sweeps Week contest results
128
0%
50%
100%
150%
200%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Week during Jan-Jun
Yr 2008
Yr 2009
Yr 2010
2010 Sweeps
Week (2)
kat|o to Average Week|y rem|um (2008-2010)
2010 Sweeps
Week (1)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
129
Case tracker I|t uest|ons
Case uest|on
Cur cllenL ls a for-proflL, speclalLy college named Chlc CosmeLology unlverslLy (CCu). lounded ln 2003, CCu ls a program
for hlgh school graduaLes seeklng Lhelr professlonal cosmeLology llcense. CCu ls currenLly Lhe markeL leader for
cosmeLology educaLlon wlLh campuses ln Len ma[or meLropollLan areas ln Lhe uS.
ccu bos copltol to lovest lo o oew compos ooJ ls cooslJetloq cblcoqolooJ os o locotloo sboolJ tbey Jo lt?
(lf lotetvlewee osks oboot O1nk objectlves ot Jefloloq soccess fot opeoloq tbe oew locotloo). 1he cllenL conslders a
successful launch as achlevlng poslLlve operaLlng proflL for Lhe new campus Lwo years afLer openlng
Spend f|rst 1S m|n on f|t
1ell me abouL a dlfflculL
or senslLlve slLuaLlon
LhaL requlred careful
communlcaLlon
uescrlbe a pro[ecL or
ldea LhaL was lnLroduced
or lmplemenLed because
of your efforLs
Gu|de to |nterv|ewer
1hls case lnvolves some number crunchlng buL ls more
sLrucLurally focused. lL ls crlLlcal Lo ensure LhaL Lhe
lnLervlewee lands on Lhe flgures presenLed (or ls course
correcLed Loward Lhem) ln order Lo proceed wlLh Lhe
laLer parLs of Lhe case.
1he lnLervlewee should be able Lo develop a varlanL of
Lhe followlng quesLlon:
wlll ccu be oble to eotoll eoooqb stoJeots to offset
tbe loltlol lovestmeot ooJ ocbleve posltlve ptoflt?
key case sLeps:
1. LvaluaLe CCu revenue and cosL sLrucLures
2. Project CCUs market share
3. LsLlmaLe CCu Chlcago enrollmenLs
4. ldenLlfy quallLaLlve lssues Lo conslder
Case 19: Ch|c Cosmeto|ogy Un|vers|ty
12+$'"3
7
4'02*'20)
8
OPC
5.'3 4'%<
5.' 4(+0)
>$?)"'3
Industry:
LducaLlon
Leve| of D|ff|cu|ty:
Med|um
Case Iormat:
CpporLunlLy
AssessmenL
Concepts 1ested:
! 8reak-Lven Analysls
! MarkeLlng SLraLegy
! MarkeL Share
! lnvesLmenLs
8y: eter Manoog|an (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
130
C|ar|fy|ng answers and case gu|de
Gu|de to case ] Gu|de to handouts
Share Lxh|b|t 1 wlLh lnLervlewee afLer problng quesLlons are
recelved abouL CCus revenues and cosLs . lnLervlewee should be
able Lo compuLe Lhe followlng:
! Average revenue per enrollmenL = $13k (revenue / LoLal
enrollmenLs)
! 1oLal annual flxed cosL per campus = $4.8M ($48M / 10)
! 1oLal varlable cosL per sLudenL = $8k ($80M / 10k)
! Cross proflL per sLudenL = $7k ($13k - $8k)
AfLer LhaL, Lhe lnLervlewee should begln Lo Lackle Lhe overall
opporLunlLy ln Lhe area as well as how many enrollmenLs CCu
could reasonably expecL Lo obLaln ln year 1
Share Lxh|b|t 2 wlLh lnLervlewee afLer some of Lhe quallLaLlve
aspects of CCUs targeting and marketing strategy are covered.
AddlLlonally, Lhe lnLervlewee should have asked abouL compeLlLor
lnformaLlon or made some aLLempL Lo assess whaL share of Lhe
markeL Lhey should expecL ln Chlcago.
! See Market Share section in next slide for further
lnformaLlon on Lxh|b|t 2
C|ar|fy|ng answers to prov|de
C||ent Character|st|cs
! Lnrolled sLudenLs Lake classes aL a
physlcal campus for one school year Lo
earn degree (l? beglns on 9/1)
! CCu boasLs Lhe besL campuses ln Lhe
lndusLry wlLh sLaLe of Lhe arL equlpmenL
! Strong job placement due to CCUs
relaLlonshlps wlLh Lop salons ln local areas
! CCu and lndusLry enrollmenLs growlng aL
3 per year
Compet|t|ve Dynam|cs
! 2-3 oLher large speclalLy colleges, some of
whlch are ln Lhe same geographles as CCu
! CommunlLy colleges beglnnlng Lo offer
cosmeLology degrees aL lower prlces
! All Len CCu campuses have been presenL
for aL leasL Lhree full school years
! All compeLlLor campuses have also been
presenL for slmllar lengLhs of Llme
Industry Character|st|cs]Lconom|cs
! P.S. ulploma and cosmeLology degree
requlred Lo enLer Lhe fleld
! 98 of cosmeLologlsLs are women
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
131
key e|ements to ana|yze
8reak-even ana|ys|s
Pow many sLudenLs wlll CCu need
Lo break-even ln year 1?
Market|ng strategy
WhaL Lypes of schools / sLudenLs do you Lhlnk
CCu LargeLs?
Notes to |nterv|ewer
lnLervlewee should ask abouL Lhe
lnvesLmenL cosL of bulldlng a new
campus ln Chlcagoland
AfLer asklng, Lell lnLervlewee LhaL
Lhe LoLal cosL ls $4.3M ln lnlLlal
bulldlng cosLs Lo renovaLe lLs chosen
slLe. 1hese cosLs can be amorLlzed
evenly over a Lhree year perlod.
Assume flxed cosLs remaln flaL per
year
lnLervlewee should calculaLe
1oLal flxed cosLs per year = $6.3M
($4.8M + $1.3M from amorLlzaLlon).
Cross proflL per sLudenL = $7k
8reak-even number of enrollmenLs
per year = 900 ($63M / $7k)
Notes to |nterv|ewer
osslble responses (schools):
-ubllc schools (prlvaLe PS more llkely Lo have
grads go Lo 4yr unlv)
-HSs in middle-class clLles (may be an
affordablllLy lssue w/lo lncome)
-ClosesL Lo Lhe campus (geography)
osslble responses (sLudenLs)
-Women PS graduaLes
-noL aLLendlng 4yr college
-lnLeresLed ln cosmeLology
After a few of the above cr|ter|a are noted,
share:
! CCu has ldenLlfled 1,000 LargeLed hlgh
schools ln Lhe Chlcagoland area
! Within these HS, CCUs market research
esLlmaLes LhaL on average 6 sLudenLs per PS
have potential for CCU enrollment
Market share
WhaL ls Lhe hlghesL share we could
expecL CCu Chlcago Lo capLure ln ?1?
Notes to |nterv|ewer
Show Lxh|b|t 2 Lo lnLervlewee
lnLervlewee should recognlze:
! Campuses w/compeLlLors presenL
Lend Lo have a lower share (10)
Lhan Lhose w/ouL (13)
! Powever, presence of >1
compeLlLor does noL have an
lncreased negaLlve lmpacL on
markeL share (8osLon has 8
share w/only one compeLlLor)
! lnLervlewee should assume a
pro[ecLed 10 markeL share for a
Chlcago campus (one compeLlLor)
A|so share the fo||ow|ng :
80 of enrolled sLudenLs dlrecLly from
hlgh school, Lhe oLher 20 of sLudenLs
come from the Adult market
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
132
Math quest|ons
1. WhaL ls Lhe breakeven number of sLudenLs requlred for CCu Chlcago?
2. Pow many sLudenLs should CCu Chlcago expecL Lo enroll ln year 1, aL Lhe mosL?
3. (lf Llme permlLs) = Suppose CCu flnds a loL wlLh a one Llme consLrucLlon cosL of $300k wlLh Lhe same
amorLlzaLlon schedule. Should Lhey enLer Chlcago now?
Ca|cu|at|ons
1. 8reak-even: (Lst|mated campus f|xed cost + ear|y amort|zat|on ) ] gross prof|t per student
( $4.8M + $1.3M ) / $7k = 900 sLudenLs
2. Students: 1ota| potent|a| students x max|mum pro[ected market share
1oLal poLenLlal sLudenLs = oLenLlal (PS) + oLenLlal (AdulL) = 7,300 sLudenLs
oLenLlal (PS) = 6 / PS x 1,000 LargeLed PS = 6,000 sLudenLs
oLenLlal (AdulL) = 6,000 sLudenLs * 23 = 1,300 sLudenLs
1oLal poLenLlal sLudenLs (year 1) = 7,300 sLudenLs x 10 share = 730 sLudenLs
1oLal poLenLlal sLudenLs (year 2) = 730 sLudenLs x 1.03 (growLh) = 788 sLudenLs
3. 8reak-even: (Lst|mated campus f|xed cost + new year|y amort|zat|on ) ] gross prof|t per student
( $4.8M + $0.1M ) / $7k = 700 sLudenLs
Ca|cu|at|ons
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
133
So|ut|on & kecommendat|ons
Cverall, our cllenL should nC1 enLer Lhe Chlcago markeL under Lhe currenL cosL sLrucLure. Lven wlLh a 10 markeL
share assumpLlon ln year 1, Lhe Chlcago campus wlll enroll only 730 sLudenLs, Lhls ls 130 fewer Lhan Lhe 900
requlred Lo break-even.
1he cllenL should also conslder several quallLaLlve lssues:
Conslder offerlng scholarshlps Lo lncrease Lhe number of poLenLlal sLudenLs and/or converslon raLe of poLenLlal
sLudenLs
Conslder oLher clLles beyond Chlcagoland LhaL currenLly do noL have a CCu presence, or add a second campus
Lo a clLy such as n?C LhaL has hlgh markeL share and poLenLlally low capaclLy
erform markeL research ln oLher clLles Lo undersLand lf Lhere ls a greaLer poLenLlal per LargeL hlgh school Lo
lncrease 8Cl
Conslder ways Lo reduce flxed cosLs (e.q., LransporLlng equlpmenL / maLerlals from campuses LhaL are noL aL
capaclLy)
8onus]Gu|de to an Lxce||ent Case
LxcellenL lnLervlewees wlll recognlze LhaL Lhe 10 markeL share ls for campuses LhaL have been ln place for aL leasL
Lhree years , Lherefore Chlcago ls unllkely Lo achleve LhaL share ln year 1 or 2, Lhls rules ouL Lhe feaslblllLy of Lhe
follow-up quesLlon LhaL suggesLs Lhe posslblllLy of reduclng Lhe one-Llme lnvesLmenL from $4.3M Lo $300k.
AddlLlonally, a sLrong lnLervlewee wlll ldenLlfy several of Lhe quallLaLlve lssues llsLed above as ways ln whlch CCu
could proceed
So|ut|on and recommendat|ons
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 1: 2010 CCU I|nanc|a|s
134
CCU I|nanc|a|s as of 8]31]2010 ('000s)
SLudenL enrollmenLs (all campuses) 10
8evenue from enrollmenLs $130,000
1oLal flxed campus cosLs $48,000
8ulldlngs and equlpmenL $32,000
8ecrulLlng, general, and admlnlsLraLlve $16,000
1oLal varlable campus cosLs $80,000
lnsLrucLors $40,000
SLudenL supplles $40,000
Cperat|ng prof|t $22,000
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 2: CCU and ma[or compet|tor campus |ocat|ons
133
Campus
2010
share*
San lran 8
LA 14
Mlnneapolls 13
uallas 14
PousLon 10
ALlanLa 16
Mlaml 12
hllly 12
new ?ork ClLy 16
8osLon 8
* Measured as share of total potential students, as defined by CCU
CCU Campus
Ma[or compet|tor campus
As of 8/J1/2010
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
136
Case tracker I|t uest|ons
Industry:
1ech/1elecom
Leve| of D|ff|cu|ty:
Lasy
Case Iormat:
ueveloplng a new
producL
Concepts 1ested:
! MarkeLlng SLraLegy
! CusLomer sLraLegy
! CreaLlvlLy
Case uest|on
Cur cllenL, ulgl8ooks, ls a manufacLurer and seller of elecLronlc book readers . ulgl8ooks also dlsLrlbuLes e-books for Lhe
e-reader Lhrough Lhelr webslLe. 1he reader ls only compaLlble wlLh books sold Lhrough Lhe ulgl8ooks slLe.
ulgl8ooks ls plannlng Lhe launch of lLs e-book readers ln a counLry where no e-book readers are currenLly sold. Cnly 1 of
Lhe populaLlon has ever used a e-book reader, Lhough 30 ls aware of Lhe concepL. 1he Chlef MarkeLlng Cfflcer of
ulgl8ooks has come Lo you Lo help deLermlne:
now sboolJ ulql8ooks looocb ooJ motket tbe e-teoJet ptoJoct lo tbls oew coootty?
Spend f|rst 1S m|n on f|t
1ell me abouL a Llme
when you falled.
Share me a Llme when
you faced a dlfflculL
slLuaLlon ln a Leam and
how you solved Lhls .
Gu|de to |nterv|ewer
1he case prlmarlly LesLs Lhe undersLandlng of markeLlng
concepLs, speclflcally a new producL launch.
1he case ls wrlLLen ln Mcklnsey sLyle formaL, Lhe
lnLervlewer ls expecLed Lo gulde Lhe lnLervlewer sLep by
sLep Lhrough each quesLlon.
8egln by laylng ouL Lhe slLuaLlon and case quesLlon, allow
Lhe lnLervlewee Lo layouL Lhelr sLrucLure, and Lhen [ump
lmmedlaLely Lo quesLlon 1. 1he lnLervlewer ls expecLed
Lo drlve Lhls case raLher Lhan Lhe lnLervlewee.
Case 20: D|g|8ooks Inc.
12+$'"3
4
4'02*'20)
7
5`B 4'%<
/2"'3 4'%<
/0)+'#?#'<
By: Shobhit Chugh (Kellogg Class of 11), Edited By: Adam Louras (Kellogg Class of 11)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to case and handouts
Case Structure Interviewees structure should cover the key areas needed to explore in
order Lo deLermlne how ulgl8ooks should launch and markeL Lhe reader ln Lhls counLry.
1he lnLervlewee should Lake a few mlnuLes Lo skeLch ouL a framework for
analysls of Lhe markeLlng plan
key elemenLs expecLed Lo be lncluded ln Lhls framework are:
Segmentat|on, target|ng and pos|t|on|ng: Are Lhere parLlcular segmenLs
ln Lhe populaLlon LhaL wlll be ldeal cusLomers for us?
roduct: WhaL key capablllLles are people looklng for? Can we use our
exlsLlng producLs or do we need Lo develop a new one for Lhls counLry?
r|ce: WhaL prlce should Lhe readers and books be sold aL? WhaL ls
cusLomers wllllngness Lo pay? Should we prlce Lhe reader aL a low prlce
so as Lo capLure mosL of Lhe markeL, and make margln on e-books?
romot|on: Pow should Lhe e-reader be markeLed? WhaL promoLlon
mechanlsms should be used?
|ace]D|str|but|on: Should Lhe readers be sold Lhrough reLall channels,
lnLerneL or oLher alLernaLlve means?
Se|ect|on of e-books: ls a wlde selecLlon of books avallable for Lhls
counLry?
rompts 1-3 AfLer Lhe lnLervlewee has lald our Lhelr sLrucLure, begln by asklng Lhe
quesLlon ln rompL 1. Cnce each prompL has been sufflclenLly covered, move Lo Lhe
nexL prompL. AfLer all prompLs are compleLe, ask Lhe lnLervlewee Lo summarlze Lhelr
flndlngs. nC1L: rompL 2 allows for creaLlvlLy, so use your [udgmenL when evaluaLlng.
C|ar|fy|ng answers to prov|de |f
Asked
Industry Def|n|t|ons
! -book teoJet: ls a sofLware, hardware
and neLwork plaLform LhaL uLlllzes
wlreless connecLlvlLy Lo enable users Lo
shop for, download, browse, and read e-
books, newspapers, magazlnes, blogs,
and oLher dlglLal medla.
C||ent Character|st|cs
! DigiBooks Product: uses an e-lnk
elecLronlc paper dlsplay LhaL feaLures 16
shades of grey. 1hls allows for a 12 hour
long baLLery llfe and easy readablllLy.
! locotloos. ulgl8ook has never sold a
producL ouLslde of Lhe uS.
Compet|t|ve Dynam|cs
! no compeLlLors ln Lhe e-book or LableL
space plan Lo enLer Lhls counLry
137
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
rompt #1: Cust. Strategy
1hrough research, we found several
segmenLs. (Pand ouL Lxh|b|t 1). We are only
able Lo LargeL one segmenL wlLh our producL.
usloq o J-yeot ptojectloo, wblcb seqmeot
sboolJ tbe e-book teoJet totqet?
rompt #2: Mk1 Strategy
ulgl8ooks ls now conslderlng how lL should
sell lLs e-book readers: Lhrough reLall sLores or
Lhrough Lhe lnLerneL.
now woolJ yoo qo oboot evolootloq tbls
Jeclsloo?
rompt #3: Mk1 Strategy
8ased on revlsed markeL esLlmaLes, we
declded Lo prlce Lhe e-reader aL $100 and
LargeL Lhe Cccaslonal 8eader segmenL.
usloq tbls lofotmotloo ooJ CJ(#,#' V, coo yoo
estlmote tbe ptoflt poteotlol of eocb of tbese
soles cboooels? wblcb sboolJ we cboose?
WhaL segmenL would you recommend Lo your
cllenL?
Notes on Lxh|b|t 1
