Professional Documents
Culture Documents
Wharton Casebook 2011
Wharton Casebook 2011
Good luck!
Section Page #
¨ Introduction 3
¨ Interview Preparation 5
¤ Interview Overview – Fit + Case
¤ Sample Frameworks
¨ Practice Cases 26
¤ 12 Practice Cases
¨ Links to Other Cases 95
¤ Cases from Firm Websites
¤ Other Case Resources
BIG PICTURE: CONSULTING RECRUITING INVOLVES
LOTS OF LITTLE THINGS… THERE IS NO SILVER BULLET
3
Gather Info, • Is consulting what you want to do? • MBACM industry chats
• Which firm do you want to join? • Firm websites / Vault / WetFeet
Network &
• Why do you want to join a certain • Coffee chats
Decide firm? • EISes
• Connect the dots (pre-MBA to MBA • Second Years / First Years from firms
to consulting) • Speakers on campus
Section Page #
¨ Introduction 3
¨ Interview Preparation 5
¤ Interview Overview – Fit + Case
¤ Sample Frameworks
¨ Practice Cases 26
¤ 12 Practice Cases
¨ Links to Other Cases 95
¤ Cases from Firm Websites
¤ Other Case Resources
Contents: Interview preparation
5
Process
• Wait in hospitality suite • Interviewer may • Interviewer will start case • Your chance to ask
with other candidates / give personal questions
• Keep track of time so that
recruiters background
you by when you are • Walk back to hospitality
• Interviewer asks for you • Questions about expected to reach a suite with interviewer
by name resume / conclusion
• Handshake / greeting experience
You should
• Appear warm, • Convince • Maintain confident, • Not ask stock questions
confident, professional interviewer that you controlled, upbeat • A good chance to get to
are fit for the firm demeanor
learn about the
• Pass the “airport interviewer’s personal
test” experiences at the firm
General tips
7
¨ Do
¤ Establish common ground (geography, family, interests, sports, etc.)
¤ Ask the interviewer friendly questions
¤ Be confident in your answers
¤ Talk about something other than your qualifications (you’re interesting, so
talk about it)
¨ Don’t
¤ Discuss something controversial
¤ Complain about anything
¤ Make up elaborate questions you know the answer to
¤ Repeat company slogans, mottos, tag-lines, etc.
¤ Focus only on your business qualifications and experience
Sample fit questions
11
• Listen actively • Mention you will take a • Follow your plan! • Drive the case to a
• Ask clarifying questions minute to plan your • Ask specific questions conclusion before time
approach expires
• Take judicious notes to test hypothesis
• Draw out a framework • Answer the question
• Organize notes as slides • Adjust hypothesis and
as checklist of topics to • Take a definite stand
plan as data emerges
• Formulate an initial explore
hypothesis about • Organize notes as • Make best conclusion
• Select 3 to 5 major slides with data on hand
possible solutions topic areas
• Highlight insights from • Make recommendations
• Write down key question • Identify relevant sub-
any numerical and follow them with
topics calculations supporting evidence
• Present plan of attack • Note conclusions • Address “risks” and
to interviewer – start “next steps”
with the most important
Tips: Communication, Notes & Math
14
¨ Communication
¤ Explain your thought-process when presenting your plan
¤ Make hypotheses when asking questions/requesting information
¤ Go beyond verbal communication
n Be engaging! Enjoy the case problem and work together to solve it!
n Body language (eye contact, gestures, posture); smile often but do not overdo it
n Facial expressions (Maintain composure at all times)
¨ Notes
¤ Write legibly, angle it such that the case-giver can see your work
¤ Use a new page for each theme you are exploring
¤ Circle/box insights for use in recommendations
¨ Math
¤ Draw math out clearly (especially for market sizing)
¤ Explain any assumptions (be reasonable with assumptions)
¤ Walk through your logic aloud and tie the result to the case
7 Tips to help you stand out in the case interview
15
¨ Ask questions that help clarify the scope of the case and the exact question to be
answered
¨ Draw out as “MECE” (Mutually exclusive, collectively exhaustive) a framework / tree as
possible
¨ Talk about the most important branches first and explain why they may be the key
drivers; don’t just follow the sequence in which you wrote them
¨ When asking questions or for more data, preface them with contextual analysis, or
even a hypothesis as to what you expect the data show
¨ When doing math, relate the numbers qualitatively to the case, and identify/verbalize
the takeaways from your analysis
¨ ‘Brainstorm in buckets’: If asked to brainstorm, take a minute, identify the broad levers
that can answer the question, and run-riot with ideas. Structure and a logical approach
is always appreciated.
¨ When presenting recommendation – take a position! Be concise and top-down in your
recommendation (i.e. recommendation first with supporting arguments, tie in numbers if
possible). Then, mention the risks that invalidate your reasoning
A note about frameworks
16
¨ There are an unlimited number of frameworks that can be successfully applied in case
interviews…
¨ …but knowledge of a few solid frameworks will go a long way (profitability, market
entry, go/no go investment, etc.)
¨ Sample frameworks can be found in the following places:
¤ Wharton, Ross, Stern, Tuck, Kellogg, and other school casebooks available on webcafe
¤ David Ohrvall “Crack the Case” and Mark Cosentino “Case in Point”
¤ Your knowledge from management, marketing classes and prior work experience – read the
CORE CONNECTOR published by the Wharton Consulting Club too
¤ Your own logical problem-solving abilities
¨ Cosentino and Ohrvall both offer “systems,” but these systems are essentially
combinations of individual case-type frameworks
¨ Use what(1) You are comfortable with, and, (2) works for you. Be as original as possible:
DEVELOP A FRAMEWORK THAT IS RELEVANT TO THE CASE PROBLEM QUESTION AND
INDUSTRY!
¨ Some sample frameworks are provided in the next few slides. But these are just meant
to get you started – do develop your own frameworks for each case!
