Trevor's Toys e-Commerce Case

Cases
The Introduction sets

the stage by
describing a client
situation. You receive
a brief description of
the client, the
industry, and the help
the client wants from
BCG. You are then
asked how you would
think about helping
the client with the
problem.
First, you’ll need to

frame the issues. For
example, you’ll want
to outline the issues
you plan to focus on,
your rationale for
doing so, your
hypothesis, the types
of analysis you might
want to do, and how
you would rank the
significance of your
results.
In this stage, you dive into the analysis you’ve proposed. Describe the methodology you
are using and ask a series of questions to obtain the data you need. Many of these
questions will be directed to senior management.
After analyzing a number of issues, assemble the data to sketch a cohesive picture of the
situation. Highlight the main findings and show how they relate to one another.
In the last stage, the client needs an answer to the initial case question. However, the
client also wants to know what recommendations you would make. In other words, what
should the client do to put your solution into action?
======
You have been assigned to work on an e-commerce strategy case for Trevor’s Toys, Inc.
Your team has been asked to deliver a recommendation quickly; you have only 75 days
(15 weeks) to complete the case. You must use your time wisely if you are to maximize
value for Trevor’s Toys.
Trevor’s Toys is a regional toy retailer
focused on the high tech toy market in
the U.S. Its 30 stores, primarily in
urban areas, generated $600 million in
revenue last fiscal year from locations
throughout the U.S. Northeast and
Midwest. The management team has
considered moving on-line a number of
times but has never been convinced
that it could make an informed
decision. Revenue growth has
historically been strong but has slowed
in the last few years.
Many of Trevor’s Toys traditional off-line competitors appear to be forming on-line

strategies and making, or planning to make, a move to the Internet. Additionally, a new
breed of solely on-line toy retailer has emerged, and while still small, these competitors
are enjoying enormous growth. Senior management is feeling significant pressure to do
something. Trevor’s Toys has asked BCG to help it come to an informed decision on the
following questions: Should Trevor’s Toys go on-line and, if so, how?
Answer the question posed by the Trevor’s Toys management team. First, frame your
analysis, decide which aspects of it are most important, and then ask questions about the
most pertinent topics. Afterward, develop a recommendation and a rationale for it.
To begin investigating the case information, click on a major topic area. Within each topic
you will find a number of questions that you can “ask”to learn more about the subject.
=================
First, you’ll need to frame the issues. This stage

allows you to focus the scope of your analysis. By doing so, you’ll see more impact from
your questions and finish on time, giving attention where it matters most.
This list identifies many common case issues. You must choose which ones to investigate.
As in most consulting engagements, time is limited and you will not be able to look into all
the potential issues. Choose the four issues you believe are most important to investigate.
Which four issues would you like to investigate?
Potential acquisitions
Organizational
effectiveness
Market opportunity
Pricing
Promotion
Potential entrants
Toy suppliers
Competitors
Industry threats
Customers
Projected profitability
International
expansion
Store growth
Cost structure
Process reengineering
IT system infrastructure
====================
There are many ways to frame individual cases. The key is using a
logical structure that allows you to analyze and respond to the client’s issues. Although
you may not have chosen the four issues below, we recommend that you investigate the
following four Trevor’s Toys issues to get the greatest impact during the time you have
remaining.
Customers. What are customers’ needs and how can an Internet offering address them?
Will a move to go on-line add value to the customer’s experience?
Competitors. How will current and potential competitors in the Internet toy space affect
the design of Trevor’s Toys’ on-line offering?
Market opportunity. Is the market large enough to

support a profitable Trevor’s
Toys on-line venture?
Implementation. Does Trevor’s Toys have the resources and capabilities to go on-line?
===================
The next section requires you to perform analysis, summarize your findings, and make
recommendations to the client.
As with an actual case, you don’t have time to do as much analysis as you would like. As
you ask each question, the clock continues to run down. Keep this in mind as you choose
the data you would like to uncover.
When you ask a question, you will be scored in two ways: significance and time. The more
significant the questions you ask, the better your analysis and the higher your score in a
topic area. However, each question takes time to answer because you must find and
interpret the data. Each answer deducts a predetermined number of days from the project
calendar until you have used all the days allocated to the case. You can make a
recommendation whenever you feel you have learned enough to make a persuasive
argument in favor of your conclusions. Each answer you receive is recorded in the
notebook, which opens in a separate browser window. You can refer to it at any time.
When you believe you’re ready to make a recommendation to the Trevor’s Toys
management team, click on the “Make recommendation” button. This displays a window in
which you can propose courses of action. Afterward, you will receive feedback on your
analysis.
Remember, the Clock Is Ticking!

You have only 75 days (15 weeks) to complete the case for the Trevor’s Toys
management. Your ability to ask relevant questions and recognize where the 80/20 rule
applies will help you make an informed recommendation without performing hours of
needless work. To help you gauge your efficiency, we’ve assigned each question a time
value, which is displayed next to the question. Keep an eye on the calendar to track how
much time you have left.
Good Luck!
====================
Questions: Consumer Research
Time Allocation
How much time is required for an average

toy shopping trip in a traditional store
(ours, competitors')?
3 days
How much time is required for an average

toy shopping trip on-line?
3 days
How much money do customers spend in

traditional stores (ours, competitors')?
2 days
How many customers of traditional stores

shop on-line?
2 days
How do customers research purchase

decisions on-line?
2 days
How much do customers spend on-line and

how much do they spend in stores?
1 day
Where do customers shop for toys on-line?
1 day
What do customers like about on-line toy

Web sites?
3 days
How do customers find out about the toy

sites?
2 days
What else do customers buy on-line?
1 day
How do customers pay for purchases (both
in-store and on-line)?
1 day
Who are Trevor's Toys' primary customers

shopping for?
2 days
What are the attributes of Trevor's Toys'

customers?
4 days
What do customers wish they could see

on a toy Web site?
2 days
What do customers dislike about shopping

for toys on the Internet?
2 days
==================
Questions: Competitors
Time Allocation
Who are Trevor’s Toys’ traditional competitors?
1 day
Who are the market share leaders in the total toy market?
2 days
Who are the main on-line competitors?
2 days
Who are the market share leaders in the on-line market?
3 days
What are the different product offerings among on-line competitors?
2 days
What are the competitors’ growth rates?
3 days
What are the estimated customer acquisition costs of on-line competitors?
4 days
How are the competitors promoting and marketing products?
3 days
Are the competitors making any profit?
2 days
What are the competitors’ pricing policies?
2 days
What selection of products is available from the competitors?
4 days
Other policies affecting customers (returns, customer service, etc.)?
1 day
Do the competitors plan to expand (product offering, global coverage, etc.)?
3 days
What do competitors offer that we can’t?
2 days
=========================
Questions: Economics
Time Allocation
What is Trevor’s Toys’ historical financial performance?
1 day
What percentage of the on-line high tech toy market could Trevor’s Toys expect to
capture?
4 days
What are revenue projections?
2 days
How many visitors to the site does Trevor’s Toys expect by 2004?
2 days
What percentage of site visitors will purchase in 2004?
2 days
What will be the average purchase amount per visit in 2004?
2 days
What other sources of on-line revenue do on-line retailers have?
2 days
What are the projections for on-line banner advertising revenue?
3 days
What is the revenue from sponsorships, direct marketing, and referral fees expected to
be?
2 days
What are the expected costs to hire new staff?
2 days
How much does it cost to maintain an on-line toy retailer Web site?
1 day
How much would the site design and development cost?
1 day
What is the cost structure of Trevor’s Toys’ product distribution from the on-line store?
2 days
Are there any other significant start-up costs associated with creating the on-line toy
retailer?
2 days
What additional costs are incurred by processing the customer orders using the Internet?
3 days
What are proposed promotion and marketing costs?
3 days
What is the cost structure of the shipping and distribution network that would need to be
put in place for an on-line channel?
2 days
============
Questions: Market Sizing
Time Allocation
What is the overall size of the toy market?
1 day
What is the size of the high tech toy market?
2 days
How fast has the toy market grown over the past five years?
3 days
How fast has the high tech toy market grown over the past five years?
3 days
Why is the toy market growing so fast?
2 days
What is the average amount spent per child?
4 days
What is the size of the on-line toy market today?
2 days
What is the anticipated growth for the on-line toy market?

5 days
What are the on-line demographics in the U.S.?
3 days
How much of on-line spending is expected to be for high tech toys?
3 days
===========
Questions: Implementation
Time Allocation
Can the current distribution channel be

used for on-line distribution?
2 days
Is there an opportunity to partner on

distribution?
2 days
Are there any international trade issues?
1 day
How do people at Trevor's Toys view the

on-line threat to their business?
3 days
What technology expertise exists

in-house?
2 days
What kind of technology do you need to

launch the on-line site?
3 days
Would the current internal culture fit well

with the on-line world?
1 day
What is the organizational structure?
1 day
How will you drive traffic to the site?
3 days
How would Trevor's Toys generate the

content for the site?
3 days
Are there any special partnerships or
relationships that would be helpful to
Trevor's Toys.com?
1 day
====================
Recommending Trevor's Toys to go on-line is correct
Pursuing an on-line strategy for Trevor's Toys is likely to meet with strong
agreement and support from Trevor's Toys' senior management. An on-line
venture appears to offer significant advantages through the current customers,
market, economics, and competitive landscape.
Your overall direction in favor of going on-line seems sound, but it is important to
assure senior management that the decision is defensible and the rationale is
robust. There are five areas that senior management and the board of directors
would like to understand before they commit to Trevor's Toys.com. Now you
must develop recommendations for each of those areas based on the information
and data you gathered the case. Good luck.
What value will the customers get from an on-line offering?

How are the competitors positioned?
How attractive is the market?
How will Trevor's Toys make money?
What are the implementation issues?
==========
BCG Recommendations
Trevor's Toys.com will meet customers' needs. First and foremost, it
will make the
shopping experience easier and faster. Trevor's Toys.com is easier for
customers
because they can shop 24 hours a day, at home, from any location in
the U.S. It
is faster than traditional store shopping because customers will have
full and easy
access to the entire Trevor's Toys inventory. Second, the on-line
venture meets
customers' needs for information. Trevor's Toys.com would allow
customers to
access the store inventory to see what is in stock. Further, the
Internet could add
a great deal of value by giving customers access to product selection
information:
product ratings, price comparisons, delivery times, violence ratings,
and
manufacturer specs. By selling toys on-line, Trevor's Toys can
aggressively
address many of the lingering customer dissatisfactions with the
current buying
experience.
Personalized Feedback
You should have asked questions to learn more about customers and
their
behavior. Before looking at any new venture it is important to fully
understand
customers' needs and their reactions to new ideas. Trevor's Toys'
customers are
very likely to adopt and embrace the Internet. The questions you
asked would not
have uncovered this. As a result, it would be hard to convince
Trevor's Toys' senior
management that you had enough information to back up the
recommendation to
go on-line
========
BCG Recommendations
Trevor's Toys.com would face two distinct groups of competitors,

those on-line
and those not. There are big discount stores that sell toys out of their
traditional
stores and have no on-line presence. The bigger threat comes from
the second
group, which is divided into companies that are on-line only and
those with both
traditional store networks and an on-line presence. In the latter
category, Trevor's
Toys would join such "clicks and mortar" companies as Wal-Mart and
ToysRUs.
eToys, Amazon.com, BrainSmart, and Smartkids are purely on-line
toy retailers.
Every competitor has something Trevor's Toys currently doesn't
have: wide
geographic coverage (either through a store network or through an
on-line store
distribution center). By moving on-line, Trevor's Toys enters the
competition with
companies also offering unlimited shopping hours and national
distribution. The
biggest differentiation among all competitors is in the product
selection and
customer service areas.
Trevor's Toys has nearly 100 percent more high tech toy selection
than any of the
other competitors and 500 percent more selection than competitors
with
traditional store networks. While on-line product selection is a key
driver of
success, customer service is a significant differentiator. The customer
service
levels at the big competitors range from low to medium. Two of the
smaller niche
players have higher customer service levels. The infrastructure is in
place for
Trevor's Toys to gain advantage with an extremely high level of
customer service
on-line. The two additional areas where Trevor's Toys is able to
distinguish itself
from the competitors are in offering a toy rating system and offering
comparison
shopping information. The toy rating system could include consumer
ratings from
parents, kids, third-party sources (such as child development and
educational
organizations), and even the manufacturers. The rating system
together with the
ability to comparison shop could be a huge source of competitive
advantage.
You have a reasonable understanding of the competitors in the on-

line toy retailing
industry. There are a number of key competitive points you
discovered that will
help Trevor's Toys position the on-line venture and compete
aggressively. When
asked by Trevor's Toys, you will be able to put together a compelling
story of the
competitive landscape and justify the move to go on-line.
==============
BCG Recommendations
The on-line market for high-tech toys is very attractive. Although the
overall toy
market is growing only at 6 percent per annum, the high-tech toy
market is
growing substantially faster: at 20 percent per annum. With the on-
line toy market
expected to be $2.0 billion by 2004 from $250 million in 1999, the
growth of 85
percent is impressive. The on-line growth numbers are far more
attractive than the
overall toy market growth. The number of teens and adults spending
on-line is
projected to grow to 72 million buyers and 177 million users in 2003.
More
predictions are that the hi-tech toys purchased on-line will be 15
percent of the
total toys bought on-line vs. 5 percent of the overall toy market. All
indications
point to on-line high-tech toys retailing being a very attractive market
to target
aggressively.
Market size is one of the most important questions senior

management must
answer when considering any on-line venture. From the questions
you asked, you
appear to have collected enough information to accurately assess the
size of the
market. Before senior management is willing to put time and
resources against
such a venture, it wants to be sure that the market potential is
substantial. During
the final presentation to the board of directors, you will be able to
back up your
reasoning for the potential of the on-line toy retail market.
================
BCG Recommendations
When looking at the profit potential, it is equally important to

investigate the
revenue stream and the cost to serve. Each area is very important on
its own and
can be influenced to determine the profitability of Trevor's Toys.com.
When
determining revenue, it is important to look at all potential areas of
income and
make reasonable estimates about the potential of each area. The
main source of
Trevor's Toys on-line revenue will be from the sale of toys. To
estimate this
transaction revenue, we need to estimate the number of visitors to
the site, the
purchase conversion rate, and the average order size. If we make
assumptions
about 2004 based on data uncovered during analysis–that we can
expect 9 million
site visitors per month, that 3 percent of visitors will purchase on-
line, and that the
average order size will be $150– we can calculate the transaction
revenue to be
approximately $500 million annually. There are other potential
sources of revenue
from banner advertising, sponsorships, direct marketing and referral
fees, but we
wouldn't expect them to be as large a revenue source as the
transaction revenue.
The second area of investigation when determining the profitability of
a new
venture is the cost structure. In particular, we must estimate startup
costs and the
ongoing costs to run the business. The startup costs include the
hiring of new
staff, development costs, administrative costs, distribution setup, etc.
The
anticipated cost to hire staff capable of making an on-line venture
work is $3
million per year. This cost would scale up at 75% of the revenue
increase.
Development of an e-commerce Web site would cost approximately
$2.5 million
and maintenance costs of $2 million for the first year, $1 million for
the next two
years, and then work out to roughly 5 percent of total on-line
revenue for each
additional year. The other startup costs would include $2.5 million for
overhead (for
example, printers, furniture, computers), $1.5 million for internal
corporate
charges, and $1 million for other professional fees.
Finally, ongoing costs must to be evaluated. From the profit and loss
statement,
it's clear that the cost of the goods sold is 80 percent of the revenue.
This means
20 percent of the overall revenue can go to marketing and
administrative costs to
break even. Marketing is key to the success of any on-line venture.
The marketing
and administrative cost estimates are $25 million in the first year,
$40 million in
the second year, $36 million in the third year, and 10 percent of
revenue in each
additional year. The shipping and distribution costs will be negligible
because the
costs will be passed on to the customer at the time of purchase.
Using this
information, we are able to project a P&L for the next five years.
[insert P&L]
The question looming on every executive's mind during a new
business venture is,
"Can we make money?" To answer this question, it is important to
investigate and
develop a set of assumptions about the future potential of the
business. From the
questions you asked it is possible to estimate revenue potential and
predicted
costs. When determining the viability of ecommerce ventures, it is
imperative that
you gather as much data as possible to solidify your estimates of
future growth
and profit potential. With the data you collected and your estimations,
the board of
directors would likely feel comfortable that there is real potential to
make money
on-line
===================
BCG Recommendations
Implementation The key to implementation lies in outsourcing

functions that
Trevor's Toys cannot do quickly and efficiently. In the Internet space,
it is
important to move swiftly and effectively. Trevor's Toys.com should
outsource the
Web site development and distribution. As senior management
reported, the
company has very little internal IT capability to launch a new full-
service Web site.
Since it is also a regional player in traditional toy markets, it is
important to find a
partner for the nationwide distribution. Internally, a key area to focus
on is the
selection of employees who can fit into the Internet culture. The
selected
employees could work with a new management team who bring
online, startup
expertise. Trevor's Toys could leverage the existing staff in two
areas: developing
content for the new Web site and using creative talent to establish
and develop a
new marketing and promotion campaign. Current key partnerships
between
suppliers and Trevor's Toys will be very helpful in the move to
Internet retailing.
Making sure Trevor's Toys looks at what it can do well internally,
developing
partnerships and outsourcing anything they can't do well will be the
key to
success for the new online venture.
Many companies fall short on implementation when investigating a

new business
venture. To ensure success, it is very important to investigate all of
the
implementation issues and potential barriers. It appears that you
asked enough
questions to adequately understand whether there were any serious
challenges to
running an on-line venture. You uncovered the key points that may
be bottlenecks
or hurdles during implementation stages. Trevor's Toys executives
will be quick to
drill into the implementation issues, and you will be able to show
them that the
company can execute the changes required to go on-line
====================
1. A German luxury car manufacturer is interested in entering the

sport-utility vehicle market (e.g., Jeep Cherokee) after noticing that the
market has grown dramatically worldwide in the past two years. How
would you advise the manufacturer? What does it need to know before
making an entry decision? If it chooses to enter, what might a viable
strategy be?
2. A North American manufacturer/retailer of high-end glassware

experienced a dramatic decline in same-store sales at its retail outlets
last year. How would you begin to assess the reasons for the decline?
Using your analysis as a basis, what strategy would you recommend
for the manufacturer?
3. A large public utility formerly had a monopoly in the British electricity
market. Now that the market has been deregulated, small
power-generation companies have already captured 5 percent share
from the utility by offering to provide large businesses in the U.K. with
their own in-house power generation capabilities. The CEO of the utility
wants to understand whether this trend will continue and how she can
prevent further loss of share. How would you answer her question?
4. A U.S.-based pharmaceutical company that focuses on discovering,

developing, and selling drugs for the treatment of cancer has been
experiencing flat growth and is interested in expanding into new
businesses. In view of the growth and profitability of stand-alone cancer
treatment centers in the U.S., the company is considering establishing
and operating similar centers in China. This would be the company's
first foray into the cancer treatment center business. How would you
evaluate the attractiveness of the opportunity?
5. The Swiss Ski Association has been petitioned by an international

