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Career Services would like to thank the following companies for their generous
contribution to the London Business School Case Book.
London Business School – Case Book 1
Contents
Foreword
Welcome
Cases are real-life business problems, usually complex We hope you will find this Case Book useful in a number
or ambiguous enough that a management team engages of ways:
valuable consulting support to solve them. We hope you • An introduction to fit and case interviews
will approach the cases in this official London Business • A theoretical guide (how to address cases, what
School Case Book, not with the narrow aim of convincing interviewers are looking for)
employers to hire you, but with a spirit of intellectual • A source of practice cases from a number of firms to
curiosity that drives your enjoyment of the interview process do with friends/colleagues/anyone who will help
and a problem-solving career beyond that. • An insight into the type of answers you might give to a
particular case – this is only a guide (there are no right
Case interviews are not just used by consulting firms. answers)
Other firms use them in business school hiring, especially • A reference to additional resources available elsewhere
for internal consulting and corporate strategy roles, and
they are a great way to hone your business problem solving It just remains for us to wish you all the best.
skills.
Consulting Careers Team
Practice a lot! Career Services
We are sure you will find that ‘Practice, Practice, Practice’ London Business School
is the best preparation. People often ask us ‘how much
practice is enough?’ There are two answers – the minimum Zoe McLoughlin
is practice until you feel confident; the maximum is practice Head of Consulting, Career Services
with all your energy until you have nothing left to give. zoem@london.edu
Daniel Lay
Sector Manager, Strategy Consulting
Career Services
dlay@london.edu
Natasha Fay
Sector Manager, Professional Services
and Boutiques
nfay@london.edu
London Business School – Case Book 3
Business judgement
• Focusing on where the real problem is (Can they
identify the ‘big buckets’ and ‘smell money’)
• Logical and well-structured approach
• Can you identify the key issues and address these in
a logical and structured way?
• Using frameworks only if they are appropriate; not
shoehorning the case into the last framework they
learned
• Clearly summarising ‘conclusions so far’ at each
stage of the case
Creativity
• Coming up with alternative ideas or creative
suggestions
Credibility
• Will you be taken seriously by the client?
• Are you someone that other people will listen to?
London Business School – Case Book 7
Demonstrating leadership
Leadership is incredibly important to consultants. Not only
do MBA level (and above) hires enter firms in positions of
leadership (e.g. leading junior analysts in day-to-day work), Maturity
but all consultants are essentially expected to lead clients • Balance of gravitas and enthusiasm
towards good, implementable solutions. Plus consulting • Able to draw on experience to inform opinion
firm culture tends to place ‘extra curricular’ leadership • Clear and concise
requirements of one sort or another on all members of • Questions and disagrees appropriately
the firm.
Your leadership abilities are assessed during both the case Integrity
and fit interviews, but primarily through exploring your • Solving the problem posed
track record as a leader in the fit section, as it is hard to • Responding to the questions actually asked
demonstrate real leadership abilities during a case interview. • Not trying to bend the rules
Inspirational
• Demonstrates real insights
• Passionate about creative new ideas – willing to stick
with them when tested
Track record
• Uses appropriate interpersonal styles and methods
to inspire and guide individuals or teams towards
achieving a common goal
• Takes a lead in the interview – drives to completion,
insight and results
• Solid track record of leadership achievements e.g.
sporting clubs, military
8 London Business School – Case Book
Other interests
Sum up: • Demonstrating success in activities outside the
Are you both interested, and interesting? work arena
Tip: The challenge that you face in consulting, then you might want to Identify these areas quickly, both by
in interviewing is to convey your consider other career options. looking at your past performance in
excellence on all of these dimensions interviews and by internalising the
in a 45 minute time period. With understanding of what is feedback given to you from mock
required of you and practice, you will interviews at London Business
Your ability to achieve this goal is find that many of the elements listed School, and work actively to improve
a function of three things: innate above come across naturally. If you your ability to convey them to an
ability, understanding of what is are a quantitative and/or engaging interviewer.
required of you, and practice and person, you will come across as so in
self-awareness. There is little you the interview without thinking about In every interview, you must also
can do about innate ability, though it. You still need to practice, however, maintain significant self-awareness
the very fact that you are a student since these natural predilections will of how you are being (or might be)
at London Business School suggests easily be masked if you enter the perceived. Actively manage the
that you have the ability to get a job in interview unprepared or nervous. image you are conveying. That may
consulting. If, however, you know that Practice will also help you identify seem like a lot to think about while
you are not strong on a number of the areas that don’t naturally come you’re also trying to solve a complex
the skills highlighted in the previous across for you in a short interview. case, but it is very important.
section as being critical to success
London Business School – Case Book 9
Many recruiters – consulting companies in particular – will An interviewer may use any or all of three types of cases
test for a high degree of competence in the area of solving during a case interview:
complex, business problems. A management consultant
is, above all else, a problem solver and therefore this is
the core skill that recruiters look for when interviewing Business Case
candidates. • You are the CEO of an insurance company. You want
to launch an e-commerce business that is synergistic
Consulting firms use case interviews because cases give with your current insurance products, but which is
them the opportunity to see how a candidate thinks about not an insurance product. How do you decide what
business problems and tests a candidate’s ability to solve this on-line business should sell and who it should
these business problems. sell to?
Case interviews also give the candidate some insight into The majority of consulting interviews are Business Cases
the type of work that consultants conduct. If you do not because it is the only case type that really tests the skills
enjoy solving problems during a case interview, it may be an that a recruiter is looking for, and also demonstrates the
indication that, in fact, a career in consulting is not for you. work that a consultant will be required to do once in the job.
Firm C makes tin cans. It is planning to expand its An interviewer may throw in a Brainteaser, but will virtually
manufacturing capacity and is debating whether to add never use a brainteaser as the sole case in an interview.
to its existing plant or build a new plant. What would you The problem with brainteasers is that they are binary – the
recommend that it does? candidate either ‘gets’ them or doesn’t.
Business Cases
It’s the same with solving business cases. When you get a case posed in an interview, don’t just think, “Oh no, I have to
solve this huge problem in one go”. Solving a case successfully consists of running through the following four basic steps:
Step 1 – Listen and Clarify Step 2 – Structure Step 3 – Analyse Step 4 – Conclude
Ensure complete Develop approach to solve Request information to test Synthesise findings into
understanding of business problem: hypothesis: recommendations:
issue: • Structure problem • Ask questions and • Summarise your findings
• Listen carefully • Identify key issues & collect information (not just by recapping
• Take notes if it helps you prioritise • Develop, test and refine your analysis) – draw out
• Ask clarifying questions • Formulate an initial hypothesis key facts
as needed hypothesis • Iterate • Make a recommendation
• Take time to evaluate the • Articulate approach & • Hone in on the solution • Add next steps
information given hypothesis • Verbalise your thought
process
London Business School – Case Book 11
Step 1 – Listen and Clarify Step 2 – Structure Step 3 – Analyse Step 4 – Conclude
The interviewer will introduce the case to you by giving Clarifying questions
• A bit of background, e.g. type of industry, who your client
is The interviewer may have used terms that you are not
• Describing the specific business situation familiar with – ask him/her to explain what those terms
• Giving you some initial information mean.
One thing is vital – make sure that you listen very carefully. Clarifying questions show that you are taking a real
Take notes. Make sure that you take a pen and paper with interest and demonstrate that you are serious about fully
you into the interview. The importance of listening cannot be understanding the business problem posed.
emphasised enough.
If you don’t make sure that you understand what the
interviewer is asking you to do upfront you are denying
Tip: You will create a very bad impression if you need yourself the opportunity to perform well in the interview. In
the interviewer to repeat the question or if, through not general, you should not need to ask more than one or two
listening, you have missed the key facts and therefore clarifying questions, and it is fine if you don’t have any.
go on to solve the wrong case or fail to focus on the
important issues in the case. Take time to evaluate the information
A minute’s silence will feel like a long time to both you and
the interviewer.
Step 1 – Listen and Clarify Step 2 – Structure Step 3 – Analyse Step 4 – Conclude
Using the Profit = Revenue – Costs equation is a good As you conduct your analysis throughout the case interview,
structure to start with. Company A’s declining profits remember to relate your findings back to your initial
could be due to loss in revenues (price x volume) or hypothesis: “This seems to support my initial hypothesis….”,
increase in costs (fixed costs + variable costs). “This seems to refute my initial hypothesis”, and if you are
refuting your initial hypothesis indicate that “Actually, Z is
more likely to be where the solution to this problem lies”.
• The interviewer may have given you a hint early on which
might steer you towards a particular path first. Otherwise
that might become clear as you progress through the
pathways you have laid out.
Step 1 – Listen and Clarify Step 2 – Structure Step 3 – Analyse Step 4 – Conclude
The analysis phase should form the bulk of the case Questions
interview.
There is also a skill to drawing information out of the
interviewer. Many interviewers will give candidates who they
Tip: This is an iterative process. believe are asking questions in a structured, thoughtful way
much more information than they would give to candidates
who they believe are just reeling out an unstructured
In this phase you will: laundry list of questions in the hope that they will be able to
• Ask your interviewer questions piece some kind of analysis together from that laundry list.
• Collect the information you need to conduct your You must only ask questions that you can justify – and then
analysis demonstrate that you are using the answer to that question
• Develop, test and refine your hypothesis to further your analysis and push the case forward.
• And hone in on a solution based on the facts
Calculations
Tip: While asking questions is a fundamental part of the
When doing calculations, explain all of the steps you process, you must ask these questions in the context of
are taking to the interviewer. This illustrates your thought your structure and the issues you are exploring – rather
process and maximises the ability of the interviewer to than just firing off questions randomly or in no particular
coach you. order.
Step 1 – Listen and Clarify Step 2 – Structure Step 3 – Analyse Step 4 – Conclude
Once you feel that you have exhausted all the issues You may also want to add some next steps or additional
and, consequently, lines of analysis, finish the considerations, as appropriate, to your conclusions and
interview by summarising the situation and providing a recommendations.
recommendation or recommendations. • This shows that you recognise the limited amount of
NB – Try not to just recap the analysis you have just time and information you had available in getting to your
conducted in your summary. Rather, summarise the key conclusion
things that you learnt as you performed your analysis and • There may be issues you haven’t had the time or the
how these added together to reach your recommendation. information to address properly
• Cases are short – Implying to the interviewer that you
have covered every base in a complex business issue
Example: “I recommend that Company A looks at ways in 30 or 40 minutes, might indicate that you are short
to reduce their indirect costs to try to reverse the slide sighted, naive or perhaps even arrogant
in profitability. Given that the industry is characterised
by intense competition, it will be difficult to grow their
market share or to increase prices.” Reducing COGS Tip: It is much better to make reasonable
without negatively affecting the quality of the product recommendations – but also to acknowledge that you
and losing customers would be difficult. Therefore they haven’t been able to be completely exhaustive and
should look at other ways to save money through, for highlight the areas you’d like to penetrate further (if you
example, reducing factory overheads, saving money had more time).
through supply chain efficiencies, reducing head office
costs, and improving marketing spend and sales force
efficiency.”
Estimation Cases
An estimation case is usually in the form of something like – If you run into one of these cases:
“How many gallons of white house paint are sold in the U.K. • Make sure that you have clarified, and therefore fully
each year?” understand, the question
• Remember the interviewer may deliberately not have
Other examples of estimation cases are: given you all the information
• How many tube trains are there on the Underground? • Another sensible, perceptive question to ask in this case
• How many golf balls would fit in Canary Wharf tower? is whether the paint is internal or external
• If a male and a female goat are put on a deserted island • The paint is actually for external walls only
that has plenty of food and water on it, what would be • An interviewee may be marked down if they failed to
the island’s goat population after ten years? establish that at the start, though they would probably
• How many wedding dresses are sold in the UK each not fail the case on this point alone
year? • Break the problem down into logical steps
• How many divorces are there in the US each year? • Solve each step one at a time
• How many fire extinguishers are there in London
Business School?
• How many coke cans would fit in Buckingham Palace? Tip: Always clarify when uncertain. For example, with
the house paint case, if you do not come from the U.K
you may be unfamiliar with gallons. Ask the interviewer
what a gallon is (approx 4.5 lts).
16 London Business School – Case Book
In addition to solving the case in a sensible way, the Saying things like – “Every single person I know lives in a
interviewer will be looking for you to generate some rapport flat. However, because I live in central London, I’ll assume
with them that is not entirely typical” – is chatty and gives a little of
yourself away. It also serves to illustrate to the interviewer
that you are not just pulling your numbers out of the air
Level of detail to use in your answer This depends on whether the estimation case is given to
you as the only case in the interview or as an add-on to a
business case. You should adjust the response accordingly
Key statistics and formulae It will be useful to know some common numbers and
formulae to get you through these types of questions
Brainteasers
Brainteasers are not cases in which a technique can be learnt, mainly because a brainteaser can be about virtually anything
and posed in any way. However, brainteasers are increasingly rarely used as interviewers seem to be realising that they do
not give a good insight into a candidate’s ability to ‘do the job’. If you get a brainteaser, just try to stay calm and take some
time to think about the problem. Also, and very importantly, don’t panic if you don’t manage to solve the brainteaser. They
are binary – you either get the answer or not – and, if you don’t, it certainly does not mean that you won’t get the job. It will
just be one of many data points that the interviewer will use to make a decision.
18 London Business School – Case Book
However, it must be remembered that these six categories are not mutually exclusive or completely exhaustive.
For example, a market entry case might require industry analysis, and an acquisition case may involve evaluating return on
investment.
Some cases may not fit neatly into any of the six major business case types, but may incorporate certain elements from one
or more of them. Examples of some of these categories are included in the practice cases within this Case Book. Please
look out for the icons at the start of each case.
PROFIT
Profit Improvement
Example: “Company A’s profits have declined by 30%
Profit improvement cases are probably the most common over the last eighteen months. The CEO would like
business cases that you will encounter in an interview. They you to help him/her understand why this profitability
are also arguably one of the easiest as the problem is easily decline has happened and what he/she can do to return
structured through systematically examining each aspect of Company A to profitability.”
the profitability relationship: Profit = Revenue – Costs.
In this business case the interviewer will typically ask you As mentioned above,
to analyse why a firm’s profits have decreased and what a Profits = Revenues - Costs
firm could do to reverse this decline and bring itself back = [(Price - Variable costs) x Quantity]
to profitability. - Fixed costs
You should ensure that you are familiar enough with each Cost related issues to consider during your analysis
of these formulae to be able to use them in a case interview include:
situation. • Fixed versus variable costs
• Short-run versus long-run costs
A good way to tackle this kind of case is to use the • Capacity utilization and its impact on total average cost
profitability formula to structure your answer up front – per unit
laying this structure out for the interviewer – and then • Benchmarking costs against industry competitors
exploring each dimension in detail. • Relative percentage weighting of cost components:
—— Cost of Goods Sold: labour, raw materials, overheads
In addition to the formula, you should have a sound —— Operating Costs: sales and distribution, marketing,
understanding of both revenue and cost related issues. general and administrative, research and
development
Revenue related issues to consider during your analysis
include: An analysis of costs will vary with the type of industry
• Factors that impact price: being considered. It is very important to demonstrate
—— Market power sound business sense by showing the interviewer that you
—— Price elasticity understand, for the specific industry that you are examining
—— Product differentiation in your case, where the big money buckets are, i.e., that you
—— Opportunities for differential pricing of the same can ‘smell the money.’
product, e.g., airline seats
—— Methods of Pricing: cost plus, matching, market
based (think about the pros and cons of each of For example, for a pharmaceutical firm, research
these) and development expenses will be the biggest cost
—— Brand Implications, e.g. strength buckets. For an airline, fixed costs (i.e., leasing of or
depreciation on the planes, fuel costs, landing fees,
• Factors that impact volume: maintenance costs) are huge. In the case of a firm with
—— External factors: multiple products, how the company is allocating their
•• Competition (share of market, positioning/image, costs between the products and, therefore, their ability
customers, profitability, differentiation, future to properly understand which products are making
plans) a positive contribution and which are not, may be an
•• Substitutes/complements important issue.
•• Market forces (declining market size, technology,
regulation)
•• Customers (needs – latent vs demonstrated, price
sensitivity, segmentation – product extension) Industry
analysis
—— Internal factors:
•• Distribution channels Industry Analysis
•• Manufacturing capacity
•• Logistics/supply chain/inventory management With an industry analysis case an interviewer will ask you
to evaluate the structure and/or desirability of a particular
—— Growth strategies: industry.
•• Sell more existing products to existing customers
•• Sell existing products to new customers
•• Sell new products to existing customers Example: “Your client is the CEO of Company B, a
•• Sell new products to new customers; think of U.K manufacturer of rolling stock for the railways. He/
product extensions she would like you to help him/her understand whether
the rolling stock industry a good one to be in. Why or
why not?”
Tip: New products do not need to be completely new.
A line extension, e.g., Diet Coke, is classed as a new
product, so remember line extensions when thinking Porters 5 Forces is a tool to analyse industry attractiveness,
growth strategies but if you are going to use this to structure your answer,
ensure that you don’t say to the interviewer – ‘Oh, an
industry analysis case, I’ll use Porters 5 Forces.’
20 London Business School – Case Book
• Analyse customer needs: Highlight this prioritised list during a summary of the
—— Segmentation (size, profitability, share, growth) preceding discussion, in order to build up to a go/no go
—— Drivers of purchase behaviour (product, price, recommendation. It is perfectly acceptable to say that you
promotion and place) need further information in certain areas, but that your initial
—— Power in the market hypothesis is:
• Identify gaps in customer needs “We should (or should not) explore this business opportunity
further”.
• Match between the company’s strengths and those
needed for the new market:
—— Core competencies
•• Product/service portfolio Capacity
Expansion
•• Differentiation
•• Management
•• Workforce Capacity Expansion
•• Key skills
•• Resources - can the firm establish a competitive Capacity expansion cases usually revolve around how a firm
advantage –v- key success factors can optimally increase its output potential.