lf unclear, Lhe lnLervlewee should answer based on
8evenue oLenLlal (l.e. lgnore probablllLy of
purchase) assumlng all reader sales happen
lmmedlaLely (lgnore 1vM).
1he mlsslng daLa ls LhaL Lhe average prlce of an e-
book ls $10, for each of Lhe segmenLs, and LhaL e-
books and e-reader have Lhe same margln
uslng Lxh|b|t 1, lnLervlewee should calculaLe:
S8 8evenue = [(13 books x $10 x 3 ?ears) +
($200 x 1 e-reader)] x 8M eople = $3.28
C8 8evenue = [(10 books x $10 x 3 ?ears) +
($123 x 1 e-reader)] x 20M eople = $8.38
88 8evenue = [(3 books x $10 x 3 ?ears) + ($173
x 1 e-reader)] x 10M eople = $3.238
ANSWLk: Segment to be targeted = occas|ona|
readers (Ck) w|th a kevenue otent|a| of 58.S8
Notes on rompt #2
keta|| Channe| Samp|e kesponses:
CCnS:
Lower margln due Lo value chaln
expanslon
Wlll Lake Llme and money Lo seL up and
adds Lralnlng cosLs
8CS:
Should encourage 1rlal of Lhe producL
8eLallers can help wlLh [olnL markeLlng
campalgns
8eLallers can help wlLh cusLomer servlce,
reLurns
Internet channe| Samp|e keponses:
8CS: Llkely cheaper Lo esLabllsh, wlll resulL ln
hlgher marglns
CCnS: Pard Lo encourage Lrlal
Notes on Lxh|b|t 2
lf unclear, Lhe lnLervlewee should answer Lhls wlLh
a 1-year Cross roflLablllLy calculaLlon for each of
Lhe Sales Channels and back ouL Lhe upfronL
lnvesLmenL. 1hey should lgnore all oLher cosLs
such as SC&A.
1here ls no mlsslng daLa, however, Lhe MarkeL Slze
of 20M people ln Lhe C8 segmenL ls needed from
Lxh|b|t 1 and Lhe prlce per e-book of $10.
uslng Lxh|b|t 2, lnLervlewee should calculaLe:
ketoll ltoflt = [(10 8ooks x $10/book x 30CM)
+ ($100/e-reader x 30CM)] x (10M eople x
40 eneLraLlon) = $320M - $20M ll = 5300M
lotetoet ltoflt = [(10 8ooks x $10/book x
30CM) + ($100/e-reader x 60CM)] x (10M
eople x 10 eneLraLlon) = $110M - $10M ll =
5100M
ANSWLk: Sa|es Channe| to Use = keta|| w|th a
prof|t of 5300M
138
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
Cverall, our ulgl8ooks should launch Lhe e-book reader for Lhe Cccaslonal 8eader segmenL
Lhrough Lhe 8eLall Sales Channel.
8ased on our calculaLlons, we expecL Lo earn a $300MM reLurn on an lnlLlal lnvesLmenL of $20MM
Cther |tems to cons|der:
WhaL adverLlslng mechanlsms do we use ln Lhls case?
uo we seLup a manufacLurlng faclllLy ln Lhe counLry or do we source Lhe producLs from our
currenL manufacLurlng faclllLles?
Are Lhere any prospecLs of compeLlLors enLerlng Lhe markeL?
8onus]Gu|de to an Lxce||ent Case
An lnLervlewee who noLlces key nuances ln Lhe case such as: 1lme value of Money lmpacLs on
LxhlblL 1 and robablllLy of urchase or eneLraLlon on LxhlblL 1
An excellenL lnLervlewee wlll deLall varlous elemenLs of markeLlng sLraLegy of a new producL launch
A key elemenL of Lhls case ls belng able Lo do relaLlvely complex calculaLlons aL a fasL pace. Laylng
ouL Lhe Lables approprlaLely for Lhls case ls essenLlal Lo success
139
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #1: Market segments
Segment S|ze
Super 8eaders (S8) 8M
Cccaslonal 8eaders (C8) 20M
8are readers (88) 10M
5200
512S
517S
140
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #2: Channe| dec|s|ons
Channe| ercent of
1ota|
potent|a|
market
L book Gross
Marg|n
L-reader
Gross
Marg|n
enetrat|on In|t|a|
|nvestment
8eLall 30 30 30 40 $20M
lnLerneL 30 30 60 10 $10M
141
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Case tracker I|t uest|ons
Case uest|on
lL ls 2003, and our cllenL offers afLer school programmlng focused on supporLlng aL-rlsk youLh Lhrough hlgh school,
enabllng Lhem Lo enLer and succeed ln college.
The client is trying to identify the best approach to meet its growth target. The clients goals for expansion are to most
efflclenLly serve sLudenLs aL 7 new slLes, whlle ralslng Lhelr naLlonal proflle. We have been hlred Lo help Lhem veL
poLenLlal slLes Lo maxlmlze Lhelr soclal and flnanclal lmpacL.
Spend f|rst 1S m|n on f|t
Why are you interested
ln ConsulLlng as a career
and our flrm ln
particular?
Tell about a time you
falled and whaL you
learned from Lhe
experience?
Gu|de to |nterv|ewer
1hls case should be dellvered Mcklnsey-sLyle, l.e.
followlng presenLaLlon of Lhe framework, Lhe lnLervlewer
should gulde Lhe lnLervlewee from quesLlon Lo quesLlon.
1he secreL Lo Lhls case ls Lhoroughly undersLandlng Lhe
clients business and goals. Interviewers should
encourage Lhe lnLervlewee Lo Lake Llme Lo undersLand
the clients business model and to be sure they
Lhoroughly undersLand Lhe quesLlons belng asked.
1hls case focuses on undersLandlng noL only Lhe flnanclal
ob[ecLlves buL also Lhe oLher ob[ecLlves/lmpacL LhaL a
cllenL wlshes Lo achleve and Lhese should lmpacL Lhe
analysls and recommendaLlons Lo be dellvered.
Case 21: After Schoo| rogramm|ng
12+$'"3
10
4'02*'20)
10
A0%3 /(%
/+K3 CJK3
/2"'3 4'%<
5.'3 4'%<
142
By: David Morse (Kellogg Class of 11), Edited By: Ameed Mallick (Kellogg Class of 12)
Industry:
CLher (non-roflL)
Leve| of D|ff|cu|ty:
nard
Case Iormat:
CrowLh SLraLegles
Concepts 1ested:
! CrganlzaLlonal
! CapaclLy Lxpanslon
! CusLomer SLraLegy
! MarkeLlng SLraLegy
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to case and handouts
uest|on 1: what are the clients options for locating and for opening new sites, and what
are some conslderaLlons Lhe cllenL should conslder ln selecLlng among Lhese opLlons?
uest|on 2: lets look at the financial considerations, particularly at the effect of additional
slLes on cenLral cosLs. 1he cllenL allocaLes cenLral offlce cosLs Lo each wholly owned slLe
on a unlform basls, l.e. LoLal cenLral offlce cosLs / 8 = allocaLlon per slLe. 1he cllenL wanLs
Lo undersLand how expandlng slLes wlll affecL Lhe per wholly owned slLe allocaLlon of
central costs. For this analysis, assume that central costs dont vary depending on the
meLhod selecLed for expanslon. (Show Lxh|b|t 1)
uest|on 3: from a mlsslon perspecLlve, our cllenL Lhlnks LhaL servlng areas wlLh a hlgh
denslLy of aL-rlsk youLh wlll besL dellver lLs mlsslon as well as ralse lLs naLlonal proflle. As
such, lL would llke Lo deLermlne whlch geographlc areas show Lhe mosL promlse for
mlsslon fulflllmenL. 1hey provlded some daLa from represenLaLlve school dlsLrlcLs for an
lnlLlal analysls: (Show Lxh|b|t 2)
uest|on 4: earller, you llsLed some addlLlonal facLors LhaL mlghL help Lhe cllenL screen
new locaLlons. WhaL do you Lhlnk are Lhe pros and cons of Lhese addlLlonal facLors ln
each geographic area? How might this influence the clients choice of target
geographles?
uest|on S: lets wrap up with a summary of your findings and a recommendation to the
cllenL.
Answer The interviewee cannot solve this case without understanding the clients
buslness and goals
C|ar|fy|ng answers to prov|de |f
Asked
1he fo||ow|ng |nformat|on can be prov|ded |f
the |nterv|ewee asks, but shou|d not be
vo|unteered:
AL-risk youth are those who, due to
behavlor or grades, are aL rlsk of dropplng ouL
of hlgh school or have already done so
1he cllenL operaLes local cenLers aLLached Lo
hlgh schools wlLh full Llme sLaff
1he cllenL offers LuLorlng and LesL prep
supporL Lo Lhe youLh wlLh whom lL works, as
well as connecLlng youLh Lo lnLernshlps and
career opporLunlLles
All cenLers are MassachuseLLs or souLhern
new Pampshlre
1he cllenL operaLes 8 slLes wlLh 2,300 youLh
served
School dlsLrlcLs and sLaLe agencles relmburse
Lhe cllenL for acLlvlLles
1he cllenL has a hlgh naLlonal proflle and has
recelved calls from hlgh school sysLems ln
llorlda and Callfornla offerlng Lo pay for Lhe
cllenL Lo esLabllsh cenLers ln Lhelr dlsLrlcLs, Lhe
cllenL has decllned Lhese offers Lo daLe
143
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze (1)
144
uest|on 1: Crgan|zat|ona| Changes
uest|on 1: what are the clients options for locating and for opening new sites, and what are some considerations the client
should conslder ln selecLlng among Lhese opLlons?
Notes to |nterv|ewer
1he lnLervlewee should qulckly focus on geographlc opLlons for
slLes:
Ad[acencles Lo exlsLlng slLes (mlddle schools, nelghborlng
hlgh schools)
new slLes ln exlsLlng sLaLes, separaLe from exlsLlng slLes
new sLaLes nelghborlng exlsLlng sLaLes
new sLaLes LhaL have conLacLed Lhe cllenL
1he Lhree prlmary meLhods for openlng new slLes are:
arLnershlps
8ranchlng / llcenslng
Wholly-owned slLes
1he lnLervlewee should go back Lo Lhelr orlglnal quesLlon, and
hopefully Lhelr framework, Lo remember LhaL Lhe cllenL wanLs
Lo veL poLenLlal slLes for mlsslon and flnanclal lmpacL. 8ased on
Lhls, Lhey should come up wlLh Lwo seLs of crlLerla, whlch mlghL
lnclude:
Mlsslon relaLed:
number of aL rlsk youLh
resence of oLher youLh servlce organlzaLlons
oLenLlal Lo work wlLh hlgh schools
knowledge of LargeL markeL
llnance / operaLlons relaLed:
oLenLlal Lo aLLracL fundlng
AblllLy Lo leverage relaLlonshlps and engage ln pollLlcal
advocacy
AblllLy Lo leverage exlsLlng lnfrasLrucLure
AblllLy Lo recrulL LalenL
144
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze (2)
143
uest|on 2: Capac|ty Lxpans|on
uest|on 2: lets look at the financial considerations,
parLlcularly aL Lhe effecL of addlLlonal slLes on cenLral cosLs.
(Show LxhlblL 1)
uest|on 3: Customer Strategy
uest|on 3: our cllenL Lhlnks LhaL servlng areas wlLh a hlgh
denslLy of aL-rlsk youLh wlll besL dellver lLs mlsslon as well as
ralse lLs naLlonal proflle (Show LxhlblL 2)
Notes to |nterv|ewer
A good lnLervlewee wlll qulckly polnL ouL LhaL Lhe 74
lncrease ln cosLs ls less Lhan Lhe 88 lncrease ln Lhe number
of slLes, and LhaL cenLral offlce cosL allocaLlon per slLe
should decrease. lnLervlewees should quanLlfy Lhe lmpacLs
of growLh on cosLs per slLe.
Notes to |nterv|ewer
noLe 1: WorcesLer, MA nelghbors an exlsLlng slLe for Lhe cllenL.
nashua, nP does noL have a slLe.
noLe 2: 1hls ls a Lough problem Lo solve. Work acLlvely wlLh
lnLervlewees Lo geL Lo Lhe answer. Assume LhaL class slzes,
dropouL raLes and CA averages are unlform across grades.
Solution on Math Solution
143
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze (3)
146
uest|on 4: Market|ng Strategy
uest|on 4: WhaL do you Lhlnk are Lhe pros and cons of Lhese addlLlonal facLors ln each geographlc area? Pow mlghL Lhls lnfluence Lhe
clients choice of target geographies?
Notes to |nterv|ewer
Cood lnLervlewees wlll draw a Lable maLchlng geographlc opLlons agalnsL Lhe screenlng crlLerla Lhey llsLed ln quesLlon one, Lhen
wlll glve a qulck summary of Lhe pros and cons of each crlLerla ln each geography. 1he lnLervlewer can help Lhe lnLervlewee seL
Lhe charL up buL should leL Lhe lnLervlewee Lake Lhe lead on walklng Lhrough Lhe analysls. 1hls quesLlon ls hlghly quallLaLlve and
intended to test the interviewees judgment and communication skills.
Pere ls an lllusLraLlve CharL
nelghborlng slLe new slLe ln
exlsLlng sLaLe
nelghborlng sLaLe new sLaLe
Mlsslon flL ro: knowledge of local youLh, relaLlonshlps
wlLh pollcy makers and school admlns
Con: mlghL noL spread model
ro: would spread model
Con: need new relaLlonshlps, regulaLlons
could dlffer and affecL operaLlons
llnanclal flL ro: model already approved for fundlng,
ablllLy Lo move sLaff / hlre easlly
Con: mlghL hlL fundlng llmlLs
ro: access Lo new sources of fundlng,
hlgher naLlonal proflle
Con: dlsLrlcLs / sLaLes mlghL noL fund model
146
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Math So|ut|ons (1)
ANSWLk: uest|on 2]Lxh|b|t 1
CurrenL AddlLlonal cosLs
SLaff $730k $600k
l1 $110k $80k
Cfflce expenses $113k no change
1ralnlng and
supporL
$23k $33k
1oLal cenLral offlce
cosLs
$1,000k $733
CosL per slLe $1,000k / 8 =
$123k
=$1,733k / 13 =
$113.67k
147
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Math So|ut|ons (2)
ANSWLk: uest|on 3] Lxh|b|t 2
Column l C P l ! k L M
lormula A * C l/4 * (1-u) l - C * 3 C + P l - l * L l + ! k * (1 + 8) L / l
1oLal
enrollmenL
uropouLs,
class of 2002
uropouLs,
oLher
classes ln
2002
1oLal
dropouLs,
2002
Low CA
sLudenLs,
2002
1oLal aL
rlsk, 2002
1oLal aL rlsk,
2003
1oLal aL
rlsk of
enrolled
sLudenLs
WorcesLer,
MA 3000 223 673 900 630 1330 1377 43.9
nashua, nP 1600 100 300 400 300 700 663 41.6
8arrlngLon,
C1 800 30 130 200 120 320 332 44.0
San MaLeo,
CA 3200 193 383 780 884 1664 1681 32.3
Column A 8 C u L
Average
enrollmenL, PS
Annual change ln
aL rlsk youLh, 2003
# hlgh
schools
PS compleLlon
raLe, class of 2002
2002 of enrolled sLudenLs
wlLh CA of u or lower
WorcesLer, MA 1,000 -10 3 70 30
nashua, nP 800 -3 2 73 23
8arrlngLon, C1 800 10 1 73 20
San MaLeo, CA 1,300 1 4 83 20
148
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
1he case ls deslgned Lo lndlcaLe LhaL Lhe cllenL should focus on exlsLlng sLaLes, and perhaps on nelghborlng sLaLes.
1he cllenL should noL conslder expandlng ouLslde lLs exlsLlng geographlc fooL prlnL ln new Lngland.
1he lnLervlewee should noLe LhaL Lhe cllenL beneflLs flnanclally from scale, buL LhaL a flnanclal analysls does noL
lndlcaLe a geographlc area for expanslon. lrom a mlsslon perspecLlve, exlsLlng and nelghborlng geographles provlde
Lhe hlghesL denslLy of aL-rlsk youLh. new geographles ln exlsLlng sLaLes are also promlslng from a mlsslon
perspecLlve. 1hlnklng furLher abouL non-flnanclal beneflLs from scale, as should be done ln quesLlon 4, should also
lndlcaLes LhaL growlng wlLhln exlsLlng sLaLes or ln nelghborlng sLaLes poses fewer rlsks for Lhe cllenL.
8onus]Gu|de to an Lxce||ent Case
149
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 1: add|t|ona| centra| costs from expans|on
130
Current Add|t|ona| costs
Staff $730k $600k
I1 $110k $80k
Cff|ce expenses $113k no change
1ra|n|ng and support $23k $33k
1ota| centra| off|ce costs
Cost per s|te
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 2: representat|ve data on at-r|sk youth
131
Average
Lnro||ment, nS
Annua| Change
|n at r|sk youth,
2003
# h|gh schoo|s
nS comp|et|on
rate, c|ass of 2002
2002, of enro||ed
students w|th GA
of D or |ower
Worcester, MA 1000 -10 3 70 30
Nashua, Nn 800 -3 2 73 23
8arr|ngton, C1 800 10 1 73 20