snowboarding club to permit snowboarding on the ski slopes within its
jurisdiction. (Assume that the association currently forbids
snowboarding on all Swiss ski slopes.) If the association is interested in
maximizing profits, how should it respond to the petition? What factors
would the answer depend upon?
CASE 1: The Calculation Case
You are visiting a new client who sells golf balls in the UnitedStates. Having had no time
to do background research, you siton the plane wondering what is the annual market size
for golfballs in the US and what factors drive demand. Your planelands in 15 minutes,
how would you go about answering these
questions?
This type of case is very common, particularly in strategy firmslike McKinsey and Bain.
The interviewer doesn't care much aboutthe actual number (although how fast you do
math in your headcan be important), but rather wishes to see a logical process forreaching
some kind of answer. The followings steps illustrate a
typical process...
Golf ball sales are driven by end-users. You have to determinethe numbers of end-users;
this will be some fraction of the totalUS population (say 300mil). If you assume a
uniform agedistribution and an average life expectancy of 80 years (you haveto make
these types of assumptions), you can then estimate thatonly people in the ages 20-70 will
be potential buyers. Thus youeliminate 30 of 80 years or 3/8 of the 300 mil population.
So, nowyou are down to a potential buyer pool of about 190 million. Nowyou might
estimate how many people out of 10 play golf- say 4-so now 4/10 of 190 gets you down
to 76 million people who playgolf. Now you have to estimate purchase frequency, how
manyballs per month an average person buys (you may want to temperthis "average
purchase" assumption by a least mentioning that people play much more than students).
A good guessmight be 15. So demand per month is now 15 x 76 million, or 1.1billion.
Finally, you need to estimate the number of months peryear that people play golf - 12
months in good climate regions, maybe 5 in regions with cold winters - so on average 8 is
adecent estimate: 8 x 1.1 billion = 8.8 billion golf balls per year.
Remember, the number itself is meaningless. The intervieweronly wants to see your
thinking process. Also, there are manyways to come up with an answer. You would really
impress theinterviewer after youre done if you offered to recalculate theanswer using a
different method, and then explained possiblesources of error in your calculations!
CASE 2: The Problem Case
A large health-care company has brought in a team ofconsultants to determine an

appropriate strategy for improvingprofitability through growth in the size of its
operations. Theyhope to reach their profitability goals over the next three years. As one
of the consultants, what would you do?
This case has no single answer. Rather, the interviewer isinterested in seeing how you
approach the problem. The key is toappear logical and to demonstrate an ability to move
from thespecifics of the case to the general issues involved in improvingprofitability
anywhere... In other words, the case isnt about health-care at all. So dont
panic if youre not an expert in theindustry. Remember that the interviewer is principally
looking foryou to demonstrate analytical skill: How you think, how youstructure a
problem, and whether you are skilled at building aframework for thinking about a
situation. You should be able to draw on models from competitive
strategy, finance, marketing, operations, organization, or behavior. The point is this,
however:You dont need to reference them -just use them.
Opening... A good way to begin this case is to question whetherexpansion of operations

is the right way to achieve profits. Arethey currently profitable? If not, growth just further
destroys valueand perhaps they must attack profitability from the cost side. Ifthey are
currently profitable, then they have three options:
increase sales, lower costs, or both. Don't assume that growth isthe only answer.. .show
the interviewer that you would consider alloptions and understand both drivers of
profitability - cost andrevenues.
How to Proceed... Once you structure the options, the interviewerwill lead you down the
relevant path for this case, so follow thelead. If youre told that the company has low costs
relative to theindustry...then pursue the sales growth option.... One way tostructure your
thinking about this problem would be to use a
Growth Tree framework. Use the tree to think aloud for theinterviewer and guide your
questioning:
"If the company has two possible growth options - they canexpand into existing
businesses or diversify into new business. Ithink that growth in existing businesses
should be consideredfirst because that's where they have core skills. In existingbusinesses
they can grow their product market or considervertical integration. ..."
Feel out the interviewer: Where are the opportunities? Whatmight be some options you
can readily eliminate, e.g. is verticalintegration really a viable option for a health-care
provider? Continue to work through the tree systematically. If you ask aboutopportunities
for pushing new products into existing markets andthe interviewer seems very interested,
pursue this path by offeringsuggestions for potentially viable new products.
CASE #3: The Probing Case
A super-regional bank is attempting to increase its operatingefficiency as a way to boost

profitability. You have been askedto look at the non-interest, non-personnel expense base
(i.epurchases expenses as a possible source of cost reductionopportunities. How would
you determine the potential size of the
opportunity for increased operating efficiency? What issuesmight you run into as you
begin such as study?
This case is asking you several questions simultaneously -- mostof them are related to the
size of opportunity and the means bywhich you could measure and manage the
opportunity.
Opening... Explore what kinds of information you would need toconduct such a study.
Where would it come from? Often GeneralLedger and Accounts Payable systems do not
provide thenecessary information.
Probing...
What is the total expense base of the bank? What portion of it consists of purchases? Is
the organization centralized or decentralized in the way itpurchases? How would you
determine whether certain groups of goodsand services are more promising for
reductions?
Make assumptions based on the replies you get from theinterviewer and clearly articulate
them. The point is to interact withthe interviewer and develop the case --and its solution--
together. The interviewer is checking to see that you are good atestablishing rapport, at
listening, and at adapting to changes he/she makes in the basic structure
of the situation.
Some Other Practice Cases...
A chain of grocery stores currently receives its stock on adecentralized basis. Each
store deals independently with itssuppliers. The president of the chain is wondering
whether thefirm can benefit from a centralized warehouse. What are the
keyconsiderations in making this decision?
A magazine publisher is trying to decide how many magazinesshe should deliver to each
individual distribution outlet in order tomaximize profits. She has extensive historical
sales volume data for each of the outlets. How should she determine
deliveryquantities? p>You are called by a U.S. manufacturer of menstailored suits. The
company sells roughly 500,000 suits a yearexclusively in the U.S. through specialty and
department storesretailers. Currently, wholesalers buy the suits from independent
sales reps who earn a commission of 5% or roughly $10 per suit. The manufacturer wants
advice from you on whether or not to hirea sales force in-house.
A major investment bank is worried about its bond tradingoperation. They suspect that
their government bond desk mayhave violated securities laws by bidding for more than
30% of anew issue of U.S. Treasury notes. One individual, in particular, has been earning
considerably more than the historicalaverage...
During your last trip to the supermarket, you notice a large pricedifference between
competing brands of cocoa powder. Notingthe markets shares for each brand from a
magazine article, youcompile the table below. What can be said about the structure ofthis
market? The supermarket manager offers Firm A an
opportunity to produce under private label for the supermarket, should Firm A accept this
offer?
Brand Share Price/unit

A40%$4.00
B29%$3.80
C14%$3.55
D17%$3.35
A pharmaceuticals manufacturer is worried about health carereform. In particular, they

wonder whether they should be carryingon business as usual.
We have been engaged by a major film entertainment company to assist

them in
building a distribution network for home video. They want to know
whether they should build their own distribution network or continue to
contract with third parties.
First of all, you need to ask your interviewer some basic questions: It
makes sense to ask your interviewer about best practices – that is, what
are other entertainment companies doing? What are the current costs?
Does the company have the staff and resources to create its own
distribution network?
Of the major entertainment companies that produce videos, do most
distribute through their own proprietary supply chain or through third
parties?
What is the client’s current cost of distribution through its contractual
partner(s)?
Has the client considered building its own distribution network before
retaining us? If so, what were its findings? Does the client have a
dedicated functional staff assigned to the project? If so, what functional
areas do they represent?
After establishing some basic facts, it’s time to get more detailed. Your
interviewer may allude to certain avenues to discuss, or shut down
others. If the interviewer confirms that, yes, the company does have
enough current staff to handle setting up its own network, there’s no call
to delve deeper into the ramifications of reassigning personnel.
Let’s say that, through questioning, you’ve come to decide that staying
with a third-party distributor makes the most sense. Now the question is
– should the company stay with their current distributor, or choose a new
one?
Who are possible alternative partners? Who uses them?

Could you characterize the relationship between the client’s distribution
partner and the client? Is there a possibility of retaliation on the part of
the distribution partner if the client severs its ties to this party? How
many weeks of supply are currently in the distribution partner’s pipeline?
How receptive are the client’s accounts to changing distribution partners?
Has a value proposition been created to show the client’s accounts that a
client-owned supply chain would be more efficient, valuable, etc. to the
accounts?
Does the client have any financial interest in the distribution partner that
might have to be severed?
After answering these questions, make a recommendation.
You may be asked a more qualitative case question as well. (Recruiting

insiders tell us undergraduates and graduate candidates without MBAs are
more likely to get these sorts of cases.) Consulting insiders say the point
of a qualitative business case is to see whether you can discuss a
company intelligently and analytically, and whether you are able to use
business concepts and terminology naturally in conversation. This is an
example of one such actual case:
2. Why is Intel successful? Will they retain their advantage in the future?
This is a common type of case question used in consulting interviews. Typically,

the interviewer will choose a company that almost anyone would have a basic
knowledge of (for example, Coca-Cola, Microsoft, or McDonald’s). The
interviewer is not expecting you to quote the latest stock price of Intel or know
how much CEO Craig Barrett got paid last year. She wants you to explore what
the company does right and the challenges that it faces in the future. Any business
knowledge that you have will come in handy.
Well, what do you know about Intel? You should know that Intel is a producer of
microprocessors (or chips), an essential component of computers. (That’s about
the level of knowledge you need.) Intel currently has about 80 percent of the
microprocessor market. Clearly, they’re doing something right, but what?
Intel is a technology company. In a rapidly evolving market like the computer
industry, staying abreast of changes in technology is vital. You might point out
that Intel’s heavy investment in R&D has enabled the company to consistently
produce faster microprocessors that its competitors – and its headstart allows it to
retain that R&D edge.
Intel’s commanding lead in the market also allows the company to leverage its
might to partner with its customers, ensuring they buy only Intel products. With
80 percent of the market, Intel has quite a bit of weight to throw around. And as
such a high-volume producer, Intel has economies of scale, cost advantages and
operating efficiencies its competitors can only dream of.
Intel has also successfully branded its products, the Pentium chips, so that
customers know them by name and associate them with high quality. (It is
unusual for a high-tech firm to brand itself so successfully.) Remember all those
“Intel Inside” logos? Intel partners with its customers in order to cross-promote its
products.
Now you might point out Intel’s weaknesses. Intel’s competitors, like
AMD and
Cyrix, have managed to copy most of Intel’s products (though the
most
sophisticated chips remain beyond the reach of most competitors).
Intel, for the
time being, has succeeded by being first to market with its products.
You might
point out, however, that as society becomes more “wired,” the major
source of
growth in the microchip market has been in lower-end, less-powerful
chips - a
market in which Intel’s competitors are well-equipped to compete in
price-sensitive
markets. Already, many sub-$1,000 computers rely on AMD and Cyrix
chips
A restaurant owner is setting up a new restaurant and making some basic

decisions on how to fit it out. He is today making a decision on the
facilities to place in the restrooms for customers to dry their hands.
Initial research suggests that he has three options – paper towels,
roller towels, and hot air dryers. What should he consider in his
decision making process?
In the initial analysis, you might ask a number of questions, which will influence
your decision.
What type of restaurant is it going to be – luxury, moderate, or cheap?
How many customers does he expect? How many tables? Is it open during
the day? In the evening?
Has he done any customer research to see what customers would prefer?
Fairly soon in the process, you should start asking questions about the
economics of the three options - in which case the interviewer will give
you some more information:
In the initial research, the restaurant owner has found out the following
information from the suppliers of the drying facilities:
Dryers have an initial cost of $500 each (but you’ll need two – one for
each restroom) and a monthly service charge of $100 per month. The
supplier estimates that the lifetime of a drier is four years. Paper towels
cost 5 cents each and the number of paper towels that you will need
varies directly with number of customers. So if you expect 50 customers a
night, they will use 50 towels. If you use toweling rolls, they will cost $5
per roll (and again you’ll need two – one for each restroom). The rolls will
be changed daily if the restaurant has more than 2,000 customers per
month or every other day if there are less than 2,000 customers per
month.
At this point, it’s obvious that from an economic standpoint, the option
you select will vary with the number of customers. Therefore, it makes
sense to look at a break-even calculation.
First of all, take the dryers. They cost $100 per month, plus an upfront
charge of $1,000 that you should depreciate over their lifetime (i.e. an
additional $1,000/(4 x 12) per month = $21 per month). Therefore their
total cost is approximately $120 per month – and this does not vary with
the number of customers coming into the restaurant.
Secondly, look at the paper towels option. These vary directly with
number of customers in the restaurant, at a cost of $0.05 per customer.
Therefore, assuming few customers per month, paper towels will be
cheaper than dryers. How many customers would have to come to the
restaurant each month to make the dryers more cost effective? The cost
of towels would have to exceed $120 per month, equating to $120/$0.05
= 2,400 customers per month.
Is this break-even affected by the rolls option? At less than 2,000
customers per month, the rolls would cost $10 every other day or $10 x
15 days = $150 per month. This in itself is more costly than both the
dryer and the towels option, and with more than 2,000 customers, it will
only look more unfavorable. Therefore the real economic decision is
between towels and dryers. At less than 2,400 customers per month (or
2,400/30 = 80 customers per night) you would prefer the towels. Once
the number of customers increases above this, you’d switch to dryers.
Following the economic analysis, you might mention a few more non-
economic points that might sway the balance:
Are there additional staff costs of cleaning up paper towel waste? How
many suppliers of each option are there? If there is a single supplier,
might he have the power to raise prices in the future?
Hints on quantitative cases:
Make the numbers easy – round up or down when possible to make
further calculations easier.
When you’re jotting down numbers, make sure you keep a track of what
is what, so when you pull together your recommendations at the end of
the analysis, you can make comparisons between the options. In break-
even cases, it is sometimes effective to draw a graph to illustrate the
break-even decision (in this case, number of customers per month along
the x-axis versus cost of drying option along the y-axis).
(1) BCG: You are a company with the following cost structure (%of sales) : RM
(17%), Energy Costs (20%), Labor (30%), Freight (20%), Overhead (20%). The
competitor earns a 3% margin. It’s a commodity market. Competitor sells twice
as much as you. (a): How will you find about your competitor's cost structure?
[Guess first and then enumerate likely sources where you can go to get the data]
(b): How to decide where to cut costs in your cost structure?
===========================================================
(2) BCG: A player in the Indian seeds industry has got an offer from some MNCs to enter
in joint venture for bio-engineered seeds which would increase yield 10-50 times
compared to hybrid seeds. The Indian player is presently market leader in hybrid seeds.
Any new variety of hybrid seeds require around 3-5 years of sowing to generate
commercially launchable volumes & at any given point of time there several such
projects in pipeline. Bio-engineered seeds on the other hand require lengthy and costly
R&D without any surety of success. R&D for such seeds are region specific depending
on germs prevalent in that region. The MNCs at present don't have any seeds ready for
Indian markets, but once the product launched succeeds, it produces tremendous profits
for the company. You need to answer, (a): Should the client enter bio-engineered
business? (b): If yes, which way to enter and why?
=======================================================
(3) BCG: I am in premium shampoo business and I am a global player. At world level, I
am one of the four main players. While Vietnam's market was opening in 1994, I was
busy concentrating on other Asian countries. However, my competitors entered and
grabbed whole market for premium shampoo market. Today (1998), I am thinking of
entering Vietnam's market. Should I do so? What are the factors I need to look into while
doing so? [Cover the breadth of topics]. If yes, how to estimate the market share I will be
able to grab in initial years. If there is any data required to do so and if yes, where to get
that data from?
=======================================================
(4) BCG: Your client is manufacturer of a floor cleaning formulation. A resin is an

essential ingredient of it. Client is backward integrated into the resin. There is a proposal
to sell resin in the market to other people (competitors) to get the extra revenue. Should
he do so?
========================================================
(5) Mac: You are a bicycle manufacturer and you have had constantly low ROCE (return
on capital employed) since past several years compared to your competitors. What are the
reasons? {Hint: Rahul - Problem finally was in higher V.C. which in turn was due the
fact that the you are in South India and your suppliers are in North India. Where as your
competitors are located in North India}. Once solved, he asked me how to resolve the
problem? {Hint: Possible alternatives: - Develop new supplier in South India, Shift your
plant to N.I, Sell/Close your plants in S.I. and acquire one in N.I., Sell/Close your plants
in S.I. and build new one in N.I, Have better supplier management Prashant - Problem
was fine but then I got in segmenting the market based on value added bikes and ordinary
bikes. Then for value added I said the VC is not so important so continue the same supply
chain but concentrate on marketing it while for ordinary bikes outsource production in
North from other manufacturers - as I was told capacity utilization in the industry in
general is 50 %}
==========================================================
(6) Mac: You are one of the four large cement manufacturers in India. There are 46 other
very small players. Cement has over capacity in India. My profits are very low. Why?
{Hint: Problem was that prices were low because of lower prices}. Once solved, he asked
me how to resolve it? {Hint: Alternatives possible: Be more efficient in production or any
other part of value chain, Purchase small plants and close them thereby reducing the
capacity, Purchase small plants and become a much bigger player, Have better
promotions or better packaging or some advisory services which will increase volumes}
======================================================
(7) BCG: You are consulting to a fully backward-integrated player in the canned fruits
and vegetables industry in the US. Over the past few years, profitability has been
declining. What would you advise him?
=======================================================
(8) D&T: I am a high tech equipment manufacturer and has an equivalent competitor. He
and I are equally efficient in manufacturing of equipment. I want to beat him in market
share. What should I do? {Hint: Improve on supply chain management}. He said if that is
equally efficient, then what? {Hint: Better distribution channel management}. He said if
that is equally efficient, then what? {Hint: Better customer satisfaction by things like
after sales service}
===================================================
(9) BCG: There is a UK-based construction major, for factories only, who is interested in
the German construction industry. How should he go about entry and what would be the
approximate size of the market using secondary data? (Hint : Look at population - how
many working - how many in factories - approximately how many in one factory =>
number of factories. Then life of a factory and so the number of factories to be
constructed. Per person 2x2 meters floor space => construction space. Per sq. m
construction cost will give you the size of the market. The interviewer the asked an
alternate way to check your estimates using GDP of the country)
===================================================
(10) Booze: You have a client who is in five areas at global level - consumer electronic,
PCBs, motherboards, industry electronics, IC. You advised him to get out of 2 of these
business. The Indian CEO of the subsidiary of this firm comes to you and ask what
should he do? Should he also get out of these business or should he stay?
====================================================
(11) Booze : Steel manufacturer. Global glut in industry and facing problems of price
competition. Wants to cut cost. Help him. (Hint : Problem was in supply management,
did not have own mines and managed the process highly inefficiently)
==================================================
(12) Booze: Estimate the demand for personal computers in India?
==================================================
(13) ATK : Entry strategy for ATK in India?
===================================================
(14) BCG : You are a major retail bank in Europe doing very well. Decided to expand its
network of branches. Found that profitability fell down drastically - what can be the
problem. Explore various possibilities. (Hint : Looked at multiple things but finally came
down to the fact that internet and PC banking is becoming a norm. So bricks & mortar
branches are only cost adding and not value adding. So the other banks who did not have
branches had lower cost and could undercut you)
(15) MMG : SBI wants to enter the Insurance sector for Auto and personal insurance.
Explore the market attractiveness. (Hint : Segment look at competition and its strength -
SBIs strength was branches in nooks & corners. So most attractive segment was rural
segment. Then get into value proposition for rural market. How can you make your
policy attractive and also make money. The demand drivers and cost drivers.)
Q: You are consulting to a CEO of an airplane manufacturer. In the last couple

of years you have gone from being number one in market share to number two. In
addition, another company has announced that it will be entering the business and is
presenlly tooling up its plant. As a consultant, what are the concerns your client
might face, what additional information might you want to find out, and what
recommendations would you have?
Solution:
As a consultant, you are concerned with three key items:
1. The condition of the airplane manufacturing industry.
2. Why the firm has lost market share.
3. How to prevent the new entrant from stealing market share.
The airplane industry's demand is a function of travel among two classes: business and
leisure. Business travel increases as a result of globalization. Leisure travel increases with
growth of middle and upper classes. Business travelers are primarily insensitive to price,
leisure travelers are very price sensitive.
The current competitor: a comparison
Price, service, technology, heritage, safety. It turns out that the competitor's plane is cheaper
to operate because it is more fuel efficient The consultant should ask as a strategic question
whether the firm is interested in the manufacture of more fuel efficient planes. The answer
would depend on the future of oil prices. Instead, it may be better to try to compete on the
basis of price, safety and service.
Prevention of a new competitor gaining share:
Key: Creation of barriers to entry.