Sample framework 1: Increase profits
17
• Client’s earnings / profits (or ‘bottom-line’ in Income Statement) has declined or stopped growing
Overview • You need to recommend ways to increase profits
Sample
Framework
• Client is considering entering a new market. Your goal is to recommend whether or not they should enter it
Overview • For these types of cases what is common is that the company is considering spending money to get some kind of
economic return. In addition to seeing whether the decision is financially sound, you have to test:
- Likelihood of implementation success based on industry conditions and firm capabilities
- Do a risk assessment
Sample
Framework
Sample
Framework
One should broadly follow these steps when giving cases to fellow students
Ask questions Guide only when necessary Provide honest feed back
ü Best way to make cases interesting ü Give out information only when ü Go back to your notes and think of
to provide necessary hints indirectly right question is asked both strengths and weaknesses
- for ex by asking related questions ü Be specific – What was the mistake
ü Idea is to let candidate stretch and what’s the right approach
ü Follow the case flow as provided in herself and get a feel for real ü Be Honest – its in candidate’s best
the original format – It helps in situation interest to make mistake with you
objective assessment and learn from them
Remember that there is no one answer to any case! A candidate can be creative enough to take a new approach towards the problem.
Remember, cases are about problem-solving
abilities, not whether you are an industry expert
24
• Case interviews span a broad range of industries. You may encounter everything from
Background Financial Services to Mining to Education to Formula 1
• Those of you who have not worked as consultants before will likely not have any
background in most of these industries
• This document can give you a very high level view of some ‘typical’ industries that
cases focus on
• You MUST attend the industry primer series led by partners from various firms as they
will capture key insights and latest trends in those industries that tend to be popular in
cases
Section Page #
¨ Introduction 3
¨ Interview Preparation 5
¤ Interview Overview – Fit + Case
¤ Sample Frameworks
¨ Practice Cases 26
¤ 12 Practice Cases
¨ Links to Other Cases 95
¤ Cases from Firm Websites
¤ Other Case Resources
List of Practice Cases
26
A friend is considering purchasing a yoga studio that she is a member of. The yoga studio is located in the upper west side of Manhattan.
The yoga studio is small and has a community-like environment that customers love. Currently, there are 10 teachers each teaching 2-4
classes/week, with a total of 100 classes/month offered by the yoga studio. The current owner has ran the yoga studio for 5 years and
recently, the business suffered a loss. The lease ends at the end of the month, making it an appropriate time for the friend to acquire this
yoga studio. What are the key factors that the friend should be considering?
This case has two main components. First, evaluate the financial attractiveness of acquiring the yoga studio and second, measuring future
prospects. Some cost and pricing information will be provided to do this.
Yoga
Industry
External
100 Classes
20 people
Competitors
maximum
People /
class
Market % of
Evaluation Capacity
Price /
person /
Revenue
class
Number of
Teachers
Internal Profit
Salary/
teacher
Question 2a
The profit has decreased substantially in the past 2 years.
2010 à Profit of $24,000
2011 à Loss of $24,000
If they offered 100 classes/month and charged $10/student, what is the break even point (number of students/
class needed)?
• Cost has been consistent à Revenue has gone down by $48,000 between 2010 and 2011
• Total monthly cost is $8,000
• Currently there are 100 classes
Calculations
• Loss of revenue means that # of classes decreased or / and # of students per class decreased
• Breakeven Point: Revenue = Cost
• Cost = $8,000
• Revenue = $8000 = 100 classes x $10/student x # of students / class = $1000 x # of students / class
• # of students / class (Breakeven point) = 8 students / class
Case 1: New York Yoga Studio
Question 2b – Breakeven Point
30
Question 2b
In 2011, they had a loss of $24,000. What was their average enrollment of students per class? By what
percentage does the yoga studio need to increase enrollment by to breakeven?
Calculations
Conclusion
Based on your findings, what would you recommend your friend do?
I would advise my friend NOT to acquire this business, especially if she is looking for short-term profit. Just to breakeven
with the variable costs, enrollment needs to increase by 33%. In order to make a profit, the number of students needs to
increase by more than 33%, which is difficult in a short time span and in a small community where many yoga studios
already exist. There may also be high switching costs if people have already purchased annual yoga passes. The friend
would also need to invest a large amount of money initially to purchase the business from the current owner (fixed cost),
making it even more unlikely that the friend will be able to earn money from entering this deal.
Case 2: Investment in PTA plant
Introduction
32
Our client is a large producer of PET. PET is a type of plastic that is used mainly for producing bottles, such as the ones
you find in grocery stores. The main component of PET is PTA. Our client has a PET plant in the US and serves clients
both in the US and Europe. They have made the decision to build a PET plant in Europe to be closer to the clients. They
have asked you to evaluate whether they should also backward integrate and purchase a PTA plant and locate both plants
next to each other.
This is a relatively difficult case to structure. Leave it up to the interviewee to structure as he/she wishes and give him/her
information as requested. If the interviewee gets stuck, feel free to direct them towards what needs to be evaluated.
Evaluate the:
a) Plant on a stand-alone basis
b) Synergies achieved from backward integration
c) Market evaluation and risks
Things to consider:
- Capacity
- Revenue
- Fixed costs (plant)
- Variable costs (Raw materials, energy, overhead and logistics)
Calculations:
Plant producing at capacity of 1million metric ton
PTA price of $920 / metric ton
Plant cost of $800MM, which can be used for 50 years => Assuming straight line depreciation of $16MM / year
Raw Material cost of $690 / metric ton
Energy cost of $30 / metric ton
Overhead and logistics cost of $80MM => At capacity $80 / metric ton
=> Marginal profit of $120 / metric ton
Annual profit of $120*1 million - $16MM = $104MM (stand-alone)
Case 2: Investment in PTA plant (cont’d)
Analysis (cont’d) and Recommendation
34
Main risk being prices declining due to: Other benefits from purchasing PTA plant:
- Imports from cheaper manufacturing countries (e.g., China) - Guaranteed supply (however PTA is a
- Decline in demand due to increased recycling of plastic bottles commodity and there is no real impact)
- Decline in demand due to increased ‘green’ movement in Europe
- Decline in demand due to innovation in product design (bottles requiring less plastic)
In an outside assessment, it is expected that prices will be approx. $800 / metric ton in 3 years
=> Annual profit = $144MM – ($920 - $800)*1 million = $24MM
It seems that the decreasing demand and increasing competition will be driving down
prices.