San Mateo, CA 1300 1 4 83 20
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
12+$'"3
S
4'02*'20)
5.'3 4'%<
/0)+'#?#'<
S
Case tracker I|t uest|ons
Industry:
lndusLrlal Coods
Aerospace and uefense
Leve| of D|ff|cu|ty:
Lasy]Med|um
Case Iormat:
CrowLh SLraLegy
Concepts 1ested:
! MarkeLlng SLraLegy
! CreaLlvlLy
Case uest|on
Cur cllenL, uark Sky, ls a small manufacLurer of unmanned (l.e. remoLely plloLed) daLa collecLlon alrcrafL. uark Sky
produces Lhe Assessor, an alrcrafL orlglnally deslgned for unmanned weaLher exploraLlon. ln 2003, Lhe unlLed SLaLes
mlllLary began purchaslng Assessors for use ln lnLelllgence, Survelllance and 8econnalssance (lS8) mlsslons. 1he Assessor
ls proflLable, buL sales have sLagnaLed and Lhe cllenL wlshes Lo grow.
wbot ote some steps uotk 5ky coolJ toke to ocbleve qtowtb?
Spend f|rst 1S m|n on f|t
What was the hardest
plece of feedback you
ever goL? WhaL dld you
do about it?
Pow would your
classmaLes and/or
LeammaLes descrlbe
worklng wlLh you?
Gu|de to |nterv|ewer
1hls case lnLenLlonally uses Lermlnology LhaL may noL be
famlllar Lo Lhe Lyplcal M8A sLudenL. 1hls ls meanL Lo
challenge Lhe lnLervlewee Lo dlsmlss superfluous
lnformaLlon and Lo focus on Lhe buslness problem.
AfLer asklng Lhe lnlLlal quesLlon, engage ln a quallLaLlve
dlscusslon regardlng organlc and lnorganlc growLh
opporLunlLles.
knowledge of Lhe Aerospace and uefense lndusLry ls noL
necessary creaLlvlLy ls encouraged.
Case 22: Dark Sky Co.
132
By: Sean Burrow (Kellogg Class of 11), Edited By: Ameed Mallick (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Interv|ewer Gu|de to case and handouts
1h|s case |s meant to st|mu|ate the growth conversat|on and |s des|gned to funne| the
|nterv|ewee toward a new product |aunch.
Lxh|b|t 1 rov|de fo||ow|ng growth d|scuss|on
1he mlllLary sLarLed purchaslng Lhe Assessor ln 2002. 1he prlce of Lhe alrcrafL has
remalned consLanL aL $100,000 per unlL. 1hroughouL Lhe pasL decade, 1he Assessor has
been Dark Skys only source of revenue.
Lxh|b|t 2 rov|de fo||ow|ng Lxh|b|t 1 ca|cu|at|ons
uark Sky has developed several alrcrafL proLoLypes deslgned speclflcally for mlllLary
mlsslons. 1he company has Lhe capablllLy Lo conLlnue produclng Lhe Assessor and Lo
lnLroduce one new alrcrafL.
Sea8lrd ls speclally deslgned for marlLlme (l.e. naval) operaLlons and can be
sold Lo Lhe navy for $220,000 per alrcrafL.
Sand8lrd ls speclally deslgned for desolaLe land-based operaLlons and can be
sold Lo Lhe Army for $210,000 per alrcrafL.
!olnL8lrd ls deslgned as a compromlse for Army and navy operaLlons and can
be sold Lo elLher servlce for $180,000 per alrcrafL.
1he MlllLary has agreed Lo a 10 Assessor prlce lncrease. lf uark Sky only
produces Lhe Assessor, forecasL sales remaln flaL (l.e. 30 alrcrafL annually). 1he
lnLroducLlon of a new alrcrafL wlll have a negaLlve lmpacL on Assessor sales
! cootlooe to oext poqe fot fottbet Jetoll of tbe ooolysls to be petfotmeJ
C|ar|fy|ng answers to prov|de |f
Asked
roduct:
! uark Sky deslgns a unlque alrcrafL LhaL ls launched
from a caLapulL devlce, Lhe alrcrafL can be
launched from shlps aL sea or from harsh Lerraln
(e.g. deserL, mounLalns).
! uark Sky only sells Lhe Assessor, buL has deslgned
proLoLypes speclflcally for mlllLary operaLlons.
Company:
! 1he flrm has addlLlonal capaclLy and ls poslLloned
Lo sLrengLhen any dlvlslon of Lhe workforce, lf
requlred (e.g. sales force, manufacLurlng, 8&u).
CompeLlLlon
! 1here are approxlmaLely 20 compeLlLors LhaL
manufacLure unmanned alrcrafL.
! 1hough Loo small Lo purchase a compeLlLor, uark
Sky has been consldered an acqulslLlon LargeL.
Dark Skys lack of growth in recent years concerns
poLenLlal buyers.
Customer ] r|ce
! Dark Skys only customer is the U.S. Military.
! uark Sky has a CosL-lus-llxed-lee conLracL wlLh
Lhe u.S. MlllLary for Assessor sales:
! 1he conLracL has been exLended ln Lhe pasL
and ls up for renegoLlaLlon, Lhe MlllLary has
agreed Lo a marglnal fee (l.e. prlce) lncrease
Lo accounL for lnflaLlon
! ConLracLs for new alrcrafL wlll be sLrucLured
slmllarly
133
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
134
Current kevenues & Growth Strategy
Lxh|b|t 1: a) Pow many unlLs were sold ln 2010? b) WhaL was
Lhe growLh raLe from 2002 Lo 2006?
WhaL are some sLeps Lo achleve growLh (orlglnal quesLlon)
Cpportun|ty Assessment
Lxh|b|t 2: 1o maxlmlze shorL-Lerm growLh, whlch alrcrafL
should uark Sky produce?
Notes to |nterv|ewer
Lxh|b|t 1 should be LreaLed as a maLh warm up. r|ce = 100k]Un|t
Crgan|c Growth Lhe lnLervlewee should conslder lnLernal opLlons Lo could
sLlmulaLe growLh. Some poLenLlal examples lnclude:
Increase penetrat|on negoLlaLe addlLlonal Assessor sales Lo Lhe
mlllLary.
roduct deve|opment develop new producLs LhaL may appeal Lo Lhe
mlllLary (e.g. new alrcrafL, Lralnlng servlces, alrcrafL accessorles / add-
ons).
New market entry sell Lhe Assessor ln lnLernaLlonal markeLs or
addlLlonal domesLlc markeLs (e.g. 8order aLrol, pollce, news channels)
D|vers|f|cat|on develop a new producL Lo serve a new markeL.
Increase ] keduce pr|ces (based on elasLlclLy of demand)
Lxterna| growth Lhe lnLervlewee should conslder growLh opLlons uslng
exLernal resources. Some poLenLlal examples lnclude:
!olnL venLure conLracL wlLh a flrm Lo lncrease markeL accesslblllLy or
Lo develop a new producL beyond Lhe capablllLy of uark Sky.
Merger / AcqulslLlon acqulre a new flrm Lo add addlLlonal capaclLy
and/or producL mlx. 8ecause uark Sky ls relaLlvely small ln Lhe uefense
lndusLry, conslder becomlng an acqulslLlon LargeL.
Notes to |nterv|ewer
Lxh|b|t 2: 1o maxlmlze growLh, uark Sky should focus on maxlmlzlng
revenue.
1o calculaLe Lhe revenue for each scenarlo, Lhe lnLervlewee should
add Assessor sales Lo Lhe sales of Lhe new producL.
Assessor sales are based on:
30 unlLs sold wlLh no new producL launch
CannlballzaLlon forecasL speclflc Lo each new
producL launch
$110,000 per alrcrafL
new producL sales can be easlly calculaLed uslng shorLcuLs.
lor example:
SeaBird: $220k * 100 = $22m then half of this
SandBird: $210k * 100 = $21m then half of it and
add (10 of $21m)
JointBird: Add to get 90 then $180k*100 = $18m,
subLracL (10 of $18m)
134
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1o maxlmlze shorL-Lerm growLh, whlch alrcrafL should uark
Sky produce?
Answer: Io|nt8|rd
Assessor Sales (unlLs, 8evenue):
no new producL = 30 alrcrafL, 5S,S00,000
WlLh Sea8lrd = 30 + (30 * (-40)) = 30 - 20 =
30 alrcrafL, 53,300,000
WlLh Sand8lrd = 30 + (30 * (-70)) = 30 - 33 =
13 alrcrafL, 51,6S0,000
WlLh !olnL8lrd = 30 + (30 * (-90)) = 30 - 43 =
3 alrcrafL, 5SS0,000
new roducL 8evenue:
Sea8lrd = 30 * $220,000 = 511,000,000
Sand8lrd = 60 * $210,000 = 512,600,000
!olnL8lrd = (38 + 32) * $180,000 = 90 *
$180,000 = 516,200,000
1oLal 8evenue:
Assessor Cnly = $3,300,000
Assessor and Sea8lrd = $3,300,000 +
$11,000,000 = 514,300,000
Assessor and Sand8lrd = $1,630,000 +
$12,600,000 = 514,2S0,000
Assessor and !olnL8lrd = $330,000 +
$16,200,000 = 516,7S0,000
Math So|ut|ons
Math Lxh|b|t 1
Pow many unlLs were sold ln 2010?
Answer: 30 unlLs or $3,000k - $100k/unlL =
30 unlLs
WhaL was Lhe growLh raLe from 2002 Lo 2006?
Answer: 900 o ($3,000k - $300k) - ($300k )
x 100 = 900
Math Lxh|b|t 2
133
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
8ased on 2011 forecasLed revenue alone, uark Sky should lnLroduce Lhe !olnL8lrd Lo Lhe u.S.
MlllLary ln order Lo boosL shorL-Lerm growLh. Powever, Lhere are several connecLed lssues LhaL
uark Sky should conslder Lo lnclude proflLablllLy, long-Lerm revenue forecasLs, compeLlLlve
response, eLc.
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll noLe:
Pow qulckly could uark Sky sLarL manufacLurlng a Lhlrd model (l.e. can uark Sky produce Sand8lrd Lhls year, and
be produclng Sand8lrd and Sea8lrd Lhe followlng year)? lf so, whaL are Lhe revenue lmpllcaLlons?
lf uark Sky produces !olnL8lrd, ls $330,000 ln Assessor revenue worLh Lhe assoclaLed cosL Lo produce Lhe
alrcrafL? Should resources be allocaLed Lo anoLher pro[ecL?
Pow proflLable are Lhe four alrcrafL models ln comparlson? noLe: 8ecause uark Sky has a CosL-lus-llxed-lee
conLracL, proflLablllLy for each alrcrafL ls llkely equlvalenL. lor Lhls reason, uark Sky should focus on maxlmlzlng
the number of aircraft sold. How much and how long is the payback period for the investment in
manufacLurlng each Lype alrcrafL?
136
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 1
0
1
2
3
4
3
2000 2002 2004 2006 2008 2010
kevenue
($, Mllllon)
137
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #2
New roduct Sa|es
(a|rcraft)
New roduct Cffer|ng Navy Army
Assessor un|t sa|es |ost
due to cann|ba||zat|on
Sea8|rd 30 0 40
Sand8|rd 0 60 70
Io|nt8|rd 38 32 90
New roduct Sa|es Iorecast, 2011
r|ce er A|rcraft
Assessor $110,000
Sea8|rd $220,000
Sand8|rd $210,000
Io|nt8|rd $180,000
138
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Case 23: nea|th Coaches
Case tracker I|t uest|ons
Case uest|on
Cur cllenL ls a large naLlonal healLh care payer (healLh lnsurance company, Lhlnk AeLna) explorlng Lhe launch of a new
disease management (DM) program to better serve its 5 million members. The idea is to hire and train a team of
Health Coaches to specialize in a single disease area (e.g., heart disease, diabetes, etc). Each Coach will manage a
porLfollo of paLlenLs Lo reduce Lhe cosLs of overall healLh expendlLures (e.g., remlnders Lo Lake drugs, provlde llmlLed
medlcal advlce, suggesLed dleL, eLc). SLudles show LhaL once a monLh conLacL wlLh each paLlenL reduces healLh
spendlng by 3, on average.
5boolJ oot clleot looocb tbe ptoqtom? lf so, wbot steps sboolJ lt toke?
Spend f|rst 1S m|n on f|t
Pow do you feel abouL
worklng ln a feedback-
lnLenslve envlronmenL?
Why ls consulLlng a
beLLer career move for
you compared Lo your
nexL besL opLlon?
Gu|de to |nterv|ewer
1he case tests the interviewees ability to probe and
develop a cusLomer segmenLaLlon, dlgesL a relaLlvely
complex charL, lsolaLe Lhe mosL crlLlcal lnformaLlon
and deLermlne proflLablllLy
1he daLa provlded by boLh exhlblLs should be
requesLed, Lry noL Lo show Lhe exhlblLs unLll need for
Lhe daLa ls demonsLraLed
SLrong lnLervlewees should use common sense Lo
make reasonable assumpLlons before you provlde
requlred lnpuLs
12+$'"3
8
4'02*'20)
6
/2"'3 4'%<
OPC
139
By: David Wellner (Kellogg Class of 11), Edited By: Craig DePriester (Kellogg Class of 12)
Industry:
PealLhcare
Leve| of D|ff|cu|ty:
Med|um
Case Iormat:
ueveloplng a new
producL/Servlce
Concepts 1ested:
! CusLomer sLraLegy
! 8reak-even analysls
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and handout gu|de
Gu|de to handouts
8efore showlng exhlblLs, lnLervlewee should convey Lhe essence of Lhe case:
Are the costs assoc|ated w|th the DM program [ust|f|ed by the sav|ngs?
Sample seL-up:
Lxh|b|t 1 Pand ouL when interviewee establishes need for understanding clients
membershlp segmenLaLlon and/or exposure Lo dlsease areas. lf he/she ls noL
headed there alone, you can ask how would you segment the clients members?
What can we get out of this chart? Please let me know if you have questions
ueflnlLlons (lf needed): Croup are employee sponsored plans (e.g. ,lf you work
for Mcklnsey, you are ln a group plan), lndlvldual are non-groups (e.g., prlvaLe
conLracLors, unemployed, eLc). 63+ (see asLerlsk below charL).
Which segment is likely to generate the greatest per member costs.? Why?
Which disease area should we look at first?
Lxh|b|t 2 Pand ouL when lnLervlewee asks for medlcal cosL daLa. 1ry Lo avold
handlng ouL exhlblL 2 unLll exhlblL 1 has been dlscussed (blot. lf lotetvlewee leoJs
wltb ptofltoblllty, steet blm/bet to fltst tblok oboot tbe costomet seqmeototloo)
What can we do with this information?
C|ar|fy|ng answers to prov|de
Compet|t|ve dynam|cs (not core to case)
WlLh splrallng healLh care cosLs, Lhe
lndusLry ls under pressure Lo lnnovaLe
new producLs LhaL wlll conLrol spendlng
Assume cllenL ls flrsL Lo markeL
asL aLLempLs Lo purely auLomaLe uM
have ylelded mlnlmal savlngs
nea|th Coaches
All acLlvlLy conducLed remoLely vla
phone/emall
1yplcal proflle ls reglsLered nurse LhaL
wanLs Lo work from home
Its difficult to actually reach patients,
so Coaches can conLacL 8 members per
day (assume 23 days per monLh)
Annual cosLs per Coach: $60k salary
+20 oLher (Lralnlng, beneflLs, lapLop,
eLc)
! 1here are no oLher program cosLs
rogram Sav|ngs
! CusLomer segmenLaLlon
by dlsease area and
cosL per member
rogram Costs
! Salary and oLher
! orLfollo slze/capaclLy
(members/coach)
k|sks
! uo assumpLlons hold?
! CompeLlLlve response
! 8egulaLory, llablllLles
160
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
Segmentat|on and d|sease focus
uslng Lxh|b|t 1, dlscuss whlch segmenLs and dlsease areas are
mosL lmporLanL Lo explore
rogram prof|tab|||ty
Leveraglng all daLa (8oLh LxhlblLs), lnLervlewee should deLermlne lf
PealLh Coaches are proflLable ln each of Lhe Lhree segmenLs
Notes to |nterv|ewer
Interv|ewee shou|d choose to focus on the 6S+ segment
63+ (Medlcare) paLlenLs are Lhe slckesL, followed by
lndlvldual
Croup members are Lhe healLhlesL (younger, worklng)
Slcker paLlenLs are llkely Lo drlve hlgher cosLs, whlch wlll
make Lhem rlper candldaLes for Lhe uM program (l.e., Lhe
3 cosL reducLlon wlll have a blgger lmpacL)
Interv|ewee shou|d choose to focus on d|abet|cs (Assume a||
are 1ype 2 for the purposes of th|s case)
ulabeLlcs make up Lhe largesL porLlon of slck members
As a chronlc dlsease prlmarlly broughL on by behavlor, 12
dlabeLlcs are mosL llkely Lo beneflL from uM program
Number of 6S+ d|abet|cs:
Notes to |nterv|ewer
CosL per Coach:
Slze of orLfollo:
Savlngs for one porLfollo of 63+ dlabeLlcs:
Cverall savlngs:
Concluslon:
roflL ls $72k per PealLh Coach, 2x cosL of a Coach
8ased on MM dlabeLlc cosL daLa, lndlvldual segmenL ls
break-even (30 less savlngs), Croup segmenL ls a loss
!


