Tuck Consulting Club Casebook
How to use this book
▪ Dartmouth is just one of two colleges in the country to own its own ski resort, so it is only
appropriate that we use trail symbols to denote case difficulty levels.
Easy
Tuck Consulting Club
Intermediate
Difficult
Expert Only
2
Table of Contents
Case Name
Case Type
Tuck Air
Profitability
BB Lanches
Profitability
Museum of Fine Arts
Revenue Growth
Refrigerated Foods
Company (RFC)
Market Entry
Nutters of Savile Row
Operations
Big Picture Co.
Capital Investment
I-sight Diligence
PE & Investment
Airline Co
Strategic M&A
Sell Oil & Co
Valuation
Extra! Extra!
Venture Capital
Zika Virus Vaccine
Go/no go, profitability, market
entry
Maple Leaf Airlines
Go/no go, profitability, market
entry
Case Difficulty
Type: Profitability
Author: Matt Schrimper T’16
Tuck Air
Case Prompt
Tuck Air is a Central American airline with a hub in Guatemala City. It runs a hub and spoke system, meaning all flights
connect through it’s Guatemala Airport location. The airline serves both regional routes and long distance routes.
Historically, the airline has been one of the highest margin airlines in the world, but has seen significant profitability
declines in the last year. The airline’s management team would like to understand what is causing this profitability decline
and how to address it.
Clarifying Information
-Macroeconomic conditions remain unchanged
-There have been no changes to cost structure (e.g. price of fuel, labor, etc)
-Tuck Air is in fact one of the most operationally efficient airlines in the world and will be unable to significantly cut costs
further
-The airline has made no operational changes (e.g. destinations, new aircraft, etc)
-The airline has made no pricing changes
-Attracted by Tuck Air’s historically high margins, two competitors have recently entered the Central American airline market
Case Commentary (Notes to Interviewer)
Allow candidate to talk through variety of possible causes for profitability decline. Once he or she identifies entrance of
competitors as cause, proceed to the first question.
Tuck Consulting Club
4
A changing competitive landscape
Question 1
Exhibit 1 shows business class and economy class load factors for Tuck Air. Load factor shows the percentage of available
seats that are filled on an airplane. Average load factor for the industry is 80%. What do you discern from Tuck Air’s load
factor data from the last year?
Guidance
The exhibit shows historical load factors above industry average, reflective of the comfortable competitive positioning Tuck Air
enjoyed. The recent drop has been most pronounced in the economy cabin. What does this suggest? What type of
competitors is Tuck Air facing? How should this inform Tuck Air’s response?
Candidate Insights
The two new entrants are both low cost carriers, undercutting Tuck Air on price on economy class tickets. The problem Tuck
Air faces is clearly a revenue generation one, and any solution must include increasing economy cabin load factor and must
include a change in ticket pricing strategy.
Tuck Consulting Club
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Exhibit 1: Load factor
100
90
80
70
60
50
Business Capacity
Economy Capacity
Revenue target
Question 1
Tuck Air’s leadership team has decided it must increase revenue to a level consistent with an 80% load factor in economy
class (in line with the industry average). It would like to maintain its current 85% load factor in business class.
Tuck Air only flies 737-700 aircraft. They fly 215,000 flights per year. Business class has 8 seats with an average ticket price
of $400. Economy class has 144 seats with an average ticket price of $200.
If Tuck Air could achieve its 80% load factor target in economy class, how much of an increase in revenue would this
represent?
Guidance
Current business class revenue: 8 seats x $400 x 85% load factor= $2,720
Current economy class revenue: 144 seats x $200 x 60% load factor= $17,280
Total current revenue= 20,000 per plan x 215,000 flights= $4.3B in annual revenue
Increasing economy class load factor to 80% and holding business class at 80% yields revenue of $5,538,400,000, or an
increase of $1,238,400,000. Does this seem doable? What levers are available to Tuck Air to regain this revenue?
Candidate Insights
The math problem is a relatively simple one, but the candidate should be organized in recording the data and in his/ her
calculations.
The candidate should note that regaining $1.2b in revenue will be a big challenge. Levers available to Tuck Air include
changing pricing, charging for bags, charging for food, charging for wifi, etc. Allow the candidate to brainstorm through
ideas.
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Customer feedback
Question 2
Now that we’ve discussed the options available to Tuck Air to regain lost revenue, how would you decide which levers will
have the greatest impact?
Guidance
The candidate should identify understanding customer preferences as the first step in determining the impact of each option.
Customer focus groups, questionnaires, etc. will be useful for this data collection.
Provide the candidate with Exhibit 2.
After the insights below, the candidate should determine that the best course of action is to segment customers within the
cabin: Business class, premium economy and economy. Ticket prices and level of service should vary by cabin.
Candidate Insights
The candidate should see key themes emerge from the customer feedback:
Some customers are expecting very little out of their air travel experience (David, Linda); some expect more but are unwilling
to pay a substantial premium (Paul); some expect more and are willing to pay a premium (Sarah).
Can Tuck Air really be all things to all people? What options exist to simultaneously address the needs of these important
customer segments?
Tuck Consulting Club
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Exhibit 2: Economy customer feedback
“The meal was terrible! I didn’t expect anything beyond peanuts and water with an economy
ticket so wish they hadn’t even bothered with the garbage they served us.”
-David, 28
“Screaming babies, no wifi and cheap wine. I wish my company would just let me fly business
class but it’s just too expensive.” -Paul, 53
“Why would I pay $200 for a ticket when I could fly Kellogg Air for 20% less? Every dollar
counts, especially on a family vacation.” -Linda, 48
“I don’t mind paying a little more for a comfortable seat and some in-flight entertainment,
especially on longer flights. For these reasons I usually prefer flying Wharton Air.”
Sarah, 37
Plan of action
Question 3
Acting on your customer segmentation recommendations, the Tuck Air leadership team has decided to redesign its cabin as
shown in Exhibit 3. Additionally, the following changes will be introduced:
-A bag fee of $25 for traditional economy fliers. 70% of traditional economy fliers will check 1 bag per flight.
-Traditional economy fliers will now be charged for food or drinks. Premium economy will receive a free snack and drink. The
net revenue gain from charging traditional economy fliers is $200 per flight.
-Free wifi has been added for the entire plane. The cost of the equipment and the decline in fuel efficiency from the new
equipment will cost Tuck Air $100 per flight. The airline has decided to not charge customers for this service.
Given these changes, what is Tuck Air’s expected annual revenue? Does this meet their target?
Guidance
Revenue from cabin reconfiguration: $24,540 per flight
Revenue from bag fees: $25 x 126 seats x 70% flying with bags x 80% load factor= $1,764 per flight
Net revenue from food sales (+$200) and cost of wifi installation ($-100)= $100
Total revenue per flight: $26,404
Total revenue per year: 215,000 flights x $26,404= $5,676,860,000, exceeding the target of $5.5B
Asks the candidate what risks he or she sees in this plan? How would you begin implementing it?
Candidate Insights
Candidate should be organized with data and calculations.
See wrap-up page for key risks.
Tuck Consulting Club
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Exhibit 3: Cabin redesign
Airplane configuration
Boeing 737-700
Total flights per year: 215,000
Economy
Premium Economy
Business
Seats
Average Price
Load factor
Revenue
Business
8
$400
80%
$2,560
Premium Economy
18
$300
80%
$4,320
Economy
126
$175
80%
$17,640
Tuck Air Wrap-Up
Recommendation
Final recommendation should include affirmation of plan to segment cabin based on customer preferences. Matching pricing
with customer willingness to pay and services with customer expectations will increase load factor, drive revenue and allow
Tuck Air to meet its profitability goal.
Risks
Risks include: competitors redesigning cabin to offset Tuck Air’s advantages, further cuts in competitor pricing, negative
customer reaction to fees and challenges of implementation.
Next Steps
Candidate could suggest trialing the changes on certain routes before rolling out to the entire network or other approaches to
test customer responses to changes.
Tuck Consulting Club
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Type: Revenue
Author: Ravi Darda T’17 &
Nancy Yang T’17
Museum of Fine Arts
Note to Interviewer
This is a longer, interviewer-led case divided into the following parts:
Part 1: Problem Structuring
Part 2: Data Analysis
Part 3: Ticket Pricing
Part 4: Membership Benefits
▪
▪
Member lifetime value
Breakeven probability
Part 5: Wrap-Up
The challenge in this case rests in the non-profit nature of the museum – candidates may be unfamiliar with sources of funding
for non-profit organizations – as well as the probability-driven math involved in part 4. Because both part 3 and 4 are
quantitative, the interviewer may elect to step part 3 or a portion of part 4 to save time.
Case Prompt
Your client is a non-profit art museum -- let’s call it the Museum of Fine Arts, or MFA -- in a large, metropolitan city on the
East Coast with the largest collection of Impressionist and Post-Impressionist works in North America. Last year, it
attracted over 1 million visitors and acquired new pieces through Sotheby’s, a major auction house. Despite these
successes, the MFA’s revenue stream has been declining for the last two years, which is unusual when compared to
similar art museums. The current director, Matthew, has approached you for advice.
Part A: Problem Structuring
What are sources of revenue for the MFA and why might revenue have decreased?
Tuck Consulting Club
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Part 1: Problem Structuring
Sample Framework
Behind the Framework
First, candidates should identity sources of revenue.
Because MFA is a non-profit organization, revenue comes
from sales (tickets, memberships, gift shop sales, etc.) but
also from individual giving (which depends on donor base,
frequency of donation, and average giving size), endowment
(which depends on annual distribution % as well as rate of
return), and grants (which can come from the government or
private foundations).
Tickets
Sales
Ancillary purchases (gift
shop, audio tour)
If the candidate is limited to revenue = price * quantity, push
the candidate to think outside the number of visitors and
ticket prices.
Next, prompt the candidate to discuss why revenue might
have declined using his/her structure.
Memberships
Donor base
Giving
Frequency of donation
Revenue
Average donation size
Candidate response should identify factors that have
changed recently and be context-specific. A poor response
might be ”the MFA has a small donor base, which leads to
low revenue.” A stronger response might be “the MFA has to
compete against other causes for individual giving; perhaps
another prominent cause edged out giving to the arts in
general and to MFA specifically, as happened in the
aftermath of Katrina.”
Tuck Consulting Club
Annual distribution
Endowment
Rate of return
Grants
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Part 2: Data Analysis
Question
Matthew gives you the following data on MFA’s ticket sales and membership enrollment over the last three years. What do
you notice?
Guidance
Give the candidate Exhibit A.
If the candidate asks about
membership, explain that
members play an annual fee for
access to the galleries,
exhibitions, and events.
If candidate asks whether
prices of tickets or
memberships have decreased,
tell the candidate that prices
have remained constant.
Tuck Consulting Club
Candidate Insights
From Exhibit A, candidate should notice that even though the combined number of
tickets and memberships sold increased, overall revenue has remained static and even
decreased. Candidate should ask if price has decreased. When told they’ve stayed
constant, candidate should conclude that tickets are likely priced lower than
memberships, and the decline in revenue is due to an increase in the number of tickets
sold but a decrease in the number of membership enrollments.
Prompt candidate to brainstorm why memberships might have declined while ticket sales
increased. Possible responses include:
▪ Changing composition of patrons by geography (out-of-town visitors are more likely to
purchase tickets than memberships, and the MFA’s visitor base has been skewing
toward tourists) or age group (MFA’s support base is becoming younger, and they
tend to support the museum through volunteering rather than memberships)
▪ Price sensitivity (membership fees are more expensive; all else equal, higher price
means higher price sensitivity in case patrons’ disposable income drops)
▪ Museum has become less effective at attracting new members or retaining existing
members (perhaps because of changing membership benefits or special exhibitions
that missed the target),
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Part 3: Ticket Pricing
Question
In response to declining revenue, the MFA is considering two different initiatives. One is to change individual ticket price and
the second is a revamp of the museum’s membership benefits. Let’s consider pricing first. The MFA currently prices adult
tickets at $12. Last month, the museum conducted surveys of potential patrons to explore the public’s sensitivity to price,
shown below. What price do you recommend?
Guidance
Candidate Insights
Give the candidate Exhibit B.
