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This is a case study based on a real case that OC&C worked on in 2005, trying to gain an idea of the global market for Burger machines. This is typical of an analytical case study that you will get asked requiring sound numerical skills (the ability to competently use a calculator), the ability to come up with some sensible estimates and some commercial awareness. Excellent candidates differentiate themselves by the quality of the answer, but also the time taken to respond some of the later, more advanced questions will only get touched upon if a candidate has aced the earlier questions.
Case Background
Our client is responsible for the sale and manufacture of burger machines that produce the meat patties that populate the ever-popular hamburgers, sold worldwide by the likes of McDonalds and Burger King. OC&C have been approached to help them think about their international expansion strategy, and in particular the opportunity posed by developing markets, such as China, India etc. Your specific task on this case is to scale the opportunity i.e. how many Burger Machines could this company expect to sell into China in the future.
Market estimation
Second question: given that a burger machine can produce 90,000 burgers an hour, and is worth 250k how much do we think the market for burger machines is worth? Now this gives you a couple of the vital data points that you need to work out the market size, but also leaves some key information that you need to estimate or make assumptions on. Good candidates will work through the logic piece by piece, whilst the excellent candidates will lay out methodology and information required upfront and then work through them systematically. Fundamentally however we need to work out the number of burgers sold and divide it by the number of burgers a machine can produce to give us the number of machines. The good candidate thinks about number of burgers consumed per person given benchmarks from western society (data point provided here that the average American spends $350 per year on fast food). Estimates a reasonable number per Chinese person and comes up with a total number of burgers consumed. Next, takes the given 90,000 burgers per hour, and then calculates the number of burgers that a machine can produce given 24 hours per day, 365 days per year. Possibly considers different total working hours or utilization rates for the machine but doesnt expand on this thinking or rationalize assumptions made The excellent candidate contemplates the proportion of people in urban centers likely to be the target for fast food sales, uses western benchmarks, adjusted for Chinese society and comes up with an estimate. Next, the candidate uses 90,000 burgers per hour but quizzes interviewer on number of hours worked per day. Pursues debate on how many hours you would work per day (see next question) conclude and then calculate capacity. Raises issues on utilization rate given potential mechanical downtime, impact of geographic dispersion and other, and second order effects.
Conclusion
The final task in the market sizing question is to calculate the total number of machines required and multiply through by the value of each machine it is always surprising to see how many applicants forget what the original question was and stop at the number of machines. In the majority of cases the interview will finish at this stage both interviewer and interviewee being generally exhausted and out of time. For exceptional candidates, who have managed to get through the case quickly, we then go on to contemplate the size of this market in relation to the US market, and what the likely drivers of the US market are.
Additional question
Fourth question: if the US fast food market is not growing, what will be the key drivers of burger machine sales, and what impact would this have on your domestic strategy? The excellent candidate is very unlikely to get all of the items below but should be able to generate some interesting and non-obvious issues for discussion), like: Growth in basic demand zero, so sales of machines are unlikely to be driven by capacity expansion, except if new regions are being developed. Market will be largely driven by replacement of old machines (interesting to reflect how this will be impacted by economic cycle) or by market innovation. Consequently technological improvements and changes in the manufacturing processes possible with the machines will drive new purchases. The key impact of this will be enhanced investment in R&D
Background
The client was a first mover in promoting imported whisky in bars, discos and karaoke clubs, which was a fast growing business in an emerging market about 10 years ago and had experienced tremendous success an annual growth of over 30%. The client penetrated the channel with whisky through aggressive marketing and partnering with top/key outlets in cities, offering sponsorships on events and volume rebates in return for exclusive or preferential sales on-premise. The growth has slowed down in the past few years to about 10% per year and profit margin is also declining. The key task is to describe and understand the reasons for the recent slow down and fall in profitability. Once that has been completed, the next objective is to explore a range of strategic options for the company to rebuild its growth platform.
The Excellent Answer: all of the above, but consider also the profit per outlet aspect As the business expanded, smaller and weaker outlets (with lower return on investment) began to partner with the client as competitors were also aggressively seeking outlets, driving down the overall return Third question: What are the potential strategic options? Here are options that can be explored: Revitalize brand with new campaign to improve competitiveness Premiumize the market (given revitalized image) and encourage consumers to up-trade to higher value products (better margin and higher turnover without increasing volume consumption); making price competition irrelevant Seek opportunities in rural areas and invest strategically to capture less competitive markets Explore new channels such as in-home or restaurant consumption to catch consumers who leave the bar/disco channel Innovate to improve on delivery and create competitive advantage Improvements in outlet selection
Additional Discussion
Creative / resourceful candidates may discuss one or two: Counterfeit eroding sales and hurting brand equity in emerging markets The company can invent Innovative ways like new drinking rituals to increase consumption (drink more per occasion)
Case Background
Our client runs a major chain of health clubs in the UK, alongside hotels and casinos (which are not the focus of this case). The health clubs are large out-of-town sports centers offering a gym, Jacuzzi, swimming pool, etc. They are relatively expensive, about 30-40 per month for an individual membership. As part of a broader strategy review, the client wants to know what they should do with their leisure clubs division should they sell it, rapidly build more clubs (if so, what sort), or maybe acquire another player? Your specific task on this case is to look at the market trends and assess competition in the leisure clubs industry.
Interpretation of data demand factors The interviewer would then present five charts (including the two charts below; the other three charts would not provide useful information but serve as distraction) for interpretation by the interviewee, who would be asked to explain what the data showed, and what that meant for the demand for leisure clubs.
1980
1990
2000
2010
2020
Exhibit 2: Percentage of UK people who would exercise more regularly if they wished to lose weight Income group AB C1 C2 D E Total
Source: Mintel
Second question: what is likely to happen to demand for leisure clubs? The good answer: The charts clearly show that obesity has increased rapidly over the past two decades, and this trend is forecast to continue into the future. This means that demand for leisure clubs will increase, as people will have an increasing need to exercise. The excellent answer: The first chart shows that obesity has increased historically, and this trend is forecast to continue. However, from the first chart it is not clear whether people are becoming more obese because they are not exercising enough (which would indicate declining demand for leisure clubs), or whether an increasingly obese population will exercise more and hence create increased demand. If I combine the two charts, however, you can see that most people are likely to exercise more if they wished to lose weight, and this is particularly true of wealthy people (who are likely to be our target customer anyway). On the assumption that most obese people want to lose weight, we can say that an increasingly obese population will create increased demand for leisure clubs.
Market Segmentation
Fourth question In order to better understand the competition, we need to understand what differentiates leisure clubs? (This may be phrased in consulting jargon as How might we think about segmenting the leisure club market?) The good candidate will point to some of the following: Price the type of customer who uses a premium club (50 per month) is unlikely to switch to a budget club (e.g. Council-run gyms costing 2 per visit). Location Geographic customers will only travel a limited distance to go to a club, so clubs in London do not compete with clubs in Sheffield, for example In town / out of town out of town clubs may be destinations (primarily aimed at families, for example), whereas in town clubs are likely to appeal because they are convenient (e.g. to office workers). Customer Group different clubs are designed to attract different types of customer e.g. prefamily (~20-30 year olds), fitness fanatics, female-only, family-oriented, etc. The excellent candidate will name all the above factors, with maybe some others (e.g. sports offered), and will elaborate more on each.
Conclusion
(This phase will probably only be reached by excellent candidates) So we know that demand for leisure clubs is growing, but so is supply. We know that not all of the 350 new clubs will compete with our clients business, since clubs differ based upon price, target customer and location. Applying our segmentation to the 350 clubs, we found that most of them do fall broadly into our segment (i.e. premium price, similar target customers). So we started to think about the geographical dimension, and considered where we should build our new clubs. The competition was planning to build in the large cities; however, we recommended that our client build its clubs in smaller towns, which only had populations large enough to sustain one leisure club. Why do you think this was? The excellent candidate: By placing your club in the smaller towns, you will insulate yourself from competition. Because you have built your club first, you will attract members who will then be loyal to your club. When the competition considers where to build their next club, they will not build in that town, because they will see that there are not enough available customers for their club to be profitable, and they know it would be difficult to attract customers away from your club. Hence, even though in later years there may be excess supply at a national level, you will have local monopolies, and thus be protected from potential pressure to lower prices.
Case Background
Our client is a leading high-end fashion retailer in Asia. OC&C have been approached to help them think about their online strategy in Asia Pacific, with particular focus on the business opportunities in China. Your specific task on this case is to scale the opportunity i.e. how big is the current market size of online luxury fashion in China and how many potential buyers currently exist in the market.
