Wharton 2010 PDF

WHARTON CONSULTING CLUB
CASEBOOK
December 2010, © Wharton Consulting Club
Contents
2
Section Page #
Introduction 3
Consulting Industry Guide 6
Industry Overview
Firm Overviews (10 Firms)
Interview Preparation 18
Interview Overview – Fit + Case
Sample Frameworks
Industry Snapshots
Practice Cases 50
14 Practice Cases
Links to Other Cases 126
Cases from Firm Websites
Suggested Cases from other Casebooks
Note to the reader
3
Dear Consulting Club Member,

This casebook is meant to provide you with a brief overview of consulting recruiting
and interview preparation as well as a number of practice cases. Please note that this
is meant to supplement the excellent work done by our and other schools in earlier
casebooks,
b k so we strongly
t l encourage you to
t nott make
k this
thi your sole
l reference.
f We
W have
h
indicated which other casebooks we found particularly useful at different points in this
casebook.
Good luck!
- 2009 Wharton Consultingg Casebook Editorial Team

BIG PICTURE: CONSULTING RECRUITING INVOLVES
LOTS OF LITTLE THINGS
THINGS… THERE IS NO SILVER BULLET
4
Your objective What resources you will need to use
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
C the
h ddots ((pre-MBA
M A to MBA
M A • Second
S d Years / First Years from
f firms
f
to consulting) • Speakers on campus
• Get invited to interview (prepare • MBACM resume review

Apply good resume and cover letter) • Resumania
• Second Years (at least 2 reviews)
Interview: • Demonstrate ‘fit’ • Prep ‘Fit’ questions thoroughly

- Leadership • MBACM mock interviews
Fit
- Team
Team-player
player • Interviews with Second Years
- Well-rounded personality • Read WSJ, Economist… something
Interview: • Ace Cases • Case books & Industry Primer Series!

Cases • Core courses
• Practice extensively with First Years
• MBACM mock interviews
• Interviews with Second Years
• Reach out to consulting firm buddies
Contents
5
Section Page #
Introduction 3
Industry Overview
Sample Frameworks
Industry Snapshots
Practice Cases 50
14 Practice Cases
Industry overview – Management Consulting
6
Management consulting involves solving complex business problems and offering

recommendations to companies
Overview of management consulting Interview Process

• Problem
Problem-solve
solve complex and unstructured • Case interview – involves solving a
business problems business case; candidate expected to
• Work closely with senior management on drive towards a solution and ask for
the client side relevant data; focus on structure;
• Intellectually stimulating work and • Fit interview – numerous behavioral
ability to build a strong set of skills questions focusing on prior experiences
• Constant travel (depending on office
location
oca o a and
d consulting
co su g firm)) ca
can pose Typical Career Path
significant challenges • Consultant/Associate
• Industry (prior to economic downturn) • Senior Consultant/Associate
was expected to grow at 8.8% in 2009 • Manager/Project Leader
• Most
M t fi firms have
h a global
l b l presence and
d • Associate Partner
offer international project opportunities • Partner
Industry overview – Accenture
7
Accenture is a leading global management consulting firm which is known for offering
comprehensive solutions, including technology services, to its clients.
Accenture Overview Interview Format

• 2000 consultants • 2 rounds of interviews
• Global brand recognition due to • Round 1: 2 45-minute interviews
solutions outside management consulting • Round 2: 3 45-minute interviews
• 3 broad services areas (management
consulting, systems integration consulting
and technology consulting)
• Regional staffing model
• Co
Comprehensive
p e e s ve solutions,
so u o s, beyond
beyo d Career progression
strategy, offered to clients • Consultant
• Manager
• Partner
Industry overview – A.T. Kearney
8
A.T. Kearney is a leading global management consulting firm which is known for the
implementation focus of its projects/results.
A.T. Kearney Overview Interview Format

• 51 offices worldwide • Round 1: 2 45-minute interviews
• 34 countries • Round 2: Regular case + fit interviews
•12 industry groups Case presentation (60 minute
• 7 broad services areas prep, 20 minute presentation &
• Global staffing model 10 minutes for Q&A)
• Partners actively involved in cases
• Recently
ece y went
we private
p va e when
w e company
co pa y Career progression
was bought back from EDS • Associate
• Manager
• Principal
• Partner (Vice-President)
(Vice President)
Industry overview – Bain & Co.
9
Bain is a global management consulting firm. It is considered one of the top firms in this
industry and is known for its focus on delivering results and office-centric work model.
Bain Overview Interview Format

• 39 offices worldwide • Round 1: 2 40-minute interviews
• 26 countries • Round 2: 3 40-minute interviews (2 case
• Office-specific staffing model + 1 fit)
• 14 industry groups • Office-specific interviews
• 11 functional practice areas • “Answer-first” approach
• Office-centric work model • Focus on creativity and structure
• Cu
Culture
u e co
considered
s de ed too be collegial
co eg a Career progression
• Consultant
• Case Team Leader
• Manager
• Partner
Industry overview – Booz & Co.
10
Booz is a global management consulting firm. It is considered one of the top firms in this
industry and was recently bought out from Booz Allen Hamilton, which is govt. focused.
Booz Overview Interview Format

• 57 offices worldwide • Rounds 1 & 2: 2 45-minute interviews
• 30 countries
• Regional staffing model
• 16 industry groups
• 8 functional practice areas
Career progression
• Consultant
• Manager
• Partner
Industry overview – Boston Consulting Group
11
BCG is a global management consulting firm. It is considered one of the top firms in this
industry and is known for its intellectual approach and diverse workforce.
BCG Overview Typical Interview Format

• 66 offices worldwide • Round 1: 2 45-minute interviews (cases)
• 40 countries • Round 2: 3 45-minute interviews (cases)
• Regional staffing model • General 1st round and office-specific 2nd
• 15 industry groups round interviews
• 14 functional practice areas
• People considered to be friendly
Career progression
• Consultant
• Project Leader
• Principal
• Partner
Industry overview – Deloitte
12
Deloitte is a leading global management consulting firm which is known for offering
comprehensive solutions, including technology and tax services, to its clients.
Deloitte Overview Interview Format

• Global brand recognition due to • 2 rounds of interviews
solutions outside management consulting • Round 1: 2 30-minute interviews
•18 industry groups • Round 2: 1 60-minute interview with 2
• 5 broad services areas (enterprise, partners
human capital, outsourcing, strategy &
operations and technology integration)
• 7 functional areas within strategy &
operations
ope a o s Career progression
• Regional staffing model • Senior Consultant
• Comprehensive solutions, beyond • Manager
strategy and operations, offered to clients • Senior Manager
• Partner
Industry overview – L.E.K. Consulting
13
L.E.K. is a global management consulting firm. It is considered one of the top small firms
in this industry and is known for its analytical rigor.
L.E.K. Overview Interview Format

• 20 offices worldwide • Round 1: 2 30-minute interviews (little
• Strong presence outside US fit, some cases were brainstorming type
• 19 industry groups questions)
• 6 functional practice areas • Round 2: 3 30-minute interviews
• Known for its analytical rigor • Potential case on NPV analysis
• Cases usually shorter (6 to 8 weeks)
• Provides
ov des immediate
ed a e managerial
a age a Career progression
responsibilities to its MBA hires • Associate Consultant
• Partners actively involved in cases • Consultant
• Manager
• Partner
Industry overview – McKinsey & Co.
14
McKinsey & Co. is a global management consulting firm. It is considered one of the top
firms in this industry and is known for developing leaders and strong culture.
McKinsey Overview Interview Format

• 8500 consultants 2 or 3 rounds of interviews
•2
• 92 offices worldwide • Command and Control case interviews
• 52 countries • Office-specific interviews in all rounds
• National/global staffing model (though Northeast offices piloted common
• 18 industry groups initiative)
• 7 functional practice areas • Fit interviews focus on structure, specific
actions and headlines for stories
Career progression
• Associate
• Engagement Manager
• Associate Principal
• Partner
• Director
Industry overview – Monitor Group
15
Monitor is a leading global management consulting firm which is known for its thought
leadership and focus on knowledge transfer to its clients.
Monitor Overview Interview Format

• 30 offices worldwide • Round 1: 2 interviews (case + fit)
• 18 countries • Round 2: Group business case exercise
• 15 industry groups Role play interview
• 3 broad services areas (advisory, Feedback interview
capital-building & capital)
• Global staffing model
• Founded
ou ded in 1983
983 by thee likes
es of
o Michael
M c ae Career progression
Porter • Case Team Member
• Module Leader
• Case Team Leader
• Global Account Manager
Industry overview – Oliver Wyman
16
Oliver Wyman is a global management consulting firm. It is considered one of the top
firms in this industry with a significant presence outside the US.
Oliver Wyman Overview Interview Format

• 2900 consultants • 2 or 3 rounds of interviews
• 40 offices worldwide • Round 1: 2 30-60 minute with case and
• 16 countries fit
• 9 industry groups • Round 2: 1 Fit interview with two case +
• 7 functional practice areas fit interviews
• Global staffing model
• Formed from a combination of Mercer
Oliver
O ve Wy
Wyman a & Me
Mercer
ce Consulting
Co su g Career progression
• Junior Consultant
• Senior Consultant
• Junior Manager
• Senior Manager
• Partner
Contents
17
Section Page #
Introduction 3
Industry Overview
Sample Frameworks
Industry Snapshots
Practice Cases 50
14 Practice Cases
Contents: Interview preparation
18
A typical consulting interview

General tips
Fit interview preparation with sample questions
C
Case interview
i t i preparation
ti
What is a case? Case types and interview methods
Problem solving – what is it?
Overall flow of a case
Tips to stand out
Sample Frameworks
Common Industry Snapshots
Tips for giving cases
Other resources
Industry snapshots
A typical consulting interview
19
M t & Greet
Meet G t Th Fit
The Th Case
The C W
Wrap-up
Process
• Wait in hospitality
p y suite • Interviewer may
y • 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
• Walk to interview suite

/ small talk
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
20
Make a g
great first impression
p
Professional appearance
Preparation
Have needed supplies
Plenty of pens/pencils
Graph/plain paper
Serviceable portfolio
Project confidence from start to finish
Relax (hard to appear confident if not)
Be yourself (extremely hard to be confident if not)
What is “fit”?
21
Opportunity to project “consultant” during the interview

Inquisitive, logical, confident, friendly, driven, happy
When you describe yourself:
Focus on a set of skills that the company wants
Communication
Leadership/Management
Work under pressure / ability to deal with conflict and ambiguity
When you describe your fit:
Don’t repeat slogans; most firms do the same things
Focus on what the firms consider to be their unique factors (e.g. McKinsey’s
international reach, BCG’s thought leadership, Bain’s office culture etc..)
For in-depth probing on leadership questions (typical of McKinsey)
Prepare a 5-10 word ‘newspaper headline’ that encapsulates the story
Prepare beforehand a 1-2 minute description that quickly lays out the context, the
actors and the complication
Focus on your actions and thought process and the impact of your actions that led to
the solution / eventual success
Tips on the Fit Interview
22
Almost everyy single

g interview involves at least some fit-
interview type questions
Applicants have been turned down from the top consulting
fi
firms for
f not having
h i cleared
l d the
h fit
fi portions
i off iinterviews
i
Very basic steps go a long way
Smile
Maintain eye contact
Be honest and heartfelt
Have a succinct story
Practice can make perfect
InterviewStream
Mock fit interviews
Tips on the Fit Interview (cont.)
23
Do
Establish common ground (geography, family, interests, sports, etc..)
Ask the interviewer friendly questions
B confident
Be fid in i 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
24
Take me through your resume

Tell me about a time when you exhibited leadership
Tell me about a time when you had to solve a problem
Tell me about a time when you failed
Tell me about a time you had impact
What kind of leader are you?
Why Firm X?
Why City Y?
Why consulting?
What is your greatest accomplishment?
What would you say your biggest weakness is?
What are your long-term goals?
How do you like school?
What is your favorite class at school?
What did you do last summer?
What do you do for fun?
Case types and case interview methods
25
What is a case?
A business issue/problem company is facing in a few sentences
Takes about 25 minutes; has limited data which is usually provided if asked for
Approach to solution is more important than the final solution
There are two common case interview methods:
‘Go with the flow’ cases (typical of most firms) – You will determine which
areas to explore and lead the discussion, i.e. drive the case
Command and control (typical of McKinsey) – Interviewer guides the discussion
and case has heavy brainstorming components and quantitative work
Common case types*
yp (not
( a comprehensive
p list):)
Profitability Industry Analysis (incl. non-profit)
Market Entry Market Sizing
Acquisition Capacity Expansion (incl.
(incl outsourcing)
Organization Investments
*Note: one case could span multiple case types
Overall flow of a case
26
~3 min. ~1-2 min. ~12-15 min. ~3 min.
Understand Plan your Probe for Assert a

the question approach information conclusion
• 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 to test hypothesis expires
• Take judicious notes
• Draw out a framework • Adjust hypothesis and • Answer the question
• Organize notes as slides p to
as checklist of topics plan as data emerges • Take a definite stand
• 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
y
• Write down key • Highlight insights from • Make recommendations
• Identify relevant sub
sub- any numericall and
d ffollow
ll them
h withh
question topics calculations supporting evidence
• Present plan of attack • Note conclusions • Address “risks” and
to interviewer – start “next steps”
p
with the most important
Tips: Communication, Notes & Math
27
Communication
Explain your thought-process when presenting your plan
Make hypotheses when asking questions/requesting information
Go beyond verbal communication
Be engaging! Enjoy the case problem and work together to solve it!
Body language (eye contact, gestures, posture); smile often but do not overdo it
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
aw math
a out
ou cclearly
ea y (especially
(espec a y for
o market
a e ssizing)
g)
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
28
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 hhypothesis
h i as to what
h you expect theh data
d show
h
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
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
29
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
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,”
y , but these systems
y are essentiallyy
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
30
• Client’s earnings / profits (or ‘bottom-line’ in Income Statement) has declined or stopped growing
Overview • You
Y need d to
t recommend d ways to t increase
i profits
fit
Sample
Framework
Market Revenues Costs Customer / Channel

• Industry • Product mix • Client cost structure • Customer Segment
- Growth
G th (g) ( ) - Points
P i t off Parity
P it / (Fi d / Variable)
(Fixed V i bl ) - Which
Whi h segmentt d do
- Revenues (R) difference our - PP&E (Property, we serve?
- Profits (Π) products and Plant & Equipment) - Are they most
• Competition competition prod. - Overhead profitable?
- C1 market share (s1) • Pricing (P) - SG&A • Channels
- C2 market share (s2) - Competitive parity in - Labour - Current sales mix?
- Etc. prices - Materials - Are they low-cost
- Can we ↑ prices? - IT / Systems channels?
• Volume (Q) • Benchmarks - Do these channels
- What
What’ss our market - How do our costs attract high margin
share? stack up vs. others? customers?
- Enough capacity to • Supplier power - Incentive structures /
meet demand? performance
Sample framework 2: Market entry; Investment
and new technology
31
• 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
Strategic Logic Economics of decision Risks / Others