—— Potential positioning and price positioning
—— Source of volume - steal share (from whom?) or
expand category? Example: “Your client, the CEO of Company D has
—— Niche or mass strategy? decided that he/she needs to expand Company D’s
—— Cost structure - scale –v- scope economies manufacturing capacity and is considering either
—— Capital expenditure required building a new plant in Kuala Lumpur, Malaysia, or
—— Potential returns increasing the scale of its current plant in Singapore.
Which would you recommend that it do?”
• Evaluate barriers to entry
—— Customer-related:
•• Product differentiation A good approach to tackling capacity expansion cases is:
•• Brand loyalty 1) Estimate the potential benefit of capacity expansion by
•• Switching costs quantifying market demand and potential revenue gains
•• Access to distribution channels 2) Evaluate the means of capacity expansion (existing
—— Non-Customer-related: plant or new plant?). Issues to consider here include
•• Proprietary technology availability of desirable location for a new plant,
•• Economies of scale proximity to customers and suppliers, transportation
•• Capital requirements costs, cost and availability of labour, technology, time
•• Experience curve required to complete expansion, capital costs of new –v-
•• Regulation existing plant
3) Market considerations
• Evaluate methods of entry 4) Impact on industry demand & pricing: will expansion
—— Build, acquire, partner? create excess capacity in the market?
—— Quantify investment cost and risk 5) Likely competitive response
6) Cost/Benefit analysis
• Analyse how the firm has entered markets in 7) Alternatives: investigate other options to ensure that you
the past, whether has it been successful or have fully analysed the problem; other options could
unsuccessful, and why? include outsourcing, leasing or acquisition of an existing
plant.
Bear in mind this is a very long list, and will not all apply in
each case. It is vital, having used this approach to structure As in the earlier cases you need to summarise your
your thought processes and initial discussion on the topic, analysis, in order to support a go/no go recommendation.
to identify a prioritised list of those areas that seem to be It is perfectly acceptable to say that you need further
the biggest potential issues/factors in the decision making. information in certain areas, but that your initial hypothesis
is: “We should (or should not) explore this business
opportunity further”.
22 London Business School – Case Book
Potential synergies: When approaching acquisition cases, Tip: While you may not have enough information to
the easiest thing to remember is will 1+1=3?, i.e. will the answer many of the questions above, indicating that you
acquisition add value over and above the value of the two understand the importance of these questions is useful,
component companies? so do bring up a few. They are all questions that you
would find critical to answer in coaching a firm through
• Understand the acquiring company’s line of an acquisition to demonstrate that you understand what
business: this type of analysis is likely to focus on.
—— Core competencies
—— Cost structure
—— Structure of the industry in which it currently As in the earlier cases, you need to summarise your analysis
competes in order to support go/no go recommendation. It is perfectly
acceptable to say that you need further information in
• Assess the rationale for acquisition, e.g. Why is certain areas, but that your initial hypothesis is: “We should
the company considering the acquisition? What (or should not) explore this business opportunity further”.
potential synergies exist?
—— Acquire resources: increase capacity, increase
distribution, broaden product line, improve
technology, human capital, brand name, customers
(network effect)
—— Decrease costs: economies of scale, economies of
scope (brand, distribution, advertising, sales force,
management talent, etc.), climb the learning curve
more quickly
—— Other strategic rationales
• Determine why the firm is considering the investment As in the earlier cases, you need to summarise your analysis
in order to support go/no go recommendation. It is perfectly
acceptable to say that you need further information in
certain areas, but that your initial hypothesis is: “We should
(or should not) explore this business opportunity further”.
• Email to find people • Read or practise 2 cases • Practise at least 1 case • Continue reading
interested in practising per day. Practise at least a day with friends. If you business articles,
case interviews with you 3 market size estimation run out of cases, have a practising behavioral
questions during the week friend make up one based questions, and doing
• Practise answering fit on recent business news mock case interviews
questions. Focus on • Every day, read 2 FT stories with friends
concrete examples articles. For each, identify
illustrating your the main business issue, • Continue reading business • Meet with someone
achievements, role on and spend 15m developing articles and practising from industry. Ask
teams, leadership and an issue tree for the case behavioral questions about the company,
analytical abilities as if for interview. Discuss their experience, and
with your case buddy, and if they can give you a
• Reach out to 1 or 2 see what other areas they case/provide feedback
people in industry and would have considered. on your resume. It’s
network. Get at least You’re striving to learn to vitally important to
1 lunch scheduled for structure things in a MECE have someone review
weeks 3/4, after you’ve way your resume before
practised cases. Don’t things get too serious.
only ask them to look at • Practise 1 different fit It’s also useful to get
your resume; they can question per day, in front a professional opinion
also give you a practice of a mirror or with a friend on your current case-
case with instant cracking ability
feedback
24 London Business School – Case Book
Fit Interviewing
Overview
In addition to your case interviews, you will be given one or more fit interviews during the consulting interview process with
each firm. These interviews may either be combined with the case interview (hybrid case and fit) or conducted separately,
depending on the firm.
Fit Interviewing
General experience
Knowledge / attitudes
Probe
Specific examples
e
Pr
ob
ob
Pr
e
Pr
e
ob
Probe
ob
Pr
In criterion based questioning, the interviewer will explore An explanation of the six probing questions is as follows:
in detail the candidate’s experience and ability on a specific
criterion, e.g., drive, teamwork, entrepreneurial spirit. General experience:
• Problem Solving: criterion – tested mainly through the • The amount of experience a candidate has had overall in
case using/developing that criterion
• Personal Impact: criterion – listening/understanding/ • Example – Desire to excel: How important has working
responding, empathy, influencing, teamwork, confidence hard and being driven been in your career to date?
–v- ego, sense of humour
• Leadership: criterion – integrity, maturity, willingness to Specific examples:
take personal risks, ability to take initiative • Specific examples where a candidate displayed that
• Drive and Motivation: criterion – enthusiasm, desire to criterion
excel, self-development, energy, perseverance • Example – Desire to Excel: Describe a previous
achievement for which you had to strive
The interviewer will explore these criteria by probing the
interviewee in detail on the six different topics highlighted Self-evaluation:
in the slide above, though of course they will probably not • How the candidate assessed his/her ability on that
run through all six probing questions for each and every criterion
criterion they are testing an interviewee on, because of time • Example – Desire to Excel: Could you have done more to
constraints. make sure you achieved your full potential over the past
three years?
26 London Business School – Case Book
Fit Interviewing
Comparison with others: To prepare for the fit aspect of your interview:
• How the candidate compares with others on that • Identify:
criterion You should go through your CV and experience to
• Example – Desire to Excel: How would you compare date, both professional and personal and, for each
your level of drive and motivation to succeed against the criterion, come up with at least two anecdotes which
top quartile of your peers at…..? demonstrate your experience, abilities, etc., on that
criterion.
Appraisal:
• What others think of the candidate on that criterion • Prepare:
• Example – Desire to Excel: How did your manager in X Once you’ve done this, write an answer to each of the
role appraise your desire to excel? six probing questions for each of your two/three/four/five
examples
Knowledge / attitudes:
• How well the candidate understands the need for that • Practise:
criterion in consulting If you can, run your examples and answers by a fellow
• Whether the candidate has a good perspective on the student or colleague (preferably someone who has had
attributes necessary for good performance on that some consulting experience) and see if your examples
criterion and answers are convincing
• Example – Desire to Excel: In what circumstances do
you think it would it be appropriate to give up on an
objective? Tip: Once you get into an interview – a situation which is
stressful, and at which you will be required to give well-
developed, relevant answers very quickly – you will be
grateful for this level of preparation.
Fit Interviewing
few reasons why that firm is the best fit for you. Read the However, do not put yourself under undue stress
website, go to the company’s presentation, talk to their researching little known facts about the firm or trying to
representatives after the presentation, use the Consulting come up with genius questions that no-one else will ever
Club discussion threads and talk to Career Services. have thought of. The interviewer is only trying to assess that
your interest in their firm is genuine and that you have good
reasons to back up this interest. Keep that in mind when
you’re preparing answers to this question.
A Two-Way Process
Fit interviews are very much two-way conversations It is also very important to go to interviews having
between the interviewer and interviewee. You should feel confidence in yourself and your abilities. As I mentioned
that you are interviewing the firm as much as they are earlier, students can be too concerned about being career
interviewing you. In addition to having insightful questions changers – forgetting that 80% of people who go through
about the firm, try to analyse the people that you are the consulting selection process are career changers.
speaking with when you’re interviewing with that firm. If you
get the job, you will also need to sit on a ten-hour flight with
people similar to your interviewers and work very, very long Tip: Do not feel that you have to apologise for your past
(often stressful) hours with them. Is that really something career choices. However, as mentioned previously, do
you want to do? have a good story that illustrates a ‘train of thought’
running through your career decisions.
‘Career Search’ is not just about getting a job (any job). It is
about getting the right job – even though it may be hard to
remember that at times. The recruitment opportunities at Also think hard about what you have learnt and how this
London Business School (especially if you are participating learning applies to a new career in consulting. There are
in ‘on-campus recruitment’) are unlike anything else you will aspects of almost any job that can relate to consulting.
experience in your life. You have a whole array of fantastic Consulting firms are looking to hire the best people,
firms all wanting to hire talented students – all of whom regardless of background, so remember that and have
are prepared to come to you and lay out their wares. Make confidence when you interview.
sure that you don’t waste that opportunity by not having the
confidence to ensure that the firm you end up working for is
the one you really want to work for. Getting the job is not the
only goal here. The goal is to be happy and professionally
satisfied long after you have left London Business School,
whether that is in consulting or in another field altogether.
28 London Business School – Case Book
Fit Interviewing
Additional Resources
• Career Services’ Portal Pages • Previous London Business School and other B-schools’
• Career Services training sessions for consulting case books
• Consulting Club posts (Portal and Campus Groups) • Vault and WetFeet guides
• Firms’ websites – DO NOT go to an interview with a firm • www.caseinterview.com
before you go on its website!
London Business School – Case Book
BCG
L.E.K. Consulting
Marakon
Monitor Deloitte
Strategy&
30 London Business School – Case Book
Complication
• While ticket sales and revenues have continued to grow steadily, profitability growth has lagged
Key question
• What is the root cause of the client’s lagging profitability?
Please follow the steps below to guide you through the case.
Frame the Use framework to Dig deeper Develop insights Synthesise what Make a
problem guide analysis you learned recommendation
Profit
Revenue Cost
Note for Interviewer: The quantitative component of this case is very straight forward. Intent is for the bulk of the interview
to be spent on the qualitative elements.
Copyright © 2010-2011 by Bain & Company, Inc. All rights reserved
London Business School – Case Book 31
Entertainment Co
Frame the Use framework to Dig deeper Develop insights Synthesise what Make a
problem guide analysis you learned recommendation
Given this framework, what questions would you ask your interviewer?
Revenues Costs
Has there been a What has happened How have Fixed How have Variable
significant change in to # of tickets sold in Costs (FC) changed Costs (VC) changed
ticket prices? past five years? in past five years? in past five years?
Interviewer: Average ticket price Ticket sales volume FC have grown as VC from stop to stop
changes from stop varies greatly the client has added are generally very
to stop. Cities with from stop to stop. more tour stops. consistent. Primary
largely wealthy Entertainment Co. is FC are generally drivers of differences
populations typically more popular in some allocated by length are venue rental
have higher avg ticket places than others of stop
prices
Entertainment Co
CAGR
$1,000M
(05 – 10)
875
800
Entertainment Co. revenue
767
743
652
603
600
488
400 12%
200
0
2005 2006 2007 2008 2009 2010
50%
Entertainment Co. profit margin
25
-25
-50
-75
City 9
City 19
City 8
City 7
City 6
City 5
City 4
City 3
City 21
City 20
City 2
City 18
City 17
City 16
City 15
City 14
City 13
City 12
City 11
City 10
City 1
Entertainment Co
Frame the Use framework to Dig deeper Develop insights Synthesise what Make a
problem guide analysis you learned recommendation
How can you dig deeper to find the source of the problem?
Do you have a hypothesis about what is causing the problem?
Hints
Exhibit 1: Interviewee should immediately recognise disparity in growth of revenues and profit.
Exhibit 2: Interviewee should point out that the unprofitable shows have shorter LOR and occupancy rates.
Entertainment Co
Develop a hypothesis that you can test; dig deeper into the drivers that matter
Hypothesis: Entertainment Co’s slow growth in profitability is a result of expansion to markets that are
unprofitable or marginally profitable
Revenues Costs
Interviewee: Avg ticket price Attendance ranges Fixed costs (which Variable costs range
varies from $100 from 75K to 210K are allocated by run from $50-60K
to $80 as result of different length) vary from $4M
run lengths and to $8M
occupancy rates
Entertainment Co
Frame the Use framework to Dig deeper Develop insights Synthesise what Make a
problem guide analysis you learned recommendation
What insights can you draw from the data you have?
Key insights
Interviewee: • It appears that Entertainment Co. is growing ticket sales and revenue at the
expense of profitability
• They should be more selective about the markets that they enter. Several
possibilities exist for continued growth.
—— Stay longer in the good markets and don’t go to the bad markets
—— Reduce cost of the show
—— Develop a lower cost show format for the marginal cities
—— Combination of the above
Interviewer: • Reducing the cost of the show is not an option for artistic reasons
• We have some data on ticket sales by week in two markets that I would like you to
analyze
• Entertainment Co. has launched a new lower cost format show in a few markets. The
new show will be performed in Ice-rinks (rather than in Theatres like the current show)
—— I have the initial profit analysis of the most recent Theatre and Ice-rink show in three
markets for you to analyze
Entertainment Co
City A City C
3,000 3,000
Tickets sold
1,000 1,000
0 0
Show 19
Show 1
Show 10
Show 28
Show 37
Show 46
Show 55
Show 64
Show 72
Show 81
Show 7
Show 14
Show 21
Show 28
Show 35
Show 42
Key Insights
City A: Some markets continue to have strong attendance throughout (suggesting that they could add additional shows
without dramatically decreasing occupancy)
City C: Other markets already see a significant drop-off in sales by the end, suggesting that there is no additional
capacity for adding shows and that the city may not be able to adequately utilize the Theatre format with it’s very high FC
Entertainment Co
Exhibit 5 – Ice-rink format introduced in 2010 to offer lower cost option for younger people/families
105
100
Ice-rink
2.0
75
65
50
Theatre Theatre
1.0
84%
25
0.0 0.0
2009 2010 Theatre Ice-rink
Other
6.75
6 Marketing Accomodations
Talent transport 40
40
Venue rent Other
Stage
Accomodations
transport
4 Crew
compensation Venue rent
Crew
20 compensation
Stage
2
construction Marketing Artist
compensation Artist
Talent transport
compensation
0.45
0 0
Theatre Ice-rink Theatre Ice-rink
Key Insight
Fixed costs per visit: Theatre format has very high fixed cost base relative to Ice-rink. This suggests a need to
maximize utilization (i.e., sell as many tickets as possible)
Entertainment Co
80 $100K-150K 80 45-64
60 60
$50K-100K
25-44
40 40
$25K-50K
20 20
<$25K 0-24
0 0
Theatre ticket buyers Ice-rink ticket buyers Theatre ticket buyers Ice-rink ticket buyers
Key Insights
1. % of attendees by household income: Customers appear to have the same profile, which is not what the client
expected to happen when they introduced the new show format.
2. Share of population by age: In fact it seems a greater proportion of Ice-rink customers are older and slightly
wealthier.
Entertainment Co
Key Insights
1. City X: Some markets may be able to sustain both formats without significant cannibalization. Therefore using both
formats in the market may make sense.
2. City Y: Some markets appear to be more susceptible to cannibalization (i.e. only ~4K incremental Theatre tickets
would have exceeded the profit of the 20K Ice-rink tickets. Entertainment Co. should probably stick to only the Theatre
format.
3. City Z: Theatre format is not always profitable. Remember that there are very high FC so if you cannot sell a large # of
tickets it might make sense to use the lower cost format.
Entertainment Co
Frame the Use framework to Dig deeper Develop insights Synthesise what Make a
problem guide analysis you learned recommendation
Key Insights
• The root cause of the slower growth in profitability is that as Entertainment Co. has grown they have not segmented
their markets and used the appropriate show format or length of stay
—— Theatre show has very high FC and therefore should only be taken to cities that can support a lot of shows and
sell a lot of tickets, otherwise Ice-rink format may be a better choice
—— Some markets can probably sustain both the Ice-rink and Theatre formats
—— Cannibalization is a risk that must be mitigated. Ice-rink format should only perform in cities where it is very likely
to not impact Theatre sales
Entertainment Co
Frame the Use framework to Dig deeper Develop insights Synthesise what Make a
problem guide analysis you learned recommendation
Key Insights
• Improve profitability by segmenting markets
—— Large markets (e.g., City A) where cannibalization is relatively low risk should be targeted for both the Theatre and
the Ice-rink format
—— Medium markets (e.g., City B) should be limited to only the Theatre format to avoid cannibalizing the more
profitable Theatre ticket sales
—— Small markets (e.g., City C) should be limited to the Ice-rink format which can deliver greater profits than Theatre
• Result will be higher penetration in large markets, improved profitability per ticket sold in the medium markets,
and greater profits (at a lower risk due to lower cost base) in the small markets
Entertainment Co
Entertainment Co
Frame the Use framework to Dig deeper Develop insights Synthesise what Make a
problem guide analysis you learned recommendation
Q: How would you Q: Given this Q: How can you Q: What insights can Q: How would you
frame the problem? framework, what dig deeper to find you draw from the bring together
questions would you the source of the data you have? everything you have
A: Disaggregate ask your interviewer? problem? learned?
drivers and A: Some markets have
components of A: Drill into price and A: Dig in to price and much lower ticket A: Ice-rink show has
revenue and cost cost drivers over time cost drivers by market prices and attendance, shorter run lengths,
or by different market suggesting that they may be appropriate
Q: Do you have a may be inappropriate where Theatre cannot
hypothesis? for such a high cost sustain long runs and
product cover FC. But in cities
A: As Entertainment with long Theatre runs,
Co. has grown they Ice-rink format should
have started to be avoided
Fist pass
Bain & Company grants the London Business School permission, without charge, to use, copy, modify, merge, publish, distribute, sublicense, and/or sell copies of the content in
the above Bain & Company practice case (the “Works”) subject to the following conditions:
The above copyright notice set forth at the bottom of each page and this permission notice shall be included in all copies or substantial portions of the Works.
