Fuqua Consulting Club
Interview Preparation Guide
2006-2007
December 2006
Dear Reader,
Thank you for entrusting us with the challenge of helping you to navigate the notorious
consulting interview process! We have made significant changes to the book this year—
changes we hope will improve your skills so that you can land a coveted FY internship
and then a full-time offer. For the first time, the Fuqua Consulting Club interview
preparation guide is proud to present:

Actual interviews from management consulting companies

An industry guide, to clue you in on the basics of some typical industries you will
encounter along the way.

A tip sheet to give you the critical edge in the interview process.
We owe a debt of gratitude to our fearless FY Consulting Team: Mahesh, Ioana, Vinod,
and Bogey. The learning curve was intense, but they proved up to the challenge.
Without their contributions, the book would not have been made a reality. Thank you,
team!
We also extend our gratitude to the second years who took time out of their schedules to
contribute cases from actual interviews and iron out some of the wrinkles along the way.
Sincere thanks to you all.
Finally, we wish you the best of luck in your upcoming interviews. It can be grueling,
but you will learn a lot along the way. Keep up the enthusiasm, and enjoy yourselves.
This is business school, after all.
Best,
Louis Amoroso & Darren Parker
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TABLE OF CONTENTS
Interview Insights ......................................................................................... 5
Consulting Industry Overview ........................................................................................ 6
The Crucial Behavioral Interview ................................................................................... 9
Behavioral Interview: Key Evaluation Criteria .............................................................. 9
Behavioral Interview: Key Evaluation Criteria ............................................................ 10
Behavioral Interview: Common Questions ................................................................... 11
How to Behave During the Case ................................................................................... 13
The Case Interview: Overview ..................................................................................... 14
The Case Interview: Background and Insight ............................................................... 15
The Case Interview: A Short Example ......................................................................... 16
The Case Interview: Key Evaluation Criteria ............................................................... 18
Frameworks ................................................................................................. 19
Frameworks: Overview ................................................................................................. 20
Frameworks: A Primer .................................................................................................. 21
Frameworks: The Three C’s ......................................................................................... 22
Frameworks: The Four P’s............................................................................................ 24
Frameworks: Porter’s Five Forces ................................................................................ 26
Frameworks: Profitability ............................................................................................. 28
Frameworks: VRIN Model ........................................................................................... 29
Frameworks: New Market Entry .................................................................................. 31
Frameworks: Mergers and Acquisitions ....................................................................... 32
Frameworks: Market Estimation................................................................................... 33
Frameworks: Supply Chain........................................................................................... 34
Industry Cheat Sheet ..................................................................................................... 35
Tips to Put You over the Top ........................................................................................ 36
Practice Cases .............................................................................................. 38
Case Feedback Form ..................................................................................................... 39
Case #01: Japanese Golf Ball Market ........................................................................... 40
Case #02: Chicago Piano Tuners .................................................................................. 41
Case #03: Disposable Diapers ...................................................................................... 42
Case #04: Chewing Gum Market .................................................................................. 43
Case #05: Publishing..................................................................................................... 44
Case #06: Yellow Cab Taxi Company - McKinsey...................................................... 45
Case #07: Direct Mail Retailer ..................................................................................... 48
Case #08: Airlines – Accenture Final Round ............................................................... 50
Case #09: Slick Hick’s Farm Equipment ..................................................................... 51
Case #10: Heavy Equipment Manufacturer – Huron Consulting Group, Final Round 53
Case #11: Purified Water .............................................................................................. 54
Case #12: Nabisco’s Market Share ............................................................................... 56
Case #13: Bank Commissions - Accenture 2nd Round ................................................ 60
Case #14: Schwarzenegger Defense-Accenture, Round 1 ............................................ 62
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Case #15: Napoleon’s Pizza Pies .................................................................................. 65
Case #16: Las Vegas Hoops – Bain, Round 1 .............................................................. 68
Case #17: Luxury Brand Jewelry – Bain Mock Interview ........................................... 71
Case #18: Nextel Cup Racing Team UPS #88- Accenture ........................................... 73
Case #19: Eagle Eye Drops........................................................................................... 76
Case #20: Portuguese Cement ...................................................................................... 79
Case #21: Life Science Technology Startup ................................................................. 81
Case #22: Hospital Chain - McKinsey.......................................................................... 83
Case #23: Hotel Development – AT Kearney 1st Round ............................................. 85
Case #24: Shaky Construction Firm ............................................................................. 89
Case #25: Scotch Bar .................................................................................................... 95
Case #26: Yahoo, Google & YouTube - Katzenbach Partners, Final Round ............... 98
Case #27: Sgt. Slaughter’s Construction Co – Accenture .......................................... 100
Case #28: DMB Satellite, Inc. .................................................................................... 104
Case #29: Tipsy’s Distillery........................................................................................ 107
Case #30: Chemical Brothers International ................................................................ 112
Case #31: NoPerx Consulting Company .................................................................... 116
Appendix: Cases from Company Websites ............................................ 118
McKinsey: Health Care............................................................................................... 119
Bain: Cost-savings analysis for food services company ............................................. 127
Boston Consulting Group: Sugared Cereal ................................................................. 134
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Interview Insights
-5-
Consulting Industry Overview
Industry Overview
Consultants provide a wide range of services to businesses. They identify managerial and
institutional problems, perform in-depth quantitative and qualitative analyses, recommend and
develop solutions, and assist in implementation. Time-constrained senior management in several
companies often relies on consultants to bring an unbiased outside perspectives to problem
solving. Consultants are thus expected to bring many resources to the table, including unique
industry-specific knowledge and experience.
Recent economic developments and corporate trends have increased the number of consulting
firms. The expansion of the internet and emergence of new technologies added to the
groundswell. Lately, however, due to the economy, hiring has leveled off and firms are
undergoing some consolidation.
Major players and types of Consulting
The industry began with the founding of Arthur D. Little in 1886. Today’s roster of prominent
firms includes McKinsey & Company, Bain & Company, Booz Allen Hamilton, The Boston
Consulting Group, and Deloitte Consulting, etc. Many firms do not specialize in just one industry
or function, but the entire spectrum of services, mapped over a wide range of industries and
specializations. This results in a variety that does not lend itself to easy classification. However,
we can broadly classify the services offered by a firm as either strategy or implementation
consulting.
Strategy consulting is often a purely information-based activity, yielding a series of blueprints
outlining strategic idea paths and possible outcomes at the end of each path.
Implementation consulting projects require more hands on involvement of the consultants on
projects that culminate in the delivery of a new production system or rollout of new software
offering advanced functionality.
Clients are increasingly hiring a single consulting partner for all required services, which in turn
has led to attempts by various firms operating at the ends of the service spectrum to expand
towards the center. Therefore we find firms that have typically provided strategy consulting,
move towards developing implementation competence while those with implementation oriented
services have developed strategy practices in order to develop macro level ideas.
Why Consulting?
Consulting contributes significantly to the value chain in a given industry, and offers post-MBA
students an opportunity to assume a high degree of responsibility at an early stage in their career,
develop a broad perspective of industries and players, work with multiple levels of client
organizations, interact with motivated and intelligent thinkers and enjoy the excitement of
frequent travel.
-6-
Increasing globalization of consulting firms provides access to global informational resources,
spanning different geographical locations. This provides and unparalleled opportunity to gain
exposure to business worldwide.
Getting Hired
Consulting revenues have increased over the last several years, but the recent geopolitical
turbulence and economic swings have caused a good deal of belt-tightening. While historically
30-40 % of MBAs entered this field, current trends have caused this number to settle between 1020%. Most major consulting firms are still active in on- and off-campus recruiting initiatives.
They usually host special presentations on campuses to inform and educate MBA students about
their unique missions and cultures.
Hours and Compensation
Consultants’ hours generally aren’t nearly as grueling as those of investment bankers. About 60
hours per week is the norm, although some say they only work 45 to 50. Crunch periods can be
more intense, with teams working 75-80 hours a week. These periods don’t usually last for more
than a week or two. Whether you are an associate or a partner, you can expect the same general
schedule. “Hours are pretty similar for all consultants, regardless of rank and position,” says one
insider.
Just out of business school, you can expect to make anywhere between $85,000 and $150,000.
Packages may include benefits and bonuses and some offer additional perks.
Travel
Most consultants travel three to four days a week. The typical schedule is Monday to Thursday on
the client site and Friday in the home office. Of course, this can vary from project to project and
firm to firm. Sometimes you will be lucky enough to have a client in your home city or nearby. A
few consultants only have to travel one to two days a week or 25-30% of the time- but they seem
to be the exception.
Office Culture
Collegial, friendly and close knit are terms that come up often in discussions of the atmosphere in
this industry. Team bonding is an important part of most projects. There are many happy hours
and team dinners, especially when working out of town. Though a couple of conservative
companies still cling to dark suits and ties, many consulting firms these days are business casual.
An important caveat: the consulting culture varies not only from firm to firm, but also from
project to project and partner to partner within the firm.
People and Diversity
The overall consensus from the consulting crew is that they love the people they work with. The
concept of work-fun balance surfaces again and again. In some areas, like strategy, almost
everyone has an MBA. Other sectors are more academically diverse. Many of the large consulting
firms are more international. Smaller or start-up firms are the most diverse in the industry. There
are also more women in this industry than in banking or finance.
-7-
Consulting at Fuqua
Several top consulting firms hire the best and brightest from The Fuqua School of Business. The
consulting club at Fuqua supports the efforts of students to pursue a career in this field. The club
develops and nurtures relationships with the premier consulting firms in the industry and
organizes interactive forums such as symposiums, career fairs and informational sessions to
enable students to network with industry representatives and develop a deeper understanding of
the profession. It also assists students in developing skills in case and behavioral interviewing
through coaching and mock interviewing. Lastly, club members participate in local and national
case competitions.
-8-
The Crucial Behavioral Interview
Preparing for a consulting behavioral interview is very similar to preparing for a behavioral
interview in another function. The preparation simply needs to focus on the attributes a
consulting firm seeks and the specific questions that consulting firms tend to ask. We have
included in this casebook an overview of the behavioral interview process, the behavioral
qualities that consulting firms generally seek, and specific questions that consulting firms may
ask. In addition, we have included some thoughts on demonstrating positive consulting attributes
through the case interview.
Many more resources can be found through the CMC and on the Career Compass website.
PRE –
INTERVIEW
• Research the Company &
•
•
•
•
•
Industry through:
o Website
o Fuqua alumni
o Recent press release
o Career services materials
o Library materials (e.g.
Wetfeet and Vault)
Research your interviewer:
o Obtain a biographical
summary
o Develop question related
to the interviewer’s
experience
Customize your message:
o Focus on key
competencies
o Tie your skills and
experience to their culture
and desired qualities
Anticipate, structure and
rehearse answers to potential
situational questions
Prepare “Tell me about
yourself” question
Practice behavioral interviews
with CMC and other students
DURING INTERVIEW
• Use SAR approach in
•
•
•
•
POST –
INTERVIEW
• Follow-up
answering the questions
o Thank you notes
o Situation
• Ask for feedback if you
o Action
plan to interview next year
o Results
Focus on key competences
Selling yourself
o Identify your key
selling points
o Balance “I” versus
“We”
Package the product
o Be concise
o Tie each answer to a
competence
The Closing
o Feel free to ask
questions
o Provide concise
summary but do not
oversell yourself
o Exit with confidence
-9-
Behavioral Interview: Key Evaluation Criteria
All firms have slightly different evaluation criteria, but most consultancies focus on finding the
same core attributes in candidates: client presence, problem solving/ analytical skills,
communication skills, leadership, initiative/ tenacity, and energy/passion. General definitions for
each of these attributes are below.
CLIENT
PRESENCE
• Positive first impression
• Demonstrates poise and
•
•
•
•
professional demeanor
Generates credibility
Maintains posture and
controls emotions
Uses appropriate phrasing
and timing
Able to prevent conflictsrecognizes sensitive issues
& individual resistance
LEADERSHIP
• Shows ability to persuade
• Able to suggest own
PROBLEM SOLVING/
ANALYTICAL SKILLS
• Understands overall
•
•
•
•
•
business problem
Goes beyond the obvious,
looks for insight
Prioritizes analyses through
hypothesis building
Performs rigorous and
thoughtful analysis
Identifies key issues
Is resourceful and tenacious
in approaching problems
INITIATIVE/
TENACITY
• Determined to find solution
• Has natural inquisitiveness
initiatives
• Charisma
COMMUNICATION
SKILLS
• Able to convey ideas in a
•
•
•
•
convincing way
Listens actively
Expresses himself/herself
well
Understands quickly even if
issues are not clearly stated
Good eye contact, vocal
qualities, gestures and
movements
ENERGY
• Active/enthusiastic
• Ready to give 110%
• Demonstrates passion for
particular firm
Each firm has specific attributes it seeks and varied weightings or priorities for each of the
criteria. In addition to preparing for the general criteria, identify firm specific criteria through
SIPs, company websites, or other research materials. Ensure that you are prepared to explain
what distinguishes that particular company, and that you highlight how your skills, experience,
and personality are a great fit for the firm.
- 10 -
Behavioral Interview: Common Questions
All consulting firms ask behavioral questions at some point in their interview process. Some
firms include several behavioral questions as a part of each case interview; other firms conduct
separate interviews to ask behavioral questions. Behavioral questions are typically very
straightforward but they still require preparation. Answers to these questions will not get you the
job, but they can lose it for you.
The following questions are typical questions given by consulting firms. The questions in bold
were asked during internship interviews last year. For additional questions, check the CMC
resources and the behavioral questions published on Career Compass.
General
 Tell me about yourself.
 Why do you want to be a consultant?
 What has been your biggest challenge?
 What have been your biggest success/ failure?
 Where do you see yourself in five/ten/twenty years?
 Tell me something about yourself that is not on your resume.
 What questions do you have for me?
Work Experience
 Tell me about working at [previous employer]?
 Why did you pick [previous career/employer]?
 Would you change your decision now?
 What was the best/worst part about working for [previous employer]?
 What specific duty did you like best/least at [previous employer]?
Academic Experience
 Why did you return to business school? Why Fuqua?
 Are you satisfied with your experience at Fuqua?
 What activity outside class has been most rewarding?
 What has been your best/worst class at Fuqua and why?
 Tell me about [activity/achievements on resume].
 Where have you demonstrated leadership at Fuqua?
- 11 -
Consulting Fit
 What qualities do you have that would make you a good consultant?
 What do you think makes a good consultant? Please rate yourself on each of these qualities
and give supporting examples.
 Give me an example of a time you have demonstrated [leadership, communication, analytical
thinking, problem solving, initiative, teamwork].
 Tell me about a situation when you had to handle criticism/complaint from a client/customer.
What was the circumstance and how did you handle it? What feedback did you receive? What
was the result?
 Describe a recent example when it was important for you to establish rapport quickly. What
were the circumstances? What challenges, if any, did you face? How did you deal with them
and what were the results?
 Describe an occasion when you took responsibility for making a key decision. What was the
circumstance and what was the decision? How comfortable were you with making the
decision and why? How did you implement the decision and what were the results?
 Tell me about a time when you had to manage multiple priorities. How did you deal with
conflicting demands? What approaches did you use? What were the results?
 Tell me about a situation where you had to work closely with other people to get things done,
and you had to influence their actions without having formal authority over them. How did
you influence the group? To what extent were you effective? Explain.
 Describe the most difficult analytical problem you have ever had to solve.
 What qualities do you think a leader needs?
 What would make you a good manager?
Why Consulting Firm X
 Why do you want to work for this firm? And this office in particular?
 Who else are you interviewing with and why?
 Where is this firm on your list of priorities?
 What do you think the key differences are between Consulting Firm X and other firms?
 What do you think you can offer us?
 What are your strengths/weaknesses?
- 12 -
How to Behave During the Case
Many consulting firms will not perform a “traditional” behavioral interview as part of their initial
recruiting efforts. Instead these firms will focus on the case interview as a means to evaluate
candidates. Candidates often overlook the behavioral components of the case interview. It is
essential that candidates recognize that the case interview is also inherently a behavioral
interview as well. Some people focus so much on “cracking the case” that they forget how many
other skills are being assessed at the same time. In simple terms, they are evaluating your ability
to work with a client and your consulting team to help them solve a problem.
Think about showing the same attributes you want to demonstrate through answering behavioral
questions. Following are some specific tips about what to do and what not to do during the case
interview.
What to do…

Walk in and exit with confidence and ease

Smile, especially in the greeting, small talk, and start of the case

Be prepared with some small talk

Be energetic but relaxed throughout

Look like you are having fun

Show passion about consulting

Actively listen and engage with questions

Be perceptive to clues about mistakes or bad directions

Demonstrate your presentation skills by showcasing your framework

Take time to answer questions – a little silence is fine

Talk out loud so your interviewer can understand your thought process

Be flexible to changing gears in the middle of the interview

State your conclusion first, then back it up with reasons (rather than walking through all the
logic first and then stating the conclusion)

Bring great questions, and tailor them to your interviewer if possible

Show interest in the case after it is complete

Express interest in the position and thank the interviewer for the interview
What not to do …

Mix up which consulting firm is which

Forget the name of someone you interviewed with prior

Be arrogant, cocky, insecure or unsure

Be disorganized before or during the interview

Forget the question you are answering

Get obsessed with taking notes or not take notes at all

Lose composure when you make a mistake

Admit you have no idea how to proceed

Talk too long when answering a question or summarizing your recommendation

Give up before it is over – you never know how you compared to other candidates

Ask your interviewer how you performed at the end of the case
- 13 -
The Case Interview: Overview
Determine Key
Issues
Develop
Hypothesis
Gather Data
Test
Hypothesis
Make
Recommendation
Refine Answer
1. As the interviewer describes the situation, think about key issues facing management.
 Restate the question in a way to add value
 Ask clarifying questions
2. Create a framework and develop an early hypothesis
 Ask for a moment (<~1 minute) to create framework
 Determine the key issues
 Use structure and logic
3. Prioritize data needs
 Drive the process, but be coachable
 Listen closely to the interviewer and pay acute attention to non-verbal indicators
 What do you need to better understand the issues?
 Use facts and numbers as appropriate to build an argument
4. Test hypothesis
 Evaluate which facts are critical to key issues
5. Refine answer
 Probe for more detail in critical areas
6. Make recommendation
 Take a stand: Deliver your conclusion with conviction
 Give evidence to support your conclusion
 State pros and cons – be fact-driven
 Be brief
- 14 -
The Case Interview: Background and Insight
Contrary to what many perspective applicants think, the case interview is not just a tool
that consulting firms utilize to limit applications. The case interview creates a situation
that models many elements of a typical engagement and, as a result, is highly indicative
of actual consulting performance. Usually a case interviewer presents a business
situation that a consultant might find on a consulting engagement: working face-to-face
with an unknown individual in a high stress atmosphere with ambiguous information and
the expectation of reaching a conclusion.
The case interview is designed to not only test the problem solving skills possessed by
the applicant, but also to observe interpersonal skills and probe the business acumen of
the applicant. Having this goal in mind, interviewers design cases to be challenging and
stretch the abilities of the interviewee. Hence, there is not a magic bullet or canned
solution that must be used to “crack the case”. Whether or not a candidate achieves the
“right” answer normally isn’t even the main criterion on which an applicant is being
evaluated.
A good case interview response shows that the interviewee understood the main
issues/problems in the case, made reasonable and necessary assumptions, and
recommended a logical solution. In order to meet these criteria, a candidate should listen
carefully during the case explanation and then repeat back the main issues/problems to
the interviewer at the end of the case description. This ensures that the candidate’s
thinking and response will be on topic. In addition, the candidate should utilize highly
logical thinking when creating their solution. As this is one of the areas of evaluation, it
is important for the applicant to explain their logic to the interviewer during the solution
creation process. One or more frameworks can be a great tool(s) to structure a candidates
thinking and to ensure that the approach will be sufficiently broad.
An excellent case interview response goes above and beyond the good response by
considering future ramifications and long-term strategy points that the basic
issues/problems and their solutions may create. When added onto a good solution,
position sustainability and industry analysis are examples of additional recommendations
that make an excellent case interview response.
- 15 -
The Case Interview: A Short Example
Scenario: Virgin Atlantic has recently spent $20 million to acquire the five-year licenses
to SpaceShipOne after its successful demonstration flights into space. This company
plans to purchase five Space Ships from SpaceShipOne at a price of $10 million each.
Using these spacecrafts, Virgin will offer commercial space travels into space, where
anyone with the guts will be able to experience weightlessness and gaze back at Earth
from a height of more than 60 miles and with a beautiful view of the horizon 1,200 miles
away.
Initial indications state that Virgin will offer three-hour travel aboard the spacecraft
(which includes four minutes of time in space) at a price of $150,000 per trip per
passenger. Each spacecraft can hold five passengers and one pilot. NASA research has
showed that 2% of Americans would happily pay more than $100,000 for a trip into
space. And SpaceShipOne has also indicated that any healthy individual should be able to
ride on the spacecraft after completing a three-hour training course.
Is space tourism a good business for Virgin to invest in?
Additional Information
 Virgin plans to launch its spacecrafts in Florida, Australia, Singapore and Britain.
However, initially launches will only be available in the United States, since
Virgin has not got the necessary export licenses to take the rocket out of US.
 Total cost for all the four launch sites will be $2 million.
 The Ground Operation costs will be $10 million per year.
 Maintenance for the five spacecrafts will be $5 million per year.
 Insurance costs for operations will be $25 million per year.
 Pilots’ compensation will be $20,000/flight.
 Each flight will need $100,000 for fuel.
Good Answer:
Find out whether Virgin could make money in this business.
 Check every aspect of the company’s potential cost structure for the business.
o
Sunk Costs: $20 million (Licenses) + $50 million (Space Ships) + $20 million
(Launch sites) = $90 million.
o
Fixed Costs (per year): $10 million (Ground Operations) + $5 million
(Maintenance) + $25 million (Insurance) = $40 million.
o
Variable Costs (each flight): $ 100,000 (Fuel) + $20,000 (Pilots) = $120,000.
 From the capacity and price per flight: 5 passengers and $150,000 each, we could
get the breakeven number of flights for fixed cost: $40 / [($0.15 million x 5) –
($0.12)] = 64. This means that for the first year, if each spacecraft could have 13
launches for 65 passengers, Virgin will break even in this business.
- 16 -

From the NASA research, we could get the approximate Market Size: 300 million
(total American Population) x 2% = 60,000. Then we get the total potential
Market Revenue: $9 billion
Conclusion: Taking into consideration the big potential market and less competitive
environment in the initial years, Space Tourism will be a good investment for Virgin.
Note: If you could finish the above calculations and analysis through the interview
process, Congratulations, you are now a good interviewee. However, if you want to be an
excellent one, you should think further about the business.
Excellent Answer:
Building on the ‘Good Answer’, utilize Porter’s 5 Forces to check the EXTERNAL
aspects, and VRIN to have a deep and comprehensive INTERNAL analysis.
.
Questions you should also ask during the interview could be like:
 Is Space Tourism a good business? (punch up 5 Forces)
o How much demand will there be? At what price?
o How easy is it for competitors to enter?
o Will customers bargain down prices? Is this an industry where reputation
matters? If so, what are the key elements of reputation that matter and why?
o Will firms compete aggressively once they enter? (e.g. will China, Russia, and
others use this not as a source of profits based on full costs but just to
subsidize space research? If so, what will happen to firms that are trying to
make money?)
o Will environmental regulation get in the way?
 Who is going to profit most from space tourism? (Add to supplier part of 5 forces;
list things like reputation, patents, etc.)
o Who are the suppliers of the technology? Early entrants?
 Will Virgin thrive in this business? Why? (capabilities list, resources list)
o Does it have the right skills / capabilities?
o Does it have other complementary resources it can leverage or that will
benefit from space tourism?
o Will this be too much for Virgin to manage? Is it getting stretched too thin?
 If not Virgin, who will do well? Why?
Note: You should work hard to develop a comprehensive response like the one illustrated
above.
- 17 -
The Case Interview: Key Evaluation Criteria
STRUCTURED
APPROACH
• Understand the question
being asked
• Develop an approach to
answer the question
• Always draw final
conclusion relating
discussion to initial
problem
STRONG
ANALYSIS
• Framing/organizing the
•
•
•
•
•
•
PRESENCE /
COMMUNICATION
SUCCESS-ORIENTED
BEHAVIOR
• Tolerance for ambiguity
• Toughness/resilience
• Initiative/motivation
problem
Prioritization of issues
Identifying relevant
information
Synthesizing and filtering
data provided by the
interviewer
Comfort with numbers and
ability to make reasonable
assumptions
Drawing conclusions from
facts
Identifying key
implications and next steps
•
•
•
•
•
Presentation
Listening
Articulation
Charisma/spark
Credibility/maturity
- 18 -
REASONING
& LOGIC
• Identifying and prioritizing
key issues as they arise
• “Sanity check” – Does the
answer make sense?
• Ability to use the original
approach and logic to sort
out a problem
PROFESSIONALISM
& ENGAGEMENT
• Enthusiasm and interest in
the question
• Engage your interviewer
• Mature and confident
demeanor
Frameworks
- 19 -
Frameworks: Overview
The following frameworks provide a fairly comprehensive set of tools for a successful
case interview. The case book suggestion is to learn these frameworks thoroughly so that
during the interview it is easy to recall and utilize a framework and valuable time is not
wasted deciding which framework to use. Remember that a specific framework is not
needed to “crack the case”.
Key Frameworks in Case Interviews

3 C’s

4 P’s

Porter’s 5 Forces

Profitability
To crack the case you must first separate the problem horizontally and then drill down vertically:
Make your framework “MECE” or “Mutually Exclusive and Collectively Exhaustive.” Do not
force a case into a particular framework and be prepared to use elements from multiple
frameworks.
Example: A client’s profits are declining.
Why?
Revenues
Price
Quantity
Costs
Mix
- 20 -
Fixed
Variable
Frameworks: A Primer
Knowledge of the following frameworks can be critical to conducting a successful case interview.
These tools help to structure a candidates thinking logically and ensure that multiple angles are
studied.