• Wh
Why are they
h thinking
hi ki off •NNew market k conditions
di i • EExecution/entry
i / barriers?
b i ?
market entry? - Total Revenues (R) - Channel access?
- Growth? - Total Profits (Π) - Regulatory barriers?
- Mature current market? - Growth (g) - Does firm have $ to make
p
- Response to competitor
p move? p
• Competition in a new market investment?
• Resources and capabilities - C1 market share (s1) • Risks
- What does the firm have that - C2 market share (s2) - Implementation risk
makes them think they can be - Etc. - Political risks?
successful? • Economics - Currency risk?
Brand - Investment required - Macroeconomic risk?
Patents - Expected share of revenues
Local expertise/partners - Expected share of profits
- Profitable? Payback period?
Sample framework 3: M&A deal
32
• Client is considering an M&A transaction

Overview • Your
Y goall is i tto recommend
d whether
h th or nott to
t do
d the
th deal
d l
Sample
Framework
Strategic Fit Deal Economics Risk Assessment

• Basic deal rationale • Valuation (Know basic • Has the company done
- Cost
C t synergy-focus?
f ? DCF!) acquisitions
i iti before?
b f ?
- Revenue-synergy - Revenue &Costs - Capability test
- focus? - CAPEX & Working Capital • Organizational cultures
- Early-stage co. being - PBT (profit before tax) - Compatible (high % of
acquired for technology? - Taxes M&A deals destroy value
- Response to competitor - PAT (profit after tax) as cultures are not
move? - Cost of capital (R) compatible)
• Type of deal - Value = (PAT / r) • Need to manage PMI (Post
- Vertical integration • Deal Price merger integration process)
- Horizontal • Synergies • Can investors not diversify
- New market entry via deal - Cost and Revenue by themselves
- Diversification move - New Firm value
• New Value > Deal Price
Sample framework 4: Outsourcing
33
• Client is considering outsourcing an operation

Overview • Your
Y goall is i tto recommendd whether
h th or nott to
t do
d the
th outsourcing
t i
• Do NOT make a recommendation on cost savings alone – explore areas like customer service
impact, premium customer segment impact etc.
Sample
F
Framework
k
Strategic logic Decision Economics Risks / Others

• Why are they thinking of • Current costs (in-house • Risks
outsourcing? operation) - Implementation risk? Political risks?
- Cost savings? • Outsourced costs - Currency risk?
- Market entry into BRIC/other • Initial investment • Partner capabilities
markets? required - Quality of service
- Early-stage co
co. being - Outsourcing consultants - Lead time
acquired for technology? - IT/System investments - Technology
- Response to competitor • Net cost savings - Customer service
move? • Stakeholder mgmt.
• Customers affected - Stakeholders – job loss issues etc..
- Which segments? - Manage media & community
- What are their needs?
IMPORTANT: Sometimes interviews might make a difference between Outsourcing and Off-shoring: former refers to functions that are
done outside firm’s boundaries. Latter refers to outsourced functions done in a distant location such as India or Ireland.
Sample framework 5: Non-profit organizations
34
• Client is a non-profit organization

Overview • Your
Y goall iis tto solve
l theth specific
ifi problem
bl ffor th
the organization
i ti
• Important to display that you understand that non-profits have fundamentally different drivers
beside just the economics of a particular decision
Sample
F
Framework
k
Strategic Rationale Deal Economics Other

• Mission of non-profit • Planned investment • Required capabilities
- Health - What will it cost? - Does non-profit have what it
- Education - Do we have the money? takes to do this well?
- Poverty alleviation
- Etc. • Returns, if any • Risks
- Response to competitor move? - Will we be getting back - How will media perceive this
• Stakeholder opinions and likely money? decision?
reaction - Will organization make / lose - Critical to factor in
- Donors money on this? stakeholder reactions – will
- “Customers” – those who benefit this alienate donors,, volunteers
from the non-profit’s services etc.?
- Volunteers
- Paid staff
After developing a framework, problem solving
requires smart follow
follow-up
up questions & insights
35
• Should client enter new market? What is NPV?

• Should client do M&A? Post-merger
Post merger integration risk? ¾Wide variety of decisions
Examples businesses face
• How can client increase profits? Quantify increase.
• How can client reduce costs? By how much? ¾Where possible, you will be
• Should client make new investment? What is NPV? guided to quantify
• How can client increase share? Quantify increase. improvement (i.e. to do
• How can client grow revenues? Quantify increase. some basic applied math)
• Should client outsource? Compare/value alternatives.
Some Strategic • What are industry trends?

• Info on competitors/market shares?
solution
l i analysis
l i ¾Not allll issues/drivers
¾N /d willll
• Strategic rationale underlying decision?
drivers be relevant but list should
let you quickly zone in on
Economic • What products? Prices? Volume?
key to problem
analysis • What’s the cost structure?
• Profit
P fit iimpactt for
f client?
li t? ¾ For these drivers
drivers, think
about:
• Which customer segments? a. Changes over time?
Customers / • What are customer needs / wants? b. Compare client with
channels • What channels? Sales force? competition etc..
• Any
A regional/geographic
i l/ hi concerns??
¾This is meant to be a
Catch-all / • What are the risks? thought starter – not a
Other • Any regulatory issues? comprehensive list
• Any organizational behavior issues?
Tips for giving cases
36
One should broadly follow these steps when giving cases to fellow students
Prepare yourself Make it real Step wise approach

9Read the case thoroughly 9Make the experience as close to 9Introduce the problem statement
real as possible
9Don’t give a case that you have not 9Allow 3~5 mins for candidate to
9Be serious during the case even if
studied yourself gather her thoughts
you give the case to your best friend
9Have any exhibits ready for use 9Be tough – test candidate’s ability 9Answer any questions that
during the case to deal with a negative vibes from candidate may have
interviewer
9Be ready to take notes 9 Control the time. Do not exceed 9Guide the candidate accordingly if
30-35 minutes for the case portion! she is digressing from key issue
Ask questions Guide only when necessary Provide honest feed back
9Best way to make cases interesting 9Give out information only when 9Go 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 9Be specific – What was the mistake
9Idea is to let candidate stretch and what’s the right approach
9Follow
o ow thee case flow
ow as pprovided
ov ded in e se and
herself a d get
ge a feel
ee for
o real
ea 9Bee Honest
o es – itss in ca
candidate’s
d da e s bes
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.
Other references: Case prep
37
There are a number of other resources to learn

about case prep. We found the following
particularlyy useful:
p
Kellogg 2004 Casebook – Pages 5 to 44
Ross 2007 Casebook – Pages 3 to 25
Older Wharton Casebooks

Remember, cases are about problem-solving
abilities not whether you are an industry expert
abilities,
38
• Case interviews span a broad range of industries. You may encounter everything from
Background
k d 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
• We believe that having a very basic overview of an industry helps to more

Our belief effectively tackle a case
• At the very least it helps you construct a framework that is most applicable to that
particular problem context. Examples:
- Consumer goods: branding is an important driver of success
- Pharma: generics manufacturers pose a major competitive threat
Important • Do not attempt to master industry specifics or memorize industry data

Warning! • You primary objective over the next few weeks/months is to master case
case-based
based
problem solving… not to become an industry expert
• Spending a little time informing yourself about the basics of a few key industries should
improve your problem-solving ability. The following pages will help in this endeavor.
Airlines
39
Overview /
Products & • Airlines provide air transport services for passengers and/or freight
Services
• Consolidation - multiple high-profile mergers

Keyy Trends • Fare competition – airlines compete to undercut one another on competitive routes
• Low-cost carriers - recent entrance by smaller carriers trying to replicate Southwest Airlines’ low-cost model
Competitive • Established legacy carriers (e.g., Delta, American, United) compete with each other and with low-cost operators on
multiple domestic routes; price is usually the major competitive factor. Some domestic carriers also operate
Landscape
p e a o a routes,
international ou es, p
placing
ac g them
e in cocompetition
pe o with
w overseas
ove seas airlines
a es
• Individual consumers
Customers • Corporations/small businesses
• Travel web sites/resellers
• Internet – airline websites, online ticket resellers

• Telephone – airline call center agents
Channels • Travel agents
• Over-the-counter – walkups at airports
Profit • Revenue: Ticket revenues, excess/oversize baggage fees, food and beverage sales
• Costs: VC: fuel, food and beverage, ground crew/hourly employees FC: aircraft leases, airport gate leases, IT/admin
Summary costs, salaried employees (i.e., pilots)
Consumer Packaged Goods (CPG)
40
Overview /
Products & • CPG companies provide consumers with a range of household products etc.. soaps, pet supplies, snack foods etc..
Services
• Lifestyle/consumer behavior e.g. aging population, social networks, online advertising, go green, economic downturn
• New products critical to success
• Completely new, slightly improved, product line extensions
Key Trends • In addition, companies driving ‘outside-in’ product innovation (from outside of R&D division)
• Product mix and Brand management are critical to CPG companies
• Emerging markets – India & China – seen as important source of future growth
Competitive
p • Proctor and Gamble ((P&G);
); Uniliever,, Clorox,, Kelloggs
gg , Campbell’s,
p , Frito Lay,
y, ConAgra
g Foods,, Colgate-Palmolive,
g ,
Landscape L’Oreal, Estee Lauder
• Individual Customers
• Discount Wholesalers (Sam’s Club, Costco)
Customers • Large
g box retail (Wal-mart
( ,,Target,
g , Safeway)
y)
• Convenience Retail (7-11, Rite-Aid)
• Retail
Channels • Wholesale
• Direct (web and mail order)
Profit • Revenue : Volume of goods sold; Price premium on branded goods

Summary • Cost s: Branding, Sales and Marketing, COGS (commodity costs – raw & packaging material)
Financial Services: Consumer Banking
41
Overview / • Provide deposit-based services, credit cards, consumer loans, payments etc..
Products & • Broad range of financial products are sold by banks whose main function is to collect money from those who have
Services savings and loan money to those who need it.
• Credit crisis / financial meltdown threatened solvency of industry due to illiquid assets difficult to value
• Consolidated, mature industry with primary growth through acquisitions
Key Trends • Demographic shift (baby boomer aging) creating large market for retirement products
• Offshoringg of various functions to reduce expenses
p (e.g.
( g call centers,, back office functions))
• Large national players (Bank of America, Citi) compete with regional banks.
Competitive • Largest players services extend well beyond commercial banking to investment banking, securitization, proprietary
Landscape trading, etc. with services that are increasingly opaque
• Individual consumers
Customers • High net worth consumers (priority segment)
• Small/medium businesses without sufficient size for larger investment banking financing services
• Still large face-to-face presence with bank branches, tellers, etc.

Channels • Increasing use of ATM services, online banking
• Banks increasingly offer credit cards, home loans, etc. as means to increase asset base
• Revenue: Net revenue is the spread between bank’s borrowing cost and the rates charged to borrowers; fees
Profit Summary • Costs: Overhead (branches, administration, compliance); Salaries; Bad Debt Expense
Financial Services: Insurance
42
Overview / • Insurance is fundamentally about underwriting various types of risks. Customers make regular payments (premiums) to
Products & the insurer for coverage when unforeseen events, e.g. car crash; fire damage; death; credit default) occur
Services • The insurer invests premiums to generate sufficient income to match future assets with future liabilities
• Credit crisis / financial meltdown threatened solvency of industry due to illiquid assets difficult to value
• One of the global leaders (AIG) nationalized in credit crisis, emphasizing the importance of monitoring investment
Key Trends portfolio
• US national healthcare policy changes could completely change the landscape of the health insurance market
• Companies
C i focused
f d on managing
i risk
i k and
d controlling
t lli costs
t
Competitive • Several large, integrated players operating across multiple parts of the industry (AIG, Prudential, etc.)
Landscape • Some niche players focusing in a particular segment (Geico )
• Individual consumers seeking to manage risk at home / on the road

Customers • Small/medium/large businesses seeking to manage risks of property damage, liability, etc.
• Insurance agents (sales force) still manage much of the front-end sales process to businesses/individuals
Channels • Online sales becoming easier with better websites and aggressive marketing
• Direct marketing to employees via in-office demonstrations (Aflac supplemental insurance, etc.)
• Revenue: Net revenue is the spread between premiums collected and claims/payments made over time
Profit Summary • Costs: Overhead (administration, compliance); Salaries; Sales Commissions; Marketing
Manufacturing
43
Overview / • Manufacturing sector includes companies that are in the business of mechanical, physical, or chemical transformation of
Products & materials/substances/components
/ / p into new products
p
• Subsectors include: textile, paper, chemical, computer/electronics, transportation equipment, machinery
Services
• Manufacturing is highly cyclical in most sectors
Key
ey Trends
e ds • US manufacturing, traditional strength of US economic growth, has suffered due to higher cost structure (labor in many
cases) as companies outsource manufacturing
f to lower-cost regions off the world
• General Motors, Chrysler, Ford, Toyota, Honda

Competitive • Boeing, Airbus
• GE, Phillips, Siemens
Landscape • Honeywell, Dow, Corning
• Varies by industry, can be end-consumer, OEM (original equipment manufacturer) – B2B

• Automotive: Primarily end consumer; Metal: airplane, automotive, tool/die manufacturing; Apparel: End Consumer;
Customers Plastics: medical industry, machinery manufacturing; Infrastructure/Machinery: Government, Utilities, Rail operators;
Chemicals pharmaceutical,
Chemicals: pharmaceutical process technology,
technology semiconductor manufacturing
• Retail (Automotive, Apparel – industries where end-consumer is primary customer)

Channels • Wholesale – B2B (Plastics, Chemicals, Pharmaceuticals, Metal, Machinery, Semiconductors, Computer Hardware –
Industries where the customer is another business))
• Revenue: diversity of customers, volume (automotive: high, airplane manuf: low), emerging markets, adjacent industries,
new technologies/products, end-consumer demands
Profit Summary • Cost: outsourcing (potential quality), process efficiency, supply chain management (inventory turns), labor (unions), raw
materials/commodities, channel management (i.e.. Auto dealers), marketing, capital investment
Media
44
Overview / • The media sector includes print, audio and video content generation and dissemination. The various subsectors are
Products & unique yet have many overlapping attributes
attributes. Primarily an advertising-supported industry,
industry the media space faces
unprecedented challenges as online media continues to disrupt traditional business models.
Services
• The digitization of media has required considerable capital investment by media content generators. The rapidly
improving speed of the wired internet and wireless devices creates questions about how media will ultimately be
Keyy Trends consumed – via internet, via cable, via mobile? Service providers may converge over time. The proliferation of
“free” content has harmed content generators but created opportunities for new channels.
Competitive • Varies by subsector. Media players generally compete for audience interest in order to generate more advertising
revenue. Landscape is very competitive with a few major players owning integrated portfolios across the entire
Landscape
p ed a uuniverse
media ve se ((Disney,
s ey, V
Viacom,
aco , News Co
Corp,
p, eetc.)
c.)
• While individual consumers seem to be the customers, in reality consumers are part of the product. Audience reach,
Customers ratings, circulation measures are utilized to sell advertising. Potential advertisers are the real customers in traditional
models although individual consumers may be the customers for some subscription models.
• Print: traditional paper product & online / mobile