For quantity, candidate can look at Exhibit A and approximate 1M ticket buyers in 2015. A
better approach here is to make the simplifying assumption of 100 potential patrons; thus,
at price of $12, revenue = $900 ($12 * 100 visitors * 75%). Repeat the calculation at each
price point and we get the following:
This is essentially a demand
curve. The candidate should
find revenue generated at
each ticket price by
multiplying price by the
quantity of people willing to
buy the ticket. Provide
guidance as needed if
candidate is unsure how to
proceed.
Tuck Consulting Club
At price = $24, revenue = $360
At price = $20, revenue = $800
At price = $16, revenue = $960
At price = $12, revenue = $900
At price = $8, revenue = $760
Conclusion: To maximize revenue, the MFA should set a ticket price of $16. A strong
candidate should name the tradeoff involved in raising prices: the MFA is a non-profit
organization with, presumably, a mission to increase access to art for all. Increasing price
would likely reduce museum access to price-sensitive segments and thus be at odds with
the MFA”s mission. Bonus points if the candidate tries to quantify impact: current revenue
= 1M ticket buyers (approximate, from Exhibit A) * $!2 = $1.2M; new revenue = 800k ticket
buyers (reference the demand curve: 75% * total population = 1M ticket buyers, so 60% *
total population = 800k) * $16 = $12.8M. Additional revenue = $800k
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Part 4: Membership Benefits
Question: Member Lifetime Value
In addition to changing ticket prices, the museum is also considering improving its membership benefits. Exhibit C shows the
average revenue generated per member per year under its current membership benefits. What’s the average expected
revenue generated from one member?
Guidance
Give the candidate Exhibit C.
Candidate Insights
A strong candidate should recognize that while Exhibit C shows average
revenue generated per member per year, it does not take retention into
account, and ask for retention rate year to year.
Calculation for average expected revenue per member:
If the candidate asks, the probability that
a member continues his/her
membership from year 1 to year 2 is
80% and from year 2 to year 3 and
beyond is 50%. If the candidate begins
doing math without asking for this data,
the interviewer should provide it.
For clarity, data provided for ”year 3 and
beyond” already includes future
retention and revenue after year 3.
Tuck Consulting Club
Year 1: $80 @ 100% probability = $80
Year 2: $100 @ 80% probability = $80
Year 3 and beyond: $200 @ 50% * 80% probability = $80
Total average expected revenue = $240
A strong candidate will realize that the 50% retention rate from year 2 to year 3
assumes that the member continued his/her membership into year 2, which is
an 80% probability, so the cumulative retention rate from year 1 to year 3 and
beyond is actually 50% * 80% = 40%.
Conclusion: The MFA can expect to generate a lifetime revenue of $240 for an
average member. A strong candidate will point out that a) figure does not
include the cost of acquiring a member and b) the $240 value depends on
retention rate year-to-year, which is a lever the MFA should try to influence.
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Part 4: Membership Benefits.
Question: Breakeven Probability
With a new set of membership benefits, the museum anticipates spending $1.2M (consider this a one-time, up-front cost) but
believes it will increase the probability that a member continues his/her membership from year 2 to year 3 and beyond. Is it
worth it?
Guidance
Candidate Insights
If candidate asks for the current
number of members, tell the
candidate that the MFA expects to
keep a steady base of 11,500
members, which the candidate
can round to 12,000, over the next
few years.
A strong candidate should recognize that to evaluate whether this initiative is worth it,
we can find the retention rate (from year 2 to year 3 and beyond) at which the
additional revenue offsets the $1.2M investment.
If the candidate is stuck, provide
guidance as necessary. To gauge
whether the initiative is worth it,
the candidate should find the
breakeven probability (from year 2
to year 3 and beyond) at which the
museum would recoup its $1.2M
investment. The candidate should
work backwards, shown on the
right.
Tuck Consulting Club
• $1.2M / 12,000 members = $100 (additional revenue each member would need to
generate in year 3 and beyond)
• Therefore, incremental revenue per member is: $100 = 80% * x * $200, where x is
the increase in retention rate from year 2 to year 3
• .8x = .5
• x = 0.625, which would mean the breakeven retention rate from year 2 to year 3 =
0.5 + 0.625 = 1.125 or 112.5%
Conclusion: To breakeven, the initiative would have to result in a greater than 100%
retention rate from year 2 to year 3, which is impossible. This initiative is therefore not
worth undertaking. The candidate could also point out that making membership
benefits more attractive could cannibalize ticket sales, which, if not fully accounted for
in the $1.2M upfront cost, is another reason not to pursue this initiative.
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Museum of Fine Arts: Wrap-Up
Recommendation
You are at the museum for a client meeting and run into Matthew in the
elevator. He asks for an update.
The candidate should identify the changing mix of ticket sales and
membership enrollment as a cause of the decline in revenue. From
there, the candidate can recommend raising ticket prices from $12 to
$16, and quantify the impact at about $800k. As for the membership
initiative, the $1.2M investment cost is too high and will not be
recouped from increased membership revenues.
Risks and Next Steps
Raising ticket prices carries a tradeoff between the museum’s top line
and its mission of increasing the public’s access to art. The MFA may
want to look at price sensitivity of specific segments, like schools, to
gauge how a price change will impact access to the museum
As for the membership initiative, a strong candidate should note that
membership enrollment and ticket sales are, to some extent,
competing (increase in membership enrollment could cannibalize ticket
sales and vice versa) and suggest alternative ways for the MFA to
increase its revenues such as renting out space for events, targeting
new or different segments in its individual giving campaigns, offering
summer programs or events to capitalize on students’ summer
vacation, etc.
Tuck Consulting Club
Candidate Evaluation
This case tests a candidate’s understanding of
non-profit organizations as well as quantitative
intuition.
A solid candidate will identify revenue drivers
beyond just ticket price and number of visitors
and generate reasonable, if not entirely contextspecific, reasons why revenue may have
decreased. S/he should recognize change in
mix when given Exhibit A, find the revenuemaximizing price when given Exhibit C, and
calculate member lifetime value (with guidance
on retention year-to-year).
A strong candidate will recognize tradeoffs
between revenue and access in the event of a
ticket price increase as well as the potential for
memberships to cannibalize ticket sales and vice
versa. Quantitatively, a strong candidate should
think to ask about retention rate and
membership base in Part 4 without prompting
and quantity the impact of higher ticket prices in
Part 3. Finally, a strong recommendation should
include alternative ideas for increasing revenue.
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Exhibit A
Ticket Sales and Membership Enrollment
2013
2014
2015
Tickets and memberships sold (thousands)
890
935
1,021
Revenue from ticket sales and membership fees ($M)
13.0
13.3
13.2
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Exhibit B
Survey Results on Price Sensitivity
$28
$24
Ticket Price
$20
$16
$12
$8
$4
$0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% Surveyed Willing to Buy
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Exhibit C
Member Lifetime Value
Year 1
Year 2
• Average revenue: $80
• Average revenue:
$100
Tuck Consulting Club
Year 3 and
beyond
• Average revenue:
$200
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Refrigerated Food Company (RFC)
Type: Market Entry
Author: Fedor Volkov T’17
Case Prompt
Our client, Multinational Refrigerated Food Company (RFC) , is contemplating the introduction of a refrigerated pizza product
to the US market. Several years ago, RFC entered the refrigerated food market introducing the Pasta and toppings concept,
which was very successful earning sales over $200mln in two years. Now the marketing management of RFC plans to extend
it’s product line into pizza, and has hired McKinsey to help them assess the new market opportunity and advice whether they
should launch or not the new product.
Clarifying Information
If asked by the candidate:
1) Management’s KPI for a successful product launch is $80 mln in revenues in the first year of sales.
2) There are no competitors within the refrigerated pizza concept.
3) Overall the pizza market is dominated by delivery/takeout chains and restaurants.
4) The management is looking to choose between two concepts of the product: a pizza “kit” (when toppings for pizza are
sold separately) and a pre-assembled heat-and-eat pizza.
Case Commentary (Notes to Interviewer)
This is an interviewer-led type of case, so after reading the prompt ask the candidate if he/she has any clarifying questions
and proceed with Q1.
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Part 1: Problem Structuring
Question 1
What factors should we investigate to determine whether RFC should expand its brand into a new product line?
Guidance
This is a classic first question for a “McKinsey style” case interview. In this case the candidate is asked to list the factors that
the team needs to investigate to conclude whether extending the product line to a pizza concept is a good idea or not. After
asking 1-2 clarifying questions and summarizing the prompt a good candidate will take 1-2 minutes to draw a framework and
walk the interviewer through his ideas.
Candidate Insights
A good framework to approach this problem has to include, but not limited to:
- Understanding the market and it’s size (this includes the major players on the market – customers, competitors and
suppliers);
- Estimating the financial aspects of the entry (test against the objective);
- Understanding the company’s capabilities to make the move into the new segment;
- Outlining some of the major risks for our client with this extension.
An great candidate will note that:
- there may be different concepts of the pizza product line extension (pizza “kit” and heat-and-eat pizza as mentioned in Q1)
- the absence of direct competition may give our client a first-mover advantage;
- brand awareness is important in estimating the potential market size of the new product line, as users of the pasta concept
that liked the product may be more eager to try the new concept.
Tuck Consulting Club
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Part 2: Marketing Survey Analysis
Question 2
The marketing department has some additional information for us. They have just finalized a marketing survey for two pizza
concepts that they were contemplating to launch.
Without making any calculations, what insight can you see in the following exhibit? (Turn to Exhibit 1 to the candidate)
Guidance
The candidate should always be focused on the main objective of the case – to launch the product or not, and if the answer is
to launch, then what concept should the firm launch.
Candidate Insights
A good answer will mention the following insights:
- Users and Non-users of RFC’s products have different purchase intents and the number of Users/Non-users will
significantly influence the sales estimation.
- Non of the concepts hit the industry average on the top box for non-user. Warning signal for launching any of the products.
- Making a decision towards one of the concepts having only this information is risky.
A great answer will also elaborate on the following insights and follow-ups:
- The information in the exhibit will help us to calculate the total trial volume of sales for two products. Knowing the retail
price, the targeted population, it will be possible to calculate the sales figure.
- The purchase intent across different groups varies significantly (e.g. “probably would buy” for “Non-users”), it would be
wise to double check the figures and figure out why that is the case.
- The marketing survey about purchase intent will not accurately be translated into actual sales, as people that answered the
survey may actually not buy the product.
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Part 3: Calculating Total Sales
Question 3
Now let’s try to calculate the total sales for both concepts. What information would you need to do that? (pause here)
For simplicity let’s ignore that different toppings may have different price tags, let’s assume the pizza only price is 7$/pizza, and the pizza and toppings
concept price is 5$/pizza. We also know that those customers that say will definitely buy the product in the end only 70% actually buy the product and
those that say will probably buy the product in the end only 20% actually buy the product. Targeted households = 120 mln, RFC penetration rate =
50%. Average units purchased per trial = 2
Please calculate the first year sales of the two pizzas concepts.
Guidance
This is a complex math question and the candidate needs to be very structured to do it right and fast. Rounding is allowed. If the candidate takes too much time tell him
the final answers and ask for intermediate conclusion. Do the same if the candidate has laid down a proper structure and calculated sales volume for one of the
concepts. There is no need to do all the math here.
The answers are below:
1) Total Sales = Pizza & Toppings sales ($) + Pizza only sales ($)
1.1) Pizza & Toppings sales ($) = Pizza & Toppings sales (RFC users) ($) + Pizza & Toppings sales ($) (Non-users)
1.2 ) Pizza & Toppings sales (RFC users) ($) = (Targeted households)*(RFC penetration rate)*Awarness*ACV*(Def would buyRFC%*70% + Prob would buyRFC% *
20%)*Average units purchased per trial*Pizza and Toppings price/unit = 100mln*50%*60%*60%*(30%*70%+60%*20%)*2*5$
Same calculations for other groups and concept. Final answer Pizza&Topping sales = 80,64 mln $ (Users = 71.28 mln$, non-users = 9.36 mln$) Pizza Only =118,69
mln $ (users = 83.16 mln$, non-users = 35.53 mln$).