The interviewer is not looking for a cookie-cutter approach to solving problems. During
the interview a candidate should be sure to incorporate their own intelligence and
creativity.

A single framework is often inadequate to identify all of the issues present in a case. It is
therefore recommended that candidates look at more than one framework and combine
the positive elements of each approach into the recommendation.

Interviewers generally are not impressed when candidates explicitly state the framework
or frameworks that are being utilized. Moreover, this approach demonstrates a lack of
creativity on the part of the candidate.

“Students should note that (a) they are panning for gold and are not on a treasure hunt most interviews. are chances to make good points not find a single hidden right answer
and (b) any tool (compass, map, knowledge of geology...) will be helpful in finding gold
in any terrain but only if it that tool is understood well enough to apply. I hope this
(overwrought?) imagery will help students to be relaxed and confident going into and
during their interviews and that it will encourage them to study a few frameworks deeply
rather than trying to know a little about many frameworks.” --Scott Rockart, Assistant
Professor, Fuqua School of Business
- 21 -
Frameworks: The Three C’s
While, the order of listing of the frameworks in this case book is not of any particular
significance the 3C’s can be viewed as the most rudimentary of frameworks. When first
examining any basic situation that a firm may find itself in, it provides a structure that is
extremely useful to focus your initial thoughts on what needs the organization is trying to fufill,
which group has those needs, who else can fufill the same needs, and how is the company placed
with respect to others in fufilling these needs. Thus the 3C’s framework provides a basic
approach to viewing the strengths and weaknesses of a company with respect to its customers,
competitors, and internal company attributes. In addition, this framework also provides a means
to identify the opportunities and threats a company faces in its current industry position.
In general the customer section should help to identify the fit of a company’s product offerings.
The key elements of the Customer section are understanding the customer and the needs this
customer wants to be filled. Once these elements have been identified, more interesting questions
about adapting products to meet customer needs and segmenting customers to more aptly target
marketing efforts develop.
The second C in the 3C framework represents Competition in the marketplace. This part of the
framework should generally cover the substitute products (and their precise positioning) that
might impede a company’s ability to sell to its targeted customers. The competition analysis
should cover more than the products that compete, it must also include the overall attributes of
the firm producing the competing product. Competition analysis helps identify the companies in
competition, rival products, and also how market actions will be received in the marketplace.
The final C stands for Company analysis. The insight that developed from this third part of the
framework should generally identify strengths and weaknesses in a firm’s capabilities and
resources and highlight the overall priorities of the firm.
- 22 -
CUSTOMERS
• Who are they?
•
•
•
•
•
•
•
•
•
• Demographics
• Segmentation
Do they have unmet needs
that we could serve?
The what, where, how,
when, and why of the
buying
Who aredecision
they?
Is there
anyone else that we
• Demographics
might
able to sell to
• be
Segmentation
(growth)?
Do they have unmet needs
that there
we could
Are
anyserve?
services that
The
what,
where,
how, when,
they might find useful?
and why of the buying
What
is our share of
decision
customer
market?
Is there anyone else that we
might be
Potential
4thable
C to sell to
•
(growth)?
Are there any services that
they might find useful?
COMPETITORS
• Who are they, and what is
COMPANY
• Company’s strengths &
the overall market like?
• How well have they been
weaknesses
• How do we compete (e.g.
doing?
low cost vs. high end)?
• How are they different from • How well can we keep new
••
••
••
•
•
•
•
•
us in products, services, or
costs?
Can
competitors
Who new
are they,
and whateasily
is the •
overall
market
like?
enter
the
market?
•
How
well
have
they
been
Do we have to worry about ••
doing?
substitute
products?
How are they different from us •
Do
they have deep pockets? •
in products, services, or
costs?
What will their response be
ifCan
wenew
pursue
a certaineasily •
competitors
•
enter the
course
of market?
action?
competitors from being a
threat (e.g. pre-emptive
actions,
barriers)?
Company’s strengths &
weaknesses
Supply
chain issues
How
do
weand
compete
Financial
capital(e.g. low
cost vs. high end)?
resources
How well can we keep new
Personnel
/ management
competitors from being a
issues
threat (e.g. pre-emptive
actions, barriers)?
Given
its capabilities, what
Supply
issuesdo?
can
the chain
company
Do we have to worry about
substitute products?
Financial and capital resources
Do they have deep pockets?
What will their response be if
we pursue a certain course of
action?
COLLABORATORS
Buyer Selection:
• Purchasing potential
• Growth potential
• Structural position
• Cost of servicing
Supplier Strategy:
• Stability and
competitiveness of the
supplier pool
• Optimal degree of vertical
integration
• Allocation of purchases
among qualified suppliers
• Creation of maximum
leverage with chosen
suppliers.
- 23 -
•
•
•
Personnel issues
Given its capabilities, can the
company do what you’re
suggesting?
Frameworks: The Four P’s
When attempting to analyze a specific product or action plan for markeing of a firm to market
that product, The 4P’s offers a structured approach that highlights the key levers a firm can
utilize when formulating and implementing its action plan. In this way the 4P’s presents a means
on which one can create/test potential solutions to issues that were crystalized in a 3C’s analysis.
The first step in analyzing a specific corporate action plan is to identify the Product and
understand its current positioning (real and perceived). By understanding the product’s
current position, the strategy implemented can be tailored for maximum impact.
Additionally it is important to examine factors such as first-mover advantage and product
adoption when analyzing any given action plan.
After analyzing the product, the next step is to consider how customers are made aware
of the product and its benefits. Promotion specifies which customers are targeted and by
what method. In certain circumstances it might make sense to implement a pull
campaign and in others a push campaign. It is important that the overall promotional
plan incorporate the analysis of all 4P’s.
The third P is Place. When conducting analysis of the corporate action plan, it is crucial
to understanding the choice of channels used to move product and channels move
information. The place analysis should emphasize the value contributed to customers and
the channel member’s motives.
Once the product has been promoted properly and set in the appropriate market place, the
firm must create profits from its sale. Price is the only P of the 4P’s that captures value
from consumers and determines firm profitability. Therefore is extremely important to
the overall action plan. In addition to determining base prices, it is also important to
account for channel costs and price sensitivities of the market and how these variations
will influence the overall analysis.
- 24 -
PRICE
PRODUCT
• What will price be?
• What are the competitors’ prices for
•
•
•
•
• Does the product have the right
competing products?
What discounts or other incentives will be
offered?
Will prices vary across geographic lines?
How much do the target customers value
the product?
Will the product be priced at or below its
perceived value?
positioning in the marketplace?
o Does it serve a particular segment of
the market
o Is it a mass market or niche market?
• What kind of brand equity does the
product uphold?
o What are some of the features that can
be added to the product that would
add to the value or the perception?
• What are the packaging issues?
o Does the packaging reflect the
positioning of the product?
o How does the product fit in the
overall strategy?
PLACE/DISTRIBUTION
PROMOTION
• What message is the company trying to
• Which channels are the most closely
•
•
•
•
•
aligned with the company’s strategy?
What functions does the company want to
the channel to serve?
Will it be more appropriate to go direct to
the end-user or deliver the product
through intermediaries?
What are the economics of the channels?
How much control is the company willing
to give up on the delivery of the product?
How would the company address any
potential shifts in power to the channel?
- 25 -
•
•
•
•
•
communicate? What is the objective?
What are some of the barriers to
communicating the desired message?
Does the promotion/branding focus on the
long-term view of relationship building
with the consumer?
How is the marketing strategy different
from the competition?
Which vehicles will the company use to
influence the decision making process?
How much money is being allocated to
marketing?
Frameworks: Porter’s Five Forces
Porter’s 5 forces is a framework to analyze and understand the intensity of competition
with in an industry and thus profit potential in an industry. This tool is useful when
analyzing the competitive strategy of an organization and is especially helpful in
situations like new market entry, mergers & acquisitions and the long-time viability of
staying in an industry.
According to Porter, the intensity of the competition is determined by five key structural
forces: (1) bargaining power of buyers, (2) power of suppliers, (3) threat of new market
entrants, (4) intensity of rivalry among existing competitors, and (5) competition from
substitute products.
Bargaining power of buyers: Buyers compete with the industry by exerting price pressure
or by other means that will affect the profitability of the business (like a demand for
better quality). The power of buyers is determined by factors like, size to the
organization, differentiation within industry, switching costs for the buyer, and possibility
of backward integration.
Bargaining power of suppliers: Suppliers can squeeze the profitability of an industry by
increasing the prices or decreasing the quality of supplies. Power of supplier is much
higher when the supply industry is dominated by a few players, industry is not an
important customer for the supplier, supplier groups’ products are differentiated and
possibility of forward integration by the suppliers is higher.
Threat of Entry: New entrants bring more capacity to an industry and thus take away
profits. The threat of entry depends on the barriers to entry that exist in the industry and
the reactions of the existing players to a new entrant. Barrier to entry is determined by
factors like economies of scale, capital requirement, access to distribution channels and
the regulatory environment created by the government. The existing players in an
industry might preempt a new entrant by strategies like entry deterrent prices.
Intensity of rivalry among existing players: Rivalry among players can take on forms like
price competition, advertising battles, and increasing service or warranty levels that
might erode profits. This intensity of rivalry is affected by the size and number of players
in the industry, proportion of fixed costs, level of differentiation, and exit barriers.
Pressure from substitute products: Substitutes limit the profit potential in an industry by
providing competing values to the customer. Identifying the substitutes is a matter of
great significance as the substitutes can arise from a totally unrelated industry. Substitute
products that pose a significant threat are those that have decreasing cost trends, or from
industries that have the capacity to bankroll the costs involved.
- 26 -
The analysis of the five forces can help identify a defendable position for an organization
within an industry in terms of positioning, exploiting shifts between forces, or identifying
a new industry for diversification.
POWER OF
BUYERS
POWER OF
SUPPLIERS
INDUSTRY
RIVALRY
• How many buyers does the • How many suppliers serve • How does the industry
•
•
•
•
•
•
industry serve?
How many firms serve the
buyers?
How “big” are buyers
relative to industry?
How critical is your
product/service
Who are they? to the
buyer?
• Demographics
• Segmentation
•
•
••
••
Do they have unmet needs
that we could serve?
•
The what, where, how, when,
and why of the buying
decision
•
the industry?
How many firms within the •
industry does a supplier
•
serve?
•
How “big” are suppliers
relative to industry?
•
Do
Whothe
aresuppliers
they, andserve
what other
is the •
overall market like?
industries?
•
How well
haveisthey
•
How
critical
the been
•
doing?
supplier’s product/service
How
they different from us •
to
theare
industry?
in products, services, or
costs?
Can new competitors easily
enter the market?
compete?
Price
Product differentiation
Is the market expanding or
contracting?
Is the industry
Company’s strengths &
concentrated?
weaknesses
Many small players
How do we compete (e.g. low
One
player
and several
cost big
vs. high
end)?
small
players,
etc.
How well can we keep new
competitors
being a
• What
are ourfrom
company’s
threat (e.g. pre-emptive
strengths/ weaknesses
actions, barriers)?
relative to competitors?
• Supply chain issues
• Do we have to worry about • Financial and capital resources
substitute products?
• Personnel issues
•
Do they have deep pockets?
• Are there any services
that
THREAT OF
THREAT
OFits capabilities, can the
• Given
they might find useful?
• What will their response be if ENTRY
company do what you’re
SUBSTITUTES
•
Is there anyone else that we
might be able to sell to
(growth)?
we pursue a certain course of
action?
• What is your competitive
suggesting?
• What barriers to entry are
advantage?
present?
• How easy can your
• What are the entry/exit
product/service be
imitated?
• Industry standards?
• Introduction of new
technologies
costs
• Have you reached
minimum efficient scale?
• Are there any large asset
requirements
• Are there any patents
- 27 -
Frameworks: Profitability
PROFITABILITY =
• What are the business
economics?
• Cost/benefit
• Market share
• Are there any synergies or
overlap issues with existing
businesses?
• Likely response from
competitors?
REVENUES +
PRICE
• Price trends?
• How do prices compare to industry?
• Is it possible to raise/lower prices?
• Price sensitivity of customers?
QUANTITY
• What are they selling?
• Products & Related Services
• Sales Trends? Why?
• New markets? Geography?
• Underserved Customers
• New Products/Services
• Are they gaining or losing customers?
• Why do customers buy?
MIX
• Selling high/low margin products?
• Product and margin mix shift among
different customer segments or
geographies?
- 28 -
COSTS
• Fixed Costs
• Factory
• Equipment
• Land
• Unusual Charges
• Variable Costs
• Wages
• Materials
• Inventory
• Shipping
• Selling
------------or-------------------• Raw Mats Procurement
• Price, Quantity, and
Efficiency
• Production Costs
• Process
• Labor
• Distribution Costs
• Channels
• Transport
Frameworks: VRIN Model
While the 3Cs, 4Ps and Porter’s Five Forces will be familiar to most of us, none of these
frameworks provide much insight into the question “why is this firm or that firm able to sustain
higher performance than others within its industry?” To answer this question strategy research
has developed the Resource Based View of strategy. The Resource Based View asserts that
sustained differences in profits among firms in the same industry can be traced back to specific
resources that only a few firms have. The “VRIN” model helps us to identify which resources
are likely to lead to sustained profits. VRIN sets out four necessary and sufficient conditions (i.e.,
if you have all four you have something great, if you have less than all four you have nada) for a
resource to lead to sustained profits.
Each of these four necessary and sufficient conditions provide one letter for the VRIN acronym.
The first condition is that the resource be valuable (V). Clearly an inefficient production plant is
not likley to be a valuable resource. It is not valuable because its costs leave little margin when
compared to what people might possibly pay for the product. Even if the firm’s production plant
is efficient (and thus valuable) it won’t lead to sustained profits if everyone else has an efficient
plant as well. Competition would soon drive prices down to the production cost of an efficient
plant and thus wipe out any profits. If the firm is going to get profits from the resource, then the
resource must be rare (R). If, for example, only one or two companies have efficient plants they
are far more likely to keep prices high.
What we really want is profits that are sustained over time. This means that resources must not
only be valuable and rare, they must stay that way over time. If they are to stay rare, they must be
hard to imitate (Inimitable). It must be difficult to build efficient plants or else efficient plants
will become commonplace and any profits they provide today will be competed away. If they are
to stay valuable, they must be hard to substitute (be Nonsubstitutable) with other resources. Fro
example, the value of an efficient plant is quickly lost in an industry where competitors can
substitute cheap labor – perhaps by outsourcing manufacturing abroad – for the technologically
advanced machinery and plant layout that currently make another company’s production efficient.
The VRIN acronym doesn’t really capture well one last consideration: to provide profits to the
firm the resource must not be able to bargain up its own price. This is most clearly seen in cases
of productive people rather than productive plants. An individual can demand higher pay if they
are the source of a firm’s profits and as long as they could produce similar profits somewhere
else. That is, to be a source of profits the firm must either have control over the resource (e.g.,
own it) or be uniquely able to make the resource valuable so that it does not have to compete for
the resource.
The VRIN model can be used to analyze both the single business strategy (at the business level
we talk about resources and capabilities) and corporate strategy (at the corporate level we use the
term core competencies). The logic is identical at both levels: in fact core competencies are
really just resources or capabilities that help several distinct businesses within a corporation.
- 29 -
Valuable
Rare
• What resources are valuable to
• Is there an informational advantage in
competitive advantage of the firm?
• Does the resource produce
intrinsically different levels of
efficiency?
owning these resources?
• Produces a cost advantage that is not
available to other firms
Inimitable
Non-substitutable
• Is there firm-specific learning?
• How imitable is the resource?
• If imitable patent protection not
•
•
•
•
possible, so small entry lag
• If inimitable, big entry lag, what
other special resources can be built
Are there casual ambiguities that
prevent would-be imitators?
Mobility barriers that create
prohibitive switching costs & entry
barriers.
The nature and process by which the
resource is attained
Non-tradable assets developed within
firms
- 30 -
• Immobile of Imperfectly mobile
resources.
• Co-specialized assets that have high
value when employed together.
• Sharing the benefits between the
organization and the ‘owner’ of the
resource (like human resources).
Frameworks: New Market Entry
ENTRY MECHANISMS
MARKET OPPORTUNITIES
• What are the business economics?
• Cost/benefit
• Market share
• Are there any synergies or overlap
issues with existing businesses?
• Likely response from competitors?
• Joint Venture
• Direct Investment
• Acquisition
• Carve out
• Build Organically
REQUIRED CAPABILITIES
INDUSTRY ATTRACTIVENESS
• How big is the industry and
the profit margins?
• Identify the level of
competition in the market
• Look at market dynamics.
Use Porter’s 5 Forces.
• Is this industry growing,
stagnant, or declining?
• What resources and capabilities
are used to succeed in this market?
• Does the client have these
resources or capabilities?
• Can the client obtain these
resources or capabilities? How?
• Partnership
• Acquisition
• Alliance
- 31 -
Frameworks: Mergers and Acquisitions
INDUSTRY
FUNDAMENTALS
• Is this an attractive
industry?
• Should we continue to
play in this market?
• What are the relevant
industry dynamics?
o How do companies
compete?
o Who are the
customers?
o Where’s the growth,
etc.?
• How would competitors
respond to an acquisition?
• Any regulatory hurdles to
overcome?
CULTURAL
ISSUES
AUTOPSY OF TARGET
VS. REST OF INDUSTRY
VALUE OF THE DEAL
(SYNERGIES)
• Who are the target’s
• Synergies
customers? How do these • Cost: SG&A, R&D, Mfg,
customers perceive both
the client and the target?
• Analyze target
performance… market
share, profitability,
product, etc.
• What are the relevant
strengths & weakness of
the target?
etc.
• Revenue: Enhanced
product, improved
distribution, robust
customer solutions, crossselling opportunities, new
customer segments, etc.
• “Softer” Synergies
(Management capability,
technology, etc).
• Compare base line
valuation + synergies to
the purchase price
ALTERNATIVES
• Discuss alternatives
• Clash of company
cultures, or a good fit
o
o
o
o
o
- 32 -
Outsourcing
JV
Corporate
restructuring
Carve out
Etc.
Frameworks: Market Estimation
Often embedded within a case, estimation problems can be approached in multiple ways.
Example: If Wal-Mart installed kiosks to print digital photos, how many prints could they sell
per year?
TOP DOWN
•
•
•
•
•
•
•
•
•
BOTTOM UP
250-300M people in US
Uniform distribution
Average lifespan = 80yrs
Age range of digital camera owner is 2060 ~150M people
150M people are ages 20-60
10% own digital cameras = 15M people
10% are Wal-Mart customers = 1.5M
people
20% will use photo finishing kiosk =
300K people
Average person prints 50 prints per year =
15M prints/year
- 33 -
• How many customers does a Wal-Mart
•
•
•
•
•
•
•
•
•
•
•
•
•
have?
2000 customers per day
How many own digital cameras?
10% =200
How many would use a kiosk?
10% = 20
What % of their visits would be for prints?
10% = 2 kiosk customers/day
How many prints would each person
make?
10 -> 20 prints/day/store
What does this mean on a yearly basis?
*400 days/yr = 8K prints/year/store
1,500 Wal-Mart's = 12M prints/year
Frameworks: Supply Chain
Key Components of the Supply Chain
- 34 -
Industry Cheat Sheet
Industry
Airlines
Key Revenue Components
Business vs. Leisure segmentation,
Capacity Utilization, Price discrimination
(day of week, # of days in advance)
Key Cost Components
High fixed costs, High
operating leverage, security
Operating Margins Other Characteristics to Consider
Low
Potential government regulation, Hub-andspoke vs. point-to-point
Automobiles
Financing, Warranties, Parts, New Cars,
Used Cars, Maintenance (some of these at
dealerships)
Large PPE, Extensive R&D
Moderate
Powerful Negotiator, Union Issues, Oligopolistic,
Pensions, Tight supplier relationship, Cyclical
business
Health Care
Providers
Insurance reimbursement, Occupancy Rate Specialty labor, facilities and
equipment, IT systems
Moderate
Medicare/Medicaid, Privacy Issues
Financial Services Business vs. Consumer segments, Portfolio IT systems, Customer service, Moderate to High
of products, Cross-selling opportunities
Fraud detection
Robust systems architecture, Risk
management, outsourcing call centers
Pharmaceuticals
Relationship-driven sales
Patent protection, Long product cycle, High risk
and high return
Retail (Apparel)
Converted customers*average
Store costs, Commissionsales*frequency, Premium Brand vs. Private based sales
Label, Same-Store-Sales metric
Low to High (it
depends)
Hi-Tech
Software vs. hardware, subscription vs.
license model (recurring vs. one-time)
R&D, Labor (software), Fixed
assets (semiconductors)
High (software), Low First-to-market vs. leapfrog strategy, short life
(hardware)
cycle, product and process innovation
Defense
Monopsony buying from oligopoly
R&D, Technology spend
High
Long-term relationship, contracts, and sales
cycle, Security concerns, Patents, Government
regulation
Hospitality
Business vs. Leisure segmentation,
Capacity Utilization, Price discrimination
(happy hour, seasonality), Tips
Operating Leverage (hotels),
Customer service
Low to High (it
depends)
Seasonality, Cyclical business
Telecom
Subscriber revenue (wireless), Customer
Customer Churn, Cell phones
segmentation (frequent vs. infrequent),
as loss leaders
Cross-selling and integrated services (DSL)
Moderate to High
Growth industry, Short product cycles
Oil and Gas
High demand with ability to manipulate
supply
High
Vertical Integration, Oligopoly, Seasonality
R&D, Advertising Expenditures High
Resource exploration,
extraction, and refining, High
PPE
- 35 -
Seasonality, Promotion, Placement on shelf,
Profitability per square foot, Store layout, Store
location, multi-channel strategy, Customer
service
Tips to Put You over the Top
Read this list and put it into practice. It represents advice that we have gleaned
along the way. It is worth more than its weight in gold.
Interviewees

Try to avoid coming up with a ‘3 C’s or 4 P’s framework’. These concepts are
important and frequently employed, but dress them up with different names (for
example, say ‘End User’ instead of ‘Customer’).

Do not be afraid to ask for moment to collect your thoughts, at any point in the
interview. Haste makes waste.

While you are cracking the case, do not forget that the interviewer is analyzing
your behavior as well.

Do not neglect the behavioral portion of the interview. We can say it until we are
blue in the face, but some of you will underprepare in this area anyway. Don’t be
that guy!

Expand your practice interview network. Change case partners.

Use this casebook early and often.

Understand the differences and nuances between the firms themselves. There are
differences and this question does come up on occasion.

Turn your page with your framework so that your interviewer can better follow.
The more the interview can follow and remain engaged, the better your interview
will be.

Be personable. Smile. Some personality can take you a long way. If it looks like
you’re not enjoying the case interview, why would your interviewer expect you to
enjoy consulting as a career? If you really don’t enjoy cases, ask yourself if you
will really enjoy consulting as a career.

Get plenty of sleep and eat breakfast when you have a morning interview.

Be vocal with the math. People get lost and lose interest in your numbers when
they are not engaged.

To that end, walk your interviewer through your thinking throughout the case.
- 36 -

Always keep the original case question in the back of your mind. What are you
trying to solve—don’t get lost in the tall, thick weeds.

Listen and take cues from the consultant. They are there to help you.