Channels • Television: traditional broadcast / cable / satellite & online / mobile
• Movies: traditional theatres, rentals & online (to a growing extent)
• Revenue Drivers: advertising, subscriptions in some cases (there is talk about moving to higher subscription model for
Profit premium content)
Summary • Cost Drivers: VC: production costs (salaries of staff, technology); FC: capital costs (studios, printing presses);
overheard, marketing & advertising
Pharmaceuticals
45
Overview / • Branded/ Ethical/ Originator drug producers produce original patent-protected (for a certain period of time) drugs
for human and animal diseases
Products & • Generic drug producers produce ‘copy-cat’ drugs (with the same medical result) at a lower development cost when
Services the originator drug’s patent expires
• Price competition from generic drug manufacturers

• Increasing pressure from health insurance companies and hospital chains to reduce prices
Keyy Trends • R&D challenge of finding high revenue drugs (‘Blockbusters’
( Blockbusters have annual sales > $1B)
• Loss of patent on key drugs for many large Pharma Cos. around 2010-11
• Key success factor comes down to one thing: products

Competitive • Products target various treatment areas (TA): cancer, cardiovascular, psychology etc.
Landscape
p •
•
US, Europe and Japan are largest markets although emerging market opportunity (eg. China) is growing
Food & Drug Authority (FDA) needs to approve all drugs before sale
• Doctors who prescribe these medicines

• Insurance companies that pay for them
Customers • Patients/consumers who need these drugs/medicines
• In some emerging markets
markets, various officials (hospital
(hospital, provincial and central government) may control channel access
• Over the counter (“OTC”, can be sold without prescription): Retail outlets – CVS, Walgreens; Mail order
Channels • Prescription drugs: Hospitals; pharmacies
• B2B: Distributors / intermediaries ; hospitals; pharmacies
• Revenue Drivers: Size of specific treatment area / level of competition; Buy-in from doctors that will prescribe; Speed
Profit to market/ expertise in difficult products (for generics)
Summary • Cost Drivers: VC: sales and marketing (doctor visits, sponsored studies); FC: R&D (drug discovery, formulation, clinical
trials; a lot of this is now outsourced; generic companies only need to perform clinical trials)
Private Equity (Go/No Go Investments)
46
Overview / • Equity that is not publicly traded
Products & • Common forms include Leveraged Buyouts (LBOs), Venture Capital (VC), Mezzanine Capital, Distressed Investments,
Services and
d Growth
G h Capital
C l
• Larger amounts of equity required for each deal

• Potential wave of deals failing in the coming years
Key Trends • Buying and selling of current PE commitments likely to increase over the next few years
• Growingg need for PE firms to have cash margins
g
Competitive • Deal volume has sharply declined recently

Landscape • Large (e.g. KKR, Carlyle, Blackstone, TPG), Mid ($250M to $5B), and Small Market PE shops
• New customers of PE deals may be corporations

Customers • Institutional investors
• Customers can range from small family-owned companies to large corporations
• Leveraged Buyouts: controlling interest (of equity) is acquired through high borrowing
• Venture Capital: investors give cash in exchange for shares/control of invested company; typical with start-ups
Channels • Mezzanine Capital: financing that contains equity based options and subordinated debt (e.g. convertible loans)
• Growth capital: financing to expand, restructure, or enter new markets with little change in management
• Distressed Investments: investing in financially stressed companies
• Wh t fi
What financial
i l llevers can b
be pulled
ll d tto make
k this
thi more profitable
fit bl ((various
i ways tto access cash,
h cap structures,
t t etc.)?
t )?
• What operational levers can be pulled to make this deal better (more efficiencies, new management etc.)?
Profit Summary • What return on investment is required to make this investment worthwhile?
• What is the timeframe of return on this investment?
• Is there a better (more profitable) investment where money should be spent?
Technology
47
Overview /
• The technology industry broadly consists of the systems (PCs, servers), semiconductors, communications equipment,
Products
oduc s & software internet and IT services subsectors
software, subsectors.
Services
• Increasing M&A Activity: As growth has slowed in certain subsectors (systems, software), leading vendors have utilized
M&A for growth, offering customers a one stop shop proposition (i.e. HP/Compaq, Oracle/Peoplesoft)
Key Trends • Co-opetition: Leading vendors co-exist as competitors and collaborators. This is a key characteristic of the industry
/
and has become even more so as players move into adjacent subsectors. Examples include: Microsoft/Intel,
Oracle/IBM
• Cloud Computing: Offering IT as outsourced utility has implications across subsectors
• Systems: IBM, Hewlett-Packard
• Semiconductors: Intel, Samsung, Toshiba, Texas Instruments
Competitive • Communications Equipment: Cisco, Nokia, Samsung
Landscape
p • Software: Microsoft, IBM, Oracle / Internet Software: Google, Yahoo!, Microsoft
• IT Services: Accenture, IBM, HP/EDS
• Relevant splits:
Customers • By size: Enterprise, SMB (small/medium businesses), Retail
• By type: Business vs. consumer
• Varies by customer focus. Business/Enterprise-focused players tend to rely on direct sales force.
Channels SMB/Retail/Consumer tend to rely on indirect channels.
• Systems: Lower margin (COGS management key to profitability)

• Semiconductors:
Se co duc o s: Highg fixeded costs
cos s (capex)
(cape ) and
a d highly
g y cyclical;
cyc ca ; manufacturing
a u ac u g utilization
u a o
Profit • Communications Equipment: Manufacturing utilization
• Software: license/maintenance versus subscription service model; renewal rates; high gross margins, but high R&D
Summary expenses
• IT Services: staff utilization; revenue per employee
• Internet: revenue per click
Telecommunications / Mobile
48
• Telecommunications is a mammoth industry, comprising companies that make hardware, produce software, and provide
Overview / services. Hardware includes a vast range of products that enable communication across the globe, such as broadcasting
satellites telephone handsets,
satellites, handsets fiber
fiber-optic
optic cables etc
etc.. Services include running the switches that control the phone system
system,
P d t &
Products Mobile and Internet access, and configuring private networks by which international corporations conduct business.
Services Software makes it all work, from sending and receiving e-mail to relaying satellite data to controlling telephone
switching equipment.
• The industry has grown and evolved at an incredible pace for the last 20 years. Mobile phone penetration
approaching 50% globally; Mobile broadband subscribership has topped 200 million worldwide; rollout of 3G
Key Trends networks in emerging markets causing mobile broadband subscribers to outnumber fixed-line
fixed line broadband subscribers.
subscribers
• Many households are giving up their landline, preferring to use a cell phone or VoIP services (Skype, Vonage) on their
computer.
• Landscape is very competitive and wireless carriers have undergone a wave of consolidation: In recent times, Cingular
Competitive acquired AT&T Wireless; Sprint joined Nextel; and ALLTEL acquired Western Wireless.
• Big 4 cellular players are AT&T, Verizon, T-Mobile and Sprint Nextel
Landscape • Cable companies attempting to capture wireless customers through wireless service offerings of their own (or in
partnership) e.g. Comcast introducing WiMAX service in Portland, Ore; COX will offer cell phone service late ’09.
Customers • Individuals, companies and governments.
• Carrier-owned stores and leading retailers like Wal-Mart, RadioShack and Best Buy are significant channels for
mobile phone sales and service.
Channels • Major carriers have online stores for phone and service purchases. They are joined online by all of their retail
competitors (Best Buy, Walmart, RadioShack) as well as amazon.com, wireless specialty retailers like letstalk.com and
Wirefly.
•Revenue Drivers: Subscriptions, data services (SMS, email and internet access on cell phones), mobile advertising, app
Profit stores.
Summary •Cost Drivers: VC: marketing & advertising, salaries; FC: capital costs (equipment, infrastructure – cell towers, network
maintenance, stores); overhead
Contents
49
Section Page #
Introduction 3
Industry Overview
Sample Frameworks
Industry Snapshots
Practice Cases 50
14 Practice Cases
List of Practice Cases
50
Case Description Page #

Case 1:
1 Whisky Brand Turnaround 51
Case 2: Copper Ore Mining Investment 56
Case 3: Telecommunications Service Provider 61
Case 4: Major Magazine Publisher 63
Case 5: Tulsa Hotel - OK or not OK? 68
Case 6: The Coffee Grind 74
Case 7: FoodCo 81
Case 8: Candy Manufacturing 85
Case 9: Chickflix.com 93
Case 10: Skedasky Farms 103
Case 11: University Apartments 108
Case 12: Vidi-Games 112
Case 13: Big School Bus Company 118
Case 14: American Beauty Company 123
Case 1: Whisky Brand Turnaround
Introduction
51
Problem Statement Narrative

Our client has been in business for close to 90 years. The original founder started in the whiskey business and over time expanded the
product line so that today it is a multi-million dollar business with less than 5% of sales coming from whiskey.
The whiskey market in the US (our relevant market) has been declining at 2% over the last 20 years and our client’s brand has been
declining at the same rate.
While the company has great passion for the whiskey brand, in recent years they have been paying limited attention to it. Last year
however, events happened that caused our client to pay attention to their whiskey brand. While sales of the market declined at 2% our
client’s brand declined by 15%, despite selling 10m bottles.
pp
Our client has come to us to understand what has happened and how to g
grow the brand back without lowering
g the profits
p theyy were
making on it.
Overview for Interviewer Information to be Provided Up Front

To help understand why our client’s whiskey brand has declined it helps to use an The information provided in the statement is all the
i t
internall vs. external
t l fframework.
k Possible
P ibl internal
i t l reasons: candidate receives at this point
point. Once the
• Reduction in marketing spend candidate reaches the point of talking about
• Decline in quality of marketing or product quality competitors and their products the hand out (next
• Product availability (production/supply chain) page) should be given.
Some possible external reasons:
• Negative PR
• New competitor launch
• Increase in competitor marketing
• Pricing effects
Provided Data
52
C
Competitor
i A Analysis
l i
Interviews with advertising experts and an examination of competitors’ ad pages have shown that while marketing spend hasn’t changed
significantly, there has been significant changes in prices within the industry.
Brand Place of sale Cost to produce 2007 price 2008 price 2009 price
Client Grocery Specialty
Grocery, $8 00
$8.00 $14 75
$14.75 $14 75
$14.75 $15 00
$15.00
stores
Competitor A – Specialty stores $8.25 $15.00 $17.00 $19.00
Premium
Competitor A – Own Grocery $6.50 Not launched Not launched $9.00
brand
Competitor B – Specialty stores $8.25 $16.00 $17.75 $19.75
Premium
Competitor B – Own Grocery $6.50 Not launched Not launched $9.75
brand
Questions to Answer
53
How could we determine if there has been change in relative What conclusions can we draw from the table?
marketing spend against our major competitors?
First we need to gather information on our own marketing spend to have a
We have 2 main competitors, each with two different
basis for comparison.
brands (premium and own brand).
Secondly, we need to determine our competitors’ marketing spend, which we
Competitors have been steadily raising prices in their
could do through several sources:
premium category, aiming at a segment of consumers
• Internal interviews
who are willing to pay more. These consumers it seems
• External benchmarking through competitor company reports
prefer to buy at specialty stores. It is likely that our
• Analyze number of pages in various publications
competitors have succeeded to capture a lucrative
• Interviews with experts within the advertising and marketing industry
share of the market.
After discussions about the industry and the competitors the handout should
Additionally both competitors have launched this past
be given to the candidate and they should be given a couple of minutes to
year “own
own brands”
brands and selling them through grocery
take in the data.
stores. These own brands are significantly cheaper
than the premium brands and have a lower cost to
produce.
What are the options our client has assuming they want to stay in It seems that competitors have been capturing the
the whiskey business and how should they price their whiskey lucrative top
p end of the market while also launching g
new own brands that have captured the price sensitive
brand?
consumers, effectively squeezing our clients brand out
It is important for the candidate to realize that our client’s product is a of the market.
premium product and that is based on the cost to produce. Given this
information it would seem that our client needs to try and increase prices in
order to be perceived as a premium product comparable to the competitor
premium brands.
It would be reasonable to suggest a price of $19.00-$20.00 for our client’s
brand. The candidate should be asked to justify any answer provided.
Math
54
M th
Math
Once the options have been discussed the following information should be provided:
Based on market research our client believes that if they increase their price to $20.00 they will be able to sell 8m bottles. The costs
of producing whiskey are 75% variable and 25% fixed.
The candidate should now calculate the total profit of the two options to see which one is better. Notice that they all ready know the price
today ($15.00) and the quantity today 10m and this information should not be given again.
Today:
New Pricing Option:
(The fixed costs do not change!)