#
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(+$

&
(+$



$,---

&
(



$-.
.

*-.
.

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&
,
#


(0--
'


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'

& 1-
)$
'

$--

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'

$60,000 + 20 = $72,000
8ase Salary + oLher = per coach per year
161
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
WlLh 3-4 mlnuLes remalnlng, glve lnLervlewee a momenL Lo prepare a recommendaLlon. Pere ls a sLrong sample:
CllenL should launch Lhe PealLh Coachlng program, and flrsL focus on dlabeLes for Lhe 63+ Medlcare segmenL
1he cllenL should Lake Lhe followlng sLeps:
! Launch a plloL program Lo prove ouL assumpLlons (e.g., 3 cosL reducLlon, Coach porLfollo capaclLy, eLc)
! llrsL expand Lo enLlre 63+ segmenL ($144M per year savlngs, a 2x reLurn on each PealLh Coach)
! Conslder lnLroduclng Lo lndlvldual segmenL desplLe break-even (cusLomer reLenLlon, moral raLlonale, eLc)
lollow-up quesLlons (lf Llme permlLs)
There are 650K Group diabetics left uncoached. Is there a way to make the segment profitable? Ideas include:
! More efflclenL uM program (e.g., Coachlng aL work, bl-monLhly conLacL, auLomaLed correspondence, eLc)
! Seek addlLlonal revenue sources (e.g., Lmployers mlghL be wllllng Lo pay a fee, governmenL supporL)
! Slnce 3 ls Lhe average savlngs, program can LargeL members who wlll respond wlLh savlngs well above 3
As flrsL Lo Lhe markeL, cllenL plans Lo expand PealLh Coach program exLernally. Who should Lhey LargeL?
! Its tempting to suggest that the client should market to 65+ Medicare patients with diabetes, since this is
where the program yields the greatest savings. While its good that we have lowered the cost of older
dlabeLlcs, cllenL should keep ln mlnd LhaL more dlabeLlc members wlll lncrease overall healLh care cosLs,
conslderably (sLlll almosL 4x afLer savlngs)
! An lnsLlncLlve lnLervlewee mlghL suggesL an alLernaLlve: CllenL should sell lLs PealLh Coach servlce Lo oLher
payers. 8uL how would you prlce LhaL? WhaL are Lhe challenges (e.g., regulaLory, lnfo sharlng, eLc)
162
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Exhibit #1: Clients member segmentation by health condition
* Members 65 years of age and above. Known as Medicare Advantage, premiums funded by government
163
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #2: Average cost data (er Member er Month)
Segment Average MM Average D|abet|c
lndlvldual $130
4x Croup $100
63+ $300
164
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Case 24: Ccu|ar Co.
Case tracker I|t uest|ons
Case uest|on
1he flrsL conLacL lenses were made of glass and appeared ln Lhe early 20Lh cenLury, buL conLacLs have come a long way
slnce Lhen lL ls esLlmaLed LhaL Lhere are more Lhan 100 mllllon conLacL lens wearers around Lhe world Loday. Ccular Co.
currenLly commands 40 of Lhe lrlsh conLacL lens markeL wlLh lLs franchlse of sofL-conLacL dlsposable lenses LhaL are
disposed of weekly. In addition, Ocular has been considering the launch of Irelands FIRST daily disposable contact lens
afLer lL recelved a favorable regulaLory revlew, buL wanLs Lo know lf lL should launch.
wbot ote tbe key lssoes Ocolot sboolJ cooslJet wbeo cooslJetloq tbe looocb of tbls ptoJoct?
wlll tbls be o ptofltoble veotote? 5boolJ Ocolot co looocb?
Spend f|rst 1S m|n on f|t
Pow do you feel abouL
worklng ln a feedback-
lnLenslve envlronmenL?
Why ls consulLlng a
beLLer career move for
you compared Lo your
nexL besL opLlon?
Gu|de to |nterv|ewer
1hls case LesLs Lhe candldaLes undersLandlng of concepLs
such as cannlballzaLlon and challenges Lhe candldaLe Lo
make lnferences abouL a break-even polnL.
Cb[ecLlves:
uemonsLraLe creaLlvlLy and ablllLy Lo frame
sLraLegy and rlsks for new producL launch
Assess candidates ability to solve a break even
equaLlon for producL launch and Lo summarlze
key flndlngs
12+$'"3
6
4'02*'20)
4
/0)+'#?#'<
OPC
5.'3 4'%<
163
By: Danny Fitzgibbons (Kellogg Class of 12), Edited By: Craig DePriester (Kellogg Class of 12)
Industry:
PealLhcare
Leve| of D|ff|cu|ty:
Med|um
Case Iormat:
ueveloplng a new
producL
Concepts 1ested:
! CreaLlvlLy
! 8reak-Lven Analysls
! MarkeLlng sLraLegy
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and handout gu|de
Gu|de to handouts
1he candldaLe should develop a framework Lo analyze Lhe launch of Lhe new
producL. Among oLher aspecLs, Lhe candldaLe should menLlon poLenLlal markeL
share, lncreased ln cosLs, and lmpacL on currenL producLs (l.e. cannlballzaLlon).
Lxh|b|t 1 Hand to candidate after he or she asks about Oculars product mix
(lf needed, nudge) Pow could Lhe launch of a dally conLacL lens lmpacL Lhe
performance of Oculars other products?
1he candldaLe should make quallLaLlve assessmenLs abouL Lhe lmpacL of
launchlng a dally conLacL lens on Lhe sales of lLs oLher producLs, parLlcularly lLs
conLacL lens cleanlng soluLlon
Lxh|b|t 2 Pand Lo Lhe candldaLe when lnLroduclng Lhe second quesLlon
(If needed, nudge) Given the data provided, how attractive to Oculars future
proflL sLreams look when compared wlLh Lhose LhaL Lhey experlenced ln 2010
(wlLhouL dlscounLlng)?
ush candldaLe Lo provlde calculaLlon of proflLablllLy boLh before and afLer
Oculars launch of daily disposable contact lenses
Lxh|b|t 3 Pand Lo Lhe candldaLe afLer worklng ouL Lhe above porLlon
Larller we Lalked abouL Lhe poLenLlal lmpacL on Lhe sales of cleanlng soluLlon.
Weve been able to come up with these projections how would Lhls lmpacL
your analysls and recommendaLlons?
Agaln, Lhe candldaLe should be able Lo solve for Lhe Lwo annual proflL sLreams
(before and afLer Lhe dally conLacL lens launch) and draw concluslons from Lhe
quanLlLaLlve resulLs.
C|ar|fy|ng answers to prov|de
Customer cons|derat|ons
There is demand for dailies, and a
global segmenL LhaL ls rapldly growlng
uallles are less durable and breaLhable
CusLomers are generally wllllng Lo pay a
premlum for dally dlsposables
roduct]company cons|derat|ons
lf asked abouL porLfollo, show Lxh|b|t 1
All 8&u cosLs are sunk, buL Lhls requlres
more expenslve packages & a reLoollng
of lLs facLorles, lncreaslng per-unlL cosLs
uallles do nC1 requlre cleanlng soluLlon
Compet|t|on
MarkeL research shows a llkely
expanslon of lrlsh markeL upon launch
uallles would capLure share from lLs
weekly producL as well as compeLlLors
Ccular would have a 3+ year headsLarL
over lLs compeLlLors, glven 8&u
166
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
1op|c 1 be|ng tested
roducL launch conslderaLlons
1he candldaLe should lay ouL a
coheslve quallLaLlve sLrucLure.
1op|c 2 be|ng tested
Assesslng proflLablllLy of producL
launch
use Lxh|b|ts 2 Lo creaLe an analysls of
change ln proflLablllLy
1op|c 3 be|ng tested
lmpacL on conLacL lens soluLlon
use Lxh|b|t 3 Lo deLermlne change ln
soluLlon markeL
Notes to |nterv|ewer
A sample framework would lnclude:
oLenLlal markeL share galns
vs. compeLlLors
lncrease ln per-unlL cosL
8eLoollng Lhe facLory Lo
produce dally lenses
AlLernaLlve packaglng
8lsks
Cleanlng soluLlon as a
compllmenLary good
Cannlballzlng Lhe weekly
conLacL lenses
Notes to |nterv|ewer
Annual proflLs from weeklles:
8efore: (200,000 x 30 lenses x
$3/lens $17.3M) = $12.3M
AfLer: (173,000 x 30 lenses x
$3/lens - $17.3M) = $8.73M
Annual proflL s from dallles:
(100,000 x 330 x $.73 -
$21.73M) = $4.3M, whlch
would offseL Lhe losses.
lL wlll Lake 4 years Lo break
even on $18M lnvesLmenL
Notes to |nterv|ewer
Annual proflLs from soluLlon:
8efore: (123,000 x 8 boLLles x
$9/boLLle - $8M) = $1M
AfLer: (100,000 x 8 boLLles x
$9/boLLle - $8M) = -$0.8M
As a resulL of Lhe lnLroducLlon of
dallles, Lhe conLacL lens soluLlon
producL wlll go from a proflLable
producL Lo an unproflLable one
167
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So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
Cverall, our cllenL should conslder launchlng Lhe new dally dlsposable lenses, desplLe conslderable
lnvesLmenLs.
1he lnLervlewee should be mlndful of Lhe lncreased cosLs and cannlballzaLlon rlsks LhaL Lhls launch
poses Lo lLs weekly conLacL lens producL and lLs conLacL cleanlng soluLlon producL.
lf Lhe cllenL chooses Lo more narrowly focus on lLs conLacL lens buslness, lL may even conslder
dlvesLlng lLs conLacL lens cleanlng soluLlon producL.
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll be qulck Lo noLlce Lhe opposlng proflL drlvers ln Lhe porLfollo and
poLenLlal for cannlballsm. AddlLlonally, he or she would be able Lo qulckly draw loglcal concluslons
from a quanLlLaLlve analysls.
An excellenL lnLervlewee would also acknowledge oLher rlsks ln launchlng Lhls producL, such as
reduced revenue relaLed Lo mulLl-use of dally conLacLs (analogous Lo pharmaceuLlcal plll spllLLlng)
and Lhe large caplLal cosLs/relaLlve lncrease ln flxed cosLs.
1here are also revenue opporLunlLles LhaL exlsL ouLslde Lhe scope of Lhe core analysls, such as
expandlng Lo malnland Lurope.
168
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
ConLacL lenses command 40 of Lhe lrlsh conLacL lens
markeL (by cusLomers)
ConLacLs are dlsposed of weekly and are malnLalned by a
soluLlon LhaL dlslnfecLs and recondlLlons lenses
Contact Lenses
Contact Lens
C|ean|ng
So|ut|on
Cther Ccu|ar
roducts
Ccular sells lLs conLacL lens soluLlon Lo users of boLh Ccular
dlsposable conLacLs as well as conLacLs of lLs compeLlLors
8oLLles are approxlmaLely 4oz and helps Lo molsLen lenses
and enhance comforL for up Lo a week
Descr|pt|on of Ccu|ar roducts 2010 kevenue
$40M
$10M
Ccular produces several oLher eye-healLh producLs,
lncludlng:
rescrlpLlon dry-eye rellef producL
rescrlpLlon ocular anLlbloLlcs
Lye vlLamlns (drops)
$7M
Lxh|b|t 1: Current portfo||o
169
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Cost and kevenue Data Change |n Consumpt|on
after 2011 Da||y Contact
Launch
roduct Number of
Lens a|rs
urchased |n
a ear per
Consumer
kevenue
er Lens
a|r
Average
Var|ab|e
Cost per
Lens a|r
1ota| Annua|
I|xed Cost
Cne-1|me
Iactory
Convers|on
Cost
1ota|
Consumers
(2010)
1ota|
Consumers
(2011+)*
Weekly
ulsposable
30 $4 $1 $17.30M
(2010 and afLer)
n/A 200,000 173,000
ually
ulsposable
330* $1* $0.23* $21.73M
(2011 and afLer)
$18M
(2011 only)
- 100,000
* LxpecLed levels upon 2011 launch of dally dlsposable lenses
Impact on Contact Lens Sa|es
Lxh|b|t 2: ro[ected |mpact of da|||es on Ccu|ar Co contact sa|es
170
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Cost and kevenue Data Change |n C|ean|ng So|ut|on Consumpt|on
after 2011 Da||y Contact Launch
roduct Number of
8ott|es
urchased |n a
ear per
Consumer
kevenue
er bott|e
Average
Var|ab|e Cost
per 8ott|e of
So|ut|on
1ota|
Annua|
I|xed Cost
1ota| Consumers
(2010)
1ota| Consumers
(2011+)*
Ccular ConLacL
Lens Cleanlng
SoluLlon
