wharton case book 96

8/13/2019 Wharton Case Book 96

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The Consulting Case Book

Provides actual cases given during the n year interview process in November/December of 1995.

Actual cases from: McKinsey Bain Co., Boston ConsultingGroup (BCG), Booz Allen Hamilton, Corporate Decisions Ins.,

Andersen Consulting, Mercer Management, Diamnod TechnologyPartners, Braxton, Deloitte Touche Gemini, Towers erk AT Keamey

INot duplicable without written consent from Chris Hadley - WHG ‘96]


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Consulting Case Book ‘96 I

M ission: The second year Wharton students who collaborated to

develop this case book had one goal in mind: Provide Whartonstudents with the best tools and “real life” case experiences available,in order to ensure success in consulting case interviews.Consulting firms place considerable weight on a candidate’s success

in the case portion of the interview. Unfortunately, most studentshave not had an opportunity to adequately prepare for the processbefore stepping into the first interview. Preparation with this casebook will certainly enhance your performance.

Note: We didn’t bother to fill this book with consulting articles,resumes or reiteration of the 4 C’s or 5 Forces. It’s a waste of vourmoney and you will learn more about these topics from class, thecorporate presentations and in talking to fellow students. What we

did place in this book are actual cases given to second year students(and their recommended answers) this fall. These are the most up-to-date cases available and will provide you with a true sense of thetype of cases you are most likely to encounter during your interviewprocess.

0 t her:

The solutions provided are just one recommended option forsolving the case. Remember there is no single correct answer.

If you are given a case you have already practiced be


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Consulting Case Book ‘96

Nailing; the Case:Case interviews are nothing more than an opportunity for the interviewer toassess your ability to:. Solve complex problems. Structure solutions in a logical fashion. Make and qualify/quantify relevant assumptions.

“Dig deep” down alternate paths toward the solution. Think in a creative manner. Provide a suitable recommendation based on your analysis

One Basic Approach to a Case:1.

2 .

3 .

4.

5.

6.

7 .

Listen carefully to the information and write down the question.IYs perfectly appropriate to ask the interviewer for a minute to collect yourthoughts. Use this time to sketch out the structure you intend to follow tosolve the problem. Writing down your structure openly demonstrates your thought process.Ask relevant questions about the situation. This is especially important if

you don’t know anything about the industry or type of problem you’vebeen given.

Be careful not to alienate your interviewer by asking many questions, however.State your immediate assumptions and structure of analysis. “Based on what I know, I believe this could be a key issue therefore I’d like to

pursue this structure of analysis.”Pursue “paths” with a mix of statements and questions to identify issues. “The problem may be lost revenue, I believe the key drivers are x y z Have we

experienced changes in any of these drivers? If so, why? How to fix?”After “drilling down” alternate paths, summarize the key learning andrelate back to the original hypothesis or assumptions.

Identify all the major issues and try to offer recommendations


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Consulting Case Book ‘96I

Case lThree years ago a venture capital company purchased a cable TV system thathad access to 2MM households in the southwest. The VC firm was attractedby the extremely large subscriber potential (2MM households) and potentialfor considerable return. Despite their best efforts, they have failed to turn aprofit in the past three years. You have been hired to determine if they can

turn a profit or if they should sell.


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Consulting Case Book ‘96 Case 1 - Solution

Solution Structure:. Analyze current revenue and cost structure. Analyze the market potential of the area. Analyze the competitive situation/substitutes. Provide recommendations

stsFixed costs associated with layini cableDebt associated with fixed costsMaintenance of the cable system

RevenuesSubscribers monthly feesSubscribers special services - movie channels

I nformat i on vr ovi ded as soon as these cost/revenue dr i vers are uncovered: . h eee costs are ext remel y hi gh due to t he di st ance betw een ci t i es in t he syst em.. Tke debt and mai nt enance cost s are al so hi gher t han syst ems in maj or met ropol i t an areas.. Tke curr ent systems is only at 43% capaci t y ( of subscri bers) vs. a 63% i ndusty average.Assumptions:. High fixed costs are overwhelming the current revenues. The current subscriber rate is too low, why? and can it be fixed.

Market AssumDtions:. Based on the low subscriber rate, I’d assume the population is less likely to watch television

perhaps because of income or lifestyle issues. A: Actuall y fhey w atch more t el evi si on than t he average.

. Does the cable system offer what they enloy watching. A: Yes.Competition:. If consumers are watching television, but not our cable system, there must be a strong

competitor in the market. What options do our consumer have? A: In addit ion to he t hree netw ork st at i ons, there are el even i ndependent broadcast st at i ons is t he area.