Examining the two options it seems that an increase of price to $20.00 would increase total profits by $22m an increase of ~30%.
Final Questions and Conclusions
55
It would
ld appear th
thatt th
the hi
higher
h pricing
i i option
ti iis very C l i
Conclusions
favorable to our client. What complication might arise Recommendation:
from such a price increase? Our client should increase its price to $20.00 per bottle. This
In the short term, we need to be aware of how our competitors increase will generate an additional $22m in profits, an increase
react to this move in pricing, branding and advertising. Our move of 30%!
could provoke additional price increases from our competitors Some potential risks of this move include: competitor response,
leaving us in the same position we were before. We should also be optimistic data from client and consumer perception of our brand.
aware of possible difficulties in marketing our brand in the Some next steps include: Validating data, creating marketing and
premium category as the third mover. advertising plan, preparing the market for significant price
increase.
Further complications could arise given that our changes in our
whiskey brand may impact negatively our wider liquor portfolio, if
customers who stop purchasing our whiskey brand will also stop
purchasing other liquor brands that our client owns.
Lastly we should be careful with the number of 8m bottles as given
to us byy the client. If this number is too optimistic
p the results could
be significant.
Case 2: Copper Ore Mining Investment
Introduction
56
Problem statement narrative
Our client in this case is Excavator Mining Co, a large diversified mining company. Excavator is considering developing a mine site to
produce copper ore. Excavator has two options for developing the site. Develop alone, or enter a JV with a competitor – Drillhammer
Mining Co. In addition, Drillhammer owns a nearby mining site which it could develop to produce copper ore, supplying the same market.
Should Excavator develop the mine alone, with Drillhammer, or not at all? What arrangements should be made with Drillhammer, if any?
Information to be provided upfront

Overview for interviewer
(hand candidate attached exhibit)
This case has two main components. First, evaluate the financial The information on the following page is to be given
attractiveness of each option for both Excavator and immediately. And provides an overview of the situation. The
Drillhammer. Some cost and pricing information will be provided page that follows shows the calculation that the candidate
to do this. After this analysis, it should be evident that the JV is should be working towards – estimated the value for each
the preferred option as it creates the highest overall value for player under the different scenarios.
the industry. The second question is how should the value be split
between the players under a JV arrangement.
After the candidate presents his/her framework, give candidate
the handout containing an overview of the situation. The
candidate can then be given cost and pricing as requested.
Case Type:
Type Investment decision/JV negotiation
Case Style: Command & Control
Financial Analysis of Investment Options
57
Rail from mine

to rail link
Excavator
owned site
Road from rail
Rail link link to market
• 1 million tones pa
stand alone
• 2 million tones pa
Copper ore
under JV
market
• 20 year mine life
Road from mine

to market
Drillhammer
owned site
• 1 million
tonnes pa
• 20 year
mine life
Financial Analysis of Investment Options
58
MINE FINANCIAL ASSESSMENT

MINE FINANCIAL ASSESSMENT
Excavator alone Drillhammer alone JV at Excavator site
Capacity Tonnes pa 1,000,000 1,000,000 2,000,000
Mine life
i lif Years 20 20 20
Copper ore price $ per tonne 50 50 50
Operating Costs
Mining costs
Mining costs $ per tonne
$ per tonne 20.0
0.0 28.0
8.0 15.0
5.0
Rail transport costs $ per tonne 10.0 10.0
Road transport costs $ per tonne 5.0 25.0 5.0
Total operating costs $ per tonne 35.0 53.0 30.0
Operating profit $ per tonne 15.0 (3.0) 20.0
Total profit over mine life $ Millions 300.0 (60.0) 800.0
Capital investment $ Millions (180.0) (140.0) (340.0)
Total Value $ Millions 120.0 (200.0) 460.0

Discussion Points
59
K discussion
Key di i points
i t
Industry overview
• The overall industry is not particularly relevant here, so steer the candidate away from any five forces analysis or similar
Financial calculations
• Provide information as requested by candidate
• Ignore time values of money
• A relevant question is why the mine production at Excavator’s site is larger under the JV – this can be attributed to capital
requirements for Excavator alone, or regulation
JV discussion
• Once the value of each option has been calculated, it is clear that the JV is the highest value option
• The next question is what JV arrangement would be acceptable to both parties? Is a straight 50/50 split ($230M) fair?
• A discussion should follow around how each player would view the JV and what their next best alternatives are (we assume neither
has copper ore mining options beyond those here).
• Without the JV, Drillhammer will not invest in its site (loss-making) and so the value it receives is 0. Excavator will invest alone, and
will receive $120M of value. The total value for both players is $120M.
• With the JV, the total value for both p players
y is $460M. So the JV adds $460M - $120M = $340M for the industry. y This $340M
should be split evenly between the two parties vs their next best alternative. Drillhammer receives $170M + 0 = $170M. Excavator
receives $170M +$120M = $290M. This is the most likely outcome of a negotiation between the two parties.
• Other broader discussion points:
• History of JVs between the two parties?
• Alternative use for the mine site – could it be sold for more than JV value?
• P
Potentiall for
f infrastructure
f sharing
h between
b the
h two sites??
Discussion Points
60
Excavator should pursue the JV

Sample and settle for not less than $290M
Recommendation worth of value from the site.
BONUS
Sensitivity to pricing assumption:
• Forecasting the Copper ore price over the next 20 years
is a difficult exercise - how would a higher or lower
copper price affect the decision? What if prices were
high enough for Drillhammer’s site to be profitable?
Case 3: Telecom Service Provider
Introduction
61
Our client is a telecommunications service provider.

provider They have been experiencing customer retention problems.
problems What do you think can be
drivers of such a problem?
Drivers of Retention Problems Information to be Provided If Asked

• Voluntary Information to be provided if asked:
• Deliberate
•Technology (Handsets, Features, New Technology) There are 3 major players in the market
•Economics (Per minute, Activation, Subscription fee)
• Quality (Coverage, Call quality, Customer Service, Our client has the higher coverage on average
g)
Billing)
• Social (Image, Family and friends) Its voice services are more expensive than other providers.
• Convenience (Internet, Retail Channels)
•Incidental
•Finances
•Location
•Major life changes
•Involuntary:
• Fraud
•Non payment
Case 3: Telecom Service Provider
Question 2
62
Question 2 What can our client do to decrease the churn

A recessionary environment is expected next year and churn rate is rate?
expected to increase in favor of cheaper service providers. To maintain
Recommendations:
the current number of subscribers, how many customers should the firm steal
•New price plans. Customized price plans for each
from its competitors?
customer/segment
•Predict defection. Create an offer for the possible
I f
Information
ti tto be
b PProvided
id d If A
Asked
k d defectors
•Sell them other products. Create switching barrier
Market size: 100M
•Thank and survey existing customers
Market growth rate:1%
•Send customized product and service offerings
Market shares for the companies:
•Customize the response and communication to customers
Our client: 50%
R i usage reall time
•Review ti
Firm A 30%
•Set up referral programs
Firm B 20%
•Develop a loyalty program
Current churn rate 3%
•Watch the seasonal churn
Recession increases churn rate by 50%
•Improve coverage: Number one reason for churn
Calculations
•Number of current subscribers: 50% of 100M= 50M
•Assuming that our client gets 50% of new subscribers as well: 0.5 M new
customers
Ch rate
•Churn t this
thi year is
i 3%*1.5=4.5%
3%*1 5 4 5%
•50M(1-4.5%)+0.5M+ Customers to be stolen from competitors=50M
•47.75+0.5 + Customers to be stolen from competitors =50M
•Customers to be stolen from competitors=1.75M
Case 4: Major Magazine Publisher
Introduction
63

Your client is a Major Magazine Publisher. Currently, they own a Women’s magazine (similar to Cosmopolitan) and a Personal Finance
magazine (similar to Fortune). They are considering launching a new magazine about Fine Living, targeted to Wealthy Males (similar to
GQ). What is the market size, and should they do it?

This is a straightforward case, covering Profitability, Go/No Go Investments and Market Sizing. Information will likely be given at the
beginning of the case, and then more throughout the case, as calculations are made.
Information to be given with handout

Is there a goal that the company is trying to reach with the launch of the new magazine?
Yes, the company would like to hit $10M in annual revenue.
Does the company have the resources to launch a new magazine?
Yes.
I the
Is h new magazine i offered
ff d only l in
i print,
i or online
li as well?
ll?
It will be offered only in print.
In what ways can the magazine be purchased?
It is offered as a yearly subscription - 12 issues per year.
It can also be bought retail - one issue at a time.
What is the target geography for the magazine?
It will be offered in the U.S. only.
What are the costs of the magazine?
Costs can be ignored in this analysis.
Market Size
64
Potential approach to solving the case

Q1. Market Size
Q2. Profitability
Q3. Recommendation (Risks and Other Considerations)
Q1: What is the market size (in people)?

Information to be given if asked:
300M people in the U.S.
50% Male Æ 150M males in the U.S.
Age demos split evenly (Age 0-20, 21-40, 41-60, 61-80)
Market research shows that 10% of Age 21-40 demographic is Wealthy, that 10% of Age 41-60 is Wealthy and that 5% of Age 61-
80 is Wealthy
People under 20 are too young for the magazine
Calculations:
Can be split evenly by age group:
group
Age 0-20: 25% Æ 150M(25%) = 37.5M
Age 21-40: 25% Æ 150M(25%) = 37.5M
Age 41-60: 25% Æ 150M(25%) = 37.5M
Age 61-80: 25% Æ 150M(25%) = 37.5M
Can be broken down further byy target
g demographic
g p
Age 21-40: Assume that 10% are Wealthy Æ 37.5M(10%) = 3.75M
Total market size = 3.75M + 3.75M + 1.875M = 9.375M people, or rounded to 9.4M people
Profitability
65
P t ti l approachh to
Potential t solving
l i the
th case
Q1. Market Size
Q2. Profitability
Q2: What is the market size (in $)?

There are two ways that the magazine can be purchased.
Subscription:
p 12 issues per
p year,
y , $3 revenue/issue
/
Retail: Assume 4 issues per year, $5 revenue/issue
Assume that the market is split 50/50 subscription and retail.
Calculations:
9.4M(50%) = 4.7M subscribers, 4.7 retail customers
S b
Subscription revenue = 4
4.7M(12
M( 2 issues)($3)
)($3) = $
$169.2M
69 2M
Retail revenue = 4.7M(4 issues)($5) = $94M
Total market size = $169.2M+$94M = $263.2M
Recommendation
66
P t ti l approachh to
Potential t solving
l i the
th case
Q1. Market Size
Q2. Profitability
Q3: Should they do it?

Market is not growing
Competition is made up of:
GQ: 60% of the market
Other magazines/fragmented: 40%
Survey data shows that we can capture 5% of the market
Calculations:
Potential revenue for client = 5%($262
5%($262.2M)
2M) = $13
$13.16M
16M
Recommendation
67
The client should move forward with the launch of the new magazine.
magazine We expect to get $13
$13.6M
6M in
revenue per year, which is higher than the stated goal of $10M per year.
Recommendation
Costs need to be less than $3.6M. Costs can include fixed cost for a new manufacturing plant, R&D
for new topic, etc..
Need to consider cannibalization of Finance magazine revenues - may be targeting the same
Risks audience/have content overlap.
Cost synergies
y g for client may y be able to be achieved byy addingg another magazine
g to the p
portfolio.
Synergies may include manufacturing, marketing and distribution.
Case 5: Tulsa Hotel - OK or not OK?
Introduction
68

Our client a major hotel chain. They are considering acquiring an existing hotel in Tulsa, OK for $20M and expect an ROI of
20% over three years. Should they make the investment?
Overview for interviewer Information to be given with

Once thehandout
interviewee has explained their
This is a profitability case. Discussion should quickly turn to P=R-C and the
framework, give them the following page. Also
various drivers of costs and revenues.
tell them the following:
Assume single occupancy (only one guest per
On the revenue side, price and volume (hotel occupancy) should be
room).
considered, with some discussion about different price and occupancy
If several rooms are reserved at once ((for a g
group
p
scenarios
i – isi this
hi a b
business
i hhotell or a vacation
i llocation?
i ?D Do occupancy
traveling together) a discounted group rate is
rates/prices vary throughout the week? Seasonally? The interviewee should
given to each group member.
also include other sources of revenue, such as a restaurant in the hotel,
Assume 50 weeks/year or 350 days/year in your
events, etc.
calculations. Round yearly profits to the nearest
On the cost side, fixed and variable costs should be discussed, such as hotel
million.
upkeep utilities,
upkeep, utilities labor,
labor insurance,
insurance booking system etc.
etc
Assume no seasonality in demand. Assume no
growth. Ignore time value of money.
Additional factors:
Changes in the economy and hotel industry that might affect number of
guests or guest WTP
Competitor response and potential for new entrants into the market
Specifics about our client such as synergies with other hotels in the chain,
name recognition, hotel management expertise
Risks such as lower than expected demand, entry of new competitors, etc..
Information sheet
69
On weekends Tulsa has 600 visitors/day and 50% stay in our hotel
(The rest stay with friends/family, or at small bed and breakfasts)
Group room rate is $120/night

Individual room rate is $150/night
On weekends 75% of guests are individuals (i.e. not groups)
On weekdays 40% of guests are individuals
Weekend hotel occupancy rate is 60%
Weekday hotel occupancy rate is 75%
It costs the hotel $30/room/night for each occupied room
Fixed costs for the hotel are $5750/night
Assume no growth, ignore time value of money
Question 1
70
Profitability Question
Should our client make the investment? (Do not remind interviewee that the client plans to invest $20M, or that they expect an
ROI of 20% over three years, this information was given up front and should be remembered)
Solution Method 1 Solution Method 2

Weekend
W k d days:
d Weekend days:
da s
600 town visitors * 50% stay at our hotel = 300weekend guests 600 town visitors * 50% stay at our hotel = 300weekend guests
Average weekend rate=0.75*$150+0.25*$120=$112.5+ Revenues from individuals: 300guests*75%*$150/room = $33,750
$30=$142.5 Revenues from groups: 300guests*25%*$120/room = $9,000
Average weekend day profit /guest= $142.5-$30 = $112.50 Variable costs: 300 guests*$30/occupied room/day = $9,000
Weekdays: Fixed costs=$5750/day
Hotel is 60% occupied on weekends with 300 guests = 500 rooms P f /
Profit/weekend
k dd day = ($33750 + $9,000)
$9 000) - $9,000
$9 000 - $5750=
$5750 $28,000
$28 000
in hotel Weekdays:
On weekdays, hotel is 75% occupied = 500*75% = 375 guests Hotel is 60% occupied on weekends with 300 guests = 500 rooms in hotel
Average weekday rate=0.4*$150 + 0.6*$120 = $60+$72 = On weekdays, hotel is 75% occupied = 500*75% = 375 guests
$132 Revenues from individuals: 375guests*40%*$150/room = $22,500
Average weekday profit / guest = $132-$30 = $102 Revenues from groups: 375 guests*60%*$120/room = $27,000
Total profits: Variable costs: 375 guests*$30/occupied room/day = $11,250
π/week = (300*$112.5*2) + (375*$102*5) – (5750*7) = Fixed costs = $5750/day
$218,500 Profit/weekday = ($22,500 + $27,000) - $11,250 – $5750 = $32,500
π/year = 50weeks*$218,500 = $10,925,000, round to $11M Total profits:
π over 3 years (assuming no growth/TVM) = 33M π/week = 2($28,000) + 5($32,500) = $218,500
20% ROI on 20M is 4M,, so require
q $12M π over 3 years
y to meet π/year
/ = 50weeks*$218,500 = $10,925,000, round to $11M
goal. π over 3 years (assuming no growth/TVM) = 33M
$33M>$12M, so invest! 20% ROI on 20M is 4M, so require $12M π over 3 years to meet goal.
$33M>$12M, so invest!
Question 2
71
Average Rate Question
Now instruct the interviewee to disregard the numbers given in question 1 and use only the information given in the following question:
Suppose that on each weekend day, 100 rooms are occupied at a group rate of $100, and 300 individual rooms are occupied at a rate
of $150.
$150 On each weekday,
weekday 200 rooms are occupied at the group rate
rate, and 200 at the individual rate
rate. There are 500 rooms in the
hotel. It costs the hotel $30/room/night for each occupied room.
What is the average revenue per customer per day for any day of the week? Round your answer to the nearest 10 dollars (e.g., if the
room rate is $147, round your answer to $150)
Suggested Solution
Average weekend day: (100*$100 + 300*$150)/(100+300) = ($10,000+ $45,000)/400 = $55,000/400 = $137.50

