The twelve case scenario

1. Entering a new market

2. Industry analysis
3. M&A
4. Pricing strategies
5. Growth strategies
6. Developing a new product
7. Starting a new business
8. Competitive response
Operations scenarios:
9. Increasing sales
10. Reducing costs
11. Improving the bottom line
12. Turnarounds

First 4 steps:
1. Summarize the question
2. Verify the objectives (One objective is profits. Are there any other objectives?)
3. Ask clarifying questions – at the start ask broad, open-ended questions to narrow down the
problem. The 12 case scenarios can help in asking these questions. If oyu are not sure about
which of the 12 are adaptable, ask generic questions:
 The company – is it public or private. How big is it? Is it growing?
 The industry – industry’s life cycle?
 Competition – internal (major players, market share), and external (substitutions, the
economy, interest rates, unemployment rate, price-cutting by competitors, rising mats
costs…)
 The product – if it is new product, ask about advantages and disadvantages
(disadvantages can answer more).

*Keep in mind how economy, internet and other new technologies affect each question

4. Lay out structure – the more you practice, the better you get
I Entering a new market – client makes hair products. Thinking of entering sunscreen market. Good
idea?

1. Determine why. What’s the objective?

2. Determine state of current and future market – size, growth, life cycle of company, who are
clients, role of technology and how fast it changes, how will competitors respond?
3. Investigate the market to see if entry makes good business sense – market shares of
competitors, do their pds differ from ours, what will our price be, substitutes available or not,
barriers to entry, barriers to exit, risks – regulatory or technology
4. If it makes sense to enter, there are 3 major ways to do so:
a. Start fro scratch b. acquire a competitor c. JV or alliance with another player

II Industry analysis – client wants to but a company that operates in entertainment industry. They don’t
know anything about this industry and ask us to analyze it.

1. Investigate the industry overall – life cycle (emerging, mature, declining…), performance over
few years (growing or declining), major players and market share, any changes recently,
profitability (margins)
2. Suppliers
3. Future of the market
III Mergers and Acquisitions – client is buying a mid-sized cheese manufacturer. What should our client
consider?

1. Goals and objectives? Why are they buying? Does it make good business sense, or are there
better alternatives. Some of the reasons are – increase market access, diversify, pre-empt
competition, gain tax advantages, incorporate synergies – marketing, financial, operations,
create shareholder value.
2. Due diligence – research the company and industry. Company’s shape, its customers and
suppliers, state of industry and performance of the company compared to the industry, margins,
how will competitors respond to the acquisition, any legal reasons why client shouldn’t do it.
3. How much are they paying for it – price, how will they pay, can they afford it, if all goes south,
can they make their debt payments?
4. Exit strategies – how long do they wanna keep it, buy to sell parts or keep it.

IV Developing a new product – client developed a new product, which is both soft drink and a car wax.
What should our client be thinking about?

1. Think about the product – what’s special or proprietary about the product, patent, any
substitutes, advantages and disadvantages of the product, how does the product fit the rest of
product line
2. Think about marketing strategy – effect on product line, cannibalization, are we replacing an
existing product, how will this expand customer base and increase sales, competitor response,
barriers to entry, major players and their market share
3. Think about customers – who are they, how to reach them, can we reach them through
internet, how to retain them
4. Think about financing – how will we fund the project, what’s the best allocation of funds, can we
support debt (interest rate change, what if economy goes south)
 V Pricing strategies – Client developed a certain software. How to price it? What’s our strategy and
why?

*Michael Porter says there are two types of pricing strategies – cost-driven and price-driven. Cost
driven is bad, according to him – you add up costs, and add profits. Price-driven means looking at the
market and seeing how much are customers willing to pay for the product.

1. Investigate the product - What’s special about the product, any similar products, growth cycle
of the industry, how big is the market, what were R&D costs
2. Choose a pricing strategy – is company independent to make pricing decision, or reacts to
suppliers, or market. Cost-based vs. price based costing, costs to deliver the product, what does
market expect to pay, is it a “must have” product, do we need to spend money to educate the
consumer?
3. Supply and demand (win points for graphing your answer) – what’s the supply and what’s the
demand, how will pricing have an effect on market equilibrium, matching competition – any
similar products and what’s their price, any substitutes?

Four main ways to price a product: a. competitive analysis – price according to competition,
b. Cost-based pricing c. Price-based d. company objective – what’s the motivation
behind the pricing – sales or profits

IGOR – Pretpostavljan da je najsexy nacin pricovanja pogledati costs da budu reper da ispod te cene ne
sme da se pricuje. Onda pogledati benefit za consumers I videti koliko su oni spremni da plate. Primer
ako su nasi costs $100, a market moze da plati $340, zasto se zadovoljiti samo sa 10-15% kada mozemo
da ciljamo za 200%? Imati u vidu novelty, brand image, sigurnost, lack of social proof, itd.

VI Growth strategies - Client has high cash reserves and they wonder how to use that money to grow
the company.