Candidate Insights
A good candidate will tell that the information missing to make the calculations is targeted population, broken down by RFC users and non-users, price
for both concepts.
A great candidate will notice that total sales will consist of the trial sales and repeat sales, thus repeat rate is also a piece of information that is required.
Also a great candidate will ask for average trial units purchased per occasion. For simplicity purposes, if asked, ignore the repeat sales, but give a
positive feedback for mentioning that.
Conclusion –concept 2 will generate sales beyond 80 mln $. The management shall proceed with Pizza only concept, if marketing survey is accurate .
Tuck Consulting Club
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Part 4: Perceptual Map
Question 4
Bonus question – if you have time. The management decided to make some more studies around the Pizza only concept. As
you may know the only competitors on the market are delivery restaurants (like Dominos and Pizza hut) and frozen pizza
producers. After a careful analysis of customer’s perceptions the following perceptual map was made by the marketing team.
What insights can you bring to the case from this exhibit (hand Exhibit 2 to candidate).
Guidance
This is a relatively simple perceptual map that should raise some additional concerns about our product. There is not much
guidance here, just observe what insights the candidate will bring.
Candidate Insights
The candidate should mention that there is a risk that our product will not be well accepted on the market. The main reason is
that the quality is not enough to beat the Restaurant/Delivery pizza segment, and it’s impossible to compete on price with the
frozen pizza segment. The client should focus more on increasing the convenience of their product (quality or speed of
cooking) to attract more customers from the Restaurant/Delivery segment. Decreasing the price will be a hard avenue to
follow, as the dough and ingredients should be fresh.
Tuck Consulting Club
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Refrigerated Foods Company Wrap-Up
Recommendation
The Client should launch the pizza concept and should focus on the Pizza only concept for the following reasons:
- The success with the Pasta concept has created a loyal customer base that will ensure stable sales for the pizza product;
Overall awareness for the product among users is 60%.
- Sales figure for the Pizza concept will amount to approximately 118 mln $ during the first year of sales (almost 60 mln $
more than for the Pizza and Toppings concept.
Risks
- The Client needs to ensure that the information in the marketing survey is accurate and complete;
- Take into account the results of the perceptual map, showing that the product is not well positioned against the
Restaurant/Delivery segment.
Next Steps
- Make more accurate sales calculations taking into account the repeat rate of purchase.
- Evaluate further actions on how to position the product to gain share from the Restaurant/Delivery segment.
- Come up to management with more detailed recommendations.
Tuck Consulting Club
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Exhibit 1 – Marketing department information
Part A) Awareness and ACV data
Pizza & Toppings
Pizza Only
RFC’s Users
60%
60%
Non-users
20%
30%
60%
60%
Awareness:
ACV1
Part B) Marketing survey results
Pizza & toppings
Pizza Only
Industry
average
RFC’s Users
Non-users
RFC’s Users
Non-users
Definitely
would buy
30%
10%
25%
15%
20%
Probably would
buy
60%
30%
50%
65%
41%
Top two boxes
90%
40%
75%
80%
61%
1 ACV (all commodity volume) is a measure of distribution reach. 50% ACV, for example, means that a product is
distributed in stores which represent 50% of sales volume of all food products sold in that area.
29
Exhibit 2 – Perceptual map of Pizza only concept
Quality
Restaurant/Delivery
pizza
RFC’s pizza
concept
Convenience
Frozen pizza
Area = price
30
Type: Operations
Author: Ravi Darda T’17 &
Nancy Yang T’17
Nutters of Savile Row
Case Commentary (Notes to Interviewer)
This is a candidate-driven case centered on operations; the case is divided into the following parts:
Part 1: Problem Structuring
Part 2: Process Diagram
Part 3: Adding Capacity
Part 4: Wrap-Up
Operations expertise is not necessary – though certainly helpful – to this case. Depending on candidate’s exposure to
operations, interviewer may choose to give more guidance. It is not important that candidates use operations-specific
language (bottleneck, lead time, etc.); rather, this case is meant to test candidate’s business sense and intuition when
responding to a new situation.
Case Prompt
Your client is Nutters of Savile Row, a legendary tailoring business that opened in 1969. At the height of its fame, Nutters
dressed Mick Jagger, Twiggy, Elton John, and three of the four Beatles on the Abbey Road cover. Despite the departure
of the two founders -- Tommy Nutter and Edward Sexton -- Nutters continues to have an excellent reputation. It offers
customers made-to-measure and bespoke suits. Industry ruling defines made-to-measure suits as those cut, usually by
machine, from an existing pattern and adjusted according to the customer’s measurements. Bespoke suits are fully handmade and the pattern is cut from scratch. Lately, however, Nutters has heard grumblings from customers. Fearing
declining customer satisfaction, Alan Lewis, the current owner, has approached you for help.
Part 1: Problem Structuring
What could be driving declining customer satisfaction at Nutter’s?
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Part 1: Problem Structuring
Sample Framework
Behind the Framework
First, candidates should identity drivers of customer
satisfaction. Options include structuring by customer
experience objectives (quality, cost, speed, flexibility), shown
here, or by phases of customer engagement (moment of
purchase, delivery, usage).
Candidate response should recognize the multi-dimensional
nature of customer satisfaction and touch on quality, cost,
and speed of the product. Given that we are talking about a
high-end tailor, reputation and exclusivity (i.e. perceived
quality) matters. An excellent response will also address how
customer expectations – based on past experience, the
shop’s reputation, or competitors’ offering – inform
satisfaction.
Reputation (brand,
exclusivity)
Expertise
Quality
Fit & attention to
detail
"Feel" (space,
service, etc.)
Price compared to
expectations
Cost
Customer
satisfaction
Price compared to
competitors
Prompt the candidate to discuss why customer satisfaction
might have declined using his/her structure.
Wait time at intake
Speed
Candidate response should identify factors that have
changed recently. A poor response might be ”there’s a long
wait time due to the artisan nature of making suits” while a
better response would be “wait time has increased due to a
spike in demand and poor demand management or due to
decrease in shop’s capacity to meet demand like losing
staff.”
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Delivery time
Accessibility (hours,
location, etc.)
Flexibility
Selection
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Part 2: Process Diagram
Question
As it turns out, customers are unhappy with delivery time. Nutters has been experiencing increasing delays such that the
percent of orders delivered on time has gone down. What might be causing the delay? What data would you want to to
answer this question?
Guidance
Let this part be conversational:
the goal here is to gauge how
well the candidate s able to ask
questions to get relevant data.
If the candidate mentions
demand, give Exhibit A. If the
candidate mentions Nutters’s
capacity or production process,
give Exhibit B.
Candidate Insights
From Exhibit A, candidate should observe that delay is increasing even as the total
number of orders accepted is declining. Therefore, the mix of made-to-measure and
bespoke suits is the problem.
From Exhibit B, candidate should calculate the capacity at each step. Tell the candidate
that one full-time-employee (FTE) works 160 hours per month. For made-to-measure
suits, Nutters can measure 160 (160 hours / 1 hour per step * 1 FTE) orders, sew 50 orders,
and finish 40 orders, so Nutters can complete, at most, 40 made-to-measure orders a
month. For bespoke suits, candidate should realize, from the footnote, that steps 2 and 3
should be treated as one combined step. Therefore, Nutters can measure 40 bespoke
orders, pattern & sew 25 orders (160 hours / [14 hours + 18 orders per order] * 5 FTE), and finish
40 orders. Nutters can complete 25 bespoke suits a month.
Conclusion: Looking back at Exhibit A, candidate should realize that delay is caused by
made-to-measure orders exceeding the maximum in April and May. Further, an excellent
candidate should identify spare capacity in the system: because steps are separated
sequentially, there is spare capacity in some steps (i.e. measuring), and because madeto-measure and bespoke suits are separated by location, there is also spare capacity in
the bespoke line.
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Part 3: Adding Capacity
Question
Nutters is considering hiring additional tailors. Anson is an experienced tailor who can do any of the steps involved in either
the made-to-measure or bespoke process. How much would you be willing to offer Anson and which step would you assign
him to?
Guidance
Candidate Insights
The candidate should
recognize that compensation
depends on the incremental
profit generated by Anson,
which depends on which step
and line he’s assigned to.
Since the maximum number of suits Nutters can complete per month is determined by the
step withthe lowest capacity (the bottleneck), candidates should realize that Anson needs
to be assigned to either the “finishing” step for made-to-measure suits or “patterning and
sewing” steps for bespoke suits.
If asked, tell the candidate
that made-to-measure suits
generate profit of $350 per
suit; bespoke suits generate
profit of $900 per suit.
Candidate should assume that
demand is not a constraint: if
hiring Anson will produce 7
more bespoke suits, there will
be buyers for those 7 suits.
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If Anson is assigned to the “finishing” step for made-to-measure suits, the capacity at that
step increases to 80 orders (160 hours / 4 hours per order * 2 FTE). A strong candidate should
notice that the “sewing” step, with capacity of 50 orders, is now the the constraint. Anson
has effectively added 10, not 40, more made-to-measure suits to Nutters’s capacity,
which is worth up to $3,500 (10 suits * $350 per suit) in salary for Anson.
If Anson is assigned to the “patterning and sewing” step for bespoke suits, the capacity at
that step increases to 30 (160 hours / [14+18 hours per order] * 6 FTE) orders. Anson has added
5 more bespoke suits to the shop’s capacity, which is worth up to $4,500 (5 suits * $900 per
suit) in salary for Anson.
Remember that delay is caused by the number of made-to-measure orders, so an
excellent response will weigh the tradeoff between profit and customer satisfaction of
assigning Anson to the bespoke versus the made-to-measure line.
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Nutters of Savile Row: Wrap-Up
Recommendation
What’s your final recommendation to Nutters of Savile Row?
Candidate should conclude that delay was caused by made-to-measure
orders exceeding the shop’s capacity, as determined by the step with the
lowest capacity. Candidate can then recommend assigning Anson to either
made-to-measure or bespoke line depending on rationale and provide a
salary cap of either $3,500 or $4,500.
Risks and Next Steps
As noted earlier, candidate should weigh the tradeoff between profit and
customer satisfaction involved in assigning Anson to either made-to-measure
or bespoke line. Given Nutters’s brand equity, a longer delay in the form of a
waitlist may actually increase the brand’s exclusivity; on the other hand, the
client’s original concern was customer satisfaction, and an additional revenue
of $1,000 per month ($4,500 - $3,500) is likely insignificant for Nutters.
As for next steps, a strong candidate should suggest other ways for Nutters
to alleviate the delay problem. For instance, if FTEs can be moved between
steps, and assuming FTEs are not limited by skill, then spare capacity at the
“measuring” step can be used to increase capacity elsewhere. Additionally, if
resource can be pooled between the made-to-order and bespoke lines, then
Nutters can avoid having spare capacity in the bespoke line while the madeto-measure line struggles to fulfill demand.
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Candidate Evaluation
This case tests candidates’ ability to
reason through what is likely an unfamiliar
business problem (operational delay at a
high-end tailor).
A solid candidate will identify multiple
drivers for customer satisfaction and
operational delay, execute the math
necessary to identify capacity at each step
of the production process, and, with some
guidance, arrive at the incremental profit
generated by Anson.
A strong candidate will recognize that the
step with the lowest capacity determines
capacity of the entire system and that
adding capacity to the bottleneck may turn
another step into the bottleneck (as when
assigning Anson to the made-to-measure
line). A strong candidate will also provide
strong rationale in assigning Anson to a
particular step and, in addition, brainstorm
solutions for Nutters besides adding an
employee.
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Exhibit A
Orders Accepted
February
March
April
May
Made-to-measure
37
39
42
44
Bespoke
25
23
19
15
Total
62
62
61
59
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Exhibit B
Process for made-to-measure orders
Made-to-measure orders are taken and completed in a separate workshop on Beak Street:
Measuring
Sewing
Finishing
• time/order: 1 hr.
• FTE: 1
• time/order: 16 hrs.
• FTE: 5
• time/order: 4 hrs.
• FTE: 1
Process for bespoke orders
Bespoke orders are taken and completed in Nutters’s main Savile Row location:
Measuring
Patterning
Sewing
Finishing
• time/order: 4
hrs.