Average weekday: (200*$100) + (200*$150) /(200+200) = ($20,000 + $30,000)/400 = $50,000/400 = $125.00
Overall average rate: (2*$137.5 + 5*$125)/7 = ($275+$625)/7 = $900/7 = $128.57 = $130 revenue/room/night
Question 3
72
Strategy Question
Now suppose that our client would like to increase revenues at the hotel. What would be some ways that they could accomplish this?
Assume that costs are held constant.
Suggested responses
The goall iis to b
Th brainstorm
i id
ideas to iincrease revenues. PPushh iinterviewee
i to provide
id as many id
ideas as possible.
ibl
Answers might include:
Increasing room price, perhaps positioning hotel as a luxury destination
Partnering with a local convention center to attract large groups of guests, or building their own conference center
Accommodating wedding receptions or other large social gatherings
Conducting an advertising campaign
campaign- with a travel agency, online, on TV, etc.
Expanding the hotel to accommodate more guests
Opening a restaurant in the hotel, or adding additional dining options if interviewee assumed there was already a restaurant
Breakeven Question Breakeven Question

In order to increase profits, your client is considering launching a three $1.5M over 3 years = $500,000 per year spent on the campaign
year advertising campaign. The campaign will cost $1.5M. Use From question 2a, the average revenue/room/night = $130.
information from question 2 in your calculations. Do not use any Variable cost/room/night = $30
information from question1. Ignore fixed costs. Profit/room/night = $100
$500,000/$100
$ , /$ = 5,000
, additional gguests/year
/y
How many additional
H ddi i l guests will
ill need
d to stay at the
h hhotell ffor our
5,000/350 = about 15 additional guests per night
client to break even?
Should they launch the campaign? Since the hotel occupancy is 400 on both weekends and weekdays,
and the hotel has 500 rooms, this increase seems reasonable
Recommendation
73
Our client should acquire the hotel because its projected profits exceed the expected ROI by
$21M.
However, if the $20M investment could be used for another project with an even higher ROI, the
other project should be prioritized ahead of this one. ( Bonus answer!)
Recommendation Our client should also launch the advertising campaign because the required additional 15 guests
per night
p g to breakeven seems reasonable. Some other options p to increase revenues might
g include
partnering with a conference center or contracting with a travel agent to attract additional guests.
Some potential risks include:

National or global economic downturn could reduce business travel and tourism in general
A new unfavorable local economic environment in Tulsa could lead to businesses leaving the
area and reducing business/visitor traffic (e.g. higher local taxes on businesses)
Risks A competitor could build a large hotel in Tulsa
Government could impose new taxes on hotel profits, reducing projected ROI
Case 6: The Coffee Grind
Introduction
74
P bl statement
Problem t t t narrative
ti
The CEO of a major client has requested a short-term study examining a small part of the client’s product portfolio. The company has a
small division that manufactures automatic drip coffeemakers for the US and Canadian market. The division has been steadily producing
coffeemakers for 20 years, and has made few changes to the business over its history. The client has always enjoyed healthy margins for
the coffeemaker division, and annual volumes have been steady. Recently, however, the coffeemaker division's profits have been declining.
Th CEO wants to understand
The d d what
h iis going
i on. WhWhat broader
b d insights
i i h would ld you want to explore
l first
fi to answer theh CEO’
CEO’s question?
i ?
Overview for the interviewer Information to be provided (if asked)

Although this looks and feels like a profitability case (which it Regarding changes in fixed or variable costs:
costs the production lines
ultimately is), the point here is to push the interviewee to develop and facilities are mature, the business has been steady, overall
a framework beyond the standard profitability setup. production is rather efficient given the advantages of a long-term
Additionally, the case is meant to train the interviewee to listen to steady state. No major changes to fixed or variable cost inputs
the question being poised: the interviewer is asking for “broader” have occurred recently.
insights,
g , not basic profitability
p y analysis.
y
Production: All production occurs at a facility in Michigan. The
If the interviewee tries to go down the typical profit = price x plant is operating at about 90-95% capacity.
volume – fixed + variable costs, push him or her a little harder to
think bigger picture. This case was done at the partner level, and Volume: Relatively constant.
thus involves a little more ambiguity.
Product Mix: The division produces 4-cup, 10-cup, and 12-cup
coffeemakers. The overall mix between these categories has been
fairly consistent.
Potential Frameworks
75
C did t may propose action

Candidate ti in:
i
Market Customer Channel

How are competitors performing? Are customer preferences changing? How do we reach our customers?
Have new competitors
p entered? Has p
product mix changed?
g Has distribution changed?
g
Have new substitutes emerged? Are customers more or less price sensitive Are retail outlets changing?
Are we missing new technological than before? How are sales prices established?
developments? Have customers become more Are channels consolidating?
Where are our prices relative to our concentrated?
competitors? Are customers shopping in new channels?
Market Customer Channel

There have been some new entrants, Volumes by coffeemaker size have been Channel is the real issue. When the
primarily for very low priced relatively steady, indicating that customer candidate reaches this area, present them
coffeemakers. The client’s coffeemakers preferences have not undergone dramatic with exhibit 1.
are mid-price range and there are changes. Again, try not to let the
several other competitors at this price candidate go too far down this path.
point. New technology and substitutes are
minimal Try to not let the candidate go
minimal.
too far down this area, the real issues are
in distribution.
Exhibit 1
76
N b off coffeemakers
Number ff k SSold
ld (i(in th
thousands
d off units)
it ) b
by RRetailer
t il Category
C t
2010 2009 2008 2007 2006 2005 2004 2003

National Chains
N ti l Ch i 4‐cup
4 10‐cup 12‐cup
10 12 TTotalt l 4‐cup
4 10‐cup 12‐cup
10 12 TTotal
t l 4‐cup
4 10‐cup 12‐cup
10 12 TTotalt l TTotalt l TTotalt l TTotalt l TTotalt l TTotalt l
Best Buy 10 12 12 34 9 12 12 33 9 12 12 33 33 32 32 31 30
Target 29 38 17 85 28 38 17 83 28 38 17 84 84 82 80 78 79
Walgreens 1 1 1 4 1 2 2 4 1 2 2 5 5 5 5 5 5
Sears 1 6 7 14 1 6 7 14 1 6 7 14 15 15 16 18 36
Office Max ‐ 6 10 15 ‐ 6 10 16 ‐ 6 10 16 17 17 18 19 20
Kohl's 1 3 2 6 1 3 2 6 1 3 2 7 7 7 7 7 8
Bed, Bath, & Beyond 8 8 7 24 9 9 8 25 10 9 8 27 29 30 32 33 34
Costco 15 16 19 50 17 16 19 52 17 17 21 56 59 62 67 69 25
BJ's 12 14 47 73 11 13 42 66 10 12 38 60 57 52 48 44 20
Walmart 41 76 71 188 34 65 68 167 28 54 60 142 125 110 93 83 99
Total National 119 179 194 492 111 168 187 466 107 158 178 443 429 414 398 388 357
Memo: Percent of Sales 15% 23% 25% 63% 15% 22% 25% 61% 14% 20% 23% 57% 52% 52% 50% 46% 46%
Non‐National Retailers 4‐cup 10‐cup 12‐cup Total 4‐cup 10‐cup 12‐cup Total 4‐cup 10‐cup 12‐cup Total Total Total Total Total Total
Grocery 19 25 36 80 23 30 37 90 26 32 39 97 116 109 110 120 104
Medium Retailers 36 24 25 85 45 25 20 90 45 31 33 108 101 109 120 114 102
Smaller Retailers 38 21 15 74 10 24 19 53 16 25 20 61 100 91 95 112 106
Other 10 20 21 51 12 24 25 61 12 29 29 70 76 70 75 104 101
Total Other 103 90 97 290 89 103 101 293 99 117 120 336 393 379 400 450 413
Memo: Percent of Sales
M P t fS l 13% 12% 12% 37% 12% 14% 13% 39% 13% 15% 15% 43% 48% 48% 50% 54% 54%
Total Sales 222 269 291 782 200 272 288 760 206 275 298 779 822 793 798 838 770
Memo: Percent of Sales 28% 34% 37% 100% 26% 36% 38% 100% 26% 35% 38% 100% 100% 100% 100% 100% 100%
Questions for Exhibit 1
77
Q ti
Questions ffor EExhibit
hibit 1
Opening: We were able to get some quick shelf data on coffeemaker sales by channel.
Question 1: What conclusions can you make from this data?

- The candidate should identify that National chains increasingly make up a greater share of the client’s sales
- B
Bonus points
i if they
h note that
h one retailer,
il WWal-Mart,
lM b
buys 25% off their
h i coffeemakers
ff k
Question 2: What are implications for this shift towards National retailers?
- Larger chains have more bargaining power, and are putting more pressure on the division to provide discounts on its products based
on volume, which is squeezing the company’s margins.
Math Test
What percent of the market do you think the client has?
- The candidate needs to start by estimating the number of coffeemakers sold in the US and Canada annually:
- Any logical approach is acceptable. A recommended approach is to start with the population of households in the US and
Canada (there are approximately 100k households in the US, 10k in Canada), estimate the percent that have electric
coffeemakers (it’s about 65%), and that coffeemakers are replaced about every 5-10 years (can use 7 as an average). Give
bonus points if candidate considers other places with coffeemakers (offices, hotels, etc..).
- In the end, the candidate should have an estimate in the range of 10 – 15 million coffeemakers sold annually in the US and
Canada.
- Therefore, the client has about a 5-8% market share, and is a relatively small player, so the company has little bargaining
leverage with retailers.
Follow up Questions
Follow-up
78
F ll
Follow-up Q ti
Questions
Question: During a brief meeting with the CEO, you share your early insight that national retailers are squeezing the company’s margins.
He states that the dishwashers and cooking appliances division recently launched a website to sell its products. He wants to know if a
website would also work for coffeemakers. Do you think it will work?
Answer: Any
A A answer here h is
i acceptable
bl if the
h candidate
did can create a llogically
i ll structured d argument to support hi
his or hher answer,
although the candidate should at a minimum identify a couple of risks. Additionally, the candidate should want to know more about the
possible profitability of a website.
Possible reasons for a website (sample):

Profitability: allows client to capture the margin that presently goes to the retailer
Channel: reduces client’s dependency on national retailers, could add additional volume
Company: the company already has an existing website for dishwashers and cooking appliances, so capabilities may exist
Possible reasons against a website (sample):

Profitability: need to understand economics (how expensive are the fixed costs?)
Customer: coffeemakers are more of an immediate purchase decision than dishwashers or ovens, customers may not want to wait for
shipping times for online purchases
Competition: may face increased competition online from websites such as Amazon.com
Channel: customers may already be purchasing our coffeemakers from our retailers on their websites, risk of retailers retaliating by
pulling our products from their shelves
C
Company: th coffeemaker
the ff k di
division
i i may nott have
h the
th expertise
ti or skills
kill needed
d d ffor online
li marketing,
k ti sales,
l shipping,
hi i etc.. t
Math Question #2
79
M th Question
Math Q ti #2
Question: Given the following information we’ve collected, what percent of the company’s sales would the client need to achieve for the
website to break-even?
The interviewer should tell the candidate the following:

- A
Annual l website
b i costs: $500k
- Additional marketing costs: $300k
- Average retail price of coffee maker: $60
- An additional $4 per coffee maker will be required for handling sales through the website
- The customer pays for the cost of the shipping
The interviewer should only provide the following when asked:

- The margin on the coffee makers is 40%
Answer
With a margin of 40%, the cost of producing the coffee maker is $36 ( 40% = ($60 – COGS)/$60)
Therefore the profit per coffee maker is $24 before the $4 extra handling cost, and $20 after the extra cost is included.
The total cost of the website is $800k
Break-even volume = $800,000/$20 = 40,000 coffee makers
The client sells approximately 800k coffee makers annually, so about 5% of the clients volume
Conclusion and Wrap-up
Wrap up
80
C l i
Conclusion
Question: The CEO really appreciates all the work you’ve done so far on identifying the issue with national retailers squeezing margins
and the breakeven analysis on the website. He would also like your insight on other possible ideas. What other solutions might you
suggest?
Answer:
Anything here is acceptable as long as its reasonable; the idea is to push the candidate’s creativity. After the candidate has provided a
few options, continue to ask “what else” until the candidate cannot produce any more ideas (McKinsey often uses this type of questioning
during its first and second round interviews).
Sample answers:
- Investigate selling the division to another coffeemaker
- Move production overseas to increase margins
- Investigate purchasing other coffeemaker manufacturers to gain leverage with retailers
- Consider exclusive retailing rights to one distributor
- Increase marketing efforts to create a pull-strategy from customers to increase leverage with suppliers
- Seek other channels (Starbucks, hotel chains, etc..)
- Consider international expansion
- Increase focus and attention on small to medium retailers
- Consider raising prices to offset margin loss (but with a further investigation of customer price sensitivity)
Fi l question:
Final ti A k the
Ask th candidate
did t tto wrap up th
the case.
Recommendation: The candidate should either recommend the website or another solution identified above.
Risks: In his or her conclusion, the candidate should mention risks such as competition from other websites, retaliation by retailers, risk of
moving production overseas, etc..
Case 7: FoodCo
Introduction
81
P bl statement
Problem t t t narrative
ti
Our client is a private equity firm which has invested in FoodCo, a family-owned $19M branded frozen ethnic foods manufacturer
operating out of the Northeast. They would like our help to determine how FoodCo can triple their profitability over the next 2 years.

