General Models for Case Solving

1.1 Estimation Cases
Population World: 6 Billion Adults: 3/4 Below Poverty Line: 1/3 US Population US: 300 million No of households in US: 105 million Number of adults in US: 210 Million (18+ yrs) (70%) 200 million (21+ yrs) Number of Cars per household: 2.5 Minimum Wage: $5 per hour Average Life Expectancy: 80 Yrs. In USA fraction of adults is high : 4/5 INDIA Population India: 1000 million No of households in India: 180 million Number of adults in India: 530 Million (18+ yrs) (53 %) 440 million (21+ yrs) Number of Cars per household: 0.02 Minimum Wage: Rs. 15 per hour Average Life Expectancy: 70 Yrs. Assume uniform distribution of Age and Salary among people Upper Class Upper Middle Class Lower Middle Class Lower Class

Demand Side o Who purchases the commodity? o How many commodities do they need each year? 1. o What raw materials to be used o An estimate of materials supplied and work from there. Revenue and Marketing 1.2 Strategy Cases Three Types: Cost.3 The 4 P Model 1) Product What product do you want to sell? What product are you able to produce? What advantages does your product offer? 2) Price What price must you charge to make a profit? What price are consumers willing to pay? What price are your competitors charging? 3) Place Where is there a demand for your product? Where are your suppliers located? What distribution channels are being used? 4) Promotion Who is your target audience? How do you reach them? How much do you want to spend on promotions and advertising? .• For estimation cases general guidelines: Supply side: o See who the suppliers are.

5 Marketing Strategy Model 1) Consumer Analysis • • • • • What is the relevant market? Who is buying and who is using the product? (see if your customer are individual or families) (Ex.4 The 4 C Model 1) Customer What do the customers want and need? How will you satisfy those needs? What is most important to the customers? How much will they pay for it? 2) Competitors What are your competitors doing? What are their strengths and weaknesses? How are they meeting the customer's demand? What is their cost structure? 3) Capacity What are your company's capacities? Financial Organizational Production Marketing? What are your strengths and weaknesses? 4) Costs What is your cost structure? • • fixed costs variable costs How have your costs changed over time? 1. Cassettes) What is the buying process? (direct buyers v/s subscribers… your product is used directly or not) How can I segment the market? (different kinds of buyers) Is the market growing? (Miles and Snow Model) 2) Competition .1.

Think What!!! Even if high cost majors survive implies that they had Competitive Advantage in terms of their services and proper segmentation of their markets. Analyze business and revenue structure.) How will I differentiate my product? (low cost leadership or differentiation leadership) How does the product life cycle affect my plans? • • 5) Economics • • • What are the costs and revenue structure? What is the break even? How long is the payback on my investment or how much market I need to penetrate? Is it possible? TIPS • Whenever problem is of declining profitability it means it is either revenue problem or cost problem or both. • • . you close the case.) and profitability analysis (by cost revenue analysis … decline in profit due to stress of lowering price due to competition or increased cost) How many products to make to not go into loss? Break even problem!! When Cost equals revenue generating capability. Do industry analysis (market growth and future potential … decline in sales etc. If in an industry new entrants cannot survive. implies that majors had a competitive advantage.) (ex medicines and pots etc.• • • • • • • What are your company's strengths and weaknesses? What are your competitor's strengths and weaknesses? What is your relative size and position in the market? How do your resources differ from those of your competitors? How can my product reach the consumer? How much do the players in each distribution channel profit? Who holds the power in each distribution channel available? 3) Distribution 4) Marketing Mix • How does my product fit with my other products? (For ex does sales of one effect other … do they sell together etc.

