Case Interview Prep

case scenarios

strategy

1. entering new market

2. industry analysis

3. mergers and acquisitions

4. developing new product

5. pricing strategies

6. growth strategies

7. starting a new business

8. competitive response

operations

9. increasing sales

10. reducing costs

11. improving bottom line (profitability)

12. turnarounds

steps

1. summarize question

2. verify objectives

3. ask clarifying questions -- company, industry, competition, product

4. lay out structure

entering a new market

1. why? goal/objective

2. determine state of current and future market

3. investigate market -- does entering it make good business sense?

4. major ways to enter new market: start from scratch, acquire existing player, joint venture

industry analysis

1. things to investigate

-life cycle

-performance over last 1, 2, 5, 10 years

-our performance compared to industry

-major players/market share

-recent major changes in industry

-what drives industry? brand, products, size, technology

-profitability -- margins

2. suppliers

-how many?

-product availability

-what's going on in their market?

3. future

-players entering or leaving market

-recent M&A?

-barriers to entry and exit?

-substitutes?

M&A

1. goals and objectives -- why? good business sense? better alternatives? good strategic move?

2. how much are they paying?

3. due diligence -- research company and industry.

-shape company is in

-how secure are markets, customers, suppliers?

-how is industry doing overall?

-what are margins like -- high-volume low margins or low-volume high margins?

-legal reasons to prevent acquisition?

4. exit strategy

potential reasons for M&A

-increase market access

-diversify holdings

-pre-empt competition

-gain tax advantages

-incorporate synergies

-create shareholder value

developing new product

1. think about product

-what's special or proprietary?

-is it patented?

-substitutions?

-advantages & disadvantages?

-fit with rest of product line?

2. think about market strategy

-effects on existing product line

-cannibalizing existing products? replacing?

-will it expand customer base and increase sales?

-competitive response?

-if new market, entrance barriers?

-major players/market share

3. customers

-who are they?

-how best to reach them? Internet?

-ensure retention

4. financing

-how is it funded

-best allocation of funds?

-can we support the debt?

pricing strategies

1. investigate product

-what's special or proprietary?

-do similar products exist? how are they priced?

-where are we in industry's growth cycle?

-how big is market?

-what were R&D costs?

2. pricing strategies

-cost-based pricing: production costs, breakeven point, profit margin

-price-based costing: what are customers willing to pay, what's it worth to them compared to other things, supply & demand

growth strategies

-increase sales

-increase distribution channels

-increase product line

-invest in major marketing campaign

-diversify products and services

-acquire competitors

starting a new business

1. entering a new market. does it make good business sense?

-who's the competition? market share? how do their products compare to ours?

-barriers to entry?

2. venture capitalist perspective

-management

-market and strategic plans

-distribution channels

-products

-customers

-finance

common barriers to entry

-capital requirements

-access to distribution channels

-proprietary product technology

-government policy

competitive response

1. competitive analysis

-what is new product? how does it differ from ours?

-what has competition done differently? what's changed?

-have any other comps picked up market share?

2. response actions

-acquire competitor

-merge w/ competitor

-hire competitor's management

-increase own profile with marketing and PR campaign

increasing sales

1. relationship between increasing sales and increasing profits

-how are we growing relative to industry?

-what has our market share done lately?

-do we know what customers want?

-are prices in line with our competitors?

-what have comps done in marketing & product development?

2. ways to increase sales

-increase volume: more buyers, increase distribution channels, intensify marketing

-increase amount of each sale (get each buyer to spend more)

-increase prices

-create seasonal balance

reducing costs: cash flow problem

1. breakdown of costs

2. is anything out of line? why?

3. benchmark the competitors

4. determine whether there are any labor-saving technologies that would help reduce costs

reducing costs: sales flat, profits declining (surge in costs)

focus on internal costs vs. external costs

internal: union wages, suppliers, materials, economies of scale, increased support systems

external: economy, interest rates, government regulations, transportation/shipping strikes

economies of scale

The increase in efficiency of production as the number of goods being produced increases. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods.

improving bottom line -- profits

E(P=R-C)M

(sales up, profits flat)

look at external factors first -- economy & market/industry

-industry-wide problem or company problem?

1. analyze revenues: revenue streams, % of total revenue for each stream, is anything unusual in balance of %s, have %s changed lately? why?

2. examine costs: major costs, any major shifts in costs, any costs out of line? benchmark costs against competitors

3. volume: expand into new areas, increase sales force, increase marketing, reduce prices, improve customer service

turnarounds

1. gather information

-tell me about company

-why is it failing? bad products, management, economy?

-tell me about industry

-are competitors facing same problems?

-access to capital?

2. action

-learn about business and operations

-review services, products, finances: products out of date? high debt load?