The interviewee may ask some clarifying upfront questions related to the goal of tripling profitability, and then they should develop a
framework of potential areas to explore. This will likely be divided into areas such as the external Market, Revenues, and Costs.
Additional information related to the client’s goal

This information may be provided upon request:
• The $19M figure is revenues
• Profit is currentlyy $
$3M ((so the target
g is $3M
$ *3=$
$9M))
Case 7: FoodCo
Profitability enhancement
82
B i t
Brainstorming
i ideas
id for
f increasing
i i PProfitability
fit bilit
The candidate should present a framework to tackle the problem.
Market: Assume that there are no major changes.
Revenues
• Price: we don’t have any flexibility; benchmarking has determined that the ideal price is being charged to customers.
• Revenue Streams: For the purposes of this case assume that we produce ethnic food sold in “cups” e.g. a cup of noodles. This is the sole
revenue generating stream.
• Quantity
• Increasing this and expanding is an option,
option but what are the implications?
• We can’t build more operations centers. “We know that there is a lot of unmet demand but we are extremely capital
constrained and can’t look to increase production by opening a new plant.”
• Other ideas
• Expanding nationally through retail and food service channels
• Expanding into new products, customers, and channels – organically or through acquisitions
Point the interviewee towards efficiency gains through cutting costs
Costs
• Have the interviewee brainstorm a list. These could include food materials, storage (including refrigeration), logistics, labor, and
packing materials
• Once
O the
th candidate
did t comes up with ith a preliminary
li i lilistt off costs,
t say th
thatt our tteam ffound
d th
thatt a majority
j it off costs
t could
ld b
be categorized
t i d into
i t
four areas: Labor (50%), Equipment (25%), Administrative (20%) and Other (5%)
• Ask them which area they would target to find savings. This should point to labor as is this more controllable and an unusually
large cost driver for this type of business. Show the following chart.
Case 7: FoodCo
Profitability enhancement
83
Prompt: What are some ideas to improve efficiency?

The key should be to reduce repair time, which is controllable. Ask for further ideas of how to do this.
Indicate that through training and reconfiguration of equipment we can reduce repair time to 5% if we invest $500,000. Should we do
this?
Answer:
Labor Cost Base is $19 - $3 = $16. $16 * 50% = $8M
Savings from reduction = 22% - 5% = 17%. 17% * $8M = $1.36M
So yes, we should invest.
Case 7: FoodCo
Follow up question
84
B
Bonus
You may want to push the candidate here if they don’t realize this -- efficiency savings translate into higher production volumes. Ask them
to calculate what this increase would be and how it translates to revenues. For simplicity assume that all savings (in percentage terms)
translate directly to the same % increase in volume (e.g.17%).
Revenue Growth = $19M * 1.17 = $22.23M
Wrap-up
Ask for the overall recommendation. Sample:
B reducing
By d i repair i time
i through
h h training
i i andd equipment
i reconfiguration,
fi i we can b bothh reduce
d costs and
d grow revenues bby 17%
17%. Af
After the
h
$500K investment, this means a total of roughly $7M profitability. This is not enough to reach the two year target, so we would have to
look at other sources/options for growth and expansion.
Case 8: Candy Manufacturing
Introduction
85
P bl St
Problem Statement
t tNNarrative
ti
Your client is a candy manufacturing company that has been facing declining profit margins. The CEO has reached out to
us to figure out why and what they should do about it.

This is a relatively straight-forward case, which includes the following: discussing profitability drivers, calculating profitability of the
client versus competitors, discussing opportunities to increase revenues and decrease costs, and a conclusion. If they ask as a follow-up
to the question to the problem statement whether declining profitability is an industry specific issue or a company
company-specific
specific issue,
highlight that the company has been facing issues.
Potential Issue Tree and Approach to Solving the Case
86
Solution
•Industry drivers of profitability:
• Market size and growth,
• Customer trends
• Competitors
•Profitability of the company:
• Revenues (price and volume),
• Costs (fixed and variable),
• Think
h k off revenue andd cost by
b customer segment or product
d type
•Profitability of competitors:
• Revenues (price and volume)
• Costs (fixed and variable)
• Think of revenue and cost by customer segment or product type
Follow up and Guidance to the Interviewer
Follow-up
87
Industry drivers of profitability Profitability of the company Profitability of competitors

Q: What do you think are the general Q: What do you think are the main drivers of Q: We will look into costs in a moment.
trends in the industry? revenues in this industry? However, we have an interim meeting
with the client and he has asked us a very
Answer
swe gu guidelines:
de es: Answer guidelines: Again test for general specific question. Our client’s profit
brainstorming skills and business intuition margins are 10%. He believes the
•General brainstorming to test business
•Provide details about our clients’ revenues: competitors’ profit margins are higher and
intuition of the interviewer, i.e., candy
• Pricing has been relatively steady wants us to calculate the difference in
manufacturer probably steadily growing at and so has been sales profit margins. How would you go about
inflation, if anything probably declining due • Our client plays in a more niche doing that? (Transition to the competitor
to more health conscious players; part of the candy segment that profitability section)
•There are a lot of big players like Hershey they have not been impacted by
in this space so it is likely a highly the rise in the more health-conscious Answer guidelines:
competitive market consumer as it is particularly liked •On the revenues side you have already
•At the end of the discussion (if they haven’t by children mentioned that our client commands a price
asked already), clarify that the industry • Our client actually commands a premium, as competitors’ prices are 10%
itself has sustained higher profit margins price premium,
p p , most of our lower. If the interviewee asks again,
g ,g give it
competitors have prices that our to them.
than our client.
10% lower than our client. •Costs side: Competitors’ costs are 20%
Q: (When the interviewee moves onto the cost lower
side, ask:) What do you think are the main •Calculate the profit margins of competitors
drivers of cost? relative to our client
Answer guidelines: Again test for general

brainstorming skills and business intuition.
Keep in mind amount of time left and
transition to next question appropriately.
Basic calculation
88
O
Overall
ll approach,
h good
d shortcuts
h t t & solution
l ti
Question 1: Compare profit margins of client versus competition
Profitability of our client:

•Assume our client’s price is $1.00.
•Hence, our client’s profitability is: $1.00 times 0.10 (10%)= $0.10.
•This means that our client’s cost is: $0.90
Profitability of our competitor:

•Competitor’s price is 10% lower than our client: $1.00 * 0.90 = $0.90.
•Competitors cost is 20% lower than our client
client: $0
$0.90
90 * 0
0.80=
80= $0
$0.72
72
•Competitors profit is: $0.90 – $0.72= $0.18
•Competitors profit margin: $0.18/ $0.90= 20%
Instructions for interviewer:

If your interviewee is struggling, propose the trick to assume the price is $1.00. This will make the math simpler.
The answer should be: the competitor’s profit margin is 20%, 2X higher than our client
Identifying issue
89
O
Overall
ll approach,
h good
d shortcuts
h t t & solution
l ti
Question 2: What do you think the main reason is that competitors are more profitable?
It is a difference in costs as their revenues are lower.
Follow up question: interviewer should move towards understanding the major cost drivers that could be driving the difference.
I
Instructions ffor interviewer:
•First ask the interviewee, what they think the main reason is?
• It is a difference in costs as their revenues are lower.
• However, guide them to this if they do not initially say this.
•Follow-up question to interviewee: What would you want to know to understand the difference between competition and our client’s costs?
• Guide the conversation to say they would want to understand the major cost drivers that could be driving the difference.
• Once the conversation comes to the point show them the Exhibit on the next page and ask them: What do you see based on
this graph:
Exhibit
90
Breakdown of costs for the client: Instructions for interviewer:
Key things the interviewer should notice from the graph:
•Raw materials are the highest percent of costs; this could be

100% primarily
l what
h is driving
d the
h ddifference
ff b
between the
h client
l and
d its
competitors; also, this would be where there is most leverage for
90%
our client to reduce costs.
80%
•Equipment is the next highest; unless there are significant
70%
R
Raw materials, 70%
t i l 70% differences between the client and its competitors’
competitors equipment this
60% won’t drive down our client’s costs.
50%
•Labor costs are the smallest part of our client’s cost; even if the
40% client could reduce it impact would be limited
30%
•Hence, raw materials would be where the client has the biggest
20% Equipment, 20%
opportunity to reduce costs and increase profit margins vis-à-vis
10% competition (Make sure the interview reaches to this point either
Labor costs, 10% by themselves or by guiding them)
0%
Client costs
Analyzing cause
91
O
Overall
ll approach,
h good
d shortcuts
h t t & solution
l ti
Question: What could be the reasons why raw material costs could be higher for our client than its competition?
Instructions for interviewer: Provide information if asked

Pose this as a general brainstorming question. Continue the •Competitors
Competitors are slightly larger than our client
discussion until these key points are addressed: •There are a lot of supplier options for a given raw material
•Given our client is the result of a lot of mergers, they have a lot
•Supplier bargaining power: Function of supplier concentration of local suppliers for the same raw materials
relevant to number of customers
•Volume purchased per given supplier: Function of total costs and

the number of aggregate suppliers client uses for a particular
product
Interviewee should dive further into these points to extract the

information on the right hand side.
side Interviewer ask for
interviewee’s perspective based on the additional information
Bonus question: Financial analysis
92
O
Overall
ll approach,
h good
d shortcuts
h t t & solution
l ti
Question: By approximately what percentage would raw materials cost have to be decreased to match our clients’
competitors’ profit margins?
Our competitors’ profit margins are 20%. For our clients’ sales price of $1.00, that means that the new profits needs to be
$0.20 and hence, costs $0.80. Current costs are $0.90. So we need to reduce costs by $0.10.
Raw materials cost is 70% of total current costs. $0.90 * 0.70= $0.63. So, we need to reduce this by $0.10 so that would be
a $0.10/0.63= ~16% decrease.
A stand-out
stand out candidate should say:
say They would need to reduce raw materials costs by 16%,
16% which seems a reasonable target.
target
Case 9: Chickflix.com
Introduction
93
P bl St
Problem Statement
t t narrative
ti
The last period financial figures just came out, and Chickflix.com’s gross profit margin has decreased for two years in a row. The CEO has
hired you to recommend a solution.
Overview for interviewer Information to be provided upon request

The unique feature about Chickflix is that its variable cost are not Chickflix.com is a online website similar to Netflix. What’s
a function of sales volume, but of other drivers (such as average unique about Chickflix is that it targets only women and carries
number of movies returned p per month)) a majority
j y of titles that could be described as ‘chick flicks’
Interviewee should show understanding of the revenue and cost Clients sign up online, order online, receive the movie and mail
structure, identify the increase in cost and recommend a course of it back
action
More specifically, Chickflix.com offers 3 subscription models (1,
Case type: profitability 2 or 3 movies at a time)
Potential Issue Tree & Approach
94
Wh has
Why h gross profit
fit margin
i decreased?
d d? H
How can this
thi be
b reversed?
d?
Is it a revenue issue, cost issue or both? What caused it? Systemic / Chickflix specific?
Chi kfli RRevenues

Chickflix Chi kfli C
Chickflix Cost M k
Market C
Competition
ii
Changes in key revenue Key cost drivers: Changes in demand? Changes in supply?
drivers: • Fixed costs • Market size • New competition
• Price • Administrative • Demographics • More rivalry
• Subscription mix • Variable costs: • Technology / new • Less movies sold
• Number of • Distribution substitutes by studios
customers • DVD amortization
Follow-up and guidance Follow-up and guidance Follow-up and guidance Follow-up and guidance
• 1 movie at a time • Insignificant fixed costs • No changes in overall • No other competitor in
subscription model • DVD amortization demand or in demand from Chickflix’ niche
introduced 1.5 yrs ago considered variable target audience (women) • Margins for competitors
• Growing # of customers • Distribution cost flat on a • No changes in customer like Netflix are not
and revenues per unit basis preferences decreasing
• Unchanged prices • Studios keep selling
Exhibit A – Revenue growth and mix
95
Revenues (M$) Subscription models
Subscription 1:
1 movie at a time
$9.99 / month
Subscription 2:
2 movies at a time
$14.99 / month
Subscription 3:
3 movies at a time
$19.99 / month
Exhibit B – Variable cost per unit
96
Variable cost per unit ($) Components of variable cost
Distribution:
Primarily Mailing cost
Content amortization
Straight line amortization of movies (30 rentals =
useful life)
Considered variable because DVD library is a
function of rental volume
Allowances
Allowance for movies lost in mail
Other
DVD cases repair, etc..
Interviewer guide
97
Interviewee should identify takeaways from Exhibits A

Interviewer should then request analysis
&B
Revenues are growing for all subscriptions Evaluate gross profit margin for each Subscription type
Variable costs are not a function of subscription volume, Calculate price required for subscription 1 and 2 to
but of number of movies returned per month
provide a gross profit margin equal to Subscription 3’s
Therefore, the 2 key gross profit drivers are:
Data for interviewee:
Subscription mix
Average rentals per month Provide Exhibit C
Exhibit C – Revenue and rentals data
98
Revenues # Customers
S1 S2 S3 Total S1 S2 S3 Total
2008 - $12M $8M $20M 2008 - 67K 33K 100K
2009 $5M $16M $10M $31M 2009 42K 89K 42K 172K
2010 $13M $18M $11M $42M 2010 108K 100K 46K 254K
Average rentals per customer per month
S1 S2 S3
2008 - 7.5 8.2
2009 5.6 7.3 8.1
2010 60
6.0 75
7.5 80
8.0
Interviewer guide - Calculating price
99
Q2: Calculate gross profit margin for Subscription 3 Q3: Calculate required profit margin for S1 & S2 /
(using 2010) Identify S1 is at a loss
Revenue per month per customer Subscription 1:

= $20 Average rentals per month
= 6 movies
Average rentals per month
Required subscription price:
= 8 movies (P-1.85*6)/P = 30% Æ P=$15
Revenue per rental or: P = $2.5*6 = $15
= $20/8=$2.5 Subscription 2:
Cost per rental Required subscription price:
P = $2.5*7.5 = $18.75
= $1.85
Bonus: identify that Chickflix is selling S1 at a loss:
Gross Profit margin
Gross profit margin:
= ($2.5 - $1.85) / $2.5 = 30% = ($10-$1.85*6)/$10 = -5%
Interviewer guide
100
Interviewee should identify takeaways from price

Interviewer should then request analysis
calculation
Subscription 3 is more profitable than the other models Challenge interviewee to critically evaluate the client’s
financial performance
Subscription 2 is still profitable,
profitable but Subscription 1 is not
Revenues have grown but:
But, increasing prices may lead to a drop in customers
Subscription 2 is less profitable than 3, and
Subscription 1 is selling at a loss
Æ Chickflix is subsidizing its own growth (selling at a
loss)
What recommendation would you give the client to
improve?
Brainstorming solutions
101
Healthy Revenue Growth Cost Rationalization
Re-evaluate the subscription models Negotiate volume discounts to decrease distribution cost
add maximum monthly returns
Restructure S1 into a profitable model Encourage
E S2 & S3 customers
t to
t mailil more than
th one movie
i
Test customers price elasticity between S1, S2 and S3. Use together
findings to price each subscription correctly
Promote rentals of older movies (with a lower content
Targeted advertising to increase customer base amortization cost)
E
Expand
d into
i t other
th niches:
i h men & children
hild movies
i N
Negotiate
i with
i h movie
i studios
di to reduce
d DVD cost
Final recommendation
102
R
Recommendation
d ti
Chickflix has grown revenues by adding customers in S1 & S2. It has subsidized S1 with proceeds
from S2 & S3 as S1 earning negative margins.
Chickflix
Chi kfli needs
d to restructure S1 to return iti to profitability.
fi bili
Adjusting price is an alternative. Chickflix should also rationalize cost and start by focusing on the 2
main cost components: distribution cost and content amortization.
Moving forward, Chickflix should evaluate entering other market niches.
Risks
Adjusting prices could lead to cannibalization with customers from S3 switching to S2 and those from
S2 to the newly restructured S1.
Chickflix needs to identify the premium offering that S2 and S3 have.
Chickflix should be cautious when restructuring S1, so that customers are not lost
Next Steps
Analyze customers’ price elasticity for different subscription types
Renegotiate contracts with distributors and movie studios
Case 10: Skedasky Farms
Introduction
103