. Is the reception from these independent stations strong. A: Yes, vey.

. Are the stations offered free of charge? A: Yes.

Overall


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Case 2A major magazine publisher (not unlike Time Warner) is thinking aboutpublishing a “Sunday supplement” for insertion in and distribution throughmetropolitan newspapers. They have hired you to determine if they should

proceed or not.

Additional Information:

. There are currently two major Sunday Supplements: Parade and U.S. Weekly. They are distributed in over 90% of the U.S.‘s newspapers (combined). A newspaper can only insert and distribute one Sunday Supplement. They are offered to the newspapers free-of-charge


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Case 2 - SolutionSolution Structure:. Can we turn a profit by publishing this supplement? How?

- Revenue potential, Costs, Competitive Response. Does it fit with our current publishing strategy?

Can we turn a profit?

Revenue Potential (Assumotions):. Major sources of revenue is the advertising revenue. Question: Can we expect to gain revenues from our existing advertisers? A: You tel l me.. Can you explain the format of the supplement?A: Typically cheap paper, low quality editorial, light reading, gossip, modern day folklore

. Assumption: Our current advertisers (for Time) would not be interested in this format.

Cost SSUII ID~~OII S. Fixed cost of supplement set-up. Editorial, printing/paper, distribution. Internal and external sales force (gaining ad revenues and newspaper acceptance). Assumption: There are few publishing synergies with our current publications. A: True

Comnetitive Assumptions:. The competitors are deeply entrenched 90% penetration. Displacing a competitive supplement would require costly incentives to the newspapers. Current newspapers utilize the supplements in order to publish low quality editorial without

disparaging their product offering.

Kev Issues:

. Based on these assumptions, turning a profit would be difficult due to the large upstart costsand the strong competition for advertising revenues and newspaper acceptance.

Strateeic Fit fhx unDtiOnS:. The poor editorial content associated with these supplements may disparage the publishers

current product offering.

Recommendations:


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Consultine Case Book ‘96 I

Case 3

You’ve been hired by a major steel producer - Steelco. In the last two years thesteel industry has experienced record profits, meanwhile your client, Steelco,has experienced a 15% decrease in profits.

They want to know why and what to do about it.

C lti C B k ‘96


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Case 3 - SolutionSolution Structure:

. Profit = Revenues - Costs, have these drivers changed? How?

. The industry is profitable what is the competition doing?

CostsAssumptions: Costs drivers include: Raw materials, manufacturing, distribution.

. Have any of t hese changed? A: Our manufactur i ng cost s have ri sen. We don’t know w hy.

Revenues:. Assumptions: Revenue is driven by the type of steel, tonnage sold and the price. Changes?A: We produce t hree t ypes of st eel at Steel co. Detai l s are prov i ded bel ow .

Assumotions:. Based on the production information, it appears as though Steelco has switched its production

priorities to Clear Steel because it has higher margins than Galvanized. But as a result, theoutput of Seconds has increased.

. Do the increased margins from Clear Steel off-set the loses acquired due to the increase inseconds. A: How w ould youfigure it out?

Analvsis:. Determine the margins for galvanized and clear steel and the loses associated with Seconds.. Form the equation: [Galv tons x margin] + [Clear tons x margin] - [Seconds tons x loses]. This equation would have to be maximized based on the demand for Galvanized and Clear

Additional Information:. Steel co has li mi t ed capaci t y and can only make one t ype of st eel at a t ime

I t t akes tw i ce as l ong to produce Clear t han i t does t o produce Gal vani zed

C l i C B k ‘96


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Case

American Express has faced strong competition from new credit cards enteringthe market. They are considering dropping the $50 annual fee. What are the“economics” of such a decision and should they drop the fee or not?

C lti C B k ‘96


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Consulting Case Book ‘96Case 4 - Solution

Solution Structure:. Determine how American Express makes money.. Evaluate the pro’s and con’s of dropping the annual fee.. Make a recommendation

Revenue Drivers - Assumntions:. $50 annual fee muhiplied the number of members.

No additional revenue from consumers because they pay-off monthly. Receive 1% of the transactions from retailers who honor the AMX card.

Kev Issues:. If the annual fee is dropped, AMX loses ($50 x # of members). To overcome this loss, they have to increase the revenues from consumer purchases (1% from

the retailer)

- Is it likely that current cardholders will spend more per year if the annual fee is dropped? A: Not likely. They’d still have to pay off their balance every month.