• FTE: 1
• time/order: 14
hrs.
• FTE: 5
• time/order: 18
hrs.
• FTE: 5
• time/order: 8
hrs.
• FTE: 2
* For bespoke orders, the same 5 master tailors pattern (step 2) and sew the suit (step 3)
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Type: Capital Investment
Author: Stephane Gounari T’17
Big Picture Co.
Case Prompt
Satellite imagery is used for a wide range of applications such as border control and military purpose (called Defense &
Intelligence), agriculture and forest monitoring (Living Resources), support to Oil & Gas and Mining industries (Natural
Resources), infrastructure monitoring and support to arctic maritime transportation (Industry), real-estate and insurance
(Services) and support to Local & Regional Planners, emergency services, environmental studies (Public Authorities).
Imagery distributors are intermediaries reselling imagery from several satellite operators.
A Canada-based reseller of satellite imagery wants to accelerate its growth. To do so, they are considering building a new
ground station to directly receive imagery from satellites instead of receiving it from the satellite operators (provide exhibit
#1). The ground station would receive imagery from one satellite only. What should they think about?
Clarifying Information
The client is already an established actor on the Canadian Market.
The ground station direct connection to a satellite would allow to:
•
Transmit imagery orders (“Task” the satellite) in a very short time frame (30 min vs 6 hours)
•
Receive imagery taken in a very short time frame (10 min vs 6 hours)
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[Optional Sample Framework]
Sample Framework(s)
Things to consider:
• Market size: Is it a viable opportunity? Is the market growing
• Potential benefits of having a ground station:
• Time?
• Cost?
• Quality of images?
• Etc etc
• Breakeven Analysis:
• Cost of setting up the station & Ongoing additional costs
• Incremental Revenue potential
• Competition
• Capabilities required to run the new station
Behind the Framework
Must-haves:
• Current & future Segment/Market Size
• Current Market Share/Revenues
• Value-proposition (why is it better?)
• Future Market Share/Revenues (with
the Ground Station)
• Cost & Profitability analysis
• Competitors
Nice to haves:
• Timeframe (for ex. 2y to build the
station….)
• Supply: Satellites currently in-orbit
Differentiators:
• Satellite lifetime: Satellites not yet in
orbit, satellites close to their end of life
• Comparison Profitability with vs without
the Ground Station
• How would the client with his Ground
Station fit in a satellite operator supply
chain (how it would benefit both)
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#1 – Current Satellite Imaging Process
1. Order
Client
5. Transmit
Satellite
Operator
4. Downlink
2. Tasking
3. Imaging
40
Question 1
Question 1
•
•
•
•
The ground station could be connected either to a satellite providing Optical or Radar imagery.
The imagery provided has either a High, Medium or Low resolution.
Optical satellites use only one resolution while newest Radar satellites are able to adapt their instrument and provide
every resolution.
Which segment(s) should they target?
Guidance
•
•
Provide Chart #2 – Imagery Demand in North America (2016)
•
HR/MR/LR: High/Medium/Low Resolution
•
When asked: At least 99.5% of the Defense & Intelligence demand comes from non-Canadian D&I organizations.
Hint: Therefore, the client can not address this demand
When asked: The demand for every Radar segment can be considered as one segment (cumulative)
Candidate Insights
•
•
•
•
The Interviewee should immediately point that: a) the HR Optical segment is the largest one by far
b) The Defense & Intelligence vertical represents a huge share of the market and, specifically of the HR Optical segment.
c) The interviewee should read the footnote and ask the interviewer of the origin of the D&I demand.
Once the interviewee realizes that the D&I demand should be excluded; go to Question 2
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#2 Imagery Demand in North America (2016 - $ millions)
342
HR Optical
Defense & Intelligence
Living Resources
96
MR Optical
13
56
36
9
Segment
Growth by
2023
HR Optical
130%
MR Optical
82%
LR Optical
-41%
HR Radar
201%
MR Radar
62%
LR Radar
-15%
HR Radar
LR Radar
LR Optical
MR Radar
Energy & Natural Resources
Industry
Services
Public Authorities
Defense & Intelligence demand is generally captive to local companies (based in the same country as the D&I organization)
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Question 2
Question 2
•
•
After further research you realize that most of the demand from Defense & Intelligence customers cannot be addressed
by our client
Which segment(s) should they target? (provide exhibit 3)
Guidance
•
Provide Chart #3 – Imagery Demand in North America (2016) – D&I Excluded
Candidate Insights
•
•
•
The interviewee should immediately point that Optical HR and MR segments are good candidate.
The interviewee should also use the market growth rate to calculate the ending markets size and realize that the HR
segment will be slightly larger than the MR segment by 2023.
A very good candidate will realize that, assuming growth is constant year on year, if the HR segment is larger than the MR
segment in 2023, the MR segment will nonetheless represent a larger market over the 7 year period
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#3 Imagery Demand in North America Excluding D&I (2016 $ millions)
68
HR Optical
Living Resources
82
13
MR Optical
Energy & Natural Resources
24
24
8
Segment
Growth by
2023
HR Optical
148%
MR Optical
91%
LR Optical
-41%
HR Radar
235%
MR Radar
99%
LR Radar
-15%
LR Optical HR Radar MR Radar LR Radar
Industry
Services
Public Authorities
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Question 3 - Brainstorming
Question 3
•
•
•
A ground station has a footprint that can be represented as a circle centered on the ground station (provide footprint
exhibit).
Once a satellite passes over this footprint, the ground station could order & receive imagery directly from the satellite and
could thus provide imagery to its clients with a very quick turnaround The client is therefore wondering where to locate its
ground station and asked you to assess several locations.
After a very quick search you came up with the following information (provide location exhibit). What are the aspects to
consider to choose a location? How would a location differ from another? (brainstorming)
Guidance
#4 - Ground Station Footprint Example
#5 - Potential Ground Station Locations – Ensure that the Interviewee use the exhibit #4 with the exhibit #5 to have an idea of
where the locations are situated.
Candidate Insights
•
•
•
Market served: The market served with direct downlink imagery will differ following the location (surrounded by forest or
farm or by mines/oil & gas fields, close to arctic transportation lines or not)
Costs: Cost of building and operating the ground station. It is more expensive to build (permafrost/iced ground), maintain
(snow storms) and operate in arctic climate and/or remote location (construction material and engine on site or not)
A very good candidate will think about how to transmit the imagery from the ground station back to the final clients and/or
to a connectivity hub (easier if the ground station has access to Optic Fiber)
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#4 - Ground Station Footprint Example
46
#5 - Potential Ground Station Locations
Location 1
Location 2
On the coast, North of Yellowknife
Arctic Climate
Extremely remote
No ground connectivity
In Vancouver
Oceanic Climate
Urban
Optic Fiber
Location 3
Location 4
10 miles from Winnipeg
Humid Continental Climate
Suburban
Optic Fiber
500 miles North of Montreal
Sub-Arctic Climate
Remote
No ground connectivity
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Question 5 – MATH QUESTION
Question 4
•
•
•
•
You find that the ground station would require two years to build and ask for the following investment: Civil work ($480K),
Land Acquisition ($50K), Antenna & hardware ($5 millions over two years), License ($1.5 million), Ground Station
operations & maintenance ($300K).
The client currently has costs worth of 80% of its revenues. The client expects this to remain constant
You expect the revenue to look as follow (provide exhibit #6 – Revenue Forecast)
Should the client make the investment?
Guidance
a)
b)
c)
d)
e)
Client operation costs (80% of revenues) will remain constant and do NOT include costs related to the Ground Station
(aka: Ground Station costs should be added over those)
Do not take discount rate into account
Civil work & Land acquisition costs are fully attributed to year 1
Antenna costs are equally split between year 1&2
License & Operation & Maintenance costs are “per year” and start only once the station is operational (year 3 onwards)
Candidate Insights
•
A very good candidate will think of the discount rate and will look for incremental costs & revenues
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Question 5 - ANSWER
2016
2017
2018
2019
2020
2021
2022
2023
Current revenue
$28.1
$30.0
$32.1
$34.4
$36.8
$39.3
$42.1
$45.0
Costs
$22.4
$24.0
$25.7
$27.5
$29.4
$31.5
$33.7
$36.0
Profits
$5.6
$6.0
$6.4
$6.9
$7.4
$7.9
$8.4
$9.0
Revenue w/ GS
$28.1
$30.0
$36.0
$43.2
$51.9
$62.2
$74.7
$89.6
CAPEX
3.0
2.5
OPEX
22.4
24.0
30.6
36.4
43.3
51.6
61.6
73.5
Profits
$2.6
$3.5
$5.4
$6.8
$8.6
$10.6
$13.1
$16.1
$66.8
Delta
-$3.0
-$2.5
-$1.0
$0.0
$1.2
$2.8
$4.7
$7.1
$9.3
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Total
$57.6
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#6 – Revenue Forecast
$ millions
Status Quo
revenues
Status Quo Client
Costs
Revenues with
Ground Station
2016
2017
2018
2019
2020
2021
2022
2023
$28.1
$30.0
$32.1
$34.4
$36.8
$39.3
$42.1
$45.0
$22.4
$24.0
$25.7
$27.5
$29.4
$31.5
$33.7
$36.0
$28.1
$30.0
$36.0
$43.2
$51.9
$62.2
$74.7
$89.6
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Big Picture Co. - Wrap-Up
Recommendation
As profits with a Ground Station are above those without, the client should procure a
ground station
Risks
Profits will be impacted by the discount rate; how much?
License price & risks related to having only one supplier
What happens when the satellite(s) reach(es) its end of life?
What happens when imagery from a better satellite becomes available?
Would a ground station threaten our relationship with other satellite operators?
Next Steps
Ensure licensing agreement is solid
Check if there is any way to address the D&I demand in the near future (change of
legislation and/or policy) as this is a huge market
Check if there is a way to integrate the ground station into the satellite operator’s
network of ground station
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Candidate Evaluation
Good: A good candidate find that
this is a good opportunity
How risky it is to make a supplierspecific investment?
How will the discount rate impact
this opportunity?
Better: Will this investment
threaten our relationship with other
satellite operators?
Risk when satellite reaches end of
life and/or when imagery from a
better satellite becomes available
Is there a way to address the D&I
demand in the near future?
Best: Become part of the satellite
operator’s ground station network
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I-Sight Diligence
Type: Private Equity & Investment
Author: Jenny Desrosier T’16
Case Prompt
Candidate Evaluation
Our client is a private equity firm experienced in the satellite industry (specifically
communications and imagery) as well as government markets. They are considering
an investment in I-Sight, a satellite imagery provider who supplies the imagery for
applications such as Google Maps and the Intelligence Community’s geospatial
analysis. Should our client proceed with the investment?
Good: Candidate recognizes client
is NOT the target, but the private
equity firm; clarify scope
(investment horizon, geographic
boundaries), and basic market
characteristics (size, growth,
competition)
Clarifying Information
Scope: Our client is considering an investment horizon of 5-7 years in the U.S.
Client: I-Sight intended as a stand-alone entity, no fit with portfolio companies
Competitors: 4 main players: I-Sight, Geo, Sat-Image, and Geo-Image
Market Share: I-Sight has a 40% share in the market
Market Growth: 10% growth in last 3 years as GIS applications grow (consumers
using Google, growing agricultural and financial applications)
Case Commentary (Notes to Interview)
This should be a candidate-led case to test their understanding of due diligence
support for private equity clients, ability to contextualize an esoteric market, and
market sizing approach.
Guide candidate to segment market in two: Government and Commercial. Walk the
interviewee through Government customers and their annual spending, it is meant to
be straightforward. Then present Exhibits A and B at the same time.
Tuck Consulting Club
Better: Candidate probes into
client experience and target fit with
the private equity portfolio and
strategy
Best: Candidate demonstrates that
he/she understands the difference
in customer sets (government vs.
commercial), questions if there are
any upcoming regulations that
could impact the target or the
competition
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I-Sight Potential Framework
Potential Framework
Market Size & Growth
Market
Competition
Regulations
Trends
Revenue Streams & Profitability
Business
Key Differentiators
Market Share
Management Effectiveness
Pricing
Transaction
Financing Ability
Fit with Portfolio
Behind the Framework
Must-haves: Three big buckets
(1) Market dynamics
(2) Business situation
(3) Transaction considerations
These three are essential to evaluate the
situation at hand.