Skedasky Farms is involved in the process of making, selling, and distributing white wines. As of late, industry growth has stagnated. The
CEO wants to increase revenue, and has enlisted you to help. To start off, come up with ideas to help the CEO with his goal.
O
Overview for
f interviewer
This case is fairly open-ended, and will involve a lot of brainstorming on the part of the interviewee.
Keep the interviewer focused on ways to increase revenue. Costs are irrelevant for now (although good to keep in mind). Additionally,
don’t let the interviewer get hung up on one idea. For example, if they suggest expanding to include red wines, that’s good, and they
may mention a concern or two, but then have them move on to other ideas for increasing revenue.
Eventually, push them towards the next part of the case.
Information to be provided upon request

The interviewer can choose to provide some of this information upfront, or can wait for the interviewee to ask. This information is not
crucial to brainstorming, but could be useful in coming up with creative recommendations.
• Skedasky grows all of their raw inputs (grapes)
• Their farms are in California, with some processing facilities on-site, and another large facility located nearby.
• SSkedasky
edas y sells
se s too wine
w e distributors,
d s bu o s, and
a d also
a so sells
se s directly
d ec y too some
so e sstores
o es in the
e sstate
ae
• They sell a variety of grades of wine, from cheaper boxed wine to premium bottles
• The industry is very fragmented (the interviewee should be able to guess this), and Skedasky has a comparable domestic market
share to the other major winemakers in its area
Ideas for increasing revenue
104
Solution
A good interviewee will structure their ideas and briefly mention pros/cons of each idea. A sample structure with ideas is show
below
Current revenue streams
Increase price
Examine price elasticity of demand
For each grade (boxed vs premium)
For each type buyer
For each type of wine (Cabernet vs Merlot)
Increase volume
Increase share of shelf space
Seek new distributors or stores
Increase international exposure
Rebrand the wine
New revenue streams

Wine tours, private tours and tastings for wealthy buyers
Release new brands or varieties of top selling wines
Expansion into new products
Red and sparkling wines
Spirits
Beer
Diversifying into beer
105
N Product
New P d t
Skedasky thinks they have a good case for begin making and selling beer.
Question 2a Question 2b
What are some possible reasons this could be a good idea for How may they want to enter the Beer market and what are some
Skedasky? associated concerns?
There are many potential synergies, such as: •Organically

• Pros
Leverage the brand name and distribution channels
•Leverage
• More control, no integration problems
•Economies of scale in SG&A and other expenses
• Cons
•Perhaps some of the equipment could be used for both products • Will take time to begin
• If they lack expertise in beer‐making, could be a
Of course, there are many concerns/reasons this could be a bad lengthy trial‐and‐error process
idea. q
•Acquisition
• Pros
• Facilities/resources will be ready to go
• Leverage brand name of target
• Cons
• Integration issues (e.g., culture clash)
• Potentially expensive
Potentially expensive
•Joint venture / Alliance
Are there any concerns related to financing?
This depends on how much Skedasky is currently levered, and
whether they have free cash to invest in this new project.
How about changing the price?
106
Price effect on revenue
Suppose that for some more immediate impact on revenue, our client is considering changing the price of their mid-upper level
bottles of wine. Currently, the 10,000 bottles are sold per year for $20/each. Studies have determined that a 10% increase in the
price will result in a 10% decrease in volume, and a 10% decrease in price will result in a 5% increase in volume. Which course
should the company take? (“Let me know if you need any additional information”)
S l
Solution
Key to answering this is that the interviewee must ask for the profit margin. Margins are currently 50% (of $20). The calculations should
result in the numbers below, suggesting that a 10% price increase would be most favorable.
Currently 10% Price Increase 10% Price Decrease
PPrice
i 20 22 18
Cost 10 10 10
Margin 10 12 8
Volume 10000 9000 10500
Profit 100000 108000 84000
An 8% increase in profit looks very attractive.

Sample Recommendation
107
P
Prompt
t
You run into Mr. Skedasky in the elevator, and he wants to know where you are with your work.
We looked at several ideas to increase revenue, such as your suggestion to enter the beer market.
I believe that you can take advantage of a number of synergies with this move, and an acquisition
looks like the best way to enter, so more research must be done on potential targets. However,
many risks present themselves with this move, such as – will the brand name carry over? Do
Recommendation management capabilities carry over to the beer industry? Therefore, further analysis must be
done.
For an immediate increase in revenues and profits, you should increase the price of the mid-upper
range wines. Research shows that you can expect a profit increase of roughly 8% in that category.
Si il studies
Similar t di should
h ld bbe conducted
d t d across other
th product
d t lilines.
Case 11: University Apartments
Introduction
108
P bl St
Problem Statement
t tNNarrative/Question
ti /Q ti 1
Your client is a real estate development corporation. It is looking to build an apartment complex on a vacant lot near a
leading university in Philadelphia. What are some areas that should be examined to decide, whether this is a good idea?
This is a profitability case. Discussion should quickly turn to P=R-C and the various drivers of costs and revenues.
On the REVENUE side, price and volume (number of units built, % rented) should be considered, with some discussion about different price
and purchase scenarios – i.e. how long would it take to sell all units, is there seasonality of occupancy?
On the COST side, fixed and variable costs should be discussed, such as land purchase, apartment construction, utilities, labor, insurance,
etc.
Additional factors:
What is the current MARKET for land and apartments, including zoning for the vacant lot?
How do the future tenants’ WTP (willingness to pay) depend on the quality of apartment units built?
RISKS such as lower than expected demand for units, drop in real estate value
Question 2
109
Breakeven Question
Assuming an average apartment size, how much must our client charge in rent per apartment per month to break even within
three years? See following information sheet.
Solution Provide information if asked
Costs:
Costs Detailed explanations on following page:
page
Land: (200*200)*100=4M
Land:
Construction: .80*40,000=32,000*3*50=4.8M
•40,000 sq ft. (200*200)
Utilities: 5,000*12=60,000*3=180,000
• $100 per sq ft.
Insurance: 2,500*12=30,000*3=90,000
Construction
Labor:
abo : 3 3*40,000=120,000*3=360,000
0,000 0,000 3 360,000
•Building
B ildi takesk up 80% off llandd space
Total Costs: 4M+4.8M+180,000+90,000+360,000=9.43M
•Construction cost is $50 per sq. ft. per month
•Building is 3 stories high
Revenues:
•Labor is $40,000 per year; 3 staff required
Total apartment Sq. Ft.:
.80*(200*200)=32,000*3=96,000*.80=76,800 Operating costs:
Total apartment units: 128,000/512=150 units •Insurance is $2,500
$ per month per floor
Total units occupied: 150*.80=120 units •Utilities is 5,000 per month per floor
Total apartment Sq. Ft.:
Breakeven:
•80% of land space is building
9.43M/(120*3)=26,194/12=$1310 per unit per month
•5 stories
•20% is common space
•512 sq ft. per unit
•Vacancy rate is 20%
Information Sheet
110
The vacant lot is square, measuring 200 ft. on one side and costs $100 per
sq. ft.
f
Building regulations specify that no more than 80% of the lot can be covered
with buildings, given the need for grass, sidewalks, etc.., and construction costs
are $50 per sq sq. ft.
ft
The vacant lot is zoned for buildings up to 3 stories tall; no apartments are
allowed in the basement.
Utilities cost $5,000 per month, insurance costs $2,500 per month, and labor
costs $40,000 per full-time employee per year.
The highest paying customers prefer apartment buildings that have at least
20% of the apartment building dedicated to amenities, i.e. non-apartment
unit use.
Preliminary market research estimates indicate a 80% occupancy rate per
year during the first 3 years; additionally, apartments that are 512 sq. ft. in
size would provide the most profit.
profit
Full-time employees include 1 custodian, 1 rental office staff, 1 grounds staff.
Question 3
111
Strategy Question
Considering that our client can only build on 80% of the lot and can build apartments on 80% of the building itself, what are some
other ways that they can earn revenue on the site or otherwise increase tenants’ willingness to pay?
Suggested Solution
Earn extra revenue:

Store
Restaurant
Dry cleaners
Other small businesses
Increase customers’ WTP:

Gym
Garage
Laundry
Pet zone
Guest services (concierge, etc..)
Case 12: Vidi-Games
Introduction
112
B k
Background
d
Our client is Vidi-Games, a manufacturer and retailer of video games. They are planning to enter the Brazilian market. One of the factors
that has prevented them from entering that market is that there is a tariff for importing products that can be produced in the country of
50% of production costs. However, the government is planning to lower it down to 15% in the next years, decreasing it 5% every year
(from 50% to 45%, and so on).
Questions
What variables should they consider? What is the market size? Should they enter the market? And if so, should they export the product
from China to Brazil or produce it in Brazil?
Interviewer guide
First,, structure the p
problem. It is a p
profitability
ypproblem. Some things
g that should be mentioned,, on top
p of industry
y analysis
y and p
profitabilityy
stuff, are repatriation costs, regulations, currency, inflation, culture issues, etc..
Case 12: Vidi-Games
Market Size Calculation
113
I f
Information
ti that
th t the
th candidate
did t needs:
d M k t Si
Market Size C
Calculations
l l ti
The interviewee should try to estimate these numbers, but no real Total number of video-games that can be expected to be sold
prior knowledge is required. Because it is a market very different per year
from the US, these numbers should be provided after the person = (total number of households that will purchase video games)
tries to estimate them. x (number of video games per year per average household)
= [(total population x % of young people (that use
Brazil population = 200M video-games) x % of affluent people) ÷ (average
Younger population – under 35 = 50% - It can be assumed that people per household)] x (number of video games per
these are the only ones interested in video-games year per average household)
Poor population = 60% (hence, affluent people who can afford
this 40%)
this, Total number of video-games
video games that can be expected to be sold
Average number of people per household = 4 per year = ((200M x 50% x 40%) ÷4) x 3 = 22.5M of video
Penetration of video games within the affluent and young segment games
in Brazil = 75%
Games per year per average household = 3
Case 12: Vidi-Games
Profitability
114
I f
Information
ti that
th t the
th candidate
did t needs:
d I t i C
Interim Conclusion
l i
Usual retail price = $50 Under the current situation it is not a
Volume calculated in market size = 22.5M video-games per year. profitable business, and therefore the
company should not go.
Production in China
P d ti i Chi $14
Production in Brazil $21
Distribution $6
Labor $8
Overhead $6
Other costs
Other costs $10 4
$10.4
Information that the candidate needs:

Profit = Revenue - Costs
Total revenue = Volume x Price = 22.5M video games x $50 $ per video game = $1.125B $
For costs, two scenarios have to be considered: producing in Brazil or in China.
Total costs of producing in Brazil = $21 + $6 + $8 + $6 + $10.4 = 51.4
Because of 50% tariff, the production cost of producing in Brazil or in China is the same.
Total cost of producing in China = ($14 x (1.5)) + $6 + $8 + $6 + $10.4 = 51.4
Because of 50% tariff, the
production cost of producing in
Per unit profit = $50 - $51.4 = $ -1.4 Brazil or in China is the same.
Case 12: Vidi-Games
Lower Tariff
115
BUT the tariff is going to decrease, is it going to make sense for them to enter? (Ignore inflation and other factors).
Break-even point -> Revenues = Costs
Costs that do not depend on tariff
Tariff % at which the company
p y breaks-even
$50 = $30.4 + ($14 x (1+ X )) -> X=0.35=35%
Costs that do not Tariff % at which the

p
depend on tariff p y breaks-even
company
Since the government will lower the tariff 5% every year, in 2 years the company would break even, in the following period they can
enter the market (3 years from now).
Profit (per unit) = $50 – ($18.9 + 30.4) = $0.7 per video-game.
Total profit = $0.7 per video-game * 22.5M video-games per year = $15.75M
Case 12: Vidi-Games
Additional Calculation
116
Y l profit
Yearly fit once th
the ttariff
iff reaches
h ththe minimum
i i (15%)
Profit when the tariff reaches its lowest (and from then on) = $50 – ($16.1 + $30.4) = $3.5 per video-game.
Total profit = $3.5 per video-game * 22.5M video-games per year = $78.75M
If the investment of going into Brazil is $100M, when will they recoup their investment?
First year (3 years from now) = $15.75M

Second yyear = $31.5M
Third year = $47.25M
Total of first three years = $94.5M
Very soon, beginning the fourth year, the investment would be recovered (3+ years is a good answer).
Exact number (assuming you sell the same number of video games every day of the year, 360 days) =3 years and 31.43 days.
Calculations to get the exact number:
$100M $94 5M $5 5M
$100M-$94.5M=$5.5M
If we sell the same amount of video games every day, then we sell 22.5M÷360 = 62,500 video-games per day. And because this is the
fourth year of our investment, the tariff is 20%, therefore, the profit per unit is $2.8.
Hence, we make 62,500 video-games per day x $2.8 per video game = $175,000 per day.
$5.5M still to break-even ÷ $175,000 per day = 31.43 days.
Case 12: Vidi-Games
Brainstorm and Conclusion
117
Wh t could
What ld Vidi-Games
Vidi G d
do if th
they needed
d d tto enter
t now?? (B
(Brainstorming
i t i part,t th
these are jjustt some id
ideas))
Revenue side:
•Analyze how viable is an increase in price.
•(Because the profit per unit is negative, increasing volume does not solve the problem)
•Cost side:
N
•Negotiating cheaper
h labor.
l b
•Moving manufacturing sites to lower cost areas.
•Optimizing distribution network.
•To produce in Brazil: See possibility of reducing production costs.
Other ideas:
Entering in partnership with a Brazilian partner.
•Entering partner
•Acquiring a competitor in Brazil.
•Selling video-games to retailers there (hence saving in distribution, labor, overhead, etc.., but selling at a reduced wholesale price).
What do you think of the current scenario? I have to call Vidi‐Games in a couple of minutes, what
is your recommendation?
Case 13: Big School Bus Company
Introduction
118

You have been approached by a private equity firm trying to decide whether or not to acquire Big School Bus Company. Big School Bus
Company manufacturers, owns, and operates school buses across the United States. The private equity firm wants you to help them
estimate the size of the market for school buses and to identify ways in which you might able to extract more value from Big School Bus
Company, if acquired.
Overview for the interviewer