For every numerical conclusion you come to, you should be doing two things:
o Is this number reasonable (is it logical)?
o What does it mean (drive the process forward and find inferences)?

Finish strong—your conclusion is the last impression you make in the case.
o Take a stand: “In looking at…(insert original goal/question here), I
recommend…(put a stake in the ground). I feel this way because…(list
two or three or four analyses from the case that buffer your position).
o Other factors to consider: “If I had more time, I would look at…(show the
interviewer some depth of thought here: run sensitivity analysis, explore
international expansion, conduct further market research).”

Practice math in your head. The book, “How to Calculate Quickly,” by Henry
Sticker, is really helpful. People on your project teams at school will be amazed
at your mathematical dexterity.

Send thank you notes and make them personable. You don’t have to write a
novella, but a quick note is appreciated. This is not just for you, but makes the
school look good as well.
Interviewers

When you give a case for the first time, prepare the case well for the candidate
sitting across the table. The better you know the case, the better it will flow and
the more realistic it will seem.

Give the candidate honest feedback. If you are not being candid with them, they
will continue to make the same mistakes.

Use our “Case Feedback Form” to give valuable feedback to the candidate.

Give cases. Give cases. Give cases. You learn quite a lot by giving cases.

Challenge the candidate. On thought-provoking, brainstorming questions, ask
“What else” to generate more creative responses from the interviewee.
- 37 -
Practice Cases
- 38 -
Case Feedback Form
Use the below criteria to structure the feedback to the interviewee for every case.
Remember that while these are some of the recommended parameters, you can create
your own as well.
Main Aspect / Criteria
Grade Other observations
1(low)5(high)
1. Framework:
a) Quality of structure
b) Time (under 1 minute)
c) MECE
d) Presentation
2. Problem Solving:
a) Logical questions
b) Listening Skill
c) Leads/Drives
d) Coachability
e) Depth of Quant analysis
f) Verbalizes thought process
3. Conclusion:
a) Time (~30-40 seconds)
b) Answers original question
c) Gives supporting points
d) Additional insight (risks,
alternatives, etc.)
e) Shows conviction
4. Presentation Quality:
a) Poise under pressure
b) No annoying ticks
c) Good posture
d) Seems attentive
e) Enthusiastic
f) Eye contact
g) Firm handshake
h) Non-verbal signs
i) Legible, uncluttered notes
- 39 -
Market Estimation
Case #01: Japanese Golf Ball Market
Scenario: You are going to visit a client who sells golf balls in Japan. Having had no
time for background research, you sit on the plane wondering about the size of the market
for golf balls in Japan, and what drives demand. Your plane lands in fifteen minutes.
How do you answer these questions?
In estimation cases there is no one right answer. You make up the numbers as you go
along, so try to make your calculations as easy as possible. A good rule of thumb: use
nice, round numbers. The interviewer will expect you to think out loud, outline a general
framework for how you are going to solve the problem, and then come up with
reasonable assumptions about the inputs that you need.
Approach:
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Golf ball sales are driven by end users.
Population of Japan: 125 million.
Proportion that play golf: 1/5.
Purchase Frequency: the average golfer plays 20 times per year and uses four
balls per time.
125 * 1/5 * 20 * 4 = 2,000 million. The estimated market size for golf balls in
Japan is 2 billion.
- 40 -
Market Estimation
Case #02: Chicago Piano Tuners
Scenario: How many piano tuners are there in Chicago?
This is an estimation case - there is no right answer.
One potential solution:
What is the number of households in the Chicago area? (Presume 3 million households)
Make an estimate of how many people have pianos. Break the income of the households
into four quarters (750,000 each).
20% of highest income quartile has pianos
10% of second quarter
5% of third
0% of fourth
Estimate how often these pianos are tuned:
Highest income quarter tunes pianos once a year
Second quarter once every five years
Third quarter once every 10 years
Fourth quarter doesn’t tune at all
Income Population % w/ Pianos # of Pianos Times tuned/year Tunings/year
1st tier
2nd tier
3rd tier
4th tier
Totals
700,000
700,000
700,000
700,000
2,800,000
20%
10%
5%
0%
140,000
70,000
35,000
0
245,000
1
1/5
1/10
0
140000
14,000
3,500
0
157,500
Estimate a piano tuner can tune five pianos a day, 250 days a year, therefore:
112,500/250 = 450 pianos a day to tune 450/5 = 90 pianos tuners needed.
How could you check this? Look in the yellow pages. Would all the piano turners be in
there? You can guess half might be, while half work on word-of-mouth advertising. By
the way there are 51 piano tuners listed in the Chicago Yellow Pages.
- 41 -
Market Estimation
Case #03: Disposable Diapers
Scenario: You have been retained jointly by Pampers and a federal commission on
waste management to estimate the volume percentage of disposable diapers in the total
US household garbage.
Approach:
Volume percentage = Diapers (volume) / US household garbage (volume)
Numerator
 Population of the United States: 300 million
 Proportion of population that are disposable diaper-wearing children: 10% = 30
million
 Number of diapers used per day: 4 = 120 million diapers per day.
 Volume per diaper: 500 ml (or use another number in gallons/oz if you prefer)
 Volume thrown away per day = 500 * 120 million = 60,000 million m1= 60
million liters
Denominator
 Population of the United States: 300 million
 Average volume of household garbage can: 10 liters (or use gallons if preferred)
 Average number of emptied bags per day: 1 = 10 liters per day
 Total volume of garbage/day: 300 * 10 = 3,000 million
Ratio
 60 million liters of diapers/ 3,000 million liters of garbage = 2%
- 42 -
Market Estimation
Case #04: Chewing Gum Market
Scenario: How would you estimate the size of the annual U.S. chewing gum market?
Check your answer for reasonableness.
Approach:
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Population of the US: 300 million
The heaviest users are between the ages of 10-20. They comprise roughly 20% of
the population, or 60 million.
Estimate that these people chew two packs per week. Estimate number of
packs/year: 2 packs/week * 60 million people * 50 weeks = 6,000 million packs.
For all other users, (80% of 300 million population, or 240 million) estimate a
usage rate of one half pack per week: 0.5 packs/week * 240 million people * 50
weeks = 6,000 million packs.
Adding these two figures, estimate the total chewing gum market to be 6,000 +
6,000 = 12,000 million (or 12 billion) packs per year.
Now check for reasonableness. We have the volume, what about the revenue?
How much is 12,000 million packs in terms of dollar sales? Estimate for average
price of pack: $0.75. 12 billion packs * .75 = $9 billion, which appears quite
reasonable.
- 43 -
Market Estimation
Case #05: Publishing
Scenario: Your client is the CEO of a publishing company producing a line of
educational magazines and a line of women's magazines. Both businesses are profitable
but not growing quickly. He wants to start a third monthly magazine in the US targeted at
25- to 55-year-old men (e.g. GQ Magazine). His stated goal is $12 million in circulation
revenues in the first year. Is this possible?
The candidate needs to recognize that this is a simple market estimation case. He/She
should make assumptions and use round numbers to make the math less cumbersome.
Give the candidate latitude in exploring possible approaches to solving the problem.
There is a fine line between drilling too deep and not going into enough detail when
sizing the market.








The total US population is approximately 300 million.
Based on a normal distribution with the average life span of 80 years, approximately
1/2 of the population falls between 25-55, or about 150 million people.
Approximately 1/2 of them are male, or 75 million.
Of the 75 million 25- to 55-year-old men in the country, assume that at least 1/2
would read a magazine or ~40 million.
Given the wide range of magazines on the market assume that only 10% of magazine
readers would want to read a men's journal, or 4 million target customers.
As a new magazine assume that you can generate a 5% share of the men's magazine
market in year one, or 200,000 customers.
Based on other magazines selling for $2.50-$5.00, assume a cover price of
$4/magazine at the newsstand and $2/magazine for a subscription.
Now make some assumptions on how many customers will buy at the newsstand
versus subscription: assume 50% subscribe (100,000) and 50% buy at the newsstand
(400,000).
This comes out to monthly revenues of $200,000 + $400,000 or $600,000. For simplicity
assume that all target customers buy a magazine every month. This would generate total
revenues of $600,000 X 12 or $7.2 million. In this case, given the CEO's stated goal of
$12 million in circulation revenues, it would not make sense to launch the magazine.
- 44 -
Profitability
Case #06: Yellow Cab Taxi Company - McKinsey
Scenario: You are a taxicab operator Yellow Cab Taxi Company in New York City.
You have just dropped off a fare at LaGuardia Airport, which is 12 miles from downtown
Manhattan. You have two options.
1) Go back passenger-less to Manhattan
2) Queue up and wait 2 hours for a fare to go to Manhattan
Question: As the taxicab operator, what factors would help in making your decision?
Question: If the answers to Q1 are sufficient, ask them to run some numbers.
The following data is to be provided when asked for by the candidate:
Typical taxicab fare structure:
1st Mile - $4.00
Each additional mile - $2.00
Tips - Assume 15% of total fare
Engine efficiencies, fuel consumption data:
Fuel Efficiency - 24 miles/gallon
Fuel Cost - $2.00/gal
Fees (Operating Company):
50% of the meter reading to be turned into the taxicab company (e.g. Yellow Cab)
Other miscellaneous questions the candidate may pose:
Do I have to worry about traffic?
No. Assume times and distances are consistently applicable
Any additional costs to consider – ex: baggage, extra passenger
o No. No other data/factors affect this case in any way.
The framework to be used is simply the revenue/costs attributable to each decision and
hence maximize profitability / minimize losses for the cabbie.
If the candidate is marching down the above path, and asks for numbers such as above,
provide it to him/her, and guide toward running the numbers to answer the second
question. The approach we should really take is look at the costs / revenues of each
scenario for the taxicab.
- 45 -
Profitability
Analysis: Assume that we stay at the airport. In this case we pick up a fare to NYC.
This would generate revenue of:
$4*1 (for the first mile) + 2*11 = $26.00  base fare
Tips = 15% of base fare
= $3.90
===========
Total
$30.00 (approximately)
Now let’s look at our costs in this scenario:
Given 24 miles/gal, we use ½ gallon of fuel for the entire 12-mile trip.
At $2 per gallon:
Fuel Costs
= $1.00
Taxi Cab Company Cost
50% of $26.00 (meter cost)
= $13.00
=======
Total Cost
$14.00
Profit = Revenues – Costs = $30.00 - $14.00
Operator Profits = $16.00
Question: Say we leave and head back to Manhattan without a passenger. What is the
net margin for the cabbie?
Interviewer: Make sure the candidate understands the reasoning as to why he/she is
doing this. The candidate should deduce that the time spent sitting at LaGuardia could be
used to get fares in Manhattan and make money. Let them proceed with the following
data about fares in Manhattan:
Toll to be paid to go back to the city
: $5.00
Time to search for fare once in Manhattan : 10 min
Distance to be driven for fare pickup
: 2 miles
Time fare engages cab
: 10 min
Distance fare travels
: 2 miles
Same fare rate.
This is a cycle and the candidate needs to identify the revenues generated in such a 2hour cycle with the equivalent 2-hour wait and passenger pickup at La Guardia
calculated earlier.
- 46 -
Profitability
Candidate continues…
Break down the revenues generated per cycle:
4*1 (for first mile traveled) + 2*1 (for the second mile) = $6.00
Tip 15% of the base fare = $0.90
= $1.00 (approximately)
======
Total
$7.00
Let’s break down the costs:
A sharp candidate will realize that there is a cost associated with driving back.
Cost of fuel (12 miles takes up 0.5 gal, @ $2/gal) =
$1.00
Toll booth cost (yes, both ways)
= $5.00
=========
Total Cost (to get back to Manhattan)
$6.00
Cost associated with each cycle:
Cost of driving around (2 miles) to find a fare = (2/24) * 2 = $1/6 = $0.16
Similarly cost of driving the fare (2 miles) = $ 1/6 = 0.16 cents approximately
Now we know 50% of the fare goes to Taxicab Company.
We know fare = $6. Therefore company nets 6/3 = $3 and operator keeps $3
Therefore Net cost of a cycle = ($0.16 + $0.16 + $3.00) = $3.33
Net margin per cycle for operator = ($7.00 - $3.33) = $3.66
At this point the Candidate has identified one-time cost to Manhattan as $6.00, and the
net margin per cycle to be $3.66. Candidate should continue with analysis…
Given each cycle lasts 20 minutes and we have 2 hours equity time we can expect the
taxicab operator to generate six revenue cycles. Adding up the margins operator stands
to make:
Total margin in six cycles = (6 * 3.66) = 21.96
From this we need to subtract the one time cost to get to Manhattan ($6.00)
Therefore, operator generates profits of (21.96 – 6) = $16.00 (approx)
Bottom-line: Both the approaches net the same margins for the operator. So neither path
confers a bigger advantage.
Question: Why are the bottom lines for the two strategies comparable, and can one
expect this in real life?
A good answer would be merely the observation that it’s interesting that both the routes
net the same result. A superlative answer would consider why that makes logical sense.,
and tie in supply and demand equilibrium, explaining why the market steers itself
towards the equilibrium point. Discussion along the lines of “if too many cabbies stay
back then they wont get their fare in 2 hours, but they will notice that other cabbies are
getting fares quickly by heading back and so they will also head back, leading to
equilibrium.” The alternate of too many cabbies heading back—resulting in
equilibrium—is left as an exercise for the student.
- 47 -
Profitability
Case #07: Direct Mail Retailer
Scenario: You are consulting for a direct mail retailer that sells ladies clothing. Your
client's catalog postage costs have just increased to forty cents per catalog. How can your
client decide if the new price is acceptable?
The candidate should take some time to draw a framework and walk through the
framework for the interviewer. A profitability analysis should follow, with the candidate
requesting revenue and cost information. When the candidate asks for revenue
information, show him/her Exhibit 1.
Provide the following information on request:
 Profit margin on catalog orders: 15%, excluding mailing costs
 Postage costs: $40 for each 100-catalog bundle mailed (100 x 40 cents).
The candidate should be able to deduce the following information from the Exhibit.



Average response rate: 2%, i.e., two orders placed for every 100 catalogs mailed
in 2001. This number has increased slightly over time to 3% in 2005
Average order size: Decreased over time from $150 to 66.67 (= 400,000/6000 as
per Exhibit 1)
Percentage of customers who reorder within six months: Hovering over time
between 20% and 25%, on average
The candidate should calculate the revenues and profits from the information given for
2005. Every 100 catalogs will result in 3 orders, plus 3*(1,500/6,000) = 0.75 additional
reorders, for a total of 3.75 orders placed per 100 catalogs mailed. The 3.75 orders will
result in 3.75 * 66.67 or $250.00 in revenues.
The candidate should continue with the profitability analysis, now looking at costs. At a
profit margin of 15%, approximately $250 in sales will return a profit before postage of
$37.50, which is not sufficient to cover the mailing cost of $40.
Conclusion: The client should not accept the printing arrangement at $0.40 cents per
copy.
Question: The client is interested in improving the revenues per catalog metric. How
might they achieve this?
Brainstorm. Be intelligent. Relax. The best answer might have the candidate take some
time to come up with a structured response. One example might be the book itself
(bigger pictures, layout, more product selection, print in color, etc.). Tweak sales
strategy through better-targeted advertising or by offering a pre-holiday sale to spur
volume.
- 48 -
Profitability
Exhibit 1: Mail Retailer Revenue Data
Year
No. of Catalogs Mailed
No. of Orders Received
Sales
No. of Reorders (within six
months)
2001
50,000
1,000
$150,000
200
2002
100,000
2,000
$150,000
600
2003
200,000
3,000
$300,000
1000
2004
150,000
3,000
$300,000
600
2005
200,000
6,000
$400,000
1500
- 49 -
Profitability
Case #08: Airlines – Accenture Final Round
Scenario: Your client manages Northwest Airlines operations at DTW (Detroit Wayne
County Airport). Detroit is a hub city for Northwest, and it is 5:30 pm on a Thursday
evening, one of the busiest times of the week. Suddenly, there is a security breach, and
passengers in the airport are required to exit the terminal and re-enter through security.
Question: What are the costs of this event?
Here, the candidate can break down the costs down into two main groups: direct and
indirect. The candidate should simply list out and briefly explain the costs here.
Direct costs:
Airlines: Wages (workers there for more hours), fuel (pilots will fly faster to compensate
for late takeoffs), utilization/maintenance costs (it is widely known that airlines lose
thousands of $/minute for planes on the ground)
Airport: Gate fees (few planes taking off), wages (workers will have to work more hours
until all of the planes are gone for the night), and taxes (fewer people sitting around the
airport = fewer people drinking beers, buying books, etc.)
Customers: Loses time, productivity
Indirect costs:
Airlines: Goodwill/future business (next time, customers may choose to fly another
airline or to not fly through DTW)
“Ripple effects”: Basically, if a flight is flying from Detroit to Chicago and then onward,
then all of the connecting/subsequent flights will be late.
Question: How should the airline decide which planes to send off and which planes to
hold for the passengers?
Think about the number of customers/flights/connections. If a flight has no connection at
another airport, hold it. If customers have connecting flights, you would have to analyze
the connection in terms of # of customers affected, # of connecting flights, etc.
Question: The airline VP you are sitting with asks you if the number of customers that
have connecting flights is the best metric to analyze?
Realize that some customers are more valuable than others, like first-class customers
who pay a higher fare, like business customers who have premier status (Fly 100,000+
miles/year on the airline). The candidate should basically realize (if he/she hasn’t
already) that the airline needs to look at connections, etc., but needs to value each
plane/flight in terms of the value of each customer.
- 50 -
Profitability
Case #09: Slick Hick’s Farm Equipment
Scenario: Your client is Slick Hick, a large agricultural equipment manufacturer. Its
primary product line, farming tractors, is losing money.
Question: What questions would you ask of your client to help them solve their
profitability problem?
Approach: Market dynamics, Porters five forces, revenue - cost (PQ - FC + VC*Q)
This information should be given if asked for:

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









Number of direct competitors: Two direct competitors.
Market share: Client has 40% of the market, competitor #1 has 30% competitor
#2 has 15%, with the remaining 15% belonging to many small manufacturers.
Market share trends: Five years ago, your client had 60% of the market,
competitor #1 had 15%, and competitor #2 had 10%. Your client has lost
significant market share to its two main competitors over the last few years.
Customers: All three competitors sell to the same customers.
Price: Client's product is priced higher than others. This has always been the case.
Features: The products all have the same basic features. However, tractors are
not commodity items and a few differences do exist.
Differences that allow for a premium price: Client has a strong
reputation/image of quality in the market and the market has always been willing
to pay a premium for that reputation because it implied a longer lasting more
reliable product. This is critical for some farmers because they cannot afford to
have a piece of equipment break down.
Change in sales revenues: Revenues are down.
Change in sales quantities: Quantity is down.
Change in price: Prices are up.
Change in costs: Costs are up; Change in fixed costs: Unchanged.
Change in variable costs: Variable costs have increased tremendously. The
client does not know why material prices have gone up so staggeringly.
Type of operation (manufacturing or assembly-only): Primarily assembly.
Change in finished part prices: Finished part prices have gone up.
Change in raw material prices for suppliers: Not to client's knowledge.
Change in supplier labor costs: No change. Also, no change in suppliers.
Reason for suppliers charging higher prices for the same products: They're
not--the prices have increased as a result of product improvement efforts. Client
has tightened tolerances and improved the durability of component parts.
Reason for product improvements: Client strives to sell the world’s best
tractors.
Customer willingness to pay for product improvements: Client assumed yes.
- 51 -
Profitability
Solution:
Prices have been raised to cover the costs of improvements, but customers do not place a
high value on the improvements, so the price increase has resulted in a drop in sales. The
client needs to incorporate a cost/benefit analysis procedure into its product
improvement process. The client should also evaluate their marketing plans to ensure
their customers are aware of product improvements and understand their value. Before
scaling back their product improvement process, the client needs to evaluate competitor's
R&D and product improvement positions.
- 52 -
Profitability
Case #10: Heavy Equipment Manufacturer – Huron
Consulting Group, Final Round
Scenario: Your client is a manufacturer of heavy equipment. Revenues have been
increasing but margins have been dropping. The CEO, Peter South, has asked you to
figure out what is going on.
Note: This is a straightforward profitability case. Candidates should use a profitability
framework, but add 2 “Cs” for segments/products and competition. An initial hypothesis
could be that product mix has changed.
The following information should be given if requested:
1. Product Mix: The client sells construction equipment (bulldozers, backhoes, etc.)
similar to Caterpillar. The product mix has not changed recently.
2. Pricing: List price has been increasing at 3-4% annually. We have not changed our
discount policy.
3. Fixed Costs: Ask the candidate what he/she thinks the fixed costs are (SG&A and
PP&E come to mind). There have been no changes in these recently.
4. Competition: There is no real competition in our segments. We have been doing great
and we have a backlog of orders. Our factories are running at 100% utilization.
5. Variable costs: The candidate should list out some variable costs (fuel, raw materials,
labor are three biggies). Labor probably contains a union component. However, no
major changes here. We have, however, passed fuel cost increases onto our
customers.
6. Manufacturing for export: Overseas transport is not a concern. We are not impact by
those exchange rates and high fuel usage.
7. Quantity of equipment sold: Growing
8. Sales Force: The sales force negotiates with each customer, and is compensated based
on top-line growth
Solution: The candidate should realize that the sales force is giving away freebies to get
the sale “maybe additional service, better payment terms, etc.,” which is reducing
profitability.
- 53 -
Profitability
Case #11: Purified Water
Scenario: Your client, a cafeteria manager, needs to make a decision regarding which
purified drinking water option to select. He has three options: individual bottled water,
fountain water (larger refill containers), and on-site water purification. Which option
should he choose?
There are several directions this case could go in, based on the introduction. Obviously,
a cost-benefit analysis comes to mind. What information would the candidate need to
conduct the analysis? Are there other considerations, like environmental concerns?
Perhaps the water purification process must adhere to certain legal standards? Do
customers care one way or the other?
Provide the following information on request:
 The manager’s objective is to find the low-cost solution.
 The number of customers per month could be between 500 and 3,000. The
manager is unsure and has never counted.
 Cost Structure of Water Purification system
o Initial cost of $14,400 and $200 monthly service charge
o Lifetime of a water purifier: your client estimates it is four years.
 Cost Structure of Bottled Water
o Variable cost of $.50 per bottle
 Cost Structure of Fountain Water (large refillable containers)
o Number of dispensing units required: Two
o Fixed cost of setting up the dispensing units: Negligible
o Cost of refilling one container: $35
o Frequency of replacement of water in the two containers: Daily if the
restaurant has more than 2,000 patrons per month. Every other day if
between 1,000 and 2,000 patrons per month. Every third day if there are
fewer than 1,000 patrons.
 Results of customer research (if any) to determine customer preferences:
customers do not have a preference.
 The cafeteria is open 20 days per month
From an economic standpoint, the best option will vary with the number of customers. It
is necessary to set the options equal to each other in terms of customers.
 Water purifier: $200 per month, plus an upfront charge of $14,400 that one can
depreciate over the purifier’s lifetime (i.e. $14,400/48 months) = $300 per month).
Total cost is therefore approximately $500 per month, regardless of the number of
patrons per month.
 Bottled water: $0.50 per patron. Bottled water costs equal purifier costs at
$500/$0.50 = 1,000 patrons per month. Below 1,000, the bottled water costs less.
Above 1,000, the purifier is cheaper.
 Drinking fountain: Less than 1,000 per day = 2*6.33*35 (replace both of them every
- 54 -
Profitability
three days, or 6.33 times per 20-day month). For 1,000 - 2,000 patrons per month,
the drinking fountains will cost $35*2 every other day or $70 x 10 = $700 per month.
At more than 2,000 patrons, it costs $70 x 20 = $1,400.
Consumers
Cost of Option:
Purifier
Bottled
Fountain
0
500
1,000
1,500
1,700
2,000
2,500
3,000
$500
$0
$450
$500
$250
$450
$500
$500
$700
$500
$750
$700
$500
$850
$700
$500
$1,000
$1,400
$500
$1,250
$1,400
$500
$1,500
$1,400
The candidate should review the possibilities for the interviewer, and should synthesize
his/her inferences without having to be prompted. For example, “at very low numbers of
patrons, bottled water is the cheapest solution.”
Question: The manager finds some daily count data over the past year and reports back
that the average number of customers is 1,700. What option should we choose now?
IT DEPENDS. The average monthly number of customers is 1,700, but individual
months may vary widely. If he/she said this, then tip your hat to him/her. For example, if
the cafeteria is in a school, then for several months out of the year there might be few
people juxtaposed with several very heavy traffic months. This is the best answer. Other
suggestions might include tracking how the volume of water that people are drinking is
changing over time. The capital required for the purifier (the cheap option at 1,700)
might be cost-prohibitive if we’re required to pay it upfront.
- 55 -
Profitability
Case #12: Nabisco’s Market Share
Scenario: The salted food division at Nabisco has been steadily losing market share over
the past two years, from a high of 20% to the current level of 18%. Profits as a percentage
of sales, however, have been growing. What could be causing this?
The candidate should take some time to draw a framework and walk through the
framework for the interviewer. Astute candidates will recognize this as a case dealing
with company revenue-cost structure (internal), as well as some external factors. The
candidate should prepare a framework before asking relevant questions.