Recommendation The expected annual profit of the plant will be $24MM, out of which $40MM of
synergies from cost savings.
Given that the cost of the plant is $750MM, it seems like a very high price to pay.
Case 3: Zirgin Atlantic Airlines
Introduction
35
Zirgin Atlantic operates a flat pricing structure for its customers and would like to charge all passengers $500 for a round trip flight on this route ($250
for a one-way ticket). Luckily, Zirgin Atlantic’s strategy group has already conducted preliminary research and has discovered that in this current
environment, this pricing could likely draw an average of 200 round trip passengers every day for the company.
Branford has approached us to recommend whether or not to open this new route for the company. If we do decide to go forward with the route, he
only wants to use one incremental airplane in order to avoid being over capitalized.
Zirgin Atlantic operates flights around the world and this new route would be a small addition to its global network. In addition, Zirgin Atlantic is a
subsidiary of Zirgin, a global conglomerate that also operates in the media and entertainment industry. However, Branford has wanted to provide
direct transportation to London for business people in Canada for some time. As a benchmark, the company targets a 6 year payback period on its
investments.
Part 1: If Zirgin decides to purchase one new plane to be used exclusively for the new route, does this investment meet
Zirgin Atlantic’s corporate investment criteria? Assume that demand, pricing, and costs stay the same year after year, and
that a new plane has a useful life of 25 years.
Calculation:
Payback period = Capital investment / Annual profit = $75M / $15M = 5 years
Case 3: Zirgin Atlantic Airlines
Introduction
37
Part 2: Richard Branford comes back and tells you that instead of buying a new plane, the company can also lease a plane
$12M a year, renewable at the same cost year after year in perpetuity. Do you think the company should pursue this new
route with this lease? Assume that demand, pricing, and costs stay the same year after year.
Annual Profit
Information to provide:
Annual cost to lease a plane = $10M
Calculation:
Annual profit = Annual profit excluding lease costs – annual lease costs = $15M - $10M = $5M
Questions / Answers
1. Is leasing a new plane economically profitable for Zirgin Atlantic? Yes. If Zirgin decides to lease a plane, then they will generate a profit of
$5M a year without having to buy a new plane.
2. What are the financial and risk implications of buying a new plane versus leasing a plane? If Zirgin buys a plane, the company needs to
invest $75M in order to generate $15M a year, or $375M total over the 25 year useful life of the plane. On the other hand, if the company leases
a plane instead, then the company generates $5M a year without the heavy initial investment. Just looking at pure numbers, the company will
generate a lot more overall profit in a long period of time by buying a new plane. However, buying a plane also encompasses more risks. First,
the purchase of a new plane increases the PP&E/asset base of the company, which some investors may be wary about. Second, if the company
buys a plane and the route ends up being unsustainable, then the company needs to resell the plane or use it for another route. Leasing a plane
presents a much more attractive exit option. Third, buying a plane requires significant initial capital and depending on the financial strength of the
company, Zirgin may want to conserve this capital for other means. This capital can also be used for other projects that may generate even
better returns.
Case 3: Zirgin Atlantic Airlines
Introduction
38
Part 3: It seems like based on your analysis and the assumptions used thus far, it is financially attractive to open up this new
route. Aside from the pure economics of the route, what are some other potential upsides and risks to the plan?
Part 4: You run into Richard Branford in the elevator as he is on his way to a meeting. He knows that you haven’t completely
finished your analysis yet but he wants a quick 30 second update on what your recommendation is.
Recommendation
The new proposed route seems attractive for Zirgin Atlantic. The economics appear most
favorable if the company buys a new plane, but depending on the capital situation and risk
tolerance of the company, the rental option is also financially viable. We should of course
view this in relation to other opportunities that the company is investing. There are also
risks to consider including how the new route will impact competition and existing Zirgin
operations. However, given the good economic implications of this opportunity, my
recommendation is to pursue the new route.
Case 4: National zoo
Introduction
40
1
The national zoo hires you to decide whether they should buy a panda. The client is looking to increase their revenues and profits.
Partial Conclusion & Next Question (Would it be a good investment to buy 2 pandas?)
Since the NPV is positive, it seems to be a good investment.
If it is a good investment, what if the zoo decides to buy a second panda? Would it be a good idea?
And what else could happen if they buy 2 pandas? (Imagine they can procreate and there is a 90% chance the zoo could sell the baby
panda next year)… Would it be a good investment to buy 2 pandas?
Case 4: National zoo
Acquisition of 2nd Panda – 2nd Panda bought at the same time as 1st
3
They would sell the baby panda at Sale
of
baby
panda
=
-‐$0.89M
*
(90%)
market price ($890,000). Sale
of
baby
panda
$801,000
NPV
(baby
panda)
=
0.801/1.20
NPV
(baby
panda)
$
667,500
There’s a 90% probability that the NPV
(panda2+baby
panda)
=
-‐$2.7M
+
($0.45M/.20)
+
(0.801/1.20)
pandas procreate and the zoo can sell NPV
(panda2+baby
panda)
$
217,500
the baby panda.
Case 4: National zoo
Acquisition of 2nd Panda – 2nd Panda bought after the 1st
3
They would sell the baby panda at Sale
of
baby
panda
=
-‐$0.89M
*
(90%)
market price ($890,000). Sale
of
baby
panda
$801,000
NPV
(baby
panda)
=
0.801/1.20
NPV
(baby
panda)
$
667,500
There’s a 90% probability that the NPV
(panda2+baby
panda)
=
-‐$2.7M
+
($0.54M/.20)
+
(0.801/1.20)
pandas procreate and the zoo can sell NPV
(panda2+baby
panda)
$
667,500
the baby panda.