-secure sufficient financing

-review talent and temperament of all employees; get rid of deadwood

-determine short-term and long-term company goals

-devise business plan

-visit clients, suppliers & distributors, & reassure them

-prioritize goals -- get some small successes ASAP to build confidence

five Cs

1. company

2. costs

3. competition

4. consumers/clients

5. channels

four Ps

1. product

2. price

3. place/placement

4. promotion

barriers of entry

-economies of scale

-capital requirements

-government policy

-switching costs

-access to distribution channels

-product differentiation

-proprietary product technology

Five Forces (state of competition depends on these)

1. threat of new or potential entrants. (barriers of entry)

2. intensity of rivalry among existing competitors

3. pressure from sbustitution products

4. bargaining power of buyers

5. bargaining power of suppliers

7-S framework

"hard" -- strategy, structure, systems

"soft" -- style, skills, staff, shared values

strategy

increased growth, increased profits, lower costs, new product development, new market

structure

lines of authority, chains of command, communication channels

systems

information, budgeting, planning, innovation, compensation, performance measurement

style

leadership style, meritocracy, etc.

skills

competencies

staff

people -- brains, management, motivation

shared values

company's principles

COGS

cost of goods sold

prices are stable when:

-growth rate for all competitors is approx. the same

-prices are paralleling costs

-prices of all competitors are roughly of equal value

external factors

-market

-customers

-industry

-competitors

-risk

internal factors

-strategy

-operations: marketing & sales, operations & logistics, finance & control, organization & culture, R&D

market sizing formula

1. total population x % of customers in segment = # of customers targeted

2. # customers targeted x # units purchased per year = total # units

3. total # units x price per unit = total annual market size

population data: world

7 billion

population data: US

300M

population data: NYC

8M

population data: LA

4M

population data: Europe

740M

population data: Great Britain

60M

population data: London

7M

population data: China

1.3B

population data: India

1.2B

population data: Japan

125M

ways to segment a population

-age

-gender

-geography

-income

-married/single

gross profit margin %

gross profit / revenue

net profit margin %

net income / revenue

contribution margin

revenue - variable costs (1 - COGS + all other expenses / revenue)

contribution margin %

revenue - variable costs/ revenue

elasticity

% change volume / % change price

return on investment (ROI)

(revenue - cost - investment) / capital invested

rule of 72

years to double = 72 / r

(at 10% return, an investment will double every 7 years)

K

1000 = 10^3

M

1,000,000 = 10^6

B

1,000,000,000 = 10^9

revenue

price x volume (quantity)

fixed costs

-overhead

-machinery

-distribution

-rent

-interest

-depreciation

variable costs

COGS, raw materials, energy inputs, labor, service

3 Cs

company, customers, competitors

company factors

1. profit equation

2. product/service offering

-value chain

-differentiation

3. more Cs: collaborators, channels, competencies, capacity, culture

customer factors

1. who? segmentation

-demographics

-socioeconomics

-needs

2. market data

-share

-size

-growth

3. decision-making

-what's driving the buying decision?

competitor factors

1. product/service offering

-value chain

2. advantages & disadvantages in capabilities

-marketing

-operating efficiencies

-talented people

3. key data

-market share

-total number

-fragmentation/concentration

value chain

R&D --> sourcing --> inbound logistics --> manufacturing --> distribution --> sales & marketing --> service

4 Ps/marketing mix

price, product, promotion, placement

price factors

1. product: commodity vs. highly differentiated

2. competitor pricing

3. strategy

-goal: penetrate, retain, convert, loss leader, etc.

-positioning & perception

-cost plus margin

4. customer

-segmentation: differences in willingness to pay

-elasticity

product factors

attributes, buyer decisions, competition, substitutions

promotion factors

awareness --> information search --> evaluation --> purchase --> repurchase

placement factors

1. channels: intensive v. selective

2. inventory

-push v. pull

-stock v. just in time

-carrying cost

3. transportation

-cost: inhouse v. outsource

BCG matrix

stars: high market share and high industry growth

question mark: low market share and high growth

cash cow: high market share and low industry growth

dog/pet: low market share and low growth

management should BUILD question marks, HARVEST cash cows, HOLD stars, DIVEST dogs/pets

outsourcing 2x2

low competitiveness & high strategic importance: improve or seek partner

high competitiveness & high strategic importance: keep and leverage

low competitiveness & low strategic importance: outsource

high competitiveness & low strategic importance: seek different advantage

product-market 2x2

existing products & existing markets: market penetration

new products & existing markets: product development

existing products & new markets: market development

new products & new markets: diversify

SWOT framework

internal: strengths & weaknesses

external: opportunities & threats

generic frameworks

SWOT, cost-benefit analysis