THE WORKS ARE PROVIDED “AS IS”, WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. IN NO EVENT SHALL THE AUTHORS OR COPYRIGHT HOLDERS BE LIABLE FOR
ANY CLAIM, DAMAGES OR OTHER LIABILITY, WHETHER IN AN ACTION OF CONTRACT, TORT OR OTHERWISE, ARISING FROM, OUT OF OR IN CONNECTION WITH THE
WORKS OR THE USE OR OTHER DEALINGS IN THE WORKS.
44 London Business School – Case Book
BCG
Iceberg PROFIT
Europe
Opening statement: Present the candidate with the slide Ask the candidate:
“Our client is Iceberg, a major titled: “UK ice cream tub prices” and “What strategies could Iceberg use
global branded ice cream producer. tell them: to address the performance issue in
Iceberg develops, manufactures and “The Associate on this case prepared Europe and how would you prioritise
markets ice cream products and this slide. What is causing the them?”
sells to retailers who, in turn, sell to performance issue in Europe?”
the end consumer. Ice cream is one (If the candidate is struggling, ask:
of the most profitable products that “How should Iceberg segment the Tests strategic thinking, creativity
Iceberg makes. The business has market and what is happening in each and ability to prioritise and provide
grown at 5% led by North America segment?”) reasons
and developing markets. However,
Iceberg has recently seen poor
growth and competition intensifying Tests business intuition and “What are your recommendations for
in the European ice cream market, in the ability to interpret data, Iceberg’s management?”
particular from supermarkets’ own- draw conclusions and identify
brand ice cream. Iceberg management implications
are sure they have great products: Tests ability to synthesize and
they continue to win in consumer taste structure recommendations,
tests, there is a strong pipeline of “How does the market opportunity business intuition and empathy
planned product launches, and they compare to Iceberg’s business
have strong brands in many markets. today?”
Management believes this allows them (If the candidate is struggling,
to sell their products at a higher price ask: “Which segment would you
than the competition. What could recommend Iceberg focus on and
be causing the performance issue in what is the margin and volume
Europe?” potential in that segment?”)
BCG
Iceberg
Key case insights an excellent candidate might uncover (for the interviewer only; do not tell the candidate)
• There are 3 market segments: • Iceberg is winning market share in • In any given segment
economy, mass market and a shrinking mass market recommended: Iceberg’s volume,
premium-priced products margin or profit potential; its
• Premium segment is likely growing, competitiveness to customers
• Iceberg competes primarily in the as brands distinguish themselves and consumers (realising they are
mass market segment (defined as from the mass market to retain and different); and its ability to win
price points €2.00 – 3.99), with a grow margins against branded and private label
~38% market share by value (€46m products
out of €122m), ~34% by volume • To compete, Iceberg should:
(15m L out of 44m L) —— Drive volume to improve plant
utilisation (~35% in Western This case is long and candidates
Europe, vs. ~60% in North would not necessarily be expected
If the candidate delineates 3 America) and reduce unit to finish it
segments slightly differently, their costs, so that it is better able to
market size and share numbers compete on price in the mass
would differ accordingly market
—— Increase presence in premium
(relying on taste performance
• Mass-market consumers are and strength of brand)
becoming more price conscious —— Optimise drivers of consumer
(sales of €2.00-2.59 are strongest purchasing behaviour besides
in the mass market category) price (e.g. packaging /
advertising / shelf placement)
• In the mass market and economy —— Potentially expand in the upper
segments, Tesco is undercutting end of the economy market,
Iceberg and other competitors although its retailer purchase
on price, growing the economy price may be less competitive
segment and pushing down
Iceberg’s revenue in the mass
market
46 London Business School – Case Book
BCG
Iceberg
7.00-7.9 9
4.00-4.49
3.50-3.99
3.00-3.49
1.50-1.99
1.00-1.49
0 5 10 15 20 25 30 35 40
Market value of price segment at retail price 2012 (€m)
1.0
0.18 0.89
0.8
0.11
0.10
Product cost €/L
0.6
0.08 0.51
0.19
0.4
0.11
0.2
0.13
0.0
Ingredients Packaging Production Distribution Product Advertising Overhead Profit Retailer
cost & promos purchase
price
Source: Client data; BCG analysis
London Business School – Case Book 47
BCG
Iceberg
Exhibit: Iceberg global ice cream production plant utilisation (show to candidate if this data is requested)
Europe N America
100% 100%
80 80
Max Max
60 70% 60 70%
40 40
20 20
0 0
A B C D E F G H IJ K L A B C D E F G H I
Example of a possible case structure (for review after the case interview)
Product Pricing
Cost structure Competition
(compare with) (compare with)
Other branded ice creams Other branded ice creams Fixed costs Distribution channels
Own label ice creams Own label ice creams Variable costs Shelf positioning
Substitutes Substitutes
Promotions
(other desserts) (other desserts)
48 London Business School – Case Book
BCG
Iceberg
Differentiation between poor, average and superior performance (for review after the case interview)
Identifying relevant Starts asking for a variety Asks a series of specific Defines information
information of information – no clear questions related to a needed, including
logic single logical line; identifies rationale; identifies key
some key points from points and explains their
the graphs; can process implications from the
answers and move on graphs presented
Running calculations / Calculates incorrectly that Correctly calculates Realises lowering price
drawing conclusions from Iceberg cannot compete at Iceberg can compete at may dilute margins and
facts supermarket price points lower price points except suggests ways to avoid;
Tesco Value and quantifies identifies production
margin utilisation issue and
proposes solution;
Calculates volume /
revenue / profit potential
Identifying key implications Limited or Needs to be asked Identifies the key case
and next steps; illogical additional for ideas on potential insights; drives to
demonstrates creativity recommendations solutions; has a few ideas solutions on their own;
on where to improve; for how to improve prioritises a list of alternate
formulaic approach opportunities; goes beyond
(e.g. spend more on the obvious throughout the
marketing) case process
London Business School – Case Book 49
Market
Cupid’s Arrow Entry
Do not share any exhibits until Candidate is expected to continue Ask the candidate:
Part B with their case analysis. Share facts of “So, what recommendations would
the case or exhibits (see the following you make to Cupid’s Arrow’s
1) Structuring the case pages for details) when these are management?”
specifically asked for by the candidate.
“Our client is Cupid’s Arrow, a
successful subscription-based online When sharing an exhibit, ask the Tests ability to synthesize and
dating agency. They currently operate candidate: structure their recommendations,
exclusively in the US market, where “What does this exhibit tell us? How business intuition and empathy
they are the market leader. Cupid’s might this affect Cupid’s Arrow’s entry
Arrow are considering entering the into the UK market?”
UK online dating market. What are
the main factors that they should
consider?” Tests business intuition and
the ability to interpret data,
draw conclusions and identify
Tests ability to structure, implications
hypothesise and think creatively
around a problem
BCG
Cupid’s Arrow
Key case insights an excellent candidate might uncover (for the interviewer only; do not tell the candidate)
• The UK market will nearly double —— The UK soul mates segment • Entry into the UK market could be
in size over the next 2 years and is may already be quite via organic growth or syndicated
quite fragmented with at least a few competitive: HappyHearts (33% from the existing US Cupid’s Arrow
new entrants share and 20% p.a. growth) and site, but would be fastest via
Lovebirds (23% share) together acquisition and rebranding of a
• Profit margin is healthy at 75% per have ~75% share and the soul smaller site, for instant network
customer (£180 p.a. per customer) mates segment is only 25% of effects between subscribers. Given
the UK market the anticipated pace of growth in
• Cupid’s Arrow may struggle in —— UK may increasingly shift the UK market and the likely lock-in
entering the UK market (candidate towards soul mates, like the effect in this market based on the
may take a slightly different view US as online dating loses its size of a subscriber base,
of the future direction of the UK stigma, but it is not there yet acquisition and rebranding of a
market and optimal strategy, but is smaller site would be advisable
expected to support their position • Overall, the UK market is attractive,
with similar insights): but may require Cupid’s Arrow to
—— There is greater stigma around adapt its image / focus in the UK This case is long and candidates
online dating in the UK (65%) more towards the interests of UK would not necessarily be expected
than in the US (35%), although customers (socialising / casual to finish it
this is declining over time dating) and to form a clear strategy
—— Cupid’s Arrow’s core strength to compete against the aggressive
in the soul mates segment in growth of HappyHearts and the
the US (60% of the US market), threat of new entrants
is less applicable in the UK
where this segment comprises • Along with a clear strategy,
only 25% of the market aggressive marketing campaigns
(socialising and casual dating and friend referral benefit schemes,
segments comprise 75% of etc. are key to establishing a
the market) presence in the UK market
Facts to share with the candidate if asked for specifically (for the interviewer only)
• Cupid’s Arrow currently has US • Set-up costs for Cupid’s Arrow • “Exhibit: Running costs for a
revenues of USD$30m per year in the UK for organic growth typical UK online dating agency”
are minimal (e.g. IT equipment, – share if asked about costs /
• Cupid’s Arrow currently focuses on customer survey) profitability
finding “soul mates” / life partners
for its subscribers in the US • HappyHeart’s growth is due to • “Exhibit: US vs. UK perceptions
aggressive marketing campaigns of online dating” – share if asked
• Expected revenue for Cupid’s and friend referral benefit schemes about market segmentation /
Arrow in the UK is £20 per month demographic differences / types of
per customer • “Exhibit: Historic and projected online dating sites in the US versus
growth of the UK online dating the UK
market “ – share only in Part B of
the case (after the market sizing)
– if asked about market growth or
competition
London Business School – Case Book 51
BCG
Cupid’s Arrow
300 CAGR
’12-’14 278
Other (~ 20 players <£2m)
+36%
250 Table4Two
TakeAChance
CAGR 204
200 TakeMeOut
UK revenue (£m)
’09 -’12
+19% MatchMeUp
Exhibit: Running costs for a typical UK online dating agency (Show to candidate if this data is requested)
60
5
50
15
£ per customer/year
40
30 60
20 40
10
0
Marketing IT support Admin support Total costs per customer
52 London Business School – Case Book
BCG
Cupid’s Arrow
Exhibit: US vs. UK perceptions of online dating (show to candidate if this data is requested)
Responses to questions from a survey
Question 1: Do you believe there is a stigma Question 2: What are you looking for from an
around online dating? online dating agency?
50 50 60 60
40 50
40
% respondents
% respondents
40 40
30 35
25 25 30
20 20 25 25
15 20
15
10 10
10
5
0 0
US UK US UK
Source: Survey of a random sample 20-45 year olds from the US and UK (n=100 in each country)
Example of a possible case structure (for review after the case interview)
Main factors affecting the attractiveness of the UK online dating market for Cupid’s Arrow
Profitability Acquisition
London Business School – Case Book 53
BCG
Cupid’s Arrow
Example calculation for the size of the UK market (For review after the case interview)
Drivers Assumptions
UK population 60m
X
Number of UK
% of target range that
customers 33%
are single
0.5m
X
% of single potentials
Subscription revenue: that are interested in 25%
Total size of the UK internet dating
X
market (£/year) X
£120m % willing to pay for a
20%
subscription service
BCG
Cupid’s Arrow
Examples of creative ideas to maximise success in the UK (for review after the case interview)
Candidate may take different views of optimal strategy – not all of these will apply
The UK has a stigma around online dating, compared Adapt marketing to integrate with the UK market
to the US market • Be less overt about finding “The One”
• Emphasise socialising and meeting new people
• Supplement UK sites with in-person social events
UK customers are looking for a different type of online Rebrand in the UK towards a more social focus
service (socialising / casual dating), less geared • Appropriate branding to attract a wider pool of singles
towards finding a life partner • Modify the website to emphasise meeting friends/
casual dates as well as partners
• Offer regular managed events to get single people
together in a fun setting (e.g. ice skating, bowling)
Although 75% UK market is today focussed on Expand existing US site directly into the UK with
socialising / casual dating, with rapid UK market strong branding to reduce online dating stigma
growth, online dating is expected to rapidly lose • Maintain focus on finding life partners
its stigma and customers will increasingly seek life • Aggressive, wide marketing base showing real
partners online, as has been the case in the US members and matches to emphasise that “everybody’s
using it”
• Expect potentially slow growth until stigma reduces
London Business School – Case Book 55
BCG
Cupid’s Arrow
Differentiation between poor, average and superior performance (for review after the case interview)
Making a market size Struggles to identify the Makes a clear structure Makes a clear structure for
estimate main drivers of the market. for estimation, makes estimation and completes
Does not have a rough no / very few errors with analysis with confidence
idea of UK population. numerical steps and enthusiasm.
Struggles to provide Makes insightful
rationale for estimates. commentary around
Makes basic numerical estimate assumptions.
errors Acknowledges potential
other revenue sources.
Interpretation of graphical Needs significant Correctly interprets main Identifies all main trends
figures; identifying key info prompting to understand competitor trends from plus more subtle features
output. Draws only basic graph, is able to calculate of graphical outputs,
conclusions from the data; profit margin, understands asks probing questions
little insight some of the survey findings (e.g. Do we know what is
with little prompting driving the doubling of the
market size?) and suggests
hypotheses; synthesizes
clearly between the market
and survey exhibits
Synthesizing key Poor recollection of main Can correctly draw Summary is a well
findings and making findings; laundry list together key findings with synthesized and structured
recommendations; recall with little synthesis reasonable synthesis of view that incorporates
demonstrating creativity / insight. Unable to ideas; needs prompting all the main findings.
provide creative ideas for to come up with creative Drives independently to
success in the market (e.g. ideas for Cupid’s Arrow to the need for a change
suggests just offering a be successful in strategy for entry into
low subscription price) the UK, gives a clear
strategy recommendation
and rationale and makes
creative suggestions
56 London Business School – Case Book
L.E.K. Consulting
NewCo Petrol Retailer Investment
Case
The Interview
Background
Process
You are an entrepreneur on an island However, you do not have any She asks you to estimate what capital
of 50 million people. You feel that there meaningful capital and are going to you are likely to need in the business.
is an opportunity to invest in petrol need to raise the investment required
retailing (there are already 1,000 petrol so you visit your local banker.
stations on the island).
If prompted, the interviewer will clarify that no additional information is available to answer the question.
You have not been given much The approach set out below starts together with a reasonable assumption
information with which to form a by determining the potential sales of for the required rate of return on
view of the size of the investment the new petrol outlet, which in turn capital, the amount of capital required
required. Before starting to answer the depends on the total market size from the bank can be calculated.
question, it is worth taking a minute and expected market share. The
to think through a logical framework economics of the business are then
to structure your response, and to mapped out to develop an estimate
explain the intended approach to the of the profitability of the business.
interviewer at the outset. Using this estimate of its profitability,
A strong candidate would receive no further guidance. Where necessary, candidates would be prompted to address
each of the following areas in turn to arrive at an estimate of the capital requirement.
London Business School – Case Book 57
L.E.K. Consulting
Question 1: What
The Interview is the total market size for petrol retailing?
Process
This can be tackled either at an Alternatively the market size can be Additional points that could be
individual or household level. At an tackled at the household level. Here mentioned to improve the market size
individual level, an assumption would assumptions would need to be made estimate would include factoring any
need to be made about how many around average number of people per taxation that is applied to fuel before
of the 50m population own cars / household, proportion of households deriving the final value of the market
drive and therefore purchase petrol. owning a car, and average petrol from the perspective of petrol retailers.
An assumption would also need to expenditure per annum (perhaps In additional, the contribution from
be made about their typical annual based on average mileage per annum ancillary revenues e.g. convenience
expenditure, which could be based on and fuel economy). retail formats on the forecourt could
assumed miles travelled, typical fuel also be considered.
economy, and typical fuel price.
Example calculation:
• 20m households on the island (assuming 2.5 people on average per household)
L.E.K. Consulting
Question 3: What
The Interview are the economics of the business likely to look like?
Process
Having already estimated the revenue
for the site, there are two possible Example calculation:
approaches here. One would be
to identify the various elements of • Typical operating margin = 5%
fixed and variable costs and develop
estimates for each of these. The • EBIT = £500k (£10m x 5%)
second (simpler) approach is to
consider typical operating margins
for retail businesses, and assume this
business would perform in line.
Marakon
AirJet Inc. PROFIT
North America
The Interview
Case Summary Process
(for interviewer only)
Overall, aircraft manufacturing is AirJet Inc. is losing money in the buy 15 or more planes. Lessors, in
a profitable business, but market jet engine business. However, the purchasing large volumes of aircraft,
economics vary depending on the average player in the jet engine have been able to exert significant
business segment. AirJet participates aircraft market is profitable. AirJet buying power over our client and
in two segments has gained significant market share achieve large price concessions.
• jet engine, 80 to100-seat aircraft by aggressively serving the Lessor
• propeller, 20 to 30-seat aircraft customer segment which tends to
• AirJet Inc. is a U.S. manufacturer volume increase year-over-year • AirJet’s senior management team
of small, regional airplanes. It of 10% and 5%, respectively, and has hired a team of consultants to
manufactures two types of aircraft: revenues of $794 million and $225 help the company develop a value-
Jet engine (80 to100-seat) and million, respectively maximizing strategy. We need your
propeller aircraft (20 to 30-seat) help to understand
• Although overall AirJet turned —— What are the key issues and
• In 2011, AirJet delivered 110 jet a profit, profitability varied opportunities at AirJet?
engine aircraft and 150 propeller significantly by business —— What solutions would you
aircraft. This represented a unit recommend to management?
Encourage candidate to develop an approach to root cause the profitability issue. Provide the following information
(either in full or as requested by the candidate)
[Note] Economic profit includes a charge that accounts for the required return on capital. When EP > 0 value is created,
when EP < 0 value is destroyed (even if Net Income is positive!),and at EP = 0 the business generates exactly the
required return
60 London Business School – Case Book
Marakon
AirJet Inc.