External Factors: A decrease in market share may suggest
o Competitor dynamics:
 Existing players have increased market share
 New players have entered the market
o Market dynamics:
 Market is growing
 Client is unable to capture the growth. Why?
Internal Factors
o Market share loss may suggest that the company is not spending enough
on promotions
o Growing profits may suggest that the company is reducing cost
The candidate should ask the following questions to test the above framework.
Provide the following information on request:
 Market Size or Company Sales (Show Exhibits 1 & 2).
The candidate should be able to figure out the following from the above chart:
Change in market size over 2 years: grown from $15 to $17 billion.
Change in client's total dollar sales: grown, but not kept pace with the market
Did the candidate make remarks about the mistakes in the charts? Get over it, buddy, the
data is the real-world lives of consultants is not always “clean.”

Main competitors: Largest competitors are two multinational consumer products
companies that feature complete lines of snack foods. Together, the two
companies have about 50% of the market share.

Differentiation from competitors: Nabisco’s sales reps are regarded as the best in
the industry.
Change in client’s product line: None
Change in client's costs over the period, as % of selling price (Show Exhibit 3)
Exhibit 3 may generate questions about promotion, sales force reductions, sales


- 56 -
Profitability
channels, reasons for changing the marketing budget, etc. When asked, provide
the following information about sales channels, sales force, promotions, etc:






Reason for sales force cut: Sales force cut to reduce costs, but number of outlets
unchanged.
Cause of change in the marketing budget: The changes come from reduced trade
promotions.
Sales channels: Products primarily sold in large grocery store chains and
convenience stores.
Sales force/customer interaction: Sales force visits each customer at least once per
quarter.
Timing of promotions: Promotions usually occur at the end of each quarter.
Impact of promotions: Promotions required for end of aisle displays and
advertising space.
Conclusion: Please inform CEO John Keebler of your findings.
The candidate might come up with the following conclusion:
The data show a large decrease in sales force and marketing expenditure. Most of the
marketing reduction was in trade promotions. Product is sold through grocery chains
and convenience stores, which are traditionally driven by periodic trade promotions. The
reduction in trade promotions brought about a loss of shelf space, which led to a
decrease in market share. Also, the product line did not change in a product category
where new products and line extensions are routine. The market has been growing,
indicating a missed opportunity for new products in the market. Lastly, profitability
increased due to lower costs, but it may not be sustainable.
- 57 -
Profitability
Exhibit 1: Growth in Total Sales, Nabisco
Company Sales
2004
2006
$3.02
$3.07
Exhibit 2: Growth in Total Market
Total Market
$18
$18
$17.04
$17
$17
$16
$16
$15.10
$15
$15
$14
2004
2006
- 58 -
Profitability
Exhibit 3: Company Cost Structure
Cost
Raw Ingredients
Conversion costs
Distribution
Marketing
Sales force
Pre-tax profit
Current
28%
24%
8%
16%
7%
17%
Two Years Ago
26%
24%
9%
18%
9%
14%
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Market Entry
Case #13: Bank Commissions - Accenture 2nd Round
This case format was recorded in a conversational style, which means no specific
framework at the front end is required. It also means that we will suggest a possible
scenario of how the conversation might develop but as you will notice things are not
forced to show up in exactly the same order, so as an interviewer you must know all the
facts well enough to take the different roads the case might take to get to the same
conclusion.
Scenario: Your client is a regional bank, trying to improve its profits. To do so, the CFO
is thinking of paying a commission to tellers if they sell products to customers. Your job
is to figure out how much the bank should pay in commissions for each sale.
So why don’t you begin by telling me what is the first aspect you would analyze and why
you start there?
The Interviewee should ask for more information about the products, because unless we
can ascertain the profitability of each we cannot establish how much we can afford to
pay in commissions. Think of it as a breakeven analysis.
The bank has 4 products it wants to sell in this program, CDs, Checking accounts, Mutual
funds, and IRAs.
Candidate: Well, I’d like to understand the profitability of each of these products, and
that will determine how much we can afford to pay the tellers. Do we know the profit
margin the banks make on each of these products?
Interviewer: Yes we do, but before we get into that, why don’t you tell me this first:
What elements would you expect give these products their earnings?
C: I imagine they make money on interest generated, on the commissions, maybe there’s
also an overnight float that we can take advantage, there could be synergies or economies
of scale because of the cross selling.
While the candidate is stating his reasons push him to come up with at least 4 reasons by
using the famous “What else” words. The candidate should write down his ideas so that
he may use them on the recap.
I: For now lets focus on the ‘spread’ of interest of what the bank makes versus what it has
to pay out.
The profitability is as follows:
CD’s: 2% with an average $4,000 initial deposit
Checking: 4% with an average $2,000 initial deposit
- 60 -
Market Entry
Mutual Funds: 1% with an average $8,000 initial deposit
IRA’s: 2% with an average $4,000 initial deposit.
C: Well, it looks like that works out to $80 profit per product. So imagine we can pay out
a portion of that as commissions.
I: What forms can the commission take? For the candidates answer again use the “What
else” format and push for at least four answers.
C: A fixed fee per product, a percentage of the profits, a fixed fee for a certain number of
products sold that would decline after a threshold, or a variable commission depending
based on products and spreads.
I: So what information would you need to determine which form to take?
C: The ease of sale of the products, if all tellers are equally as effective at selling the
products, the possibility of tracking the profits on a per teller or per customer basis, what
type of an increase in the salaries would the commission’s mean, and what type of costs
would that mean to the bank?
I: You can assume that all the tellers are equally as effective and that all the products can
be sold with roughly the same effort. The other parts of your answer we’ll tackle further
down the road. So what would you base the commission on then? The point of giving him
some information but denying another piece would be to throw the candidate off balance
a little bit to see if he can maintain his composure.
C: Then I’d like to use the fixed fee option, which means I’d need to understand how
much the tellers make so I can tell what would be a reasonable incentive or increase to
their pay. Perhaps 10% of their salary would be a big enough bonus if it is reasonable to
achieve. How many products per year can they sell?
I: That’s two questions you just asked. Let’s start with salary: they make between
$18,000 and $32,000 per year, and as I said there’s no difference in how well they sell
based on experience. Secondly, the bank thinks the tellers can sell 5 products per week.
C: OK, so I’ll take an average teller salary of $25,000 per year from that range. And 5
products per week * 50 weeks per year = 250 products per year. Therefore, if we want
to give the tellers an average 10% bonus, we can pay them $10 per product. That would
still leave a $70 profit for the bank.
I: What does the bank need to do to make this program happen?
C: They still need to track in their accounting systems a field that shows who sold the
product to make sure they receive credit. Changes in payroll systems may need to be
made. Also, tellers would have to be trained on how to sell the products.
- 61 -
Market Entry
Case #14: Schwarzenegger Defense-Accenture, Round 1
Scenario: Arnold, the CEO of your client [Schwarzenegger Defense Inc (SDI)], thinks he
has found new opportunity in his industry, where they currently work mostly through cost
plus contracts. There are six players in his industry. The government (a big user of your
products and services) has a unique proposition to reduce project costs. For an upcoming
project each company is requested to submit a bid stating the amount it would require to
help the government in this cost reduction program.
The CEO has slotted 30 minutes to meet with you, and has three questions.
Question: Where do we get the benefit in winning these deals?
Question: What will happen to the Return on Assets (ROA) for our plating business?
Question: Should the SDI bid for this contract?
This is a case about cost-plus contracts. A cost-plus contract is where a firm (usually the
government) agrees to pay for the cost of production and then a margin atop that for the
manufacturer.
Assumptions (to be provided upon request):
1) Size of Business: Your business is a $1B revenue business that makes parts for
submarines, ships, and infantry divisions. The firm has a metal plating
application, which can be used by other divisions of the armed forces as well.
2) Company’s Customer Base and Market Share: (Show Exhibit 1)
3) Capital Investment needed: Company needs to spend $30 million to fund badly
needed capital investments to improve efficiency.
4) Details on the new government contract: Let’s structure the new cost-plus
plating contract as follows
a. Cost of the contract = $100 million
b. Government to buy at a markup of 10% (Note: this means $10 million
profits, given the $100 million scenario)
c. Project cost reduction to be achieved via CapEx = $10 million
d. Government markup of 10% remains unchanged
5) Additional plating contract: There is one additional commercial plating contract
available for bid. It costs $20 million to produce, but you can charge $22 million.
Think about the dynamics of winning the bid—making cost-control improvements will
lower the overall cost of the project, and hence lower the company’s profits. The margin
remains the same, but we now receive 10% of a lower overall cost figure. The overall
project cost is now $90 million and the company’s net is 10% * 90 million = $9 million)
Solution:
a) What are our benefits should we win the contract?
- 62 -
Market Entry
First, we can lower production costs. Second, by showing goodwill throughout the
bidding process the Company will put itself in a position to secure current and future
business (Otherwise what’s the point for the government to invest big bucks in a
particular contractor?). Lastly from an investment perspective this makes good sense.
We would have incurred the $30 million capital investment cost anyway in order to stay
competitive and bring our costs down to increase margins. The industry term for this is
‘capital avoidance.’
b) Return on Assets: (Net Income / Total Assets)
ROA = 10 / 100 = 10%. The fixed assets of our facility are $100 million before the
government funding (prior to the 30 million investment).
After potential capital investment using our own $30 MM, the ROA = 9 / 130 = 7%.
However, we should consider the commercial opportunity, too, where the cost was $20
million and the selling price $22 million. With the new machinery, the cost drops to $18
million while the price stays fixed at $22 million. Profits will increase by $2 million.
Therefore, incremental profit will be $1million. (-$1 million in Government and + $2
million in commercial).
c) Should we bid then?
Regardless of the source of money, we need to make the changes to lower costs and stay
competitive. We could also use this capitalization to become competitive in new markets.
Conclusion: Schwarzenegger Defense Inc should bid!
- 63 -
Market Entry
Exhibit 1
Company’s Customer Base and Market Share:
Customer
% of SDI’s Revenue Market Share
Army
Navy
Other (Commercial)
30%
20%
50%
20%
10%
15%
- 64 -
Market Entry
Case #15: Napoleon’s Pizza Pies
Question: Napoleon’s Pizza Pies (“Pizza fit for an Emperor”) has recently tried to
establish the best home pizza delivery business in Paris. Pizza Hut, however, has a virtual
monopoly on the pizza home delivery market. Napoleon’s has asked your consulting firm
to analyze issues that will determine the likelihood of successful entry in the Parisian
pizza market. What information would you need and how would you analyze the pizza
delivery market?
Candidates should be excited to do a case about pizza in Paris. Make sure they are on
the right track—estimate the market size, do an industry analysis for market
attractiveness and segmentation, then examine the cost structure to look for a sustainable
competitive advantage.
Estimate the market size: The candidate needs to estimate of the size of the Parisian
home pizza delivery market. If the candidate asks for market information, introduce
Exhibit 1 and Exhibit 2.
Information available on request:
 He/She may ask what percentage of Pizza Hut’s business is delivery (~50%).
 Almost 90% of deliveries take place outside the city centre.
 City centre Pizza Hut stores offer predominantly restaurant service.
 The market for pizza is growing at 5% annually. The submarket for delivery is
growing at 8%
Good candidates will remember that Pizza Hut has a virtual monopoly position in home
delivery. The market for the city centre, however, seems underserved. Keep in mind that
the barrier to entry for Pizza Hut to set up a delivery service there is low, but doing it
well in the city centre might be a different issue.
Question: Napoleon launches his pizza delivery business and wins a customer service
award. Pizza Hut responds (Show Exhibit 3). What should Napoleon do?
Frankly speaking, Pizza Hut seems to be overreacting by starting a price war with a
fledgling competitor. They are killing margins and profits. More information on Pizza
Hut’s delivery service should be considered. Are there substantial differences between
the Pizza Hut delivery and quality model versus Napoleon’s? If there are (“pizza fit for
an emperor”, “top-notch delivery”), then perhaps Parisians would be willing to pay the
premium. The city centre tends to be more expensive, on average. Napoleon should
maintain its focus on the premium market and execute on points of differentiation
(customer service). Plus, Napoleon’s market share is probably pretty small at this time.
P.S. We have no information on how many of the different pizza types are ordered.
Conclusion: Napoleon calls you from his moped for answers. What can you tell him?
- 65 -
Market Entry
Exhibit 1
Paris Population By Region
20
18
16
14
12
10
8
6
4
2
0
City Centre
Urban Areas
Suburban Areas
Cumulative Population in millions
Exhibit 2
Pizza Hut Information
Sales in millions (Pizzas)
Stores
Market Share
Market Segments, % of sales
Paris City
Metropolitan Areas
Paris Suburban Areas
1.2
95
85-95%
20%
35%
45%
- 66 -
Market Entry
Exhibit 3
Pizza Prices
$26
$22
$18
$22
$20
$24
$22
$19
$17
$21
$20
$18
$23
$21
$18
$18
$16
$14
$21
$19
$15
$20
$17
$15
$13
$16
$14
$17
$13
$17
$15
$12
$10
Pan Pizza
HandTossed
Style
Pizza
Stuffed
Crust
Pizza
Lower Fat
Pizzas
Cheese
Lover's
pizza
Meat
Lover's
pizza
- 67 -
Pepperoni Sausage
Lover's
Lover's
pizza
pizza
Veggie
Lover's
pizza
Chicken
Supreme
Napoleon's
Price
Pizza Hut
Before Entry
Pizza Hut
After Entry
Market Entry
Case #16: Las Vegas Hoops – Bain, Round 1
Scenario: Your clients are the mayor and city council of the city of Las Vegas. They are
involved in negotiations to bring an NBA team to the city. An NBA franchise is looking
to relocate. It is a successful team, having finished in the top three in the conference over
the past five years. The city is negotiating to put up 50% of the cost of the arena and
related facilities. The total cost of the entire deal is $300 million
Question: What are a few things for the mayor to think about?
The candidate should realize that the mayor’s motivations could be financial and nonfinancial (political). The candidate may take a moment to think, but should be able to
generate some ideas within 30 seconds or so. Some potential answers include the
revenues that the NBA team will bring the city in the form of taxes. New jobs will be
created, increasing income tax. Local growth in the number of hotels and restaurants
will correspond to a bump in taxable income, too. There is prestige for the city
associated with having an NBA franchise.
Question: What are some other positives for the city?
Push the candidate to be creative. For example, the stadium could be used as a
convention center during the off-season. It could potentially be used for other sporting
events, too. The youth of the community could benefit from the community service?? and
outreach contributed by the players and the organization.
Question: What are some negatives of having an NBA team come to Vegas?
The candidate may mention things like population growth (Vegas is one of the fastest
growing cities anyway). More people living in Vegas and working at the stadium could
lead to increased levels of pollution, congestion, and crime.
Question: There is some concern about the large initial expense. Who is likely to be
concerned?
The stakeholders who would voice concern include those who currently have an interest
in the city budget. Tax-paying residents would be very concerned about how their money
is being spent.
The mayor is happy with your list of pros and cons. She, however, wants to know more
about the payback of the $150 million investment. The city will get a 10% cut on all
revenues associated with the stadium. How many games will it take to recoup costs?
- 68 -
Market Entry
Okay. The case has just gotten really serious with a breakeven analysis. The candidate
may start to make assumptions about factors that will contribute to revenues. If need be,
prompt the candidate:
Question: What are the major sources of revenues?
There are three main revenue sources to discuss: parking, concessions, and tickets. If
the candidate asks for data like how many people does the stadium hold, have the
candidate make some assumptions. A great candidate will show structure in breaking
down the problem. One example follows:
Avg. revenue per game x Number of games in season = Avg. revenue for city per season
Total Revenue = Tickets + Parking + Concessions
Tickets: In stadiums, there are luxury boxes, nosebleeds, and courtside seats, and
everything in between. Let’s say that the average ticket price is $50. The average
attendance is 15,000 people. Remember, the interviewer should try to choose nice, round
numbers. Total ticket revenue: $750,000.
Parking: for a 20,000-person stadium, let’s say that 2,000 cars show up to the parking lot
on any given game night. They pay a nice, round $10 parking ticket. Total parking
revenue: $20,000
Concessions: $20 in refreshments and $10 in merchandise, on average, for a total of $30
per person. Total concession revenue: $450,000
These revenue estimates generate $1.22 million * 10% = $125,000 (approx) for the city
per game. There are roughly 40 home games during the NBA season (if the candidate
does not know this, they should at least know enough to ask how many games will be
played there). $125,000 * 40 games = $5 million per season.
Therefore, the payback period is 30 seasons. Candidates should comment that this seems
like a long time before recouping the money, but may note that there are other revenue
benefits like the ones discussed earlier in the case.
Question: The analysis that you have done yields a 30-year payback period. The mayor
flatly states that 30 years is too long. How can you shorten the payback period? The
terms of the deal (10% cut and $150 million investment) are fixed.
Some suggestions that the candidate may offer include:


Improved external revenues from hotels and restaurants
Other stadium uses: Conventions, other sporting events, one-time events like
the circus or the rodeo or Monster Truck show
- 69 -
Market Entry

Mass transit money collection (if a tram is installed connecting the Strip to the
stadium, for example)
Question: You mention to the mayor that we could decrease the payback period by
increasing attendance at the games. What are levers that could lead to changes in
attendance?
Some suggestions: Substitute leisure activities (gambling, entertainment), caliber of
overall team play, star power (the LeBron effect), and celebrity appearances at courtside
seats.
Question: Your firm is also advising the NBA team owner. What are some issues, both
good and bad, regarding the move to Vegas?
The candidate might address the issue of brand. The NBA team is leaving a known
market with solid brand recognition for an unknown brand market. How will the image
of “Vegas” impact the value of the brand?
Will the team rely on tourists to fill the seats, or will the fan base be people from Vegas?
(Many visitors to Vegas come from Los Angeles, for example, where there are already
two teams. They come to gamble, not to watch basketball.)
The candidate may address overall market risk: Can Las Vegas handle an NBA team?
What television rights or sponsorships could they hope to attract?
The initial marketing expense to increase fan base awareness.
Conclusion: The mayor and the NBA team owner walk into the room. Should the deal
go through?
At this point the candidate should synthesize findings and deliver a recommendation.
What is good for the NBA team owner may not be beneficial to the mayor, and so a
balanced, win-win solution should be given.
- 70 -
Market Entry
Case #17: Luxury Brand Jewelry – Bain Mock Interview
Scenario: Your client is a luxury brand that is considering extending the brand into the jewelry
market. They’ve hired us to answer two questions: (1) Is the jewelry market attractive, and (2) If
it is attractive, what are the possible creative means of entry?
This is a market entry case. It’s important that the interviewee keep separate the questions of
market attractiveness overall and how we would enter it. Most people will try to mix the two.
Hopefully, however, they will quickly try to focus on the luxury segment of the market.
Question: In answering if the jewelry market is attractive, let’s brainstorm as to what are some
of the questions you might ask?
Good questions to explore: growth, profitability, segmentation, competition (concentration,
number of, profitability, competitive barriers), barriers to entry, customers, value-chain position
(where is value created?). Interviewer can prompt candidate for more topics by asking, “What
else?”
The following information should be given if requested:
1. Market size: Plenty big. There’s no need to get into an exact market size with numbers.
2. Market segmentation: Two segments. Luxury—Tiffany, Cartier, high-end mom and pops
selling designer jewelry. Mass market—Zales, Shane Co., trinket jewelry (lower-end).
3. Growth forecasts and profit margins for our segment: 3-5% growth in our segment (luxury),
and strong profits. For the sake of conversation one might say that the mass market is not doing
quite as well for the obvious reasons (more fragmentation, commoditization, harder to
differentiate, customers shop on price, not quality).
4. Target customers in our segment: Rich people, high-end, brand-conscious
5. Are customers brand loyal? No, they’re just brand conscious.
6. Competitors in our segment: Tiffany, Cartier, mom and pop locally known as high-end. They
are profitable.
7. Barriers to entry for the jewelry market: Not many - you need a strong brand and a designer.
High end is brand-driven. Your client can get supplies (diamonds) and it believes it has access to
a designer with a good name (think of Paloma Picasso’s work with Tiffany’s—brilliant)
8. Current product: Luxury hotels. Think “W” or a larger Rosewood hotel.
Based on this, the interviewee should conclude the market is attractive. If the candidate can
drive to the next question, that’s excellent, otherwise, look for them to conclude question 1 and
then push the next question.
Question: How should we test market our product?
The following information should be given if requested:
1. Where do people buy (distribution channels): Catalogue, Internet, retail stores in high-end
malls or on main streets, either selling your brand directly (GAP or Tiffany) or through retailers
(although Tiffany co-brands Paloma Picasso, etc.).
- 71 -
Market Entry
Our customer would like to consider creative options of entry.
Question: How can the client leverage its existing portfolio of assets to test market jewelry?
The client could test a small storefront inside an existing hotel in Las Vegas.
Question: Based on the storefront idea inside an existing hotel in Las Vegas, what do you think
are the basic costs involved in running a jewelry store?
Let the candidate brainstorm and guide them toward these four basic costs:
Rent (allocated): 200sqft @ $10/month = $2,000/month (It’s cheap, just go with it.)
Utilities: 20% of rent (x $2,000 = $400/month)
Employees: 2 employees @ $20/hour x 10 hour shifts = $400/day x 30 days = $12,000/month
Marketing, all other promotions, miscellaneous items: $600/month
This means that total fixed costs = $2,000 rent + $400 utilities + $12,000 labor + $600 misc. =
$15,000 in costs. Notice that given the assumptions we make, there are now variable costs
except for cost of goods (which we only know in terms of gross margin). Don’t let the interview
bog down in terms of fixed vs. variable costs. Just get right to the breakeven.
Question: What is your breakeven number of customer sales per month?
Average selling price (ticket): $1000
Gross margin: 20% so gross margin in dollar terms = $200
This means that the breakeven customer traffic = $15,000 costs/$200 profit per customer = 75
customers per month. Candidate should not only arrive at the number, but good candidates will
not have to be prompted to analyze if this number is reasonable. A focus on reasonableness:
~2.5 sales per day, but—how many customers are browsing (conversion rate)?
How big is the hotel?
How many browsers do our competitors get?
Does our casino attract non-guest traffic?
Vegas, baby, Vegas!
Thank you for your time.
- 72 -
Market Entry
Case #18: Nextel Cup Racing Team UPS #88- Accenture
Scenario: Your client is the owner of UPS #88, a racecar on the NASCAR tour. It races
in the Nextel Cup, a points-based championship where the season winner has
accumulated the most points over the course of the racing season. There are 36 races in
total, running from February to November. Dale Jarrett, a well-known celebrity driver,
races for the team. Dale helped win the Nextel Cup three years ago, and so far this year
is eighth in a field of 43 drivers.
A close friend who is the VP of marketing at Home Depot recently contacted the client.
She inquired about sponsoring a second racing team with the client. She recognizes that
NASCAR is the fastest growing segment among males ages 18-45. She also has talked to
a successful driver from a regional drag racing circuit to try out as the driver of the team.
Your client wants to know what to do about this opportunity.
The candidate should take some time to draw a framework and walk through the
framework for the interviewer. This case is a market extension case with a go/no go
decision. A profitability analysis should follow, with the candidate requesting revenue
and cost information. When the candidate asks for revenue information, do not just give
him/her the information. It is more beneficial to inquire, “what kinds of revenues do you
think the team currently has,” or something to that effect. If the candidate does not name
them all, or names some that are not in Exhibit A, do not worry. This exercise is
designed to see how the candidate thinks about an industry about which he/she may not
be too familiar.
Revenue Sources, UPS #88 % of Revs
Sponsorships
60%
Nextel Cup Race Winnings
25%
Selling Engines
10%
Merchandising
5%
Notes for casegiver to share
UPS dominates; other sponsors include Ford,
Outback Steakhouse, and 3M
One can win from $50K--$1.5MM depending on
how one finishes and the significance of the
particular race.
We have strong R&D shop. Engines are sold to
professional drivers domestically.
License out production to a third-party. The tshirts, and cap revenue provide a small
incremental source of revenue.
The candidate should continue within the profitability analysis, now looking at costs.
Better-prepared candidates may dissect the discussion into fixed and variable costs.
Again, let the candidate name some cost categories and ask for additional information,
as opposed to just giving away the cost structure. Before revealing the total cost
percentages below, explain to the candidate that Total Costs are $20 million.
- 73 -
Market Entry
Cost Sources, UPS #88 % of Costs
Salaries
40%
Equipment
Travel
Lease, Engine Shop
R&D
25%
5%
10%
20%
Notes for casegiver to share
"Race-Facing" costs make up 50% (mechanics and Dale
Jarrett) and "Non-Race-Facing" costs make up the other
50% (engine shop technicians, accounting, HR)
Race cars, engines, parts (sheet metal)
Getting to and from races
Leasing of land in rural North Carolina
Engine shop technology improvements
At this point a solid candidate will drive the conversation forward in order to answer the
initial question. To do so, the candidate needs to understand the incremental costs
associated with adding another team to the fold. If the candidate is unsure of where to
go, one potential question to get him/her back on track could be to ask: “What is the
minimum amount of money that the client should ask for from Home Depot?” This
should spark a discussion of what expenses the new team is expected to incur.
The costs that will be impacted by adding a new team are Salaries, Equipment, and
Travel. The other two cost components are associated with the engine shop.
How will Salaries be impacted? Race-Facing costs will double. (Since race-facing costs
represent half the salary costs, Home Depot would have to pay $4 million.)
How will Equipment be impacted? Equipment costs will double. (Home Depot would
have to pay an additional $5 million.)
How will Travel be impacted? Travel costs will double. (Home Depot would have to pay
an additional $1 million.)
Next question: You have calculated that your client needs to ask Home Depot for $10
million ($4 million + $5 million + $1 million). Can we get a premium from them? Can
we ask them for more than just $10 million?
The candidate may say yes or no—listen to his/her rationale. Multiple answers are
acceptable here. This answer key is not exhaustive.
Yes, we could charge a premium—Home Depot came to us. Also, having already talked
to a driver, the company seems highly interested. Therefore we have bargaining power.
Yes, we could charge a premium if we show Home Depot an acceptable Return on
Investment analysis.
No, we could not charge a premium—there are many alternatives for Home Depot as a
sponsor, including 1) another race team, 2) another sport (e.g., baseball), 3) another
racing circuit (e.g., Formula One)
Conclusion: The owner of the UPS #88 racing team calls you for an update. Please
inform him of your findings.
- 74 -
Market Entry
Interviewer notes:
The candidate may take this case in several different directions, including questions
about the Nextel Cup season, driver eligibility, and if points are tallied based on team or
individual driver performance (individual driver). Some candidates might recommend
waiting until the beginning of the next racing season in order to spread costs across more
races.
Other potential points include the natural tension between adding a new team and the
allocation of resources (e.g., high quality mechanics from Dale’s team may work with the
Home Depot car, thus diluting the quality of performance of Dale).
Potential risks certainly include adding a new driver who has only drag racing
experience. This driver would probably not contribute to merchandising revenue, due to
his relative anonymity. There is some validity, however, to the point that salaries for the
new team may be lower because the new driver lacks the name recognition of Dale
Jarrett.
Finally, the total cost of equipment may be lower than average due to the ability to
leverage the engine shop technology. Some candidates might recommend closing the
engine shop, but we have no margin information to substantiate this.
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Market Entry
Case #19: Eagle Eye Drops
Scenario: Eagle Eye is a small start-up company that wants to sell its new and
revolutionary product to consumers over-the-counter through drug stores chains and
pharmacies across America. The revolutionary product is eye drops to correct nearsightedness. The CEO of Eagle Eye would like to know how many customers she can
get over the next 12 months, and how to price this product.
If candidate requests product-related information, here is more data about the product.
 One single drop needs to be applied per eye every 24 hours; it lasts for 24 hours
 It is only for nearsighted people.
 The company has a 20-year patent.
The candidate will hopefully ask some market-related questions. Have them size the
market. Here is a potential solution:
The population of US is 300 million, ½ below 40 years old and ½ above 40 years old.
0-40 years old: assume 1/3 use eyeglasses or contacts. One-half of those people are
nearsighted, and one half are farsighted. Thus, 300*.5*.33*.5 = 25 million are
nearsighted.
41-80 years old: assume 2/3 use eyeglasses or contacts. One-half of those people is
nearsighted, and one half is farsighted. Thus, 300*.5*.67*.5 = 50 million are
nearsighted.
So, 25 + 50 = 75 million are nearsighted
Out of this, assume that 30% wear glasses and 70% wear contacts. The people wearing
contacts might be more likely to adopt the product (many of them already use drops), so
assume that 50% of the people wearing glasses will adopt the product, and 75% of the
people wearing contacts will adopt the product. Also, presume that people who opt for
laser surgery offset the new people who enter the eyewear market.
People wearing glasses that will adopt the product: 75*30%*50% = 11.25 million
People wearing contacts that will adopt the product: 75*70%*75%= ~39 million
Total people as potential market: 11.25 million + 39.4 million = ~50 million
Great. The candidate arrived at some final answer. Did he/she come up with a market
penetration of the potential market? Market penetration could be 5% in the first year. In
this case, the potential market penetration might be higher because one does not have to
radically adapt to the substitute product (eye drops). Market share is largely determined
by marketing expenditures early on, especially for a revolutionary product introduction,
where questions might revolve around health concerns and whether the medical
community is endorsing this product. Candidate estimates over 20% should be
considered aggressive.
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Market Entry
Question: Great. Let’s say the CEO could expect up to 3 million customers in the first
year (this represents 6% of the market). How much should the product cost the
consumer?
Compare the substitutes and evaluate the cost to consumers. If candidate fumbles here,
ask if we should be concerned with competing strategies.