8 $10 $1 $8M 123,000 100,000
* LxpecLed levels upon 2011 launch of dally dlsposable lenses
Lxh|b|t 3: ro[ected |mpact on contact |ens c|ean|ng so|ut|on
Impact on C|ean|ng So|ut|on Sa|es
171
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Case tracker I|t uest|ons
Case uest|on
Wlne & Co. ls a nlche wlne manufacLurer ln Lhe San lranclsco 8ay area. Wlne & Co. recenLly acqulred 12 acres of land
ouLslde San lranclsco. 1he company wanLs Lo lnvesLlgaLe opporLunlLles Lo besL use Lhe land and needs a
recommendaLlon from you.
Spend f|rst 1S m|n on f|t
1ell me abouL a Llme
when you falled.
Share me a Llme when
you faced a dlfflculL
slLuaLlon ln a Leam and
how you solved Lhls .
Gu|de to |nterv|ewer
1he case LesLs Lhe lnLervlewee's ablllLy Lo:
a. SLrucLure Lhe problem and bralnsLorm
b. ueLermlne valuaLlon and dlscounLlng
c. 8ecommend a markeLlng sLraLegy
d. SynLheslze Lhe answers.
1hls case ls a Mcklnsey sLyle case and has Lo be asked ln
a quesLlon and answer formaL. 1he lnLervlewer should
ask each quesLlon glven below and walL for Lhe
lnLervlewee Lo respond. lf Lhe lnLervlewee ls sLuck,
dlrecLlon should be provlded based on Lhe lnformaLlon
glven below. 1he lnLervlewee should be able Lo drlve Lhe
case whlle aL Lhe same Llme seek dlrecLlon based on Lhe
quesLlon asked.
Case 2S: W|ne & Co.
172
By: Anil Goteti (Kellogg Class of 11), Edited By: Mauricio Atri (Kellogg Class of 12)
Industry:
CC
Leve| of D|ff|cu|ty:
Med|um
Case Iormat:
CpporLunlLy AssessmenL
Concepts 1ested:
! MarkeLlng sLraLegy
! 8aslc nv
12+$'"3
7
4'02*'20)
S
5.'3 4'%<
@9E
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Gu|de to case ] Gu|de to handouts
CuesLlon 1. WhaL are Lhe dlfferenL ways ln whlch Wlne
& Co. can use Lhe land?
CuesLlon 2. Wlne & Co. has declded Lo use Lhe land Lo
manufacLure wlne. Lach acre of land produces 1000 kg
of grapes annually. Wlne & Co. has an opLlon Lo
manufacLure MerloL or 8ordeaux. 1he Lwo wlnes use
dlfferenL grapes and Lhe grapes have varylng ylelds.
Whlle Lhe MerloL grapes yleld 2llLres/kg, Lhe 8ordeaux
grapes yleld 1llLre/kg. Wlne & Co. can charge $20 per
llLer of MerloL and can charge $40 per llLer of 8ordeaux.
Whlch wlne ylelds more proflLs annually?
CuesLlon 3. Aglng has an effecL on Lhe revenues and
proflLablllLy. MerloL has Lo be sLored for 6 years whlle
8ordeaux has Lo be sLored for 12 years before revenues
can be generaLed. Whlch wlne would you choose for
manufacLurlng?
CuesLlon 4. Wlne & Co. has declded Lo manufacLure
MerloL. Pow should Lhey markeL Lhls producL ln Lhe San
lranclsco 8ay area?
lease summarlze your recommendaLlons Lo Lhe CLC of
Wlne & Co.
C|ar|fy|ng answers to prov|de
uest|on 1. Some lnLervlewees ask whlch geographlcal reglons Lhe
company serves, Lhe Lype of wlnes Lhey manufacLure and lf Lhey
have oLher Lypes of producLs (llke oLher llquors or wlne LasLlng
Lours ln napa valley). 1he followlng lnformaLlon can be provlded lf
asked. a) 1hey only manufacLure red wlnes. b) 1he company serves
only Lhe local markeL (Lhe San lranclsco 8ay area). c) 1he company
does noL sell any oLher producLs. d) 1he company ls currenLly very
healLhy and does noL face any problems.
uest|on 2. roflL Marglns on Wlne & Co. are 10 whlle Lhe
marglns on 8ordeaux are 13.
uest|on 3. a) ulscounL raLe ls 12 (provlde only when asked).
Many people forgeL Lhe Llme value of money and add proflLs across
years wlLhouL dlscounLlng. b) Assume Lhe cosLs are only lncurred
when Lhe revenues are reallzed afLer aglng (no cosLs unLll year 6 for
MerloL and no cosLs unLll year 12 for 8ordeaux). c) lf people are
sLruggllng wlLh Lhe dlvlslon or approxlmaLlons, suggesL Lhe "8ule of
72" (lf r ls Lhe dlscounL raLe, 72/r ls Lhe number of years lL Lakes Lo
double your money)
uest|on 4. CusLomer segmenLs LhaL are currenLly served by Wlne
& Co.- nlche wlne enLhuslasLs.
173
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
1op|c 1 be|ng tested
WhaL are Lhe dlfferenL ways ln whlch Wlne & Co.wlnes can
use Lhe land?
1op|c 2 be|ng tested
Whlch wlne ylelds more proflLs annually?
Notes to |nterv|ewer
1he lnLervlewee should creaLe a framework and sLrucLure
Lhe problem. 1he lnLervlewee should suggesL opLlons
lncludlng manufacLurlng Lhe wlne, creaLlng ad[acenL
producLs (llke wlne LasLlng Lours), uslng Lhe land for oLher
uses (commerclal real esLaLe/selllng Lhe land for a
proflL/oLher opporLunlLy cosLs). A good candldaLe would
provlde a deLalled sLrucLure (eg. proflLablllLy framework for
manufacLurlng feaslblllLy wlLh cusLomlzaLlon of Lhe
framework - yleld of grapes, cosL per llLer of wlne, eLc.) and
ouLllne Lhe rlsks or conslderaLlons lnvolved ln some of
Lhese opLlons (llke usablllLy of land for manufacLurlng or
company compeLency ln pursulng ln oLher opporLunlLles
unrelaLed Lo wlne manufacLurlng).
Notes to |nterv|ewer
A good candldaLe would ask for Lhe proflL marglns/cosLs
wlLhouL belng prompLed. Look for organlzaLlon and
sLrucLure when Lhe candldaLe evaluaLes Lhe annual proflLs
for each wlne (a good candldaLe would use a Lable llke
sLrucLure when dolng Lhe maLh). 1he revenues would be
$480,000 for boLh wlnes annually buL Lhe marglns would
be hlgher for 8ordeaux ($72,000 for 8ordeaux vs. $48,000
for MerloL). AfLer Lhe candldaLe arrlves aL Lhe proflLs, look
for lnLerpreLaLlon. A good candldaLe would recommend
uslng 8ordeaux whlle aL Lhe same Llme conslder oLher
facLors (compeLency ln manufacLurlng elLher of Lhe wlnes,
cusLomer demand ln Lhe bay area, senslLlvlLy Lo producL
ylelds, cusLomer reservaLlon prlce, eLc.). A creaLlve
candldaLe mlghL suggesL LhaL we compare Lhe age of Lhe
Lwo wlnes (and hence wlll lmpacL when Lhe proflLs mlghL
acLually sLarL)
174
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
1op|c 3 be|ng tested
Whlch wlne would you choose for manufacLurlng?
1op|c 4 be|ng tested
Pow should Lhey markeL Lhls producL ln
Lhe San lranclsco 8ay area?
Notes to |nterv|ewer
CandldaLe should ldenLlfy LhaL Lhe cash flows for MerloL would be $48,000
annually sLarLlng year 6. Cash flows for 8ordeaux would sLarL ln year 12
($72,000 annually). A good candldaLe would Lhen conslder Lhe Llme value
of money and dlscounL Lhe Lwo perpeLulLles Lo Lhe same year for an
apples-Lo-apples comparlson. MerloL: Annual Cash flow sLarLlng year 6:
$48,000 erpeLulLy value of cash flow (value ln year 6) = $48,000/0.12 =
$400,000 8ordeaux: Annual cash flow sLarLlng year 12: $72,000 erpeLulLy
value of cash flow (value ln year 12) = $72,000/0.12 = $600,000 value of
perpeLulLy ln year 6 = $600,000 / (1.12^6) = $300,000 (8ule of 72). rovlde
help here lf Lhe candldaLe ls sLruggllng wlLh Lhe dlvlslon. Look for Lhe
candldaLe's approach Lhan Lhe exacL number. Slnce value of pursulng
MerloL ($400,000) ls hlgher Lhan value of pursulng 8ordeaux ($300,000),
Lhe company should manufacLure MerloL. A good candldaLe would
lnLerpreL Lhe resulL and suggesL we Lake lnLo accounL oLher facLors llke
lnvenLory cosLs, senslLlvlLy Lo dlscounL raLe, eLc.
Notes to |nterv|ewer
CandldaLe should ask for Lhe cusLomer
segmenLs LhaL Lhe company mlghL sell Lo
and suggesL approprlaLe markeLlng
channels/sLraLegles Lo conslder. Look for a
MLCL sLrucLure here. SuggesLlons should
lnclude reLall sLraLegles, dlrecL Lo
consumer sLraLegles (llke wlne clubs, wlne
LasLlng), LradlLlonal medla and prlnL
adverLlslng and onllne adverLlslng.
173
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
A good candldaLe would recommend a soluLlon (manufacLurlng MerloL) buL would deLall ouL Lhe
rlsks/nexL sLeps assoclaLed wlLh Lhe recommendaLlon. nexL sLeps may lnvolve markeL research,
land usablllLy LesLlng, evaluaLlon of opporLunlLy cosLs. 8lsks have been ouLllned above already.
8onus]Gu|de to an Lxce||ent Case
An excellenL answer should lnclude:
a) ldenLlflcaLlon of opporLunlLy cosLs
b) Conslderlng lndusLry speclflc lssues llke aglng of wlne
c) Conslderlng Llme value of money/perpeLulLy of cash flow
d) Conslderlng rlsks llke cusLomer demand, land usablllLy
176
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Case tracker I|t uest|ons
Industry:
CC
Leve| of D|ff|cu|ty:
Med|um
Case Iormat:
CrowLh SLraLegles
Concepts 1ested:
! CreaLlvlLy
! MarkeLlng SLraLegy
! CusLomer SLraLegy
Case uest|on
Cur cllenL ls PealLhy loods Co, a wholesaler servlng a varleLy of cllenLs wlLh lood producLs. 1he cllenL ls proflLable buL
Lhey wanL you Lo help Lhem flnd revenue growLh opporLunlLles from Lhelr currenL buslness.
now coo we belp neoltby looJs co. Jtlve tbelt teveooe qtowtb?
Spend f|rst 1S m|n on f|t
1ell me abouL a Llme
when you falled.
Share me a Llme when
you faced a dlfflculL
slLuaLlon ln a Leam and
how you solved Lhls .
Gu|de to |nterv|ewer
1hls case LesLs growLh opporLunlLles ldenLlflcaLlon, and
share of walleL analysls.
lL LesLs concepLuallzaLlon skllls as Lhe lnLervlewee needs
Lo formulaLe prlorlLlzaLlon crlLerla. 1he case ls malnly
quallLaLlve.
177
Case 26: nea|thy Ioods Co.
12+$'"3
4'02*'20)
/0)+'#?#'<
5.'3 4'%<
/2"'3 4'%<
S
6
By: Milija Medic, Edited By: Mauricio Atri (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
Gu|de to case ] Gu|de to handouts
Lxh|b|t 1: Pand ouL when lnLervlewee asks abouL cusLomers or revenue by
cusLomer Lype. lnLervlewee should noLlce LhaL lndependenL resLauranLs are
Lhe largesL cusLomer caLegory and revenue source, and LhaL Lhere ls a
number of oLher cusLomer Lypes of slmllar revenue conLrlbuLlons
comprlslng Lhe resL.
Lxh|b|t 2: Pand ouL when lnLervlewee ldenLlfles share of walleL as a
relevanL parameLer, ln search of revenue growLh from exlsLlng cusLomer
Lypes. lnLervlewee should generaLe a key lnslghL LhaL PealLhy loods Co's
share of walleL ls already large for Lhe cusLomers who brlng ln Lhe largesL
revenues. 1he opporLunlLy for growLh Lherefore ls ln Lhe smaller revenue-
generaLlng cusLomers.
Lxh|b|t 3: Pand ouL when lnLervlewee recognlzes LhaL ln order Lo flnd Lhe
smaller cusLomer Lypes wlLh hlghesL revenue growLh poLenLlal, (s)he needs
Lhe ploL of Lhe slze of Lhe walleL vs. Lhe currenL cllenL's share of walleL for
LhaL cusLomer. 1he cusLomers wlLh large walleLs, where Lhe cllenL has small
share of walleL, are aL Lhe momenL Lhe besL candldaLes Lo achleve lncrease
ln revenue from. lnLervlewee should ldenLlfy hosplLals and hoLels as Lhe
cusLomers wlLh largesL poLenLlal for revenue growLh.
C|ar|fy|ng answers to prov|de
Customers
! 1he cllenL serves varlous cusLomer
caLegorles (shown |n Lxh|b|t 1).
! CusLomer senslLlvlLles are (hlghesL Lo
lowesL):
! rlce
! convenlenL dellvery
! help wlLh locaLlon plannlng
! help wlLh menu
! web slLe developmenL
! lnvenLory
! Pelp wlLh managemenL opLlmlzaLlon
Compet|t|on
! 1he cllenL ls one of Lhe markeL leaders and
ls noL looslng Lhe markeL share
178
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
1op|c 1 be|ng tested
ldenLlfy Lhe maln cusLomer Lypes and