Let the candidate begin by performing a market size estimate. Candidates should define the target market, determine how large the
market currently is (volume), and identify what portion of the market Big School Bus Company could be reasonably expected to capture,
based on present (and future expected) market share.
Things candidates should consider:

• Segmenting school children into those who: a) walk; b) are driven to school by parents; and c) take the school bus
• How many children take school buses every day
• How
H many school
h lb buses would
ld be
b needed
d d to transport allll these
h children
hild
• That school buses can make multiple trips every morning and afternoon
• That only a fraction of school buses are replaced every year (candidate should make a reasonable assumption for school bus lifetime
– 10-15 years; thus 1/10 to 1/15 of the total school bus market is “addressable”)
FYI: everyy school day,
y, about 500,000
, school buses transport
p ~26 million school children to and from school. Use this information to help
p
steer the candidate back on track if they are orders of magnitude off.
NOTE: Technically there are other uses for school buses beyond simply transporting children to and from school. Depending on how time
goes, you may want to ignore this aspect and have the candidate focus on a more limited definition of the market to be sized.
Market sizing
119
I f
Information
ti tot be
b provided
id d (if asked)
k d)
• The school bus manufacturing industry is dominated by two players. Big School Bus Company is the larger of the two with about 45%
market share (by volume).
• 40% of school buses are owned and operated by independent companies, such as Big School Bus Company. These independent
companies often contract their services out to school districts. The rest are owned and operated by school districts themselves.
• IF the candidate identifies him or herself as not having been part of the US public school system and specifically asks for clarification,
you can tell the candidate that around 60% of US schoolchildren take school buses to school every day.
• Average school bus capacity is 20 passengers for smaller school buses and 70 passengers for larger school buses.
• 80% of schools buses are larger school buses. 20% are smaller school buses.
Extracting more value
120
O
Overview
i ffor th
the iinterviewer
t i
How would the firm extract more value (additional profits) from Big School Bus Company?
Candidates should then setup a framework that allows them to explore both sides of the profit tree (revenue and costs).
Before the candidate gets too involved with their framework and analysis, the interviewer should ask the candidate whether their intuition
tells them that more value can be extracted from the manufacturing or the operations/services side of the industry. Candidates should
realize that the school bus industry is in a relatively mature phase, and most of the market has already been saturated. Thus, operations
and services are likely to be more attractive, in general.
There are many possibilities that candidates can address in operations/services, and this is a chance for the candidate to be creative.
Several different areas may be explored, and sample ideas follow on the next slide.
Question 2: Extracting more value
121
Sample ideas
Revenue – explore different business models
• Customers could be the school districts themselves.
• Customers could be businesses looking for mass transport services (but unwilling to pay for coach buses); this could potentially
generate a lot more revenue for Big School Bus Company during hours when school buses might otherwise be sitting idle
• Customers could also be wealthy parents willing to pay for private “mass”
mass transportation services (perhaps where public school buses
are lacking, bus stops are too far from homes, or where public school buses are of less than suitable quality to these parents).
• School children tend to take school buses just before their parents head off to work and before their parents get home from work.
Thus, Big School Bus Company may be able to allocate buses to transporting employees to work (think the Google shuttle concept).
• Service differentiation. For example, provide WiFi so that students can complete their homework while riding the school bus and
perhaps
h be
b less
l rowdy d if distracted
di t t d by
b internet-based
i t t b d entertainment.
t t i t
• From a price perspective, Big School Bus Company could contract out services for a flat fee per year. Or they could charge per
passenger. Candidates would ideally discuss the issues of willingness-to-pay versus cost-plus (and other) pricing methods, as well as
which business models would better support a “fee-per-person” pricing model.
Costs
When it comes to school districts sourcing buses (and sometimes bus services), school districts may choose to put out contracts to
competitive bids. Oftentimes the decision point will be who has the lowest bid that still meets the quality metrics and requirements
specified by the school district.
• In order to submit a low bid, Big School Bus Company should also examine its cost structure. Candidates may delve into the fixed and
variable cost components of different proposed options for creating value. For instance, fixed costs could include the buses themselves,
the internet connectivity hardware and contracts with internet service providers, the corporate headquarters/dispatch center, etc..
Variable costs would include fuel and hourly wages for (potentially unionized) bus drivers.
Conclusion
122
C l i
Conclusion
Candidates should recognize that while the problem narrative focuses mostly on the questions of market sizing and extracting value, the
real substantive issue is whether or not to recommend an acquisition of Big School Bus Company. Top candidates will make such a
recommendation at the end, without prompting.
If a candidate does not make such a recommendation without prompting, ask them at the end of the case what they would recommend
and why (the “Our client’s managing director is coming; what do you say to him/her?” executive summary).
Case 14: American Beauty Company
Introduction
123
American beauty company is, as the name suggests, a high quality beauty products company. They have done very well both in US and
globally and enjoy great brand recognition. One of their major products is hair color. ABC manufactures high quality ‘use at home’ hair
color products. They sell through retail and drugstores, will all manufacturing in-house. They have an 800 number for customer support.
Recently they have been experiencing declining revenues and market shares. The retailers have complained about their products as the
competition Bell International takes over.
over The firm has been called in to advise ABC on what to do.do
Question 1:
How would you start thinking about this problem?
IIts an open ended
d d question.
i There
Th can b
be number
b off ways to approachh this
hi problem.
bl C
Crucial
i l hhere iis to llookk at the
h bi
big picture
i and
d come
up with three or four major areas that you would like to explore given this specific product, industry and the situation. Do not get caught in
the profitability trap due to mention of declining revenues.
A good answer would include following: Customer
Product Target market segment(s)
Attributes B d lloyalty
Brand lt
Ease of use Price sensitivity
Value proposition Important attributes
Price Typical customer behavior. What they like / dislike about
Benchmark against competition our product
& your value proposition Buying habits
Market share and trends Distribution channel
Distribution network
Shelf space & positioning relative to competitors
Share of distribution network compared to competitors
Question 2 and 3
124
Question 2: One of their biggest market segments is 18 – 55 yrs old women. But their share has been declining
recently Why do you think this might be happening? How would you approach this issue?
recently.
There might be a number of issues here. You could suggest doing a market research to break down the issue into brand awareness, trial %
and re-trial and acceptance %, access (distribution) to figure out which one of these may be critical for ABC. You can also suggest
benchmarking against competitor products.
Question 3: Using the data below, what sales are required for ABC to have 50% of the women’s market in 2 years?
Segment Size ($ Mn) Growth rate

W
Women 800 5 %
5 %
Men 200 20%
Teens 100 10%
It will be good to point out that based on this data looks like their biggest segment, women, is maturing fast.
Total Women’s
Women s Mkt in 2 yrs = 800 * (1.05)
(1.05)^22 = 882
50% mkt share = 441
Question 4
125
Question 4: What is the dollar market share for ABC currently? What will the mkt share be in 2 yrs?
You will need to ask for the current and future mkt share data. Current mkt share is as below. Assume they keep the same mkt share in 2
yrs.
Segment Size ($ Mn) Growth rate Current Mkt share

W
Women 800 5%
5 % 50%
Men 200 20% 10%
Teens 100 10% 30%
It will be g
good to notice that ABC has quite
q low p
penetration rates in men’s segment.
g
ABC’s current $ mkt share = .5 * 800 + 0.1 * 200 + 0.3 *100 = 400 + 20 + 30 = 450
Total mkt in 2 yrs = 800 * (1.05^2) + 200 * (1.2^2) + 100 *(1.1^2 )= 882 + 288 + 121 = 1291
ABC’s mkt share in 2 yrs = 441 + 28.8 + 36.3 = 506.1
Mkt share % = 506.1 / 1291= 39.2%
Question 5
126
Question 5: The team also did a customer brand awareness and perception survey in the 18 – 55 yrs women segment
f ABC b
for benchmarking
h ki itits products
d t against
i t th
the competitor
tit BBell.
ll Th
The results
lt off th
the survey are iin th
the ttable
bl bbelow.
l Wh
Whatt
do you notice and what do you suggest ABC can do about it?
Survey 1: Brand awareness, 18 – 55 yrs, Women
Bell users 80% know about ABC
Non users 40% know about ABC, 60% know about Bell
ABC users 95% know about Bell
Survey 2: Perception of quality, 18 – 55 yrs, Women
Segment ABC is higher quality Bell is higher quality

ABC users 95% 85%
Bell Users 70% 95%
Non users 55% 85%
You can see from the results of both the surveys that despite its high quality and brand recognition, the competitor Bell fares better
amongst customers in both dimensions whether users or non users.
ABC should focus on improving its brand awareness and perception of quality. For brand awareness, they have to focus on advertising. To
improve its perception of quality, they should invest in promotions, joint marketing efforts with retailers to push their product and trials.
Recommendation
127
A good recommendation will include the following major points

points:
Based on the analysis so far, it seems like the main reason for declining revenues and market shares is that
the competitor Bell has achieved better brand awareness and perception of quality in the market
compared to ABC. Hence ABC should focus on improving these through advertising and aggressive
promotions and marketing.
Recommendation Goingg forward,, it seems like ABC has veryy low penetration
p in the men’s segment.
g Theyy should target
g these
segments for future growth opportunities since the women’s segment seems to be maturing.
Also, the total market size of teens seems really low. There might be opportunities there to expand the total
market size through innovative products, increased usage and acceptance of hair color products.
Contents
128
Section Page #
Introduction 3
Industry Overview
Sample Frameworks
Industry Snapshots
Practice Cases 50
14 Practice Cases
Recommended cases from company websites (1/3)
129
Firm Name Case Name Case Type Link to Case

McKinsey Great Burger Acquisition http://www.mckinsey.com/careers/how_do
_i_apply/how_to_do_well_in_the_intervie
w/case_interview/practice_cases/Great%
20Burger.aspx
g p
McKinsey Magna Health Profitability http://www.mckinsey.com/careers/how_do
_i_apply/how_to_do_well_in_the_intervie
w/case_interview/practice_cases/magna%
20health aspx
20health.aspx
Bain Personal Care PE Firm http://www.joinbain.com/apply-to-
Acquisition bain/interview-preparation/practice-
case1-quest1.asp?stage=1&ques=1
Bain Office Vending Profitability http://www.joinbain.com/apply-to-
bain/interview-preparation/practice-
case2-quest1.asp?stage=1&ques=1
130

BCG GenCo Revenue http://www.bcg.com/join_bcg/interview_pr
growth ep/practice_cases/revenue_growth.aspx
BCG Sugar Cereal Distribution http://www.bcg.com/join_bcg/interview_pr
ep/practice_cases/distribution_strategy.as
/ ti /di t ib ti t t
px
BCG Jet Fighter Profitability http://www.bcg.com/join_bcg/interview_pr
ep/practice_cases/increasing_profits.aspx
BCG Discount Retailer Competitive http://www.bcg.com/join_bcg/interview_pr
strategy ep/practice_cases/competitive_strategy.as
px
Oli
Oliver W
Wyman Wumble
W bl World
W ld P fi bili
Profitability hhttp://www.oliverwyman.com/ow/4830.ht
// li / /4830 h
Theme Park m
Oliver Wyman Aqualine Boats Revenue http://www.oliverwyman.com/ow/4831.ht
growth m
131

AT Kearney Case 1 Growth Link broken:
Strategy http://www.atkearney.be/index.php/Join-
us/preparation.html
AT Kearney Case 2 Growth http://www.atkearney.be/images/benelux
http //www atkearney be/images/benelux
Strategy /pdf/Case2.pdf
AT Kearney Case 3 Distribution http://www.atkearney.be/images/benelux
/pdf/Case3.pdf
AT Kearney Case 4 Competitive http://www.atkearney.be/images/benelux
threat/resp /pdf/Case4.pdf
AT Kearney Case 5 Outsourcing http://www.atkearney.be/images/benelux
/ df/C 5 df
/pdf/Case5.pdf

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WHARTON CONSULTING CLUB

Dear Consulting Club Member,

- 2009 Wharton Consultingg Casebook Editorial Team

Your objective What resources you will need to use

• Get invited to interview (prepare • MBACM resume review

Interview: • Demonstrate ‘fit’ • Prep ‘Fit’ questions thoroughly

Interview: • Ace Cases • Case books & Industry Primer Series!

Management consulting involves solving complex business problems and offering

Overview of management consulting Interview Process

Accenture Overview Interview Format

A.T. Kearney Overview Interview Format

Bain Overview Interview Format

Booz Overview Interview Format

BCG Overview Typical Interview Format

Deloitte Overview Interview Format

L.E.K. Overview Interview Format

McKinsey Overview Interview Format

Monitor Overview Interview Format

Oliver Wyman Overview Interview Format

A typical consulting interview

• Walk to interview suite

Opportunity to project “consultant” during the interview

Almost everyy single

Take me through your resume

~3 min. ~1-2 min. ~12-15 min. ~3 min.

Understand Plan your Probe for Assert a

Market Revenues Costs Customer / Channel

Strategic Logic Economics of decision Risks / Others

• Client is considering an M&A transaction

Strategic Fit Deal Economics Risk Assessment

• Client is considering outsourcing an operation

Strategic logic Decision Economics Risks / Others

• Client is a non-profit organization

Strategic Rationale Deal Economics Other

• Should client enter new market? What is NPV?

Some Strategic • What are industry trends?

Prepare yourself Make it real Step wise approach

There are a number of other resources to learn

 Older Wharton Casebooks

• We believe that having a very basic overview of an industry helps to more

Important • Do not attempt to master industry specifics or memorize industry data

• Consolidation - multiple high-profile mergers

• Internet – airline websites, online ticket resellers

Profit • Revenue : Volume of goods sold; Price premium on branded goods

• Still large face-to-face presence with bank branches, tellers, etc.

• Individual consumers seeking to manage risk at home / on the road

• General Motors, Chrysler, Ford, Toyota, Honda

• Varies by industry, can be end-consumer, OEM (original equipment manufacturer) – B2B

• Retail (Automotive, Apparel – industries where end-consumer is primary customer)

• Print: traditional paper product & online / mobile

• Price competition from generic drug manufacturers

• Key success factor comes down to one thing: products

• Doctors who prescribe these medicines

• Larger amounts of equity required for each deal

Competitive • Deal volume has sharply declined recently

• New customers of PE deals may be corporations

• Systems: Lower margin (COGS management key to profitability)

Customers • Individuals, companies and governments.

Case Description Page #

Older Wharton Casebooks

Average weekend day: (100$100 + 300$150)/(100+300) = ($10,000+ $45,000)/400 = $55,000/400 = $137.50

Revenue per month per customer Subscription 1: