The Case Interview

What is a case interview? The Case Interview What specific skills does it assess? How to prepare for a case interview? An interactive example.

What is a Case Interview anyway?

The Case Interview Simulation of a business problem. Similar to what our associates encounter every day. Series of open-ended questions. Theyre designed to stimulate your conceptual, quantitative, analytical and most importantly creative abilities.

The Case Interview

There are several types of cases. Each is designed to assess different skills.

Classic Case The Case Interview

Should an organization add capacity? How should an organization react to a new competitor? Should an organization enter/exit a new/old market?

Measures
Your broad functional skills Your big-picture perspective Your comfort with detail and analysis

Special Case The Case Interview

Why are manhole covers round? Whats the estimated weight of a Boeing 747? What will interest rates do next?

Measures
Your comfort with ambiguous challenges Your level of creativity

The Case Interview

What are we looking for?

Logical skills Analytical/reasoning skills Conceptual problem-solving abilities Critical path thinking Flexibility

What do we mean by..

The Case Interview
Problem-solving ability? Can you identify the key issues of the case while accurately and methodically reaching the solution? Critical path thinking? Can you use the clues that build on each other while staying on track and focusing on whats relevant? Flexibility? . Can you adapt your answers to a changing situation?

The Case Interview

What do you need to bring?

Your logical business sense The Case Interview

How do decreasing marginal costs affect profitability? What effect will fixed costs have on the result?

Your mathematical aptitude

From basic mathematics to. Algebra Probability Weighted averages Unit conversion

Your strategic interpretation skills The Case Interview

Can you Interpret your answers impact? Assess alternatives? Keep a grasp on the big picture as well as the minor details?

Your presentation skills

Can you. Clearly state your thoughts and synthesize information? Explain how your answer changes in the face of changing variables? Defend your answer?

The Case Interview

Be prepared! Lets work through a case together.

Background Information
The Case Interview
You are a manager at a company that markets various products and services and that is looking to diversify You receive some information indicating magazine publishing may be interesting You are considering developing a new magazine but are not sure how profitable it might be What are some of the issues you must consider when evaluating the magazine business?

Things to consider
The Case Interview
Defining the target market Competition
# of competitors, fragmentation, brand name

Build off of core competencies Barriers to entry Business cycle stage Method of measuring viability Opportunity cost

Our next step is to understand the economics of the business. What are the profit drivers in the magazine publishing business?

The Case Interview

Main profit drivers of the publishing business include

Revenue Sources Subscriptions Newsstand sales Advertising Customer lists Internet Costs Printing Distribution Content Development Marketing/promotions

The Case Interview

Through some initial research you have been able to determine the following
You can charge 25 for an annual subscription of 50 issues You can generate 1 in advertising revenue per issue for each subscription Printing and distribution costs are 1 per copy per issue Content development costs run 1 million per year Lets ignore newsstand sales for now Lets ignore marketing expenses for now How much profit will you generate a year from one incremental subscription?

Lets figure it out together. The Case Interview

Subscription revenue per year = 25 Advertising revenue per year = 50 1/issue x 50 issues Yearly production and distribution costs = 50 Profit from one incremental subscription = 25 25 + 50 - 50 How many subscriptions would we need to sell in order to breakeven on this venture?

The Case Interview

How many subscriptions do we need to sell to break even?

Profit (contribution margin) = 25 per subscription

Magazine content development = 1 million per year

Breakeven = 1 million/25 = 40,000 subscriptions Given you need 40,000 subscriptions to breakeven, do you move forward?

What about marketing costs? The Case Interview

Your company has expertise in direct mail solicitation so you decide to use that method to market your new magazine. Each piece of mail costs 0.50. You are able to achieve a 2% response rate. How much does it cost you to sign up a subscriber?

Cost per subscriber calculation The Case Interview

Cost of mailing/response rate = Cost to sign up one subscriber 0.50/2% = 25 per subscriber Another way to calculate cost per subscriber: Assume you mail offer to 100 people Costs = 50 (0.50 x 100 people) Responders = 2 (2% of 100) Cost per responder = 50/2 or 25 How will this affect your breakeven calculation?

New break even calculation The Case Interview

Old contribution margin Marketing costs New contribution margin

New contribution margin = 25 - 25 = 0 Ouch!

What can we do to make this venture better?

Some possible considerations: The Case Interview

Raise subscription prices Raise advertising rates Reduce production costs Increase response rate Make each response matter more Consider renewals and multi-year subscriptions

The Case Interview

Renewals look like an obvious avenue to explore In the best case scenario, zero cost to acquire with no drop in revenues

How might you encourage renewels?

Some possible options: The Case Interview

Price promotion Competitions Marketing Free gifts

The Case Interview

Some market testing gives you 2 possible options

1) Do nothing:
50% of existing subscribers will renew each year

2) Offer a free second year subscription

75% of existing subscribers will renew each year

Which is the best option?

The Case Interview

Lets look at how much money each strategy makes:

Option 1 Assume 40,000 customers in year 1 25 net revenue per customer per year (excluding fixed costs) 50% renewal rate per year

so our overall net revenue for year 1 subscriptions is: 40,000 * 25 * (100% + 50% + 50%*50% + ) - upfront mrkting using 1 + a + a2 + a3 + = 1/(1-a), taking a = 50%, we get a total of: 40,000 * 25 * 2 - 1million = 1 million

Option 2

The Case Interview

Assume 40,000 customers in year 1 No net revenue in year 2 75% renewal rate every year Revenue resumes in year 3

Free year 2 subscription cost = 40,000 * 25 * 75% = 750 k

so our overall net revenue for year 1 subscriptions is: 40,000 * 25 * (100% + 75% + 75%*75% + ) - 750k upfront mrkting = 40,000 * 25 * 4 - 750k - 1million = 2.25 million

So which option would you go with? The Case Interview

Excluding fixed costs, net profit of year 1 bookings:

Option 1 = 1 million vs Option 2 = 2.25 million

Is Option 2 the obvious choice?

Not necessarily! The Case Interview

Year 2 net revenue in option 1 is 0.5million, while in option 2, it is zero your investors may not like this! Do we really believe a free year 2 subscription would permanently raise renewals what was this assumption based on? Is profit next year as good as profit today?

Some tips:
The Case Interview Stay confident stay cool Show enthusiasm not frustration Be thorough avoid mistakes Ask questions Show your stuff

The Case Interview

Questions?

Find out more about Capital One

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