Using a typical profitability framework, the candidate should make the following observations
• The Jet Engine business is • The problem lies with the Jet • Jet engine parts are complex and
unprofitable while the propeller Engine business typically bought from specialized
business is highly profitable OEMs
• Gross margins in the Jet Engine Additional information
business are much lower than the • Costs and hence margins are in
Propeller business line with market average
The candidate should focus the rest of the discussion on the Jet Engines business and understanding market size,
growth and profitability within the segment. Provide the following information (in full or as requested)
Market Structure
500
440 deliveries
Marakon
AirJet Inc.
Key insights
1 The market is profitable and growing with the average Good candidates would seek to explore the market growth.
competitor generating 5% economic profit margins Additional information for discussion:
—— Total Revenues = $3520 mn
—— Revenue per aircraft = $3520/440 = $8mn The market is expected to continue growing at 7% for the
—— Cost per Aircraft = $6.8m + 10 % of $3300mn Capital next 10 years due to:
= $7.6mn a Changes in regulation (e.g. Open Skies) and
—— Economic Profit per aircraft = $8 mn - $7.6 mn = $0.4 globalization (India, China) have lifted restrictions on
mn U.S. based airlines to service these segments
—— EP Margin = 0.4/8 = 5% b The current customer base for AirJet is largely US based
2 AirJet has the largest market share at 25% (was 20% 3 c Success of newer businesses such as Fractional Jet
years back) Programs (time sharing of jets)
3 AirJet growing at ~15%, market growing at ~7% d Expected replacement cycles as older jets are retired
4 Four other competitors control the remaining market
ranging from 16-22%
5 There is no dominant competitor in the jet engine
business
Competitive Position
Once the candidate identifies that AirJet has gained market share over the last 3 years, he/she should explore the
reasons for it. Information for supporting this discussion
1 AirJet is pricing its product lower than the market on b Performance: Range of ~500 miles which is similar to
average. They can increase price by 20% and still have the market average
a competitive product which provides a fair benefit to c Maintenance and Asset Life: The majority of
customers the fragmented jet engine aircraft maintenance
companies have the capabilities and parts to service
2 There doesn’t seem to be much differentiation versus AirJet’s aircraft
products from competitors 3 Therefore, just increasing the price by 20% will put AirJet
a Cockpit: Similar to industry standard, resulting in low in midst of the cluster. Without any offer advantage, AirJet
switching costs for new customers will lose market share relative to its current position
AirJet’s Customers
Once the candidate identifies pricing disadvantage as the issue, direct the conversation to lead to customer
segmentation at the root of the issue. Provide the candidate with the following information
Marakon
AirJet Inc.
• The main driver of profitability • The Lessor segment makes • Lessors comprise the largest
between segments is solely large purchases and exploits a customer segment [more than 50%
price without doing any math, negotiating leverage over AirJet of the total market by volume]
since operating cost per aircraft —— Segment 1: 80 planes, our
produced and delivered is the • Average revenue per customer is: share 12.5%
same regardless of the intended $390M/ 60 aircraft = $6.5M per —— Segment 2: 120 planes, our
customer aircraft from Lessors, compared to share 33%
$8.4M from Affluent Individuals and —— Segment 3: 240 planes, our
$8.0M from Corporate Customers share 25%
Prompt the candidate to develop alternatives for solving the profitability issues. Some suggestions based on
participation choices
1 Increase prices for Lessors: for 2 Exit the Lessors segment: Similar 3 Enter the leasing business:
every $500K we lose 1 customer calculations show that the loss Forward integration. Also creates a
(15 aircraft). After a few calculations of scale makes the other two threat for the Lessor customer and
the candidate should see that segments unprofitable as well improve negotiating leverage
with such elasticity this alternative (cannot cover fixed costs)
cannot be profitable, e.g. 4 Other
a Increase in Price to $7.0 mn,
losing 1 customer
b Total Aircrafts sold =
10 + 40 + 45 = 95
c Total Aircrafts Cost =
165 + 95 x 6 =$735
d Total Revenue =
84+320+ 7 x 45 = $719
e Profit (Loss) = ($16) mn [remains
unprofitable at $7.5m and $8m
– i.e. losing 2 or 3 customers]
London Business School – Case Book 63
Marakon
AirJet Inc.
Discuss with the candidate possible pros and cons of each alternative. Specifically for Alternative 3 (enter the leasing
business) the following information should indicate that it is a good opportunity that can help prop-up the Lessor
segment as well
• Market Growth: The jet engine, • Market Economics: • Customer: AirJet has marketing
regional aircraft leasing market is i The aircraft leasing market relationships with all aircraft end-
large and growing. In 2011, the new is profitable with the average users who are leasing their aircraft
aircraft leasing market represented competitor generating ROE’s of from the company’s aircraft lessor
almost 50% of all new aircraft ~15% (cost of equity ~10%) customers. AirJet works with these
delivered (with operating leases ii The key driver of profitability is end-users to help them configure
comprising half) and is expected to cost of funds. AirJet would be the plane during the front end of
grow 5% per year at parity the sales process
If time permits and the candidate has reached a satisfying solution for the profitability issue, use the rest of the time to
brainstorm additional growth alternatives for the business. The following is a starter list
1 Other Markets: Jet Engine 2 Geographies – International 3 Understand the propeller business
Segments – 50 to 80 seaters, 100+ Expansion to find avenues of growth
segment 4 Enter Fractional Jet Ownership
Market
64 London Business School – Case Book
Europe
Case Background
This document is intended to help that the following case is a good The example below is set up to teach
prepare you for the case portion of a example of the type of case many of you how to approach a typical case.
McKinsey & Company interview. While our interviewers use. However, in most
interviewers at McKinsey have a good interviews the interviewer will only ask
deal of flexibility in creating the cases a selection of the questions in this
they use in an interview, we believe case.
Context
The interviewer will typically start the case by giving a brief overview of the context, ending with a question that is the
problem definition. At the end of the description you will have an opportunity to ask any questions you might have to
clarify the information that has been provided to you.
Let’s assume our client is OldPharma, Biological R&D is vastly different Should OldPharma acquire
a major pharmaceutical company from small molecule R&D. To gain BioFuture?
(pharmaco) with USD 10 billion these capabilities, pharmacos can
a year in revenues. Its corporate build them from scratch, partner with
headquarters and primary research existing startups, or acquire them. • Write down important
and development (R&D) centers are in Since its competitors are already information
Germany, with regional sales offices several years ahead of OldPharma,
worldwide. OldPharma wants to jumpstart its • Feel free to ask interviewer for
biologicals program by acquiring explanation of any point that is
OldPharma has a long, successful BioFuture, a leading biologicals start- not clear to you
tradition in researching, developing, up based in the San Francisco area.
and selling “small molecule” drugs. BioFuture was founded 12 years ago
This class of drugs represents the by several prominent scientists and
vast majority of drugs today, including now employs 200 people. It is publicly
aspirin and most blood-pressure or traded and at its current share price
cholesterol medications. OldPharma the company is worth about USD 1
is interested in entering a new, rapidly billion in total.
growing segment of drugs called
“biologicals”. These are often proteins OldPharma has engaged McKinsey
or other large, complex molecules that to evaluate the BioFuture acquisition
can treat conditions not addressable and advise on its strategic fit with
by traditional drugs. OldPharma’s biologicals strategy.
London Business School – Case Book 65
OldPharma
Questions
In McKinsey & Company case interviews, the interviewer will guide you through the case with a series of questions that
will allow you to display a full range of problem solving skills. Below is a series of questions and potential answers that
will give you an idea of what a typical case discussion might be like.
Question 1
What factors should the team consider when evaluating whether OldPharma should acquire BioFuture?
• Take time to organize your thoughts before answering. This tells the interviewer that you think about the problem in a
logical way
A good answer would include the BioFuture’s marketing or sales OldPharma’s capability gaps
following: capabilities. Especially how in biologicals, R&D, sales and
Value of BioFuture’s drug pipeline. promotional messages will be marketing, etc.
Number of drugs currently in delivered, e.g., relationships with key
development. Quality of drugs opinion leaders that can promote OldPharma’s alternatives to this
(likelihood of success). Potential biologicals; Key opinion leaders can acquisition. Alternative companies
revenues and profits come from the academic arena, like OldPharma could acquire. Other
prominent medical school professors, strategies for entering biological
Biofuture’s R&D capabilities (future or from the public arena, like heads segment, e.g., enter partnerships
drug pipeline). Scientific talent. of regulatory bodies or prominent rather than acquisition. Pursuing other
Intellectual property (e.g., patents, telejournalists strategies than entering the biological
proprietary processes or “know-how” segment.
for biologicals research). Buildings, Acquisition price
equipment and other items that allow
Biofuture’s R&D to operate A very good answer might also
include multiple additional key
factors OldPharma should consider.
For example:
BioFuture’s existing partnerships or
other relationships with pharmacos
66 London Business School – Case Book
OldPharma
Question 2
The team wants to explore BioFuture’s current drug pipeline. The team decides to focus first on evaluating the value of
BioFuture’s drug pipeline – both its current portfolio, as well as its ability to generate drugs on an ongoing basis. What
issues should the team consider when evaluating the value of BioFuture’s existing drug pipeline?
Ensure to mention different issues instead of immediately diving very deep into one issue. Then ask your interviewer if
he/she wants to go deeper on any of them.
A good answer would include the • Costs to manufacture and sell, e.g., • Side effects and potential legal
following: marketing, distribution, etc. exposure, e.g., potential law suits
Further cost of R&D until each drug due to unexpected side effects
is ready to be sold. • Press about these drugs, e.g., have
famous doctors called for this kind • Emergence of substitutes – are
Potential value of selling each drug. of drug, is it only slightly improving competitors working on substitutes
• Market size, e.g., size of patient on what is on the market already? already? Is it about speed and
population, pricing does BioFuture have enough
researchers working on the
• Market share, e.g., number of A very good answer would also respective drugs?
competitive drugs in R&D or on include the following:
the market; different side effects, Risk level • Strength of underlying patents, i.e.,
convenient dosing schedule (i.e., • Likelihood clinical trials of a drug how likely is it that a competitor
patients are prescribed to take a will prove effective can successfully copy BioFuture’s
drug at regular intervals that are drug?
easy to remember such as once a • Likelihood drug will win regulatory
day or every 12 hours), etc. approval
Question 3
Below is a description of expected probability of success, by stage, in the Pharma R&D pipeline.
Note: “Filing” is the process of submitting all of the clinical and safety evidence from Phase I, II, and III trials, and asking
for regulatory approval to actually sell the drug.
OldPharma
OldPharma believes that the likelihood of success of BioFuture’s primary drug candidate can be improved by investing an
additional USD 150 million in a larger Phase II trial. The hope is that this investment would raise the success rate in Phase II,
meaning that more candidate drugs successfully make it to Phase III and beyond. By how much would the Phase II success
rate need to increase in order for this investment to breakeven?
The interviewer would tell you to assume that if the drug is successfully marketed and sold, it would be worth USD 1.2
billion (i.e., the present value of all future profits from selling the drug is USD 1.2 billion).
A very good answer would include • To breakeven, i.e. to make the Phase II probability would have to
the following: $150 million investment worth increase from 40% to 80%
Investment would need to increase while, value of the candidate (70% x 80% = 56%)
probability of success in Phase II drug that passes Phase II would
from 40% to 80% (increase of 40 need to increase to $540 million • This seems like a very big
percentage points). There are multiple + $150 million = $690 million. This challenge as an increase by 40
ways to approach this calculation. One means, the probability of combined percentage points means that the
method is shown here: success in Phase I and II would current probability of 40% needs
• If a candidate drug passes Phase need to increase by (150/540) = 28 to double
II, then it has a 50% x 90% = 45% percentage points
chance of being successfully
marketed and sold. Since a • So the current probability of
successful candidate drug is worth Phase I and II, i.e., 70% x 40%
$1.2 billion, a candidate drug that = 28% would have to increase
passes Phase II is worth 45% x by 28 percentage points, i.e., to
$1.2 billion = $540 million 56%. In order to come up to 56%,
Question 4
Next, the team explores the potential setup with BioFuture after the acquisition. Although BioFuture’s existing drug pipeline
is relatively limited, OldPharma is highly interested in its ability to serve as a biological research “engine” that, when
combined with OldPharma’s existing R&D assets, will produce many candidate drugs over the next 10 years. What are your
hypotheses on the major risks of integrating the R&D functions of BioFuture and OldPharma?
A very good answer would include • Language barriers severely hinder • Key scientific talent leaving
the following: communication and sharing of BioFuture after the acquisition –
• Scientists do not have overlapping information either because acquisition makes
disease (therapeutic area) interests them independently wealthy or
or expertise and are unable to • Poor management and sense of because they don’t want to be a
materially collaborate community as a result of R&D part of the new big OldPharma
operations that might come with a pharmaco
• Integration into the process- time difference of 9 hours
driven OldPharma culture kills the
entrepreneurial culture at BioFuture
that has been key to its success
68 London Business School – Case Book
OldPharma
Question 5
Post-acquisition, OldPharma believes that it will be necessary to consolidate all biologicals R&D into one center. There are
two logical choices: OldPharma’s existing headquarters in Germany, and Biofuture’s current headquarters in San Francisco.
OldPharma does not have any current biologicals facilities or operations in Germany, so new facilities would have to be built.
How would you think about this decision?
A very good answer would include • Overall easier to integrate • Easier to retain the entrepreneurial
the following: BioFuture’s R&D capabilities into spirit and culture of BioFuture
Reasons for consolidating at OldPharma
OldPharma’s corporate HQ in • No need to rebuild e.g.
Germany. Reasons for consolidating in manufacturing plants, research
• Better coordination with non- BioFuture’s San Francisco location. facilities
biologicals R&D at OldPharma • Less likely to see flight of talent:
many top scientists would likely
• Better coordination with other leave rather than relocate to
business units of OldPharma (e.g., Germany
marketing, manufacturing)
• Easier to recruit and find top
• Easier to intermix scientists in research talent in San Francisco
biologicals and traditional R&D vs Germany
units, and transfer any unique
capabilities & knowledge
Question 6
While researching the integration barriers, the team learns that one of OldPharma’s top competitors, DrugMax, has already
partnered with BioFuture on their lead drug candidate essentially agreeing to split all development costs and future profits
50/50. OldPharma is considering buying out DrugMax’s 50% share of the BioFuture lead drug candidate. As a first step in
valuation, they have asked the McKinsey team to estimate the potential peak sales of this drug candidate – this is another
way to verify potential future profits of a drug. The drug candidate is intended to treat non-Hodgkin’s lymphoma. New cases
are diagnosed each year in 25 out of every 100,000 U.S. men and 15 out of every 100,000 U.S. women. Given this and any
other information you might need, what are the estimated U.S. peak sales of this compound?
The following information will be given to you by the interviewer upon request:
• U.S. population is 300 million, half men, half women.
• Full course of therapy takes 90 days and OldPharma believes the drug can be sold at a price of $500 per day.
• Estimated market share (i.e., % of eligible patients who are treated with this drug), is 25%.
A very good answer would include • Each course of therapy will yield
the following: $45,000 in revenue (90 days at
• Expected peak sales of this drug $500 per day). Therefore total U.S.
candidate are USD $675 million market potential is $2.7 billion.
Estimated market capture is 25%,
• Assuming a U.S. population of 150 leading to an estimated U.S. peak
million men and 150 million women, sales of $675 million.
there would be 37,500 estimated
diagnoses among men, and
22,500 diagnoses among women,
or 60,000 new cases of non-
Hodgkin’s lymphoma per year
London Business School – Case Book 69
OldPharma
Question 7
On the third day of the engagement you run into the Vice President of Business Development for OldPharma in the cafeteria.
He asks what the team’s current perspective is on the BioFuture acquisition and what next steps you are planning to take.
How would you respond?
There is no right or wrong answer on in Phase II trials is not likely to be a OldPharma. There are significant risks
whether to buy or not buy and there profitable investment; secondly, one of to this as well, given the “two worlds”
are various ways on how to build an your competitors, DrugMax, currently nature of their organizational cultures.
argumentation. One possible very has a cooperation with BioFuture for
good answer would be: its lead drug candidate. This needs to As next steps we therefore want to
An acquisition of BioFuture can be taken into account when trying to better understand the feasibility of
bring two major sources of value to acquire BioFuture. We are still looking bridging the cultural gap and better
OldPharma: the value of its existing into other potential synergies, but it understand pros and cons of different
compounds and the potential value of appears unlikely that OldPharma can consolidation options; estimate the
integrating its research capabilities into justify the cost of an acquisition purely cost of this research integration; get
OldPharma based on BioFuture’s existing pipeline a better understanding of the value of
BioFuture’s future potential to develop
In terms of BioFuture’s existing pipeline The greater source of upside is likely to drugs
there are a couple of challenges: firstly, be the long-term benefits of integrating
the proposed idea of investing heavily BioFuture’s research capabilities with
70 London Business School – Case Book
Market
RefreshNow! Soda ENTRY
North America
Case Background
This document is intended to help believe that the following case is a good The example below is set up to teach
prepare you for the case portion of example of the type of case many of you how to approach a typical case.
a McKinsey & Company interview. our interviewers use. However, in most
While interviewers at McKinsey have interviews the interviewer will only ask a
a good deal of flexibility in creating selection of the questions in this case.
the cases they use in an interview, we
Context
The interviewer will typically start the case by giving a brief overview of the context, ending with a question that is the
problem definition. At the end of the description you will have an opportunity to ask any questions you might have to
clarify the information that has been provided to you.
RefreshNow! Soda
Questions
In McKinsey & Company case interviews, the interviewer will guide you through the case with a series of questions that
will allow you to display a full range of problem solving skills. Below is a series of questions and potential answers that
will give you an idea of what a typical case discussion might be like.
Question 1
What key factors should RefreshNow! consider in deciding whether or not to launch O-Natura?
• Take time to organize your thoughts before answering. This tells the interviewer that you think about the problem in
a logical way
A good answer would include the Competitors. Which products is packaging, or distribution? Is it
following: O-Natura going to compete with? possible to accommodate O-Natura
Consumers. Who drinks flavored Which companies are key players and in the current production and
water? Are there specific market how will they react? distribution facilities? What impact
segments to address? does geography have on the plant
A very good answer might also selection?