. Therefore, the only way to increase revenues from consumer purchases is to increase the # ofAMX cardholdersAssurnm-ions:. Number of current cardholders=4% of the U.S. population (just a guess):

- 25OMM x 4% = 1OMM current cardholders. $50 x 1OMM = Annual loss of $5OOMM by dropping the fee.. Current percentage revenue: 1OMM members x $1000 annual purchase (avg.). [lOMM x (1000 x l%)] = $lOOMM (Estimate of current percentage revenue)Kev Ouestion:. Can we attract enough new members (without a fee) to offset a §5OOMM loss?. Each new member contributes $10 (1% of $1000 annual purchase).. (5OOMM/$lO) = 50MM new members are needed. 5OMM new members is equivalent to 20% of the population (gut check)Assessment/Recommendation:

B d th ti i d b hi i l t t 20% f th l ti i

C ulti C B k ‘96


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Case 5

You’ve made the final round with a small boutique consulting company (StarConsulting). Your final interview is with the CEO and she is concerned aboutthe yield from offers made to students for summer internships. She tells youthey’ve had mixed results in acceptance rates over the past two years. Thisyear they only have room for ten summer associates. Based on their size they

are very concerned about having too many or too few acceptances. She asksyou how many offers they should make (including the one she’s obviouslygoing to make to you).

Additional Information:. They are only making offers at Wharton (of course). Two years ago they had 50% acceptance rate. Last year they had an 80% acceptance rate. The company is only two years old



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Consulting Case Book 96

Case 5 - Solution

Structure of Analvsis:. Try to estimate the acceptance rate based on a number of factors:

- Number of students interviewing for consulting this year Projected number of offers made by other firms- Perception of Star on campus vs. competing firms- Attractiveness of the actual offer: Salary, Signing bonus, Reimbursement- Previous acceptance rates Success of previous summer programs (# returning full-time)- Etc., Etc., Etc.

You outline all of these variable for the CEO.She says o how many off ers?”

You ask if we have access to information on these variables.

She says “You tell me, you’ re th utur consultant” options

. You can start to make-up estimates for each of the variables, blah, blah, blah.- or -

. You can say - we don’t have enough true information.

The CEO in this case was actually interested in how the student handled the ambiguous problem.She asked for an exact answer which was not possible with the available information. She alsosaid she could tell a lot about the student by how much “buils..t” they threw at her.Keep this in mind - sometimes it’s the honest approach, not the answer, that matters.

Actual Situation:If you’re curious, the company made offers with a very short response time. After a certain date,positions were available on a first come first serve basis until they reached the maximumnumber of interns they wanted--ten.



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Case 6You’ve been hired by the CEO of a department store that has numerouslocations in a major metropolitan area. She needs to increase the store’searnings over the next year and has requested your help.

Relevant Information:. 20 locations in the metropolitan and surrounding suburban areas (they are

present in every shopping mall).. The population growth of the city is flat. Overall store revenue has declined slightly. They recently hired a consulting firm to streamline the back-room costs

How can you help?



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. Revenues have decreased for a reason

. The streamlined costs may have caused revenue to falter. The revenue per store may differ why?. Increased competition?. Different consumer buying trends?

Start with Cost/Revenue Drivers:costsCGSPersonnel/OH/SG&AInventory holding costs, levelsCost of debtOther??

Revenues: of people shoppingAmount of purchase - $$FrequencyPricesOther??

You learn there is nothing drastically different (overall), so you turn to the individual store level.

Ouestions:. Are certain stores more profitable than others?- A: Yes.. Do the higher performing stores have any common characteristics such as size, product mix,

consumer demographics? A: Yes, suburban stor es are more profi t abl e t han urban stor es. No,t he product mi x i s t he same at al l stor es. Yes, t he demo’ s are diflerent by st ore.

AssumDtions:. The product mix may be more suitable tl tci i&tore profitable for suburban stores. The competition may be lower in the suburban areas (turns out not to be true). The income level may be higher in the suburban areasProduct Mix:. What products are most profitable? A: Appl i ances, tool s, 7’V St ereo, Jew el ry big t i cket i t ems.. What products are less profitable? A: Clot hi ng, shoes, househol d i t ems - low t i cket i tems Store bv Store Sales/Demo’s:. Do suburban stores sell more big ticket items? A: Yes

Wh t d th b t ll? A Cl t hi h h ld i t i l i



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Case WHammerjack is a regional chain of “local hardware stores” located innumerous neighborhood strip malls and shopping centers. They had enjoyedexcellent performance for the past 15 years but have experienced declining profits in the past two years. They are concerned about their profitability andhave hired you to explain their situation and provide recommendations to getthem back on track.



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Consulting Case Book 96Case 7 - Solution

Solution Structure:

. Analyze drivers of profitability: Profit = Revenue - Costs.

. Competitive issues

Assumotion:. We are losing customers and based on the heavy decrease in dollar amount purchased, we are

losing high spending customers. (There must be substantially different customer segments)

Ouestion: What do we know about our customer segments? A: 3 segment s (us fo l l ow s):

ofvisits spentlvisit of peopl e/segment

Maintenance Peonle1

$100

1 OOMM

Do It Yourself - ers10$2000

l O M A

Contractorszoo$10,000

1OMBased on this information, you determine which segments are most valuable to Hammejack.

Maintenance Peonle Do It Yourself ers ContractorsTotal Segment Worth 10 Billion 100 Billion I 10 Billion

You determine that the “Do It Yourself-e&’ are the most important category.

AssumDtion: Haxnerjack is losing customers and dollar revenue, there is a strong possibility ofincreased competition. A: Yes, Home Depot and ot her huge “w arehouse” hardw are sto res have ent ered Hammerjack regional l ocat i ons.AssumDtions about “Warehouse Stores”:

L i d b i ( i f l ) A Y



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g 9

Case 8Our consulting firm has been retained by a major bank to help improve theprofitability of their largest credit card offering. Their card (in the same classas a Visa or Mastercard) provides average returns in comparison to theindustry, however, our client believes it can become more profitable. You

need to analyze the situation and make recommendations.



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Case 8 - SolutionSolution Structure:.

Opportunity to decrease costs or increase revenues - analyze drivers. Opportunity to vary the annual percentage rate or the annual fee. Benchmark competition for opportunities

Kev Issues:. Can’t affect the cost structure, therefore have to increase revenues.. Only revenue variables available are changes to the annual fee and APR

Comvetition: I nt erv i ew er t el l s you i t i s a very compet i t i ve environment - “move on‘*. hSumDtiOn:. Customers use the card differently, there may be different customer segments based on the

balance held, how quickly balances are paid off and the “need” for the card.

Case I nt erv i ew er suggests there are t hree di sti nct cat egori es: 1. Pay of i i n fu l l every month 2. Hold small de& t for short periods of t i me

3. Hold heavy debt for l ong peri ods of t ime (basi cal l y pay-ofi t he i nt erest ) - 80% of our revenue HelShe t hen asks how uou w ould t ai l or card serv i ces t o each of these groups: Recommendations:

Pav-Off In Full Monthly Hold Small Debt Short Term Hold Heaw Debt Lone TermCharge high monthly fee Increase the APR slightly Waive the annual feeProvide numerous services Decrease the annual fee Increase their credit limits(detailed reports, little kudos) Cash back programs, points 1

Access to cash advance, etc.



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Case 9

Our client is a major entertainment company on the west coast. One of theirdivisions is a leading home video retailer. During the late ‘80’s and early ‘90’sthis division had a great run - opening 4000 stores and realizing considerableprofits. In the last two years both growth and profit have declinedsubstantially. You have been brought in by the CEO to assess the situationand provide recommendations.

Background: Our client’s division is not unlike a chain of Blockbuster videostores. The majority of their business is in movie rental with a much smallerportion in sales.



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Case I - SolutionSolution Structure:

. Start with a simple: (Profit = revenue - costs) structure. Analyze the competitive situation. Analyze the “substitution” factor - how else are consumers getting movies?

CostsCost of the new mov~ tu lly decreased)

Revenues:# of rentals: (decreased, t raf fi c down)

Overhead: (No chan,qe)SG&A: (No change) Ipases. other: N o chunqee)Price of rental: (No change) Sale of rentals: (decreased) Accessories: N o change

Kev Learning:. Cost have actually decreased, but not enough to off-set the decreased store traffic.

Competitive Assessment/Substitutes: (List potential causes of decreased traffic). New movie stores: N o real change) . New In-home sources - cable on demand: Potent iu l for f i tu re but no real cument uflectj. Sal es of movies for home use and collection: (Sal es have i ncreased dramat i cal l y)

[Once the key i ssues have been i dent i fi ed, the i n t mi ew er descri bes the changing indust ry :] l.When di vi si on w us grow i ng, i t coul d buy excess numbers of t he new rel eases to sat i sfy cust omer demand. Lat er, t hey w oul d send t he excess copi es to t he new stor es us par t of t hei r

“Zibrun/ ’ of existi ng t apes. W i t h few er new st ores opening, t his is no longer an opt i on -t herefore fewer new rel eases have been or dered.