Nice to haves: Robust details for each
framework bucket (as shown to the left)
that demonstrate a holistic approach to
evaluating the business, for example
including:
(1) Management effectiveness
(2) Target profitability
(3) Target revenue streams
Differentiators: Using industry-appropriate
terms like “target”, recognizing that
financing/funding is critical for completing
a private equity deal, questioning the
client’s overall strategy and target fit with
portfolio
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I-Sight Market Sizing
Question 1
How would you analyze the market for satellite imagery? First, who are the key customers, then what are their demand
drivers? What is the outlook for satellite imagery?
How might commercial customers pay for these goods and services?
Government
Commercial
- Customers: 5 key government customers
(National Geospatial Intelligence Agency
(NGA), Defense Intelligence Agency
(DIA), CIA, FBI, and DOD)
- Spending: Each spend $50 million
annually. These are fixed agreements.
- Total Gov’t Market: $250,000,000
- Number of Satellites: Based on Exhibit A, candidate can glean that there
are 4 imagery satellites in operation
- Minutes of Image Capture: Satellites operate 1440 minutes per day, 365
days a year, for a total of 525,600 minutes per year
- Payment Rates: Based on Exhibit B, candidate can calculate an avg.
minute rate of $100, and a 20% time premium
- Total Commercial Market: 525,600 minutes * $120 average / minute * 4
competitors = $252,288,000
Candidate Insights
Provide interviewee with both exhibits at the same time, allow a minute or two for digestion
- Total Market Size: $250,000,000 + $252,288,000 = $502,288,000
- Exhibit A Insights: I-Sight is in a strong position relative to its peers given that it plans to launch more satellites, which
should be more efficient and precise; however, there is uncertainty risk associated with satellites not in orbit
- Exhibit B Insights: Interviewee should recognize that payments are in $/min, and they will have to calculate min/year
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I-Sight Wrap-Up
Recommendation
Recommendation: Move forward with investment process
- Market Size & Growth: Growing market with strong demand drivers
- Competitive Position: With 40% market share, I-Sight is poised to take advantage
of topline market growth; with new satellites’ launch it could demand higher rates
for more precise and efficient imagery
- Risk Evaluation: Focus remaining analysis on risks/next steps below
Risks
Market Risk: Government budgets are constrained due to increasing fiscal deficit,
programs could be contracted; there are alternatives for commercial customers like
aerial imagery (images taken from airplanes)
Business Risk: Many of I-Sight’s satellites are not in orbit, and any delays in their
launch schedule would immediately impact revenue projections
Next Steps
Customers: Analyze criticality of satellite imagery for gov’t customers, evaluate
substitute technologies (like aerial imagery)
Market Share: Anticipate competitive responses to launches, can I-Sight maintain
market share? Will new satellites change the rate payment amounts?
Launch Schedule: Anticipate likelihood of delays based on historical delays
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Candidate Evaluation
Good: Candidate’s
recommendation is supported by
analysis, mentions at least one
market risk or business risk, and
identifies one next step
Better: In addition to above,
candidate identifies multiple risk
factors, and for each suggests a
next step to research (including
one of the next steps outlined to
the left)
Best: Candidate returns to original
structure and information, then
checks off areas of concern or
confidence (e.g., if market growth
is a huge positive, that is noted on
the structure page); candidate
identifies competitive risk to I-Sight
business (that many of its satellites
are not yet functional)
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Exhibit A: Satellite Launches
Geo-1 is launched
Geo-1 expires
Geo-2 is launched
ISight-1 is launched
ISight-2 launch planned
Geo-2 expires
SatImage is launched
ISight-2 expires
ISight-3 launch planned
SatImage expiration
planned
SatImage-2 is launched
GeImageo-1 is launched
ISight-1 expires
SatImage-2 expires
SatImage-3 is launched
GeoImage-1 expires
SatImage-3 expires
SatImage-4 launch planned
GeoImage-2 is launched
GeoImage-3 is launched
T-16
T-14
T-12
SatImage-4 expires
GeoImage-2 expires
T-10
GeoImage-3 expiration
planned
T-8
T-6
T-4
T-2
Today
GeoImage-4 launch
planned
T+2
T+4
T+6
T+8
Note: Colors correspond to individual competitors
56
Exhibit B: Satellite Payment Rates
Location
% Satellite Imagery
Rate Per Minute
Americas
40%
$125
Europe & Middle East
10%
$100
Asia & Australia
25%
$100
Africa
20%
$75
Time
Premium Per Minute
00:00-3:59
0%
4:00-7:59
20%
8:00-11:59
50%
12:00-15:59
50%
16:00-19:59
0%
20:00-23:59
0%
Note: Premiums are charged for higher visibility hours
57
Type: Strategic M&A
Author: Fan Zhou T’16
Airline Co.
Case Prompt
Our client is a large national airline that is currently seeking to reduce costs. The
management team has identified vendor consolidation as one potential area for cost
savings and has decided to pursue the acquisition of their current in-flight food
vendor.
They have hired us to determine (1)- Is this a good idea? (2)- How much should the
airline pay for the vendor?
Clarifying Information
The airline operates flights only within the continental USA in 30 large airports
They are known as providers of high customer service with prices that are slightly
above the industry average for certain routes.
Vendor consolidation is the only area that we have been hired to examine
Case Commentary (Notes to Interviewer)
Guide candidate to determine that the purchase of the in-flight vendor is a good idea,
but allow candidate room to make certain assumptions regarding the valuation
providing the necessary exhibits as needed to help facilitate road blocks.
Candidate Evaluation
Good: Candidate is able to
understand that this is a two part
case prompt and is able to
navigate both the industry/market
assessment and valuation without
significant mistakes.
Better:
Identifies that it is important to
understand the current cost
structure of the airline in order to
have a benchmark to asses the
acquisition
Best:
Able to quickly make the
simplifying assumptions necessary
to quickly conduct the valuation
and leverages the details of the
existing vendor contract
information
Overall- the candidate should determine that the acquisition is a great idea for the
airline pending a few considerations (see Ideal Conclusion slides for guidance)
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58
Potential Frameworks
Sample Framework(s)
Behind the Framework
Two Part Problem
Establish Cost Baseline and
Understand Industry/
Customer Dynamics
Valuation Exercise
Current Cost Baseline – are we
addressing the largest bucket?
Cash Flows
Other Airline Actions- Are
competitors facing same
problem? How are they
responding?
Synergies- Reduce headcount,
consolidate systems
Customers- Do they care about
in-flight dining? Could we deliver
greater value proposition through
ownership?
Current Contract- What are the
terms? What are expected future
costs if we did nothing?
Additional Costs- Forego existing
contracts to other competitors
Must-haves:
• Understanding that this is a two part
prompt
• Identify that understanding the current
vendor contract and cost baseline will
be key to evaluating this decision
Nice to haves:
• Mentioning that it would be nice to
know what other airlines are doing
• Including potential synergies and costs
associated with the acquisition
Differentiators:
• Starting to hypothesize that the cost of
vendors is likely to be a small
component of an airline’s cost structure
• Recognizing that the vendor likely has
other contracts with competitor airlines
that may result in a dis-synergy
59
Annual Operating Costs at Airline Co.
$580M
$400M
Corporate
$320M
$280M
$250M
$180M
In-Flight Dining
757
100.00%
90.00%
80.00%
70.00%
767
Fuel
60.00%
Fees/Taxes
777
Ground Personnel
Service and Repair
Flight Crew
Other
50.00%
40.00%
30.00%
20.00%
Other Personnel
737
Salaries
Airplane Lease Costs
10.00%
0.00%
Fuel
Govt. Fees
Maintenance
Other
60
Competitor Research
Indexed In-flight Vendor Costs
Relevant Quotes
1.28
Airplane Co
1.26
1.24
Competitor 4
1.22
1.20
1.18
1.16
“Our vendor costs have outpaced
expectations and we will take substantive
actions to bring them in line in the next 3
years”
CEO Competitor 2
1.14
1.12
1.10
Competitor 2
1.08
1.06
“In-flight dining has been and will continue to
be a differentiator for us”
CEO Airplane Co
1.04
Competitor 1
1.02
“The customer just wants to get from point A
to point B fast and on-time”
CEO Competitor 3
1.00
Competitor 3
2012
2013
2014
2015
2016E
“Exerting greater control on quality of the inflight experience will be a key focus for us in
the next 3 years”
CEO Competitor 4
61
Airplane Co. Customer Survey
5.0
5
5
4.5
4
4
4.0
4
3.5
3
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Service
In-Flight Food
Customer Ranking (1-5)
On a scale of 1-5 with 5
being most important,
which features are
most important to you?
Price
Timeliness
Clean Aircraft
Free Checked Bag
Airplane Co Performance (1-5)
On a scale of 1-5 with 5 being
perfect performance, how well
does Airplane Co do against
each feature?
62
Overview of current contract with ABC In-flight services
▪ Current contract started in 2015 and runs until 2020 with high likelihood for renewal
thereafter
▪ Contract covers all in-flight dining services across all aircraft and flights
▪ ABC In-flight currently serves 1 other airline which accounts for 50% of its total revenue
▪ ABC currently employs 3,000 full-time employees across the same 30 airports as
Airplane Co and has a profit margin of 10%
▪ 50% of profits are reinvested in the business each year
▪ Starting in 2017, Airplane Co expects to have a fleet that is 20% larger and will have
expanded the number of routes flown by its existing fleet by 10% through operating
efficiency gains
63
Questions to probe candidates
Question 1
What is the current spend for in-flight dining services? Projected spend?
Current spend = 20% * $250M = $50M
Projected spend = $10M (fleet expansion) + $5M (efficiency) +$50M (baseline) = $65M
Question 2
Which competitors should we be most concerned about? Why?
Competitor 4 appears to also be emphasizing in-flight service and costs have increased in line with ours suggesting that
they may face a similar situation regarding their vendors.
The obvious pro for acquiring vendors is to exert greater control over their services and also to differentiate against
competitors who may still be outsourcing
Question 3
How will existing Airline Co. customers respond to a potential acquisition?
Response is likely positive. Customers appear to care a lot about in-flight dining and this is an area where we are currently
lagging. Our service ratings are high, but this rating may be correlated with our in-flight dining options and if we continue to
lag in the latter area, it may have an effect on our broader service rating. Remember that service is one our key differentiators
vs. competitors.
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Valuation information (to be communicated to
candidate)
▪ Revenues
− Airplane Co Revenue will be stable after 2017 efficiency gains and fleet expansion
− Competitor revenue will continue to be 20% of ABC In-flight revenues
▪ Costs
− Margin is steady at 10%
− 50% of costs are related to headcount
− 50% of costs are COGS associated with providing the food for airline customers
▪ Discount rate is 10%
▪ Perpetuity growth rate is 0
▪ Assume acquisition is to take place at the very beginning of 2016
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Valuation Solution (do not share with candidate)
Revenue
Airplane Co
Competitor
2016
$50.00
$50.00
2017
$65.00
$65.00
Total Revenue
$100.00
$130.00
Profit
$10.00
$13.00
FCF
$5.00
$6.50
Terminal Value
$65.00
Total Value Excluding
Synergies
$70.00
66
Synergy Calculations (do not share with candidate)
•
Candidate should realize that costs and revenue will fall by 50% since Airplane Co
will likely need to terminate all competitor contracts and will likely be able to
terminate headcount associated with providing those services.