1. Must determine some directions – are we launching a new product, improving division, or what
– is the industry growing and our client’s growth relative to the industry, price comparison with
the competitors, our competitors marketing efforts, which segments of the business have
highest potential, how much funding can we expect?
2. Choose a growth strategy – increase distribution channels, increase product line, invest in a
major marketing campaign, invest in a major marketing campaign,, diversify product/services,
acquire competitor or a company in different industry.
VII Starting a new business – two brothers want to start a company. They come to us for advice and help
developing a business plan.

1. Starting a new business means entering a new market – our competitors, sizes of competitors,
competitor’s product/services comparison
2. If market is fine for entry, look at the client from a VC standpoint. VC don’t simply buy an idea,
they invest in:
a. Management – team, core competencies, did they ever work together, any advisory
board
b. Market and strategic plans – barriers to entry, who are the major players, what will
the competitive response be
c. Distribution channels – what are our distribution channels
d. Products – what’s the product/service,
e. Customers – who are they, segments, how to reach them (internet), retain them
f. Finance – how is the project being funded, fund allocation, can support debt?

VIII Competitive response – competitor’s product is eating into sales of our client. How to respond?

1. Inquire about the competitor – what’s the new product and how does it differ from ours, what
did they do differently, any other competitor picking up market share?
2. Choose a response action – acquire a competitor or another player, merge with competitor,
copy the competitor, hire the competitor’s top management, invest in marketing and public
relations to increase our profile

IX Increasing sales – client wants to increase sales. How to do it?

1. Starting questions – how are we growing relative to the industry, what’s our market share lately,
what do customers want, are our prices in line with competitors’, what do our competitors do in
regards to marketing and product development
2. Some ways to increase sales – increase volume (increase distribution channels, intensify
marketing), increase Share of Wallet, increase prices, create seasonal balance – sell flowers in
spring, pumpkins in the fall, trees in winter, etc.
X Reducing costs – client has cash flow problems and wants to reduce costs. What to do?

This is a straightforward cost-cutting question. You need to:

a. Ask for breakdown of costs
b. Investigate any costs that are out of line
c. Benchmark the competitors
d. See if there are labor-saving technologies that reduce costs

Client’s sales are flat and profits are hurt. How to fix things?
If there was change in costs, focus on internal and external costs that could rise. If labor
increased, is it because of the economy or labor force is unionized.
a. Internal costs – union wages, suppliers, materials, economies of scale, increased
support systems
b. External costs – economy, interest rates, government regulations,
transportation/shipping strikes
c.
Don’t just start hack and slash costs – think which of these are driving value – those should not be cut.

Labor and constantly think of ways 4. Reduce inventories (JIT).

1. Cross-train workers.
2. Cut overtime.
3. Reduce employer 401(k)
or 403(b) match.
4. Raise employee
contribution to health-care
premium.
5. Institute four 10-hour days
instead of five eight-hour
days.
6. Convert workers into
owners (if they have a stake
in the company they will
work longer, and harder
to cut costs in a way that
they might not have done
before).
7. Contemplate layoffs.
8. Institute across-the-board
pay decreases.
Production
1. Invest in technology.
2. Consolidate production
space to gain scale and
create accountability.
3. Create flexible production
lines.
5. Outsource.
6. Renegotiate with
suppliers.
7. Consolidate suppliers.
8. Import parts.
Finance
1. Have customers pay
sooner.
2. Refinance your debt.
3. Sell nonessential assets.
4. Hedge currency rates.
5. Redesign health insurance.

XI Improving the bottom line - profits – client’s sales are up, but profits are flat. What to look at?

Whenever you hear profits , you should think P=R-C. We can alter this just a little bit to E (P=R-C)M. E
represents Economy, M represents market/industry. Always look at the external factors first, and see if
this is a company or industry related issue. Think of the factors in the economy that could affect the
company. Then explore internal. Look at the drivers of revenues and costs, compare to competitors, and
look for trends/look at the history. Look for the same in costs. Look for ways to increase volume.
XII Turnarounds – Client is in trouble. What can we do about it?

1. Gather information – tell me about the company, what’s wrong (products, management,
economy), ask about industry – is it same for competitors, do we have access to capital, is it a
public or private company
2. Choose the appropriate action – look at operations, review services/products and finances (are
products out of date, high debt?), secure financing so you can finance the plan, evaluate
employees (fire those who are bad), determine short and long term goals, devise a business
plan,

Additional frameworks are 4Ps (Product, Price, Placement, Promotion) and 5Cs (Customers, Costs,
Channel, Company, Competition)

BCG Product Portfolio Matrix

Porter 5 forces

Value chain Raw Materials -> Operations -> delivery -> marketing&sales -> service

An Aristotelian Framework – the tripod. Persuasion relies on the relation among the three:
1. Logos – logical, well-reasoned arguments. Facts and figures, and charts.
2. Ethos – personal voice and character
3. Pathos – audience’s frame of mind

What IF scenarios:

Product Scenarios
If a product is in its emerging growth stage, concentrate on R&D, competition and pricing.
If a product is in its growth stage, emphasize marketing and competition.
If a product is in its mature stage, focus on manufacturing, costs and competition.
If a product is in its declining stage, define niche market, analyze the competition’s play or think about
the exit strategy.