2,RecentZy, the st udi os have al l ow ed new releases t o be sold t hrough w arehouse stor es WuZZ-M a r t at t he sume t ime they are made avai l able to t he rental ret ai l ers. Thus, many of our cust omers are purchasi ng rat her t han rent i ng. In addi t i on, when cust omers rent ed u new release, they qui t e oft en rent ed un exi st i ng tapeporn the Zi bruy (addi ti onal lost revenue)

Bused on t his indust ry outl ook, what w ould you recommend for t he div i si on?

Provide a recap:. It appears as though the major issue facing the division is a reduction in store traffic for new

l h l d h l f h l h h l h l



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Case loThe CEO of Taco Bell is considering hiring your firm for a multi-million dollarproject. But first, they want to be sure you have the ability to understand theirbusiness. As a new consultant fresh from Wharton, you’ve been asked by themanaging partner to develop a presentation detailing current storeperformance for the CEO.

The presentation can only be six power-point panels long, must be easy to readand communicate the information at the CEO level (get above the details).

To help you in your presentation, you are allowed to ask a Taco Bell data baseexpert for six, and only six, areas of data of your choice. List the six areas ofinformation and develop a rough six panel presentation. (hand-drawn)

Consulting: Case Book ‘96


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Case lO - Solution

Six Areas of Data:. Current year revenues. Previous year revenues. Current year costs (Then you have gross profits). Previous year costs.

Competitive current year share (Then you gain access to the competitive set). Competitive previous year share

SlideChart with last years share position vs. thecompetition

Slide 2Chart with this years share position vs. thecompetition with references to

increase/decrease vs. previous year.

Slide 3 Slide I4Chart comparing current revenue vs. last year Chart comparing current costs vs. last year(highlight any major increase or decrease as an (highlight any major increase or decrease as anarea for exploration) area for exploration)

Slide 5 Slide 6 Chart demonstrating current profit position vs. Summary slide of the major changes in storelast year and relevant ramifications. performance and the steps necessary to analyze1them further?JOJg:. This case was given in order to assess a candidate’s ability to simplify information and present it

in a logical structure.

Consulting; Case Book ‘96


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Case

You’ve made the final round, you walk into a senior consultant’s office and hetells you he’s been thinking about writing a book on “Business in China” andretiring from the consulting business. He want to know if its a good idea and

if he’ll make enough money to retire.

What will you tell him?

Consultimz Case Book ‘96


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Case 11- Solution

Both questions are driven by the same answer - How much money will the book make for theconsultant.

Solution Structure:. How big is the market for business books on China?. How much of the market value does the author actually receive?.

How much does the consultant require in order to retire?

Market for Business Books on China:. Estimate the number of adults in the United States = 125MM. Estimate the number interested business books = 20% = 25MM. Estimate the number interested in books on China = 5% = 1.25MM. Gut check: Do you really think you can sell over a million copies? No Way!

. Re-estimate: 125MM x 10% x 1% = 125M copies (more realistic)

How much does the author receive? (Assume $15 retail)Value Chain:

Retailer Cut = $2 Marketing Costs $3- Manufacturing Costs= ;3- Publisher Cut = $3.50- Author = $1.50 (Total Take: 125M x $1.50 = $188MTotal $15

Can thev Retire?.

Wrap-up by asking if $188M is enough to retire - doubtful.



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Case 12You’ve been approached by a large publishing conglomerate which publishes

and distributes magazines and books. In the past three years, this companyhas acquired numerous smaller book publishing companies in a vast array ofcontent areas. Having acquired the rights to this book content, they areseeking opportunities to increase growth for the firm. You’ve been hired toassess areas of potential and provide recommendations.

Consulting; Case Book ‘96


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Case 12 Solution

Solution Structure:. Current clusters of content - what content can we leverage?. What are the key industry trends?. Are there emerging markets which provide an advantage?. Assessment/Recommendation

Current Content: (What does the conglomerate currently publish?) Answer: . Consumer books - best sel l ers . Educati onal materi als - coll ege t ext books . Computer manual s - t rai ning and sales mat eri al s . General reference informat i on - “How To” manuals . Chil dren’s Books

. BusinesslTechnical and Healt hlM edicine document s and books Make assumotions of the current trends affectine the book industry:. Use of substitutes are increasing including CD ROM, Computer info and on-line information.. Lack of leisure time has decreased book reading. Paper costs are increasing for newspapers, books and magazines. Rapid change in the computer and technical industry require rapid changes to training manuals

and educational materials (manuals may be outdated)

Make Assumotions reaardine ootential emereine markets:. Increase in number of people working at home = home offices.. Increase in the area of “children’s edu-tainment” - educating kids simultaneous with

entertainment. Increase interest in the areas of personal finance. Increase need for health care information and easy to update medical training materials.