Case 4: National zoo
Conclusions
4
Acquire 2 pandas:
• NPV (Panda1) = $0.3M
Recommendation • NPV (Panda2) = $(0.45) or $0M
• NPV (Baby Panda) = $0.67M
NPV Total = $517, 500 or $967,500
• Not procreating
• Life expectancy: biggest risk, significant value of the PV is driven by the assumption of
Risks perpetuity
• Concurrency (other zoos’ actions)
• Not reaching target of incremental revenues (amount of tickets)
The current analyses are based on one single factor, increased visitors, in generating value. The
zoo should also explore other revenue sources to the acquisition of panda to mitigate the risk.
• Increase revenues through merchandise related to pandas
• Increase the price of tickets (price sensitivity analysis)
Next Steps • 2-part tariff (to see the pandas)
• Memberships
• Rent the pandas
• Why a panda?
Case 5: Electronic Machines Division Turnaround
Introduction
45
Our client is a $500M machine manufacturing company with 5 business units in the U.S. He hired us to work with the Electronic Machines
division, which is a $25M business and 5% EBITA.
He envisioned to grow the division to a $100M business and 20% EBITA. This machines are used to manipulate steel in different industries
(not relevant which industries) and are about the size of a PC.
The client wants to know whether this goal is possible or what he should do with this business unit.
How would you approach this question and what would you recommend him?
How would you approach this question and what would you recommend him?
The candidate should :
• Understand the problem and what 5% EBITA means
• Explore the industry (introduction of new technology), competitors (2 big players), and sales channel (distribution)
Focus next on how to increase revenues, then how to improve profitability (reducing costs)
Case 5: Electronic Machines Division Turnaround
Revenue stream
46
If the company decides to sell the new technology machines at Information to be provided If asked
the same price that the old ones. What could they do?
(Remember that the client want to improve the business) • Materials: 60% of COGS
• Labor : 15% of COGS
• Fixed costs:15% of sales
The candidate should ask what is the current cost, and write down This is all the information needed (remember EBITA)
a cost structure. a) Materials:
• China: 50% (vs. current cost)
By how much do they need to reduce costs? • Mexico: 50%
The candidate should explore options to improve costs. However • Malaysia: 60%
since the client would need to reduce costs almost by 45% (from
$2,660 to $1,440= $1,220), the candidate should come with the b) Labor :
idea of outsourcing production or moving it to another country. • China: $2/hr
• Mexico: $4/hr
Where could they produce (which countries)?... Mexico, China and • Malaysia: $2/hr
Malaysia. Provide information upon request (see math in next • US: $15/hr
page).
c) Fixed costs: same
The company should move the operation to Malaysia. d) Other costs? Distribution
The candidate should mention risks, such as impact on quality, • China: $50/machine
learning curve, culture, leading with government, response of • Mexico: $20/machine
competitors; and opportunities, such as entering new markets.
• Malaysia: $50/machine
Case 5: Electronic Machines Division Turnaround
Math
48
By how much do they need to reduce costs? Where should they produce?
How would you approach this question and what would you recommend him?
This is similar to a strategy case, in which you have to assess the market opportunities, competition, and the companies competitive
advantage.
In a real due diligence project in consulting firm, the project team will develop framework and identify key areas to assess, and then ask
questions to the target. Therefore, an ideal candidate in this case interview should be able to come up with a framework that is
appropriate to assess a clothing retail company, and be able to ask relevant questions in each aspect.
The format of this interview is largely driven by the interviewer. However, an ideal candidate should be able to drive insights and
implication on each question asked by the interviewer, and used those to form a view and the conclusion
Case 6: Due Diligence on Clothing Retail Specialist
Framework
51
Company standalone:
• Business and revenue models (how do they generate cash?)
• Competitive advantage?
• Specific asset, knowledge, resources, capabilities?
• Key financials & cost structure
• Management
Deal itself:
• Synergies with PE portfolio
• Risks (implementation, regulation-trust, environment, etc.)
Case6: Due Diligence on Clothing Retail Specialist
52
Market:
• The market is flat in value over the last 5 years (~$25Bn) but volumes have been growing over the same period (~2% per year).
What could explain this?
o According to market value = volume x price, the only reason that can explain this situation is a decrease in price offsets the
increase in volume
Company:
• Cost structure: which type of indicators could you use to assess the profitability of a retail store? Especially if you want to benchmark
stores from the same brand.
o An ideal candidate should have basic understanding that retail is driven by floor space
o Indicators: sales / sq feet, (or sales / employee)
• For one given brand, we have: 15 suburban stores: average size = 1500 sq ft and average profitability (sales / sq ft) = $1,500 per
sq ft, 20 urban stores: average size = 800 sq ft and average profitability = $2,800 per sq ft. What is the total annual sales of this
brand?
o Basic quant question.
o Suburban: 1500*1,500*15 = $33.75m
o Urban: 800*2,800*20 = $44.8m
o Total = $78.55m
• If I tell you that the sum of the sizes of the stores (both urban and suburban) is 40,000 sqft, what would be the profitability margin (in
sales/sqft) of the brand?
o Total sales / total size = $78.55m / 40,000 sqft = ~$2,000 / sqft
o Basic quant question following the previous question. An ideal candidate should cross-check this result with data given: answer
should be in the range between $1,500/sqft and $2,800/sqft based on the data given in previous question
Case 6: Due Diligence on Clothing Retail Specialist
54
Step 2: Interviewers will probe questions according to the framework developed (con’t)
Company:
• We’d like to speak about a concept which is very common in the retail industry. To do so, let’s look now at the target’s investment plan:
• Year 1 – it opened its first store and gross margin was 10%
• Year 2 – same store but gross margin increased to 25%
• Year 3 – same store but gross margin remained flat to 25%. Manager decides to open new stores from now on
• Year 4 – 1 additional store: total gross margin = ~18%
• Year 5 – 3 additional stores: total gross margin = ~17%
• Year 6 – 10 additional stores: total gross margin = ~16%
• Overall gross margin kept decreasing over those years and the PE fund is worried about that. Is the fund right to worry about it?