Cost/Price. Is the flavored bottled include multiple additional key
water market more profitable than factors RefreshNow! should Channels. What is the ideal
those markets for RefreshNow!’s consider. For example: distribution channel for this product?
current products? Is it possible to Capabilities and Capacity. Are current retail outlets willing to add
profitably sell (price set by the market, Are the required marketing and O-Natura to their product catalogue?
internal production costs) O-Natura? sales capabilities available within
Given fixed costs involved, what would RefreshNow!? Does the product
be the break-even point for O-Natura? require specialized production,
72 London Business School – Case Book
RefreshNow! Soda
Question 2
After reviewing the key factors RefreshNow! should consider in deciding whether to launch O-Natura, your team wants to
understand the beverage market and consumer preferences to gauge potential success of O-Natura.
The bottled market splits into non-sparkling, sparkling, and imports. Flavored water falls within non-sparkling. Your team
has gathered the following information on the U.S. bottled water market. The information shows an estimate for the share of
flavored water, as well as the current share for the two main products: Cool and O2Flavor.
Exhibit 1
Fictitious exhibit
U.S. Bottled water market
Millions of gallons
Cool
20%
70%
Other
Based on the target price and upfront • In order to launch O-Natura, • The VP of Operations estimates
fixed costs, what share of the flavored RefreshNow! would need to incur that each bottle would cost $1.90
non-sparkling bottled water would $40 million as total fixed costs, to produce and deliver in the newly
O-Natura need to capture in order to including marketing expenses as established process.
break even? Here is some additional well as increased costs across
information for you to consider as you the production and distribution
form your response: network
• O-Natura would launch in a 16 oz.
presentation (1/8 of a gallon) with a
price of $2.00 to retailers
• Describe your approach and talk the interviewer through your calculation. The more you talk the easier it will be for
your interviewer to help you
London Business School – Case Book 73
RefreshNow! Soda
A very good answer would include 1 O-Natura would need to sell 400 2 O-Natura would need to capture a
the following: million units in order to break 12.5% market share:
O-Natura would need to capture a even: —— Non-sparkling flavored bottled
12.5% market share of flavored non- —— Variable profit per unit = water market = 5% x 8,000
sparkling bottled water in order to $2.00 – $1.90 = $0.10 million gallons = 400 million
break even. Therefore, O-Natura would gallons
need to be the Number 2 product in —— B
reak even units = Total fixed
the market: costs / Variable profit per unit —— O
-Natura sales in millions of
= $40 million / $0.10 per unit = gallons = 400 million units / 8
400 million units units per gallon = 50 million
gallons
Question 3
RefreshNow! executives believe that the company’s position as the top 3 beverage company in the country gives them
strategic strengths toward achieving the desired market share. However, they ask the team to characterize realistically what
they would need to achieve that target.
What would RefreshNow! need to ensure realistically to gain the required market share for O-Natura (12.5% of non-sparkling
flavored bottled water)?
A very good answer would include Strong Branding/Marketing. Create Operational Capabilities. Ensure
the following: a successful introductory marketing access to preferred distribution
Match with Consumer Preferences. campaign, including advertising, channels. Ensure sales force
Ensure product image, attributes, pricing, and bundling promotions. capabilties to sell the new product.
and quality fulfill the needs of all Leverage top 3 producer status and Ensure production ramp-up that allows
consumers or niche segment, reaching limited market fragmentation in order response to increased demand.
desired market share. Ensure target to position O-Natura brand within top
price is consistent with other products 3 in the market segment. Anticipate
in the market and the consumer’s response from competitors (e.g.,
expectations advertising, pricing, distribution
agreements). Ensure product
positioning does not cannibalize on
other, more profitable, RefreshNow!
products. (Note: In marketing, the
decreased demand for an existing
product that occurs when its vendor
releases a new or similar product
is called “cannibalization”. It is not
important for you to use this business
terminiology.)
74 London Business School – Case Book
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Question 4
Within the key drivers for market share, RefreshNow! wants to know which to tackle first and what the strategy should be.
Therefore McKinsey helped RefreshNow! design and run a study to understand branding and distribution. The following
information shows results from the study, based on a sample of target consumers. What can you conclude from the study in
regards to the preferred marketing image and strategy of O-Natura?
20
Café / restaurant 10
Sports drink 20 10 70
Convenience store 30
60
A very good answer would include Distribution differs from Marketing message to emphasize
the following insights: current outlets and needs new identity and availability. Marketing
Branding should emphasize sports agreements/research. Major shifts campaign should be built around the
drink identity. “Healthy” identity is compared to current distribution currently unaddressed market need
dominated by Cool product, “Leisure” model required in “Supermarkets”, for sports drink in order to connect
by O2Flavor and “Sports” fragmented “Other”, and “Convenience stores”. with customers in that segment.
in other products. Clear niche within Agreements with major retail players Given required changes in distribution
“Sports” identity, with top 2 brands may accommodate for product channels, O-Natura messaging should
currently occupying only 30% of share introduction, with RefreshNow! clarify new distribution strategy.
of mind. Sports branding should also managing mix across channels.
determine thinking around the sales “Other” channels need further
channels (e.g., sales during sports research, since they are a major
events or at sports facilities) component of the Flavored water
segment
London Business School – Case Book 75
RefreshNow! Soda
Question 5
The team now explores RefreshNow!’s internal operational capacity to fulfill the projected O-Natura demand. RefreshNow!
has decided to produce O-Natura from an existing dedicated production line in a single facility. In order to be on the safe
side in case of increased demand they plan for an annual capacity of 420 million bottles (units) of O-Natura. The production
line they have in mind currently operates for 20 hours per day, 7 days a week and 50 weeks per year. The speed for the
current bottling process is 750 units per minute.
Is the current production capacity sufficient to fulfill the desired annual production plan of 420 million bottles of O-Natura?
A very good answer would include • Daily production = 750 bottles per • Annual production = 6.3 million
the following: minute x 60 minutes per hour x 20 bottles per week x 50 weeks per
RefreshNow! Would need to increase hours per day = 0.9 million bottles year = 315 million bottles
its capacity because it would currently
only allow to produce 315 million • Weekly production = 0.9 million
bottles of O-Natura: bottles per day x 7 days per week
= 6.3 million bottles
Question 6
Given the need for a specialized production process for O-Natura, the company has decided to add a new production line to
only one of their 5 facilities. What factors should they consider in selecting the adequate plant?
RefreshNow! Soda
Question 7
The RefreshNow! CEO has seen the team’s analysis and confirms that the decision to launch O-Natura has been made.
The product will be marketed as a sports drink, produced in the Midwest US, and distributed through supermarkets,
convenience stores, and sport outlets. He asks the team what the company should start doing tomorrow?
Ensure to mention different insights instead of immediately diving very deep into one insight. Then ask your interviewer
if he/she wants to go deeper on any of them
A very good response would include Marketing to start designing launch Sales to start designing product
the following: strategy. approach and training for
Finance to allocate required • Design product identity, message, Associates.
resources for launch. packaging, etc. • Collaborate with marketing in
• Communicate launch decision and defining message for retail outlets
timeline to Finance department • Create advertising and promotional and consumers
campaign
• Analyze upfront investment and • Design distribution strategy and
ongoing profitability targets • Define any channel-specific allocate resources for new product
considerations (e.g., displays,
• Secure resources required for alternative campaigns) • Design and deliver product training
initial investment and allocate to for sales
each department (e.g., Marketing, • Prepare product communications
Sales, Production, Distribution) for investors, customers, and • Communicate new product
consumers characteristics and targets to
clients (e.g., supermarkets,
Operations to begin product convenience stores, restaurants,
testing, production line design, and sport clubs).
logistics.
• Create and test product
Monitor Deloitte
Footloose PROFIT
Europe
Footloose: Introduction
Duraflex is a German footwear Together, these four brands represent on-the-job purposes. Casual boots is
company with annual men’s footwear approximately 72% of the 5.0 billion € the fastest growing sub-category, and
sales of approximately 1.0 billion German men’s boot market. The boots is geared more towards white collar
Euro(€). category includes four main sub- workers2 and students who purchase
categories: these boots for week-end / casual
They have always relied on the boot wear and light work purposes.
market for the majority of their volume Work boots, casual boots, field and
and in this market they compete with hunting boots, and winter boots. Work The four key competitors in the market
three other major competitors. boots is the largest sub-category and are Badger, Duraflex, Steeler, and
is geared to blue collar workers1 who Trekker.
purchase these boots primarily for
Competitor Profiles
Badger and Steeler are both well
established as work boot companies, Market Share of Work and Casual Boots by Company
having a long history and strong brand
recognition and credibility among blue
collar workers. At the other extreme is 43%
Trekker, a strong player in the casual Badger
11%
boot market but a very weak player
in work boots. Duraflex, however, is a
16%
cross between the other competitors, Duraflex
40%
having a significant share in both work
boots and casual boots.
19%
Steeler
Historically Duraflex had an even 4%
1 Blue collar workers: wage earners who generally work in manual or industrial labour and often require special work clothes or protective clothing, which are replaced
approximately every 6 months
2 White collar workers: salaried employees who perform knowledge work, such as those in professional, managerial or administrative positions
78 London Business School – Case Book
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Exhibit One – Propensity to buy boots by population segment (Male Population 12+)
80%
Bought work boots
in past year
70
Bought casual boots
60% in past year
60
55%
50
40
35%
30
25%
20 20%
15%
10
0
Blue Collar White Collar Student
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100%
16%
21% 21%
26% Other
Other Other
Other
80
6% 14%
13% Athletic Store Apparel Store
Dept. Store 11%
Channel Share (%)
Sporting Goods
16%
60 15% Dept. Store
35% 13%
Discount / Outlet
Shoe Store Discount / Outlet
40 23% 22%
Athletic Store Safety / Work
54%
Shoe Store
20 39%
28% Safety / Work 28%
Shoe Store Shoe Store
0
Duraflex Badger Steeler Trekker
Quality /
Styling 45% 45% Comfort 52% Comfort 45%
Durability
Quality / Quality /
37% Comfort 39% 43% Styling 41%
Durability Durability
Past
Comfort 19% 30% Styling 22% Price 35%
Experience
Past
Features 10% Brand 13% Price 15% Experience 13%
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180(€)
170 euros
160
Company Margin 22%
140 euros
140
120 euros Retailer Margin 8% Company Margin 16%
120
Company Margin 15% General & Admin. 10% Retailer Margin 6%
Retail price (€)
Work through these questions on your own, using the text and exhibits in the preceding pages. An answer key is
provided in the pages that follow…
Question 1
How big is the work boot market (expressed in euros)? Does Duraflex get more of its revenue from work boots or casual
boots?
Question 2
Question 3
What changes would you recommend to Duraflex’s work boot strategy? Why? Would you recommend they introduce a sub-
branded boot line?
London Business School – Case Book 81
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Answer Q1: How big is the work boot market (expressed in euros)? Does Duraflex get more of its
revenue from work boots or casual boots?
To find the size of the market, we can use the following equation:
(Average Boots Price) x (% of male population that bought work boots in past year)
x (total population for the segment) x (number of pairs bought in a year)
Exhibit One gives us the populations for each segment and the percentages that bought boots. We therefore need to
find the number of boots sold and the average price of each pair. For this question, the candidate will need to make some
assumptions.
1 Average number of boots purchased per user 2 Average price per pair of boots
• For work boots, we know that blue collar workers Work boots cost more (compare Blue Collar vs. Student) so
purchase an average of 2 pairs per year (from the average price should be higher than 140 € for all (150 €
Introduction, Footnote1) is reasonable); casual should be lower than student (100-110
€ is reasonable).
• White collar workers and students who buy work
boots probably use less rigorously and less frequently,
therefore probably only 1 pair per year
The total market value will then be the sum, for each segment, of the following equation:
(Average Boots Price) x (% of male population that bought work boots in past year)
x (total population for the segment) x (number of pairs bought in a year)
(€150 x 60% x 11Mill x 2) + (€150 x 25% x 12 Mill x 1) + (€ 150 x 15% x 7 Mill x 1) = €2,587.5 Mill or €2.6 Bill
# Pairs
% Buying Work work boots
Population Boots bought / year Price Per Pair (€) Segment Size (€)
Blue Collar 11.0 Million 60% 2 150 2.0 Billion
White Collar 12.0 Million 25% 1 150 450 Million
Student 7.0 Million 15% 1 150 155 Million
Total 2.6 Billion
82 London Business School – Case Book
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(Average Boots Price) x (% of male population that bought work boots in past year)
x (total population for the segment) x (number of pairs bought in a year)
(€100 x 20% x 11Mill x 1) + (€100 x 35% x 12 Mill * 1) + (€ 100 x 55% x 7 Mill x 1) = €1,025 Mill or €1.0 Bill
Or:
# Pairs
% Buying Work work boots
Population Boots bought / year Price Per Pair (€) Segment Size (€)
Blue Collar 11.0 Million 20% 1 100 220 Million
White Collar 12.0 Million 35% 1 100 420 Million
Student 7.0 Million 55% 1 100 385 Million
Total 1.0 Billion
Summary
• We know from Exhibit 1 that Duraflex has a 16% share of the work boot market and 40% of the casual boot market,
therefore:
—— Duraflex’s revenue from the work boot market = 16% x 2.6 Bill = 416 Mill
—— Duraflex’s revenue from the casual boot market = 40% x 1.0 Bill = 400 Mil
• So Duraflex gets most of its revenue from work boots, even though the revenues are almost evenly split
Our Answer:
The work boot market is 2.6 Billion €. The casual boot market is 1.0 billion €. Duraflex generates 416 Million € from
work and 400 Million € from casual. Depending on assumptions, casual may be slightly larger but the two should be
relatively close.
London Business School – Case Book 83
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Answer Q2: Explain why Badger is outperforming Duraflex in the work boot market.
According to the data we have, and what we know as industry dynamics, the analysis can be split in 4 main areas that would
demand further study:
• Distribution
• Pricing
• Cost analysis
Even if you have many good ideas to answer this question, you won’t be impressive without STRUCTURE. You don’t
need a formal framework, just be methodical and organised in your approach – and summarise at the end!
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Cost Analysis
Summary
• Duraflex is not sold where work boots are being purchased
• Duraflex is not meeting the key needs of blue collar workers, as it is weaker than competitors on the critical ‘Comfort’
dimension
• Badger prices its boots more competitively, which is likely to be particularly appealing to the large work boot market; this
has helped develop a large and loyal consumer base
• Badger has lower retailer margins (both absolute and relative) and spends less on Sales & Marketing
Answer Q3: What changes would you recommend to Duraflex’s work boot strategy? Why? Would you
recommend they introduce a sub-branded boot line?
There are two reasonable answers to this question. The company can either:
The important thing with a subjective question is not what you answer to the question, but how you answer the question
– pick a point of view and support it with critical reasoning!
London Business School – Case Book 85
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Justification: Implications:
• Represents approximately 40% of Duraflex’s business • Enter safety / work channel – we may be faced with
(from question 1), making it very difficult to profitably pressure from Badger exerting influence on retailers in
ignore this market this channel
• While Duraflex does have greater market share in the • Build “comfort” and “quality / durability” perception
casual boot market, we know from information given in among blue collar workers
the case that the casual boot market is smaller in size
than the work boot market, which may indicate less • Increase proportion of costs allocated to materials and
opportunity for share growth; also, we derive lower labour – potentially reducing company margin
margins (15% vs. 21%) from casual boots (from Exhibit 4)
• There may be unique / niche positionings for Duraflex
• Given that Badger is introducing a new work line, they (suggestions should be well thought out)
may see new growth potential in the market which
Duraflex may also want to capitalise on • Introduce sub-brand or increase promotion of brand
with a focus on blue collar workers: may include on-
• Building a stronger image among blue collar workers site promotions, advertising in industry publications,
may entice them to try other Duraflex footwear products or advertising in magazines / on television during
programmes with a higher blue collar readership /
viewership
Justification: Implications:
• Stronghold for Duraflex right now (40% market share) • Unlikely to be a strong competitor reaction, since
Duraflex is already dominant player
• Fastest growing market
• Duraflex will not need to enter new distribution channels
• Represents approximately 40% of Duraflex’s business
(from question 1), making it very difficult to profitably • Candidate should discuss a strategy for work boot
ignore this market market – either winding down, maintenance etc. and
implications of this
• Focusing additional resources on work boot market
would risk of alienating casual boot buyers (white collar
workers and students)
• “Style” is the top BPC for Duraflex (from Exhibit 3). From
the statistics on Badger and Steeler, we know this is
likely not an important criteria for the work boot market.
By focusing on the casual boot market Duraflex can
devote additional resources to keeping up with styles to
better appeal to this target
86 London Business School – Case Book
Europe
Case Background
MPC is a global mobile phone handset manufacturer that has seen its market share in Europe (by value) slip from 20% five
years ago to 1% today. MPC has discussed its ambition to become relevant in Europe again and has set itself a stretch
target to get back to its previous market share position. The European handset market has traditionally been dominated by
two players but the last few years has witnessed new entrants from the far East.
Question
What volume does MPC need Information to be provided as a Suggested approach:
to regain its past market share response to candidate questions: 1 Assess the size of market in five
position and what key challenges • Assess only the five key markets of key countries by volume and value
does it face in getting there? UK, Germany, France, Spain and 2 Assess what MPC needs to
Italy (populations of 60m, 80m, achieve to reach its goal by volume
65m, 45m, 60m) and value
• European mobile market is 3 Discuss the key challenges that
dominated by four key operators ABC needs to overcome
that handset manufacturers sell to
(Vodafone, Orange, Telefonica/O2,
T-Mobile)
• Handsets are split into two tiers –
smartphones and feature phones
• Smartphone penetration rate
across 5 key markets should be
assumed to be 35%
The main task will come in the next section where the candidate will need to demonstrate the ability to rationalise what this
ambition means for MPC.
Example calculation:
UK Ger Fr Sp It Total T5
Population 60 80 65 40 60 305 Data provided
Ratio of Mobile penetration 1.25 1.25 1.25 1.25 1.25 Assumptions from candidate
Mobiles in circulation 75 100 81 50 75 381 Calculation required
Smartphone % 35% 35% 35% 35% 35% Data provided
Smartphone [mn phones] 26 35 28 18 26 133 Calculation required
Feature phones [mn phones] 49 65 53 33 49 248 Calculation required
Smartphones replacement rate [yrs] 2 2 2 2 2 Assumptions from candidate
Feature phone replacement rate [yrs] 3 3 3 3 3 Assumptions from candidate
Smartphones sold in a year [mn phones] 13 18 14 9 13 67 Calculation required
Feature phones sold in a year [mn phones] 16 22 18 11 16 83 Calculation required
Value of average smartphone [EUR] 300 300 300 300 300 Assumptions from candidate
Value of average feature phone [EUR] 100 100 100 100 100 Assumptions from candidate
Market value [EUR bn] 5.6 7.4 6 3.7 5.6 28.3
MPC current market share [value EUR bn] 1% 0.1 0.1 0.1 0 0.1 0.3
Assume split of MPC phones (smartphone 35% 35% 35% 35% 35% Assumptions from candidate
vs feature)
in smartphones [mn phones] 0.05 0.06 0.05 0.03 0.05 0.23 Calculation required
in feature phones [mn phones] 0.06 0.08 0.06 0.04 0.06 0.29 Calculation required
MPC market share ambition [value EUR bn] 20% 1.1 1.5 1.2 0.7 1.1 5.7
Assume split of MPC phones (smartphone 35% 35% 35% 35% 35% Assumptions from candidate
vs feature)
in smartphones [mn phones] 0.92 1.23 1 0.61 0.92 4.67 Calculation required
in feature phones [mn phones] 1.14 1.52 1.23 0.76 1.14 5.78 Calculation required
Case Background
A private jet charter company, PJC, has 5 aircraft, Lear Jets which are used by businessmen, heads of state and high
net worth individuals. The jets are now 8 years old and while recent performance has been very good, there are some
individuals in the company who think it is time to replace the fleet as it is looking a little tired. In fact, customers are
beginning to say that they prefer competitors’ planes because they are new, but this might be just because the cabins
are more up to date. The market is growing and PJC remains the market’s leading prestige brand. If the aircraft fulfil the
customers’ criteria, there is enough demand to go round.
Question
Should Privet Jet Co replace its Information to be provided as a Suggested approach:
fleet? response to candidate questions: 1 Establish that the options are:
Aircraft Utilisation a do nothing, continue with the
• Aircraft utilisation is measured existing fleet
in Block Hours – 500 hours is b replace the fleet with new
considered excellent aircraft
• Older aircraft are less popular – in c refurbish the existing fleet
another 5 years, utilisation will
halve Start with asking the interviewer
• Utilisation is driven more by questions about the business
facilities (e.g. cabin, seats, in-flight model and various dynamics.
movies) than aircraft age Identify the revenue and variable
cost components of PJC’s
Pricing business and demonstrate clear
• The price to charter a Lear Jet is thinking about the dynamics
USD 3,000 per BH that affect each.
The Interview
Step 1: IdentifyProcess
the evaluation structure
A simple evaluation model can be used The key differentiator here is criteria including cost, safety, prestige,
to generate three NPV cases. The key recognising that there is a third way – comfort and the latest facilities (e.g.
point here is to first create a baseline refurbishment. This is hinted at in the being able to connect phones and
case in which the cash flow of a do- question and will be made available laptops while in flight).
nothing approach is calculated. Once in the information above should the
this has been achieved, the same candidate ask the right questions. The
calculations can be re-run for the other aircraft age is a key driver of costs but
investment scenarios. the customer is driven by a range of
Calculate revenue from declining Calculate revenue which will hold firm as Calculate revenue which will hold firm
utilisation as customers choose customers continue to use PJC’s newer as customers continue to use PJC’s
competitors’ planes’ over PJC planes newer planes (cabin not aircraft is
important)
Calculate variable costs driven by cost Calculate variable costs which will
per Block Hour, which will increase over remain stable due to lower maintenance Calculate variable costs driven
the time due to aircraft age and fuel costs on newer planes by cost per Block Hour, which will
increase over time due to aircraft age
Calculate cash flow which will be the Calculate cash flow driven by investment
same as gross margin due to absence of in replacement fleets Calculate cash flow driven by
capital investment investment in re-furbishing fleets
Cash Flow
> USD 1,500 per BH, rising to
NPV calculation
Variable Cost Cost per BH 2,000 hours per BH after 5
should assume
yrs for old a/c
10% discount rate
Developing a top-down revenue and In addition, variable costs (fixed costs that the company is no longer
cost model over 5 years will enable can be ignored in this comparison) are growing; a lack of investment leads to
the candidate to build a cashflow rising as the aircraft spends more time stagnation and eventual decline.
and NPV. For the baseline case, on the ground being fixed, fuel costs
revenues will decline over time as the increase. By 2013, the engines will
aircraft interiors look increasingly old have completed the maximum 4,500 The comparison only needs to be
compared to newer aircraft owned by hours and will require an overhaul completed for a single aircraft but
the competitors. In 5 years’ time, as costing USD 1 million for two engines. it is important that the candidate
many as half of all bookings are going clearly states this assumption.
to competitors. The resultant cash flow will be positive
but the candidate should recognise
For re-fleeting, PJC needs to spend USD 6 million on a new plane in 2012 but no longer needs to overhaul the engines. The
new plane will enable full utilisation of 500 block hours per aircraft and will stop costs from rising so fast in the future (at
least for the time being).
For re-furbishing the planes, PJC incurs much lower capital expenses - USD 1 m per aircraft in 2012 and USD 1 m per
aircraft in 2013 (remember the engines will still need overhauling!). The costs will continue to rise as the aircraft maintenance
bills will still be higher – although fuel costs may be improved due to the overhaul. Most importantly, PJC will maintain full
utilisation on the aircraft without needing to tie up USD 6 million in capital.
Replacing a single aircraft will generate and negative NPV of over USD 2 million using the above assumptions.
Simply re-furbishing the aircraft will generate a positive NPV of over USD 1 million if the numbers provided here are applied.
London Business School – Case Book 91
Case Question
A free-to-air TV network is experiencing stagnating revenues. At the moment, a major shareholder is seeking to exit and is
expecting management to create and deliver on a growth strategy for the group. You are supposed to support management
in finding ways to grow revenues through diversification.
Intro Facts (tell the candidate if asked) Key Insights (do not share with the candidate)
Q: What are the client’s current revenue streams? • The core business, TV advertising, is stagnating.
A: More than 90% of revenues stem from TV advertising Additionally, winning market share from other free-to-air
TV broadcasters is hard to achieve
Q: How is the TV advertising market developing?
A: In general, it follows the economy, but the share of TV in • Client’s main assets are promotional power, brand, and
overall ad spending is stagnating / declining content
Understanding the problem Structuring the solution Quantifying one of the ideas
• The TV advertising market is • Ideas to leverage content • Structure depending on the idea
stagnating • Ideas to leverage brand • Expectations:
• Advertising budgets are being • Ideas to leverage promotional —— Structured approach, driven by
shifted to online reach volumes and prices
• Digitization has led to various new —— Business sense: What
TV stations and increasing client’s assumptions are reasonable /
share of the advertising market is achievable?
very hard to achieve
London Business School – Case Book 93
17.6 17.27
16.84
Other
15.55 15.74 0.8 0.8 Outdoor
14.84 15.16 0.8
0.7 0.8 1.5 2.1 2.2 Online
0.3 0.7 0.7 0.8
0.3 0.4
2.6 2.7 2.8 2.9 3.0 2.9
2.6 Other print
1.9 1.9 1.8
1.9 1.8 1.8 1.7 Magazines
x
Sold Inventory Net CPM
Net advertising
Gross-Net
Key figures for website performance measurement revenues
Gap
Reported / calculated data KPIs
London Business School – Case Book 95
North America
Intro Facts (tell the candidate if asked) Key Insights (do not tell the candidate)
All of the required facts are in the article • The company invested $400m in launching a satellite
Further assumptions to be provided by the interviewer • Theoretically the best way to assess whether this is a
good business is to perform an NPV analysis. But that is
too complicated for mental maths
Identify the rural broadband market as Start with US population Product is aimed at very specific
the target segment (ok to identify other segment, which is probably too small
segments, eg. Air transport as upside) Convert to households to sustain it
Candidate should suggest calculating Make estimate about urban/rural split Ask candidate what could be changed
an NPV and explain how this shows to widen appeal of product. Key insight
that this is a good business Make further assumption about how here is that the company should look
much of this is already served by DSL for ways to market the product more
Candidate should notice that the widely without destroying the price
product cannot compete against other Identify that some households will premium it enjoys in its target markets
technologies because of price never be addressable
Rural Broadband
A newly launched $250m satellite will While most satellites are primarily used intensive services such as Netflix and
soon start transmitting broadband for one-way broadcasting, ViaSat-1 Hulu has increased. “Wild Blue hasn’t
internet to rural US consumers the will be able to handle the two-way changed its service for six years,” he
latest effort by telecommunications transmission of data at 140 gigabytes said. “That isn’t considered a good
groups to satisfy skyrocketing demand per second. That is more bandwidth value anymore.” ViaSat had revenues
for high speed residential data than the combined capacity of Intelsat of $223m in the most recent quarter
services. and SES, ViaSat’s two largest peers, with net income of just $8m.
Mr Dankberg said.
The new satellite from ViaSat will give Shares in the company are up 16 per
the Nasdaq-listed company, based Intelsat, the worlds largest provider cent over the past month to about
in California, the ability to effectively of fixed satellite services, recently $47, giving it a market capitalisation of
compete with other non premium outlined plans to invest $1.3bn in four $2bn. Its Wild Blue service has about
internet providers, which still are new satellite launches by the end of 400,000 customers in the US paying
the only options for millions of US 2012. ViaSat, in October successfully about $50 per month for satellite
consumers. launched its new ViaSat-1, one of the internet services. Mr Dankberg hopes
highest capacity data satellites in the to treble the number of subscribers in
Its bandwidth will also be used to world. Launched with a Proton rocket the coming year with capacity from the
power the in-flight wireless internet in Kazakhstan, the satellite is now in new satellite. The company also makes
service for JetBlue, the US carrier. geosynchronous orbit 22,500 miles money by supplying components to
above the earth. It is powered by 100 other satellite makers, and selling
The ViaSat launch is likely to meter wide solar panels. Including services to companies and the US
be welcomed by the Federal launch costs and insurance, the government.
Communications Commission, which satellite cost ViaSat $400m.
is pushing for solutions to the digital One of ViaSat’s customers is Dish
divide, especially in rural areas. “If Mr Dankberg conceded that his Networks, the satellite TV provider,
we have a really good service at industry faces an uphill battle. which resells its service to US
a reasonable price, we can keep “Satellite doesn’t have a good consumers. Earlier this year Dish’s
expanding the market,” said Mark reputation for broadband service,” parent company, EchoStar, acquired
he said. Moreover, WildBlue, the Hughes Communications, a ViaSat
Dankberg, ViaSat’s chief executive. consumer facing service ViaSat rival, a move that could see Dish drop
“Satellite will be better for a lot of acquired in 2009, has not upgraded ViaSat as a supplier.
people than DSL, 3G or 4G.” its service, even as the use of data
London Business School – Case Book 97
Rural Broadband
Differentiation between poor, average and superior performance (for review after the case interview)
Identifying relevant Does not correctly identify Identifies, amount invested Understands that
information sum invested (which is and attempts to drill down consumer choice in rural
written into the story). Fails into definition of rural, but markets very different
to understand importance stops short of a convincing to other markets. Eg. No
of rural target market for reason why rural market is 3G & unlikely to be cable
the product an important definition internet. Only choice is
DSL. Probes to find out
about DSL distance limits
Running calculations / Does not size the market Is able to correctly size the Sizes the market and is
drawing conclusions from correctly – ie. does not market using appropriate able to relate size of market
facts use estimates to drill down assumptions/guided by the to likely market revenue
from US population to rural interviewer using ARPU assumptions.
population. Sizes market Candidate then attempts to
on people not households compare EBITDA potential
against investment cost
Identifying key implications Does not realize how Sizes the market correctly Sizes the market and
and next steps; small the target market and is able to identify proposes creative ways
demonstrates creativity is compared to the requirement for further to expand the appeal
investment cost upside (non rural markets, of the product without
airline market) to justify compromising the price
investment cost premium the product
can command in its main
market
98 London Business School – Case Book
Strategy&
Market
Business Class Airline Entry
Europe
Case Question
Our client is a budget airline considering entering a new market for business class flights. They are considering running an
all business-class service within Europe. They want your advice on whether this is a good idea, and if so, how they should
do it.
Intro Facts (tell the candidate if asked) Key Insights (do not tell the candidate)
Q: What is the client’s current business • Issues exist around the brand of a low cost airline,
A: A range of cheap short haul flights from the UK to various meaning the rebranding might be necessary
European destinations
• Landing slots at hub airports are critical to business
Q: Do they offer any business class flights at the moment? travel, and will be very hard to acquire
A: No, but passengers can pay for various upgrades such
as speedy boarding and greater legroom • They do not have the full set of capabilities required to
deliver a business class service, so choice of partners
Q: How is their current brand perceived? will be critical
A: Extremely cheap, but very low quality service
Case at a glance
Structure the case and discuss the Identify some innovative service Work out the cost to break even on a
challenges that will be involved in offerings for the luxury tourism market flight to Vienna
entering this market
Business Travellers Incumbent Airlines Existing slots at airports Set up new subsidiary
Strategy&
Structure – Examples of typical questions that the interviewer could ask around each of the four areas
Customers Competition
• Will their budget brand be a limitation or an asset? • Can this simply be launched as another route with a
• What capabilities do they have as a budget airline that different service?
are particularly useful? • Whom could they partner with?
• What do they not currently do that they will need to be • Is an acquisition or partnership a viable option?
good at? • Should they consider setting up a new company?
• Do they have access to landing slots?
Creativity – Here are some ideas for innovative services in this market
Basic Ideas More Innovative Ideas
1 Fly a scheduled service to high end holiday resorts 1 Charter to luxury cruise lines to offer passengers flights
2 Partner with luxury hotel chains and travel companies to to the ship
offer packages 2 Do not fly scheduled flights, but focus on one off flights
3 Fly from regional airports and include a chauffeur to get to key European social events – Monaco Grand Prix,
passengers there Paris Fashion Week, LBS winning MBAT
3 Offer packages including entry to these events
4 Run on board events, such as wine tastings
5 Offer ‘experience flights’ e.g. over the North Pole
100 London Business School – Case Book
Strategy&
Calculation – Our first destination will be Vienna. How much would we have to charge to break even with
25 / 32 seats filled?
What are the main cost items that you would expect an airline such as this to face?
Costs
Airport charges –
Fuel Aircraft dry lease Aircraft servicing Aircrew costs Other overheads Landing, passenger Catering costs
use of facilities
2 pilots @ £700 ph
6000kg @ £0.5 / Kg £2500 / flight £600 / flight £1500 / flight £900 / flight £1400 / flight
3 crew @ £400 ph
• The figures in each cost item can be given to the interviewee, although they should expect to make a reasoned
estimate where possible
• Any cost items the interviewee does not identify should be given to them
• The interviewee should then work through to the answer below
Strategy&
Differentiation between poor, average and superior performance (for review after the case interview)
Identifying relevant Struggles to identify what Identifies a number of the Identifies a number of
information the cost categories are, major cost categories, can the cost categories,
does not ask the right make reasonable rule of understands what drives
questions to get there thumb estimations them and can make
estimations
Running calculations / Struggles with arithmetic, Reaches an answer and Reaches an answer
drawing conclusions from unable to work out a break shows the ability to sense easily and demonstrates
facts even figure check their numbers structure in their approach
Identifying key implications Thinks of only basic ideas Comes up with 3-4 ideas Comes up with a wide
and next steps; for the airline service, for the airline service which range of ideas, including
demonstrates creativity probably things that are are at least sensible innovative ones that may
being done already not have been heard before
102 London Business School – Case Book
Strategy&
Case Question
Our client is a packaging coating company that produces coatings to protect beverage cans. They are experiencing a profit
margin erosion and would like you to help them restore profitability without modifying their cost structure.
Intro Facts (tell the candidate if asked) Key Insights (do not tell the candidate)
Q: Where and what is the company producing? Without touching at the cost structure, volume, price &
A: They provide European fillers with coating for the inside product mix are the key levers to improve margins.
of beverage cans.
The most effective margin lever is price, hence we shall
Q: What explains the margin erosion & is competition facing focus on improving the pricing strategy.
the same challenge?
A: The reason is macroeconomic: a slow economic recovery
since the financial crisis & a raw material volatility have been
affecting the entire market.
Case at a glance
Let’s review the main pricing Identify some innovative service Let’s estimate the price increase
strategies to fix prices. Let’s look at a value-based pricing that could be realized thanks to a
Discuss the main 3 pricing strategies: approach for their product: what value-based pricing approach on
cost-based; value-based; competitive- could be the benefits that customer their product.
based pricing strategies. are looking for? Based on the following 3 benefits -
Imagine potential customer benefits Technical Assistance; Coating Waste
from product features & services Reduction & Scratch Resistance - let’s
offerings. assess the potential price impact
(total gain, gain per Kg and % price
increase).
London Business School – Case Book 103
Strategy&
Example of Structure
Increase Average Selling Price of existing products Increase Market Share at existing customers
(Elasticity) (more often, more per command, for longer, etc.)
Improve Product Mix by selling more high margin products Reach out to new customers
(Positioning) (within the existing area or in new regions)
Structure – How do you set price and what are the main pricing strategies?
Value / Benefits Driven Raw Material / Cost Driven Market / Competitor Driven
Base prices on product and service Base prices on raw materials volatility Base prices on competitor prices,
benefits to be shared between the to reduce margin exposure supply-curve, and supply/demand
customer and the supplier balances
• Works better if product or service • Works better if raw materials are • Works better if competitor prices
benefits are explicable to the increasing and are expected to are known and collecting them is
customers – ideally quantifiable continue to do so legal
• Works better if customer knows • Works better if price negotiation • Works better if price elasticity is
the next best alternative prices period is shorter than the calculable
and features purchasing period
104 London Business School – Case Book
Strategy&
Creativity – Let’s now focus on value-based pricing: what could be the customer benefits of a coating product
for the inside of cans of soda?
Below Average: Average Above Average
Thinks about a couple of product Suggests: Same as before plus a couple of the
features but does not manage to • Reduce down time to increase following:
translate them into benefits for the productivity • Protect brand image (scratches,
customers • Reduce product usage taste, customer claim)
• Reduce labour cost • Provide local support
• Extend product life expectancy
• Fulfil legislation compliance
• Shift ordering responsibility to the
supplier
Quantitative analytics – What is the potential price increase to be realized thanks to a value-based pricing
strategy on a coating product for soda cans?
Q: What is the price and volume sold of our product?
A: We sold 500 Tons of AquaCoat at €2.25 / Kg to our only client
€268,000 Total
€143,000 Total {268,000-[(2.25-2.00)*500,000]}
€0.54 / Kg
Potential Price Increase: €0.29 / Kg (0.54-0.25): +24% (2.79/2.25)
London Business School – Case Book 105
Strategy&
‘Differentiation between poor, average and superior performance’ (for review after the case interview)
Running calculations /
drawing conclusions from • No clue on how to • Mixes units or makes a • Perfect flow to come
facts assess the premium calculation error once up with the numerical
generated by each • Finds the potential solution & proactive
benefits financial gain of each about assumptions
• Forgets to include the benefits but does • Puts outcome in
price difference vs. not put findings in perspective: +24%
the competition in final perspective and does • Mentions next steps:
outcome not do the “So What?” Difficulty to pass it all
• Mixes units (day vs. to the customer
year or tons vs. Kg)
• Multiple calculation
errors
Strategy&
United Kingdom
Case Question
Our client is a mobile network operator in the UK. It has recently been suffering from high costs driven by increasing data
usage, and this has led to a fall in profit. They want to explore options for increasing their revenue
Intro Facts (tell the candidate if asked) Key Insights (do not tell the candidate)
Q: Is it just data usage driving costs? • The market for mobile network operators is becoming
A: Yes. Growth in data usage leads to the need for constant commoditised – there is little to distinguish between
investment in the network infrastructure and higher running networks and customers switch easily if prices are
costs too high
Q: Are we interested in reducing costs? • The money in mobile internet is made by those who
A: Of course, but it’s out of our scope control the content, not the flow of data
Case at a glance
What are the drivers of revenue for Beyond the commodity business of A quantitative assessment of whether
a mobile network operator and what transmitting data, in what other ways it would be better to charge customers
improvement levers do we have? could a network operator generate per Mb of data used rather than a fixed
revenue from the growth in the mobile fee, and a qualitative view on whether
internet? it is a good idea or not.
Structure – A particularly good structure for this case is one that really understands the breakdown of
quantity and price
Quantity Price
Strategy&
Number of Devices • Increase market share by winning customers from other networks
—— How? If those customers also consume a lot of data, what will the impact
on costs be?
• Create new devices that people may sign up to in addition to their existing
ones
—— What sort of device? How will we charge for the data on it?
Usage • Drive increased usage of those services where we are able to charge on a
‘per-usage’ basis
—— Would we have to lower price to do that? Are there ways we could
increase the value-add of our services?
• Conversely we could try to discourage data usage if it is charged on a flat fee
basis, to reduce costs rather than increase revenue
—— How? Introduce limits?
Strategy&
Creativity – Transmitting data is becoming commoditised. How else might the network generate revenue from
mobile internet?
Charge for hosting • Can provide customers with a easy • May be difficult to persuade content
content, i.e. a web portal way of finding suitable content owners to provide content if they can
where content owners • Could be a distinguishing feature for offer it for free elsewhere
pay for their content to be the network, e.g. Apple Apps Store
included
Other services e.g. credit • Creates a new revenue stream for the • Requires close involvement of device
card readers, stolen car networks manufacturers and access to new
trackers etc markets
• A strong candidate will identify a number of ways of monetising content and creating further forms of usage,
understand the positives and negatives of each and form a view on what the network has the capabilities to actually
do. They may get to this stage without prompting
• An average candidate will identify some additional ways of generating revenue and understand which are more
suitable than others
• A poor candidate will identify one or two additional options, but recommend those that are not likely to be suitable
for a network operator to do
London Business School – Case Book 109
Strategy&
Calculation – How much additional revenue could we generate if we charged users £0.05 per Mb rather than
£5 monthly fixed fee? Would you recommend doing this?
Proposed Pricing
Current Pricing
110 London Business School – Case Book
Strategy&
Differentiation between poor, average and superior performance (for review after the case interview)
Identifying relevant Does not understand that As a minimum identifies Would identify what is
information the fixed fee for data is the that charging for data with driving data usage, and
problem, and focusses on a fixed fee is the problem, then begin to discuss other
other factors instead and suggests alternatives ways of generating revenue
from this
Running calculations / Fails to account for the The right answer as a An understanding of
drawing conclusions from current revenues, or a minimum, structured by whether this is a good
facts simple average of data use each usage segment idea based on more than
across all customers a comparison of numbers,
showing good commercial
sense
Identifying key implications Thinks in terms of pricing One or two good ideas As per an average
and next steps; models only, fails to around monetising content, candidate, but would show
demonstrates creativity understand where the and understanding of the a real understanding of
money is in mobile internet, pros and cons of each where money is being
suggests things that will made in mobile internet
also drive up costs and what the network has
the capabilities to do
Case Competition Example
Geography of the case
Case Background
It was the end of the week; Paul Marcun was shutting down for the day, no closer to resolving his dilemma. As Vice
President for Ethicon Endo Surgery (EES) in EMEA, he had been working on the business plan for the next financial year
when his attention was drawn to the data on the trocar business. It was clear that something was going on in the market and
that he needed to quickly get to the bottom of it.
EES is one of the Johnson & Johnson’s surgery globally through innovation in The EES product range for
medical devices businesses, product design, high quality products, laparoscopic surgery includes access
specialising in products used for open professional education and excellent devices (trocars), stapling devices,
and minimal access surgery as well support teams across the world. This ligating devices, surgical instruments
as advanced energy devices. The contributed to the increase in lap and advanced energy devices.
business has grown from start-up in surgery adoption from inception in
1992 to a $4.7B1 global business. With 1990 to estimated 40% in 2010.
headquarters in Cincinnati Ohio, its
business extends across all regions.
3 This means that the procedure requires more instances of passing instruments through the trocars and thus the quality of the trocar can have a direct impact on
procedure duration.
114 London Business School – Case Book
Competitive landscape4
In 2010, Ethicon Endo-Surgery led Applied Medical held the third-leading Hospitals in developed markets
the European market for trocars position in the disposable trocar will typically sign an annual supply
with the ENDOPATH XCEL trocar market in 2010, and has been rapidly contract with a trocar manufacturer
range, followed closely by Covidien. gaining market share in Europe over so that switching between suppliers
ENDOPATH XCEL is seen as the the last few years, particularly in the during a year is uncommon. However,
premium top performing trocar in UK, Germany, and France. Applied emerging markets are often tender
the market. Both of these firms were Medical competes in this market by driven for quarterly purchases.
successful by holding strong positions offering its products at a much lower
in the disposable segment, which price than Ethicon Endo-Surgery and In the much smaller reusable trocar
generates about 3 times the revenue of Covidien, which allows it to secure segment, KARL STORZ is the market
the reusable segment (about 5 times in contracts among cost-conscious leader, followed by Olympus. A few
developed markets). Furthermore, both hospitals. Applied Medical is also other competitors were also active in
of these companies are well-known expanding its reach into the emerging the European trocar market, including
international firms with high-quality markets of EMEA with its low cost Richard Wolf, Aesculap (a B. Braun
devices and wide product ranges. offering being very attractive to those company), and CONMED. See table 2
markets. for market share estimates. Also see
Both of these companies are well table 3 for estimated relative pricing.
positioned to remain leaders in the
trocar market through 2015.
Significant trends
Reports from the market have in some countries. In emerging Reuse of trocars – disposable trocars
highlighted the following key trends in markets, the reverse has occurred are often re-sterilised and reused in
the markets: where countries are posting good the emerging markets of the region.
GDP growth and increasing healthcare Given infection risks, the trend is not
Growing Minimal Invasive Procedure spend. observed in the developed markets but
Adoption – countries all across the it is estimated that trocars are used
EMEA region are increasingly adopting Increasing power of non-clinical approximately 1.8 times in the emerging
laparoscopy with MIP penetration rate stakeholders – the role of the markets. The main identified motivation
of 37% overall. For basic procedures physicians as the primary decision for reuse is cost reduction as the price
in developed markets, the penetration maker in the selection of medical of a trocar is spread across multiple
rates are over 70% while emerging consumables has been changing over uses. However improving patient
countries are still below 50%. The several years to a point where hospital awareness and regulatory environment
MIP penetration rates are expected administration staff now have equal in the emerging markets may reduce
to increase into 2018, mostly in the or greater roles in product selection. level of reuse.
advanced laparoscopy segment This has increased the role of price
aided by improved physician skills in purchase decisions for hospitals Single port laparoscopy – In Europe,
and acceptance by health technology across the region. there is considerable interest in
assessment bodies of laparoscopy as the use of single-port laparoscopy
recommended over open procedures5. Growth of low cost competitors – there devices, which are generally priced
See table 4 for procedure volume are increasing numbers of low cost at a premium. Whereas adoption
forecasts into 2018. manufacturers entering the trocar rates are still very low (less than 1%
market, targeting customers in both of laparoscopic procedures), industry
Global economic performance – the the developed and emerging markets. sources expect that the use of these
recent recession and current sovereign Whereas the quality and performance devices will increase over the forecast
debt crisis across much of Europe has of the low cost competitor products period, driven by improved physician
led to cuts in government spending are usually 30% – 50% below the training, favourable results from clinical
across the region. In developed levels for the premium products6, the studies, and patient demand for the
markets, government healthcare quality is perceived to be improving single-port technique7. EES piloted a
spending is declining by up to 10% especially for basic laparoscopic Single Site Laparoscopy (SSL) port in
procedures. 2009 but has not executed a full launch.
Paul’s dilemma
The data from the field was showing ENDOPATH XCEL trocar upgrade The BASX project
increasing price pressure in the There has been very limited innovation EES has developed a new range of
trocar business with more customers in the trocar product space. The trocars called BASX. These trocars
considering the lower cost trocars product technology has largely are suitable for basic laparoscopic
as a way to reduce procedure input remained the same over the last 20 procedures but not considered ideal
costs. It increasingly looks like the years with only limited enhancements for advanced procedures8. There is
ENDOPATH XCEL will struggle to made by the leading competitors. the possibility to launch this product.
maintain its market share at the current However, EES has been working on The manufacturing and distribution
price point. A number of marketing some significant enhancements to the costs of the BASX will be similar to
teams from countries in the region are ENDOPATH XCEL range which would the ENDOPATH XCEL so that there
considering price changes to respond significantly improve its performance will be gross margin variation with
to the growing low cost competition. by addressing some of the key ENDOPATH XCEL based on the
This will have significant implications concerns reported by physicians in relative price decided.
on the business plan numbers for next performing laparoscopic surgery.
year and into the strategic planning
horizon. He also has two projects to
consider in deciding a plan for the
trocar business.
Your challenge
Paul needs to make some decisions and has scheduled a meeting with EES President to discuss his plans and requires
your advice.
Questions to answer:
1 As Paul, would you recommend 2 What change (if any) would you 4 What steps and/or other
the launch of BASX and at what make to the positioning of the considerations would you
segment / market should it be XCEL trocars range? What will be propose for implementing your
positioned? If decided to launch, the revenue impact? recommendations?
at what price relative to the
ENDOPATH XCEL range? 3 What (if any) wider strategic
recommendation would you
make to the Company President
regarding the trocar portfolio in
EMEA?
Exhibits
Table 1 – EMEA Trocar Market Estimates
Value Market in MUSD 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 CAGR
Total market (reusable & disposable) $‘M $414.46 $434.72 $454.82 $467.16 $477.61 $491.40 $505.63 $520.78 $537.09 $555.71 $575.11 3.01%
reusable market $‘M $109.38 $114.61 $119.05 $119.56 $120.04 $120.83 $121.74 $122.70 $124.15 $126.06 $127.89 0.97%
Disposable new market $‘M $305.08 $320.11 $335.77 $347.60 $357.57 $370.56 $383.88 $398.08 $412.94 $429.66 $447.23 3.67%
EES Sales $‘M $176.12 $187.48 $202.54 $212.26 $220.05 $229.13 $238.86 $249.12 $260.03 $272.12 $284.80 4.29%
Non-EES Sales $‘M $128.96 $132.64 $133.22 $135.35 $137.53 $141.43 $145.03 $148.96 $152.90 $157.54 $162.43 2.64%
Total market growth rate 4.89% 4.62% 2.71% 2.24% 2.89% 2.90% 3.00% 3.13% 3.47% 3.49%
Source: Internal Estimates
BT
Ericsson
Zurich
London Business School – Case Book 119
BT
Followers-of-Fashion Online Retail
The BT MBA Leadership Programme (MLP) is a platform for The MLP hires candidates whose profiles match the needs
injecting diverse talent into BT’s senior leadership. The MLP of the business. This often includes people who can bring
team works on high priority projects across the business structure, intellectual rigour, drive and ability to think
and gains exposure to senior leadership from the start. disruptively to BT. The case forms an important tool in our
On the programme, team members rapidly develop their interview process to help identify the right candidates for
capabilities on several fronts by taking on a mix of strategic, both internship and full time recruiting.”
commercial and delivery projects. The programme is flexible
and runs from 12 to 18 months. The MLP also offers its team
members opportunity to manage and lead people.
Key Question: The Exhibit should lead the candidate to ask relevant key
Ask the candidate what they make of the exhibit and questions to clarify the situation, complication and the key
what are their inferences questions to be addressed in the case
Clarify Situation Develop Structure Ask and Listen Analyse and think! Recommend
Ask clarification Develop a framework Ask for additional Consider the Propose the best
questions to around which to focus useful information information provided, possible solution(s)
understand the the discussion based on the state any assumptions, supported by evidence
situation framework and listen synthesize and
carefully to responses organize information
What is F-O-F: •• F-O-F provides access to latest How things work at F-O-F:
•• F-O-F provide online presence for fashion items from all over the •• F-O-Fs primary asset is their
small fashion retailers. globe, creating a more appealing website. They are very careful to
platform. ensure the consistency of their
Why do small retailers sell through website experience for all product
F-O-F?: What is sold (the products): lines.
•• They lack necessarily market •• F-O-F’s Retailers sell unique and •• When items are sold through
presence and customer reach bespoke lines from the world’s top F-O-F, F-O-F first purchases each
•• F-O-F is open to customers across brands in their stores and through item (at time of sale) from the
the globe. F-O-F. retailer and then sells on to the end
customer.
120 London Business School – Case Book
BT
•• All of the unique items sold Who are the Customers: Competitors:
through F-O-F are shipped to •• The product lines sold by F-O-F •• Traditional competitors include
Spain from their Retailers to Retailers are most appealing traditional brick and mortar stores
be photographed and filmed to Fashion-istas from all over and other web based retailers.
and entered into the inventory the world. •• F-O-F’s main online competitor,
management system as a new Finderskeepers.com have an
item. How it works for customers: attractive website and a rapidly
•• Photography is a key activity for •• Experience: Customers visit F-O- growing business with an attractive
F-O-F. F’s website and view products by “butler” delivering an expensive
•• In 2013, around 60,000 items category, by retailer or by designer. product to the recipients’ office –
went through this process each They make purchases through mostly.
season. the website. Customers can buy
•• F-O-F have installed an inventory products from multiple retailers in Only provide if candidate
management system in each the same transaction and expect specifically asks about business
of the retailers. The system the same level of customer model for F-O-F or Finderskeepers.
eliminates the risk of discrepancy service. com:
between advertised and available •• Pricing: Customers pay shipping •• F-O-F purchase items at retail.
merchandise. Once an order is costs for products to be shipped Finderskeepers.com wholesale all
received through the inventory directly from the retailer. There of their products.
management system, the retailer is a matrix based pricing system
is responsible for shipping the depending on from where to where
product to the customer. shipping is from / to (Average
price = £18). Returns are free to
the customer.
Situation: Followers-of-fashion (F-O-F) operate an international website portal for small fashion retailers around the
world. They provide a consistent, luxury website experience for consumers globally.
Complication: F-O-F have experienced significant revenue growth over the past three years, however their profits have
remained negative.
Key Question: What measures should F-O-F adopt to maintain growth but also start making a profit? You will need to
provide your recommendations to the CEO of F-O-F in 45 minutes.
Strong candidates will uncover the situation and complication by drawing inferences from Exhibit 1 and asking the right
key clarification questions.
London Business School – Case Book 121
BT
Clarify Situation Develop Structure Ask and Listen Analyse and think! Recommend
Profit
Cost Revenue
Clarify Situation Develop Structure Ask and Listen Analyse and think! Recommend
For the interviewer: to understand the case, and give to candidate if asked
Ask candidate to list down the sources of costs and revenues before giving them the information.
Cost Revenue
•• The inventory •• A photo team costs •• 2013 HQ costs •• Cost of clothing is •• Average product •• Volume sold to
management £1,500 per day. were £6.771m 90% of retail price. retail price is £395 be derived by
system cost is •• Each team can •• Average cost of in 2013. interviwee from
£25k per year per photo and video shipping is £9. •• Average shipping revenue numbers
retailer. approx. 40 unique •• Average cost for charge is £18. in Exhibit 1.
•• There are 221 items per day. returns is £9.
retailers. •• There are 60,000
items each season.
122 London Business School – Case Book
BT
For the interviewer: to understand the case, and given to candidate if asked
•• The case is written to allow candidate to explore multiple avenues and will allow the interviewer to test a number of
key skills in each avenue, should time allow.
•• Candidates should realise that profitability can be improved by making a difference to one or more of the above
mentioned 7 drivers .
London Business School – Case Book 123
BT
BT
5 Retail price = £395 Candidate would want to know if the Changing retail prices is not an
retail price of items sold through F-0-F option.
can be changed.