•
However, profit margin will remain the same
Airplane Co
Competitor
2016
$50.00
$0.00
2017
$65.00
$0.00
Total Revenue
$50.00
$65.00
Profit
$5.00
$6.50
FCF
$2.50
$3.25
Terminal Value
$32.50
Total Value
$35.00
67
Ideal candidate conclusion
▪ Our client Airplane Co is looking to reduce costs and has identified a possible vendor
acquisition as a likely avenue
▪ We are currently spending $50M per year on in-flight dining and this spend is expected
to increase to $65M in the next few years
▪ Our costs have increased at a faster rate than some competitors, but our closest
competitor is also focused on increasing service and may be exploring similar options
▪ With an initial outlay of $70M we can purchase the vendor outright; factoring in our
synergies the value of the vendor is roughly $35M
▪ $70M of initial outlay + $35M in dis-synergies suggests a total cost of $105M
▪ Since we are already expected to pay $115M in expenses to this vendor over the next
two years, this seems like a worthwhile acquisition with a payback period of roughly 2-3
years
▪ Additional considerations include: financing (debt vs. stock vs. cash), capacity to
integrate without issues, how receptive is the vendor to an acquisition, qualitative issues
(people and culture between the two firms)
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Type: Valuation
Author: Ravi Darda T’17 &
Nancy Yang T’17
Sell Oil & Co
Notes to Interviewer
This is a interviewer led case. The case is divided into 5 parts:
Part 1: Structuring
Part 2: Expected Value
Part 3: Chart Interpretation
Part 4: Sensitivity
Part 5: Wrap-up
Overall, this is a quant heavy case. Interviewer should evaluate candidates on their problem structuring and solving skills, and
not on their industry knowledge. A good candidate would not get overwhelmed with jargon but would focus on solving the
problem.
Case Prompt
Sell Oil is an oil & gas major with over $100B in revenue. It’s present across the industry value chain: exploration, pipelines,
refining, and trading. Sell Oil is interested in an acreage in Tanzania licensed by EP, a regional mid sized player. EP just
finished the initial geological and seismic surveys and, encouraged by the results, has decided to drill a test (exploratory) well
to confirm the presence of oil and gas. Sell Oil is planning to approach EP to gain 20% interest in the field and has hired you
to evaluate the opportunity.
Part 1: Problem Structuring
How should Sell Oil think about how much to offer EP?
Clarifying Information
A seismic survey is a technique similar to an ultrasound that is used to develop images of the rock layers below ground.
An exploratory well is a deep hole that a petroleum or natural gas company drills in the hopes of locating a new source of
fossil fuel. These wells are drilled in locations that have already undergone seismic testing.
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69
Part 1: Structure the Problem
Sample Framework
Revenue (0.2x)
• Quantity of Oil &
Gas
• Price of Oil &
Gas, and volatility
of price
• % uptime
• Chances of
success
• Quality/type of Oil
& Gas
Tuck Consulting Club
Costs (0.2x)
• Evaluation –
confirming the
presence
• Capital expense
• Facilities and
equipment
• Drilling
• Operational
expense
• Utilities
• Materials
(chemicals)
• Labor and
personnel
• Shipping
• Abandonment
• Taxes / Royalties
Behind the Framework
Other
considerations
• Past deals and
benchmarks
• Control - voting
rights,
management
positions
• Cost synergiesextending Sell’s
negotiated
contracts
• Differential in
technical
capability
• EP’s financial
stability
• Regulatory
hurdles
• Opportunity cost
Must have: The candidate should
understand basic cost and revenue drivers
in oil and gas exploration (quantity of oil
and gas, price of oil and gas, chance of
success, etc.) and primary components of
NPV valuation
Nice to have: The candidate realizes that
this is not an acquisition but only taking
minority interest and hence customizing
the framework accordingly (0.2x)
Differentiators: Finally, the candidate
recognizes that this opportunity can lead
to multiple outcomes and requires
quantitative assessment of uncertainty to
yield a risk adjusted valuation/decision
70
Part 2: Expected Value
Question
Using the model in Exhibit A, calculate how much Sell Oil should offer. One more piece of information: EP has already spent
$20M in license fee and initial surveys.
Clarifying Information & Guidance
An appraisal well is a well drilled to determine the physical extent, reserves, and likely
production rate of a field. If the candidate asks, exploration well and appraisal drilling costs
should be included in expected value calculation. If the candidate is unsure where to start,
direct the candidate to work backwards (i.e. first find expected value post appraisal drilling).
Candidate Insights
Calculation:
- Expected value post-appraisal: 75% * [50% * $1000M + 50% * $600M] = $600M
- Subtract appraisal well cost: $600M - $100M = $500M
- Apply 30% probability and subtract cost of exploratory well: $500M * 30% - $50M = $100M
Nice to have:
- Sell Oil is interested in just 20%, therefore 20% of 100 million = 20 million. Sell Oil should offer EP $20M
- The $20M already spent by EP is sunk cost, and hence would have no bearing on the valuation
- Field potentially holds both crude oil and natural gas reserves, as indicated by the exhibit
Differentiators:
- Valuation depend on oil and gas prices which are generally very volatile
- Investment of $20M (exact value would depend on negotiations) is quite feasible given the size of Sell Oil
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71
Part 3: Chart Interpretation
Question
Analyze Exhibit B. How does this impact the analysis we just did?
Clarifying Information & Guidance
Interviewer can speed through this section if the candidate took much time
in the previous section. Here, we are interested in how well the candidate
processes information quickly, draws meaningful conclusions, and
communicate his/her findings.
Candidate Insights
Must have: Given that we just completed a valuation of a gas/oil asset, the candidate should realize that oil and gas prices are
a major factor in the value of the acre in Tanzania. Specifically:
- Oil prices have fluctuated a great deal in the past 5 years
- Due to the government’s gas pricing formula, gas prices in Tanzania are positively correlated to oil prices
- $ 100/barrel for NPV computation could be aggressive unless there is a strong basis for this assumption
Nice to have: Given the above, the candidate should arrive at the conclusion that a reasonable value of the asset could be
below 100 million (Sell’s share below 20 million)
Differentiators:
- Gas price@100$/barrel= $ 8/mcf (this is the gas price used for NPV calculations)
- Gas prices are less volatile than oil prices (the way current formula is designed)
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72
Part 4: Sensitivity Analysis
Question
A project manager at Sell tells you, “During bad times, we shift our focus from developing new projects to improving
operations of existing assets. Therefore, the negative impact on NPV from low hydrocarbon prices is offset by the reduction in
operational expenditures, preserving our project NPV.” Use exhibit C, a simplified NPV equation, to find the percent reduction
in operational expense needed to maintain project NPV if oil prices were to drop to $80/barrel.
Clarifying Information & Guidance
This question tests basic algebraic skills as well as the candidate’s
presence-of-mind when presented with Exhibit C.
Interviewer should provide Exhibit B again if the candidate requests it.
Candidate Insights
Must have:
- CapEx would remain unchanged and gets cancelled out in the equation
- If candidate calculates OpEx without considering change in gas price, s/he should arrive OpEx=66.67 (33.3% reduction)
Nice to have:
- Gas price would change when oil prices changes
- Using $6.4/mcf for gas price, the equation then yields OpEx = 50, which represents a 50% reduction
Differentiators:
- A reduction in operating expense of 50% is not very realistic. Hence, mostly likely NPV would drop should oil prices reduce
by 20%
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73
Part 5: Wrap-Up
Risks
Venture
- Legal complications
- EP retains operational control and unwilling to share information with Sell
Technical
- Geological risks (how difficult is it to squeeze out the resource)
- Quality/type of hydrocarbon (sweet vs sour)
- Lack of qualified engineers in Tanzania
Commercial
- Size/quantity of oil and gas reserves
- Oil prices and its volatility
- Gas pricing formula and likelihood of revision towards less favorable terms
- Stability of taxation, royalties
Political
- Government relations and change in regimes
- Nationalization of assets
Environmental and compliance
- Protests by locals/environmental groups
- Revision of compliance requirements
Tuck Consulting Club
Next Steps
- Re-confirm the hydrocarbon price
assumption and run scenarios based
on different prices
- Evaluate this opportunity in context of
Sell’s current portfolio
- Explore possibilities to hedge price
volatility risk through financial
derivatives
- Identify other assets in the region if
this deal doesn’t go through
Candidate Evaluation
Good: candidates must identify basic
risks relevant to this context such as
uncertainty of quantity and price
Better: a solid candidate would think
wide and bring structure to this exercise
by bucketing the risks into categories
Best: identification of ideas to mitigate
some of these risk (next steps)
74
Exhibit A: Decision Tree Model
50%
High
Cost = 100m
25%
Cost = 50m
Oil = 500m barrels
Gas = 3 trillion cf
Appraisal
Drilling
70%
Exploration
Well
NPV = 1000m
75%
30%
Medium
50%
NPV = 600m
Oil = 300m barrels
Gas = 2 trillion cf
Dry
Too small
Failure
Success
Commercial NPVs do not include exploration well and appraisal drilling costs
cf: cubic feet
75
140
14
120
12
100
10
80
8
60
6
40
4
20
2004
2
2005
Crude Oil
2006
2007
2008
2009
Natural Gas (Tanzania)
Crude Oil (past 5 years):
Mean- $ 66.2/barrel
Maximum- $ 142.5/barrel
Minimum- $ 32.7/barrel
Standard Deviation- $ 23.0/barrel
Price assumed for NPV calculations-$ 100/barrel
Tuck Consulting Club
Tanzania sets the Natural Gas price as a function
of Crude Oil price
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
8.0
8.4
8.8
9.2
9.6
10.0
7.2
6.4
5.6
2.4
2.8
3.2
3.6
4.0
4.4
4.8
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
16
NATURAL GAS PRICE ($/MCF)
160
NATURAL GAS PRICE ($/MCF)
CRUDE OIL PRICE ($/BARREL)
Exhibit B: Crude Oil and Natural Gas Prices
CRUDE OIL PRICE ($/BARREL)
Tanzania has a regulated gas market i.e. the prices are
determined by the government. The prices are pegged to
crude oil prices (see graph above)
76
Exhibit C: Simplistic NPV equation for High Scenario
𝑂𝑖𝑙 𝑃𝑟𝑖𝑐𝑒
𝐺𝑎𝑠 𝑃𝑟𝑖𝑐𝑒
𝑁𝑃𝑉 = 1000 × 2
+
100
8
𝑂𝑝𝐸𝑥
− 1.2
100
𝐶𝑎𝑝𝐸𝑥
− 0.8
2000
High Scenario:
Oil Price= 100 $/barrel,
OpEx (PV of yearly Operating Expenditure)= 100 million
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Type: Venture Capital
Author: Jorge NebredaSánchez T’17
Extra! Extra!
Case Prompt
Candidate Evaluation
Our client is a venture capitalist who was recently approached by a team of software
engineers who have developed an algorithm to convert the digital version of any
newspaper into a one-size-fits-all, high-quality paper document that can be printed
by a special printer. The idea is stationing printers in multiple locations in major cities
as a way to sell more newspapers.
Should our client invest in this venture?
Good:
- The candidate asks whether the
printers are ready for use or at a
R&D stage.
- The candidate asks about the KPI
for this venture.
Clarifying Information
Better: additional points
- The candidate asks about how
the engineers will legally obtain the
digital versions of newspapers.
- The candidate points out that the
engineers must have drafted a
solid business proposal including
market research.
- The candidate states that a VC
case is about valuation, so an NPV
analysis is expected.
The engineers have probed several major newspapers and all of them would be glad
to share their digital versions.
The engineers have conducted market research and concluded that newspaper
readers are indifferent between classic newspapers and this new format.
The engineers have successfully developed and tested a prototype of the printer.
Our client is considering a different investment opportunity that would yield an annual
return of 15% after 4 years.
Case Commentary (Notes to Interviewer)
This is a straightforward valuation problem. As the case evolves, information to carry
out an NPV analysis shall be provided. Different approaches can be taken to come
up with an answer, but a break-even analysis is recommended.
The case also has a component of brainstorming to determine whether this venture
makes sense.
Tuck Consulting Club
Best: additional points
- The candidate acknowledges
that one key element is the
number of newspapers sold
78
Part 1: Problem Structuring
Framework
Behind the Framework
What are the components a candidate
should absolutely include vs. the ideas that
differentiate an interviewee?
Printers
Initial
Investment
Invest?
Discounted
Cash Flows
Intellectual
Property
# Newsp.
Profit
Price
Discount
rate
Costs:
Time
horizon
Why paper?