Long-term contracts are pre-emptive.
High concern, on the part of purchasers, for a proven safety track record.
OIL REFINING INDUSTRY

Your company has 25% world-wide market share of the oil industry. You generate $4M
annually in revenues through the machinery division of the company, which supplies
machinery to refineries (not owned by your company) around the world. How do you asses
the current operating status of this division?
Approach:
Define "assess...operating status" - most likely in comparison two dissimilar pieces of
information: 25% market share and $4M (but no idea what % of the market this represents).
The guide is to request what % of the market $4M represents. Assume this is unknown. An
estimate of the market size is therefore needs to be done. The way to do this is to ask how
many oil refineries there are, how much does each cost to build, how long they last (actual
life, not dependent life) and what the machinery replacement costs are. From this, one can
estimate what the industry spends per year on machinery can. Divide the above mentioned
$4M into this and the refining division's market share can be assessed. This % can then be
compared to the 25% share of the parent.
MYSTERIOUS AUDIO CASSETTE MARKET
Q: Your client is the manufacturer of audio cassettes. They have hired you to
figure out why they've been experiencing an alarmingly poor sales year.
They want you to figure out the root of the problem, and what to do about it.
Information to be divulged gradually
Mature market; 5-6 major players; client used to have a steady 30% market share: (second
largest in industry). Now, the firm has a 44% share. Your client offers a full range of audio
cassettes -- from low bias to high bias/metal. Your client is also using the most sophisticated
and quality driven cassette manufacturing techniques.
The firm has been losing sales reps, yet loyal reps claim that sales are at record high levels
for them this year.
Firm historically targeted two consumer groups -- older, middle income enthusiasts and high
school rock `n roll stereophiles.
Recently your client has been losing younger target market customers.
Firm has traditionally managed its relationship with retailers well. However, the firm has
recently lost several major accounts due to its inability to move your customer's (the firm's)
products.
Answer: Audio Cassette Maker
A: The combined market characteristics, recent symptoms and sales decline and
increased market share suggest that your competitors are abandoning this
market -- likely due to a new and better substitute technology (the compact
laser disk, for example.)
Still, your client’s historically flat market share suggests brand loyal customers. Moreover,
your older target market is loyal -- perhaps less likely to switch to the new technology in the
short run. Assuming (1) that your client wants to be a provider of this new technology and
(2) has the capacity to manage a primary supplier position in its traditional line of business
-- short-term, target your older customers as well as new segments less likely to switch over
to CD's; for the long-term, consider resource requirements, opportunities and constraints of
developing or acquiring the new technology.
WINDMILL
You produce a windmill with an accompanying electric generator (generator harnesses the
power produced by the windmill). This may costs you $10,000 to manufacture. How much
are your customers willing to pay for it?
Approach
Porter's five forces dictate that industry rivalry/potential substitutes, and supplier/buyer power need to be
assessed. This could be an appropriate start. To narrow it down, let's assume competition, and a demand/supply
level far beyond your capacity. We must examine other components: The $10,000 cost is irrelevant; you have
no idea what this product is worth to anyone. Assessing the value of the product's benefits is perhaps the next
step. The closest substitute to the windmill is probably utility produced electricity. Therefore, inquire how the
electrical utilities measure and charge for the electricity they provide, convert the Windmill’s output along these
terms and assert a cost/benefit estimation of how much potential customers would be willing to pay for it. Other
considerations upon which to discount the value might be reliability, maintenance, etc.
AGRICULTURAL EQUIPMENT MANUFACTURING
Q: Your client is a large agricultural equipment manufacturer. Their primary

product line, farming tractors, is losing money. What questions would you
ask of your client to help them solve their profitability problem?
Answer: Agricultural Equipment Manufacturer

A: It is unlikely that there are too many players in this market. You might want
to start off by asking how many competitors there are. Suppose the answer
is that there are two direct competitors.
What is your client's market share relative to their competitors (your client has 40% of the
market, competitor #1: 30%, competitor #2: 15%, with the remaining 15% belonging to
many small manufacturers.)
What-are the market share trends in the industry? (Five years ago, your client had 60% of
the market, competitor #l, 15%, and competitor #2, 10%. Obviously, your client has lost
significant market share to its two competitors over the last few years.)
Do all three competitors sell to the same customers? (Yes)
How is your product priced relative to your competitors? (Your client’s product is priced
higher than the others.)
Has this always been the case? (Yes)
Are the products the same? (Essentially yes, they all have the same basic features. Of
course, tractors are not commodity items and a few differences do exist.)
What are the differences that allow you to charge a premium for your product? (Your client
has a strong reputation/image of quality in the market and the market has always been
willing to pay a premium for that reputation because it meant they would last longer and
need less maintenance. This can be critical for some farmers because they cannot afford to
have a piece of equipment break down at a critical time.)
Are sales revenues down? Are sales quantities down? (Yes)
Is the price down? All costs the same? (No, in fact both the price and costs are up.)
Have fixed costs increased? (`No, material costs, (variable costs,) have gone up out of sight,
and the client has no answer as to why material prices have gone up so staggeringly.)
Do you manufacture your tractor or just assemble it? (Primarily an assembly operation.)
Finished part prices have gone up? (Yes)
Raw material prices for your suppliers? (I don't believe so)
Have labor costs Increased for your supplier? (No)
Have you changed suppliers? (No)
Why are your suppliers charging you higher prices for the same products? (Well, they're not,
the prices have increased as a result of our product improvement efforts. We've tightened
tolerances and improved the durability of our component parts.)
Why do you make these improvements? (Because we strive to continue to sell the best
tractors
in the world.)
Are your customers willing to pay for these product improvements? (What do you mean.)
Are your customers willing to pay a marginal price which will cover your cost of
implementing these
improvements? (I don't know, I guess we assume that they will...)
It turns out that prices have been raised to cover the costs of these improvements, but
customers do not value these improvements unless they are essentially free --so sales are
down. The client needs to incorporate a cost/benefit analysis procedure into its product
improvement process. Don't forget though, that you must consider the long-term effects of
these decisions.
BANK OF LUKE
Mr. Check is the Director of Retail Lock Box Services for the Bank of Luke, a
medium-sized Midwestern bank. The Retail Lock Box Department consists of 100 clerks
and 8 managers and supervisors. Each year, in addition to their handling of retail lock box
transactions, the Department generated $1.5 million of fee revenue processing retail credit
card and mortgage payments ("items") for 75 commercial accounts. The bank has many
other commercial accounts that use other companies of' their item processing. In fact, the
Bank recently lost the item processing business for one of its largest accounts to Vader Inc.,
the largest item processor in the US
The item processing industry has undergone dramatic changes in recent years. Types of
items processed include credit card, mortgage, and utility payments (checks), airline tickets,
and coupons. In the past, these items were usually processed by the issuing company (e.g.,
airlines would process their own tickets) or by bank item processing departments like the
Bank of Luke's. At banks, the processing of payment items was done more as a service to
bank customers rather than as a profit-making endeavor. Hence, it received little focus from
management. Historically, processing was accomplished by verifying the correctness of
incoming paperwork and manually sorting, filing, and totaling the items: only the largest
banks were highly automated.
Companies specializing in item processing have emerged in the past ten years. Vader, Inc.,
the largest such company, is a subsidiary of a small bank in Georgia. Each year Vader
processes millions of airline tickets and retail payments for hundreds of companies, most of
whom are not customers of its hundreds of competitors most of whom are not, customers or
its parent bank. Vader uses high-speed processing equipment and is highly automated.
Processing time is rapid and processing costs are low. In fact, because of this speed
advantage, the parent bank is beginning to profit from the float of checks processed.
Although industry wide a majority of items are still processed by the issuing company or by
small processors, it is expected that large processors. Within five years, it is expected that
most of the business will continue to migrate to Vader and other large processors. Within
five years, it is expected that Vader and the large processors will dominate this market.
Vader had a significant cost advantage over smaller operations, such as the Bank of Luke,
because of the great economies of scale they gain from processing such volumes of items. In
addition, Vader benefits from a more constant workload by processing both airline tickets
and retail lock box receipts: airline tickets have few peaks and valleys, whereas mortgage
payments always peak early in the month with very low volumes the rest of the month. Mr.
Check believes that Vader quotes prices of 20 cents per item to large prospective customers
while the Bank of Luke processes items for 40 cents per item.
The President of the Bank, Mr. Kenobi, has asked Mr. Check to evaluate how the retail lock
box service can be made profitable; the service lost $100,000 last year. Mr. Check believes
that the bank must offer retail lock box services, and it must price the service to be
competitive with companies such as Vader. Recognizing that outside expertise will be
needed, the President has given Mr. Check a budget to be used to hire a consulting firm. Mr.
Check has asked you to visit his office to discuss the proposed engagement. While walking
to his office, you observe that the Bank's retail lock box operations remains primarily a
manual system, with limited use of modern, high-speed equipment and methods. Once in
Mr. Check's office, you note a picture showing the Department's staff in 1965; Mr. Check
was a supervising clerks at that time. After reviewing some background information with
you, Mr. Check asks you the following questions:
Question #1
What do you see as your (the consultant's) role at the Bank of Luke?
Question #2
What steps would you take and what information would you gather to diagnose the
problems facing the Retail Lock Box Department and to develop solutions to those
problems?
Questions #3
From what you now know, what are the problems facing the item processing service and
what recommendations would have the greatest impact on the performance of the Bank of
Luke and the item processing service?
Answer
In this case, we want to test the candidate's ability to handle a case in which the events
appear hopeless until the end. When an apparently easy solution (automation) is made
available. The candidates should challenge the general premise of the case, and not simply
believe that the business is necessary just because Mr. Check says so. We also want to test
creativity with this case. We purposely leave the case rather vague, not suggesting any
particular actions and offering little data. The candidate should be given time to think about
this case and propose solutions which are not readily apparent:
• Why not sell the business of these customers?

• Why not offer increased services to justify higher fees?
• What is the strategic plan for the bank, and how does this unit fit into it?
• What does Mr. Check feel his unit should be generating? (after all, $15,000 per
employee is pretty low!)
• Has he considered acquiring other banks’ customers to increase the economies of scale
in his own operation?
This case can also be used to discuss cost-cutting. Again, creativity and sensitivity to the
real issues should be the goals of your probe; cutting 25% of, the staff is too obvious and too
easy.
CANDY COMPANY
Q: Your company is a rather successful producer of candy. It originally started as a

single product line. The production process consists of two basic activities: manufacturing
and packaging. The firm has also expanded its sales through product line extensions.
Management is concerned that sales are growing but profits are not increasing at the same
rate. What can your company do?
Answer: Candy Company
A: This is a revenue vs. cost exercise. Margins are shrinking.
Find out about the critical components of cost: raw material, labor and fixed cost.
Raw materials are commodities with cyclical prices which have fallen in recent
years but are expected to swing up again (this, as you have guessed, makes the
problem worse.) Labor and fixed capital has increased per unit over-proportionally
compared with ten years ago. Find out that the company's controlling system is still
focusing on the manufacturing part of production and the cost explosion occurs in
packaging (candy is candy, the product line extension is primarily an issue of
different packaging.) Controlling schedules manufacturing which is rather efficient
already but not packaging, thus causing slack in labor and fixed capital (small batch
sizes, high setup times.)
Possible solutions: reduce product line, introduce controlling/scheduling measures

for packaging.
Qualifier: Are the company’s customers (i.e. retailers) willing to accept the reduced
product line?
Find out about revenues:
Revenue killers: concentration of retailers, trade brands, retailers demand large

introductory discounts for new products, high failure rate of new products.
Possible solutions: streamline product line, reduce low margin trade brand
production, emphasize pull marketing, reduce introduction rate for new products.
(Operational aspect): optimal plant location with respect to transportation.
Possible assumptions:
plant location at (x,y), national WHs at (xi, yi), demand per country given Di, cost
linear with distance, shortest travel di `between (x, y) and (xi, yi) allowed: TC=
Sum(xiDI); solution (requires iteration): dTC/dx = dTC/dy =0)
Punch Line: Should the company seek dominance now?

Have the driving forces for fragmentation disappeared? No, the fragmenting factors
from the market are still in place. The company has not changed its strategy in the
fragmented industry, (dominance makes no sense) but has gained an advantage by
operational changes.
=========================================================
CONSULTING FIRM (1)
Your are the managing director in a large international consulting firm. Traditional strengths
of your firm have been solving strategy and organizational issues. Recently, you have
noticed an increasing number of your firm's proposals are being rejected because of a lack of
information technology expertise in your firm. So far, your firm's growth has been strong
enough that proposals lost have not hurt annual earnings. Nonetheless, you are becoming
increasingly concerned about the need to develop the firm's capabilities in information
technology.
Ql: Assuming your concern is valid, what reasons will you provide to other
partners about the need to acquire information technology skills?
Q2: Assuming your are able to convince other partners of the importance of IT
expertise, what steps would you take to rapidly build IT capacity in this
area?
Q3: What are the major risks in executing an IT capacity-expansion?
Answer. Consulting Firm (l )

Al: Good answers focus on the value of IT to clients: discussion topics include
the increasing importance of information in business, strategic value of
information and information flows, importance of information systems for
implementing new organizational structures and management control
systems.
Better answers focus on the costs of losing clients to competitors:

discussions included the encroachment costs of having clients talking with
competitors about IT problems, risk of losing credibility with clients by not
being able to solve a problem.
A2: Good answers will focus on various methods to build expertise: buying
expertise by acquiring another firm, by raiding IT practices of other firms for
a few key consultants, building capacity through recruitment of IT experts
and training them to be consultants, building capacity by training current
consultants in IT practice skills, establishing a strategic alliance with a IT
boutique firm.
Candidates should discuss the pros and cons of each method proposed;
impact on firm's current culture, cost to the firm, time needed to build
expertise, etc.
Better answers will realize the importance of stimulating client demand as

capacity builds through seminars, articles strategic studies in IT areas...
A3: Good answers depend on the expansion methods discussed, but an important
issue is the loss of the firm's focus away from just strategy and organization.
Better answers will focus on the difficulty of implementation in IT; rapid

technological changes in the IT industry require significant ongoing training
and development costs; new practice cultures may be significantly different
from current culture, especially if "external experts" are brought into the
organization.
COSMETIC COMPANY IN EUROPE
Eurocos. Inc produces and sells various cosmetics products in several European countries.
The company's different brands are well established in the markets. The various products are
quite similar in terms of raw material and production.
The company has been doing very well in the past, however profits have been shrinking in
recent years.
The CEO of Eurocos, Inc thinks of changing his strategy in the industry. He asks you is this
is a good idea and what they should do?
Additional information
Many small to medium size companies, few big companies owning several brands many
small to medium size brands comprise the market. Eurocos produces all products in all
countries; transportation costs are small (see operational part).
Possible approach/ way of discussion
What is the structure of the industry? Fragmented industry.
Why?
• low entry barriers (small setup costs,..)

• high product differentiation (many ways of differentiation)
• divers markets: customer needs (language, complexions)
• barriers: tariffs, customs
How can fragmentation be overcome?
Feasible for Eurocos?

• Create EOS and learning curves--Yes
• Standardize market needs--No
• Separate the product's commodity aspect from fragmenting aspect--Yes
• Changing environment: reduced tariffs
Possible solution: Consolidate production while keeping the marketing and branding
nationally decentralized.
Pros: EOS in production (better sourcing, longer runs, quality) optimize location (interest
rates,
wages, labor)
Learning curve of running a more complex plant and logistics (see also Cons)
Keep "fragmented" marketing required in the market
Total inventory decreases (safety stock at original plant locations can be pooled
centrally)
Cons: More complex central operation

Increased logistic complexity
Transportation costs increase
=============================================================
SEMICONDUCTORS
The domestic semiconductor industry is beleaguered - brutal price competition from the
Japanese, accusations of "dumping" against the Japanese etc. Domestic semiconductor
manufacturers are clamoring for protection from Washington, and some of the public policy
solutions being proposed are things like research consortia sponsored by the government,
trade restraints etc. You are a consultant at a major firm. You are concerned that the public
policy debate ignores basic issues regarding industry economics and whether the solutions
being proposed will solve any problems for your clients. You know that each generation of
memory chips lasts only 4-5 years. What are some of the factors you will consider while
looking at the economics and how might they impact the idea of shared research by US
manufacturers?
Approach
These are some of the basic issues to be fleshed out:
What are the cost drivers in the industry? (e.g. the split between fixed and variable costs
involved) The basic issue to be arrived at is that it costs huge amounts of money to be a
player - roughly 250m in research and 600m in plants. This increases exponentially for each
succeeding generation of memory chip. High fixed costs. Negligible variable costs.
Cut-rate, volume-oriented pricing - marginal cost of an additional chip is minimal. Need
access to huge amounts of capital on a continuous basis to survive for the long term. Raise
pros/cons/issues of govt. participation in this. Is it feasible? What are the priorities for scarce
govt. resources? Will relaxation of anti-trust laws help? Foreigner's access to cheaper
capital? Research costs are smaller component. What will shared research accomplish?
==============================================================
AIRLINE INDUSTRY
The airline industry is characterized by low returns and stiff competition. In the early years
after deregulation. discount, carriers like People Express sprang up. Years later the
discounters have gone out of' business. In a price-competitive industry, why is it that the
higher-cost carriers were able to survive and the low-cost ones weren't?
Approach:
These are some of the basic issues to be flushed out:
Characteristics of discounters. Low fares, limited service.

Characteristics of major carriers. Higher fares but better coverage and service.
Hub systems channeling traffic.
Competitive moves by majors.
Innovative use of information technology for yield management and differential pricing.
Basically they priced every seat individually based on continuously monitoring

demand/supply. They wooed leisure customers with fares lower than discounts and
charged more from business travelers (indifferent to price but sensitive to service and
frequency). They stole the discounters' market and forced them out.
OIL TANKERS
Your rich uncle has just passed away and left you with 3 small oil tankers in the Persian
Gulf. How do you determine how much they are worth?
Approach
This problem involves the interplay of supply and demand forces to determine the value of the tankers. The
nature of tanker supply will be revealed by defining the different tanker types (in layman’s terms: small,
medium, and large) in the industry and the cost-related prices associated with employing each type. In effect, a
step function supply curve results for the industry with each step a different tanker type. Demand for the
services of tankers is assumed fairly inelastic due to refinery economics dominating the purchase decision. It
will turn out (by carefully creating the supply/demand curves) that at the given level of demand, only large and
medium tankers are put into supply. This renders your late uncle's small tankers suitable only for scrap at the
present time.
FERTILIZER
You are hired by a fertilizer manufacturer to help them out of a difficult situation. Their
market share and profits are in a decline and they can't figure out what is happening. What
are you going to do?
Approach
These are some of the basic issues to be fleshed out:
Fertilizer is a commodity. Identify the basis of competition in the industry i.e.