Assessment /Recommendations:. The future for the book industry itself is flat or declining at best.. Providers of new information technologies require “content” for their formats. The company should leverage the content they own. For example, they could align with new

technology providers to provide content in the areas of health care and children’s edu-tainment.



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Case 13A major beverage manufacturer (King Kola) is considering a joint venture witha specialty coffee retailer (StarDoes) to package and distribute coffee beansunder their premium brand name. The beverage manufacturer has hired youto determine if there is a viable market at the retail level and if the venture fits.within their current operation.



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. Determine the market potential of premium brand coffee beans through the grocery channel

. Determine the competitive situation and ramifications

. Determine the “synergies” with the King Kola’s operation

Market Potential/Comnetitive Set. Sell through the retail grocery channel - in the canned coffee aisle. Current product offerings include low-end coffee in bulk cans and bulk unbranded “specialty

beans” sold by the pound.. Canned coffee sells for approximately $3/lb., unbranded specialty sells for about $5-6/lb.StarDoes would sell for about $9-11 /lb.Kev Issues in Market:. Are consumers willing to pay $9-11 /lb. in the grocery store?. Are consumers interested in drinking “branded specialty coffee” at home or do they just like to

have it prepared from a coffee house?. Are consumer willing to grind their own beans at home?. Will it be able to gain shelf space in the coffee aisle at such a premium price?

(All of these issues will need to be addressed before proceeding with the JV)Fit with Kink Kola’s Ooerations:

Pro’sDirect store distribution allows for easierplacement

Con’sDifferent product sourcing requirements

Marketing expertise in premium brand First player in premium branded coffee -name/image

Deep pockets

1uncharted waters1Different demographic segment

with retail buyersI

Different manufacturing and packagingnrocess IKey Issues:. As with the market, there are numerous uncertainties that must be addressed prior to forming a

full joint venture.



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Case 14

The following represents the allocation of each dollar spent to bring a bottle ofCoca-Cola to the consumer.

5% Research Development

25% Syrup/Bottling

25% Distribution

25% Marketing

10% Overhead10% Profit

Draw a chart with the dollar percentage allocations for RC Cola.



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Case I4

RC Cola:

3 % Research Development

35% Syrup/Bottling

35% Distribution

15% Marketing

7 % Overhead5 % Profit

Rationale:. To make it easier, start with the larger percentages.. RC doesn’t have the economies of scale Coke enjoys, therefore their

manufacturing is a higher percentage df costs.. They do not have as efficient a distribution system (fewer products/same of

locations), therefore it requires a higher percentage.. Both of these leave less money available for R&D (look at the lack of new

products), marketing and profit.. Overhead is actually lower because they require fewer front-office people to

run the business.



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Case 15How long does it take for a baseball to travel from the shortstop to first base in

professional baseball?



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Case 15- Solution

Assumntions:. The base pads are 90 feet apart (you can ask). The distance from shortstop to fit base is about 120 feet. A major league pitcher can throw about 90-95 mph (you can ask). A major league shortstop can throw about 80 mph

The key is to be able to convert miles per hour to feet per second.

80 mph to feet/hour:5280 feet/mile: (80 x 5280) = 422,400 feet/hour

Feet/hour to feet/second:

60 minutes per hour, 60 seconds per minute = 3600 seconds/hour(422,400/3600) = 117 feet/second120 feet from short stop to first based, thrown at 117 feet per second =(120/117) = just over a second (1.02 seconds).Key: Don’t be afraid to round off these large numbers:

5000 feet/mile x 80 = 400,0004000 seconds/minute: 400,000/4000 = 100 ft/second120/ 100 = just over a secondIt’s much easier. They’re not looking to see if you have a calculator for a brain, they want to seeyour logic and ability to convert.



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Case 16

A successful chain of Canadian auto service stores (Autoland) has enteredseveral markets in the United States in hopes of duplicating their success inAmerica. The stores offer two services: 1. Retail sales of auto parts for

customers who prefer to perform their own maintenance. 2. A service centerfor fixing any automobile problem, from an oil change to new transmission.

Since entering the U.S., Autoland has experienced 50MM in revenue withloses of 20MM. The owner is considering pulling out of the United States.You have been hired to determine if they can improve their performance or ifthey should exit the market.