Risks /
Opportunities
Need to
patent
Potential
buyers
Synergies/e
xpertise
-Paper
-Ink/toner
-Energy
-IT
-Royalties to
newspapers
-Taxes
-Maintenance
-Insurance for
printers
-Depreciation
Must-haves:
- The candidate acknowledges that an
NPV analysis is the best analytical tool
- The candidate identifies the key elements
of a DCF analysis: initial investment, cash
flows, discount rate and time horizon
Nice to haves: additional points
- The candidate uses case-specific
vocabulary
- The candidate drills down into the main
buckets and provides details about profit
- The candidate enumerates relevant costs
Differentiators: additional points
- The candidate notices intellectual
property rights must be paid to engineers
- The candidate creates an outstanding
Risks/Opportunities bucket
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Part 2: Introduction of Questions
Question 1
Should our client invest in this venture?
Guidance
Question 2
What potential benefits or threats should the client take into
consideration?
Guidance
- No exhibits. Information shall be provided when the
candidate either asks the right questions or is stuck.
- Initial investment: $3,700 (printer); $300 (int. property).
- Discount rate: 15%. Time horizon: 4 years (see prompt).
- Newspaper price: $1.80 (wait for candidate to provide
reasonable estimate).
- Costs: 70% of price (ask candidate about relevant costs if
framework is poor).
- This is a brainstorming question that drills down into the
Risks/Opportunities bucket of the framework.
- This question should be asked regardless of the presence
or absence of such bucket.
- Insight from this question should be included in the wrapup pitch.
Candidate Insights
Candidate Insights
- The candidate realizes that the number of newspapers
sold is the only missing piece.
- The candidate asking about sales volume would be a
potential dealbreaker.
- It would be fine if the candidate came up with a
reasonable estimate based on own experience.
- It would be great if the candidate explained the utility of a
breakeven analysis.
- The candidate analyzing the meaningfulness of the
breakeven analysis is a differentiator.
- This question is open to the candidate’s creativity about
relevant issues associated with the matter at hand.
- Potential benefits:
a) Make-to-order: less paper is used
b) Customization: choose what sections to print
c) Pre-payment & pre-printing: saves waiting time
- Potential risks:
a) Paperless world: paper press is in decay
b) Patents and exclusivity agreements
c) Exit strategy
80
Part 3: Decision to Invest
Question 2
Should our client invest in this venture?
Math
T
NPV = −I0 + ෍
i=1
CFi
CF
1
= if CFi are constant = −I0 +
· 1−
i
r
1+r
1+r
T
I0=$3,700+$300; r=0.15; T=4; CF=(100%-70%)·$1.80·x=0.54·x (where x is the number of newspapers sold annually)
Break-even: NPV=0
0.54 · x
1
0 = −4000 +
· 1−
= −4000 + 1.5417 · x → x = 2595 newspapers
0.15
1 + 0.15 4
So what? The candidate must notice that this amount is an annual volume because the discount rate used is annual.
Therefore, assuming 300 operating days to make up for fluctuations in demand, the breakeven sales volume is 8.65, that is to
say, 9 newspapers/day (with 365 days, the result is 7-8 newspapers/day).
Candidate Insights
The candidate should acknowledge the power of a breakeven analysis: it provides a benchmark against which actual sales
can be compared. If this venture requires 8-9 newspapers sold daily to breakeven, this looks like an interesting opportunity
because (a) newstands usually sell tens or even a few hundred newspapers every day and (b) market research revealed that
readers are indifferent about this new format, so they show the same preference for these newspapers as they do for
traditional ones.
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Part 4: Benefits and Threats
Question 2
What potential benefits or threats should the client take into consideration?
Candidate Insights
- Potential benefits:
a) This is a make-to-order service: what is printed is what the readers want. Savings are transferred to newspaper publishers
because less paper is used
b) Customization: readers could potentially choose what sections to print
c) Pre-payment & pre-printing: readers can pay online and the printers could potentially print the newspapers prior to the
reader’s arrival. This could save waiting time
d) Business extension: this idea could expand to other publications (magazines)
e) Tracking of consumer habits: our client could take advantage of purchase habits data (watch out for regulation)
- Potential risks:
a) Paperless world: paper press is in decay. This venture is counter-intuitive. It could be argued that a more convenient
format (A4) and high-quality paper could attract more readers, but market research showed that readers are indifferent.
b) Patents and exclusivity agreements: the printers and algorithm must be patented before anybody else makes the first
move. Additionally, exclusivity contracts should be enforced such that potential competitors are kept at bay.
c) Exit strategy: what will the client do after 3 years? Interested in selling or keeping? How will market evolve?
d) Synergies: does our client have another investment that could benefit from or improve this venture?
e) Newsstand owners may complain about this device because it not only makes them lose newspaper sales but also
prevents them from cross-selling to customers.
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Extra! Extra! Wrap-Up
Recommendation
We recommend that our client invest in this venture because it breaks even at 8
newspapers sold daily.
Current newspapers sales volumes are considerably higher, so our client can expect
great upside potential that will exceed his profitability target of 20% after 3 years.
This venture offers additional benefits like prepayment or customization.
Risks
We suggest taking into consideration several risk factors like the following:
-The decay of paper press
-Antagonism by newsstand owners
-The need for an exit strategy for our client after 3 years, if desired
-The need to protect this venture by means of patents and exclusivity contracts
Next Steps
Candidate Evaluation
Good:
- The candidate provides an
answer-first recommendation
based on results gleaned during
the case discussion.
Better: additional points
- The candidate spontaneously
brings up additional benefits
- The candidate transitions from
the recommendation to warning
about potential risks.
Best: additional points
- The candidate shows creativity
by suggesting next steps that will
result in an engagement extension.
In order to have a better understanding of the potential of this venture, it would be
advisable to conduct research to determine the best locations for the printers in
major towns.
Another interesting feature would be examining the client’s investment portfolio to
spot potential synergies.
Tuck Consulting Club
83
Zika Virus Vaccine
Type: Go/No Go, Profitability, Market Entry
Author: Michael Alemany T’16
Case Prompt
Candidate Evaluation
Your client is a large pharmaceutical drug company. They started researching the
Zika virus years ago when it was discovered in Africa and are now close to a vaccine.
The vaccine needs to pass a final phase of testing to be approved by the FDA,
however, the client is nearly 100% certain it will pass. Your client needs to decide if
they should fund the final phase, which would last 1 year and cost $2 billion. Mass
production of the vaccine could start immediately following approval.
Good: They should understand this
is a go/no go investment decision
and create a framework to analyze
such a question
Clarifying Information
• Vaccine is administered as a one-time shot
• Market is North, South, and Central America
• Patent protection is questionable. Given the global importance of a vaccine, a US
senator is writing a bill would make patenting this vaccine impossible but a
decision by Congress probably won’t be reached for at least a year. The bill
appears to have high levels of public and congressional support.
• Nearest competitors are about 4 years from developing a vaccine. However, if
there is no patent protection it will only take competitors 2 years from the time the
vaccine is released to copy it, complete FDA testing, and bring their own version
to the market (e.g. two years of protection). It will cost competitors $1 billion to
copy, test, and build facilities to produce the vaccine.
Better: They should clarify that the
market is the Americas
Best: They will learn about the
patent issues and competitors with
no prompting but through their
own questions.
Case Commentary (Notes to Interview)
Zika in Africa hasn’t been linked with microcephaly (abnormally small head), hence
there is very limited demand, which is why it’s not in the market scope
Tuck Consulting Club
84
Framework
Sample Framework(s)
Americas
Population
Market
Growth
Behind the Framework
Developed
nations
Developing
nations
Birth rate
When thinking about an approach to
solving the case prompt, what are the
components a candidate should absolutely
include vs. the ideas that differentiate an
interviewee?
Must-haves: Market and profitability
analysis
Price
Revenues
Fund final
phase
Volume
Profitability
Nice to haves: Competition analysis
Variable
Costs
Fixed
Patent
protection
Initial
investment
Competition
Differentiators: Separates the Americas
into developed and developing nations or
some other meaningful way that
recognizes different willingness to pay
Other pharma
companies
85
Market Sizing
Question 1
Candidate should quickly focus on sizing the market for the vaccine. They should begin by identifying the relevant market and
then estimating the addressable population that will pay for the vaccine.
Guidance
Market – North & South America
• Developed Countries – 400 million
• Developing Countries – 600 million
• Americas Average Birth rate – 15 births/1000 population
Price / % of population willing to pay – Exhibit 1 (wait
for candidate to ask about data before providing)
• Developed Countries - $20 price / 75% willing to pay
• Developing Countries - $10 price / 50% willing to pay
Market Sizing
Amounts in millions
Developed Developing
Countries Countries
Total
Market
Existing Population
% willing to pay
Addressable Market
400
75%
300
600
50%
300
1,000
60%
600
Annual Births
% parents willing to pay
Addressable Market
6
75%
4.5
9
50%
4.5
15
60%
9
Candidate Insights
The candidate should be able to understand the exhibit and draw accurate conclusions regarding price and willingness to pay
in developed and developing countries respectively. They should also accurately calculate market size.
Insightful candidates will quickly realize there are two market segments: the existing population and future births.
An inquisitive candidate may question why there are individuals who wouldn’t pay for the vaccine at any price (possible
explanations - anti-vaccine stance, live in extremely remote or cold locations, etc.).
Tuck Consulting Club
86
Profitability
Question 2
Candidate should next move onto valuing the profitability of the drug
Guidance
Wait for them to ask for the following data:
• Variable cost per dose = $9
• Annual Production capacity = 300 mil doses
• Discount rate = 10% (not essential)
Calculation set up:
• Assume that in years 1 & 2 (a) new births are
included in the 300 million & (b) sales are split
evenly between developed & developing
nations
Financials
Sales Volume ('000,000)
Weighted Average Unit Price
Revenue
Cost
Profit
Year 0
($2,000)
($2,000)
Year 1
300
$15
Year 2
300
$15
$4,500
($2,700)
$1,800
$4,500
($2,700)
$1,800
Year 3+
9
$15
$135
($81)
$54
Below not required! Proof that discounting CFs is a large positive NPV
PV
($2,000)
$1,636
$1,488
$406*
NPV
$1,529.68
*PV of $540m perpetuity ($54m/10%)
Candidate Insights
• Candidate should recognize that the client will recoup investment in year 2 so this is an attractive investment despite the
patent concerns
• Further, an insightful candidate will realize that the economics don’t work for competitors to enter the market in year 3.
Essentially, in year 3 there is a profit perpetuity of $450 million ($45m/10%=$450m), which is insufficient to recover a
competitors $1 billion investment, even with 100% market share. Adding a modest population growth rate won’t radically
change the economics either. Therefore, your client has a monopoly position in this drug with or without a patent. If the
candidate comes to this conclusion without calculating a perpetuity that is still a fantastic answer.
Tuck Consulting Club
87
Zika Virus Vaccine Wrap-Up
Recommendation
The client should proceed with the $2 billion investment and the final round of testing
to launch the vaccine
• Attractive market size
• Recoup investment in 2 years
• Because of first mover advantage client will have a monopoly position in the Zika
virus vaccine market
Risks
• Assumes Zika virus stays contained in the Americas
• Assumes clients understanding that all other competitors are 4 years out from a
vaccine is correct so no one else can capture part of the existing population
market
• Assumes competitors would have a similar variable cost and wouldn’t be able to
significantly reduce prices
Next Steps
Move forward with vaccine testing and development but continue to monitor
competitor progress and whether the disease becomes a significant concern outside
the Americas
Tuck Consulting Club
Candidate Evaluation
Good: Concludes that the
company should proceed with
funding the final round of testing
and launch the drug
Better: Recognizes that patent
protection is not necessary for this
to still be attractive.
Best: Recognizes that competitors
are extremely unlikely to enter the
market since they can’t recoup
investment costs. If Zika spreads
outside the Americas this might
lead to competitor entrants but
that still wouldn’t change the
decision to fund this project.
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Exhibit A
Willingness to Pay
30
Price ($)
25
20
15
10
5
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
0
% of Population Willing to Pay
Developed Countries
Developing Countries
Footnote: Pricing and willingness to pay is the same for both the adult population as well as parents considering the
vaccine for their children.