competition is on a cost basis.
Who are the major players? What is their cost position vis-à-vis yours? It turns out
that your client is the high-cost producer (You will have to find this out with your
questions and approach).
Why is your client the high-cost producer? Examine the inputs to the process and
analyze each one vis-à-vis your competitors (a long drawn out process). Are there
economies of scale and where do you stack up on that dimension? .It turns out that
you are comparable on all dimensions except for a key raw material (phosphate).
You will also do not have any scale advantages. Again, you will have to find this out
with your questions and approach.
Examine key issues relating to your disadvantage in raw material supplies? Why is it
that you are at a disadvantage? It turns out that you probably can't overcome this
disadvantage.
What are your alternatives? (If you got this far you are probably doing fine!). Looks
like you could try and explore the possibility of competing on a scale basis. What do
you look at to analyze the issue?
SCIENTIFIC INDUSTRY
A manufacturer of scientific instruments is experiencing declining sales in its major product

line. Why?
Approach
Here are some questions which may help isolate the key issues:
1. Describe the instrument and what it does. (Goal: gather background

information on the product).
Response: The instrument, call it Y, is able to perform elemental mapping;
that is, it is able to determine the specific composition of material placed in
the chamber for observation. Y is an accessory for larger and much more
expensive instrument that functions almost exactly like a microscope, which
we'll call X.
2. What other products does our client manufacture? (Goal: gather background
information on the client).
Response: They recently began manufacturing X, and also produce an

unrelated product.
3. Can these instruments be used separately, and are they ever sold separately?
(Goal: understand the sales process and the potentially interactive role of the
X and Y sales forces).
Response: X can be used by itself, but Y is essentially dependent on X for its

operation. As a result. except for replacement sales, Y is rarely sold
individually. In fact, X's sales force will frequently recommend that a buyer
purchase a certain Y while buying an X. Two years ago, over 30% of our
clients sales were generated by a manufacturer of X.
4. What is the current %? (Goal: determine whether this could be a cause of the
sales decline).
Response: It is currently around 5%
5. Does our product X compete with other manufacturers of X, and particularly

the manufacturer that was selling our Y? (Goal: understand reasons for our
friendly X manufacturer stopping promotion of our product).
Response: Yes it does compete directly with it, and our client introduced the
product about 1 1/2 years ago. (You have discovered a significant portion of
the sales decline).
6. How does our product compare to other Y's? (Goal: determine whether
others are beating us on technological or other product features).
Response: Our client's product is regarded as one of the best in the market.
7. Is the market for X and Y growing, shrinking or flat? (Goal: a shrinking

market could be a good explanation for declining company sales).
Response: Both markets are flat.
8. Who uses X and Y? (Goal: determine market segments).
Response: There are two basic user groups: industry, primarily

semiconductor manufacturers, and academia (in research labs). What we've
noticed lately is that the specific users in each of these groups, who also
happen to be the primary buyers, have become relatively less sophisticated;
that is, they are hired just to run the instruments and know less about their
technical qualities. These buyers have become even more dependent on the
sales forces. What has happened is that our client alienated itself from other
manufacturers of X at a time when a strong relationship was becoming even
more important than it used to be. The buyers are relying more and more on
the X sales force, who is typically called well in advance of the Y sales
force. (The interviewer will not likely give you all of this information at
once. Questions about the buying process and changing decision makers
would have brought it out)
This is the second part of the main reason for our clients declining sales: in
addition to
ruining our relationship with a manufacturer of X by producing our own, we
happened to do so at a time when relationships became even more important.
==============================================================
RETAIL ADVERTISING PRICING
You are the new retail advertising manager of a large daily newspaper. This morning you
received a call from the advertising director (your boss!). He sounded extremely worried
about the retail advertising division's performance. (Naturally he doesn't explain why,
assuming that a hot-shot like you would by now be totally familiar with the status quo!). He
has to attend a meeting of senior executive convened by the publisher where he will have to
defend the advertising department's performance. He also wants to make a big splash by
presenting a new "strategic pricing methodology' aimed at achieving "value-based
differentiated pricing".
Approach
Find out corporate profitability objectives. Assess gap between annual departmental
performance and original targets. Examine both revenue and cost issues. (You discover that
revenues have gone up steadily over the past few years. Further, costs have not risen
significantly. So why worry?) Apparently, corporate pressure to improve bottom-line
results has led to steep advertising price increases. A classic demand-curve scenario has led
to greatly decreased cumulative ad volume, with potentially serious long-term
consequences.
Examine competitor pricing and customer price sensitivity. Discuss heterogeneity in

advertising customers based on business size, breadth or product line, price-point etc.
Understand advertising attributes of importance to different segments (e.g. color, size,
frequency, discounting etc.). Use difference in needs of customers to implement prices
based on appropriate advertising service provided.
AUTOMOBILE INDUSTRY
Your client: one of the big three auto makers in Australia has over the last few years
under-performed its competitors as measured by its profitability. All three companies
current car models are "badged" Japanese designed cars- i.e. they are products of joint
ventures with one of the smaller Japanese auto makers. The Japanese market is much bigger
than the Australian market. These cars are then sold both in Japan and Australia, the only
difference being the place of manufacture and the model names (i.e. badges). You have been
asked to establish why your client has performed poorly relative to the competition.
Approach
Explore possible reason for under-performance
- dissimilar product for under-performance?

- different market segments?
- poor sales/ distribution?
- inferior product?
- high general expenses (admin, marketing ...)?
- high cost of production?
Given that the reason is the high cost of production, establish sources
of high costs relative to the other auto makers, using:
- management accounts?
- published financial accounts?
- data from your American holding company?
reverse engineering?
NONE OF THE ABOVE HELPS!

Don't panic: you know the solution of the problem has something to do with cost so
Determine what makes up cost, and the relative importance?
- labor costs?
- raw materials?
- manufacturing overhead?
- design?
Given that design costs are by far the most important component of costs, explore the
relevance of the Japanese connection?
- are the terms of out joint venture different from our competitors?
- it turns out that the terms are all similar.
- what are the terms of the joint venture?
- share of design costs pro-rated between the parties based on number
of cars sold respectively?
- does our car cost more to design than our competitors
Even though the answer to the last question is in the negative, the solution is at hand! To
recap, your client sells a similar product, in similar amounts, to similar markets in Australia.
Similar design costs (in absolute costs) were incurred by your Japanese partner. The key
lies in your discovery that design costs are pro-rated, and a line in the description of the
problem that mentioned that your client's partner is one of the smaller auto manufacturers in
the huge Japanese market. Thus the design cost defrayed by the Japanese partner's sales in
Japan are relatively small, and your clients share thus is significantly larger.
ALUMINUM INDUSTRY
Your client is a leading manufacturer in the Aluminum industry. Because Aluminum is a

commodity, relative cost position is the primary source of competitive advantage, and as
part of a strategic review you have been asked to construct an industry cost curve (cost/kg of
aluminum produces vs. industry supply), for various plant-to-market combinations. Their
are five major players in the industry, supplying six major geographic market segments.
Your model should be flexible enough to enable various future scenarios to be run.
Approach
How to estimate competitors cost management?

- financial accounts?
- direct estimates by client management?
- indirect estimates by client management?
How to simulate the market mechanism?

- determine what kind of market structure exists?
- oligopoly?
- perfect competition?
Given perfect competition, how to simulate?

- back of the envelope approach? (there are lots of combinations!)
- linear programming approach?'
The use of linear programming allows considerable flexibility as well as provides insight
into questions such as:
- is the industry currently efficiently configured?
- if a new plant is added to the industry, which market segment is most
likely to be affected?
- what will the equilibrium price be in the future?
========================================================
INSURANCE COMPANY
An insurance company pays its sales people a base salary of monthly wages and
commission of 25% of new policy sales (2% of renewal). Which is the right way to pay the
sales agents?
Approach
This, in case you have not already surmised, is an organizational behavior scenario. Again,
you must define what the "right way is". Assume some generic definition like "the manner
by which agents are both motivated and equipped to accomplish there tasks in the interests
of the organization..." is applicable. Having set up by definition, the results achieved by the
above mentioned composed system are examined. The only factor determining how much
the agents paid is their sales $. In essence, they are motivated to issue a policy to anyone at
as high a price as possible. They are not motivated to give consideration to the riskiness of
the insured party. The absence of such a consideration (for example) would be detrimental
to the company in the long run. A more efficient compensation structure might pay the agent
on a sliding scale, depending on how risky (costly) an insured party proves to be.
MEAT PACKING INDUSTRY
Your client a US firm, owns a meat packing plant in Spain. Over the last few periods profits
have steadily declined, despite the fact that sales are growing. You have been hired to figure
out why.
Approach
Porter's five forces are useful. By looking at the suppliers you will know that they are
independent farmers with little power against your client. Therefore, the costs of your raw
material cannot be the issue. In analyzing the internal rivalry you will discover the market is
fairly regional, hence transportation costs and competition have not changed dramatically.
Also, your production costs have remained stable. You will also discover that there has been
no introduction of a substitute product. Since there are stable costs, and strong sales, the
only other alternative is the price of your product. Investigate this avenue, and you will
discover the buyer link. Your margins are being squeezed due to the increasing
concentration and buying power of your customers.
PIANOTUNERS
How many piano tuners are there in Chicago?
Approach
This is a brain teaser case. Its purpose is to test your logical and quick mathematical
thinking. There is no right answer, the test is to see if you can come up with an answer based
on the information you estimate.
You need to start by asking questions about the key factors. One way to solve it is to
estimate the number of households in the Chicagoland area. The interviewer gave this piece
of information at 2,000,000 households. Next, you can break the income of the households
into four quarters (500,000 each). Make an estimate of 20% of highest income quarter have
pianos, 10% of second quarter. 5% of third, and 0% of fourth.
Thus:
Income quarter Population % w/ Pianos # of Pianos

1st 500,000 20% 100,000
2nd 500,000 10% 50,000
3rd 500,000 5% 25,000
4th 500,000 0% 0
With 175,000 pianos to tune you can estimate how often these pianos are tuned. You can
estimate top income quarter tunes their pianos once a year, second quarter once every three
years, third quarter once every 10 years. This gives you (100,000 + 50,000/3 + 25,000/10) =
119,167 or approximately 120,000.
Estimate a piano tuner an do four a day, 250 days a year, therefore: 120000/250=480 pianos
a day to tune 480/4 = 120 pianos tuners needed.
How could you check this? Look in the yellow pages. Would all the piano turners be in
there? You can guess half. By the way there are 46 piano tuners listed in the Chicago
Yellow pages.
CONSULTING FIRM STRATEGY
Case Overview
You are the newest member on the management committee of a well-known top-tier
strategy management consulting firm. Eager to be accepted by your more senior peers, you
volunteer to study the industry and propose a firm strategy for the 1990's, which you will
present to the committee at its next meeting. As you leave the meeting you begin to realize
the enormous task to which you've committed yourself.
l. How do you evaluate the consulting environment and determine likely future
scenarios?
2. What information do you use in this process? How is this information
obtained?
3. What do you believe is most likely to happen in the consulting industry
given your present knowledge? How did you arrive at this conclusion?
4. What strategy do you propose to the management committee?
Proposed Answer
This is one of the most difficult types of cases because the answers are completely unknown
and will vary substantially depending upon the interviewee's knowledge of the industry.
This is also an intresting case since the salience is likely to be high. As an interviewer you
should feel free to add information on an as-needed basis. When information isn't available,
ask the Interviewee to develop his or her own hypotheses. What matters here is the thinking
process, not necessarily the answer.
1. A good place to begin is to evaluate the industry from a competitive analysis

perspective, such as Porter's five forces. The following is an abbreviated
analysis.
Rivalry (low to moderate): management consulting is fragmented, with

many players each holding relatively small concentration of total market.
Firms act as competitive monopolists, and differentiate themselves by
specialty, type of customer (Fortune 100 versus Fortune 1000 companies),
reputation (McKinsey versus accounting firms), and the resources they
employ (top MBAs versus all MBAs). Many companies are
relationship-driven with their customers, which limits competition and keeps
prices high. Top tier firms in particular are able to have high price points.
Potential Entry (moderate): there are no great barriers to entry into

consulting; however, few new consulting firms truly compete in the top tier.
It's possible new firms would enter if the industry were earning positive
economic profits and if they faced certain imitability (e.g. the ability to
recreate what the top tier firms do).
Substitutes (moderate): companies can move the consulting process in-house
by hiring exconsultants and bright MBAs.
Buyer Bargaining Power (moderate-high): In the last decade the consulting

market has boomed, with supply generally following demand, which lowers
buyer power. However, it is appropriate to question effect recession might
have on industry. It's possible that demand may decrease as companies quit
expanding, which would reduce demand, give buyers more bargaining
power, and push prices lower.
Supplier Bargaining Power (low-moderate): Major suppliers are the intellectual capital
employed by firm (e.g. experienced consultants who bring in sales and new
consultants who provide analytics). Must pay market price or risk losing
suppliers.
Other interesting points might explore the key success factors in the consulting industry.
What sets top tier firms from middle ones? Do any firms have specific sustainable
competitive advantages? How does the marketing mix differ among firms? Does your firm
have any specific core competencies or advantages that set it apart from other companies?
Determining likely future scenarios is more ambiguous. There are at least several key point:
what effect will a recession have on consulting firms? Will top tier firms suffer differently
from others? How will the mix of products demanded change (e.g. cost-cutting studies
rather than market expansion studies)? Will the consulting market continue to expand or
suffer a cutback? Or, will certain geographical areas expand (Pacific Rim, Eastern Europe)
faster than others? Again, the thought process is more important here than actual answers.
2. Information gathering is a key reason companies use consultants. An

interviewee should have a decent understanding of business information
sources and how information is gathered.
Information can be broken into two groups: secondary and primary. Usually
one begins with secondary material, specifically, a complete review of
published literature (a "lit search") pertaining to the study (e.g. journal and
newspaper articles, investment bank research, specialized studies, books,
etc.). This often points towards other good sources (e.g. industry experts,
associations, major competitors, government sources, etc.). Hypotheses are
often created from the secondary information. Primary research is then used
to focus in on the key issues. This research includes telephone interviews,
in-person interviews, mailed questionnaires, focus groups, laboratory
experiments, etc.
3. This answer will depend upon the material covered in the first two. Ask the
questions: What trends are likely? What is a positive scenario? A negative
one? If you had any information at your disposal, how could you get a better
handle on this issue?
4. There is no right answer here, so the interviewee may balk. However, you
can provide some structure. What are the key success factors to succeeding
in the industry? Is there any way to achieve sustainable advantage which
cannot he duplicated by your competitors? Can you use non-traditional
methods to achieve competitive advantage, such as leveraging through
technology. Given your firm's competitive strengths and core competencies,
what is the best strategic route?
SKYSCRAPER
Your client is going to build a skyscraper, but is not sure how many stories to make it. How
should he decide?
Approach
This is an economic supply/demand mind tease. Clearly you don't want to lose money on the deal. Rebuilding
will house tenants, who will pay to reside there. The costs of building and maintaining the structure (both fixed
and incremental by story) need to be compared to revenue generating capacity of the project. When marginal
revenue equals marginal cost you stop adding stories.
===============================================================
CORN FEED COMPANY
Question
A corn feed company has eight manufacturing plants located in the Midwest. These plants
service the entire United States. Their plot in Ohio is in need of refurbishing. The company
has four possible options:
I. Refurbish the existing plant

2. Build a larger plant at the current location
3. Build a similar size plant at a new location
4. Build a larger plant at a new location
Which is the best option for this plant?

Answer
There are two issues to this decision. The plant size and the plant location should be
considered separately.
l. Size of Plant
First consideration is the demand for the product. Corn feed is a commodity product. Pricing
on the product is dependent on current corn prices as opposed to the manufacturing process.
There are four main competitors - our company is the second largest. All four competitors
have similar manufacturing processes and similar cost structure. The purposed largest plant
will not have economies of scales not currently present a the existing plant. The capacity
utilization is 65% which is industry standard. The current customers buy from all four
manufacturers in order to guarantee supply. Currently demand is being met and there are no
alternative use for corn feed.
2. Location of Plant
Transportation cost and perishability are the main issues with location. The transportation
cost for the corn stock (raw material) is much higher than the cost of transporting the actual
feed. The corn is grown in the Ohio area and the feed is sold to the East Coast. The raw
material is perishable where as the corn feed can be stored for any length of time and easier
to transport. Cost analysis of the transportation cost of feed versus raw materials should be
completed. Included in this analysis would be the % of spoilage for longer transportation of
corn stock
Conclusion
The current plant is located close to the corn fields and this is the best location for the plant
from the cost/benefit analysis.
==============================================================
SELECTIVE BINDING CASE
Your client is a major fashion magazine that has been offered by its printer a proprietary
new process called selective binding which enables publishers to customize the pages
included in readers' magazines based on demographic data known about the reader. For
example, an ad in Better Homes & Gardens for lawn chemical services could be placed only
in those issues going to subscribers who live in houses and not to those living in
condominiums or apartments. In this way, advertisers can focus their communications on
the demographic segment they are targeting. Would you advise your client io take advantage
of this new process and offer selective binding to its advertisers?
Analysis
This is a pretty straightforward cost/benefit analysis. The Magazine would want to consider
offering the service to its advertisers if it would be able to enhance its earnings by being able
to charge its advertisers a premium for being able to more exactly and efficiently target the
demographic segment they want to reach. Of course the increased revenue from the any
premium must be able to offset any revenue lost as advertisers stopped targeting. The
interviewee could start the analysis by obtaining the following information form the
interviewer:
Q: What demographic breakdowns can be made in the magazine's database?
A: The only breakdown possible on your database is between subscribers who make
under $50,000 and those who make over $50,000.
Q: What it total readership, the proportion of readers who are subscribers (as opposed to
newsstand buyers), and the proportion of subscribers in each demographic category?
A: There are l million readers, 80% of who are subscribers. Twenty-five percent of
subscribers make under $50×000, 75% make over $50,000. The same mix applies
to the newsstand buyers according to readership audits.
Q: What proportion of the client's advertisers target each demographic category of

readers?
A: Most advertisers are selling high-end fashion products, so 75% of them are targeting
the high income group.
Q: What is the cost of the selective binding service and what does the magazine charge
for its ads?
A: The service is being offered to your client free for 3 years since the printer wants to
promote the service's use by getting a major magazine to start using it. The client
charges $50 per thousand per full-page ad (selective binding can only be offered on
full-page ads). Therefore revenue associated with a single inserted page (front and
back) in an issue is $100 per thousand.
Q: What does the client's closest direct competitor for advertisers charge for ads and
what is their readership like?
A: The client's closest direct competitor has 500,000 readers, 100% of whom are
subscribers. Effectively, all of their readers make over $50,000. They charge $70 per
thousand for their full one page ads.
Since the printing cost to the client of selective binding is zero, the client simply needs to
evaluate cost on the basis of revenue per thousand gained or lost as their advertiser
base uses the service to better target their ads to their desired segment. Presumably,
instead of 100% of advertisers paying the full $50/thousand per page, the 25% of
advertisers targeting the lower income segment will choose to advertise only to the
25% of subscribers targeting the high income segment will choose to advertise only
to the 25% of subscribers falling into that segment and the 75% of the advertisers
targeting the high income segment will advertise only to the high income subscribers
(75% of subscribers). Assume that all advertisers continue to advertise in 100% of
the newsstand copies. The revenue effect of this change can be calculated by looking
at the impact the change would have on average ad rate per thousand on subscription
readership:
New ad revenue per page = Old ad revenue per page X [(% low income subscribers X %
low income target advertisers) + (96 high income subscribers X % high Income advertisers)]
Thus
New ad revenue per page = $50 X [(25% X 25%) + (75% X 75%)]

at old rate $31.25 < $50
Now the question is, can ad rates per thousand on the selective binding portion of ads sold
be increased sufficiently to increase average revenue per thousand over what it is today? To
answer this question, your client's ad rates must be looked at from the perspective of their
advertisers. If you consider the advertisers targeting the high income group, their alternative
to advertising in your client's magazine is to put their ad dollars toward the 100%
high-income readership competitor. The cost per thousand high-income readers with the
competitor magazine is:
(Page rate X total readership)/ (portion of readers who are high income) = ($70 X
500,000)/500,000 = $70
Thus $70 is the maximum price per thousand the client can charge its advertisers for
selectively bound ads before the advertisers would switch to their competitor. Note that
currently, the client is a cheaper buy for these high-income advertisers even though they are
paying to reach readers they do not want:
($50 X 1 million)/750,000 = $66.67
If the client charged $70/thousand for selectively bound ads, average revenue per thousand
to the client would be:
$70 X [(255 X 25%) + (75% X 75%)) = $43.75
Since $43.75 is less than the $50 that advertisers are currently paying, the magazine should
not offer advertisers the selective binding service.
Of course, there are other issues which interviewees might want to mention such as the
possibility of price discriminating between high and low income advertisers, the potential
for and cost of expanding the advertising base using selective binding as a selling tool, etc.
However, it is important by the end of the interview to have reached a recommendation
regarding the initial question posed by the interviewer. To mention these other possibilities
and areas for further investigation is certainly worthwhile, but it is also important not to get
too far off track or to complicate the issue so much that a final recommendation is never
reached.
VIDEO GAMES
Purpose: To determine whether the candidate is able to structure a basic industry analysis.
BACKGROUND
The CEO of a large diversified entertainment corporation has asked a McKinsey team to
examine the operations of a subsidiary of his corporation that manufactures video games.
Specifically, he need to know it. he should approve a $200 million capital request for
tripling the division's capacity.
QUESTION
You are a member of the McKinsey team assigned to this project. Assume you and I are at
the first tearn meeting. What are the critical issues we should plan to examine to determine
if the industry is an attractive one for continued investment and why?
The following information may be given if requested by the candidates though you should
focus on having the candidate identify issues, not obtain more information.
Market share
Division is third largest manufacturer of hardware in the industry with 10 percent market
share. Top two producers have 40 and 35 percent market share. Remainder is divided by
small producers. Division sells to broad range of consumers.
Sales
• Division sales have increased rapidly over last year from a relatively small base. Current
estimate is
annual sales of 500,000 units.
• Current estimate of industry hardware sales is 5,000,000 units annually. Industry growth
has been strong though over last few months, sales growth has slowed.
• Divisions current sales price for the basic unit is $45 per unit.
• Division remains less than 20 percent of parent company sales.
• Top two competitors also develop, manufacture and sell software/games though division
sells only licensed, software.
• Industry growth of software continues to increase.
Costs
• Division estimates current cost is $30 fully loaded. Requested expansion should reduce
the cost by 5 to 7 percent and triple production of the hardware units.
• Top two computers are estimated to have a 10 to 15 percent cost advantage currently.
• Main costs are assembly components and labor.
Customers
• Division estimates much of initial target market (young families) has now purchased the
videogame
hardware.
• No large new user segments have been identified.
Distribution
Primarily outlets of distribution are top end electronics stores.
Profitabilitv
Division currently exceeds corporate return requirements; however, margins have recently
been falling.
Product
Hardware standards have been established by the industry leaders.
Product features constantly developed (e.g., new remote joy stick), to appeal to market
segments.
Note to the Interviewer
The primary issue of the case is to determine if the industry is attractive and, especially, if
our client's position in that industry is sustainable. The candidate should identifv issues
which are necessary for assessing both the industry and our client's position, but should not
be expected to solve the problem.
If the candidate begins to discuss too deeply a specific issue, before having covered the key
issues overall: bring them back to discuss the Industry more broadly by asking "what other
issues must be examined?"
If the candidate is discussing issues which seem irrelevant to the attractiveness of the
industry, ask "how will that analysis help to assess the attractiveness of the industry or our
client's position”. Then, ask the candidate to identify other issues which must be examined.
MINIMUM REQUIREMENTS
The following issues would need to be covered for the candidate to have done an acceptable
job:
l. What is future market potential? Candidate needs to question the