Why/why not?
o Ideal candidate should distinguish the difference between individual store gross margin and total gross margin, the concept of
“average”
o Candidate should also ask for additional questions and draw curves to visualize the situation. For example, ask evolution of
sales for 1 store, then evolution of costs; could also ask what happened in year 1, 2, 3, etc.
o Hints from interviewer would be given when candidate probe the right question: 1) all stores are similar, 2) no cannibalization
or coordination diminishing returns, and 3) mainly fixed costs
o Key concept: the ramp-up concept in retail industry. One given store reaches its full potential only after a 2 year ramp-up
period. The total gross margin will depend on the mix of new stores and matured stores.
– The gross margin of a new store is 10% after 1 year, 25% after 2 years and remains flat afterwards
– In year 4, two stores – one new and one matured, the average gross margin = 10%+25% / 2 = ~18%
o The fund should “de-average” the total gross margin and look at the margin evolution of the same stores, i.e. the SS (same
store) margin. If the SS margin of a matured store decreases when new store is opened, the fund should be worried as the
market might be saturated. However , if the total gross margin is due to the store mix, then the fund should not worry about it.
Case 6: Due Diligence on Clothing Retail Specialist
55
Step 2: Interviewers will probe questions according to the framework developed (con’t)
Company:
• Based on your answer, if there were 3 additional stores and 2 stores in year 7 and 8 respectively, what was the evolution of the
overall gross margin?
o The total gross margin should increase as the expansion slowed down and more existing stores would reach their mature state.
The overall impact of new stores on total gross margin would decrease.
o è An ideal candidate should be able to draw on this question to identify the conclusion and implication. Candidate should
state that if the target’s total gross margin increased after year 7 and 8, then the fund should not worry as the decrease in
total gross margin in previous years were due to rapid expansion.
Case 6: Due Diligence on Clothing Retail Specialist
Recommendation
56
How would you approach this question and what would you recommend him?
This is a competitive strategy case.
For the first part, the interviewer should diagnose the root cause of share loss by understanding changes in both market size and the
client’s volume (Vol. Share = Vol. / Market Size) in South China region. After realizing that the share loss is primarily driven by Market
Size increase due to a disruptive innovation brought by a new local competitor, the interviewer should guide the discussion on whether this
is a real competitive threat – given the client’s volume had been relatively stable and their user base intact.
For the second part, interviewer should guide creative thoughts on innovation, supply chain management and sales/marketing strategies
to react to the situation. This is the fun part and the interviewee can recommend several strategic choices in both short term and long term.
Consumer
• There’re primarily two groups of consumers in the PC market – the Fun Seekers who prefer current fried products for crispy mouth
feel and the LOHAS group who strongly demand baked products with less or no oil. Fun Seekers make 80% of total market
consumption but more people are switching to the LOHAS group.
• Assume no seasonality in consumption.
Market Size and Competition
• Last year, PLD recorded 500,000 tons of sales in national PC market with 40% share, followed by WWT (10%) and DLT (5%)
• South China Region accounts for 10% of overall PC market. Last year PLD sold 120,000 Tons of PC in this region with 60% market
share. Rest of the market goes to WWT (20%) and DLT (20%).
South China Volume National Volume
PLD 60% 120,000 40% 800,000
WWT 20% 40,000 10% 200,000
DLT 20% 40,000 5% 100,000
Total 200,000 2,000,000
Case 7: Snacks Manufacturer Defending Market
Share Introduction
59
Volume share = Volume / Market Size (Discussion Volume share = Volume / Market Size (Discussion based on South Volume share =
Volume / Market Size (Discussion based on South China region)
a) What’s our volume this year? It’s 100,000 Tons till end of Sep.
• Interviewee should realize this is about 10% volume growth, as last year 90,000 Tons (12,000 * 9/12) was sold by end of Sep,
assuming no seasonality.
• The interviewee should also realize market size grew dramatically (100,000/ 20% = 500,000 Tons by Sep, versus 200,000 Tons
full year last year)
• Interviewee should then understand the market share loss was not caused by volume decline, but by a jump in market size.
b) How were competitors doing? WWT and DLT volumes are also growing at 10%
• Interviewee should realize WWT and DLT were growing at the same rate as us so were not driving market growth; it must be that
new competitors entered the market.
• Most importantly, the new competitors now command a majority market share. (volume by PLD+WWT+DLT = 200,000 *( 1+ 10%)
= 220,000 tons, which is less than half of the nowadays market of 500,000 tons)
Case 7: Snacks Manufacturer Defending Market
Share Introduction
60
Step 2: Understand what are the new competitors doing and the implication to PLD:
Discussion based on South China Region.
a) Could you tell me about the new competitors?
• There was only one new competitor, XCD which entered the market in the middle of this year
• This competitor was doing exceptionally well. An excellent candidate would quantify XCD’s performance by looking at its monthly
sales – XCD was in the market for only 3 months (now is Sep) but generated 280,000 tons of sales! It means XCD’s monthly volume
was more than 8 times of ours (280,000 / 3 = 93,000 tons, for us it’s 100,000/ 9 =11,000 tons)
• Explore 4P: Product, Price, Place and Promotion (in a less rigid way).
• The interviewer will hint that the key is product – they introduced a baked product
• Interviewee should realize it was the LOHAS group who was buying the newly launched baked product.
c) What do we know about LOHAS group in South China? LOHAS group was only 20% of the market volume but now more than half.
Frequency of eating potato chips has not changed for either of the two groups.
• Interviewee should start thinking where the new LOHAS consumers came from.
• Apparently most of them were NOT “switchers” coming from the Fun Seeker group, considering LOHAS is now bigger than Fun
Seekers despite Fun Seeker groups were actually growing (volume growing with frequency stable).
• An excellent candidate would reason that the majority of LOHAS consumers this year were previous non-users of potato chips.
Reasons could be that these people concerned about oil in the fried product. They are now coming into the category to buy XCD’s
baked product which is not oily.