Glasses – assume $100 per year (one pair per year)
Disposable Contacts – assume $30 per box; one box has 3 pairs that last one
month apiece. (Note: total cost to customer would be $120 per year)
Laser Surgery – $2,400 upfront and lasts 30 years, on average ($80 per year)
Our product – lasts 24 hours, can be used throughout lifetime. There are 60 drops
in one bottle – lasts one month.
(Note: The suggested retail price is not given—the candidate should put a stake in the
ground, and substantiate his/ her point. There is no one right answer. The candidate
should also realize that the retail price is not the price the company is charging—the
price the company is charging is to the retailer (drugstores). In relation to laser surgery,
consumers may see the drops as cheaper than a one-time upfront cost of $2,400 and the
hesitancy of undergoing a surgery of that type. Second, one does not need to see the
doctor for a prescription. Third, the biggest market segment that we will attract is the
contact lens market, which is conditioned to using eye drops already (an incremental cost
we did not include). Fourth, our product provides benefits: no surgery, no contacts
popping out of one’s eye, no inconvenient glasses.
Calculate the cost to the customer (we assume $10/month retail price for Eagle Eye):
Economic Value to the Customer
Glasses
Contacts
Cost per year
130
150
Prescription
20
20
Total
150
170
Laser
80
0
80
Eagle Eye
120
0
120
Question: The CEO decided to charge the drugstores a price of $7.50 per bottle, with a
suggested retail price of $10. How many of these little guys must we sell to break even?
Amazing candidates may have already suggested the breakeven approach.
Information to Provide:
Fixed Cost: Facility-related = 150 million
Variable Cost: $5/bottle
Calculate the Breakeven Volume:
Breakeven Volume = Fixed/(Price – VC)
Breakeven Volume = 150 million/(7.50-5.00) = ~60 million bottles
If we sell to three million people, we will sell (3 million*12 months*1 bottle), or 36
million bottles in the first year. At this rate, we break even in just under two years..
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Market Entry
A great answer will also state whether or not this timeframe is reasonable.
Conclusion: The founder of Eagle Eye calls your secretary, who patches him through on
line #4. What do you have to say?
The candidate should synthesize the findings and make a recommendation. Solid
candidates will mention alternative distribution channels, competitive response,
negotiating power vs. drug stores, and fixed-asset management as capacity utilization
and consumer adoption rates increase.
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Market Entry
Case #20: Portuguese Cement
Question: You are consulting for the number one producer of cement in Portugal. This company
currently has 45% of the market. You feel it could have more, but is running at 100% capacity of
their one plant, located near Lisbon, in Southern Portugal. The CEO has asked you to help him
decide if they should build another plant or expand the current plant.
Have the candidate draw a framework. He/she should explore each element of the revenue-cost
equation and find differences if any, between the two options.
This information should be given if asked for:
 Cost structure for cement production:
 Raw materials: 28%
 Sales and overhead: 18%
 Labor and allocated fixed costs: 16%
 Pre-tax profit: 12%
 Distribution: 26%
 Price: Company's selling prices are set by prevailing market prices in Portugal.
 Land available for expansion: There is a suitable site near Porto, the second-largest city
in Portugal, about 200 miles to the north.
 Location of customers: 80% of the customers are within 100 miles of the current plant.
 Raw materials supplier: Supplier is a government-owned company; prices are set by a
yearly contract with the government.
 Potential for extra shifts in current plant: The plant is unionized. Extra shifts are not
possible.
 Distribution: The company owns the trucks, and all products are directly transported to
the customers throughout the country. Customers pay for trucking by the mile.
 Fixed costs of adding capacity vs. building: The fixed cost of plant additions is roughly
the same as the cost of a new plant of the same capacity.
Solution: Distribution is the second-largest cost item, so it makes sense to minimize distribution
costs in choosing the site of the next facility. From the data, it is safe to assume customers that
are further away are less inclined to buy due to the higher trucking costs. Therefore, location of
the plant in the north may increase sales in the north by reducing delivery costs to these
customers. We can check the macroeconomic data to see the economic growth of the city
(cement ties closely to construction, which is a bellwether for economic vibrancy.
Question: Can you graph the fixed costs at 100% utilization for the company?
Hopefully, the candidate draws a straight line on a graph, where the y-axis represents
utilization, and the x-axis represents time. It should look like the solution in Exhibit 1
through 5 periods. Don’t give the candidate Exhibit 1.
Question: Now please draw the fixed costs if the client wants to go to 110% of current
capacity.
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Market Entry
Some candidates will mark the y-axis at 110% and draw a straight line. Other
candidates may do wacky things that are ignored here. Quality candidates will build a
new plant—we cannot simply increase capacity by 10%. We must double capacity. This
means that capacity will jump from 100% to 200% of current capacity.
Exhibit 1 – Do not Show Candidate
Fixed Costs jump due to Capacity Expansion
250%
200%
150%
100%
50%
0%
1
2
3
4
5
6
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7
8
9
10
11
12
Market Entry
Case #21: Life Science Technology Startup
Scenario: A small life science technology startup, One for the Road, Inc., (ORI), has
invested a huge amount of money in R&D and was recently granted a patent for a new
breakthrough product. The client wants to know what approach it should take to
commercialize the product. What questions would you pose to start the process?
This is a “Go to Market” combined with an M&A case. ORI is trying to launch a
product from the R&D lab into a new market. A good candidate will identify it and use a
3C’s approach combined with the following two questions in his/her framework:
 What are the core competencies of this company?
 Do they have the funds to develop the capacity in-house, or should they be looking
for a partner or buyer for the patent?
The following information should be given if requested:
 How long is the patent protection? 10 years
 Are there any competitors? No. This product would create a new market
 Market potential: The client expects sizable immediate demand
 How much money has been invested in R&D? Substantial amounts
The candidate may discuss the following broad strategies:
 Market Strategy
o Hypergrowth—must manage
o Acquire new customers: how to best market the product
o Determine the appropriate pricing via EVC analysis
 Operations Strategy
o Costs: fixed and variable
o Existing Resources/Strengths: R&D
o Required Capabilities: Buy, Build, or Partner?
 Manufacturing: in house vs. outsourcing
 Marketing & Sales
 Distribution Channels
 Finance Strategy
o Debt vs. Equity to finance growth
o Timeline to break even
 External Factors
o Legislation
o Suppliers of raw materials
Be sure that the candidate has come up with a healthy list of questions before proceeding.
Question: How will you assess whether client should go on its own or find a partner?
ORI has several options:
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Market Entry




Acquire a company that provides manufacturing and marketing capabilities
Joint venture with another company
Outsource manufacturing, marketing and distribution channels
Grow skill sets organically, ergo more slowly
Question: What are some pros and cons of the different strategies?
Given that ORI is a small R&D lab, it is probably not in ORI’s core competencies to
move into manufacturing, marketing, and sales. ORI should certainly pay attention to the
profitability of these strategies, but also bear in mind the risk (while going alone may
allow ORI to keep all the profits, it has many more pitfalls than teaming with an
established player in the industry.)
The candidate might run the following comparison matrix to demonstrate a
comprehensive knowledge of the pros and cons:
Criterion
Speed
Cost Benefits
Growth / Future capabilities
Develop capability internally
Slow
Expensive
Fast and sustainable growth
Get external partners
Fast
Cheap
Slow growth
Question: ORI has decided to sell the patent to an established pharmaceutical firm. How
could the pharmaceutical company come up with an acceptable price for the product?
The candidate might come up with the following answers:
 Conduct Economic Value to the Customer (EVC) analysis
 Surveys to potential customers in order to conduct a conjoint analysis
 Chance to price discriminate among segments (if it can tweak product attributes)
 Analyze past introductions of new products for historical sales trends
 Focus group experiments in separate, comparable regions (to find price elasticity)
- Lower the price in one and raise the price in the other
- Compare the sales volume over a period of time
Question: The new market has two segments, healthcare providers and home users.
How might their needs differ?
The candidate might come up with following matrix:
Criterion
User’s preferences
Healthcare Provider
Cost, Maintenance
Who is making decisions?
How to get to the segment?
Doctor / Procurement Manager
Trade shows, Direct marketing
What are the required resources
such as sales forces?
Experienced sales force to convince
doctors or procurement manager
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Home User
Easy to use, Is cost
reimbursable?
User / Parent / Spouse
Doctor(push) / TV, or print
ads (pull)
Convenience, ease of use
Market Entry
Case #22: Hospital Chain - McKinsey
Scenario: Your client is a large hospital chain. There have been proposed legislation
changes to Medicare that will affect your client. Some surgeries will no longer be
reimbursable at the same rate. In addition, this has caused the hospital to consider a
strategy to shift its response toward less profitable surgeries by using alternative
therapies. The client is concerned about the decreased revenue potential. Currently the
client has a $4 billion top line. Surgeries represent half of this total. Half of the hospitals
in the chain perform all of these surgeries. For this case, let’s say that all patients are on
Medicare (private insurance is not a factor). Should we close part of the chain? All of
the chain? None of the chain? What drivers will help us arrive at a cogent close / no
close decision?
Okay, smile if you think your interviewee asked you to tackle this case because it says
McKinsey on the top of the page. Allow the candidate some time (~1.5 min) to create a
structured framework. Some issues to discuss could be the profitability (revenues and
costs) of the surgeries. Let’s see a revenue breakdown into prices and quantities. Let’s
see a cost structure with fixed and variable costs. What percentage of surgeries is
actually impacted? How are our capabilities in providing alternative therapies—could
we make money there? Let’s see external things, too, like the ability to influence the
regulatory environment, the needs and preferences of our end users (would they pay outof-pocket?). What strategies are competitors adopting?
Steer the candidate toward profitability information. What does he/she want to know?
Typical impacted hospital (annual):
Patients: 1,000
Price (revenue) per patient: $1,000
Cost per patient: $800
Fixed Cost of facility: $100,000
The hospital must serve at least 500 patients to remain open. Each patient delivers a
$200 contribution margin.
Question: How many patients would you have to lose below breakeven (500) to close the
hospital?
The candidate needs information: the cost of exiting the business. Let them ask for it.
The exit cost is $50,000.
The profitability over time, discounted back to today, minus the PV of the exit costs,
should equal zero to breakeven.
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Market Entry
Q*$200 – $100,000 = -$50,000. Q = 25
Another way to look at this is the value of lost customers to the business over time, taken
as a perpetuity.
Or, loss / hurdle rate = exit cost. Assume a discount rate of 10%.
Loss / .10 = 50,000. Loss = $5,000, which equals 25 patients that you would have to lose
below breakeven to close the hospital. 500-25 = 475 patients to remain open.
Question: If fixed costs change to $150,000, how many patients will you need to break
even? How many patients would you have to lose to close the hospital?
$150,000 / $200 = 750 patients to stay open
Loss / .10 = $50,000. The loss of future value that one gives up by incurring the exit
costs equals 25 patients. Below 725 patients, the facility should close.
Question: The hospital does some research and finds that 3/8 of its surgeries will not be
reimbursable. A government report says it will save 6-9% by passing the new legislation.
You know that someone has botched the research. How is the information contradictory?
The candidate should ask for the national market share of the company. Otherwise, the
data above is like comparing apples to oranges. The market share for your client is 20%.
This means that, according to your client, 7.5% (.375 * .20 = .075) of the government
savings will come from its surgeries, which represent only 20% of the total national
market.
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Market Entry
Case #23: Hotel Development – AT Kearney 1st Round
Scenario: Costa Rica has a beautiful beach—almost like paradise—which has
historically been difficult to access. The nearest airport was over six hours away. Within
the past year, however, a new airport was constructed only a half an hour away. There
has been an investment boom in the region due to the increasing number of tourists
(popular with Americans and Asians). The Mandarin Oriental and The Four Seasons,
two prominent luxury hotel chains, were the first to enter this market with a 250-room
hotel each.
Question: Your client is a real estate developer that wishes to cash in on the momentum
created by this airport. Would you recommend that he enter the market?
Note: This case actually focuses on two key issues: a) The attractiveness of the market
[Market sizing and five forces]; b) Long term profits [Sustainability, barriers to entry,
core competencies and signaling].
This case allows you to handle various issues at different points, so ask the candidate to
choose a starting point, but force him to give you a strong reason to validate his choice.
An example would be: “I’d like to start by reviewing the company’s core competencies
because I want to see if this fits into their development model…”
Provide the following information upon request:
Current real estate interests:
 The client has focused on hi-rise apartments (50%) and luxury
condominiums (50%) in the past but wants to enter the hotel arena. (Note:
The insight is that the company has done buildings of similar construction,
but has no direct experience in the hotel industry or service operations.)
 They have focused on world-class beaches, such as Playa del Carmen,
Marbella, Coral Beach, Tahiti, Fiji, Maldives, Mikonos, etc. They know
what is hot. (Note: The insight here is that this company can probably
spot good locations, knows the right price for construction, land, etc. and
can probably access the necessary pools of capital)
Market Attractiveness:
 The government estimates the market to be 875,000 tourists per year
(assuming 350 days in a calendar year), and the average stay per tourist is
4 nights. Average hotel check is $2,000. In terms of tourists, you depend
on government spend on advertising, on travel agents, and on the network
effect of the existing hotels in the area.
Basic Math: 3.5 million tourist nights / 350 days = 10,000 tourists / night
$2,000 average check/ 4 days average stay = $500/night
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Market Entry
Competitiveness: Other hotels chains that are thinking of entering the market are
Starwood, Peninsula, and Imperial Hotels.
Supplier power: The local labor market offers a huge supplier of workers (very positive).
Substitutes: You are fighting with every other “paradise-type” destination, from
Disneyland to Vegas to Bermuda. Interest in this area, however, is sky high.
Barriers to Entry: Prompt the candidate to list several: government regulations, high
capital requirements, unavailable beachfront property.
The insights that the candidate should have drawn from this analysis are that the
market is large enough, and while competitive, we apparently have the resources to
enter it. The level of resources required would be a barrier to entry and maybe
there are others that need to be investigated--such as government permits, access to
sewage, water, etc. Have a good discussion!
Question: The client has already looked at some possible options and has found the
following three available lots. Which one should he consider to maximize Return on
Investment? (show Exhibit 1)
Here is some more information:
 Occupancy will be 50%, assume 350 nights/year
 Operating expenses are completely variable
 The company requires investments to be above break even within a year
and with a ROI of at least 10%
Note: ROI = Profit/Investment. Give the candidate several minutes to generate these
numbers. A solid candidate will be vocal during the calculations, and may even
introduce a written version of the math---Hey, what does that mean? That means that
instead of just writing numbers, the candidate will write out formulas, such as…
Revenue = Revs per night * number of nights * number of rooms * nights per year *
occupancy rate
By doing this, the candidate demonstrates knowledge of the situation. If a math error
comes about, it is much easier to correct and the interviewer recognizes that the
candidate has already shown a strong grasp of the problem.
Option A—Lover’s Lair:
Operating Profits: (((($450 revenue – 250 operating costs) * 500 rooms)* 350
nights/year) * 50% occupancy rate) = $17.5 million operating profits/year (a)
Initial Investment: 30,000 cost/room * 500 rooms + $2,000,000 land = $17 million (b)
- 86 -
Market Entry
Net Profit: (a)-(b) = $500,000 (c)
ROI: (c) / (b) = $500,000/17 million = 2.9%
Option B—Paradise Lost:
Operating Profits: (((($400-200) * 1000) * 350) * 50%) = $35 million
Initial Investment: 28,000 cost/room * 1000 rooms + $4 million land = $32 million
ROI: $3,000,000 / $32 million = 9.4%
Option C—Fookwah Heights:
Operating Profits: (((($350-150) * 1500) * 350) * 50%) = $52.5 million
Initial Investment: $25,000 * 1,500 rooms + $6 million land = 43.5 million
ROI: 9 million / 43.5 million = 20.7%
Question: What would you focus on to determine the feasibility of the project and why?
After the candidate offers his/her insights, tell him/her to focus on ROI, first with the
room prices specified in Exhibit 1 and then with the market room price ($500).
Conclusion: At this point you can ask the candidate to wrap up the case. Here the
candidate needs to give a “go/no go” decision, supporting it with the insights drawn
through out the case, and if he doesn’t mention it, ask him to specify some additional
concerns the client needs to focus on.
Good Concerns:
- Competition (what are they focusing on, will it flood the market)
- Strategy (Where will you compete--low cost, high service, best in class,
packages?)
- How should the developer finance the building? Since the hotel will bring jobs
maybe the government can help with some tax deductions, free services, etc…
Great Concerns:
- How can they leverage their experience, what values from their other business can
they leverage? Would they manage the hotel or build it and then find an
operating partner like Starwood or Hilton?
- What are the existing barriers to entry, how would you change them to insure a
greater degree of success?
- 87 -
Market Entry
Exhibit 1:
Possible deals:
Lover's Lair
Paradise Lost
Fookwah Heights
Land Cost Cost / Room Op Cost Rooms Price / Night
2,000,000
30,000
250
500
450
4,000,000
28,000
200
1,000
400
6,000,000
25,000
150
1,500
350
Notes:
Occupancy will be 50%, assume 350 nights/year
Operating expenses are completely variable
The company is looking to flip these investments at the end of one year, and requires a 10% ROI
- 88 -
Market Entry
Case #24: Shaky Construction Firm
Scenario: Your client is Shaky Construction, a major construction firm in Europe. They
specialize in commercial and industrial construction. It wants to diversify revenues
strategically and geographically. Should the firm enter the U.S. market?
Since this case centers on market entry and industry attractiveness, the candidate should
consider using Porter’s Five Forces. The candidate should consider the capabilities of
the firm (both strengths and weaknesses), the market potential (size and growth rates),
the number of major competitors, and industry trends. A thoughtful candidate should
also consider the opportunity cost. What other market expansion or investment
opportunities are available to the firm? Most of these elements should be integrated into
the candidate’s framework. This case is long, so buckle up!
Only provide the information below if the candidate asks for it.
Information Available Upon Request:
 Competitors – Four major national competitors in the U.S. market, along with a
high number of small players (typically regional/local).

Market Size/Trends - The commercial and industrial construction market is a
$200 billion cyclical industry. It is projected to grow 5% a year (on average) for
the next three years. This is primarily due to projections of robust growth for the
U.S. economy.

Strengths – Reputable firm in terms of industrial construction (75% of revenues),
strong management team, strong technology infrastructure, deep pockets

Weaknesses – commercial business is fairly small and growing very slowly;
unlike major competitors in Europe, lacks an international presence to hedge
business risk

Rivalry – competition within the industry is strong, but prices have held up
relatively well. In addition to price, firms typically compete on quality of
construction and timeliness (ability to meet deadlines).

Barriers to entry – It is a difficult industry to enter because initial capital
investment is very high. Also, it takes a substantial amount of time to build
relationships with customers, sub-contractors, and local suppliers.

Substitutes – Large corporations need to contract with major construction firms
to handle large-scale commercial and industrial projects. They will typically
work with a major construction firm with a domestic presence. The alternative is
to buy / lease a pre-existing facility.
- 89 -
Market Entry

Powers of Suppliers – Since a few major buyers that purchase in volume versus a
large number of suppliers (both labor and materials), the largest commercial and
industrial construction firms have significant bargaining power.