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Maple Leaf Airlines
Type: Go/No Go, Profitability,
Market Entry
Author: Kevin Moyer T’16
Case Prompt
“Your client is Maple Leaf Airlines, a midsize regional carrier catering to fliers who
need access to rural airports in remote parts of Canada. They are looking at
expanding the network of routes they offer to customers. The COO of Maple Leaf
Airlines wants your help figuring out if they should open a new route, if so which
airport they should expand service to, and then based on that, which aircraft they
should use to run the route.”
Clarifying Information
• Maple Leaf is headquartered out of Toronto
• There are three midsize regional airports the Maple Leaf is considering
• Maple Leaf has only two aircraft available. Only one will be chosen, either a
Bombardier CRJ 700 or an Embraer E190
• Maple Leaf’s COO will consider it a worthwhile project as long as revenues exceed
costs by at least 10%
Case Commentary (Notes to Interviewer)
Two big decisions to make; which airport to expand to and which airplane to use to
service that route. The revenues and costs that will drive each decisions are
separate. Ticket prices, customer segment, fees, municipal taxes and operating
hours restrictions will determine the airport chosen. Fuel consumption, speed, # of
seats, and aircraft turnaround rate will determine the aircraft chosen. The constraints
of time and aircraft characteristics will ultimately force the candidate to choose the
second most profitable airport.
Tuck Consulting Club
Candidate Evaluation
Good: Candidate should realize
this is a profitability case with
some Go/No Go elements and
market sizing. Structure should
reflect specifics of the airline
industry.
Better: Relevant clarifying
questions. Detailed brainstorming
of costs and revenue specific to
aircraft and airports.
Best: Nuanced consideration of
the interactions between the
choices of which aircraft to use
and which airport to serve.
Candidate draws linkages
between factors on his/her
framework.
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Sample Framework
Sample Framework
▪ Profit
Company
Competition
▪ Revenues
▪ Ticket Price x incremental # of tickets sold
▪ Baggage Fees x # of bags checked
▪ Food & Beverage prices x quantity sold
▪ Costs
▪ Fixed; type of aircraft? lease/mortgage payments
on aircraft; Airport related costs - Gate fees, Rent
for ticket counter space, Municipal taxes
▪ Variable; Fuel, Labor, Maintenance
▪ Brand/Perception impacts, risks
▪ How do they compete with our client? Routes? Pricing? Frequency?
Customer segment?
▪ How do they differentiate?
Customer
▪ Who/Segments? Business v. tourist/personal travel
▪ Willingness to pay?
▪ Needs? Underserved destinations? # of flights / day? Timing of
flights?
Regulation
▪ Local, regional and national government rules on quiet hours
▪ Environmental impacts
Behind the Framework
Candidate should be thinking about what
kinds of factors would be critical to driving
a decision about where to expand service
to.
Must-haves:
Revenues & Costs associated with
expanding service. New ticket revenue,
new fees, taxes, staff required. Some
thought should be given to customer
demand for flights, how often they should
fly etc.
Nice to haves:
Non-financial impacts of decision and
factors that would also influence where to
expand to. Also consider how ticket price
and flight frequency would influence
customer demand for tickets.
Differentiators:
Risks associated with the expansion,
additional wear and tear on aircraft, detail
around the types of fees likely to be
charged. Not taking expansion as a given
- considering the idea that it might not be
in the customer’s best interest to expand.
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Airport Selection
Question 1
Once framework walk-through is done, hand the candidate Exhibit A and tell them “The airline has narrowed it down to three
airports which they might expand to. Which one should they pick?”. Assume that each passenger makes a round trip so that
one on an outbound leg is replaced by one on an inbound leg for each round trip flight.
Data
Make the candidate brainstorm the following types of costs and revenues. Allow them to pull this data from you.
Airport
Sudbury
Mosoonee
Saguenay
Opens Closes Municipal Taxes and Fees Market Size (passengers/day) % Business Travelers
6:00 23:00 $
12,000,000
2000
30%
7:00 20:00 $
8,000,000
1200
10%
5:00 23:00 $
7,000,000
1100
20%
• Maple Lead can capture 10% of any market
• Maple Leaf operates 350 days/year.
• Business Travelers pay an average of a 20% price
premium due last minute bookings.
• Tickets are priced at $0.50/mile flown.
• There are roughly 1.6 kilometers in a mile.
• Ground support personnel and ticket counter space rental
costs at each airport are $1.2M/year.
Candidate Insights
The candidate now has all the information they need to figure out the revenues and costs associated with each airport. The
hours of operation information will seem irrelevant right now but will come into play later in the case. They should quickly
bucket the data into revenues and costs. The challenge here are the large amount of data to deal with, the metric/imperial
conversions and remembering to do the $/day -> $/year conversions. The candidate should be able to understand the exhibit
and draw accurate conclusions regarding price and willingness to pay in developed and developing countries respectively.
They should also accurately calculate market size. Solution is on the next page.
Tuck Consulting Club
92
Airport Selection Calculations
Revenues
Airport
Sudbury
Mosoonee
Saguenay
Share of Market
# Business # Personal Ticket
(passengers/day) Travelers
Travelers
Price
400
120
280 $ 350.00
240
24
216 $ 600.00
220
44
176 $ 500.00
Revenue from
Business Travelers
$
50,400
$
17,280
$
26,400
Revenue from
Personal Travelers
$
98,000
$
129,600
$
88,000
Total Potential
Daily Revenue
$
148,400
$
146,880
$
114,400
Total Yearly
Revenue
$ 51,940,000
$ 51,408,000
$ 40,040,000
Costs
Airport
Sudbury
Mosoonee
Saguenay
Municipal Taxes &
Fees
$
12,000,000
$
8,000,000
$
7,000,000
Additional
Staffing &
Ticket
$ 1,200,000
$ 1,200,000
$ 1,200,000
Total Airport
Costs
$ 13,200,000
$ 9,200,000
$ 8,200,000
Airport Profit
Airport
Sudbury
Mosoonee
Saguenay
Profit
$
38,740,000
$
42,208,000
$
31,840,000
Tuck Consulting Club
Based on this data the candidate will want to choose Moosonee as the best airport to expand
service to. However as they will learn in the next phase of the case, it is impossible to capture
all that revenue due to the speed and time constraints of the aircraft available to serve that
route. If they don’t automatically move on to aircraft selection remind them of the prompt.
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Aircraft Selection
Question 2
Ask the candidate “Which aircraft should be used to service the airport?” Hand them Exhibit B. Once they ask for data on
aircraft specific costs, if they have not already done this, make them brainstorm what kinds of aircraft costs they think would
be a factors. Then hand them Exhibit C.
Calculations
Exhibits B & C will lead to the following calculations:
Airport
Sudbury
Mosoonee
Saguenay
Aircraft
Total Yearly Costs
Embraer E190
$
10,600,000
Bombardier CRJ 700 $
10,400,000
Embraer E190
$
12,200,000
Bombardier CRJ 700 $
11,800,000
Embraer E190
$
11,400,000
Bombardier CRJ 700 $
11,100,000
Airport
These costs lead to a
profit calculation that
looks like this:
Sudbury
Mosoonee
Saguenay
Aircraft
Profit
Embraer E190
$ 28,140,000
Bombardier CRJ 700 $ 28,340,000
Embraer E190
$ 30,008,000
Bombardier CRJ 700 $ 30,408,000
Embraer E190
$ 20,440,000
Bombardier CRJ 700 $ 20,740,000
The candidate may not do all of the above calculations because they may have already settled on Mosoonee as the best
airport. At first glance, it would seem that serving Mosoonee with a Bombardier CRJ 700 would be them most profitable
option. However that recommendation is not the best option. There is another dimension to this case. The speed and
capacity constraints of the aircraft lead to a different conclusion.
Candidate Insights
It is critical that they realize this isn’t just about money. There is a seat capacity constraint and a flying time constraint which
restrict them from choosing the most profitable airport or the cheapest aircraft. If they focus only on the costs and
recommend using the Bombardier jet to serve Mosoonee, nudge them to consider the implications of the aircrafts’ speed and
seat capacities.
Tuck Consulting Club
94
Aircraft Constraints
Guidance to Interviewer
If the candidate considers the speed and seat capacity constraints of the aircraft, they will realize that in some cases at some
airports, one or both aircraft cannot move the number of people who want to fly within the daily operating hours of the airport.
Calculations
Exhibits B & C will lead to the following calculations. Tell the candidate it is fine to round to the first decimal place.
Airport
Sudbury
Mosoonee
Saguenay
Time/ Round Turnaround time Time to complete Round Trips/ Round Trips Total # Passengers Able to Satisfy
Aircraft
Trip (hours) on each end
1 round trip
day
possible
able to fly
Demand?
Embraer E190
1.8
0.5
2.8
6.2
6.0
420.0 Yes
Bombardier CRJ 700
1.9
0.5
2.9
5.9
5.0
300.0 No
Embraer E190
3.0
0.5
4.0
3.3
3.0
210.0 No
Bombardier CRJ 700
3.2
0.5
4.2
3.1
3.0
180.0 No
Embraer E190
2.5
0.5
3.5
5.1
5.0
350.0 Yes
Bombardier CRJ 700
2.7
0.5
3.7
4.9
4.0
240.0 Yes
Once the candidate completes these calculations, it becomes clear that serving Sudbury with an Embraer jet is actually the
best option. The speed and capacity of the jet overcome it’s higher costs. At Sudbury, you can capture all of the potential
market of 400 passengers. At Mosoonee, the best you can do is capture 210 of the 240 passengers meaning you lose (240210)/240 = 12.5% of the revenue or $51,408,000 x 12.5% = $6,426,000. That reduces yearly profit on the Mosoonee route
to $30,008,000-$6,426,000 = $23,582,000.
Candidate Insights
An exceptional candidate will account for the hours of operation, speed and seat constraints before making a decision.
Tuck Consulting Club
95
Airport and Aircraft Recommendations
Recommendation
Maple Leaf Airlines should expand service to the Sudbury airport using the Embraer
E190 aircraft. This will yield annual profit of roughly $28M. This is based on the
following factors;
• Which airport is most profitable to serve
• Speed and seat capacity constraints of the aircraft which would be used
• Hours of operation of the airports
Risks
• Opportunity costs around not expanding to Moosonee or Saguenay
• Our calculations’ sensitivity to assumptions about the % of business travelers
using the route and each airport’s operating hours
Next Steps
Suggest helping the client figure out how to reach the kinds of customers who would
want to go to this airport. Could also suggest refining the ticket pricing model to
further maximize market % while undercutting competition.
Tuck Consulting Club
Candidate Evaluation
Good: Gives clear
recommendation with profit
number and supporting analysis
from case.
Better: Some creative thoughts
around risks associated it this
move, possible next steps,
competition’s response to this
move. Find a way to continue to
serve this client by helping with
optimizing fleet allocation,
implementation etc.
Best: NPV analysis of the lifetime
value of this expansion to the
airline. Recommending that the
airline lobby the Moosonee
municipal authorities to expand
their airports operating hours as
this would make that the most
profitable airport to serve. Finding
a faster or more efficient aircraft to
run the route and capture more of
the market.
96
Exhibit A
965 km
563 km
805 km
Footnote: Map is not to scale
97
Exhibit B
Embraer E190
Seats (All economy)
Average Speed
Bombardier CRJ 700
70
400 mph
Seats (All economy)
Average Speed
60
370 mph
Footnote: Both aircraft require 30 minutes to clean and refuel after each leg of a trip.
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Exhibit C
Airport
Sudbury
Mosoonee
Saguenay
Aircraft
Fuel Costs
Maintenance Costs
Crew Costs
Embraer E190
$5,100,000
$2,500,000
$3,000,000
Bombardier CRJ 700
$5,000,000
$2,600,000
$2,800,000
Embraer E190
$6,000,000
$3,000,000
$3,200,000
Bombardier CRJ 700
$5,800,000
$3,100,000
$2,900,000
Embraer E190
$5,500,000
$2,800,000
$3,100,000
Bombardier CRJ 700
$5,300,000
$2,900,000
$2,900,000
Footnote: All figures are in cost/year terms
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