continuation of overall industry growth. She/he might ask about the
saturation of markets, competitive products (home computers), and declining
"per capita" usage.
2. What is the competitive outlook? Should at least recognize the need to

examine competitive dynamics. Issue areas might included: concentration of
market shares; control of retail channels; and R&D capabilities (rate of new
product introductions, etc.).
3. What will be the price/volume relationship in the future? Issues of prices

need to be
considered.
BETTER/OUTSTANDING ANSWERS
No bounds on creativity, but better answers would address:
Market Potential
• Recognize that there is a relationship between market penetration and growth in new
users which,
when combined, yields an industry volume estimate.
• Address the shifting mix of product purchases, in this case from hardware (player unit)
to software
(video cassettes).
• Seek to look at buyer behavior in key buyer segments, i.e., "fad" potential of product.
Software
• Recognize technology standards are set by industry leaders. In this situation, the
division as a
secondary player will have to follow these standards.
• Recognize that different distribution needs may exist for different products (In this case,
hardware
versus software).
• Discuss the effect capacity additions can have on overall industry price/volume
relationships and on
industry price levels.
Company’s Ability to Compete
• Should ask what the capacity expansion is designed to do.

• Explore the cost position of the client division relative to that of other competitors.
• Seek to understand reason for poor profit performance of division
==============================================================
CONSULTING FIRM (2)
Q: Your client is the treasurer in a significantly privately held corporation. She is in

charge of managing a portfolio of investments in addition to her treasury responsibilities.
Recently, she has asked your advice about the purchase of a large position in company 456,
whose stock is listed on the NYSE.
Company 456 is currently selling for $22 per share. The treasurer's investment
analyst predicts that the stock will pay a dividend of $1.25 for the foreseeable future.
Short-term treasury bills are yielding 7 percent, and long-term t-bills are yielding 8
percent. The treasurer is contemplating the purchase of 5000 shares of company 456
and wants your help in determining a fair market price.
How would you go about determining a fair price for company 456?
Answer.: Consulting Firm (2): $22 per share
STEAM BOILER HOSES
Profit Improvement
PURPOSE To determine whether the candidate is capable and comfortable with

constructing a logical framework which will expose opportunities for
profit improvement.
BACKGROUND
McKinsey was asked by a diversified manufacturing client to help turn around the steam
boiler hose division. This boiler hose division provides boiler hoses for both external
customers and the client's boiler division. Background information on the client and industry
includes:
• Boiler hoses are sold both with original equipment and as replacements.
• There has been increasing price pressure in the industry.
• The client is third of eight industry participants.
The following information is also available in response to questions asked by the candidate:
Last year's P&L showed (as a percent of sales):
Raw Material 70%
Labor 20%
Distributed overhead 10%
SG&A 15%
Profit (15%)
The raw material is a commodity petrochemical.

At least two of the other companies in the industry are making moderate profits.
QUESTION
How would you structure an analysis aimed at restoring profitability? Where do you expect
to be able to save costs?
MINIMUM REQUIREMENTS
The candidate should avoid getting bogged down in the following areas:
1. Drop the product line (apparently not possible because hoses are
necessary for boiler sales).
2. Raw material prices (they are the same as everyone else's)
3. Allocation of overhead (no cash savings and provides little potential)
4. SG&A (standard industry fee paid for independent installers).
BETTER ANSWERS
Better answers will move beyond the previous answers to consider:
l. Scale economies (client is big enough to achieve scale production).

2. Production technology (client has a modern plant)
3. Labor costs (wages rates and productivity are average for the
Industry)
4. Raw material purchasing practices (material are purchased through
long term contracts with prices based on the spot market minus a
discount).
OUTSTANDING ANSWERS
The best answers, following a logical progression, should stumble upon the actual answer:
the product has been over-designed, requiring excess raw material. The answer should the
following organizational implications:
l. How is our product engineering operation wired into the

marketplace? (there is little contact between the engineering and
marketing/sales organizations)
2. What kind of feedback are we receiving form our sales force?

(customers are delighted with our hoses, but require all the product
features)
3. Are there other areas in the company where similar problems exist?
POTS & PANS
A manufacturing company based in Charleston, SC makes high quality pots and pans which
are sold throughout the U.S. in specialty and department stores. You are called in because
they feel that the $ l million that they spent on distribution last year was way too high. How
can you show your client money that he can save money.
Approach
Distribution is basically a trade-off between cost and service level. The higher the service
level, the higher the cost (more inventory pools, warehouses and shipments). So you need to
ask where the inventory is being held. It turns out that stores, since they sell so few of these
pots and pans, hold no inventory and thus require next-day replenishment after a sale. The
next thing you need to know is where the warehouses are located, since the closer they are
to the stores the cheaper the distribution costs. Your client has three warehouses - one in
Charleston, one in Philadelphia and one in LA - from which they cover the whole country.
A quick way to solve this case is to realize that if stores require next day service from these
three warehouses, the only way they can do this is by shipping overnight at a premium rate
(UPS - no wonder they're spending so much). You can save them a bunch of money by
closing down Philadelphia and LA and shipping everything from the plant In Charleston by
UPS (negotiate a volume rate). This can be confirmed by asking for the annual sales which
turns out to be 10,000 units. When you divide this into the $1 million distribution cost you
discover that they are pay $100 to deliver a pan to the store. Beat this figure and you've
earned your exorbitant fee.
2. How many 747s are above Kansas right now?

3. How much beer is consumed in the United States each year?
4. How many barbers are there in Chicago?
5. How many gas stations are there in Los Angeles?
6. What is the annual size of the golf ball market in the United States? What factors drive
demand?
7. How many pay phones are there on the island of Manhattan?
Brainteasers (or, as one disgruntled interviewee referred to them, “mindsplitters”)

are the genre of questions along the line of “Why are manhole covers round?” Some
brainteasers are more like logic problems, while others require more mathematics. Be
forewarned – some of these questions are very tricky and it is entirely possible that you
may not be able to solve them in a short amount of time. Their main function may be to
test your courage under fire.
Do not get flustered! Do not tell your interviewer that the brainteaser cannot be solved or
is unreasonable. As a consultant, you’ll be constantly on the spot –your interviewer wants
to ensure that you can keep your cool.
1.You and a neighbor are planning garage sales for the same day. You are
both selling the same used TV. You plan on selling the TV for $100, but your neighbor
insists on selling his TV for $40. What should you do? It’s easy to think that the right
answer hinges on compromise so that you ultimately sell your TV for more than $40 but
something less than $100. But in the land of business, the right answer requires taking an
underutilized asset and turning it around for profit maximization. In this case, buy your
neighbor’s TV for $40 and then sell each TV for $100.
2.You’re in a room with three light switches. Each controls one of three
light bulbs in the next room. You must figure out which switch controls which bulb. You
have some limitations – you can flick only two switches and you may enter the room only
once.
Consultants love “out-of-the-box” thinking. Some suggest drilling a hole in the wall or
calling a friend for assistance. One applicant suggested that the switches might be dimmer
switches – each light bulb could be set to a certain level of illumination, making solving
the puzzle easy. There’s one elegant solution, however. Turn one light bulb on for 10
minutes, then turn it off. Turn another bulb on. Then go into the room. The light bulb that
is on clearly goes with the switch that is turned on. Now feel the bulbs. The hot one has
been on recently.
3.There are four men who must cross a bridge in 17 minutes. The bridge is
very narrow and only two men can cross at once. It is nighttime and whoever is crossing a
bridge must carry a flashlight. Alan can cross in one minute, Bert in two, Cedric in five
minutes, and Don in 10 minutes. The men crossing the bridge go at the pace of the
slowest individual. First, Alan and Bert cross together with the flashlight, which takes two
minutes. Alan returns with the flashlight, which takes one minute. Three minutes have
elapsed. Cedric and Don then cross with the flashlight, which takes 10 minutes. At the 13-
minute mark, Bert returns with the flashlight, taking two minutes, and Bert and Alan go
back across the bridge, for a total time elapsed of 17 minutes.
4.The classic brainteaser: why is a manhole cover round? (Originally
asked by Microsoft, this chestnut is still making the rounds among consulting firms and
high-tech firms alike.) There are many answers to this puzzler. First of all, a round
manhole cover will not fall into a hole, making it safer. A manhole cover that is round can
be rolled on its edge, and will not cut anyone. Round covers also do not need to be rotated
to fit over a hole.
Guesstimate questions are among the most unnerving questions you may ever have to
answer in an interview situation. They can be so "off the wall" as to
completely shake up
an otherwise calm, collected candidate.
The approach to guesstimates is basically the same as business cases - you

will showcase
your ability to analyze a situation and form conclusions about this situation
by thinking
out loud. The difference here is that you will not necessarily be using a series
of
questions to gather feedback from the interviewer. Instead, you will drive
towards a
conclusion through a series of increasingly specific statements. Let's look at
an example:
How many ping-pong balls fit in a 747?
No, this isn't a joke. This is an actual question used in consulting interviews.
If you are a
little unsettled by this type of question, it's no wonder. That is exactly the
reaction the
interviewer is expecting. Remember that the main objective of these
questions is to
evaluate your poise and professionalism when facing an outlandish situation.
How you
react to this question when presented will speak volumes about your ability
to be
professional when faced with a similar business situation at a client.
So, how do you approach a guesstimate question? First, do NOT panic. If

you are visibly
shaken when presented with a guesstimate or brainteaser, it will hurt you. It
is extremely
important that you do not lose your cool.
Do not let yourself struggle verbally. You are free to say something like,
"That is an
intriguing question. May I have a moment to think it through?" This
statement
immediately shows the interviewer you are still in control and gives you
some breathing
time to think about a method for answering.
Once you have had a minute to compose your thoughts, be sure and go
through your
reasoning out loud, so your interviewer can see that you're arriving at your
answer in a
logical manner. "Don't be anal," suggests one former consultant. "You
should realize that
for the purposes of a guesstimate, 1,000,553 is the same as a million, and you
can divide
by 350 if you need to divide by the number of days in the year."
Finally, remember that there is no right answer for guesstimates. It will often
not even be
necessary to come up with a definitive response like "1,400,350," due to
constraints on
time. Always work toward a final answer, but do not feel that you have done
a poor job if
the interviewer moves on to other topics before you are finished. They may
simply
recognize that you're on the right track and see no reason to keep going.
The best approach for a guesstimate or brainteaser question is to think of a

funnel. You
begin by thinking broadly, then slowly narrowing down the situation towards
the answer.
Let's look at this approach in context. Referring to our example question, you
know that
you are looking for how many ping-pong balls fit in a 747 airplane. The first
thing you
need to determine is the volume of the ping-pong ball.
For any guesstimate or brainteaser question you will need to understand

whether your
interviewer will be providing any direction or whether you will have to make
assumptions.
Therefore, begin the analysis of a guesstimate or brainteaser question with a
question to
your interviewer, such as, "What is the volume of a single ping pong ball?" If
the
interviewer does not know or refuses to provide any answer, then you will
know that you
must assume the answer. If they do provide the information, then your
approach will be a
series of questions. For this example let's assume your interviewer wants you
to make the
assumptions. Your verbal dialogue might go something like this:
Let's assume that the volume of a ping-pong ball is three cubic inches.
Now let's
assume that all the seats in the plane are removed. I know that an average
refrigerator is about 23 cubic feet, and you could probably fit two average
people
in the space occupied by that refrigerator, so let's say that the volume of
an
average person is 12 cubic feet, or 1,728 cubic inches.
Okay, so a 747 has about 400 seats in it, excluding the galleys, lavatories,
and aisles on the
lower deck and about 25 seats on the upper deck. Let's assume there are three
galleys, 14
lavatories, and three aisles (two on the lower deck and one on the upper
deck) and that
the space occupied by the galleys is a six-person equivalent, by the lavatories
is a
two-person equivalent, and the aisles are a 50-person equivalent on the lower
deck and a
20-person equivalent on the upper deck. That's an additional 18, 28, and 120
person-volumes for the remaining space. We won't include the cockpit since
someone has
to fly the plane. So there are about 600 person-equivalents available.
In addition to the human volume, we have to take into account all the cargo
and extra
space - the belly holds, the overhead luggage compartments, and the space
over the
passengers' head. Let's assume the plane holds four times the amount of extra
space as it
does people, so that would mean extra space is 2,400 person-equivalents in
volume.
(Obviously, this assumption is the most important factor in this guesstimate.
Remember
that it's not important that this assumption be correct, just that you know the
assumption
should be made.)
Therefore, in total we have 3,000 (or 600 + 2,400) person-equivalents in

volume available.
Three thousand x 1,728 cubic inches means we have 5,184,000 cubic inches
of space
available (we can round to 5.2 million). At three cubic inches per ball, a 747
could hold
about 1.7 million balls. However, spheres do not fit perfectly together.
Eliminate a certain
percentage - spheres lose about 30 percent when packed - and cut your
answer to about
1.2 million.
You might be wondering how you would calculate all these numbers in your head! No
one
expects you to be a human calculator, so you should be writing down these
numbers as
you develop them. Then you can do the math on paper, in front of the
interviewer, which
will further demonstrate your analytical abilities. You choose the numbers,
so pick nice
round numbers that are easy for you to manipulate. Even if you just read a
study that
states that there are 270 million inhabitants in the United States, no
interviewer will flinch
if you estimate the number of American inhabitants as 300 million.
The extra step
Don't forget to add the "extra step" into your guesstimate. If you're trying to
figure out
how many blocks there are in New York City, remember to eliminate blocks
covered by
Central Park (and other parks). If you're determining the number of black
cars in the United
States, once you've estimated the number of cars in America, make sure you
estimate what
percentage of them are black.
In-case guesstimates
Not all guesstimates are stand-alone questions. Many are contained within
case
questions, mostly in the form of a market sizing. (And what would you say is
the size of
the market for pork rinds in the United States?) The key here is to derive a
reasonable (and
easily manipulated) figure for your calculations.
9. How many bottles of wine are consumed in the United States each
week?
Determine:
The number of people in the United States.

The number of adults.
The number of wine drinkers.
Average number of glasses of wine consumed per week.
Number of glasses of wine in an average bottle.
(Extra step: You may wish to estimate how much wine is used for non-
drinking purposes -
cooking, for example.)
One solution:
There are about 300 million people in the United States

250 million are adults
Perhaps 220 million drink
200 million drink wine
The average wine drinker drinks two glasses of wine a week
400 million glasses of wine consumers per week
About five glasses of wine in the average bottle
80 million bottles of wine consumed in America each week
Estimate how many bottles wine is used for cooking - perhaps another 5
million
85 million bottles of wine consumed per week
10. How many men's suits were sold in the United States last year?
Determine:
Estimate the population of the United States.

Cut that in half to get the number of men.
Determine how many men are employed in occupations which require
business
attire.
Determine how many suits the average business attire employee would
have
purchased (due to weather, fashion changes, cleanings, wear, etc.).
Assume (or ask) a number of suits that those men not employed in
business attire
jobs purchased for religious, social, or other reasons.
Sum up the number and present your answer.
One solution:
Population of the United States: 270 million (or 300 million, to round up)
Half are men - 150 million
Let's say two-thirds are employed
150 million x 2/3 = 100 million
Assume every employed man owns one suit = 100 million suits
Estimate that about a quarter of men are in a field where they must own more
than one suit
If each of those men has an additional two suits, 25 million men x 2
additional suits = 50
million suits
150 million suits in the United States
How often does the average suit-owner replace a suit? Perhaps once every
three years
There are 50 million suits sold every year in the United States
11. How many tennis balls fit in a swimming pool?
Determine:
What is the shape and depth of the swimming pool?

What is the volume of a tennis ball?
Estimate the volume of the swimming pool based on the depth, length,
and width
of the pool.
Calculate the number of balls by dividing the volume of the pool by the
volume of
the tennis ball.
You may wish to subtract balls due to steps in the pool and the gradual
upslope of
the pool due to the varying depth (but ask first).
12. How many windows are there on one of the Twin Towers?
Determine:
How many floors does the building have?

How many windows are on one face of the building?
Multiply the number of windows per face by four and then by the number
of
floors.
13. How many gas stations are there in Los Angeles?
Determine:
What is the population of Los Angeles?

What is the number of cars in Los Angeles? What is the average number
of cars
per person (including commuters)?
How many gas stations are needed per car?
14. What is the annual size of the golf ball market in the United States?
What
factors drive demand?
Determine:
What is the population of U.S.?

What percentage of the population golfs?
How often does the average golfer golfs?
What is the number of balls used in average golf game (and number that
are lost)?
What factors drive demand?

How many golf courses are being built in the United States?
How many are planned?
Is the population of golfers (due to young Tiger Woods and his ilk)
expanding?
15. Estimate the total revenues of Disney's Tarzan.
Here's where some prior knowledge comes in handy.
Determine:
What were movie ticket revenues in the United States for Tarzan?
What percentage of worldwide sales is the U.S. revenue?
How much does Disney make from video sales?
What are Disney's revenues from cross licensing agreements (dolls,
posters, etc.)?
17. How many red cars are there in the United States?
18. What is the annual demand for table napkins in the United States?
19. How many times would the population of China circle the globe if they
held hands?
20. What is the size of the poultry market in the United States?
21. How many people are cremated in the United States every year?
22. How many barbers are there in New Orleans?
23. What is the annual market for peaches in the United States?
24. What are the revenues of the Plaza Hotel?
25. How many hotel-size bottles of shampoo and conditioner are produced
each year
around the world?
1. Why are manhole covers round?