C S l i


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. Analyze the competitive situation

. Analyze the market potential/customer segments

Comoetitive Situation:. What is the competitive situation in Canada? A: We are the major player fao l ocal stor es) . Are we providing the same services in Canada as in the U.S. A: Yes .

Do we have strong competition in the U.S.A: Yes, a nati onal chain of st ores in t he exact format as Autoland exi sts in t he U .S. They basicall y copied our Canadian format and have about 10 l ocati ons in every major ci t y. 7’h y are very profi t able in al l ci t i es incl uding our U .S. market s.

Assumptions: Due to size, I would guess they have superior buying power over Autoland inthe U.S. Is this t rue? A: No, we have t he same cost structur e due to our presence i n Canada.

. Assumption: The market has potential due to the competitor’s performance. Key is todetermine why they are out-performing Autoland.

Autoland CaDabilities:. Assumption: We actually have two businesses under one roof, is one more profitable than the

other? A: In Canada - no. But in the U .S. w e are prof i t able in ret ai l sales and losing heavi l y on t he serv i ce cent er .

. Are the costs associated with each side of the business different? A: Yes, the service center is much more expensive t o operat e, we have to pay mechanics and have highfixed cost s.

. Assumption: We are profitable in retail, but losing in service. We attract the wrong consumer.

Market/Customers:Autoland provides two services, are the customers for each service different?A: Yes. The cust omers that shop for ret ai l s part s typical l y have low er t o mi ddle incomes and

are t ry i ng to save a few dol l ars by performi ng t hei r ow n maintenance. The cust omers w ho ut i l i ze t he serv i ce cent er hav e higher i ncomes and no int erest i nfi xi ng thei r ow n car.

mrnDtiOn: We are attempting to attract two distinct customer segments. Are we doing thissuccessfully? A: We ur e not sure, how w ould you help us determi ne i f w e are?



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Case 17

A lingerie manufacture in New Zealand (Vicki’s Gossip) has had the luxury ofbeing the only provider of lingerie to the New Zealand market due toextremely high tariffs on imports. Currently, the tariff is 50% of total cost toproduce and ship a product to New Zealand.This year, the New Zealand Government decided to decrease the import tariff

by 5% a year for the next ten years. Vicki’s Gossip is concerned that thischange will drastically affect their business. What is your assessment of thesituation and how could you help Vicki’s protect their situation?

Additional Information:. Vicki’s owns the current market. They believe that have done everything

possible to improve their revenue situation.


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Case 17 - SolutionSolution Structure:. Assess the current costs structure within Vi i’s. Assess the competitive situation. Determine the affect of the reduced tariff based on these cost structures. Provide a comprehensive assessment and recommendations

Cost Driver Assumotions:. Labor, raw materials, design, manufacturing, distribution, SC&A, OverheadA: The average cost of an item made by Vi cki ’s i s $10.- 50% of the cost i s l abor relat ed and 50% is made-up of al l ot her cost s

Kev Issue:. Vi i’s production is extremely labor intensive = E/itemCompetitive Assessment - Assumotions:. Assume similar cost drivers. Do we know the break-out of competitive costs?A : Per i t em: $1 for L abor, $2 shi ppi ng to New Zealand, $5 ai l ot her

Kev Leaminq:. Vicki’s cost per item = $10 vs. $8 for the competition ($8 + 50% tariff) = $12/item. The competition’s labor costs are extremely low, yet with the tariff they can’t compete in NZ.

Result of reduced tariff:TariffYr-0 5 0 %Yr-1 4 5 %

Yr-2 40%Yr-3 35%

Yr-4 30%Yr-5 25%

Yr-6 20%

ResultCost = $12, Won’t enter marketCost = $11.60, Won’t enterCost = $11.20, Won’t enter.Cost = $10.80, Won’t enter

Cost = $10.40, May consider enteringCost = $10.00, Competitive price to Vicki’s definitely will enterCost = $9.60, Suddenly the low cost producer - advantage over Vi i’s

Issues:. Due to the low labor costs and the declining tariffs, the competition will soon have an

advantage over Vicki’s. Why are their labor costs so low?


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Case 18

You’ve been hired by the Kraft Desserts Division Manager to help solve aproblem with Cool Whip (the non-dairy dessert topping). Cool Whip has beena complete cash cow for Kraft. It has an 80% share of market, low productioncosts and extremely high margins.Sales of Cool Whip have been flat for the past three years despite aggressive

sales efforts. The divisional manger believes sales have peaked (80% share)

and is ready to sit back and milk the profits. Before presenting hisrecommendation to the company president he hired you to determine if thereare:1) Opportunities to increase revenues in the U.S.2) Opportunities to enter a foreign market

Additional Information:. Cool Whip is 90% air, 10% water and chemicals. The manufacturing facility is only running at 70% capacity. Cool Whip own a proprietary technology that allows the product “carry” a

very high percentage of air.