BT
6 Shipping Model: 50% of shipping Shipping is confusing for consumers (it •• F-o-F might be able to use some
cost is not a flat rate) and is very variable – of the cash from cost savings
depending on a rough formula. to reduce shipping costs or
standardize them.
Most online retailers ship for free and
their main competitor ships for £5 •• Flat fees are likely to increase
per item with free returns. Followers- sales significantly and has an
of-fashion also occasionally do free affect on driver 7. However
shipping days and sales nearly triple on reducing shipping costs are also
those days. likely to reduce overall margins
due to average cost of shipping
and returns shipping.
Clarify Situation Develop Structure Ask and Listen Analyse and think! Recommend
1 Reduce costs across the various costs factors: 1 Increase volume of sales by:
–– Eliminate unpopular suppliers to reduce inventory –– Improving competitiveness in online advertising.
management costs.
–– Eliminate unpopular products to reduce photography
costs.
–– Reduce HQ costs.
These alone are not sufficient to realise profits.
BT
For the interviewer: Ask candidate to present their final set of recommendations to CEO of F-O-F
Key Questions: What measures should F-O-F adopt to maintain growth but also start making a profit?
•• Candidates should present their recommendations in a structured manner.
•• Stronger candidates lead with their final recommendations and then talk through any supporting facts. Their
response will also be structured according to key question asked initially.
•• Strongest candidates are able to talk through the operating model and implementation risks of moving from one
model to the other. Who chooses the product, where is it stored, what are the effects on shipping.
Based on the exhibit and answers to the questions, the candidates should uncover the current situation, complication
and key question to be addressed by the case.
Ericsson
OTT services from Vodafone
Europe
Case Summary
The Interview Process
Vodafone are considering an extension Key questions to answer Prepare a 5 minute presentation to be
to their current offering. They want to •• Is this a good idea for Vodafone? presented to a jury
add Netflix, Spotify and Skype to their –– How can Ericsson benefit from
customer offering this?
•• What additional information should
be considered?
Vodafone Organization
Global CEO
HR Strategy
External
affairs
CCO VGE CFO Global CTO CEO North CEO South CEO AMAP
VPC Global CNO Global CIO CTO North CTO South CTO AMP
Note: CCO – Chief Commercial Officer, VGE – Vodafone Group Enterprise, VCNO – Vodafone Core Networks
organization, BPD – Business product development, VPC – Vodafone Procurement Company
128 London Business School – Case Book
Ericsson
•• Largest market for Vodafone with good performance •• Tough competitive landscape driving down ARPU and
–– Revenue 7,8 BGBP (18% of total) EBIT
–– ARPU 16,5 EUR (highest on the market) •• Large share of MVNO ~38% of subscriptions
–– ~60 % market share on 4G •• Main mobile players and their market share
–– Churn 3,3%
O2 (Telefónica)
•• Vodafone RED introduced on the German market during
17%
2012 as a simplified offering Telekom
33% (Deutsche
E-Plus (KPN) 21% Telekom)
29%
Vodafone
Source: Annual reports, Wireless intelligence, Pyramid Research
Country deep-dive – UK
•• Large market for Vodafone with good performance •• Tough competitive landscape while maintaining
–– Revenue 5,1 BGBP (12% of total) ARPU levels
–– ARPU 23,9 EUR (2nd on the market) •• Average share of MVNO ~19% of subscriptions
–– Not launched 4G however spectrum acquired •• Main mobile players and their market share
–– Churn 2,9% 3 (Hutchison)
•• Acquisition of CWW for fixed network 12%
•• Network sharing deal with O2 EE (Deutsche
33% Telekom / Orange)
Vodafone 25%
30%
O2 (Telefónica)
Source: Annual reports, Wireless intelligence, BMI, Pyramid research
London Business School – Case Book 129
Ericsson
•• Large market for Vodafone with good performance •• Scattered competitive landscape starting to consolidate
–– Revenue 4,7 BGBP (11% of total) •• TIM expected to loose market share
–– ARPU 16,9 (Market average 15,5) EUR •• Low share of MVNO ~4%
–– Early 4G launch resulted in ~43% market share •• Main mobile players and their market share
–– Churn 3,1% 3 (Hutchison)
•• Branded payment solution launched 10%
•• Successful launch of Vodafone red
•• Impairment loss of 4,5 BGBP 34% TIM
WIND (VimpelCom) 24%
32%
Vodafone
Source: Annual reports, Wireless intelligence, Moody’s Analytics, Pyramid research, BMI
Ericsson
•• Largest market in terms of customer with increasing •• Highly competitive market with many players and price
margin and market share pressure
–– Revenue 4,3 BGBP (10% of total) –– Situation expected to remain until 2017
–– ARPU 2,8 (Market average 2,0) EUR •• Main mobile players and their market share
–– 4G not launched
–– 10,7% revenue growth y-o-y Other Airtel (Bharti Airtel)
21% 22%
•• India remain a strategic market
•• India accounts for half of Vodafone groups radio sites
and voice calls BSNL 12% 18% Vodafone
14%
14%
Idea Cellular
Reliance Communications
Source: Annual reports, Wireless intelligence, Pyramid research, BMI
15 15
12
10 10 Spain
7 9 United Kingdom
5 6 6 Egypt
0 3
Country Q4 2012 (GB) Q1 2013 (GB) Q2 2013 (GB) Q3 2013 (GB) Q4 2013 (GB)
Egypt 3 084 960 3 352 539 4 097 656 5 314 453 6 005 859
Germany 24 721 679 26 534 179 27 207 031 29 198 242 32 494 140
India 11 880 859 13 790 039 17 385 742 21 954 101 25 810 546
Italy 15 163 587 16 916 750 18 179 536 22 575 147 24 745 003
Spain 7 284 179 8 103 515 8 662 109 10 038 085 9 888 671
United Kingdom 5 981 445 6 574 218 7 110 351 7 424 804 8 878 906
Ericsson
Potential answer
Value tree
Business Business
model 1 model 2
Volume
Current revenue
streams
Price
Increase revenue
Increase FCF
New business
models
New revenue
streams
New Products
Sourcing
COGS
Other
Reduce cost
NW OPEXOPEX
OPEX
Non-NW OPEX
Value Creation
Improve
commercial
conditions
Improve billing
discipline
WC
Improve
collection
discipline
Reduce invested
capital Improve back-to-
back agreements
Reduce capital
charge CAPEX
+ Risk
+ Strategic fit
132 London Business School – Case Book
Ericsson
Lever Examples
Price
Increase revenue
“Premium” packages can enable price
increase
Increase FCF
New business
Get a “channel fee”
models
New revenue
streams
New offerings, e.g. Premium packages
New Products
Sourcing
COGS
Other
Reduce cost
Higher requirements in QoS for video
NW OPEXOPEX services will drive OPEX
OPEX
Non-NW OPEX More attractive services will reduce
SAC and particularly SRC -> Largest
Value Creation OPEX components
Improve billing
Netflix will drive massive capacity
discipline
requirements and therefore
investments WC
Improve
collection
discipline
Reduce invested
capital Improve back-to-
back agreements
Reduce capital
charge CAPEX
+ Risk
Vodafone’s competitor offers FB and Vodafone has made public that they
Spotify gets bought by FB
+ Strategic fit will focus on enterprise market
London Business School – Case Book 133
Question 1
What are the key factors that you would like to understand in order to assess whether this sort of
venture is likely to be successful?
Question 2
What are the business models which could be proposed based on RSG service offerings?
Question 3
How would you go about assessing these options? What data would you ask for?
In order to assess these options an NPV calculation should •• Revenue (fees from services)
be performed. A good answer would enquire about the •• Details of bonus – malus scheme
following for each service provided by RSG: (thresholds, payment / penalty amounts)
•• CAPEX investment required •• Timeframes
•• OPEX requirements •• Discount rate
•• Expected production
•• Expected oil price
Question 4
A good answer would recognize that the revenue received Therefore it would be a good idea to perform the analysis
for water treatment would be dependent on the results from for well production project first as this would allow us to
well production. gain a better understanding of the production profile. Once
the expected production is understood, the fees for water
Since the fees for water treatment are based on production treatment can be predicted based on the expected volumes.
volumes (fee is charged per barrel processed), an increase
in production would mean higher volumes to treat and
therefore an increase in fees earned.
London Business School – Case Book 135
Question 5
Through analysis of the data, which (if any) of the proposed scenarios would you recommend for
our client?
Bonus
220
Historical
Production
Production (kbpd)
140
An NPV calculation should be performed for each model (please see next page)
136 London Business School – Case Book
(kb)
Water produced (kb) 27,010 27,740 29,200 27,740 24,820 (Production) x
(Water cut)
Fee (US$) 67,525,000 69,350,000 73,000,000 69,350,000 62,050,000
OPEX (US$) 13,505,000 13,870,000 14,600,000 13,870,000 12,410,000
Profit (US$) 54,020,000 55,480,000 58,400,000 55,480,000 49,640,000
Discount factor 1.1 1.21 1.331 1.4641 1.61051
NPV (US$) 49,109,091 45,851,240 43,876,784 37,893,587 30,822,534
Total NPV of inflows 207,553,236
(US$)
CAPEX (US$) 50,000,000
Project NPV (US$) 157,553,236
Question 6
What are some other bonus – malus schemes that can be considered?
A good answer would include schemes both with and without a neutral region, as well as schemes where the bonus / malus
is applied incrementally:
Bonus
Bonus
US$ US$ US$
Production Production Production
(bbl/d) (bbl/d) (bbl/d)
Penalty
Penalty
Penalty
Limit for Limit for Limit for
Penalty Penalty Penalty
Applied bonus or penalty Applied bonus or penalty Applied bonus or penalty
Bonus
Bonus
Penalty
Penalty
Zurich
Internal Consulting (iCON)
This case represents a real project done by an iCON consultant and former London Business School student. In an interview
typically only specific sections, rather than the whole case, will be discussed with the candidate.
Case Outline
Case Briefing
Zurich’s Group CEO is expected to present a new strategy Based on this valuation, Zurich’s CEO has asked iCON to
for 2020. To kick things off, Zurich’s CEO has asked a develop the 2020 Group strategy, which should address
major investment bank to conduct an industry analysis investors concern. The strategy will be presented at the next
and benchmark Zurich against its global peers. The report investors day in six months time. How would go about this?
concludes that investors are skeptical about diversification
strategies* within the insurance industry. Hence any
valuation of diversified insurance players include a sizable
conglomerate discount.
* “Diversified” in the sense that an insurance company operates both, a General Insurance (GI) and a Life Insurance segment, under one umbrella
** All figures and data used in this case are fictitious
London Business School – Case Book 139
Zurich
1 14 -2
6
-2
10
7
General Insurance Life Segment Non-core business Enterprise Value* Subordinated debt Conglomerate Equity value
(GI) segment discount
Interviewer briefing and structure that outlines all relevant areas of synergies and incremental costs. Bonus:
Probe the candidate to present an initial hypothesis and structure for a winning strategy as a diversified insurer. Discuss
several examples on how to generate synergies between segments to test the candidates business acumen.
Number products /
Value / customer ($) customer (#)
x
Value / product ($)
Synergies ($)
+
between segments
Claims ($)
+
Synergies in core Sales & Distrib. ($)
functions ($)
Invest. Mgmt. ($)
Bottom-line synergies ($) +
Initial Hypothesis
Managing a General HR ($)
insurance and a Life
insurance segment under –
one roof is a competitive Finance ($)
advantage as synergies Synergies in Non-core
+
between segments funct. ($) IT ($)
outweigh costs.
Legal ($)
Other ($)
140 London Business School – Case Book
Zurich
Briefing: Part II
The team has identified cross-selling as a top priority for future growth based on a conglomerate strategy
First estimates for required investments in IT infrastructure and organizational capabilities to enable a large-scale cross-
selling strategy total at USD 1.2bn. The Group Executive Committee sets a minimum return on this investment at 60% for 3
year-period. Your team has been asked to deliver the following three insights:
1 What metric would you look at to determine success in cross-selling? (wait for answer before reading 2)
2 Calculate the current percentage of Zurich’s total customers, which are «shared customers»*
3 Determine by how much this percentage needs to increase to justify the investments and deliver a ROI of 60% over 3
years*
Data available
2 3
Total Zurich customers 28,231,147 Investments required USD 1.2bn
Life active policies 7,511,654 Required ROI over 3 years 60%
Life estimated product density* 1.52 Amortization period 3 years
GI active policies 50,456,657 Profit per single segment customer p.a. USD 100
GI estimated product density*: 2.01 Profit per shared customer p.a. USD 250
Retention rate over 3 yrs 80%
Increase in loyalty per add. product over 3 yrs 50%
1) Solution
A straightforward metric that indicates a company’s success in cross-selling is the percentage of customers that own
products in both the General Insurance and Life Insurance segments, defined as:
2) Solution
Calculation – conceptual
Calculation – numerical
A 2m / 28m = ~7%
25m 2m 5m
Zurich
3) Solution
Calculation (conceptual)
A Increase in shared customers (%) = Increase in shared customers (#) / Total customers (#)
B Increase in shared customers (%) = Investments X required ROI ($) / (Profit / customer ($))Year 1–3
C Profit per customer for year 1-3 (USD) = Years (#) x Increase in profit per customer p.a. (USD) x Increased retention rate (%)
Calculation (numerical)
Proposed approach
As we are trying to maximize synergies relationships is most significant. To reduce the list of countries to
between the General Insurance (GI) These countries provide the biggest a feasible number for entry, it is
segment and the Life segment, the opportunity to leverage the customer advisable to go in a three-step
candidate should look for countries, relationships of one segment for approach from a long- to a target-list.
where the gap between segments the other.
in terms of number of customer
Exclude countries: Split countries by presence into Prioritize top countries with largest
•• Countries under international four buckets: (1) GI presence only, delta in number of customer
sanctions (2) Life presence only, (3) presence relationships.
•• Countries with safety-concerns of both segments and (4) no Zurich
(e.g. due to war, terrorism) presence
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Zurich
Interviewer briefing
Candidate should identify the bucket of «Only GI network» as an obvious opportunity to capture synergy potential as a
diversified insurer by cross-selling Life products to GI customers.
108
Total number of Not coveredby Coveredby Zurich Both (GI and GL Only GI network Only GL network
countries Zurich* network)
* Zurich is not present in the following countries: Bhutan, Guam, Iran, Dem. Rep. of Korea, Turk. Rep. of Norther Cyprus, and Zimbabwe
Below, you will find an exhibit showing the number of Corporate customers by country, where only Zurich’s GI segment has
a presence.
Interviewer briefing
Candidate should identify priority countries according to the number of headquarters and domestic single locations, as
buying decisions are made there.
Zurich
Examples
•• Assumptions do not turn out •• Customers deliberately diversify •• Marketing risks: Can you
as anticipated (e.g. due to an procurement, i.e. purchase effectively communicate the added
economic downturn, strong General Insurance (GI) and Life value of a holistic product suite
competitors in the market, products from different suppliers (including GI and Life products) to
customer loyalty) as part of their risk management customers
strategy
•• Procurement of General •• Whole Customer View (rather
Insurance (GI) and Life products •• Cultural differences between than segment-specific view):
is conducted by different Zurich’s two segments result in An overall profitable customer
people within the customers’ insufficient coordination. with policies from both, the GI
organization (GI products, and the Life segment, might
typically used as risk-hedging •• Increase in organizational be loss-making for one of the
instruments, are often within complexity (which key account segments. Incentives/profits need
the area of the CFO or the Chief manager is responsible for which to be appropriately set to enable
Risk Officer, while Life products, customers?); requires increased collaboration between the two
used within Employee Benefits alignment between both segments segments
schemes, are often in the area
of responsibility of the HR •• Other…
department)
Example recommendation
Based on our initial analysis, we Next steps:
understand that Zurich needs to 1 Set up meetings with executives of
extract more value from managing both segments to gain their buy-in
a GI and a Life segment under one for the initiative(bonus: Prepare
roof. Among the levers identified, we storyline on why GI should support
prioritized cross-selling as first deep- Life in selling products to their
dive. For Corporate customer group, customers)
we should focus on the markets of 2 Identify target GI customers in
France, Columbia and the Netherlands prioritized markets to approach for
for the following three reasons: Life cross-sell
1 These countries have currently 3 Set up road-map for first pilots
no shared customers as there
is an established GI, but no Life
operation
2 They have the highest number of GI
customers with HQ locations and
therefore decision makers in the
respective markets
3 From our analysis, none of these
countries exhibits any major show-
stoppers that would render an
entry of Life operations infeasible
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Zurich
Performance Assessment
Calculation & numeracy •• Candidate dives right •• Performs calculations •• Outlines calculation
(Part II) into the calculations with adequate conceptually up-front
without having full accuracy (recognizes •• Performs calculation
understanding of data minor mistakes when without mistakes
presented, nor having prompted) and speed and without losing
outlined an approach (rounds numbers the interviewer along
•• Unable to compute reasonably) the way
share of common •• Comments on/ •• Conducts sense-check
customers without help sense-checks results on results and puts
•• Makes several immediately them in perspective
calculation mistakes
Zurich
Appendix: Terminology
Term Explanation
Cross-Selling The action or practice of selling an additional product or service to an existing
customer.
General Insurance (GI) General insurance or non-life insurance policies, including automobile and
homeowners policies, provide payments depending on the loss from a particular
financial event. General insurance is typically defined as any insurance that is not
determined to be life insurance. It is called property and casualty insurance in
the U.S. and Canada and Non-Life Insurance in Continental Europe.
Life Insurance Life insurance (or commonly life assurance) is a contract between an insured
and an insurer, where the insurer promises to pay a designated beneficiary a
sum of money (the “benefits”) in exchange for a premium, upon the death of
the insured person. Depending on the contract, other events such as terminal
illness or critical illness may also trigger payment. The policy holder typically
pays a premium, either regularly or as a lump sum. Other expenses (such as
funeral expenses) are also sometimes included in the benefits. On top of “Risk”
products, the Life insurance segment also markets pension products.
80/20 Pareto principle: Roughly 80% of the effects come from 20% of the causes, i.e. if
done right, approx. 20% of the effort delivers 80% of the impact
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148 London Business School – Case Book
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