Power of Buyers – This industry is essentially an oligopoly (handful of major
players and a large number of small players). The builders have significant
power. However, large corporations have deep pockets and can be quite
demanding, giving them the ability to extract concessions. They usually submit
their projects to the major builders for bid.

Government Regulation – Initially, regulators might scrutinize the entry of a
large foreign firm into such a key industry in the U.S. market. Ultimately,
however, no significant opposition or excessive regulation is expected.

Opportunity Cost – Shaky has evaluated other investment opportunities in its
home market and elsewhere. Given the analysis, entry into the U.S. represents the
best investment opportunity for the firm.
Through asking the right questions and receiving the responses given above, the
candidate should reasonably conclude that entering the U.S. market is a promising
course of action.
Question: Shaky decides to enter the market. What are the entry options, which one is
the best, and why?
At this point, the candidate should think about strategic options:
1) Go it alone – Enter the market and build up scale and capacity through steady capital
investment.
2) Acquisition – buy a major player in the U.S. market
3) Partner – enter into a joint venture with one or more players in the industry
Once the candidate has identified these options, prompt him/her to evaluate these options
from a financial perspective. This discussion should center on financing, costs, and
future profits. Ultimately, Shaky wants to obtain 10% of the market in two years. Guide
the candidate to analyze the “Go it alone” option first. Inquire:
Question: Shaky decides to go it alone. Management wants a 10% market share in two
years, regardless of the strategy. How much is that?
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Market Entry
After Year 1, the market size is $200 B x .05 = $210 B. After Year 2, the market size is
$210 B x .05 = $220.5 B (the candidate should round this to $220 B. Shaky needs to
obtain $22 B in revenue.
Question: Shaky requires a 10% operating margin by year 2, regardless of the strategy.
Can they achieve this?
The candidate should now inquire about fixed and variable costs. Present the candidate
with Exhibit 1. Upon evaluation, the candidate should inquire about the estimated
number of projects in Year 2 and the average expected contract price.


Estimated # of projects: 220
Average expected contract price: $100 million
The candidate should perform the following calculations:
Revenue = 220 x $100 M = $22 B
Variable Costs = (40 + 60) * 100 = $10 B
Fixed Costs = 9,000 + 1,000 = 10,000 M = $10 B
Therefore, the profit = 22 – (10 + 10) = $2B
The profit margin = 2/22 = 9.09% < 10%
Question: Shaky is not sold on the margins it can achieve, and so it is considering
acquiring an existing major player in the U.S. market. Assuming that Shaky can obtain
$50 billion to finance an acquisition, which firm is the most attractive acquisition target?
Shaky expects to pay a 20% premium.
At this point, the candidate should ask for data on the major U.S. firms. The interviewer
should now present Exhibit 2. If the candidate inquires about free cash flow, tell him/her
that net income (profits) can be considered a reasonable proxy. The candidate should
also inquire about the required rate of return (15%) and an expected growth rate (5%).
Assume that the expected growth rate is uniform for all firms. For simplicity, tell the
candidate that the valuation should be treated as a perpetuity.
Given the previous discussion about market share and profitability targets (both 10%),
the candidate should immediately focus on Bidwell and Crayton.
The perpetuity formula is C/(r-g), where C = cash flow, r = required rate of return, and g
= the expected growth rate.
Firm Revs
A
$40
B
$30
C
$60
D
$16
Margin
8%
13%
11%
15%
Profits
$3.2
$3.9
$6.6
$2.4
Purchase Price
Discount Rate Valuation (w/ premium)
10%
$32.00
$38.40
10%
$39.00
$46.80
10%
$66.00
$79.20
10%
$24.00
$28.80
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Market Entry
The calculations for all four potential targets are as follows:
Since Shaky can only obtain $50 B in financing, it would make sense to target Bidwell.
Question: Let’s think about how possible joint ventures would work. What should
Shaky look for in a partner?
The candidate should ask about Shaky’s area of expertise and how it compares to the
major players in the U.S. market. For Shaky’s skills, capabilities, and area of expertise,
see the “Strengths” section above. The interviewer should present Exhibit 3 for the
candidate to analyze.
The candidate can take this discussion in a number of directions, but the interviewer
should get the candidate to review the exhibit and explain his/her thought process as to
who is the best partner. There is really no clear right answer, but the candidate should
use the data from the exhibit to craft a logical, well-reasoned response. Shaky may be
best served, however, finding a U.S. partner with complementary skills, expertise, and
capabilities—the two partners should be able to leverage one another for mutual benefit.
Of course, revenue, profit potential, and market share would also serve as
considerations.
One possible answer:
Firm
Alpha
Bidwell
Analysis
Firm's strength in commercial sector complements Shaky's
strength in industrial sector. Solid market share, but low
margins--probably due to low bid strategy.
Market share and profitability are reasonably high (above
10%). More of an emphasis on industrial sector rather than
commercial sector, though. Could lead to in-fighting?
Hitting deadlines is a strong positive.
Excellent market share and solid margins (above 10%). Its
focus on commercial side complements Shaky's focus on
the industrial side. For new entrant, strong connections are
Crayton
highly important to winning future business.
Low market share and high margins. Probably more of a
niche player--especially with focus on premium quality.
Strong emphasis on industrial sector is potentially less
Devlin-Wilson attractive to Shaky.
Partner?
No
No
Yes
No
Conclusion: Given your analyses, please provide a recommendation to Shaky’s
executive team.
Interviewer notes:
The candidate should take a clear position: enter alone, acquisition, JV, or do not enter.
Next, the candidate should briefly summarize the evidence to support that position, and
briefly state other considerations. Naturally, there are a number of different directions
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Market Entry
that the candidate could explore. Regardless of the final recommendation, the candidate
should supply convincing arguments to support that position, and demonstrate a strong
understanding of issues. The conclusion should not exceed 1 minute.
Various things the candidate may mention:
 Shaky’s investment criteria and metrics for success
 The firm’s core competency
 Fit with firm’s overall strategy
 Ability to compete in the U.S. market (distinct competitive advantage, ability to
form business relationships, access to suppliers/customers, etc)
 Time to market
 Cost
 Risk tolerance
 Desire for control of venture
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Market Entry
Exhibit 1
Shaky's Cost Structure
Fixed Costs (M)
PP&E
SG&A
Variable Costs (M - per project)
Labor
Materials
Year 1
Year 2
$12,000
$700
$9,000
$1,000
$40
$60
$40
$60
Exhibit 2
Major U.S. Construction Firms
Firm
Market Share Annual Revenues (B) Profit Margin
Alpha Construction
20%
$40
8%
Bidwell Construction
15%
$30
13%
Crayton Partners
30%
$60
11%
Devlin-Wilson Company
6%
$12
15%
Exhibit 3
Partnership Candidates
Firm
Alpha Construction
Bidwell Construction
Crayton Partners
Devlin-Wilson Company
Rev - % Industrial
20%
65%
30%
75%
Rev - % Commercial
80%
35%
70%
25%
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Profit Margin
8%
13%
11%
15%
Reputation
Low Price
Hits Deadlines
Strong Relationships
Premium Quality
Strategy and Valuation
Case #25: Scotch Bar
Scenario: You are sitting in one of Chicago's oldest scotch bars with a fellow intern. It is
a Friday night after a busy week at your summer internship. The weather is mild—a
perfect summer evening. While enjoying one of the bar's finest stogies and sipping an 18year old McCallen single malt, your friend asks you how much you think the bar is
worth. Using a back-of-the-envelope calculation, how would you go about determining
the value of this bar?
This is an estimation case. Because the candidate does not know much about the bar
he/she should ask for details. To estimate cash flow, a “Revenue – Cost” framework is
useful. The value of the bar is the present value of future cash flows.
The following information should be given if requested:
1. Product Mix and Pricing: The bar sells two things, liquor and cigars. The average cost
of a cigar is $9 and the average cost of a drink is $12. (Note: these average cost
numbers will prove irrelevant, but in cases one is sometimes given irrelevant info.)
2. Capacity: The maximum capacity is 100 people.
3. Location: The bar is located on one of Chicago's busier streets for foot traffic.
4. Hours: The bar is open Tuesday thru Sunday from 5 pm until 2 am.
5. Staff: A bartender, a waiter, and a waitress. All three were there the entire evening.
6. Tax Rate: 40%
7. Discount Rate: 13%
8. Annual Growth Rate of Cash Flows: 3%
The candidate will most likely not ask for all of this information upfront. Allow the
candidate to make some assumptions about revenues. One way to project revenues is to
estimate the number of customers per day or per week and multiply that by the average
expenditure of each customer. Watch for realistic assumptions and logical thought
progression.
Ask the candidate what might drive variation in these numbers. The answer is days of the
week (Fridays and Saturdays are typically busier than other days) and seasonality
(people tend to be out more during summer than winter).
While the candidate talks you through his/her approach, but before the candidate does a
substantial amount of calculation, hand the candidate Exhibit 1. If the candidate does
the math correctly, the numbers should add up to approximately $900,000.
The candidate should then proceed to costs. There are two components: fixed costs and
variable costs. Under fixed costs the candidate might consider rent, general maintenance,
management, insurance, liquor license, and possibly employees. The only real variable
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Strategy and Valuation
cost is the cost of goods sold. Allow the candidate to brainstorm fixed and variable costs,
before revealing the following data:
Variable costs are 20% of total revenues, and fixed costs are $120,000.
After the candidate has subtracted costs from revenues, he/she should generate a number
around $600,000. Do not forget that we need the after-tax cash flow number
(approximately $600,000 * (1-40%) = $360,000. You now have the annual cash flows
generated by the bar.
At this point a great candidate will drive the process forward and recognize that they
need to figure out a stream of cash flows going forward. The interviewer may have to
nudge less-savvy candidates toward the next step (discounted cash flow analysis).
How does one perform a valuation of the business? To perform a valuation in this case,
the candidate must estimate the cash flows from the business and discount them back
using a perpetuity formula. The discount rate typically used for bars of this genre is
13%. When the candidate inquires about growth rates, say the bar’s cash flow is
growing at 3%--the rate of inflation. Thus, whatever numerator the candidate arrives at
should be divided by .13 - .03 = .10, an easy calculation. Use the CF / (r – g) formula
for a perpetuity.
In this case, the answer is around $360,000 / .10, or $3.6 million.
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Strategy and Valuation
Exhibit 1: Daily Average Sales
Fridays and Saturdays
Rest of Week
Spring and Summer
$4,800
16 2/3% of Fri and Sat,
(Spring and Summer)
Fall and Winter
3/4 of Spring and Summer,
(Fridays and Saturdays)
85% of Spring and Summer
(Rest of week)
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Strategy and Valuation
Case #26: Yahoo, Google & YouTube - Katzenbach
Partners, Final Round
Scenario: You have been hired by the internal strategy group at Yahoo. You are asked
to analyze the recent acquisition of YouTube, an online video community, by Google for
$1.6 billion. Is it a competitive threat?
Wow! There is a case in this book with real-life companies! The candidate should think
about the acquisition against the backdrop of the core competencies that each firm brings
to the table. A quality candidate will imbue the discussion with structure, add thoughtprovoking comments, and demonstrate knowledge of current business landscape.
There is not necessarily a right answer, but here are some ideas. Yahoo has positioned
itself as a destination site. It wants consumers to go to Yahoo! and explore all of its
wonderful services, spending time and money there. Time means that advertisers’ ads
are more likely to be clicked. Money means that Yahoo! is making e-commerce
transactions, or selling subscriptions to premium online services. It tries to promote a
sense of community among its users.
Google has spent its early years as a search engine. To ‘google’ has become
synonymous with search. To take advantage of this brand-name recognition, Google
pioneered advances in ad-based software that allowed businesses to better target
consumers segments based on the particulars of the search. Google has the “eyeballs”
of the consumers, but it doesn’t have the wallet of consumers. It wants to monetize all
this traffic.
The acquisition of YouTube by Google is a competitive threat. You Tube is a move
toward creating a community. The company spent $1.6 billion because it believes it will
be able to monetize this traffic somehow.
Question: Yahoo wants to counter this threat. Let’s suspend feasibility and cost
concerns for this question. What can our competitive response be? Be as creative as
possible.
The candidate should ask for a moment to collect his/her thoughts, and then be creative.
Some ideas (from most boring to most creative)
 Create an offering to counter YouTube for the Yahoo community
 Buy Google
 Find a way to share real-time videos among friends from mobile devices or
wristwatches. This would involve a cross-selling strategy with a partner
 Create backdrops (or allow open source coders to create them) from
historical events or sporting arenas or famous movies, and enable people to
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Strategy and Valuation
be able to re-enact scenes or create new ones (An example of this might be a
rock stadium backdrop and you and your friends can jam on instruments and
make a rock video
Question: Google decides to use your brilliant ideas. The ideas are so brilliant that the
company believes that it can charge $150 per user annually and make 67% margins.
How long will it take to recoup customer acquisition costs?
The candidate should realize that he/she doesn’t know how many customers were
acquired in the deal. Tell the candidate ‘40 million users’ when he/she inquires. If
necessary, ask, “What do we need to know in order to do this calculation?” Discount
rates should be ignored. Assume no user base growth or attrition.
Each customer will net Google $100 per year, using the above numbers. With 40 million
users, each user must contribute $400 ($400*40 million = $1.6 billion) to recoup
customer acquisition costs. This will take four years.
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Strategy and Valuation
Case #27: Sgt. Slaughter’s Construction Co – Accenture
Scenario: Sergeant Slaughter’s Construction Company is a leading provider of
construction and infrastructure materials. It has two divisions: Oil & Gas and
Government. The government division’s main customer is the US Military. Your client
is offering construction services to help the US military to build bases. Construction
includes dining facilities, dorms, and infrastructure projects for troops around the world.
Each division has its own procurement department. The procurement for the government
division spends $6 billion on the items they purchase. They resell those items for a profit
to the Government. The Vice President of procurement for the government division
called your consulting firm to advise them on how to spend less money on the purchased
items and operate more efficiently.
The candidate should take some time (~1 min) to draw a framework and walk through the
framework for the interviewer. Sgt. Slaughter’s Construction Company needs to make its
procurement more efficient and determine how to reduce procurement costs. Address the
problem as an operations/value chain problem and try to identify the links and levers that
could influence the efficiency. The candidate should generate themes within the company
to potentially explore. Here are four killer ideas.
1.
2.
3.
4.
The contractual relationship with the suppliers and the government.
The efficiency of the workers
The synergies within the company – the collaboration with the Oil & Gas division
The efficiency of the information flow - technology
Question: First we need to understand the nature of the business relationship between
the suppliers and the Government. What information do we need to accomplish this?
Possible questions and analysis:
 What kind of contracts do they have, long-term or short-term?
 What are the advantages/disadvantages of being in long-term contracts or shortterm?
 How constant is the demand? Does the government always spend $6 billion on
this contract or is it expected to grow or decline?
 How many suppliers? Is there volatility in the demand or supply?
 What is Sergeant’s competitive advantage? Is there competition for the contract?
Give the candidate the relevant information below.
Contracts between suppliers and the Government division are short-term in nature.
The company has only one supplier. The supplier offers the best cost/quality ratio and
Sgt. Slaughter would like to keep it, if possible. The client is not the only customer for
the supplier but is one of the largest. The company is the main supplier for the
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Strategy and Valuation
Government. They are the best at what they do. They do not need to worry about the
competition as long as they maintain the present prices and quality.
Note: The interviewee should ask about the volatility of demand and infer that a longterm contract with the supplier will be less beneficial if Government spending on military
bases is volatile (for example, if the Iraq war ends tomorrow, demand will drop). Also, a
single supplier could be grounds for diversification to improve negotiating power.
See what ideas the candidate can generate. Remember that Sergeant Slaughter cannot
negotiate a better price from Uncle Sam. The proposed solutions should not dwell on
competitive issues.
Possible proposals:
1. Try to identify multiple suppliers or negotiate a better deal with the current one
using this possibility as bargaining power.
2. Create long-term contracts that should offer better pricing, but negotiate a “call
clause” if the Government drops the demand.
3. Try to identify synergies with the Oil & Gas division (see #3 above)
Question: What organizational questions should we ask about the people?
Possible questions and analysis:
 Are the people that deal with the suppliers experienced enough?
 Are there incentives in place? What can be changed?
 Is their staffing model efficient? Do they work enough? Are they efficient?
What is their level of productivity?
 Can/should we lay off workers?
 Do they have enough training?
Here is some information to relay to the candidate. Consider it to be like a data dump—
see how well the candidate can drink from the fire hose.
The staff is not necessarily the most experienced in the field. They are not very good at
negotiating with the supplier, due primarily to lack of experience. The VP of
Procurement is actually a newly hired, former lawyer. The workers do not focus on
negotiating with the supplier, as they spend most of the work on troubleshooting the
contracts and enforcing them (have the items delivered on time, ordering the supplies
ahead of time, forecasting demand etc). The productivity of the workers is an issue. They
have a target of 88% productivity time for the workers (88% of the time they are paid,
they should work productively for the company) but the workers are productive only 80%
of their time billed. There are no training and learning processes in place for the
workforce. Also, the bonus structure is fixed. They receive a 10% undifferentiated bonus
at the end of the year if the company makes a profit.
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Strategy and Valuation
Possible proposals:
1. Try to hire more experienced workers
2. Offer training
3. Incentivize them with bonuses connected to the money they save from the
supplier
4. Reduce the workforce; put a productivity check in place to raise it to the 88%
mark.
5. Have the Procurement manager get an MBA!
Question: Let’s address bargaining power and find synergies with the Oil & Gas
division. What can we ask Sergeant Slaughter?
Possible questions and analysis:
 Do they have the same supplier?
 How much is the Oil & Gas ordering comparing with the $6 billion for
Government.
 Are the divisions interacting?
 Do they collaborate to have a stronger bargaining power?
 Do they share information and data about their supplier’s contracts and demand
forecast?
 Can they combine the procurement departments for the two divisions and have
one larger for the entire company?
Here is some background information for the candidate:
The Government division does not communicate efficiently with the Oil & Gas division.
They use the same supplier but they have issues integrating data therefore one of the
recommendations should address technology and information sharing issues. They do not
have a common database with prices across the globe and former experiences. The Oil &
Gas division accounts for $2 billion in orders from suppliers.
Possible proposals:
1. Coordinate better with the Oil & Gas division and try to integrate orders to obtain
stronger bargaining power over the supplier
2. Try to institute a common system to communicate future orders/demand and try to
negotiate them together
3. Build a database accessible to both divisions with prices negotiated with multiple
suppliers in time to have a common negotiating basis
4. Organize meetings with the procurement teams of both divisions to share best
practices and negotiating tips
5. Unite the two procurement departments into one larger, company-wide solution
Conclusion: The VP calls you for an update. Please inform him of your findings.
The student should wrap up the case in 3-4 sentences (30-60 sec) such as:
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Strategy and Valuation
1. State a position
2. Give evidence based on case
3. Other considerations and/or creative aspects
To reduce cost, the VP could combine the two divisions from a technology, procurement,
and workforce perspective. Additionally, the productivity of the workers needs to be
increased through training and new hires. Last, the company should try to negotiate longterm contracts with the government and aim to obtain lower prices from suppliers.
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Strategy and Valuation
Case #28: DMB Satellite, Inc.
Scenario: Stefan Lessard, the CEO of a large conglomerate, finds a once-in-a-lifetime
deal and has bought a satellite at a heavily discounted price. He can keep it or sell it
today for a profit. What questions could you ask to gain critical information?
The candidate should take some time to think and then come up with some basic
questions. Candidates should recognize this case as a profitability / market extension
case. The candidate should request revenue and cost information and then calculate the
profit for each situation. Later, the candidate should consider market dynamics, and the
risks associated with having a single customer versus a diversified portfolio.
This information should be given if asked for:
 Cost of satellite acquisition: $10 million
 Market value of satellite today: $35 million
 Repair/maintenance cost: Negligible. The satellite is in good condition.
 Launch status of satellite: Satellite is still in the box and needs to be launched if
the company decides to keep it. DMB can use it for 3 years after which it
becomes obsolete ($0 resale value and non-functional).
 Costs associated with launch: Launch costs are $10 million for high orbit launch
and $8 million for low orbit launch.
 Life expectancy: 5 years (needs to be replaced in 5 years, as it becomes obsolete)
 Potential customers for satellite services: There are two customer segments based
on use: data transmission and voice/video transmission. Large corporations use
satellites to batch transfer information periodically during the day. The use is
short and intermittent, allowing for multiple clients. News broadcasters and
telecommunications companies use the satellites for voice/ video transmission.
They require 24-hour, global coverage limiting the satellite to only one client.
 Potential to lease satellite capacity: Leasing satellite capacity is a good option but
not available in this case (nice try).
Question: What is the best road to profits for DMB Satellite? You head down to the
technician’s office to talk with Steve Lillywhite. He clues you in on the difference
between low orbit and high orbit satellite communication abilities. As Steve explains:


Low orbit satellites are used to transmit data between two points where the
distance between them is on the order of 3,000 to 5,000 miles (e.g. from one coast
to another). These satellites are primarily used by corporations to transmit data in
batches. Low orbit signal is subject to high interference, thus it is not used when
continuous transmission quality is critical. (solution for multiple clients option)
High orbit satellites are primarily used for continuous transmission (i.e. in real
time) where signal quality is critical. Live global television broadcasting is the
primary application. (solution for news, broadcasters, etc. - single client option)
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Strategy and Valuation
The candidate should conduct a profitability analysis, and request the following info:
Low Orbit Revenues
 Each Year 1 customer pays $50,000 per month
 Each Year 2 customer pays $30,000 per month
 Each Year 3 customer pays $20,000 per month
 There is some competition entering the market and you can assume that you will
need to reduce the prices for the multiple customer solution every year to attract
incremental revenues. Prices for the contract you sign in year 1, however, fall to
new rates in year 2.
 80% of customers generated in a given year will remain the following year.
Note: Data has been intentionally left out. The candidate should ask for the expected
number of customers in each of the 3 years (see solution Exhibit 1).
High Orbit Revenues
 The high orbit customer pays 2,500,000 per month
 This is a specialized market, where we have found only one potential customer
who is ready to sign up
The candidate should continue with the profitability analysis and cash flow calculations
comparing the three options: sell now, low orbit, and high orbit. If the candidate asks,
the discount rate is negligible.
Summary of profitability calculations:
 Option #1 - Sell today for a $35 million dollar pre-tax profit. Strong candidates
will recognize that the $10 million acquisition cost is a sunk cost.
 Option #2* - Operate single satellite offering data transmission service to
multiple clients: $80,000,000 profit (pre-tax). One key trick is that in year one
you’ll have 50 clients, in year two those 50 clients become 50*80% = 40 clients.
In year three those 40 clients have been reduced again to 40*80% = 32 clients.
 Option #3* - Operate single satellite system to offer voice and video transmission.
Requires increased upfront investment: $85,000,000 profit (pre-tax).
* Candidate should verify that company has access to capital for purchase and launch.
Conclusion: Carter Beauford, DMB Satellites’ President, wants some answers during
your morning elevator ride. What do you say?
Ruminations
 Option 3 generates the highest profits. However, Option 3 has highest initial cost and
offers strong bargaining power for the single client. Also, what if we lose the client
somehow to bankruptcy? There are also few available customers. The risk is high.
 Option 1 gives us a nice chunk of change. But, do we have other viable investment
opportunities for the cash generated in that sale? If the market value of the satellite is
$45 million, it’s doubtful we can find another for only $10 million.
 Option 2 offers a diversified client portfolio, and seems to be the optimal choice
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Strategy and Valuation
EXHIBIT 1: CALCULATION PAGE (Do not give to candidate)
Calculations: Low orbit
New Customers
50
Months
12
Cost
50,000
40
12
30,000
30
12
20,000
Y1 total revenue
30,000,000
Y2 total revenue
14,400,000
14,400,000
Y3 total revenue
7,680,000
11,520,000
7,200,000
Total Revenue:
Cost:
Profit rounded:
Rule: lose 20% of existing customer base in following year
Revenue Totals
52,080,000
25,920,000
7,200,000
85,200,000
8,000,000
77,200,000
Calculations: High orbit
New Customers
1
Months
12
Cost
2,500,000
Y1 total revenue
30,000,000
The high orbit customer pays 2.5 million monthly
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Y2 total revenue
30,000,000
Y3 total revenue
30,000,000
Total Revenue:
Launch Cost:
Profit:
Revenue Totals
90,000,000
90,000,000
10,000,000
80,000,000
Strategy and Valuation
Case #29: Tipsy’s Distillery
Scenario: Your client is Tipsy’s Distillery, a major producer of distilled spirits in the
U.S. They have two products: a brand of mid-priced Vodka and a brand of mid-priced
rum. Over the past two years, the company has experienced a decline in profitability.
Your client wants to know what is causing the decline in profits, and what can be done to
increase profitability in the future.
The candidate should take some time to draw a framework and walk through the
framework for the interviewer. Variations of different frameworks could be employed,
including 3 C’s, 4 P’s, and Porter’s Five Forces. Ultimately, however, the candidate
should recognize this as a profitability case that will require an analysis of revenues and
costs. The aforementioned frameworks could play a role in revealing the primary
revenue and cost drivers.
A good place to start is to examine the situation from a macroeconomic and industry
perspective, before assuming that the problem in particular to this firm. The candidate
could inquire about the general health of the economy and the industry as a whole.
When prompted, the interviewer should reveal that the macroeconomic situation is
healthy, and industry sales growth is positive, and overall profitability is positive, but has
slightly declined over the past two years.
If the candidate asks for specific data or inquires about competitors, the interviewer
should display Exhibit 1. This exhibit reveals the sales and profit growth of Tipsy’s
Distillery and its two primary competitors in the industry. The candidate should draw
two major conclusions from Exhibit 1: 1) Profits have declined for every player in the
industry due to increased costs, and 2) Tipsy has not performed as well as its competitors
in terms of both sales and profit growth.
Given that costs have increased—and negatively impact everyone in the industry-- the
candidate should probe further to discover the cause. If the candidate asks for the
elements of cost, the interviewer should turn the question around on the candidate: “So
what do you think are the various components of cost?” The candidate should be able to
name many of the cost components listed below:
Cost Component
COGS
PP&E
Distribution Costs
Marketing
SG&A
R&D
Comment
Raw materials, packaging, variable labor
Land, facilities (plants, distribution centers, offices), other equipment
Shipping to stores and retail outlets
Advertising, trade promotions, other marketing expenses
Salaries, general and administrative expenses
Research and development for new products
Question: What do you think are the main costs? (The above is a generic list)
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Strategy and Valuation
At this point, the candidate should ask about specific cost components and how the
industry or Tipsy’s has changed.