Lhelr currenL conLrlbuLlons Lo Lhe
cllenL's revenues, uslng Lxh|b|t 1
1op|c 2 be|ng tested
Share of walleL analysls, uslng Lxh|b|t
2
Notes to |nterv|ewer
1he lnLervlewee wlll probably explore
opporLunlLles for growLh ln Lhe
lndependenL resLauranL caLegory. lf
Lhey lnqulre abouL cusLomer
saLlsfacLlon and senslLlvlLles, provlde
lnformaLlon from Lhe "clarlfylng
lnformaLlon" secLlon, and emphaslze
LhaL the needs of th|s segment are
a|ready met.
1he lnLervlewee should lnqulre abouL
Lhe share of walleL ln Lhe cusLomer
caLegorles Lo geL a beLLer ldea on
where Lhe growLh opporLunlLles lle.
Notes to |nterv|ewer
1he lnLervlewee should recognlze LhaL
share of walleL ln Lhe hlghesL-revenue-
generaLlng cusLomer caLegorles ls
already hlgh, and LhaL Lhe cllenL ls
already a prlmary provlder for a loL of
Lhem.
1he key lnslghL here LhaL you can help
lnLervlewee Lo reach, ls Lhe growLh
opporLunlLy ln Lhe smaller revenue-
generaLlng cusLomers, where cllenL's
share of walleL ls smaller. now Lhe
lnLervlewee should formulaLe Lhe
crlLerla for prlorlLlzaLlon among Lhe
smaller revenue-generaLlng cusLomer
Lypes: Lhe blgger Lhelr walleL and Lhe
smaller cllenL's share of walleL, Lhe
beLLer.
1op|c 3 be|ng tested
WalleL slze vs. share of walleL
Notes to |nterv|ewer
1he blgger Lhelr walleL and Lhe smaller
cllenL's share of walleL, Lhe larger Lhe
revenue growLh opporLunlLy for Lhe
cllenL.
uslng Lxh|b|t 3, Lhe lnLervlewee
should ldenLlfy Lhe hosplLals and Lhe
hoLels as Lhe mosL promlslng
candldaLes for revenue growLh glven
Lhelr large walleLs and small cllenL's
share of walleL. 1he lnLervlewee
should ldenLlfy Lhe sLrongesL
senslLlvlLles Lhese cllenLs would have
and suggesL ways Lo lncrease cllenL's
share of walleL Lhere.
179
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
ln Lhe currenL buslness, Lhe largesL growLh opporLunlLles lle ln cusLomer segmenLs:
hosplLals and hoLels.
1he lnLervlewee should suggesL ways Lo beLLer serve Lhose cusLomers and lncrease cllenL's share of
walleL Lhere, capLurlng slgnlflcanL new revenues due Lo Lhe large slze of Lhose cllenLs' walleLs.
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee should ldenLlfy share of walleL as an lmporLanL parameLer, qulckly
recognlze LhaL Lhere ls llLLle opporLunlLy for growLh ln Lhe largesL-revenue-generaLlng cusLomers,
and come up wlLh Lhe slze of walleL vs. share of walleL ploL as a good prlorlLlzaLlon Lool for
ldenLlfylng promlslng cusLomer caLegorles for Lhe cllenL's revenue growLh.
180
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #1: 1ota| Market kevenues by Customer 1ype
Revenues by Customer Type
Independent restaurants
Chain restaurants
Hospitals
School cafeterias
Grocery stores
Other
181
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Exhibit #2: Clients Share of Wallet
0 20 40 60 80
A
B
C
X
Share of Wallet
Different
Profitabillity
Customers (A
highest, X lowest
profit)
Share of Wallet for Different Customer Types and Different
Roles in Wallet
Client is
Primary
Supplier
Client is One of
Many
182
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #3: Wa||et S|ze vs. Share of Wa||et
Wallet Size vs. Share of Wallet for the Smaller-Revenue-Generating
Customer Categories
0
100
200
300
400
500
600
0 10 20 30 40 50 60
Share of Wallet [%]
Wallet Size [$M]
Hospitals
Hotels
School cafeterias
Grocery stores
Chain restaurants
183
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Case 27: n|gh |ast|cs
Case uest|on
Cur cllenL, Plgh C lasLlcs, ls an auLomoLlve parLs suppller ln Lhe u.S. 1hey prlmarlly manufacLure and sell
plasLlc ln[ecLlon-molded parLs, such as grllls, door handles, decoraLlve Lrlm eLc., Lo auLomoLlve cusLomers.
1he cllenL has Lwo prlmary revenue sources: large auLomoLlve CLMs, and afLermarkeL. 1he cllenL has recenLly
seen decllnlng proflLs, prlmarlly due Lo lncreased prlce compeLlLlon from new overseas compeLlLors ln Chlna.
Annual proflLs have decllned from $30M Lo $20M over Lhe pasL few years.
wbot ls tbe teosoo bebloJ Jeclloloq ptofltoblllty? now coo nlqb O lmptove ptoflts? coo tbey teocb 5100M lo
ptoflts by 2014?
12+$'"3
4'02*'20)
8
/-7K3 N;"
/0)+'#?#'<
AK"3
S
184
By: Erin Brooks (Kellogg Class of 11), Edited By: Uri Kalir (Kellogg Class of 12)
Case tracker I|t uest|ons
Industry:
lndusLrlal Coods
Leve| of D|ff|cu|ty:
Med|um
Case Iormat:
lmprovlng roflLablllLy,
CosL 8educLlon
Concepts 1ested:
! CompeLlLlve Analysls
! CreaLlvlLy
! CperaLlons
Spend f|rst 1S m|n on f|t
1ell me abouL your
greaLesL challenge, and
how you overcame lL.
WhaL ls Lhe besL way Lo
deal wlLh a dlfflculL
cllenL who does noL
agree wlLh your
recommendaLlons?
Gu|de to |nterv|ewer
1he lnLervlewee should examlne Lhe followlng MLCL quesLlons
abouL Lhe compeLlLlve dynamlcs of Lhe lndusLry:
loJostty: WhaL ls Lhe sales volume Lrend? WhaL ls Lhe of
demand and growLh of CLM vs. afLermarkeL segmenL? ls one of
Lhese segmenLs more proflLable Lhan Lhe oLher?
competltots. Who are Lhey? WhaL ls Lhelr relaLlve markeL share?
What are their prices vs. our clients? What is their cost
structure vs. our clients? Do they have a technology or quality
compeLlLlve advanLage relaLlve Lo our cllenL?
keveooe. How have our clients prices changed in recent years?
Pave Lhey decllned across all cusLomers and producLs?
costs. WhaL Lrends ls our cllenL seelng ln Lhelr cosL sLrucLure?
lncreaslng labor or maLerlal cosLs?
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and case gu|de
C|ar|fy|ng answers to prov|de
Industry Character|st|cs]Market Lconom|cs
! AuLomoLlve sales overall sLlll growlng
sLeadlly, drlven by emerglng markeLs
! AuLomoLlve manufacLurlng ls leavlng
Lhe u.S.
C||ent Character|st|cs
! CllenL ls currenLly one of Lhe leaders ln
Lhls caLegory
! CllenL has u.S.-based manufacLurlng
! 8evenues have been slowly decllnlng
over lasL 3 years
! Clients products are of a higher quality
than most Chinese competitors
producLs
Compet|t|ve Dynam|cs
! AuLomoLlve CLM cusLomers are looklng
Lo reduce cosL, drlvlng lncreased prlce
compeLlLlon among parLs suppllers
uest|ons and nand-out Gu|de
1. WhaL key quesLlons would you ask an lndusLry experL ln order Lo beLLer undersLand
the reasons behind High Qs declining profits?
2. 1he CLC of Plgh C wanLs Lo know lf$100M ln annual proflLs ls achlevable by 2014.
WhaL would you need Lo know ln order Lo deLermlne Lhls? WhaL daLa would you ask
for?
3. WhaL ways can you Lhlnk of Lo lncrease revenues? WhaL ways can you Lhlnk of Lo
reduce cosLs?
4. Cur cllenL ls plannlng on lmplemenLlng lean manufacLurlng across all 4 of lLs u.S.
planLs, ln order Lo provlde cosL savlngs and lncrease proflLs. nooJ oot exblblt 1.
1he cllenL ls expecLlng Lo produce 80 of 2010 volumes ln 2014. 1hey are
also plannlng on reduclng prlces by 10 due Lo lncreased compeLlLlon.
Lean manufacLurlng lmplemenLaLlon across all planLs wlll provlde an
addlLlonal 20 savlngs ln raw maLerlal, and 30 savlngs ln labor.
WhaL ls Lhe change ln proflLs Lhe Plgh C CLC can expecL from 2010 Lo 2014,
based on Lhls lnformaLlon?
3. High Q s CEO has also asked us to take a look at competitive dynamics among the
auLomoLlve CLMs, ln order Lo predlcL any lncrease ln proflLs from lncreased sales.
Pand ouL exhlblLs 2 and 3.
8ased on Lhe lnformaLlon glven, whaL do you expecL Plgh C wlll see ln
additional profits due to Toyotas predicted 30% increase in market share in
Lruck and Suvs?
6. lease summarlze your flndlngs Lo Lhe CLC, lncludlng any oLher poLenLlal
opportunities to increase High Qs profits over the next few years.
183
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
1. 1he lnLervlewee should examlne Lhe followlng MLCL quesLlons abouL Lhe compeLlLlve dynamlcs of Lhe lndusLry:
a) Industry: WhaL ls Lhe sales volume Lrend? WhaL ls Lhe of demand and growLh of CLM vs. afLermarkeL
segmenL? ls one of Lhese segmenLs more proflLable Lhan Lhe oLher?
b) Compet|tors: Who are they? What is their relative market share? What are their prices vs. our clients? What is
their cost structure vs. our clients? Do they have a technology or quality competitive advantage relative to our
cllenL?
c) kevenue: How have our clients prices changed in recent years? Have they declined across all customers and
producLs?
d) Costs: WhaL Lrends ls our cllenL seelng ln Lhelr cosL sLrucLure? lncreaslng labor or maLerlal cosLs?
2. ln order Lo undersLand lf $100M ln proflLs by 2014 ls achlevable, you would need Lo know Lhe annual qLy of unlLs sold,
the selling price, and the clients fixed and variable costs. Profit = Q*(P-vC) lC
3. 1he lnLervlewee should come up wlLh 2-3 ways each for cosL reducLlon and lncreaslng revenues:
a) keduce Cost: flnd alLernaLlve maLerlal sources, lnvesL ln process auLomaLlon Lo reduce labor, consolldaLe mulLlple
manufacLurlng slLes Lo reduce SC&A cosLs, relocaLe close Lo cusLomers Lo reduce LransporLaLlon cosLs.
b) Increase kevenue: segmenL cusLomers Lo deLermlne senslLlvlLy Lo prlce, lncrease markeLlng ln afLermarkeL
segmenL, negoLlaLe long-Lerm conLracLs wlLh CLM cusLomers.
186
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons (2)
So|ut|on & kecommendat|ons
4. 1he lnLervlewee should use Lhe lnformaLlon provlded ln Lxh|b|t 1 Lo calculaLe Lhe followlng proflLablllLy for each planL ln
2014, and walk Lhe lnLervlewer Lhrough Lhe calculaLlon sLeps. lL ls lmporLanL Lo flrsL noLe LhaL revenues, labor, and
maLerlal wlll decrease by 20 due Lo Lhe reduced quanLlLy ouLpuL from each planL, plus Lhe addlLlonal 20 savlngs ln
maLerlal and 30 ln labor. Cverhead cosLs wlll noL change.
lrom Lhls calculaLlon, Lhe lnLervlewee should reference back Lo quesLlon 2. Lven wlLh Lhe lean manufacLurlng
implementation, High Q is still a long way from the CEOs goal of $100M in annual profits, and this is therefore not a
realistic target. A strong interviewee should note the importance of aligning a clients expectations.
*al l fl gures are l n $ ml l l l on uSu.
|ant A |ant 8 |ant C |ant D
8evenues 72.0 72.0 72.0 72.0
Labor 11.2 22.4 33.6 16.8
MaLerlal 33.2 23.6 12.8 22.4
Cverhead 20.0 13.0 13.0 30.0
neL roflLs 3.6 9.0 10.6 2.8
1oLal 2014 roflLs 28.0
Add|t|ona| rof|ts 8.0
187
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons (3)
So|ut|on & kecommendat|ons
3. 1he lnLervlewee should be able Lo use Lhe lnformaLlon provlded ln Lhe LxhlblLs Lo calculaLe Lhe followlng revenue
growLh. 8ounded answers ($13 or $14M) are flne.
6. The interviewee should concisely summarize the overall goal of the case (to increase High Qs declining profitability due
Lo new, low-cosL compeLlLlon), and maln flndlngs from each quesLlon, and a recommendaLlon (yes, Plgh C should
lmplemenL Lhe lean manufacLurlng lnlLlaLlve). 1he lnLervlewee should also generaLe a llsL of addlLlonal opporLunlLles
LhaL were noL explored ln Lhe case, lncludlng:
a) ConsolldaLlon of Lhe 4 manufacLurlng planLs (especlally lanL u, wlLh lLs hlgh overhead cosLs)
b) ursue growLh ln Lhe afLermarkeL segmenL of Lhelr buslness
c) ulverslfy Lhelr buslness lnLo plasLlc ln[ecLlon-molded parLs for oLher lndusLrles (ouLslde of auLomoLlve), wlLh less
prlce compeLlLlon
2010 2014
u.S. AuLo MarkeL 16,000,000
u.S. 1ruck & Suv Sales 3,200,000
1oyoLa 1ruck & Suv Sales 320,000 1,280,000
Plgh C's 1oyoLa CLy. Sold 224,000 896,000
Plgh C's 1oyoLa 8evenues 4,480,000 $ 17,920,000 $
Add|t|ona| kevenue 13,440,000 5
188
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Exhibit #1: High Qs 2010 Financials, By Facility
*al l fl gures are l n $ ml l l l on uSu.
|ant A |ant 8 |ant C |ant D
8evenues 100 100 100 100
Labor 20 40 60 30
MaLerlal 33 40 20 33
Cverhead 20 13 13 30
neL roflLs 3 3 3 3
189
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #2: 2010 U.S. Automot|ve Market
38
42
20
2010 U.S. Automot|ve Sa|es
CompacL cars
lull-slze cars
1rucks & Suvs
*Add|t|ona| Informat|on
2010 u.S. AuLomoLlve Sales = 16 Mllllon vehlcles
190
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #3: U.S. Automot|ve CLM Market
33
31
19
10
7
21
20
14
40
3
0
3
10
13
20
23
30
33
40
43
lord CM Chrysler 1oyoLa nlssan
CLM 1ruck ] SUV Market Share 2010-2014
2010
2014
*Add|t|ona| Informat|on
Plgh C supplles 70 of 1oyoLa's buslness
Avg. rlce of Plgh C producLs sold Lo 1oyoLa = $20
191
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Case 28: Sa|ty So|e Shoe Co.
Case tracker
Industry:
8eLall Apparel
Leve| of D|ff|cu|ty:
Medlum
Case Iormat:
lmprovlng proflLablllLy
Concepts 1ested:
! CreaLlvlLy
! AccounLlng
! Mlcroeconomlcs
Case uest|on
?our cllenL ls a large reLall-focused prlvaLe equlLy flrm LhaL owns SalLy Sole, a leadlng deslgner of [unlor womens
fooLwear, prlmarlly LargeLlng Lhe 14 22 year old age group. SalLy Sole was purchased lasL year by Lhe prlvaLe equlLy flrm
expecLlng Lo reallze subsLanLlal proflLs upon sale ln 2012 by lncreaslng Lhe companys L8l1uA. 1he slLuaLlon, however, ls
LhaL due Lo a currenL recesslon, annual proflL has only grown modesLly posL Lhe acqulslLlon and ls noL on Lrack Lo
generaLe Lhe double-dlglL reLurns LhaL Lhe prlvaLe equlLy flrm orlglnally anLlclpaLed.
now coo tbe compooy locteose ptofltoblllty ooJ ocbleve tbe ptlvote epolty fltms tetoto oo lovestmeot objectlves?
I|t uest|ons
Spend f|rst 1S m|n on f|t
1ell me abouL a problem
you faced ln your
professlonal llfe, how
you resolved lL, and
whaL Lhe resulLs were.
1ell me abouL a Llme
when you worked ln a
conLenLlous or hlgh-
sLress slLuaLlon and how
you handled lL.
Gu|de to |nterv|ewer
1he case pr|mar||y tests an understand|ng of
prof|tab|||ty and prof|tab|||ty growth strateg|es
8egln by readlng Lhe case quesLlon and asklng Lhe
lnLervlewee Lo Lake a few momenLs and Lhen explaln
how Lhey would llke Lo proceed ln Lhe cllenLs problem
AfLer Lhey presenL a framework for solvlng Lhe case, lf
Lhey have noL already done so, ask Lhe lnLervlewee whaL
he/she belleves Lhe prlmary componenLs of cosLs are for
a buslness llke Lhls.
Answer: maLerlals, dlsLrlbuLlon (labor /
LransporLaLlon / Laxes), sales force labor
12+$'"3
4'02*'20)
/0)+'#?#'<
N**'3
5#*0-3
7
6
192
By: Meredith Tierney (Kellogg Class of 11), Edited By: Uri Kalir (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
C|ar|fy|ng answers and handout gu|de
Gu|de to handouts
AfLer asklng Lhe case quesLlon, Lhe lnLervlewee should draw a framework LhaL
ouLllnes Lhe baslc concepL LhaL proflL ls drlven by revenue (prlce and volume)
and cosL (flxed and varlable)
Lxh|b|t 1 Pand ouL afLer lnLervlewee presenLs hls/her framework.
! WhaL observaLlons can be made from Lhls charL?
! lnLervlewee should polnL ouL LhaL Lhe company experlenced slgnlflcanL growLh
durlng Lhe pre-recesslon years, buL a decllne and only gradual plck-up
followlng.
! lnLervlewee should plck-up on Lhe facL LhaL Lhe change ln neL sales ls noL due
Lo lncreased dlscounLs/allowances (remalns 1 LhroughouL years).
! Cn Lhe cosL slde, lnLervlewee should noLe LhaL varlable cosLs remalned flaL aL
30 and flxed cosLs remalned flaL
Lxh|b|t 2 Pand ouL when dlscusslng revenue / lncreaslng volume.
! noLe LhaL Lhe casual fooLwear markeL ls used as a proxy for Lhe [unlor
womens caLegory ln whlch Lhe cllenL compeLes and ls Lhe markeL leader.
! WhaL observaLlons can be made from Lhls charL?
! CandldaLe should noLe LhaL Lhe cllenL ls already Lhe markeL leader wlLh greaLer
Lhan 33 share and LhaL Lhe lndusLry ls noL pro[ecLed Lo grow.
C|ar|fy|ng answers to prov|de
Industry Character|st|cs]Market Lconom|cs
! CllenL ls Lhe markeL leader ln [unlor
womens fooLwear ln Lhe u.S. only.
! Apparel lndusLry ls characLerlzed by
cycllcallLy due Lo economy and
consumer preferences.
C||ent Character|st|cs
! CllenL deslgns and dlsLrlbuLes fooLwear
Lo dlscounL reLallers (Lhlnk kohls) and
ls consldered mld-prlced.
! CllenL ouLsources all manufacLurlng on a
flxed-conLracL basls (l.e. manufacLurlng
cosLs wlLh ouLsourced provlders fall
under llxed CosLs for slmpllclLy).
Compet|t|ve Dynam|cs
! CllenL follows a me-Loo sLraLegy and
follows fashlon raLher Lhan lnvenLlng lL
Lhen offerlng lower prlces Lhan name
brands (l.e. noL sub[ecL Lo fashlon rlsk).
! CllenL compeLes on Lhe basls of Lrendy
fashlon and value prlclng.
193
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
194
Costs
uslng Lxh|b|t 1, have a qulck dlscusslon abouL Lhe
companys cosL sLrucLure.
kevenue
Cnce lnLervlewee deLermlnes LhaL cosL ls noL Lhe lssue, have a
dlscusslon on Lhe componenLs of revenue prlce and volume.
Notes to |nterv|ewer
llxed: lnLervlewee should noLe LhaL flxed cosLs are noL
exLremely hlgh (abouL 23-23), buL could be an area for
lmprovemenL. Ask how lnLervlewee would reduce flxed
cosLs? Answer: renegoLlaLe conLracLs, flnd cheaper
manufacLurlng parLners, eLc.
!SLaLe LhaL ln-facL flxed cosLs cannoL be ad[usLed
based on Lhe companys research.
varlable: lnLervlewee should noLe LhaL varlable cosLs are
approxlmaLely 30 of sales. Ask how lnLervlewee would
Lhlnk abouL reduclng varlable cosLs? Answer: reduce
labor/sales force, use Lechnology, renegoLlaLe / volume
purchase maLerlals
!SLaLe LhaL varlable cosLs are currenLly aL Lhe lowesL
posslble raLes based on markeL research.
Notes to |nterv|ewer
rlce: lnLervlewee should ask lf prlclng has remalned consLanL
over Llme or lf Lhe company has ad[usLed lLs prlclng Lo reflecL
lower consumer dlscreLlonary lncome.
Ask whaL conslderaLlons Lhe lnLervlewee would have when
conslderlng ad[usLlng prlce?
Answers should be prlce senslLlvlLy / elasLlclLy, cosL
sLrucLure, brand equlLy (dlluLe brand Lhrough prlce
decrease buL compeLe wlLh more upscale brands lf
lncrease).
SLaLe LhaL prlclng has remalned consLanL aL an average of
$23/unlL. 1he company has deLermlned LhaL lL would noL
be prudenL Lo ad[usL prlclng based on lndusLry research.
lnLervlewee can now deLermlne Lhe number of palrs of
shoes sold for laLer ln Lhe case.
194
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
key e|ements to ana|yze
195
kevenue (contd)
now LhaL Lhe lnLervlewee has hopefully zeroed-ln on Lhe facL LhaL Lhe lssue ls volume, ask how many unlLs musL be sold by 2012 ln
order for Lhe prlvaLe equlLy flrm Lo achleve a 20 reLurn on Lhe lnvesLmenL ln SalLy Sole Shoe, whlch equals approxlmaLely $300
mllllon sale value (glve Lhls number). noLe LhaL lnLervlewee should lqoote dlscounLs/allowances for slmpllclLy.
Notes to |nterv|ewer
lnLervlewee should deLermlne LhaL lf Lhe sale value needs Lo
be $300mm ln 2012, Lhen L8l1uA wlll need Lo be $300 / 6.3
= $46.13 (round up Lo $30 mllllon).
1he formula Lo deLermlne how many palrs of shoes musL be
sold Lo reach LhaL L8l1uA level ls as follows:
$30,000,000 = $23*v (.3 * 23 * v) 13,000,000
$63,000,000 = 12.3v
v = 3,200,000 palrs of shoes
lnLervlewee should noLe LhaL Lhls ls more Lhan double Lhe
2008 and 2009 volume levels.
Ask whaL Lhe lnLervlewee would wanL Lo know Lo deLermlne
lf Lhls volume ls feaslble? Answer: markeL slze / share.
Market S|ze
Show Lhe candldaLe LxhlblL 2 when he/she noLes LhaL
markeL slze/share would be helpful.
CandldaLe should noLe LhaL Lhe cllenL ls already Lhe markeL
leader wlLh greaLer Lhan 33 and LhaL Lhe markeL slze ls
noL pro[ecLed Lo lncrease.
1hls should lead Lo Lhe concluslon LhaL Lhe cllenL can
lncrease volume by sLeallng share and/or new producLs ln
oLher caLegorles.
193
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
1he lnLervlewee should zero-ln on Lhe facL LhaL slnce cosL-sLrucLure ls flxed and prlce ls also flxed, volume ls Lhe only
real way Lo lncrease proflLablllLy.
Powever, volume musL more Lhan double ln order Lo achleve Lhe growLh deslred by Lhe prlvaLe equlLy flrm for a
20 reLurn, whlch could be dlfflculL glven recesslon and Lhe facL LhaL Lhe lndusLry as a whole isnt growlng.
lnLervlewee should recommend poLenLlals sLraLegles for achlevlng LhaL volume growLh whlle ouLllnlng Lhe rlsks of
each: 1) volume: new producLs / geographles / dlsLrlbuLlon channels (lnLernaLlonal?), lncrease markeLlng Lo sLeal
share, acqulre growLh (brands), ad[usL producL mlx Lo hlgher-margln producLs. 2) rlce: add value / feaLures. 3)
8lsks: CapaclLy, cannlballzaLlon lf new producLs.
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll qulckly ldenLlfy LhaL volume ls Lhe lssue by Llcklng Lhrough Lhe parLs of Lhe proflLablllLy
equaLlon.
An excellenL lnLervlewee wlll also ask abouL producL mlx and quesLlon Lhe 30 gross margln. lnLervlewer should
noLe LhaL its assumed LhaL all producLs have Lhe same margln, buL thats a greaL quesLlon.
An excellenL lnLervlewee wlll also noLe LhaL slnce Lhe company ls noL pro[ecLed Lo have Lo ad[usL dlscounLs /
allowances, Lhen lL probably has a good producL LhaL ls hlghly-valued by cusLomers and/or Lhls may be aggresslve
pro[ecLlng.
196
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #1: C||ents I|nanc|a| Lst|mates 2006 - 2012
Sa|ty So|e I|nanc|a| Lst|mates
(5 lo mlllloos)
2006A 2007A 2008A 2009L 2010L 2011L 2012L
Sales 30.00 63.00 60.00 61.00 62.00 63.00 70.00
Less: ulscounLs/Allowances (0.30) (0.63) (0.60) (0.61) (0.62) (0.63) (0.70)
neL Sales $49.30 $64.33 $39.40 $60.39 $61.38 $64.33 $69.30
X locteose / uecteose 20.0X J0.0X (7.7X) 1.7X 1.6X 4.8X 7.7X
CosL of Coods Sold 24.73 32.18 29.70 30.20 30.69 32.18 34.63
llxed CosLs 13.00 13.00 13.00 13.00 13.00 13.00 13.00
1oLal CosLs 39.73 47.18 44.70 43.20 43.69 47.18 49.63
L8l1uA $9.73 $17.18 $14.70 $13.20 $13.69 $17.18 $19.63
Sale MulLlple 6.30x 6.30x 6.30x 6.30x 6.30x 6.30x 6.30x
urchase/Sale rlce $111.64 $93.33 $98.77 $101.99 $111.64 $127.73
8eLurn on lnvesLmenL 2.7
noLe: AcqulslLlon occurred on uecember 31, 2006.
197
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t #2: Market S|ze and Share
0
10
20
30
40
30
60
70
80
90
100
2006 2007 2008 2009

e
r
c
e
n
t

M
a
r
k
e
t

S
h
a
r
e
U.S. Casua| Iootwear Market S|ze and Share
5S68 5S88 5S78 5S88
CompeLlLor 3
CompeLlLor 4
CompeLlLor 3
CompeLlLor 2
CompeLlLor 1
SalLy Sole
198
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
199
Case tracker I|t uest|ons
Industry:
llnanclal Servlces
Leve| of D|ff|cu|ty:
Med|um
Case Iormat:
M&A
Concepts 1ested:
! CrganlzaLlonal
changes
! MarkeL share
! CusLomer sLraLegy
Case uest|on
Cur cllenL ls a prlvaLe equlLy flrm lnLeresLed ln lasLlcWorld, a plasLlc packaglng manufacLurer.
PlasticWorlds owners are requesting $25M. The offer is final. Should our client buy?
Spend f|rst 1S m|n on f|t
1ell me someLhlng abouL
yourself LhaL ls noL llsLed
on your resume.
WhaL was Lhe mosL
dlfflculL problem you
solved ln your prevlous
[ob, buslness-wlse?
Gu|de to |nterv|ewer
1he case pr|mar||y tests the ab|||ty to ga|n |ns|ght from
quant|tat|ve data , va|ue a company and f|nd potent|a|
|mprovements.. As such, |t |s a ||tt|e b|t more data-
dr|ven than the average case.
1he lnLervlewee should focus on Lhe company value as
Lhe recommendaLlon regardlng Lhe offer depends on lL,
and on feaslblllLy of ldenLlfled proflL-lmprovlng changes.
1he lnLervlewee should be able Lo come up wlLh Lhe key
lmprovemenLs lf (s)he lnvesLs some efforL ln
undersLandlng Lhe prlce drop and lLs relaLlonshlp Lo Lhe
sales force lncenLlves, as well as Lhe lnnovaLlon-relaLed
cosLs from Lhe pressure from Lhe cusLomers and how Lo
push back.
Case 29: |ast|c Wor|d
12+$'"3
4'02*'20)
A0%3 /(%3
5.'3 4(+0)
/2"'3 4'%<
3
4
By: Milija Medic, Edited By: Peter Manoogian (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
200
|ast|c Wor|d: C|ar|fy|ng answers and case gu|de
Gu|de to handouts
8egln by handlng ouL exhlblL #1 afLer sLaLlng Lhe case quesLlon.
Lxh|b|t 1 Pand ouL afLer lnLroduclng case
! WhaL observaLlons can be made from Lhls &L sLaLemenL?
! lnLervlewee should calculaLe Lhe proflL margln (-6), noLlce LhaL
sales volume ls growlng buL revenues are dropplng, and lnfer LhaL
Lhe cause may be prlclng (mote Jetoll oo oext poqe)
! To check if its an industry-wlde or company-speclflc drop ln
proflLablllLy, tbey sboolJ tepoest competltloo ptofltoblllty Joto
Lxh|b|t 2 Pand ouL lf Lhe candldaLe requesLs compeLlLlon daLa
! Note that its a company-speclflc problem
! ush Lhe lnLervlewee Lo posLulaLe whaL would be a reallsLlc proflL
margln for lasLlcWorld based on Lhls lndusLry proflLablllLy daLa
(mote Jetoll oo oext poqe)
Lxh|b|t 3 Pand ouL afLer dlscusslon of LxhlblL 2
! SenslLlvlLy analysls lndlcaLes LhaL Lhe company would be worLh Lhe
offered $23M lf Lhe proflL margln was broughL from 6 Lo 0
! lnLervlewee should lnvesLlgaLe Lhe proflLablllLy drop and Lhe low
prices further and suggest options to get PlasticWorlds profitability
ln llne wlLh Lhe lndusLry, and Lhelr feaslblllLy
C|ar|fy|ng answers to prov|de
|ast|cWor|d Character|st|cs
! Makes plasLlc packaglng for beverages,
cosmeLlcs, household and auLomoLlve
chemlcals
! roducLs are Lop quallLy, Lhey have 330
seLs of molds, wlLh dlfferenL maLerlals,
flnlsh, colors, always lnnovaLlng
! Cverall producL mlx has noL changed ln
recenL years
! The sales force is the best in breed,
Lhey hold markeL share, and Lhey are
compensaLed on markeL share
! 1wo years ago Lhey lnvesLed furLher ln
equlpmenL for producL lnnovaLlon
Customers
! PlasticWorlds customers exhibit strong
loyalLy
! 1hey are experlenclng lncreaslng
pressures ln Lhelr lndusLrles Lo lnnovaLe
Lhe plasLlc packaglng
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
201
|ast|c Wor|d: key e|ements to ana|yze
Sa|es Iorce Incent|ves
uslng LxhlblL 1, WhaL could be Lhe reasons behlnd whaL
ls ln Lhe daLa?
rof|t Marg|n Improvement Ieas|b|||ty
Use Exhibit 2 to conclude its a client-speclflc problem, use
Exhibit 3 to discuss companys value if the profit margin is
lncreased Lo Lhe lndusLry average.
Notes to |nterv|ewer
LxhlblL 1 lasLlcWorld has experlenced a sLeady drop ln
revenues whlle Lhe sales volume has been growlng.
1here are Lhree ma[or polnLs Lo ldenLlfy: 1) Lhe proflL
margln ls dropplng and negaLlve, 2) glven Lhe unchanged
producL mlx and lncreaslng sales volume, Lhe drop ln
revenues ls caused by a reducLlon ln prlces, 3)
depreclaLlon change lL was equlpmenL lnvesLmenL.
1he lnLervlewee should flnd, asklng lndependenLly or wlLh
your help, LhaL sales force ls compensaLed based on
markeL share. 1hls glves Lhe sales force lncenLlve Lo drop
Lhe prlces.
lnLervlewee should ask abouL Lhe producL quallLy and
cusLomer loyalLy Lo dlscard prlce compeLlLlon as Lhe
reason Lo drop prlces. 1he producLs are hlgh-quallLy and
cusLomers are loyal, so mosL of Lhem would buy even aL a
hlgher prlce.
Notes to |nterv|ewer
LxhlblL 2 - Lhe candldaLe should ldenLlfy Lhe proflLablllLy
problem ls cllenL-speclflc, all compeLlLors are proflLable.
LxhlblL 3 Lhe observaLlon from Lhe graph ls LhaL Lhe
company would be worLh Lhe $23M lf lasLlcWorld
lncreased proflL margln from 6 Lo 0. lf Lhe proflL
margln reached Lhe lndusLry average, Lhe company would
be worLh $40M.
now Lhe quesLlon ls how easlly can Lhe proflLablllLy be
lncreased above zero (maklng Lhe company worLh more
Lhan Lhe $23M). 1he sales force lncenLlve change ls easy Lo
make.
Looklng for oLher hlgh-lmpacL lmprovemenLs, Lhe dense
producL llne and consLanL lnnovaLlon ls Lhe nexL largesL
candldaLe. LllmlnaLe some molds Lo cuL cosLs, mlndful of
innovation pressures in PWs clients industries.
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
202
|ast|c Wor|d: So|ut|on and recommendat|ons
So|ut|on & kecommendat|ons
Cur cllenL should accepL Lhe $23M offer and boosL Lhe proflLablllLy (and value) of lasLlcWorld.
1he cllenL should engage ln Lhe followlng easy-Lo-lmplemenL changes:
CompensaLe sales force based on company earnlngs lnsLead of markeL share.
Slmpllfy Lhe producL llne - ellmlnaLe some of Lhe 330 molds Lo cuL cosLs whlle leveraglng Lhe
superlor sales force Lo malnLaln cllenL saLlsfacLlon.
Lxamlne Lhe lndusLry besL pracLlces Lo flnd oLher areas for lmprovemenL.
8onus]Gu|de to an Lxce||ent Case
An excellenL lnLervlewee wlll qulckly ldenLlfy Lhe prlclng as Lhe lssue behlnd Lhe revenue decrease
and lay ouL poLenLlal causes for Lhe prlce drop, flndlng Lhe sales force lncenLlve.
AddlLlonally, a sLrong lnLervlewee wlll lmmedlaLely noLlce LhaL Lhe company would be worLh more
Lhan $23M lf lLs proflL margln was aL Lhe level of lndusLry average.
A framework comprehenslve enough Lo flnd Lhe producL llne slze problem would be a plus.
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 1: |ast|cWor|d &L statement |n the past three years
203
2009 2008 2007
Sales ($) 18,824,000 19,180,000 19,650,000
Volume (units) 36,200,000 34,250,000 32,750,000
COGS ($) 9,050,000 8,900,000 8,650,000
SG&A ($) 7,500,000 7,200,000 7,300,000
Depreciation ($) 3,450,000 3,450,000 2,250,000
EBIT ($) -1,176,000 -370,000 1,450,000
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 2: |ast|cWor|d and Industry eers rof|t Marg|ns
204
Industry Peers Profit Margins [%]
-10 -5 0 5 10 15
Competitor A
Competitor B
Competitor C
Competitor D
Competitor E
Competitor F
PlasticWorld
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 3: |ast|cWor|d Va|uat|on by rof|t Marg|n
203
PlasticWorld Valuation Sensitivity Analysis
0
5
10
15
20
25
30
35
40
45
50
-10 -5 0 5 10 15
profit margin [%]
c
o
m
p
a
n
y

v
a
l
u
a
t
i
o
n

[
$
M
]
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206
Case tracker I|t uest|ons
Industry:
llnanclal Servlces
Leve| of D|ff|cu|ty:
Med|um
Case Iormat:
M&A
Concepts 1ested:
! lnvesLmenLs
! 8reak-even Analysls
! 8aslc nv
Case uest|on
Cur cllenL ls a zoo LhaL ls Lhlnklng abouL acqulrlng a famous zebra from an Afrlcan preserve.
Its a huge investment, but they believe the new zebra would be a great contribution to their animal community. You have
been engaged Lo help declde wheLher Lhls ls a good ldea. WhaL would you conslder when Lrylng Lo help your cllenL make
Lhls declslon?
Spend f|rst 1S m|n on f|t
uescrlbe a recenL
unpopular declslon you
made. WhaL was Lhe
resulL?
1ell me abouL a
successful buslness
relaLlonshlp you bullL
wlLh a cllenL, boss, or
peer ln your prevlous
[ob.
Gu|de to |nterv|ewer
Lven Lhough Lhe cllenL ls a Zoo, we're underLaklng a
slmllar process Lo whaL ls done when underwrlLlng an
lnsurance pollcy. 1he case evaluaLes baslc concepLs, buL
lnvolves many calculaLlons and use of flnanclal and
assessmenL Lechnlques.
key case ob[ecLlves:
1. lnvesLmenL valuaLlon Walk Lhrough Lhe
valuaLlon process for an asseL
2. 8reakeven Analysls ueLermlne Lhe revenue
lncrease needed for a poslLlve nv
3. 8lsk AssessmenL Should Lhe zoo should use an
lnsurance conLracL Lo hedge downslde rlsk?
8oundlng numbers ls generally okay buL should noL be
done Lo Lhe exLreme as lL wlll alLer Lhe resulLs
Case 30: 2oo Co.
12+$'"3
7
4'02*'20)
S
>$?)"'3
OPC
O+"#* @9E
By: Aneri Jambusaria (Kellogg Class of 11), Edited By: Peter Manoogian (Kellogg Class of 12)
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
207
2oo Co: C|ar|fy|ng answers and case gu|de
Gu|de to case ] Gu|de to handouts
1he lnLervlewee should Lhlnk abouL performlng a break even
and a senslblllLy analysls. AfLerwards, Lhey need Lo Lhlnk abouL
performlng a rlsk assessmenL (ooly wbeo yoo teocb tbls polot
yoo sboolJ Jellvet exblblt 1)
1hey should sLarL by asklng abouL Lhe beneflLs and cosLs
assoclaLed wlLh zebra acqulslLlon (LefL) Share wlLh lnLervlewee
afLer problng quesLlons are recelved
uslng Lhe daLa on Lhe lefL Lo calculaLe beneflL Lo zoo from
acqulslLlon ueLermlne wheLher or noL Lhls zebra purchase
makes flnanclal sense for Lhe zoo, uslng Lhe nv value
uslng Lhe cosL and beneflL daLa provlded, Lhe lnLervlewee
should calculaLe Lhe nv of Lhe acqulslLlon
Assome tbot otteoJooce beoeflts ote teollzeJ lmmeJlotely ooJ
molotoloeJ tbeteoftet
! Annual beneflLs = (300k)*($13)*(0.08) = $360k
! upfronL cosLs = $233k + $830k + $110k = $1.193M
! Annual cosLs = $90k
! nv = -$1,193k+(($360k - $90k)/0.20) = $133k
ConLlnue by asklng quesLlons ln nexL page
C|ar|fy|ng answers to prov|de
uaLa Lo provlde when asked
! 300k people vlslL Lhe zoo yearly
! Admlsslon ls $13
! 8eneflLs from acqulslLlon could lead Lo
lncreased aLLendance. AnoLher zoo LhaL
acqulred a slmllar zebra had an 8
lncrease
CosLs from zebra acqulslLlon
! lmmedlaLe cosLs: acqulslLlon fees,
LransporLaLlon cosLs, and new faclllLles.
! lood, healLh cosLs and addlLlonal Lralners
are parL of annual malnLenance cosLs
! AcqulslLlon cosL: $233k
! new faclllLles: $830k
! 1ransporLaLlon: $110k
! Annual malnLenance: $90k
! ulscounL raLe = 20 Assume LhaL
lmmedlaLe cosL are pald Loday, and
annual cosLs and beneflLs are reallzed
beglnnlng nexL year and susLalned lnLo
perpeLulLy, even LhoughL Lhe Zebra wlll
noL llve on Lo perpeLulLy
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
208
2oo Co: key e|ements to ana|yze
8reak-even ana|ys|s
Zoo Co. is concerned about using the other zoos
aLLendance beneflLs as a proxy. 1hey Lhlnk LhaL
aLLendance could lncrease by less Lhan 8. WhaL
analysls could you perform Lo address Lhelr
concerns? WhaL ls Lhe breakeven aLLendance
lncrease requlred?
k|sk assessment
Slnce Lhe zoo ls very rlsk-averse, theyre interested in
hedglng some of Lhelr downslde rlsk. An lnsurance
company has offered Lo provlde Lhe Zoo wlLh a consLanL
revenue Lo lncrease revenue Lo $230,000 per year lf
aLLendance lncreases are less Lhan or equal Lo 3 (lf
revenue ls $133k, Lhe lnsurance wlll glve Lhe Zoo, $113k.
ln exchange, Lhe lnsurance company wanLs Lhe zoo Lo pay
0.1% of the zoos total annual revenues as a premium.
WhaL mlghL you do Lo deLermlne lf Lhls was a good deal?
Notes to |nterv|ewer
1he lnLervlewee should deLermlne LhaL a senslLlvlLy /
breakeven analysls of Lhe nv calculaLlon wlLh lower
aLLendance lncreases wlll help conflrm LhaL Lhe
pro[ecL sLlll makes sense
See calculaLlons page
Notes to |nterv|ewer
1he lnLervlewee should recognlze LhaL addlLlonal
lnformaLlon ls needed, and LhaL a markeL research sLudy
could ald ln Lhls process
Pand ouL LxhlblL 1 afLer Lhe lnLervlewee ldenLlfles Lhls
noLlon
1he lnLervlewee should use Lhe markeL research Lo
deLermlne Lhe probable aLLendance lncrease
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
209
Math quest|ons
1. WhaL ls Lhe breakeven aLLendance lncrease requlred?
2. uo you Lhlnk Lhe lnsurance company ls provldlng a good deal Lo Lhe zoo?
Ca|cu|at|ons
1. 8reak-even: = -$1,193,000+((revenue-$90,000)/0.20)
($1,193,000)x .20 = revenue-$90,000
revenue = $239,000 + $90,000 = $329,000 (*requlred addlLlonal revenue Lo break even)
$329,000 = (300,000) x (13) x ( lncrease)
lncrease = ($329,000 / $4.3M) = 7.3
Aftet booJloq ovet exblblt 1
2. Annual cosL Lo zoo: 0.1 of LoLal zoo revenues = (0.001)*($4,732,000) = $47,320
Annual expecLed beneflL Lo zoo = ($230,000 - $223,000)*(0.20) + ($230,000 133,000)*(0.40) = $33,000
costs > 8eoeflts, so tbls ls $-' o qooJ Jeol
2oo Co: Ca|cu|at|ons
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
210
So|ut|on & kecommendat|ons
lL ls unllkely LhaL Lhe zebra acqulslLlon ls a good ldea for Lhe zoo Lo underLake glven Lhe lnformaLlon provlded. AL
oLher zoos, aLLendance has gone up subsLanLlally due Lo a new zebra, however, based upon our markeL research, lL
seems less llkely LhaL we can breakeven on Lhe lnvesLmenL Lhrough lncreased aLLendance. We have recelved an
lnsurance conLracL Lo help mlLlgaLe some of Lhe downslde rlsk, however, lL ls Loo expenslve Lo creaLe value.
ln order Lo make Lhe lnvesLmenL more palaLable, we may conslder negoLlaLlng wlLh Lhe lnsurance company Lo elLher
lncrease Lhe revenue beneflLs provlded or decrease Lhe premlum cosL.
8onus]Gu|de to an Lxce||ent Case
LxcellenL cases wlll:
ldenLlfy LhaL we can use anoLher zoo's aLLendance lncreases as a proxy for esLlmaLlng our own aLLendance lncreases
noLlce ln LxhlblL 1 LhaL lL ls unllkely LhaL aLLendance wlll lncrease sufflclenLly enough for Lhe zoo Lo break even
noLlce LhaL Lhe lnsurance company's premlums and beneflLs are boLh lmpacLed by aLLendance lncreases, so lf
aLLendance lncreases are always greaLer Lhan 3, Lhe zoo wlll be paylng even more buL geLLlng no beneflL
noLlce LhaL Lhe lnsurance company's conLracL ls essenLlally an opLlon, so a dlfferenL sLrucLure Lo Lhe conLracL may be
more sulLable for Lhe zoo
2oo Co: So|ut|on and recommendat|ons
2011 kellogg ConsulLlng Club -- All 8lghLs 8eserved
Lxh|b|t 1: Market research f|nd|ngs
211
Lxh|b|t 1: Market kesearch I|nd|ngs
3 lncrease $133,000 20
3 lncrease $223,000 40
7 lncrease $313,000 30
9 lncrease $403,000 10
Lxpected Add|t|ona|
Annua| kevenue
52S2,000
lus: CurrenL Annual
8evenue
$4,300,000
Lxpected 1ota| Annua|
kevenue
54,7S2,000
oss|b|e Attendance
Increases
robab|||ty Annua| kevenue

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