Case 7: Snacks Manufacturer Defending Market
Share Introduction
61
• A good candidate should consider both short term and long term.
• In the short term, XCD seems to be growing on its own without stealing users from us, and they are only selling in a small regional
market (South China only 10% of national volume).
• But in the long term, giving the LOHAS trend and XCD’s huge success in South China, XCD is likely to go nationally. In fact, South China
was only a test market for them.
• In short term, focus on protecting our business in South China and other regions by increasing marketing investment, do promotions or
introducing new flavor to excite the Fun Seekers group.
• In long term, come up with our own baked product or consider buying the new competitor.
Case 8: Princeton-Plainsboro Hospital
Introduction
62
Princeton-Plainsboro Hospital is a large New Jersey single-site hospital serving a wide range of patients. The
hospital's board is concerned because they have noticed a decline in the hospital's earnings from medical services
even though the number of patients have remained static. The hospital has hired you to help them figure out what the
problem is and come up with a strategy for increasing earnings.
This case has two main components. First, investigate No specific information is needed upfront except to
the decline in earnings for the hospital, then use that as note that the hospital is large and serves a very wide
a basis to develop a new corporate strategy. The range of patients.
investigation of earnings will be more structured with
defined information and calculations to be completed. Please also hand candidate the exhibit entitled
However, the strategy development is open-ended and “Average reimbursement per patient at Princeton-
gives the interviewee the opportunity to be creative. Plainsboro."
Case 8: Princeton-Plainsboro Hospital
Discussion Points
63
2. Earnings Calculation
• Provide information as requested by the interviewee.
• Have the candidate speculate on sources of revenue for the hospital.
• Have the candidate speculate on sources of costs for the hospital.
• After discussing revenues and costs, give the candidate the attached revenue and costs charts.
• Public insurance includes Medicare and Medicaid.
3. Strategic Discussion
• Once the cause of the earnings decrease is known, talk about some solutions to the problem.
• Corporate development (merger/acquisition, joint venture, partnership) needs to be explored.
4. Presentation
• Discuss risk and rewards.
• Concise delivery of conclusions to CEO.
Case 8: Princeton-Plainsboro Hospital
Financial Analysis of Investment Options
64
5,000
Patients w/ public
Dollars
4,000
insurance
3,000 Uninsured patients
2,000
1,000
0
2004 2005 2006 2007 2008 2009 2010
Year
Case 8: Princeton-Plainsboro Hospital
Earnings Analysis
65
Calculations
Costs:
Areas to Cover (lead candidate through) • Buy supplies for less (could partner with other
hospitals in state when negotiating prices)
• Make sure the candidate considers corporate development with • Attract lower cost patients with selective
a local specialty clinic that has desirable (profitable) patients advertising, etc. (e.g. target young rather than old,
• Can acquire by purchasing etc)
• Can enter into a joint venture or partner to provide some • Find efficiencies/synergies somewhere with a
services in hospital, split profits with external specialist purchase of a clinic
doctor
• Can try entering niche specialties alone by opening up a
new office and hiring staff
Case 8: Princeton-Plainsboro Hospital
Wrap Up
67
Candidate needs to first cover calculation of margins and implications. Then the candidate needs to cover relevant strategies with their
potential risks and rewards.
Case 9: Eat Co. Profitability / Turnaround
Introduction
68
Part 1: The candidate should create the following framework to determine why profits are declining
EXTERNAL
FINANCIAL
INTERNAL
• Is the market growing or shrinking? • Are costs increasing? Cost breakdown • What is our product mix?
• Who are the competitors? • Are revenues declining? • Is it mismatched with the market?
• What is happening in the economy? • What are our prices? How do they
• Are there any factors that are compare to our competitors?
impacting our clients? For example, • Do we have promotions and discounts
diet changes and how are these impacting our sales
• What factors influence our customers’ volume and margins?
purchasing? • What has our competitors been doing
to market and develop their products?
• How do our products compare to our
competitors?
Additional information
An excellent candidate will look at both the external and financial factors before moving to the internal factors. This candidate will also
lead the interviewer from one bucket to the other and address most of the points under each bucket. An excellent candidate will also ask
for cost information, as this is a profitability issue.
Case 9: Eat Co. Profitability / Turnaround
Part 1: causes for declining profits
70
Additional Information
The candidate should conclude that the Eat Co is making profits from the supermarket division but the deli section is a loss maker. Eat Co’s
total revenue is $190 million but its profits are $15 million.
The candidate should suggest that the Eat Co consider (1) decreasing costs in the deli section and (2) re-focusing on the supermarket
section. Finally, the candidate should say that the deli section provides the drag on the company’s profitability even though deli products
generates more revenues than supermarket products.
An excellent candidate will ask for (1) competitor information and (ii) calculate total profit/loss for each section and for the both sections.
The candidate should ask for competitor information. If interviewee, doesn’t ask for it then provide it to the interviewee.
Recommendation
I would recommend that Eat Co looks at (i) aligning its costs with competitors in the deli products segment, this will generate additional
profit of $90 million instead of its loss of $20 million and (ii) developing its distribution to supermarkets as Eat Co has only 7% of the
market and sells 50% less than its competitors in this segment. An increase of 20% in sales in this segment will increase profits by $7
million. The risk is that competitors will retaliate to Eat Co’s attempts to increase its market share in the supermarket section and there
are risks to product quality when aligning costs with competitors if it compromises Eat Co’s product quality. The next step would be to
look more closely at cost reduction options in the deli section and how to gain share in the supermarket segment.
An excellent candidate will drive the case, and make accurate calculations while coming up with conclusions to move the case forward. This
candidate creates a thorough framework and needs little prompting from one step to the next. The candidate recognizes that Eat Co has
under-developed opportunity in the supermarket segment based on the quantitative work and see that deli section can be re-tooled to
increase overall profitability. The candidate makes a thorough conclusion using information in the case and provides next steps.
A good candidate is able to generate ideas and move the case forward with logical though not in-depth calculations. The candidate is also
able to work through the math.
Case 10: Beverage Manufacturer
Introduction
74
They have asked us to determine whether or not they should launch the new product, how to do it, and what the marketing
strategy should be.
Flavored Non-sparkling
Flavored Water Market by
Water Market by Product
Category
12%
10%
Sparkling Others
18% Easy Drink
90% Non- 70%
Sparkling O2
Case 10: Beverage Manufacturer
Market Sizing
76
Math
The interviewee should go through the following calculations:
• 10% of 8 million gallons = 800,000 gallons of non-sparkling water sold per year
• Each bottle contains 16 oz; since there are 64 oz in a gallon, then there are 4 bottles per gallon
• 800,000 gallons * 4 bottles in a gallon = 3.2 million bottles sold per year
• 3.2 million bottles * $1/bottle = $3.2 million revenue per year
Case 10: Beverage Manufacturer
Breakeven Analysis
77
How long would it take the client to break even on a new product in the non-sparkling water market?
Math
$400,000 / 10 cent profit per bottle = 4 million bottles need to be sold to breakeven
The interviewee should note that 4 million bottles is larger than the entire annual market for such products, so it will take
a few years to reach this amount (assuming there is no change in the overall market size).
The interviewee should determine a reasonable market share goal. The important thing is not to come up with an exact
market share target, but to back up whatever assumption s/he makes with logical reasoning. For example, here is a
possible thought process:
• Since the new entrant is a major company, it should have strong brand name power and distribution networks.
Since the other main competitors have 12% and 18% and our product is backed by a strong company, our
company will come in somewhere in that range. Let’ s use the mid-point 15% as an estimate.
• 15% of 3.2 million bottles = 480,000 bottles to sell per year à approximately 0.5 million bottles
• 4 million bottles to breakeven / .5 million bottles à it will take approximately 8 years to breakeven
• Candidate should note that 8 years is an “eternity” in a market like beverages where new beverages emerge
constantly and trends change quickly
Case 10: Beverage Manufacturer
Positioning
78
If our client wanted to go ahead with the product launch, how should they position the product in the market?
The interviewee should ask for information on how the two main competitors are positioning their drinks currently. When
s/he asks, provide them with the following results from a recent customer survey:
Respondents’ preferred
beverage type
Percentage of Respondents
Case 10: Beverage Manufacturer
Final Questions and Recommendation
79
What insights do you draw about positioning from the Final recommendation to CEO?
previous chart?
The client’s new product will be in the “other” category and A good response will include some variation of the following
should try to gain share among that sub-market points:
• This is probably a questionable investment at best
The client should position the product as a sports drink or • It will take a substantial amount of time to
leisure beverage, since those are the categories where breakeven, probably longer than what is reasonable
“other” has the largest market share for a product in the beverage industry
• If the client still decides they want to launch a
What risks should our client consider when thinking product in this space, they should leverage their
about proceeding with this venture? strong brand and distribution network to market a
sports drink and/or leisure beverage
Possible answers include:
• Changes in the customer preferences for
beverages (i.e. flavored water is a fad)
• Response from competitors
• Cannibalization (i.e. how many other similar
products does our client make?)
• Unfavorable breakeven time period given previous
analysis
Case 11: Wine Supply Chain
Introduction
80
External
-Competitors: Are competitors also using marketing materials in the same way?
-Customers: Are customers responsive to these materials? (maybe the company is not making the right ones)
-Suppliers: Are the suppliers of these marketing materials efficient? (maybe they are not delivering the materials on time)
Internal
-Mix of Corporate and Field Sales Team: Who is more effective?
-Corporate Marketing Team:
-How do they push the materials out?
-Is the forecasting accurate?
-Field Sales Team
-How are materials pulled?
-is the forecasting more accurate?
External factors are not so much at play as inaccurate forecasting by the corporate marketing team.
Case 11: Wine Supply Chain
Supply Chain Optimization
82
Question
A third party operator has approached our client with the following offer: They will install a website based platform to manage the
inventory and will reduce the inventory in the Chicago warehouse by 50%, and reduce inventory holding costs by 10%. The third party
will charge $5MM for this website. Should our client accept this deal?
• Benefits/Costs Analysis • The current inventory in Chicago is $17 million and is not
• Benefits: expected to grow in the future
• Inventory: Save $8.5 Million ($17MM x 50%) • Inventory will be reduced by 50% only once to $8.5MM going
• Inventory Holding Costs: Save .1MM/Year ($1MM x forward
10%) • Inventory holding costs are $1MM/year for $8.5MM of
• Total Savings: $8.6MM inventory and will be reduced by 10% and the benefit will
• Costs: $5MM continue going forward
• Benefits in the first year outweigh the costs, and benefits will
continue to be realized in the future
• The interviewee should also mention that there are other options
as better firms or doing this internally which can even bring in
more benefits
Case 11: Wine Supply Chain
Recommendation
84
Recommendation
Interviewee should also mention any risks such as added cost of changing warehouses and risk of investing in a third party operator
of their supply chain
Case 11: Wine Supply Chain
Exhibit I-Suppliers of Wine Marketing Materials
85
13%
10%
Chicago
37% 12%
28%
Case 11: Wine Supply Chain
Exhibit II-Retailers of Wine using the Marketing Materials
86
7%
Chicago 18%
27%
28%
20%
Case 12: Office Supply Stores
Introduction & Discussion Points
87
Introduction / Context
Our client is Office Supply Stores (OSS), a national office products company with revenue in excess of $7 billion in its last
fiscal year. OSS sells various office supplies and services, business machines and related products, and office furniture
under national and private label brands. It also provides high-speed, color and self-service copying, other printing services,
faxing, and shipping services. The company operates approximately 1,000 brick-and-mortar stores in the United States and
Canada, an e-commerce division and catalog business. OSS has more than 12 million customers, comprising of small,
medium and large businesses as well as individual consumers.
Over the past two years, Office Supply Stores has been experiencing declining profitability. The CEO has retained our firm
to help determine what is causing the problem and how OSS might address those problems.
What key areas would you want to explore in order to understand OSS’s decline in profitability?
q Market
q Industry (industry has seen decline in revenues, profits and/or growth)
q Competition (more competition, such as online or new players, has reduced market share and revenue)
q Revenue
q Product Mix (poor merchandising, sales in high margin services have declined faster than lower margin products)
q Volume (sales have decreased, client is losing market share to existing competition or new entrants)
q Price (discounting in response to competition, increased markdowns)
q Costs
q Management/Overhead (too many middle managers, higher SG&A costs as percent of sales, distribution costs)
q Store Operations (increases in store rent, labor costs, shrinkage/theft, renovations in store)
q Cost of goods sold (lower gross margins, price increases from suppliers, higher transportation costs)
q Customers/Channels
q Segments (losing more profitable customers, change in mix of business and personal customers)
q Channels (sales decline in stores and catalog, more customers shopping online, Amazon)
Case 12: Office Supply Stores
Discussion Points (cont’d)
88
Discuss possible solutions to the decline in profitability at OSS. Feel free to offer hypothesis.
q Increase Revenue
q Invest in online, mobile and multi-channel platforms to respond to changes in customers’ channel preference
q Segment customers and hire dedicated sales team to target business customers
q Improve product mix and add higher margin services
q Increase private label products to improve margins and reduce supplier bargaining power
q Improve inventory management (avoid lost sales due to out of stocks and markdowns)
q Evaluate price increases on niche products
q Explore other sources of store revenue, such as offering national brands for store-within-a-store, increasing supplier-
paid promotions and leasing parts of the store to complementary retailers (coffee, fast food)
q Reduce Costs
q Reduce fixed costs, such as management/administration, SG&A costs and other overhead (management and store)
q Re-negotiate leases with landlords
q Work with suppliers to reduce product costs, find savings in distribution and/or offer special promotions
q SKU rationalization (discontinue poor selling items and concentrate on best sellers)
q Close underperforming stores
q Other
q Consider M&A opportunities
Case 12: Office Supply Stores
Exhibit
89
Using Exhibit 1, what is the contribution margin of all segments (in dollars and percentage terms)?
(OPTIONAL FOLLOW-UP) What is the share of sales and profit of one or more segments?
Contribution
# of customers Average Avg gross Annual sales margin (in
Segment (in thousands) purchases Frequency margin (in thousands) thousands)
Large business 15 $ 10,000 /quarter 15% $ 600,000 $ 90,000
Medium business 50 5,000 /quarter 15% 1,000,000 150,000
Small business 300 2,500 /quarter 20% 3,000,000 600,000
Individual consumers 12,000 250 /year 35% 3,000,000 1,050,000
Total 12,365 7,600,000 1,890,000
Other than profit, what other factors would you consider before choosing a segment to target?
q Market size, growth potential, trends, current market share and historical data of each segment
q Customer acquisition costs
q Internal capability and investments/costs required to serve the segment
q Customer lifetime value (CLV) and retention (business customers may face higher switching costs and be less price
sensitive than small businesses and individuals)
q Ability to upsell services and increase sales to customers in the segment
Based on your analysis, what segment would you recommend OSS target?
Feel free to make hypothesis on the other issues noted in the previous question.
q Large & Medium Businesses
q Benefits: Larger recurring orders, lower cost to serve (as percent of sales), do not require brick-and-mortar stores
(lower costs), opportunity to upsell service contracts/warranties
q Risks: Investments in dedicated national sales team, low margin, competitive, smaller population compared to small
businesses and individuals
q Small Businesses
q Benefits: Recurring orders, low cost to serve (as percent of sales), opportunity to upsell service contracts/warranties,
better margin than medium and large businesses
q Risks: Investment in dedicated sales team, require more upfront investment to find
q Individual Consumers
q Benefits: Large population, high margin, multi-channel benefit (store/online)
q Risks: Harder to retain (low switching costs, price sensitive), may prefer online (Amazon), require more service (as
percent of sales)
*** Any answer is acceptable. It is more important to discuss the benefits and risks with targeting one or more segments.
Case 12: Office Supply Stores
Conclusion
92
Based on what we have discussed, and any other ideas you have on improving OSS’s profitability,
what would you recommend to OSS’s CEO? Please provide at least 2-3 recommendations.
q Reiterate one or more segments to target, including a discussion of the benefits, risks and next steps (execution)
q Discuss ideas discussed in Q1 and corresponding solutions proposed in Q2 with similar structure
q Revenue: Invest in multi-channel platforms, improve product and service mix, etc.
q Costs: Reduce overhead, SKU rationalization, close stores, etc.
q Recognize the macro challenges facing brick-and-mortar businesses, such as office supply, electronics and book stores
*** Any answer is acceptable. It is more important to provide the elements of a good answer.
Sample Recommendation/Answer
q Target small and medium businesses
q Execution: Hire dedicated local sales team, pilot in small markets, expand sales team into larger markets,
find products/services to upsell to increase margins
q Benefits: Recurring orders, opportunity to increase current sales through upselling, better margins than larger
businesses, lowers cost to serve (as percent of sales), easier to target than individual customers
q Risks: Investment in dedicated sales team and acquiring small business customers, lose sales and profit from other
customers (large businesses, individuals), competition
q Other recommendations
q Invest in online, mobile and multi-channel platforms
q Improve product mix and add higher margin services; increase private label products to improve margins
q Re-negotiate leases with landlords
q Work with suppliers to reduce product costs, find savings in distribution and/or offer special promotions
q SKU rationalization (discontinue poor selling items and concentrate on best sellers)
q Close underperforming stores
q Consider M&A opportunities
q BONUS: Recognize the macro challenges facing brick-and-mortar businesses
Contents
93
Section Page #
¨ Introduction 3
¨ Interview Preparation 5
¤ Interview Overview – Fit + Case
¤ Sample Frameworks
¨ Practice Cases 26
¤ 12 Practice Cases
¨ Links to Other Cases 95
¤ Cases from Firm Websites
¤ Other Case Resources
Recommended cases from company websites
94
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