The classic brainteaser, straight to you via Microsoft (the originator). Even
though this
question has been around for years, interviewees still encounter it.
Here's how to "solve" this brainteaser. Remember to speak and reason out
loud while
solving this brainteaser!
Why are manhole covers round? Could there be a structural reason? Why
aren't manhole
covers square? It would make it harder to fit with a cover. You'd have to
rotate it exactly
the right way. So many manhole covers are round because they don't need to
be rotated.
There are no corners to deal with. Also, a round manhole cover won't fall
into a hole
because it was rotated the wrong way, so it's safer.
Looking at this, it seems corners are a problem. You can't cut yourself on a
round manhole
cover. And because it's round, it can be more easily transported. One person
can roll it.
2. The power has gone out in your hotel room and it is pitch black. You
have 11
white socks and 10 black socks in your suitcase. (It's a long-term
engagement).
You must put on a matched pair of socks, or you'll look terrible at your
presentation! How many socks must you pull from the drawer to be
assured of a
matched pair?
Don't be fooled! Either white or black will do, so you need only three socks
to be sure of
either a white or black matched pair.
3. You are in a room with three light switches. Each controls one of
three light
bulbs in the next room. You must determine which switch controls which
bulb.
All lights are off. You may flick only two switches and enter the room
with the
light bulbs only once. How would you determine which switch controls
which
light bulb?
This is an invitation from the consulting firm to express your "out-of-the-

box" thought
patterns. Staring in disbelief, whimpering in fear or otherwise reacting
negatively will
shoot down your chances. So be creative. Ask if you can pull out your cell
phone and call
a pal for assistance. Run out and buy a drill so you can peek through the
wall. There is,
however, one especially elegant solution. Turn one light bulb on for about 20
minutes.
Then turn it off. Turn another switch on. Then enter the room and feel the
two bulbs that
are off. The hot one will be attached to the switch that you just turned off.
Using all your
senses - that's thinking like a consultant!
4. You are in a rowboat on a lake with the anchor dropped. You pull up
your
anchor. Does the water level in the lake rise, lower or stay the same?
The intuitive answer for many is to say that the water level remains the same
- but it
doesn't. It drops, because the anchor is very dense. The volume overboard
displaces less
water than the mass on board.
5. You have 12 balls. All of them are identical except one, which is
either
heavier or lighter than the rest. The odd ball is either hollow while the rest
are
solid, or solid while the rest are hollow. You have a scale, and are
permitted
three weighings. Can you identify the odd ball, and determine whether it
is
hollow or solid?
This is a pretty complex question, and there are actually multiple solutions.
First, we'll
examine what thought processes an interviewer is looking for, and then we'll
discuss one
solution. (This question is reportedly in use at McKinsey, incidentally.)
Start with the simplest of observations. The number of balls you weigh
against each other
must be equal. Yeah, it's obvious, but why? Because if you weigh, say three
balls against
five, you are not receiving any information. In a problem like this, you are
trying to receive
as much information as possible with each weighing.
For example, one of the first mistakes people make when examining this
problem is that
they believe the first weighing should involve all of the balls (six against
six). This
weighing involves all of the balls, but what type of information does this
give you? It
actually gives you no new information. You already know that one of the
sides will be
heavier than the other, and by weighing six against six, you will simply
confirm this
knowledge. Still, you want to gain information about as many balls as
possible (so
weighing one against one is obviously not a good idea). Thus the best first
weighing is
four against four.
Secondly, if you think through this problem long enough, you will realize
how precious
the information gained from a weighing is: You need to transfer virtually
every piece of
information you have gained from one weighing to the next. Say you weigh
four against
four, and the scale balances. Lucky you! Now you know that the odd ball is
one of the
unweighed four. But don't give into the impulse to simply work with those
balls. In this
weighing, you've also learned that the eight balls on the scale are normal. Try
to use this
information.
Finally, remember that consultants love that out-of-the-box thinking. Most

people who
work through this problem consider only weighing a number of balls against
each other,
and then taking another set and weighing them, etc. This won't do. There are
a number of
other types of moves you can make - you can rotate the balls from one scale
to another,
you can switch the balls, etc.
Let's look at one solution:
For simplicity's sake, we will refer to one side of the scale as Side A, and the
other as Side
B.
Step 1: Weigh four balls against four others.
Case A: If, on the first weighing, the balls balance

If the balls in our first weighing balance we know the odd ball is one of those
not weighed,
but we don't know whether it is heavy or light. How can we gain this
information easily?
We can weigh them against the balls we know to be normal. So:
Step 2 (for Case A): Put three of the unweighed balls on the Side A; put
three
balls that are known to be normal on Side B.
I. If on this second weighing, the scale balances again, we know that

the
final unweighed ball is the odd one.
Step 3a (for Case A): Weigh the final unweighed ball (the odd one)
against one of
the normal balls. With this weighing, we determine whether the odd ball
is heavy
or light.
II. If on this second weighing, the scale tips to Side A, we know that
the
odd ball is heavy. (If it tips to Side B, we know the odd ball is light,
but let's
proceed with the assumption that the odd ball is heavy.) We also know
that the odd ball is one of the group of three on Side A.
Step 3b (for Case A): Weigh one of the balls from the group of three
against
another one. If the scale balances, the ball from the group of three that
was
unweighed is the odd ball, and is heavy. If the scale tilts, we can identify
the odd
ball, because we know it is heavier than the other. (If the scale had tipped
to Side
B, we would use the same logical process, using the knowledge that the
odd ball is
light.)
Case B: If the balls do not balance on the first weighing

If the balls do not balance on the first weighing, we know that the odd ball is
one of the
eight balls that was weighed. We also know that the group of four unweighed
balls are
normal, and that one of the sides, let's say Side A, is heavier than the other
(although we
don't know whether the odd ball is heavy or light).
Step 2 (for Case B): Take three balls from the unweighed group and use
them to
replace three balls on Side A (the heavy side). Take the three balls from
Side A and
use them to replace three balls on Side B (which are removed from the
scale).
I. If the scale balances, we know that one of the balls removed from
the
scale was the odd one. In this case, we know that the ball is also light.
We
can proceed with the third weighing as described in step 3b from Case
A.
II. If the scale tilts to the other side, so that Side B is now the heavy
side,
we know that one of the three balls moved from Side A to Side B is
the odd
ball, and that it is heavy. We proceed with the third weighing as
described
in step 3b in Case A.
III. If the scale remains the same, we know that one of the two balls on
the
scale that was not shifted in our second weighing is the odd ball. We
also
know that the unmoved ball from Side A is heavier than the unmoved
ball
on Side B (though we don't know whether the odd ball is heavy or
light).
Step 3 (for Case B): Weigh the ball from Side A against a normal ball. If
the scale
balances, the ball from Side B is the odd one, and is light. If the scale
does not
balance, the ball from Side A is the odd one, and is heavy.
(more of this brainteaser on next page)
Whew! As you can see from this solution, one of the keys to this problem is
understanding that information can be gained about balls even if they are not
being
weighed. For example, if we know that one of the balls of two groups that
are being
weighed is the odd ball, we know that the unweighed balls are normal. Once
this is known,
we realize that breaking the balls up into smaller and smaller groups of three
(usually
eventually down to three balls), is a good strategy - and an ultimately
successful
6. You are a king, with a hundred princes and princesses in your

kingdom.
Every year, the princes and princesses must bring you a bag of one
hundred gold
coins that weigh one ounce each. But you have learned there is a traitor in
your
realm. He or she will bring you hollowed out coins this year - and then
strike at
you! You are allowed to do one traditional weighing of coins on a scale.
How
will you use this opportunity to flush out the traitor?
Various versions of this puzzle have been making the rounds on the
brainteaser circuit.
"You give back what you get," shrugs one consultant. Here's how to tame
this problem
(and to reason it out loud). First of all, if you ask if you can mark a coin from
each prince
and princess, your interviewer will tell you no - that would be far too easy!
You'll need to
find another way to solve this dilemma. The key is that you must find a way
to somehow
"mark" which prince or princess donates which coin. Number each prince
and princess
from 1 to 100. Then tell each to put that number of coins onto the scale.
Calculate how
much the group of coins should weigh, and determine how many ounces
you're short.
That number of ounces is also the number of the traitor. Guards!
7. You have a five-gallon jug and a three-gallon jug. You must obtain
exactly
four gallons of water. How will you do it?
"They gave this question even after Die Hard with a Vengeance came out!"
says one
outraged consultant. But whether you've seen that gimmicky, puzzle-based
movie or not,
you should find this brainteaser pretty simple. Fill the three-gallon jug with
water and pour
it into the five-gallon jug. Repeat. Because you can only put two more
gallons into the
five-gallon jug, one gallon will be left over in the three-gallon jug. Empty
out the
five-gallon jug and pour in the one gallon. Now just fill the three-gallon jug
again and pour
it into the five-gallon jug. Ta-da.
8. You are faced with two doors. One door leads to your interview (that's
the
one you want!), and the other leads to the exit. In front of each door is a
consultant. One consultant is from a firm that always tells the truth. The
other is
from a firm that always lies. You can ask one question to decide which
door is
the correct one. What will you ask?
Clearly, you can't just ask a consultant which is the correct way - one of
them will lie to
you. The important thing is to work in a double negative. Ask a consultant:
"If I were to
ask you if this door was the correct one, what would you say?" The truthful
consultant
will, of course, answer yes (if it's the correct one) or no (if it's not). Now take
the lying
consultant. If you asked the liar if the correct door is the right way, the liar
will answer no.
But if you ask the liar how they would answer if you asked them the same
question, the
liar will be forced to lie about the fact that they would say no - and answer
yes.
Another solution is to ask a consultant: "If I were to ask the other guy which
way to go,
what would he say?" The reasoning is similar - except in this case, you
should go the
opposite way.
Leaving on a Jet Plane

1. A major airline is considering the purchase of 24 new planes. They are unclear
how this purchase will affect their business performance in the near term as well as the
long term. You are the Senior Consultant meeting with the Operating Committee for the
first time. I am the Chief Operating Officer of the company. What would you need to
know from me in order to assess the situation?
Here is a good example of a directed question combined with a role-playing exercise. Not
only will the interviewer be assessing your analysis and deductive abilities, but she will
also be evaluating your poise and professionalism in front of a senior executive. In many
cases consultants find themselves in front of key client personnel who are older and more
experienced in the industry, so your ability to cope with this type of situation is essential.
How will you actually go about assessing the situation and finding information once you
arrive at the client? (This case was given to an MBA-level candidate.)
You: What is the planned delivery cycle of the new aircraft? Will it be
staggered, serial, or all at once?
Interviewer: Aircraft will be delivered as they are manufactured over the next five
years, at approximately four per year.
You: How many planes are in the current fleet? Are there any plans to sell off
older aircraft as the newer aircraft are delivered?
Interviewer: There are 120 planes in the current fleet. There are no plans to get rid of
our older aircraft as the new ones arrive.
You: What is the current average cost per flight-hour of the fleet?
Interviewer: It varies by aircraft type. The range is anywhere from $1,000 to $5,000.
You: Do you have any frameworks in mind for assessing this situation?
Interviewer: No, what would you suggest? (This is a tough response because it asks you
to put a stake in the ground.)
You: Well, in many cases I have used a company’s cost of capital, relative to
the average cost of capital in the industry, industry-specific metrics like the cost per
flight-hour, as I already mentioned, and depreciation method choice. I would also want to
assess the new efficiencies brought about by your purchase, as in fuel cost savings,
increased passenger load, and so on. Do these sound reasonable to you?
Interviewer: Yes, as a beginning. How will you go about finding the information you
need?
You: I would first need to know appropriate contact people in purchasing,
finance, and accounting who could provide the quantitative facts I need to perform the
assessment. With your introduction, I would like to meet with each of these people from
two hours to a half-day in order to gather the information. I would need to circle back
through each of them after the initial interviews simply to validate the information I have
compiled, once I have assembled a draft.
Interviewer: That sounds like a workable plan.
Second case
Help! Our Profit Margins are Shrinking!
2. You are the consultant to a company that produces large household appliances.
Over the past three years, profit margins have fallen 20 percent and market share has
tumbled to 15 percent of the market from 25 percent. What is the source of the
company’s problems?
This is an example of the type of question an undergraduate student (or an MBA student
in an early interview round) might receive. The interviewer has done you the favor of
defining the problem - your client is in something of a slump! This dialogue illustrates
how you, the perspicacious candidate, might drill down into the core of the woes
besetting the firm.
You: How would you characterize the current marketplace for these products?
Emerging? Mature?
Interviewer: The product line is considered mature.
Tou: How would you characterize your manufacturing process relative to your
competition? You’re looking to see if the company has a strategic advantage.
Interviewer: Can you be more specific?
You: Do you benefit from an advantage in technology, economies of scale,
exchange rates, or other manufacturing element over your competition?
Interviewer: We have not updated our manufacturing process since 1988. We
manufacture our products exclusively in the United States. As one of the oldest
manufacturers of these products, we have a reliable customer base and a good reputation.
As for price, we are one of the lower-priced in the market, though not the lowest.
You: Do any of your competitors manufacture overseas?
Interviewer: Our number one competitor produces all of their appliances in Indonesia.
(Here’s your clue - manufacturing outside the country significantly lowers costs.)
You: It probably suffices to say that some of your decline in profit can be
attributed to the increased costs you are facing relative to older manufacturing techniques
and higher costs associated with manufacturing domestically. This is especially toxic in a
mature market where consumers are mostly aware of the product category and the
product may be considered a commodity. (A commodity marketplace is one in which
customers make their purchasing decisions largely on price. For example, toilet paper is
largely a commodity market, where consumers buy whatever’s on sale.)
Let’s talk about market share now. Can you tell me about any recent market research you
have regarding the strength of your brand, price, your products’ position, and any
promotional activity you have had?
Interviewer: Our market research department has told us that consumers are confused
about the product category, that they do not understand the differences between our brand
and our competitors’ brands. We sell to all major appliance retailers in the U.S. We
promote aggressively twice a year, and have smaller promotions once a quarter. (This is
consistent with the description of a commodity product. The ways of breaking out of
commodity markets include promotions and making value-added differences in the brand
- like, in the case of toilet paper, introducing new designer colors and
specially quilted cotton-blend paper.)
You: What form does your promotional activity take?
Interviewer: We offer a price discount to consumers twice a year. We regularly
advertise in major magazines targeted to our consumer, and we have an active outdoor
campaign underway.
You: It would appear your are competing in an undifferentiated marketplace and
there may be an opportunity to capture additional share through an aggressive brand
differentiation effort. I believe it would also be worth investigating the efficacy of your
current promotional programs, relative to your competition. The consumer may be
responsive to other types of promotions that haven’t been utilized by the company as of
yet.
Third case
Banking on Savings
3. A bank is trying to increase its operating efficiency. Your consulting team has
been asked to look at the non-interest, non-personnel expense base in order to cut costs.
How would you determine the potential size of the opportunity for operating efficiency?
What issues might arise in such a study?
This is an exercise in full-value procurement. FVP is a rationalization across business