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Case XI - SolutionSolution Structure: (Take it in two Darts)

. Explore areas to increase product sales in the U.S.. Explore alternate opportunities for increased revenues in the U.S.

. Analyze the opportunities of entering a foreign market

New Product Sales ODDorhmities:. Offer new flavors (cherry, strawberry, etc.). Suggest new uses (Arm & Hammer). Offer new packaging (pump, pressurized, single serve, etc.). Explore new channels (food service, convenience stores, coffee houses, etc.). Co-pack with other products (pies, cookies, etc.). Other, other, other

The division head t el l s you t hese are al l great i deas that have been at t empt ed - w hat el se?

Alternate Revenue Generatine Onoortunities:. Sell or license the “air holding” technology to other industries

- Insulation, Styrofoam, building materials, ships etc.. Utilize the excess capacity to produce generic or private label version of the product

Th e div i si onal head tel l s you t hese are good ideas, w hat about forei gn expansion? Issues Involved in Enterine a Foreipn Market:. Is there market potential for Cool Whip in foreign markets?. What are the competitive factors?. Can we supply product at an appropriate cost structure?. Do we have any foreign presence to take advantage of?

How mi ght you det erm i ne t he answers to t hese I ssues?

Area of Analvsis:. Look for markets with a high incidence of dessert consumption (France). Research the existence of competitors or substitutes (ice cream, other toppings). Conduct consumer research to determine if consumers would accept/try the product. Research Kraft’s current manufacturing, distribution, marketing capabilities in these markets


Case


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Case 19The graph below demonstrates the average dollar sales of drug stores based on

the number of SKU’s (different products) offered at the stores.

Based on Return on Sales, how many SKU’s would you want to carry if youowned a drug store?


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Case 19 - Solution

Based on R.O.S. how manv SKU’s would vou want to can-v?AssumDtions:. To determine return on sales need the equation: [(Sales - Cost)/Sales]. Key: Have to ask for the costs associated with each SKU level

The int emi ew er prov i des the fol l ow ing cost equati on: [Y = .75X + 21 Draw the cost line on the graph and estimate the return on sales for the optimal SKU level.

Consulting Case Book ‘96Case 20


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Case

Frank’s cheese company has been producing very high quality cheese for

distribution and sales in the upper east coast for over thirty years. Their maincompetition over these thirty years comes from Joe’s cheese company, whichalso produces very high quality cheese.

These two competitors have had a friendly rivalry over time and each holdsabout 30% share of market. Recently, Frank and Joe have seen their profitsdrop. Frank blames the decline in profits on increased advertising andpromotional spending.

You have just a few minutes to determine if Frank is correct and suggestsolutions. How do you proceed.


Case 20 -Solution


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Solution Structure:

. Quick check for changes to the costs or revenues. Analysis of competition, Joe and other. Analysis of other potential problems

Costs Driver Assumotions:. Any changes in: Dairy products (raw materials), production costs, distribution costs, marketing

costs, other?

A: No maj or changes except for a considerabl e increase in promot i onal cost s couponing and retai l pri ce reduct i ons).

Revenue Driver Assumotions:. Any changes in: Price, number of accounts, sales levels, type of cheese sold, quality of cheese?A: Have taken peri odi c pri ce reducti ons. No other maj or changes

Assumvtions:. Frank has increased promotional spending and reduced prices. Most likely due to an increase

in competitive pressure. Have we seen increased competition?A: Yes, many of our account s are offeri ng pri va t e label cheese at hal f our ret ai l pri ce

. What do we know about the private label cheese? Quality?, Consumers?A: Low er qual i t y t han Frank’s. Tw o consumer segment s: Those w ho do a l ot of home cooki ng

and use onl y Frank ’s or Joe’s. Those w ho j ust stop i n and pi ck-up a bl ock of cheese.. Why have we been discounting? Are we losing our loyal consumers?A: No. We’re just under a l ot of pressurefrom t he ret ail er t o match pri ces

Issues:. Due to competitive pressure from private label, Frank and Joe have taken periodic price

reductions. This has hurt their margins and may also cause them to lose their loyal customers

(lose high quality brand image).

Recommendations:. Maintain premium price levels for Frank’s current line of high quality cheese.. Manufacture a lower cost product under a different brand name to compete with private label

brands.. Utilize advertising revenues to communicate the benefit of using high quality cheese

wharton case book 96

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