COGS, R&D, SG&A, PP&E, are unchanged
Overall, Distribution and Advertising Costs have sharply increased
The candidate should first draw the value chain to identify the various parties involved
and the costs in distribution. He/she should also ask if there has been any change from
the past to the present.
A structured approach is encouraged: what are the components of distribution? What
are the various forms of advertising? Also, consider price, quantity, channels, and other
key variables.
The interview should ask the candidate to form a hypothesis. Several possibilities might
be mentioned:
Distribution
 Have third-parties handling shipment increased their rates? No.
 Have our employees unionized? No.
 Has the government recently levied fees on distribution? No.
 Has the frequency of deliveries increased? Yes.
Advertising
 Have media outlets (TV, Internet, etc) increased their fees? No.
 Are companies moving to new, more costly ad channels? No.
 Have trade promotions for the stores dramatically increased? Yes.
At this point, read the following to the candidate:
There are two general market categories: privatized and state-owned. In 23 states, liquor
is only sold through state-regulated liquor stores. In the other 27 states, liquor is sold in
privately managed supermarkets and liquor stores. In the privatized market segment,
stores have become less willing to hold inventory, requiring firms to deliver smaller
batches of product more frequently. Also, shelf space in the privatized market is very
expensive. Liquor companies must compete vigorously for shelf space through costly
trade promotions. In the other 23 states, liquor is only sold through state regulated liquor
stores (i.e. in North Carolina ABC Stores). Distribution costs in these states are much
lower, as there are fewer outlets to service and there are central warehouses for the staterun stores. Also, since alcohol is more tightly regulated, advertising costs are lower.
Question: What conclusions can you draw from this information?
It is now apparent to the candidate that there are two different market segments, and that
the higher advertising and distribution costs in the privatized segment are hurting
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Strategy and Valuation
everyone in the industry. The candidate now understands the cost picture; he/she should
now focus on the revenue side. In terms of volume, sales in the privatized markets are
outpacing sales in state-owned markets.
Though volume sales are higher in the privatized market, it is a much more costly market
to serve—overall, margins are getting squeezed.
A natural next step for the candidate is to inquire about the shares that each firm has in
these two segments. Refer the candidate to Exhibit 2. As he/she assimilates the
information, the candidate should show insight and conclude the following: Tipsy’s is
the top player in the privatized market, so it is realizing solid sales growth. But, margins
are slim. As the number three player in the “state-owned” market—which is more
profitable—Tipsy’s is gaining less than its competitors.
Question: What strategic options are available to the client in order to increase profits?
The candidate should think about a number of possibilities:
Decrease Distribution and Trade Promotion Costs
1) Investigate ways to decrease distribution costs in the privatized market. Outsource
distribution (if not done already) and/or find less expensive distribution partners.
2) Access the profitability of various relationships with retailers in the privatized market.
Though the overall picture is negative, some relationships are probably more profitable
than others. Shift resources depending upon market share of retailer and profitability to
the client.
3) Consider other distribution channels in the privatized market, including superstores
and large discounters (e.g. Costco, Beverage and More, etc). These outlets can handle
more inventory, and thus require fewer deliveries.
4) Investigate a merger with another player in the industry. This would give Tipsy’s a
greater share of the more profitable “state-owned” market, and increase negotiating
power with retailers in the “privatized” market. Note: candidates should be cautious
with this suggestion. Mergers are seldom easy, and could potentially create more
problems than they solve.
5) Investigate possibility of forward integration into the privatized market. Tipsy’s could
establish its own retail outlets and bypass retailers. Though very costly in terms of
capital investment, it could pay off in the long term.
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Strategy and Valuation
Other
6) Compete more effectively in the “state-owned” market. Establish a sustainable
competitive advantage.
7) Investigate expansion into new geographical markets (international) where the
industry dynamics may be more favorable.
8) Investigate expansion into new product categories (e.g. gin, tequila, other liquors) to
drive profits in the “state-owned” market. The states might be more inclined to partner
with a firm that offers products that cover a wider spectrum. Achieve economies of scope
and increase bargaining power.
Conclusion: The CEO of Tipsy’s Distillery has just walked into the room. Please offer a
final recommendation.
Interviewer notes:
The candidate should take a clear position, summarize the evidence to support that
position, and briefly state other considerations. Naturally, there are a number of
different directions that the candidate could explore. Regardless of the final
recommendation, the candidate should supply convincing arguments to support that
position, and demonstrate a strong understanding of the current market dynamics. The
conclusion should not exceed 1 minute.
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Strategy and Valuation
Exhibit 1
Firm
Tipsy's Distillery
United Spirits
Jake's Distillery
Sales Growth
(2004 - 2005)
5%
4%
6%
Profit Growth
(2004 - 2005)
4%
4%
5%
Sales Growth
(2005 - 2006)
7%
5%
7%
Profit Growth
(2005 - 2006)
2%
3%
4%
Exhibit 2
Firm
Tipsy's Distillery
United Spirits
Jake's Distillery
Market Share - Privatized
45%
20%
35%
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Market Share - State-Owned
20%
40%
40%
Strategy and Valuation
Case #30: Chemical Brothers International
Scenario: A major chemical producer, Chemical Brothers International (CHEMBRO),
has retained your firm’s services to evaluate the feasibility of acquiring another major
participant in the industry, Plastics of America (POA). Both companies are bulk
commodity chemical producers. Your firm has been asked to analyze the future
prospects of POA’s major product line, a chemical used in the production of plastics.
Question: What could be the purpose of this acquisition?
Don’t give the candidate a chance to “collect his/her thoughts.” You don’t always have
that luxury in the real world, and you don’t always have that luxury in a case setting.
Trust us. Potential answers here could include
 Achieve greater economies of scale
 Complementary assets/products
 Preemptive acquisition ahead of competitor
 Increase negotiating power with suppliers and customers
 Tax Purposes (tax-loss carry forwards)
After a brief discussion, have them generate a short framework. A strong candidate will
recognize that this case deals with internal factors (synergies and economies of scale) as
well as some external factors (opportunity costs and industry attractiveness). The
candidate should include some of the following elements in his framework:




Market Attractiveness / Industry Potential
Operational Analysis (Synergies/Economies of Scale/ Network Externalities)
Organizational and cultural compatibility
Capability to enact acquisition: Financial, legal, and perceptual barriers
Question: What do you want to know to make a decision on the acquisition?
The following information may be given upon specific request:
Market Analysis:
o End-users come primarily from the automotive industry
o Market size has been slowly declining over the last five years
o Within the last couple of years, prices have declined rapidly
Competition / Industry Analysis:
o There are 10 major producers; the largest one with a 35% share; number
two has 25%, and POA is third with 20%; the remaining share is divided
amongst others
o The two largest competitors earn a small return; POA is slightly above
break-even; the rest are operating at break-even or at a loss
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Strategy and Valuation
o Relative capacity utilization in the industry is 60 to 70 % and has been so
for the last 3 years. POA is also currently working at 75% of capacity
o The two largest competitors are highly diversified with this particular
product line representing no more than 20% of their revenues
o Highly regulated industry with expensive pollution control equipment
o High barriers to entry because of the low profits and high investments
required
Product value proposition / brand portfolio:
o The price has been driven by self-destructive cuts from the leaders to gain
temporary share points
o We do not foresee the development of any significant byproducts.
o Other possible uses: None.
o Complementary Assets: 50% of POA’s sales are to the automobile
industry
Finance and Operations:
o Cost is based on size/efficiency/age of plant, etc. Within the industry,
POA is in an above-average position.
o There are several operational improvements that could be implemented,
and management has not been aggressive in its pursuit of quality and cost
controls.
o Great economies of scale exist in marketing and transportation. (Not
quantifiable)
o Operational synergies could represent an additional $30 million in profits
Note: When the candidate brings up value, hand out Exhibit 1. However, make sure the
candidate discusses the qualitative aspects. Skillfully manage the conversation. When
looking at Exhibit 1, the candidate may whine about how the discount rate minus the
growth rate is 9%, and not 10%. Let them use 10%. Don’t let them calculate the
discount rate at 9%. This is a waste of time, because real consultants use calculators and
Excel. Ask them instead if the NPV will be higher or lower if we do our calculations
using 10%, instead of 12%-3% = 9%. The NPV will be lower. Ask them by how much.
Now, the math is easy in this case because the discount rate is .09 and the revenues are
90. 90/.09 = 1,000. The difference is $100 million.
a) Basic:
 NPV analysis: Based on the information from Exhibit A, the net present value of
the target company is = $90M / (10%) = $900 million (assume perpetuity), which
is less than the purchase price tag of $950 million.
 Industry Attractiveness: not particularly attractive, unless the larger competitor
can use economies of scale and dominant position for economic gain.
 Additional qualitative insights from the information given above such as the fact
that since this is a small part of conglomerates for the profitable large ones, there
are great synergies to be achieved.
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Strategy and Valuation
b) Good:
 A more comprehensive NPV would include the new cash flow from synergies, as
well as the previously calculated NPV. Therefore the $900 million + [Synergies
30M/(12%-3%) = 333M] = $1,233M value of target > 950 price tag
 The additional cash flows are coming only from synergies but there could be
additional cash flows from economies of scale, as well as tax advantages of
paying for the acquisition with debt that would further improve the deal.
 The competitors and regulators might not be too keen on the level of
concentration in the industry and some reactions should be expected.
 At what multiple of operating profits have other acquisitions been valued?
Conclusion: Once the candidate has concluded the major calculations ask him to wrap
up. Any logical conclusion should include a “go / no go” decision followed by
quantitative (valuation) and qualitative (industry and compatibility analysis) facts. Other
ideas might include the evaluation of the competitors, for if they are also in the same
markets as the Chemical Brothers, this might be a good defensive move.
- 114 -
Exhibit 1
Information (POA)
Purchase price
Yearly operating income before tax
Cash
Employees
Return on capital
Market risk premium
Growth rate
Tax rate
- 115 -
$950
$90
$20
2,000
12%
7%
3%
40%
Case #31: NoPerx Consulting Company
Scenario: You are the newest member on the management committee of a well-known
top-tier management consulting firm. Eager to be accepted by your more senior peers,
you volunteer to study the industry and propose a firm strategy, which you will present to
the committee at its next meeting. As you leave the meeting you begin to realize the
enormous task to which you've committed yourself.
This is one of the most difficult types of cases because the answers are completely
unknown and will vary substantially depending upon your knowledge of the industry.
This is also an interesting case since it is highly salient. When information isn't
available, the candidate should develop his/her own hypotheses. What matters here is
the thought process, not necessarily the answers.
Question: How do you evaluate the consulting environment and determine likely future
scenarios?
Answer: A good place to begin is to evaluate the industry from a competitive analysis
perspective, such as Porter's five forces. The following is an abbreviated analysis.
Rivalry (low to moderate): Management consulting is fragmented, with many players
each holding a relatively small concentration of the total market. Firms act as
competitive monopolists, and differentiate themselves by specialty, type of customer
(Fortune 100 versus Fortune 1000 companies), reputation (McKinsey versus accounting
firms), and the resources they employ (top MBAs versus all MBAs). Many companies are
relationship- driven with their customers, which limits competition and keeps prices high.
Top tier firms in particular are able to have high price points.
Potential Entry (moderate): There are no great barriers to entry into consulting;
however, few new consulting firms truly compete in the top tier. It's possible that new
firms would enter if the firms in the industry were earning positive economic profits and
if they were imitable (i.e. new firms could recreate what the top tier firms do).
Substitutes (moderate): Companies can move the consulting process in-house by hiring
former consultants and bright MBAs. This occurrence is more likely during downturns.
Buyer Bargaining Power (moderate-high): In the last couple of years, the consulting
market has suffered, with supply exceeding demand, which should have increased buyer
power and driven prices down.
Supplier Bargaining Power (low-moderate): Major suppliers are the intellectual
capital employed by the firm (e.g. experienced consultants who bring in sales; new
consultants who provide analytic abilities). Must pay market price or risk losing
suppliers, but current economic conditions have caused a reduction in supplier power,
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due to decreased demand from consulting companies and fewer outside options.
Other interesting points might explore the key success factors in the consulting industry.
What differentiates top tier firms from middle ones? Do any firms have specific
sustainable competitive advantages? How does the marketing mix differ among firms?
Does your firm have any specific advantages that set it apart from other companies?
Determining likely future scenarios is more ambiguous. There are at least several key
points: how soon and to what degree will demand for consulting services bounce back?
Will top tier firms be affected differently than others? How has the mix of products
demanded changed and what will it be after the economy recovers (e.g. cost-cutting
studies vs. market expansion studies)? Will the consulting market expand evenly or will
certain geographical areas expand (Pacific Rim, Eastern Europe) faster than others?
Again, the thought process is more important here than actual answers.
Question: What information do you use in this process? How is this information
obtained?
Answer: Information gathering is a key reason companies use consultants. You should
have a decent knowledge of business information sources and how to gather information.
Information can be broken into two groups: secondary and primary. Usually one begins
with secondary material, specifically, a complete review of published literature (a ''lit
search") pertaining to the study (e.g. journal and newspaper articles, investment bank
research, specialized studies, books, etc). This often points toward other good sources
(e.g. industry experts, associations, major competitor's, government sources, etc.).
Hypotheses are often created from the secondary information. Primary research is then
used to focus in on the key issues. This research includes telephone interviews, in-person
interviews, mailed questionnaires, focus groups, laboratory experiments, etc.
Question: What do you believe is most likely to happen in the consulting industry given
your present knowledge? How did you arrive at this conclusion?
Answer: This answer will depend upon the material covered in the first two. Ask the
questions: What trends are likely? What is a positive scenario? A negative one? If you
had any information at your disposal, how could you get a better handle on this issue?
Question: What strategy do you propose to the management committee?
Answer: There is no right answer here. However, you can provide some structure.
What are the key factors for success in the industry? Is there any way to achieve
sustainable advantage (cannot be duplicated by competitors)? Can non-traditional
methods be used to achieve competitive advantage, such as leveraging through
technology? Given your firm's competitive strengths and core competencies, what is the
best strategic route?
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Appendix: Cases
from Company
Websites
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Company Website Cases
McKinsey: Health Care
Our client is Magna Health, a health care company in the Midwest. It both insures
patients and provides health care services. Employers pay a fixed premium to Magna for
each of their employees in return for which Magna covers all necessary health services of
the employee (ranging from physician care and medications to hospitalization). Magna
currently has 300,000 patients enrolled in its plan. It has 300 salaried physician
employees who provide a broad range of services to patients in six centers. These
physicians represent a wide range of specialty areas, but not all areas. When a patient
needs medical treatment in a specialty area not covered by a Magna physician, they are
referred outside of the Magna network for care, and Magna pays all referral costs on a
fee-for-service basis. Magna does not own any hospitals itself, instead contracting
services from several local hospitals.
Magna's CEO has retained McKinsey to help determine what is causing the declining
profitability and how Magna might fix it.
What key areas would you want to explore in order to understand
Magna's decline in profitability?
Some possible areas are given below. Great job if you identified several of
these and perhaps some others.



Magna's revenues
o Price paid by employer for employee health coverage.
o Number of employees covered by Magna.
Magna's costs (or fixed and variable costs)
o Magna's main cost components consist of administrative
(non-medical) and medical costs (e.g., hospital, drugs,
outpatient care)
o Outpatient costs can be split into internal physician costs
versus external referral costs
Magna's patient base demographics/overall risk profile which may
affect medical costs
The team discovers that the demographics of Magna's subscribers
have changed significantly in the past 5 years, from majority industrial
workers/laborers to majority office employees. Knowing this, are there
any specific areas you would investigate first?
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Company Website Cases
We are looking for a few responses, similar to the ones below:


Claim costs, as the change in the subscriber base will change the
profile of diseases (e.g., more heart disease/stress and less work
related injury)
External referral costs, due to the change in the disease profile for
which they have in-house competency
After reviewing the basics of Magna's business, your team believes that
one of the root causes of Magna's financial problems is how it manages
medical costs, particularly the cost of referrals to specialists outside of
its physician network. Your team has gathered the following
information on Magna and its primary competitor, Sunshine HMO:
Magna Health
Sunshine HMO
Number of
patients
300,000
500,000
Average cost of referral(per
member per month)
$20
$15
What are the most likely reasons that the average cost of referral at
Magna is higher than at Sunshine? (At this point you should feel free
to offer hypotheses, and you could ask your interviewer questions to
clarify the information)
Although there are a number of possible responses, you might have the
following suggestions:




Referral pricing: Magna might be paying more than Sunshine for
specialist services (e.g., its outside contracts with oncologists might
be at higher rates than Sunshine's contracts).
Number of referrals: Magna's physicians might have different
practice patterns than Sunshine physicians, i.e., they may be less
comfortable treating heart disease patients or have different
training/protocols.
Mix of specialties: Magna's mix of specialties that requires referrals
(cardiology and neurosurgery) are probably more expensive
specialties (than cardiology and psychiatry, Sunshine's referral
specialties).
Mix of patients: Magna has sicker or older (>65) patients
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Company Website Cases
(individuals over 65 are more likely to need medical care in the
specialty areas outside of Magna's network, particularly
cardiology).
What analyses would you do if the things you suggest were
contributing to this problem?
You might take the following approach, where we’ve outlined different
areas of analysis:

Referral pricing:
o Gain data on prices currently being paid by Magna for a
sample of common specialties
o Gain similar data for a competitor if possible for an industry
average (perhaps through interviews with non-Magna
specialists)

Number of referrals:
o Interview Magna physicians and non-Magna physicians to
see if any obvious behavioral differences exist
o Consult industry publications on this issue

Mix of specialties:
o Check number of referrals by specialty for Magna and
estimate similar for Sunshine
o Interviews with external specialties used by Sunshine may
help again here

Mix of patients:
o Compare demographic data for Magna and Sunshine: should
be easy to obtain from Magna; a scan of the employee
schemes covered by Sunshine should give a good general
picture of their demographic profile
o See if Magna's referral cost has increased in line with the
change in demographics of the subscribers
Helpful Tip - In giving the answer, it's useful if you are clear about how the analysis you
are proposing would help to answer the question posed.
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Company Website Cases
Magna's CEO has a hypothesis that Magna is paying too much in
cardiology referral costs for its patient population. He asks the
McKinsey team to look at Magna's cardiac patient population more
closely and tell him how many referrals he should expect on an annual
basis. Assume the following:



Magna has 300,000 patients in any one year
20 percent of its patients are age 65 or older
In the U.S., patients with serious heart disease visit specialists
(cardiologists) on average of five times per year
You should always feel free to ask your interviewer additional
questions to help you with your response. In this case, you should
recognize the need to know the prevalence rate of serious heart disease
to complete this calculation. Once asked, your interviewer would
provide you with the following information:

The prevalence rate of serious heart disease in the 65+
population is 30 percent
The prevalence rate of serious heart disease in the under age 65
population is 10 percent
Based on the correct calculations, your response should be as follows:
Magna should expect 210,000 cardiac referrals annually based on its
patient population. You should have approached the calculations as follows
to arrive at that answer:







300,000 total patients
20 percent x 300,000 = 60,000 patients age 65+
18,000 x 5 = 90,000 referrals per year
240,000 Magna patients under the age of 65
240,000 patients x 10 percent = 24,000 patients under age 65 with
serious heart disease and 24,000 x 5 visits per
year = 120,000 visits per year total
90,000 + 120,000 visits per year = 210,000 total Magna patient
external cardiology visits
When the team tells Magna's CEO that based on Magna's patient
population he should expect about 210,000 cardiology referrals a year
he exclaims, "We currently pay for 300,000 annual cardiology
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Company Website Cases
referrals for our patient population!"
Why might Magna's annual cardiology referrals be significantly
higher than U.S. averages?
What would you do to try to verify if any of these were a key cause of
this problem?
There are a number of answers to these questions, and you are on the right
track if your responses included some of the ones below:





The prevalence rate of heart disease in Magna's patient population
is higher than average. To see if this was a cause of the problem,
McKinsey should audit the internal data on heart disease prevalence
and compare it to US National data.
Magna's primary care physicians are referring patients who do not
have serious heart disease to specialists. The team should interview
specialists to get their opinion, or follow through a sample of
patients who were referred.
Primary care physicians are not comfortable (e.g., they are poorly
trained or inexperienced) treating cardiac patients, even those with
minor problems; they want to avoid malpractice suits. McKinsey
should interview Magna physicians and institute an external review.
Magna doesn't have clear guidelines on when physicians should be
referring patients to specialists (or if guidelines exist, physicians are
not complying with them). The team should gain an expert opinion
on the current guidelines to see if this was a key cause of the
problem.
There are no incentives or penalties to prevent physicians from
referring patients with less serious problems to specialists. In order
to verify this is a key cause of the problem, the team should review
incentive schemes if they exist. They should also compare similar
companies/situations (e.g., prescription control mechanisms, etc.).
Helpful Tip
We would not expect you to come up with all of these answers, but we hope
some of your answers head in the same direction as ours. Yours may bring
some additional insights. In either case, be sure that you can clearly explain
how your reasons will bring you closer to why the referrals might be higher.
At this point in the study, you bump into Magna's Head of Health
Services in the corridor. He is responsible for all matters related to the
provision of services to subscribers, both inside and outside the Magna
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Company Website Cases
Network. He asks you if you have made any progress. How would you
respond?
The ability to come to a logical, defensible synthesis based on the
information available at any point in an engagement is critical to the work
we do. Even though we'd consider ourselves to be early in the overall
project at this point in the case, we do want to be able to share our current
perspective. One ideal answer would include the following points:
Findings



We have investigated all the drivers of profit for Magna. Although
there is likely to be room for improvement in a lot of areas, it seems
the claims cost is a big area for improvement.
Relative to the market and to competitors, Magna seems to have
high claims cost per patient. Our initial indication is that there may
be highest room for improvements in the cost of referrals outside
the network.
There are a number of reasons as to why this may be happening
(list as in previous question).
Next Steps


We are working to pin down the most significant reasons why
Magna has high claims cost per patient.
We are going to be looking into other areas such as reduction
potential in other costs, as well as improvement potential in terms
of premiums or other sources of revenue.
After some additional investigation, your team decides that changing
the behavior of Magna's primary care physicians has potential to
reduce cardiac referral costs while maintaining high quality care. The
team believes that introducing some sort of incentive plan for
physicians might help reduce the referral rate. You propose the
following pilot plan:


Magna pays bonuses of $100,000 per year to each of the 10
primary care physicians with the lowest cardiac referral rates
consistent with good patient outcomes.
Magna increases overall fees paid to primary care physicians to
handle more of their patients’ basic cardiology needs. Overall
fee increases would total $1 million.
How many fewer cardiology referrals will Magna need to have in
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Company Website Cases
order to recoup the cost of the pilot incentive plan? For simplicity’s
sake assume:


The cost of a cardiology referral is $200.
Magna currently has 300,000 cardiology referrals per year.
If the incentive plan reduces cardiology referrals by 3.3 percent or 10,000
referrals, Magna will recoup the cost of the incentive plan. One potential
approach to the calculation:



$1 million + (10 * $100,000) = $2 million for incentive plan
$2 million/$200 =10,000 referrals
10,000 referrals/300,000 total referrals = 3.3 percent reduction
would pay for incentive program
Your team projects that the incentive plan has the potential to reduce
referrals by 5 percent in its first year, and an additional 2 percent in
its second year. If these projections are correct, by how much would
Magna's referral costs be reduced over a two-year period with this
program?
Referral costs would be $4.14 million lower in the second year. Over the
two years Magna would save $7.14 million. One potential approach to the
calculation:
Year 1 Savings with Program



300,000 total referrals
5 percent reduction in referrals = 15,000 referrals
15,000 x $200 = $3.0 million in savings in year 1
Year 2 Savings with Program




285,000 total referrals
2 percent reduction in referrals = 5,700 referrals
5,700 x $200 = $1.14 million in savings
$3 + $1.14 = $4.14 million in savings
Therefore, total cumulative savings over the 2 years = Year 1 savings +
Year 2 savings = $3.0m + $4.14m = $7.14m.
Your team presents its physician incentive proposal to Magna’s
CEO. The CEO, in consultation with his Medical Director, agrees
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Company Website Cases
that this is feasible and says that they will pilot it for cardiac
referrals.
At the end of the meeting the CEO says, "I like the work you’ve
done, but it's not enough to address our current financial situation.
Physicians are professionals who care deeply about patient care and I
think there's a limit to how much cost we can expect to reduce
utilizing financial incentives exclusively. Besides cardiac financial
incentive programs, what other ideas should we consider to reduce
the cost of Magna's specialist referrals?"
Based on what we have discussed today, and any other ideas you
might have, how would you respond to the CEO?
This question is a good one for demonstrating creativity because there's a
long list of possible ideas. You might give the following response:





Pursue additional ways to change physician behavior
o Provide training on how to treat patients with minor or
stable medical problems
o Define and clarify medical guidelines for referrals (e.g.,
establish a medical committee to define the difference
between “serious” and "minor" heart disease)
o Institute peer review committee charged with approving a
subset of referrals (e.g., those that are considered "high
cost")
Spend time investigating "outlier" physicians (i.e., those who
seem to refer patients to specialists at much higher rates than
others) to determine how widespread the referral problem is and
whether simply focusing on a few physicians will dramatically
reduce referral costs
Determine whether Magna can reduce referral costs in the other
medical areas where it does not have specialists (i.e.,
neurosurgery)
Look at the contracts Magna has for specialist services to
determine if it is paying too much relative to competitors
Consider whether bringing cardiology, neurosurgery, and
oncology specialists in-house (i.e., within Magna) might reduce
cost
Helpful Tip - You may have a slightly different list. Whatever your approach, we love to
see candidates come at a problem in more than one way, but still address the issue as
directly and practically as possible.
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Company Website Cases
Bain: Cost-savings analysis for food services company
In this case, we will provide you with information regarding a client situation and ask
you questions regarding the case issues. After you submit your answer, we'll provide a
detailed Bain answer that you can compare with your ideas.
Remember, in case interviews there are no "right answers": interviewers look for
problem-solving skills, creativity and common sense. You will not be able to skip
questions in this online case, so take your time and have fun!
Question 1 The client situation:
A large fast food chain has hired Bain to improve the company’s profitability. You’re
about to have an initial brainstorming session with your team around your client’s
options, and you want to collect your thoughts first.
How would you begin to tackle your client’s profitability problem?
Bain recommended answer:
Your interviewer wants to know that you have a structure in mind. An appropriate
structure for this case would be the profit equation. Be sure to state that to your
interviewer.
For example:
"Profit is: total revenue – total cost.
Where Revenue = Price * Quantity and Costs = Fixed Costs + Quantity * (Variable
Costs).
In order for the company to improve its profitability, management needs to increase
revenues and/or decrease costs.
So to begin tackling my client’s profit problem I am going to look at these two sides of
the equation:





Could the client increase prices? How would customers react?
Could the client sell more meals, either at existing branches or through opening
new ones?
Are there other creative ways to grow revenue (enter into large-scale catering
contracts, for example)?
Could the client decrease our fixed costs by selling some of our branches or real
estate?
Could the client reduce the quantity of products they buy, such as ingredients
for their meals?
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Company Website Cases

How else could they reduce their costs?"
Question 2
At your case team meeting, your manager informs the team the customer is price
sensitive, the market is fairly saturated, and that the fixed costs are pretty stable. Thus
Bain and the client agree that the team should focus on lowering variable costs.
Specifically the client wants to reduce their spending on purchased items (items the
client buys from others and then uses or offers to their customers, like the meat in the
hamburgers or the ketchup packets).
Without knowing much more about the situation, what would you suggest are
some ways to do so? Which ideas seem the most attractive and why?
Bain recommended answer:
Purchased goods in this business fall primarily into 2 categories: food and packaging.
Variable costs are a function of: price and volume. Therefore, the client needs to reduce
volumes purchased or negotiate lower prices.
Food:



We could negotiate lower food prices with our suppliers (consolidate our
purchasing, etc.).
We could look for cheaper ingredients. This sounds risky because it could lower
the quality of the food that we sell.
We could reduce the volume used. For the same reason, this sounds risky
because it would change our recipes, one of our competitive advantages in
producing winning recipes.
Packaging:


We could negotiate lower prices with our suppliers or look for cheaper
alternatives.
We could reduce the volume used.
Recommendation:

Most attractive ideas are: negotiating lower food prices or packaging prices,
looking for cheaper packaging materials, or reducing the volume used.
Question 3
At this point in the brainstorming session, the VP adds that two years ago, the company
launched a program to centralize purchasing and successfully negotiated much lower
prices. Therefore, it is critical to determine if you could reduce the volume of goods
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Company Website Cases
that the client purchases. How could you reduce the volume of purchased goods?
Bain recommended answer:
Some good creative answers here include (but are in no way limited to):







Can the client change the shape or size of food containers?
Can the client packaging for families be consolidated?
Can the client reduce the weight of the packaging while still protecting the
food?
Can the client reduce other qualities of the packaging including degree of color
or logo prevalence without sacrificing their brand?
Can the client lock bathrooms so that non-customers do not waste toilet paper
and towels?
Can the client charge for extra condiments?
Can the client reduce the size or number of napkins they purchase?
Question 4
Bain focuses on components that make up large portions of a company’s costs:
reductions in these areas will have the largest impact on a client’s overall costs. Bain’s
philosophy is to always focus on where the value is. At first glance, napkins would not
appear to fall within this category because they are so low cost. But there is a new
napkin dispensing technology on the market that you have heard about and think could
save the client some money. You decide to investigate.
One way to reduce volume is to reduce how many napkins a customer takes. Customers
in fast food chains often take many more napkins than are needed for the meal, or
actively hoard them to take home. One action some chains have taken to combat this is
to switch their napkin dispensers from small metal dispensers (from which you pull
napkins out in bunches) to larger plastic dispensers (from which you pull napkins one at
a time, like a reverse Kleenex box). These dispensers are produced by major paper
manufacturers.
Let’s assume your chain came to you with the following question:

How much money could we save per year in the US from using the new type of
napkin dispenser in all restaurants?
What information would you like to know from the company? (Do not take into
account the cost of the dispensers for now.)
Bain recommended answer:
Key information that would be necessary includes:

Number of restaurants
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Company Website Cases




Number of customer visits per store per year
Number of napkins used per customer now
Number of napkins used per customer after the switch
Price per napkin
Question 5
As you talk through the data points that you would need to gather with your colleagues,
you learn from a fellow AC who worked for a local restaurant that a case of 6000
napkins cost his client $28. Thus, a reasonable price per napkin is about $0.005.
Conduct your estimates as if your client is similar to McDonald's in terms of the
number of outlets.
Your manager calls you for a quick estimation of the market size before getting
the actual data from your client. Use creative approaches to hypothesize values for
each of the above pieces of information and then calculate the estimated savings.
Bain recommended answer:
The interviewer is not looking for you to know the values of each of these buckets,
however it is important for you to make reasonable estimates and be able to defend
your answer. Were your estimates near these, or did you at least take similar
approaches?
Number of restaurants
Actual answer: ~12,000 McDonald's in the US.
One estimation approach:
Think of your hometown: How many McDonald's are there for the number of people?
Assume there is a McDonald's for every 20-25,000 Americans, with a population of
~275 million people in the US, that would be 11-13,750 McDonald's.
Other approaches:


Estimate the entire fast food market and then estimate McDonald's share
Estimate the area covered per McDonald's across the United States.
Note: With this approach, be careful to account for population differences
between 10 square miles of NYC and 10 square miles of Utah.
Number of customers per restaurant per day
Actual answer: Fast food restaurants expect around 1,500 customers a day.
One estimation approach:
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Company Website Cases
Assume the 20,000 people per McDonald's visit an average of twice a month, that's 24
times a year per customer or 480,000 visits / 365 days = 1,315 customers per day.
Other approaches:

One might take this a step further during a case interview and attempt to
segment these customers. For example, one might assume 50% of the
restaurants customers are drive-through and 25% of the remaining take their
food "to go." Drive-through customers do not take, but are given napkins. "To
go" customers may be more likely to "hoard napkins" as they can not go back to
the counter for more.
Note: This would influence potential answers to the next question - but for now,
assume you did not take this step and all customers are the same.
Number of napkins used per customer per visit
Actual answer: Five napkins with old dispensers and two napkins with prohibitive
dispensers for a savings of three napkins per customer.
One estimation approach:
During a case interview you would most likely just use personal experience here - how
many napkins do you take or see others take when you're at a fast food restaurant?
Other approaches:

Bain would send people to the chain to watch napkin taking behavior or call fast
food restaurants with both kinds of dispensers to find out how many napkins
they go through a day.
Calculations
$0.005 per napkin * 3 napkins * 1500 customers * 365 days per year * 12,000
restaurants = $98.6M dollars saved in napkin purchases.
Question 6 -- Does this estimate sound reasonable?


How would you go about feeling comfortable with this figure and pressure
checking your assumptions?
What would you want to flag for your manager as factors that might
significantly alter the answer?
Bain recommended answer:
To check the magnitude of the overall number some options include:

Looking at a comparable company’s operating income to see what percentage of
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Company Website Cases

the expense napkins account for.
Find out what your client currently spends per restaurant per year on napkins.
Keep in mind that with a company of this size any small changes in assumptions will
significantly alter your answer. Some things to flag for your manager:



The chain you work for probably gets a significantly better deal on napkin
pricing due to the magnitude of their orders (in contrast to the single-location
restaurant napkin price estimate you received)
Up to 50% of customers are drive-through and their napkin behavior should not
change. This would reduce the savings by up to 50%
The three napkin reduction estimate needs refining. Perhaps a pilot program
would need to be done to see if the dispensers really have the desired effect
Question 7
Assume you would need 10 dispensers per store for a total of 120,000 dispensers. Also
note that napkins in these dispensers cost more at a price of $.01 per napkin (remember
it is the paper companies that make the new dispensers).
At what price per dispenser would the investment not be worth doing?
Bain recommended answer:
120,000 * cost of dispenser + 2 napkins * .$01 per napkin * 1,500 customers * 365
days * 12,000 stores = 5 napkins * .005 per napkin * 1,500 customers * 365 days *
12,000 stores
120,000 * cost of dispenser = $32.85M
The most you would be willing to pay per dispenser would be $273.
Note: In an actual case interview you can use round number estimates so that mental
math is easier.
Question 8
The actual cost of these dispensers is around $50.



Can you see any other factors your client should consider before making a
decision?
What other advantages and disadvantages might there be to this switch?
(Impact on costs and customers.)
How might you evaluate the impact of the extraneous factors?
Bain recommended answer:
Some potential ideas include:
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Company Website Cases
Advantages:


Fewer napkins used per day leads to less restocking which may mean better
customer service or lower labor cost.
Better relationship with paper manufacturer (potential for better pricing).
Disadvantages:


With the new dispenser locking you into a paper provider you may lose buyer
power. There is the potential for additional napkin price increases in the future.
Customer reaction: Will a customer find this to be poor service? What if he or
she needs to grab a handful of napkins after a spill?
Implementation:


Management will need to negotiate a contract that includes limits on future
pricing.
Bain will need to do customer research and pilot programs to evaluate customer
reaction.
And many, many more! As you can see, the keys to a good case interview are logical
assumptions, creative thinking, and basic quantitative ability. Take time to think
through problems and share your thought process with your interviewer and you will do
great.
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Company Website Cases
Boston Consulting Group: Sugared Cereal
Actively listen to the case
Your client is the sugar cereal division of Foods Inc., a U.S.-based distributor and manufacturer of packaged
foods. According to the division president, Foods Inc.'s traditional strength has been with grocery stores,
which still account for the majority of its $1.1 billion in sugar cereal sales. But Big M Mart, a discount chain,
has been growing at a healthy rate of almost 15 percent per year and has now become Food Inc.'s largest
customer. Your client is not sure how to react, and has asked BCG for assistance with its distribution
strategy.
Establish understanding of the case
First, let me make sure I understand the problem. Our client specializes in sugar cereals traditionally
distributed through grocery stores. Sales to Big M Mart, a discount chain, have been growing at 15
percent per year, and the chain has recently become the largest distributor of the client's product
nationwide. We are here to help evaluate the distribution strategy in light of Big M Mart's growth.
That is correct.
Could you explain to me how grocery stores differ from discount stores?
Sure. Grocery stores generally specialize in food, as well as selling some household goods and over-thecounter pharmaceuticals. Discount stores, on the other hand, offer food alongside a wide variety of
merchandise, including clothing, home electronics, and housewares.
Does Big M Mart market its food products differently than do grocery stores?
Discount stores advertise lower prices for a wide variety of foods, particularly staple, nonperishable foods.
Could I take a moment to write a few notes to myself?
Please feel free.
Set up the framework
Before making recommendations, I think we would need to evaluate whether sales growth at Big M
Mart is good or bad for Foods, Inc. To do that, I would first look at how its sugar cereal performance
at Big M Mart compares with that in other distribution channels. Second, I would look at its
performance at Big M Mart in relation to competitors' performance. Next, I would determine what
drives customer purchases. Finally, I would want to understand the supply chain.
That certainly sounds like a reasonable approach. Let's proceed.
Evaluate the case using the framework
First, I would like to get a better sense of where Big M Mart stands in relation to our client's
other distribution channels by examining the client's sales data and margins, by distributor.
The marketing department does not have margins by channel, but tracks sales and volume for its top
five distributors.
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Company Website Cases
Sales ($M)
1997
1999
2001
5-Yr CAGR
Big M Mart
142
162
246
14.7%
R.J.'s
157
185
200
6.2%
Bozo Mart
143
175
189
7.3%
Ace Grocery
101
109
153
11.0%
57
62
67
4.0%
600
693
856
9.3%
Total All Distributors
1,000
1,079
1,150
3.6%
Volume (M boxes)
1997
1999
2001
5-Yr CAGR
Big M Mart
65
74
113
14.7%
R.J.'s
72
81
85
4.2%
Bozo Mart
65
77
80
5.2%
Ace Grocery
46
47
64
8.8%
Shoppers Mart
26
27
28
2.0%
Total Top 5
274
307
370
7.8%
Total All Distributors
450
468
487
2.0%
Shoppers Mart
Total Top 5
What does this imply about Big M Mart as a distribution outlet?
It looks as if the top distributors have been growing more important, but particularly Big M
Mart, which is growing faster than all the others. This is particularly true when we look at
volume, where Big M Mart's growth is much higher than that of the other four channels.
And how could you interpret what these data says about margins?
While the client's sales through other distribution channels are growing faster than volume,
Big M Mart volume and sales growth are the same, so the average price paid by Big M Mart
has remained constant. That implies that sales growth at Big M Mart could have negative
implications for our client's margins.
Next, I would like to look at how our client is doing in relation to the competition within Big M
Mart. Have they been gaining or losing market share?
How might you find that out?
I would try to interview Big M Mart's purchasing personnel, since they would probably track
those data for their own purposes.
Why would they want to talk to you? How might you approach such an interview?
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Company Website Cases
I would approach the purchasing personnel and suggest that our client and Big M Mart work
together to identify best practices to reduce costs and increase sales of sugar cereals at Big
M Mart.
Let's say in a perfect world you could get a breakdown of Big M Mart sales for the four largest
competitors (see market shares below).
What can we infer about our client's competitors within this channel? Who should they be worried
about?
It looks like our client is losing market share, as is Tasty Breakfast, while Cereal Co. and
Private Label are gaining share. Private Label, however, looks to be growing from a very
small base.
I would like to explore why our client is losing market share to Cereal Co. at Big M Marts. Are
their prices better than those of our client?
After a period of price wars six to seven years ago that lowered industry margins, the cereal
companies have refrained from price competition within the same channel.
If prices are not driving the difference, I would look at other factors such as brand selection,
percentage of shelf space, product placement, and in-store promotions.
Visits to Big M Marts indicate that each name-brand company holds 30 percent of the shelf space,
while private label has 10 percent. Cereal Co. brands, however, tend to be placed lower on the shelf
than your client's products.
Well, I suspect that children are a large target market for the sugar cereal manufacturers. The
lower shelf placement could be especially important to children who are looking at the
different types of cereals. Are there any other promotions?
Some Cereal Co. brands have sales promotion tags, and the team notes that store flyers advertise
specials on Cereal Co. brands for Big M Mart customer cardholders.
So, even if all the companies are maintaining product prices, maybe Cereal Co. is
strategically discounting prices to gain market share.
It seems as if there is evidence of cooperation between Cereal Co. and Big M Mart. Do we know
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Company Website Cases
anything about their relationship?
During earlier discussions with Big M Mart, you discovered that your client's competitors have 50
sales representatives dedicated to the Big M Mart account. Your client has seven.
Cereal Co. appears to be dedicating more resources to its relationship with Big M Mart than
our client is. This may explain its better product placement and promotion programs.
I think I have a good sense of distribution and competition. I would now like to look at the
customers and understand why they select the products they do. One hypothesis I have is
that shifting brand loyalties are hurting our client's market share at Big M Mart.
That's interesting. What do you think might motivate purchases of sugar cereals?
There are lots of factors, such as the games in the boxes, the price of the cereal itself, how it
tastes. To better understand consumer behavior, we might conduct market research, possibly
through focus groups, customer observation, and price sensitivity studies.
BCG teams often do such research. Let's assume your team conducts some analysis. Your research
concludes that most buyers tend to fall into two categories. Approximately 60 percent of buyers go
straight to one cereal and grab it. We can call this group the "brand-loyal" shoppers. Another 40
percent of shoppers look at all the cereals and then select one that interests them. Let's call this
group the "impulse" buyers.
For the brand-loyal shopper, the priority would be product availability, while product
placement would be important for consumers who like to shop around.
Within these groups, are consumers price sensitive such that one brand can lure shoppers
loyal to another brand?
In general, your research indicates that consumers are not price sensitive and are extremely loyal to
their preferred brand. But when the preferred cereal is unavailable, the brand-loyal customers will
purchase discounted cereals approximately 35 percent of the time.
Well, from that information, it appears that price is not a major driver of purchases unless the
preferred cereal is out of stock. In these stock-out situations, you said, brand-loyal customers
will purchase discounted cereals 35 percent of the time. What happens when the customer
does not purchase a discounted cereal?
In approximately 25 percent of cases, the customer walks away without purchasing any cereal at all.
In the remaining 40 percent of cases, the brand-loyal customer will act like an impulse shopper and
select another brand.
Interesting. It seems as if product availability could be a major driver of total cereal volume
for Big M Mart. Of course, we would need to know how often stock-outs occur that cause
consumers to walk away without purchasing cereal occur.
Since I have a pretty good understanding of customer motivation, I'd now like to ask a few
questions about the client's supply chain. I would want to talk to our client's distribution
personnel to understand the distribution process and to determine how often stock-outs
occur. Can you describe how our client's cereal is distributed at Big M Mart?
Cereals are distributed from the factory to the distributor's warehouse twice monthly. The retailer
then stocks the shelves itself.
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Company Website Cases
Do we have any knowledge about when the individual stores are out of stock?
No, we do not, since our client only delivers to the warehouses and has no direct access to in-store
inventory information.
Since we identified product availability as a key success factor earlier on, I would want to
make sure that the stores were stocking the product correctly.
Let's say that in your earlier in-store investigations, you found out that Big M Mart stores averaged 15
percent of sugar cereal brands out-of-stock, across all brands.
Stock-outs would be a major problem for our client, since 60 percent of customers look for a
specific brand of cereal and 35 percent of them would buy a discounted brand in a stock-out
situation. Big M Mart would also have an incentive to reduce out-of-stock incidents, since 25
percent of the time, a brand-loyal customer will walk away without buying anything.
Step 5
Step 5:
Summarize and make recommendations
Big M Mart is our client's leading customer, accounting for more than 20 percent of our
client's sugar cereal revenue. Although sales to Big M Mart are increasing on an absolute
basis, our client's margins there are lower than in its other channels and its competitive
position is eroding in that channel.
At Big M Mart, our client faces competition from both private label and Cereal Co., although
the latter appears to be the greater threat. There appears to be a relationship between Big M
Mart and Cereal Co. as evidenced by their joint promotions, the superior placement of the
Cereal Co. product, and the substantial resources that Cereal Co. has dedicated to the Big M
Mart account.
We learned that 60 percent of customers are brand-loyal, implying product availability is most
important. However, 40 percent like to try different kinds of cereal, indicating product
placement is also important. Purchasers do not appear to be price conscious, unless the type
of cereal they are looking for is out of stock, in which case there is a stronger tendency to
base purchases on price promotions.
In terms of distribution, our client is making deliveries twice a month to Big M Mart's
warehouses. Big M Mart, in turn, is responsible for stocking the shelves. We currently have
no direct knowledge of when our client's items are out of stock at the individual stores, but
there is evidence that stock-outs do occur with some frequency.
Well, it sounds as if you understand the situation. What would you recommend the client do?
The sales through Big M Mart appear to have a negative impact on the bottom line, as they
have lower margins than sales through grocery stores. The client could work with grocery
stores to ensure that they are able to compete effectively with Big M Mart in the sugar cereal
market. This strategy could be risky, however, since Big M Mart is a large and important
customer. Therefore, I would recommend that our client work more collaboratively with Big M
Mart.
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Company Website Cases
To defend its current position at Big M Mart stores, the client should move toward a
partnership with Big M Mart and dedicate more resources to the relationship. The customer
and competitor data indicate that our client's first priority should be to improve distribution to
ensure better product availability. In addition, it should push for product placement equal to,
if not better than, that of its competitors.
Why would Big M Mart be willing to enter into a partnership with Foods Inc?
Foods Inc could offer to share its information about customer behavior to help increase
revenues for both itself and Big M Mart. Stock-outs hurt Big M Mart in two ways. First, some
brand-loyal customers simply walk away without purchasing cereal whenever their preferred
brand is unavailable. Second, we know that other brand-loyal customers purchase lowerpriced cereal whenever they encounter a stock-out of their preferred brand. Both of these
instances lower Big M Mart's revenue.
By eliminating stock-outs, Big M Mart could increase its sales by simply ensuring that
customers don't walk away without making a purchase. Converting these purchase
occasions to sales would increase Big M Mart's sales of sugar cereals by more than 2
percent(1).
Better availability also helps Big M Mart and our client increase their revenue by deterring the
brand-loyal shoppers from trading down to lower-priced cereals. Recall that 35 percent of the
brand-loyal shoppers purchase a discounted cereal if their preferred brand is not available. If
improved distribution now makes the preferred brands more consistently available, the
customers will pay a higher price for these products.
Finally, we could use the information about consumer purchase behavior to help persuade
Big M Mart to share information about product availability in its individual stores. We could
work with our client and Big M Mart to improve the current distribution system to allow for
more economical deliveries, while at the same time ensuring that our client's product is
consistently available in the store.
Thank you. Those sound like solid recommendations, but I would suggest that you fully understand
the root cause of the stock-out situations and the cost to eliminate them before moving ahead.
(1)
15 percent out of stock x 60 percent brand-loyal customers x 25 percent
willing to forgo purchase = 2.25 percent
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