units of common purchases and services. The measure of an FVP is the amount of
“spend” reduced, defined as the cost savings realized by reducing the number of sources
from which common products/services are purchased. (This question, and questions like
it that require advanced frameworks, are much more likely to be received by business
school candidates and case interviewees with significant business experience than by
undergraduates with no business experience.)
In this case interview, your interviewer will impersonate the client. Case interviews often
take this kind of role-playing form (which can be fun!).
You: What is your revenue level on an annual basis like?
Interviewer: In 1998 our revenues were $1.2 billion. (These seem to be the revenues of
a prosperous regional bank, not a major player.)
You: What are the common items and services that all business units use? Do
you have common office suppliers or housekeeping services?
Interviewer: Well, obviously we have most common office products shared across all
our functions. We also have cleaning services for our corporate headquarters, our printing
center, and our retail locations.
You: How many vendors provide similar products and services to the bank?
Interviewer: We buy office products from OfficeMax’s corporate services in Indiana,
Avery Dennison corporate services in California, and someone else, the name of which
escapes me right now, for the retail banks. Also, I believe we contract regionally for
housekeeping services.
You: Is consolidating branch offices or reducing ATM counts a possibility?
Interviewer: Not at this time. In fact, we’re planning to expand in three different states.
You: Are your cost concerns the result of an impending merger? (Perhaps the
interviewer has deliberately left out an important piece of information - the bank has
undergone, or is planning, a merger or acquisition of another bank that might drive up
costs.)
Interviewer: No, our growth is organic, not through acquisition. (Looks like this is a
dead end. Time to move on to other considerations.)
You: Have you considered outsourcing non-critical business tasks?
Interviewer: What kind do you suggest? (Your interviewer is probing to see if you can
name the kind of services a bank might successfully outsource.)
You: Well, what about information systems, call centers and customers service,
bill collection, document handling, those kind of things?
Interviewer: Oh, no. That’s not possible. (Remember that this is a role play. This seems
a bit uncommunicative for a reasonable suggestion; you should probe a bit further.
Businesses aren’t always entirely reasonable in their actions!)
You: Can you explain your objections?
Interviewer: Don’t you think outsourcing those processes is extreme? We’re a bank,
and we have a lot of confidential information on both paper and electronic media. Our
integrity would be put at risk if we let others manage our internal functions.
You: Well, sir, I understand your objections. However, many major
corporations use organizations that centralize activities like copy centers and conference
planning, all of which also have trade secrets and confidential information.
Interviewer: That sounds interesting, and I’d like more information. (Your interviewer
graciously acknowledges the wisdom of your suggestions.) But can you give me a
concrete suggestion my supervisor will like?
You: (Time to return to a less controversial aspect.) What would you estimate
your spending to be for things like office products?
Interviewer: I estimate about $100 million on office products, corporation wide, in
1998, though you’d have to talk to our operations people, of course.
You: I think, based on your information, that there are ample opportunities for
cost savings that I can identify right now. Reducing your vendors down to one or two will
allow you to use economies of scale to extract cost savings. Outsourcing promises even
greater savings.
FOURTH CASE
Paper or Air
4. A restaurant owner is currently setting up a new restaurant and making some
basic decisions on how to fit it out. He is today making a decision on the facilities to
place in the restrooms for customers to dry their hands. Initial research suggests that he
has three options - paper towels, roller towels and hot air dryers. What should he consider
in his decision-making process?
In the initial analysis, you might ask a number of questions, which will influence your
decision.
What type of restaurant is it going to be - luxurious, budget, middle-market?
How many customers does he expect? (How many tables? Is it open during the day? In
the evening?)
Has he done any customer research to see what customers would prefer?
Fairly soon in the process, you should start asking questions about the economics of the
three options - in which case the interviewer will give you some more information:
In the initial research, the restaurant owner has found out the following information from
the suppliers of the drying facilities:
Dryers have an initial cost of $500 each (but you’ll need two - one for each restroom) and
monthly service charge of $100 per month. The supplier estimates that the lifetime of a
dryer is four years.
Paper towels cost 5 cents each and the number of paper towels that you will need varies
directly with number of customers. So if you expect 50 customers a night, they will use
50 towels.
If you use toweling rolls, they will cost $5 per roll (and again you’ll need two - one for
each restroom). The rolls will be changed daily if the restaurant has more than 2,000
customers per month or every other day if there are less than 2,000 customers per month.
At this point, it’s obvious that from an economic standpoint, the option you select will
vary with the number of customers. Therefore, it makes sense to look at a break-even
calculation.
First of all, take the dryers. They cost $100 per month, plus an upfront charge of $1,000
that you should depreciate over their lifetime (i.e. an additional $1,000/(4 x 12) per
month = $21 per month). Therefore their total cost is approximately $120 per month -
and this does not vary with the number of customers coming into the restaurant.
Secondly, look at the paper towels option. These vary directly with number of customers
in the restaurant, at a cost of $0.05 per customer. Therefore with low numbers of
customers per month, paper towels will be cheaper than dryers will. How many
customers would have to come to the restaurant each month to make the dryers more cost
effective? The cost of towels would have to exceed $120 per month, equating to
$120/$0.05 = 2,400 customers per month.
Is this break-even affected by the rolls option? At less than 2,000 customers per month,
the rolls would cost $10 every other day or $10 x 15 days = $150 per month. This in itself
is more costly than both the dryer and the towels option, and with more than 2,000
customers, it will only look more unfavorable.
Therefore the real economic decision is between towels and dryers. At less than 2,400
customers per month (or 2,400/30 = 80 customers per night) you would prefer the towels.
Once the number of customers increases above this, you’d switch to the dryers’ option.
Following the economic analysis, you might mention a few more non-economic points
that might sway the balance:
Are there additional staff costs of cleaning up paper towel waste?
How many suppliers of each option are there? If there is a single supplier, might he have
the capacity to raise prices in the future?
Hints on quantitative cases:
Make the numbers easy - round up or down when possible to make further calculations
easier.
When you’re jotting down numbers, make sure you keep a track of what is what, so when
you pull together your recommendations at the end of the analysis, you can make
comparisons between the options.
In break-even cases, it is sometimes effective to draw a graph to illustrate the break-even
decision (in this case, number of customers per month along the x-axis versus cost of
drying option along the y-axis).
Fifth case
Making a Case out of Lemons
5. Your niece approaches you and says “Since you’re a management consultant,
maybe you can help me. I want to buy my mother a present for her birthday, and I was
thinking of opening a lemonade stand to earn the money. Tell me what you think of my
plan.”
Isn’t she cute? Yet this is a serious case (from Bain, no less). The interviewer is trying to
see if you can set up a value chain for your niece. Get out your notepad.
You: What kind of present do you want to get for your mother?
Interviewer: I want to get her a pair of gold earrings.
You: That’s a very nice idea. I’m going to assume that you want to buy a pair of
earrings that cost $50.
Interviewer: Actually, the earrings I want cost $100. (The interviewer is trying to raise
the bar a bit.)
You: Okay. When is your mom’s birthday? What’s your timeframe?
Interviewer: My mother’s birthday is in three months.
You: What kind of time commitment can you make to the lemonade stand?
How many days a week do you plan to run the stand?
Interviewer: I have to go to school during the week, so I think just on weekends.
You: Here are some of the considerations you need to make if you want to earn
$100 in three months from your lemonade stand.
What are your expenses? Let’s say that you need to buy the pitcher, which is $2. Every
100 plastic cups will cost you $1 in direct costs. Those are your base expenses.
You then have to make several cost decisions. What size cups will you use? Eight-ounce
cups will mean that you can serve more cups of lemonade per pitcher. (If it’s a gallon jug,
with 64 ounces, then you can serve eight cups per pitcher. Sixteen-ounce cups, which
may be perceived as a better value, means that you can serve only four per pitcher.)
You must also decide what kind of lemonade to serve. Lemonade made from powdered
concentrate is probably the cheapest - perhaps $1 a gallon. Lemonade made from fresh
squeezed lemons has a definite quality advantage, but it’s more expensive. At $0.25 a
lemon and eight lemons to a gallon, it would cost $2 for each gallon. And you might be
able to get prepackaged lemonade sold at the store for $1.50 a gallon.
Interviewer: So how long will it take me to get enough money for the earrings?
You: Assume $10 in sunk costs - $2 for the pitcher and $8 for 800 cups. You
then need to decide what to charge. If you charge 50 cents a cup of lemonade - which I
believe is the upward end of lemonade stand prices - and it costs you $1 to make the
cheapest gallon of lemonade, then you’d earn $3 on each gallon of lemonade sold. In four
weekends in three months, you would need to sell 37 gallons of lemonade. Then you’d
earn $111 dollars - enough to pay off the pitcher and cups. That’s three gallons a
weekend, or 24 cups of lemonade each weekend.
Interviewer: Does this sound reasonable to you?
You: So far, yes. But this is just the cost structure. You must consider other
factors as well. Who are your competitors? Are there other kids trying to sell lemonade at
the same time? Are you located near delis and restaurants and street vendors who might
sell competing beverages?
What is the demand for your product? Is it summertime, when people drink a lot of
lemonade and are spending time outdoors, generating foot traffic? If not, you may have
difficulty moving your lemonade. In cold weather, you might want to consider selling hot
cider instead.
Where are you located? How many potential customers will pass your lemonade stand?
Can you set up your lemonade stand at a sporting event, supermarket parking lot or flea
market, where many more people will pass your stand? If you just set up on the sidewalk,
you may not attract the foot traffic to make those numbers. Indoor or sheltered locations
are also preferable if the weather turns bad.
You have a competitive advantage - you’re young and cute. You may get business from
people who approve of your young entrepreneurial actions. At the same time, lemonade
stands have a reputation for relatively poor lemonade, which may hurt your overall sales
if you have competition.
Do you have any subsidies? That is, would your dad be willing to cover your start-up
costs - the pitcher, the cups, and perhaps the cost of the lemonade. This would perhaps
permit you to offer better-quality lemonade.
Consider your advertising. You’ll need a big sign to call attention to your stand. You can
rely on your parents for free - I assume - word of mouth. You should also consider
offering another product besides lemonade. Perhaps selling cookies or brownies, in
addition to the lemonade, might increase your profits.
You should consider other revenue-generating activities as well. If you are 14, a paper
route is a possibility. You may also be old enough to babysit. It’s also possible that you
might be able to choose another pair of earrings, or find the ones you want on sale. This
would lower your income requirements.
SIXTH CASE
Phoning in a Case
6. You are advising a credit card company that wants to market a prepaid phone card
to its customers. Is this a good idea?
Whoa! Better find out more about this prepaid phone card first before you even begin to
think about recommending this phone card.
You: What is the role of our company? Do we simply market the card or must
we create them ourselves? Are we expected to provide the telephone services?
Interviewer: This card will be co-marketed with an outside phone company. We do not
need to perform telecommunications functions.
You: What are our expenses connected with the card? Interviewer: We must
pay 15 cents for every minute we sell. We also have to pay $1.00 as a start-up cost for the
card and card systems.
You: What are our marketing expenses?
Interviewer: We normally use slips of paper that are attached to the backs of our credit
card payment envelopes. We sometimes also send customers a direct mailing - in a
separate envelope. Or we can have telemarketers call selected customers.
You: What’s the cost of each of these marketing techniques, and what is their
response rate?
Interviewer: Telemarketers have a 2 percent response rate, and cost $1.00 per call.
Direct mailings cost us 40 cents per mailing and have a 0.50 percent rate of response. Our
payment attachments have a 0.25 rate of response, but only cost us 5 cents each.
You: I’m going to assume we will sell one-hour phone cards. That will cost us
$9.00 for the minutes and a dollar per card - so each card costs us $10.
Interviewer: Okay, that sounds reasonable.
You: And what is our expected revenue on a one-hour phone card? What is the
current market rate for a 60-minute phone card?
Interviewer: Assume it’s 50 cents a minute.
You: So if we sell the cards for $30, we have a $20 profit, minus our
expenditures on marketing. Interviewer: What’s our cost structure look
like?
You: Okay, let’s figure this out. To sell 1,000 cards through telemarketing, we
would need to contact 50,000 people. That would cost us $50,000. To use direct mail, we
would have to contact 200,000 thousand people, which, at 40 cents per mailing, costs us
$80,000. Since the envelope inserts aren’t very reliable, we will need to contact 800,000
people using that method. But at 5 cents each, it costs only $20,000 to sell 1,000 cards.
We make $20 profit on each card. But even at the cheapest promotional vehicle, at $20
profit, we would only break even, because our profits on 1,000 cards would be $20,000.
We shouldn’t market this card, unless we can further cut our marketing costs or increase
the price of the card. If we could slice the cost of the envelope attachments a penny or so,
or sell the card for $35, or convince our co-marketer to reduce our costs, it might be
worth selling.
Interviewer: What are some other issues you might want to consider? (Notice how the
interviewer is nudging you to add to your analysis.)
You: We should also consider the competitive landscape for this business. Is the
per-minute rate for calling card minutes expected to fall? If so, and our costs are held
constant, we may expect to lose money. Of course, we can learn more from marketing
these cards. It could be that the people likely to buy these cards might be frequent
travelers and could be targeted for other promotions.
Next case
11. You have the opportunity to purchase a landscaping business. How would you
decide whether or not to buy it, and how much to pay for it?
This question is a good candidate for the Five Cs. Determine:

Character
How would you evaluate the sincerity, honesty, and integrity of the owner of the
business? Do others that they deal with (employees, suppliers, customers) value them as
partners or are there character issues?
Are there any legal actions pending against the business?
Does the business have a positive employee culture? Does it engage in any charitable or
environmental initiatives?
Capacity
Is the business turning away new customers due to lack of equipment/employees?
Are the assets of the company (property, plant) strained or in a state of disrepair?
Capital
Is the landscaping business carrying any debt? What is its debt ratio?
What is the company’s cash flow like over the last five years?
What is the company’s new account history? How much business is new vs. repeat?
(more of this case on next page)
Collateral
Are any of the business’ assets impaired in any way? Obsolete equipment, for instance?
Conditions
Describe the market space the business occupies. Are they a leader? Are there many
players?
What defines dominance in this market? Cost? Economies of scale? Speed to market?
Relationships with customers? Where does this business fall against the aforementioned
metrics?
Is the market for landscaping saturated? Are there opportunities for expanding the current
customer base?
What advertising and promotional activity has been done? How much does the business
spend (as a percent of sales) on marketing its services?
Next case
12. You have inherited a start-up software company. How do you estimate market
size? On which fronts do you anticipate problems?
Another great candidate for the Five Cs. Here are some points adjusted for the unique
dynamics of the start-up environment.
Character
How would you evaluate the sincerity, honesty, and integrity of the owner of the
business? Do others that they deal with (employees, suppliers, customers) value them as
partners or are there character issues?
Are there any legal actions pending against the business?
Does the mission of the start-up make sense? Is their business concept sound?
What is the timeline/progress of development, coding, testing, and production as
originally conceived in the business plan? Does it make sense?
What is the previous track record of each of the principals of the startup?
Capacity
What is the plan for producing the product when the code is ready? Is outsourcing
stamping, packaging, and shipping an option?
Capital
What is the makeup of the initial seed capital to start the business? Personal assets, small
business loan, venture capital funds?
What is the debt structure like if it exists? Interest rates, due dates, rollover ability,
secured assets, etc.?
Collateral
Have any patents been applied for? What is their status?
What has been done to protect the intellectual capital/property associated with the
software design?
Conditions
Describe the market space the business occupies. Why did the business come into
inception?
What defines dominance in this market? Cost? Economies of scale? Speed to market?
Relationships with customers? Where does this business fall against the aforementioned
metrics?
Is the market for this type of product saturated? Is there a particular unfulfilled segment
where this product fits or will it be competing against other already established products?
What is the advertising and promotional activity planned for this product?
Next case
Distribution case
14. We have been engaged by a major entertainment company to assist them in
building a distribution network for home video. They currently contract their distribution
through other, more established, entities but the contracts with those companies are
expiring and it is unclear whether the new contracts contain favorable terms or not. There
is still a chance that our client may continue to distribute their products through a third
party. How would you assess whether to build a distribution network or continue the
contracts with the third parties?
First of all, you need to ask your interviewer some basic questions:
It makes sense to ask your interviewer about best practices - that is, what are other
entertainment companies doing? What are the current costs? Does the company have the
staff and resources to create its own distribution network?
Of the major entertainment companies that produce video, do most distribute through
their own proprietary supply chain or through third parties?
What is the client’s current cost of distribution through its contractual partner(s)?
Has the client attempted to assess building its own distribution network before retaining
us? If so, what were its findings?
Does the client have a dedicated functional staff assigned to the project? If so what
functional areas do they represent?
After establishing some basic facts, it’s time to get more detailed. Your interviewer may
allude to certain avenues to discuss, or shut down others. If the interviewer confirms that,
yes, the company does have enough current staff to handle setting up its own network,
there’s no call to delve deeper into the ramifications of reassigning personnel. Let’s say
that, through questioning, you’ve come to decide that staying with a third-party
distributor makes the most sense. Now the question is - should the company stay with
their current distributor, or choose a new one?
Who are possible alternative partners? Who uses them?
Could you characterize the relationship between the client’s distribution partner and the
client? Is there a possibility of retaliation on the part of the distribution partner if the
client severs its ties to this party? How many weeks of supply are currently in the
distribution partner’s pipeline? How receptive are the client’s accounts to changing
distribution partners? Has a value proposition been created to show the client’s accounts
that a client-owned supply chain would be more efficient, valuable, etc. to the accounts?
Does the client have any financial interest in the distribution partner that might have to be
severed?
After answering these questions, make a recommendation.
Next case
PRESSURE CASE
While most interviewers will be pleasant, there are some interviews that are seemingly
designed to be stressful.
16. Here’s an actual example of how one “pressure case” started off:
Interviewer: Okay, what kind of case do you want?
Candidate: Huh?
Interviewer: We don’t have much time. Give me a case.
Candidate: Um, market entry?
Interviewer: Okay. Truck leasing.
Candidate: What?
Interviewer: Truck leasing. Europe.
Candidate: Well, what countries in Europe are we targeting?
Interviewer: Wrong!
Candidate: (Taken aback) Who are our competitors?

Interviewer: Wrong.
Candidate: What kinds of trucks do we lease?
Interviewer: Wrong, wrong.
Candidate: I give up!
Interviewer: What is truck leasing?

(It goes to show - you can never make assumptions in case interviews! Even if you think
you know what truck leasing, or shrimp farming, or any other industry you’re presented
with - don’t proceed without clarifying your suppositions with the interviewer.)
Some cases are written and do not involve an interactive process between the interviewer
and the candidate. (Monitor uses written cases frequently, for example.) Here’s an
example of an actual written case, and a potential outline.
17. Widget Associates is a private equity placement firm with $3 billion in assets.
They are primarily focused on the confluence of information and high technology and
would like to utilize their assets in a manner consistent with this interest. Below, please
describe your approach to the following:
Assessing Widget Associates’ strategic direction
Evaluating their market interest and its potential for success
Creating a value proposition that marries their strategic vision with marketplace
dynamics
Suggestions for initial placement of funds
Please be succinct with your answers. You may bullet point if you like. You have 30
minutes to complete the exercise.”
The best way to approach written business case questions is to create a brief outline and
then flesh out those points. Don’t write too much, or in too much detail. This is a very
easy mistake to make since you will be nervous and under time pressure. The art of
answering written case interview questions successfully is to be succinct, logical - and
speedy. An appropriate outline to use as a framework for this answer might be:
1) Strategic assessment
(a) Industry assessment

(b) Key members, market potential/forecast, volatility
(c) Tools to use (Porter’s Five Forces, BCG Matrix, etc.)
(d) Widget’s potential for a role in this industry
(e) Risk assessment
2) Value Proposition
(a) Assessment of the value Widget brings to this industry
(b) Justification for injection of outside funds into this industry
3) Tactical effort
(a) Identification of a short list of primary targets
(b) Assess readiness of key players (management team, legal, financial, etc.)
(c) Evaluate all potential marketplace outcomes and validate against strategy
(d) Construction of workplan with milestones/deadlines and go/no go decision points
This is probably an overly detailed outline but you may choose to answer the question
simply as above, with a little bit of detail attached to each sub-point. Remember that the
interviewer isn’t looking for The Great American Novel, or even flashes of what you
perceive as wit. Just the actions you would take to assess, evaluate, analyze, and
recommend action for the situation.
22.? ? You have been appointed the manager of a rental car company. How do you
measure its efficiency?
This case question is a good candidate for the Value Chain approach.
What are your expenses (cars, insurance, rental of car office, advertising)?
What is your average rental time period? (On average how long is a car checked out?)
How fast is a vehicle turned around (from drop-off to back on the line)? What is the
industry average for this turnaround?
What percentage of your fleet is down for repairs on average? How does this compare to
the industry?
What percentage of your employees call out sick every day on average? How does this
compare to the industry?
Does the business exhibit any seasonality (for example, are you located near a ski resort
that sees business boom in the winter)? How do you account for these effects?
Another way to look at this question is to use a real-life “out-of-the-box” approach. Why
not simply look out on the lot and see how many cars are rented out at any given time,
and what kind they are - and do this over a period of time in different locations? This
kind of real-world approach will win points with consultants, who actually have to drive
around and look at parking lots at 4 a.m. (and other such hijinx) more often than they
would probably like.
23.? ? Our client has engaged us to assist them in reorganizing their salesforce.
They want to cut $50 million in costs from this area over the next two years.
This is an organizational change question. What is especially important here is to balance
the financial realities of the situation against the organization impact of head count
reduction, the introduction of new technologies, etc.
Questions that would help focus this situation include:
What is the primary business for this client?
What is the timeline for the reorganization process?
What is the early estimate of how many people could be involved?
What is the scope of change? Does it include downsizing, the introduction of
technologies, closing/selling-off of locations, reengineering business processes?
What is the early assessment of the organizational climate for change? Are they receptive
or resistive? What are the reasons for resistance if any?
Can you describe any dynamics unique to this client’s business that put the success of the
project at risk?
What are the major risk factors surrounding this project?
What are the measurements of success for this project?
24.? ? Your client is trying to decide whether or not to invest in a helicopter company.
You have been asked to assess the long-term attractiveness of the helicopter market.
Since this case is primarily asking for an industry analysis (is this an attractive industry?),
Porter’s Five Forces is one framework useful in formulating your recommendation.
25.? ? A large health care company has hired you to determine a strategy for improving
profitability through growth. The company hopes to reach its goal in three years. What do
you advise?
Note that your interviewer will often impose deadlines and other “constraints” that
represent the wishes of the client (for example, the client wants to reach its goal within
six months; the company wants to reach its goal without spending for than $5 million,
etc.). You should not necessarily be constrained by the company’s hoped-for timelines or
budget constraints, unless your interviewer tells you otherwise. In this case, you should
question whether three years is a realistic or even optimal timeline. Your job is to
recommend the best course of action, including an optimal timeline, not to take your
client’s wishes as representing the best course of action.
26.? ? Our client, ABC Airlines, is losing money. Why?