Market estimation
Second question: given that the addressable high-end fashion market for our client in China is 400 million, how much do you think the market for online high-end fashion is worth? We provide you with some data points to work out the market size, but you also need to figure out what are the missing links and how to make reasonable estimates or assumptions on such missing information. Good candidates will work through the logic piece by piece, whilst the excellent candidates will lay out methodology and information required upfront and then work through them systematically. Fundamentally however we need to work out a ratio to split up the existing market into online and offline portion by making assumptions on the online purchase behaviour. The good candidate thinks about the internet penetration rate among high-end fashion shoppers in China (data point provided here that the overall internet penetration in China is around 12%) and estimates how many of them would shop online for fashion. Next, estimate the share of online spending as a percent of total spending on fashion. Finally multiply all these parameters with the addressable market size for our client to get the answer for the market for online high-end fashion in China. The excellent candidate does not just guess those numbers, but can justify where those numbers come from by drawing reference to statistics, surveys, government data or derive a
rational approach for the estimation. For example, when estimating the internet penetration rate among high-end fashion shoppers, the excellent candidate contemplates the proportion of people in urban centres likely to be the target for high-end fashion, uses urban statistics, adjusted for the high-end segment of the population to come up with an estimate on internet penetration for high-end consumers. The candidate should also raise the issue on how the existing state of e-commerce infrastructure, such as online payment, credit card availability, online security, delivery, counterfeit, etc, would affect the online shopping behaviour and create potential hurdles for online shopping.
Conclusion
The final task in the market sizing question is to calculate the number of potential buyers in China. To estimate the number of potential buyers in China, you need to come up with an estimate on the average purchase value per customer and divide the market size by that number. In the majority of cases the interview will finish at this stage both interviewer and interviewee being generally exhausted and out of time. For exceptional candidates, who have managed to get through the case quickly, we then go on to contemplate what are the key value propositions that our client need to have to successfully establish an online business in China.
Additional question
Fourth question: If our client decided to enter the China market, what are the points of differentiation our client need to build in order to succeed in the market? The excellent candidate is very unlikely to get all of the items below but should be able to generate some interesting and non-obvious issues for discussion, like: Build a credible brand name by advertising on target media, such as magazines or internet websites for high-end consumers and leverage presence of physical stores to emphasize that it is a credible real business, not just a virtual store online. Provide special product selection, an edited offer with unique brands, unique merchandise or latest products that customers cannot find elsewhere. Offer a risk free shopping environment to customers by providing free exchange and return. Provide loyalty programme and superb customer service to increase repeated purchase. Provide user generated content and community features in the website to enhance stickiness of the website.
Background
The initial task is to describe and understand the reasons for a recent fall in profitability. Once that has been completed, the objective is to develop a range of strategic options for the company, which will lead to a return to profit growth. At the top level, financial performance has changed as follows:
Total business, m Revenue Profit Profit margin (%) 2005 80 10 12.5% 2006 90 10 11.1% 2007 120 5 4.2%
We can now see that the board division is relatively flat in revenue terms, but brings in constant profit. However, the clothes division, despite growing rapidly, is losing money. We will now turn our attentions to the boards division. Second question: What are the strategic options available for the boards division? The context given for this is as follows: The market for snowboards is growing slightly, at around 5% per annum, in volume terms, but prices are rising much more quickly. Our client is clearly not sharing in this growth. Our volumes and price are static. What additional information do we need and what sort of things could we do to improve our performance? The good answer will consider some or all of the following points: we need to know who the competitors are, and how their price levels and quality compare to ours. We also need to understand the level of marketing activity in the industry, and how much marketing we do compared to the competition. Then we can investigate if we could reduce costs and prices to increase our sales. We would also consider doing more marketing, and extending our distribution to more shops.
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The Excellent answer would also consider the need to understand how the market works in practice. What are the different types of board available e.g. top of the range versus standard? What makes customers choose a particular make of snowboard? Once we understand these issues, we can devise more appropriate strategies, such as sponsoring professionals and / or tour events. Third question: What can we do with the clothes division? The good answer will consider some or all of the following points Why is the division not making money currently? What options do we have to manufacture more cheaply? Should we pull out of clothing manufacture? The excellent answer would also include that the business is growing quickly and that some of the costs may be temporary. Also, that the two businesses, although separate, are intertwined, and that the clothing business will benefit if the profile of the boards business is increased through funding of tour events etc.
Additional Discussion
Fourth question: what else could we consider doing with the business? It is unlikely that there is time to consider many of the following, but excellent candidates often discuss one or two: Potential for opening some owned shops, dedicated to retailing our own products E-business opportunities around snowboarding destination site holidays, merchandise, reviews, music etc Investigation of potential mergers and take-overs to improve competitive position Expansion into other product areas e.g. surfing merchandise Outsource clothing production to another company and licence use of brand name
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