Remember to consider the firm’s actions as well as external market forces such as the
competitive environment. Questions include asking whether other airlines are losing
money, or suffering drops in profits. If so, why? Causes might range from a rise in the
cost of fuel, to the need to replace most of ABC’s fleet due to stringent new government
regulations, to a general slump in the economy that reduces the number of tourists and
causes business customers to tighten their belts.
You are head of a large American corporation. Your company must build a new paper
plant. You must decide which country to build the plant in. What factors would you
consider?
Analyze your supply chain. Where do you incur your costs? If your paper plant is highly
automated, it might make more sense to build it in America or another developed country
where you have access to skilled labor. If, on the other hand, your paper plant requires
thousand of employees, you may want to consider a country or region of America where
the cost of labor is lower.
28.? ? Your client is a major airline that wants to reduce the amount of money it spends
per passenger on food service, ticketing, and baggage handling. What would you advise?
Certainly, benchmarking is one good starting point for this type of case. You would
certainly want to know (or at least be able to estimate) how much other airlines spend on
each passenger for food service, ticketing, and baggage handling. Are your client’s costs
in each of these areas high or low for the industry?
You would also want to examine “best practices”: which airlines have the lowest costs in
each of the three areas of food service, ticketing, and baggage handling? What are they
doing right, and how can we emulate it? (Remember that best practices for a particular
process may be found outside the airline industry. For example, how do passenger
railroads or cruise ships ticket their passengers? Are companies in that industry doing
anything particularly well that may apply to the airline business?)
If you were Ratan Tata, how would you have decided between investing 700 crores in the
indica project vs. the same amount in (say) TCS. Don’t start straight off the bat and
provide an answer like I did; explain your decision process to the interviewer and think
through loudly. They are not interested in the answer but in the clarity of your thought
and the exhaustiveness of the issues you try to cover. Remember the MECE concept
while listing out issues: Mutually Exclusive And Completely Exhaustive.
The case opens....
Interviewer: "John, the particular assignment I'd like to discuss with you involves
helicopters. Our client is trying to decide whether the helicopter business is an attractive
opportunity for continued investment. As part of the effort, they've asked us to
specifically evaluate the demand outlook for non-military helicopters--30 years out into
the future. Essentially, the client wants to understand the long-term attractiveness of the
helicopter market. This product has roughly a 20-year life cycle, so you need to look out
a long way. John, if you had to write the proposal for this engagement, how would you
approach the work?"
Candidate: "All right (begins to babble) there are different kinds of helicopters, there's an
issue of geographic segmentation, it's a form of air travel, it's also for transporting freight
and personnel . . .; so if we're talking about 20 years, I wonder what the technology cycle
is. . ."
PRINCIPLE ONE: Stay calm; take time to think.
Use pauses to allow yourself time to think. You may want to jot down some points to
help you think through the problem--a whiteboard and/or pen and paper will be available
to you in the interview room.
PRINCIPLE TWO: Begin by defining issues and hypotheses--NOT answers.
Consulting firms are not necessarily looking for the one right answer in the case. What
we're looking for is how you think about a problem:
• What are the issues you're going to raise?
• What hypotheses are you going to put together (i.e., potential answers for each
issue that need to be supported or disproved by analysis)? For example, with the
rapid expansion of many forms of electronic communication, fewer people will
need to travel, including by helicopter. This is arguably creative as hypotheses go,
but it could still be tested and supported or disapproved by data and analysis.
• What are the questions that you are going to ask--to support or disprove your
hypotheses?
It's the approach that we're looking for, not necessarily the answer, which is the second
point to think about in preparing for the case: define issues, hypotheses, and then the
questions to pursue.
PRINCIPLE THREE: Develop a framework: don't generate random ideas.
If you have an economic background, use it. Economic concepts make great frameworks.
In building your framework, consider the classic business elements: Profit as the result of
Revenue less Cost; Revenue as determined by Supply and Demand. This type of
framework will help focus your questions.
Never assume the interviewer knows where you are going, even if you have a framework
in your head. If the framework has two elements to it, don't start talking about one of
them in detail without laying out the other orally.
PRINCIPLE FOUR: Surface potential causal, not descriptive, analysis.
The interviewer will want to understand why things are happening, not just what has
happened. Good consultants go far beyond the obvious, beyond basic market research.
We need to decompose the underlying drivers of the situation--what's actually making the
situation change--now and in the future.
PRINCIPLE FIVE: Focus on the issues and opportunity facing the client.
When you are doing the case, it is incredibly easy to get thrown off the track. Two great
ways for tying back to the client's position are thinking about the question that you're
answering and using the framework you've set up to guide you through the case.
PRINCIPLE SIX: Drive to potential actions for the client; be pragmatic.
Thinking about issues, creating frameworks, and testing hypotheses are fun, essential,
and at the heart of what we do. But the ultimate experience comes from using all this to
help clients act. In the interview, think through the possible actions a client might take.
Your client is the largest discount retailer in Canada, with 500 stores spread throughout
the country. Let's call it "CanadaCo." For several years running, CanadaCo has surpassed
the second largest Canadian retailer (300 stores) in both relative market share and
profitability. The largest discount retailer in the United States, "USCo," however, has just
bought out CanadaCo's competition and is planning to convert all 300 stores to USCo
stores. The CEO of CanadaCo is quite perturbed by this turn of events, and asks you the
following questions: "Should I be worried? How should I react?" How would you advise
the CEO?
Well, before I can advise the CEO I need some more information about the
situation. First of all, I'm not sure I understand what a "discount retailer" is!
A discount retailer sells a large variety of consumer goods at discounted prices, generally
carrying everything from housewares to appliances to clothing. Kmart, Woolworth, and
Wal-Mart are prime examples in the U.S.
Oh, I see. Then I think it makes sense to structure the problem this way: First, let's
understand the competition in the Canadian market and how CanadaCo has
become the market leader. Then let's look at the U.S. to understand how USCo has
achieved its position. At the end, we can merge the two discussions to understand
whether USCo's strength in the U.S. is transferable to the Canadian market.
That sounds fine. Let's start, then, with the Canadian discount retail market. What would
you like to know?
Are CanadaCo's 500 stores close to the competition's 300 stores, or do they serve
different geographic areas?
The stores are located in similar geographic regions. In fact, you might even see a
CanadaCo store on one corner, and the competition on the very next corner.
Do CanadaCo and the competition sell a similar product mix?

Yes. CanadaCo's stores tend to have a wider variety of brand names, but, by and large,
the product mix is similar.
Are CanadaCo's prices significantly lower than the competition's?

No. For certain items CanadaCo is less expensive, and for others the competition is less
expensive, but the average price level is similar.
Is CanadaCo more profitable just because it has more stores, or does it have higher
profits per store?
It actually has higher profits than the competition on a per-store basis.
Well, higher profits could be the result of lower costs or higher revenues. Are the
higher per-store profits due to lower costs than the competition's or the result of
higher per-store sales?
CanadaCo's cost structure isn't any lower than the competition's. Its higher per-store
profits are due to higher per-store sales.
Is that because it has bigger stores?

No. CanadaCo's average store size is approximately the same as that of the competition.
If they're selling similar products at similar prices in similar-sized stores in similar
locations, why are CanadaCo's per-store sales higher than the competition's?
It's your job to figure that out!
Is CanadaCo better managed than the competition?

I don't know that CanadaCo as a company is necessarily better managed, but I can tell
you that its management model for individual stores is significantly different.
How so?
The competitor's stores are centrally owned by the company, while CanadaCo uses a
franchise model in which each individual store is owned and managed by a franchisee
who has invested in the store and retains part of the profit.
In that case, I would guess that the CanadaCo stores are probably better managed,
since the individual storeowners have a greater incentive to maximize profit.
You are exactly right. It turns out that CanadaCo's higher sales are due primarily to a
significantly higher level of customer service. The stores are cleaner, more attractive,
better stocked, and so on. The company discovered this through a series of customer
surveys it administered last year. I think you've sufficiently covered the Canadian market
—let's move now to a discussion of the U.S. market.
How many stores does USCo own in the U.S., and how many does the second largest
discount retailer own?
USCo owns 4,000 stores and the second largest competitor owns approximately 1,000
stores.
Are USCo stores bigger than those of the typical discount retailer in the U.S.?
Yes. USCo stores average 200,000 square feet, whereas the typical discount retail store is
approximately 100,000 square feet.
Those numbers suggest that USCo should be selling roughly eight times the volume
of the nearest U.S. competitor!
Close. USCo's sales are approximately $5 billion, whereas the nearest competitor sells
about $1 billion worth of merchandise.
I would think that sales of that size give USCo significant clout with suppliers. Does
it have a lower cost of goods than the competition?
In fact, its cost of goods is approximately 15 percent less than that of the competition.
So it probably has lower prices.

Right again. Its prices are on average about ten percent lower than those of the
competition.
So it seems that USCo has been so successful primarily because it has lower prices
than its competitors.
That's partly right. Its success probably also has something to do with a larger selection
of products, given the larger average store size.
How did USCo get so much bigger than the competition?

It started by building superstores in rural markets served mainly by mom-and-pop stores
and small discount retailers. USCo bet that people would be willing to buy from it, and it
was right. As it grew and developed more clout with suppliers, it began to buy out other
discount retailers and convert their stores to the USCo format.
So whenever USCo buys out a competing store, it also physically expands it?
Not necessarily. Sometimes it does, but when I said it converted it to the USCo format, I
meant that it carries the same brands at prices that are on average ten percent lower than
the competition's.
What criteria does USCo use in deciding whether it should physically expand a store
it's just bought out?
It depends on a lot of factors, such as the size of the existing store, local market
competition, local real estate costs, and so on, but I don't think we need to go into that
here.
Well, I thought it might be relevant in terms of predicting what it will do with the
300 stores that it bought in Canada.
Let's just assume that it doesn't plan to expand the Canadian stores beyond their current
size.
OK. I think I've learned enough about USCo. I'd like to ask a few questions about
USCo's ability to succeed in the Canadian market. Does USCo have a strong brand
name in Canada?
No. Although members of the Canadian business community are certainly familiar with
the company because of its U.S. success, the Canadian consumer is basically unaware of
USCo's existence.
Does CanadaCo carry products similar to USCo's, or does the Canadian consumer
expect different products and brands than the U.S. discount retail consumer?
The two companies carry similar products, although the CanadaCo stores lean more
heavily toward Canadian suppliers.
How much volume does CanadaCo actually sell?

About $750 million worth of goods annually.
Is there any reason to think that the costs of doing business for USCo will be higher
in the Canadian market?
Can you be more specific?
I mean, for example, are labor or leasing costs higher in Canada than in the U.S.?
Canada does have significantly higher labor costs, and I'm not sure about the costs of
leasing space. But what are you driving at?
I was thinking that if there's a higher cost of doing business in Canada, perhaps
USCo will have to charge higher prices than it does in the U.S. to cover its costs.
That's probably true, but remember, CanadaCo must also cope with the same high labor
costs. Can you think of additional costs incurred by USCo's Canada operations that
would not be incurred by CanadaCo?
USCo might incur higher distribution costs than CanadaCo because it will have to
ship product from its U.S. warehouses up to Canada.
You are partially right. CanadaCo is advantaged in distribution costs, since its network
spans less geographic area and it gets more product from Canadian suppliers. However,
since CanadaCo continues to get a good deal of product from the U.S., the actual
advantage to CanadaCo is not great—only about two percent of overall costs.
All this suggests that USCo will be able to retain a significant price advantage over
CanadaCo's stores: if not ten percent, then at least seven to eight percent.
I would agree with that conclusion.
Then I would tell the CEO the following: In the near term, you might be safe. Your
stores have a much stronger brand name in Canada than USCo’s, and they seem to
be well managed. However, as consumers get used to seeing prices that are
consistently seven to eight percent less at USCo, they will realize that shopping at
USCo means significant savings over the course of the year. Although some
consumers will remain loyal out of habit or because of your high level of service, it is
reasonable to expect the "discount" shopper to shop where prices are lowest.
Moreover, over time your brand-name advantage will erode as USCo becomes more
familiar to Canadian consumers. You certainly have to worry about losing
significant share to USCo stores in the long term. You should probably do
something about it now, before it's too late.
Can you suggest possible strategies for CanadaCo?
Maybe it can find ways to cut costs and make the organization more efficient, so it
can keep prices low even if its cost of goods is higher.
Anything else?
It might consider instituting something like a "frequent shopper" program, where

consumers accumulate points that entitle them to future discounts on merchandise.
What might be a potential problem with that?
Well, it might not be that cost-effective, since it would be rewarding a significant

number of shoppers who would have continued to shop with it anyway.
Any other suggestions?
It might want to prepare a marketing or advertising campaign that highlights its

high level of service. It might even institute a "CanadaCo Service Guarantee" that
surpasses any guarantees offered by USCo.
Assuming the only way to keep customers is through competitive pricing, is there
anything CanadaCo can do to appear competitive to the consumer?
It might want to consider offering fewer product lines, so that it can consolidate its
buying power and negotiate prices with suppliers that are competitive with USCo's.
It might lose some customers who want the variety of product that USCo has, but it
may be able to retain the customer who is buying a limited array of items and is just
looking for the best price.
All of your suggestions are interesting, and you would want to analyze the advantages
and disadvantages of each in more detail before making any recommendations to the
CEO.
Q: How many pay phones are there on the island of Manhattan?
A: A logical place to begin your analysis might be to ballpark the number of pay phones
on Manhattan street corners. If you think of New York City as a grid of streets, you might
guess it is about 300 streets long (north to south) by ten streets wide (east to west), so it
has approximately 3,000 intersections. You might then assume there is one pay phone for
every two intersections, for a total of about 1,500 pay phones.
If you’re feeling really creative, you might subtract the number of intersections that are
“invalidated” because they fall in the area of Central Park. Say Central Park is ten blocks
long by two blocks wide, or 20 intersections. Using your one-pay-phone-for-every-two-
intersections assumption, you would want to subtract ten pay phones from the original
1,500.
You might then add to the 1,490 the number of pay phones that might be found in
restaurants, hotels, schools, hospitals, and office-building lobbies.
Q: How many hotel-sized bottles of shampoo and conditioner are produced each
year around the world?
A: You might begin by assuming that hotel-sized bottles are produced for two purposes
only:
1. To supply hotels and upscale motels

2. To provide samples for gift packs, salons, and so on
You would then want to start by estimating the number of hotels and motels around the
world that offer the products to their guests. One way of estimating the number of hotels
is to assume that hotels are found predominantly in major cities and resorts. Figure that
there are 2,000 major cities and resorts around the world, an average of ten for each of
the world’s approximately 200 countries. Assume that each city averages 20 hotels that
offer bottled hair products to their guests. Multiplying 20 by 2,000 gives you 40,000
hotels around the world that require shampoo and/or conditioner for their guests.
To understand how many bottles of shampoo and conditioner the 40,000 hotels require,
you now need to estimate the total number of uses each hotel on average represents. You
can arrive at that number through the following calculation: assume that there are 100
rooms in each hotel, and that those rooms are occupied 50 percent of the time.
Multiplying 40,000 by 100 by 0.5 by 365 (don’t forget the number of days in the year!)
gives you approximately 750 million.
However, it is probably reasonable to assume that a guest staying for longer than a day
will not use a whole shampoo bottle every day. If you assume that an average of one
shampoo bottle is used for every two occupied days in a given room, you can now divide
your 750 million estimate in half to 375 million. To get to the number of bottles of
conditioner, estimate a ratio between the use of shampoo and the use of conditioner.
Since many of us do not condition every time we shampoo, you might assume that the
ratio is 2:1. Dividing 375 million in half gives you approximately 190 million. Your
conclusion would then be that 375 million bottles of shampoo and 190 million bottles of
conditioner are required for hotel use every year.
To estimate the total market size, you can probably make things easy on yourself by
assuming that the number produced for sample purposes is a small percentage of the
total, say ten percent. Combining your two markets would give you approximately 400
million bottles of shampoo and 210 million bottles of conditioner.
Finally, you might want to “reality check” your total figure. Assuming 610 million
bottles are produced and sold each year at an average price of 25 cents each, the
worldwide market for miniature bottles of shampoo and conditioner is about $150
million. Does that sound reasonable?
Q: You are in a room with three light switches, each of which controls one of three
light bulbs in the next room. Your task is to determine which switch controls which
bulb. All lights are off. Your constraints are: you may flick only two switches and
you may enter the room with the light bulbs only once. How would you set about
determining which switch controls which bulb?
A: To solve this riddle you must do some out-of-the-box thinking. The best way to
determine which light bulb is which is to flick one switch on, wait for five minutes and
flick it off. Then flick one of the remaining two switches on and leave the other off.
When you enter the room with the bulbs, you can determine which switch controls which
of the two lights that are off by feeling to see which of the bulbs is hot (from having
burned for five minutes).
Other creative solutions involve pushing the constraints of the game. You might ask if the
room you’re in has a phone, so you could call somebody to help you. You might ask if
the rooms have a connecting window. You might assume you can leave the first room a
number of times, and therefore go out, buy a drill, and bore a hole through the wall so
you can see which light bulb is connected to which switch. Or, you might buy a mirror
and place it strategically outside the door to guide you.
Remember, you are limited only by your imagination.
Example: How many taxis are there in New York City?
Solution: The trick is determining what information you do have. Having spent a
weekend in New York once, you may remember that there are five boroughs. You may
have also noticed, however, that the vast majority of taxis can be found in Manhattan,
with a relatively small number at La Guardia and JFK airports.
Considering Manhattan, then...conveniently, Manhattan has a very grid-like street

structure. The avenues are the North-South streets which tend to be quite wide, typically
4-5 lanes. The numbered streets, running East-West, are more narrow and often only have
1-2 lanes of traffic. During rush hour, when most taxis are presumably out, roughly how
many taxis are on a given block of an avenue or a street?
On the avenues, there are probably 3 taxis per lane, for a total of 12-15 taxis per block of
avenue. On the streets, there are probably also 4 taxis per lane (blocks are rectangular,
and the "street" side is longer than the "avenue" side), for a total of 5-8 per block.
How many block of streets and avenues are there then? Estimate that there are roughly 15
avenues (considering an avenue to be any large street running North-South). There are
approximately 150 East-West streets (a few more, but the 150 is a rounded estimate of
the main part of Manhattan). So then, that means there are 15 x 150 = 2250 blocks worth
of avenues and streets.
But...don't forget that Central park covers significant area. It is roughly 50 blocks long
North-South and 3 blocks wide East-West. So we need to reduce our blocks estimate by
the 3 x 50 = 150 blocks in the park. 2250-150 = 2100 city blocks, then. To make the math
easier, round to 2000. For the avenues, we determined there were 12-15 taxis per block.
So 15 x 2000 = 30,000 taxis on the avenues at rush hour, and 8 x 2000 = 16,000 taxis on
streets. 30,000 + 16,000 = 46,000 taxis in Manhattan.
One last detail—what about bridges, tunnels and airports? Estimate that there are 100
taxis somewhere on the premises of each of La Guardia and JFK. That adds 200 to the
number. Also assume that on each of the main bridges and tunnels which connect
Manhattan to the airports, there are 100 taxis on average. If there are roughly three
bridges or tunnels which are considered routes to the airports, that makes 300 additional
taxis.
Adding an additional 500 for the taxis on the freeways between tunnels/bridges and the
airport, waiting in line at the train station, etc., our total number comes to 46,000 + 200 +
300 + 500 = 47,000.
A manufacturing firm in Michigan has found great difficulty in attracting workers for the
line. The unemployment rate in their labor market is less than two percent (those who
remain are job seekers considered chronically unemployable, who cannot pass even the
basic qualifications of reading and a drug test). They offer only $5 per hour, but have
excellent benefits. (The fast food restaurant half a mile away just raised their starting pay
to $7 per hour.) Your firm has been asked to help them develop a staffing strategy that
will enable them to fulfill their production commitments.
Your client, a supplier of manufactured parts, has signed contracts with existing clients
which will double their sales volume in one year. Six months before the promised
delivery of the parts, your client lacks the capacity to fulfill the agreement. The original
plan was to expand the plant in Michigan to serve Michigan customers, and start a new
facility in Georgia to serve the Georgia clients. Currently, the plans for the expansion
have not been finalized due to problems with the county building code. No property has
been purchased in Georgia. Your client produces very easy to make parts, and loss of
these contracts will severely hurt the firm for years. Your client is looking to you for a
solution.
One of your clients in a logistics project calls you. They are in urgent need for your
advice. "The Canadian truckers have gone on strike, and have barricaded the route you
use to truck parts to your client in Ontario. It is commonly accepted that the customer
will stop production as a result of the strike; however, whichever supplier runs them out
of parts first will incur substantial financial penalties. Your client wants you to help them
make sure that your firm is NOT the one to cause the shut-down."

Trevor's Toys e-Commerce Case

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Cases

The Introduction sets

First, you’ll need to

Many of Trevor’s Toys traditional off-line competitors appear to be forming on-line

First, you’ll need to frame the issues. This stage

Market opportunity. Is the market large enough to

Remember, the Clock Is Ticking!

Questions: Consumer Research

How much time is required for an average

How much time is required for an average

How much money do customers spend in

How many customers of traditional stores

How do customers research purchase

How much do customers spend on-line and

Where do customers shop for toys on-line?

What do customers like about on-line toy

How do customers find out about the toy

What else do customers buy on-line?

Who are Trevor's Toys' primary customers

What are the attributes of Trevor's Toys'

What do customers wish they could see

What do customers dislike about shopping

Who are Trevor’s Toys’ traditional competitors?

Who are the main on-line competitors?

Who are the market share leaders in the on-line market?

What are the competitors’ growth rates?

What are the estimated customer acquisition costs of on-line competitors?

How are the competitors promoting and marketing products?

Are the competitors making any profit?

What are the competitors’ pricing policies?

Other policies affecting customers (returns, customer service, etc.)?

Do the competitors plan to expand (product offering, global coverage, etc.)?

What do competitors offer that we can’t?

What is Trevor’s Toys’ historical financial performance?

What are revenue projections?

What percentage of site visitors will purchase in 2004?

What will be the average purchase amount per visit in 2004?

What other sources of on-line revenue do on-line retailers have?

What are the expected costs to hire new staff?

How much would the site design and development cost?

What are proposed promotion and marketing costs?

Questions: Market Sizing

What is the overall size of the toy market?

Why is the toy market growing so fast?

What is the average amount spent per child?

What is the size of the on-line toy market today?

What is the anticipated growth for the on-line toy market?

What are the on-line demographics in the U.S.?

How much of on-line spending is expected to be for high tech toys?

Can the current distribution channel be

Is there an opportunity to partner on

Are there any international trade issues?

How do people at Trevor's Toys view the

What technology expertise exists

What kind of technology do you need to

Would the current internal culture fit well

What is the organizational structure?

How will you drive traffic to the site?

How would Trevor's Toys generate the

Recommending Trevor's Toys to go on-line is correct

What value will the customers get from an on-line offering?

Trevor's Toys.com would face two distinct groups of competitors,