Is there any competition? How has it affected you over the years? What competitive advantage your competitor enjoys? 3. Improving quality or quantity. See if market has scope to absorb increased production.. 2. Use Porters Five force model. . any new service you can provide. their market share (proportion of market served by each). sales force (sales personnel) When question is of expansion see if expansion helps in anyway. First of all estimate the size of total market.. Estimate how much your services would be valued by customers against an established brand. (Example: New bank calling centers case. (Ex. Airline rerouting its flight) Assessing future of a firm: 1. See size of current leaders in market. Look for market segments targeted by your competitor and see if u can provide better services in that segment. sales. Also consider cost of various materials likely to be in near future. see future of that industry.. Are there enough funds and targets? See if joint venture or government involvement will be of any help. If yes..• A business can increase profits by: . no of stores etc. OH. Case 84) • • • • Market Entry (factors to be considered): 1. To assess future look into past. Manufacturing costs.Cutting costs (Raw Material Purchasing Practices) • Costs include: Labor. how many new customers because of new service. Expansion is by new plants or by acquisition? If by acquisition. Advertisement cost (Marketing). how? Changing mode of services of a firm: See what customer u drive away … How profitable they were … how many new customers you attract . Materials (Purchase practices also important).Increasing sales . do cost/benefit analysis… The number of new customers times the expected revenue from them plus the additional revenue generated by potential new services plus the cost savings must outweigh the forgone revenue generated by the customers you end up driving away.. 3.. 2.Increasing prices . If you are manufacturer of a commodity which is used by some other industry then to see your future. Distribution costs (Low inventory practices by shopkeepers implies that distribution costs go up because of need of frequent delivery). SG&A. To see viability.

after-sales service. Entry barrier is high if high cost of entry . Determine what are the needs of any neglected market. 4.. Concrete Manufacturer Case) 1. Current market of its own and target firm . What is the margin of target firm? Can you improve that 3. expansion or diversification is another thing. supplies as in original market? The firm should have a distinct competitive advantage. industry requires high initial setup cost.. • • 5. See sales force. • If a company is trying to acquire a target firm it should consider following options: (Ex. See cost structure of leader and compare it with yours. What is the cost involved in acquisition? Do u have funds? If u are taking this from bank what is rate of interest annually? Does the target firm has potential of returning that much interest in terms of its own profit? .4. and understand if your client could profitably serve this market. What would be the possible competitive barriers to your entry likely to be posed by the current market leader? • To create entry barrier of new players: Pay stress on loyal customers. Look for market segments neglected by the leader. See which products are most profitable in the industry. 2. 3. Search out for neglected segments. 5.) 1. etc) 6. 7. Promise new and better service. Commodity product in general have a slow growth and unattractive industry (Ex: pipelines). are there synergies? Do they serve different segments? What is the future of your market and target firms market!!! 2. Is there any other way in which company can better use the money used for diversification. Exit Barriers: Plant fully depreciated then low exit costs If a firm plans to diversify it should consider following options: (remember market entry is a separate thing. Such industries have very high exit barriers. Do extensive marketing. distribution channel of leader. You must start up with those and then slowly expand the business.... This is done by joint venture or acquisition. 6. Have better segmentation of your market. What are the diversifying firm’s distinct competitive advantages? What is its capacity for funding an acquisition? What is the competitive environment like in the proposed region? How does this environment differ from the current markets of the diversifying firm? Is the firm likely to enjoy same levels of sales force and distribution channel. Do you have advantage in any of these areas? DO u have any edge in any of the related factors (say installation.

laws concerning your client. It might reveal that over the years your client’s market share is being eaten up by competitors. If the sales goes down but market share increases implies that major players in the industry are closing down. Snack Food Industry. planes cost and landing rights cost. (even if it might enjoy 80% share today) Also if sales go down (market share decreases) but profit goes up … implies that market is growing but your client is not keeping pace with it … in its cost structure see what critical factors it has neglected like marketing or sales force. If a company finds ways to reduce its cost. Specific Industry: Bars and recreational centers: More public on Fridays. Your products might now be obsolete for the industry. (E. Candy Case). See substitutes and competitor’s reaction to this. • If sales of a company goes down over years implies that there is a better player in the industry who manufactures what industry wants. If sales increase. Environmental issues (Ex hazardous chemical producing industry) 4. (Decrease in sales force and marketing can lead to lower promotion due to which product might loose shelf space … also to have a sustained advantage the industry must produce competitive products and new technologies) (Ex. If a product comes off patent still it can continue to get premium if it has loyal customers and has already established its brand name. MYSTERIOUS MARKET: 1. Cost/Sales issue 2. It can either lower price or continue to make profit due to increased margin. Ask for market share trends. new technologies… whether your client has it or not. competition.) 3. air route cost. Saturdays and Sundays and more in summers than in winters. but market share goes down implies that Market is growing but client is not keeping pace with it. Market issues (growth. (Ex Aluminum can case) Specific Industry: Airlines: Cost involves fuel cost.) Specific Industry: Insurance Industry: Sales personnel should be paid based on price of policy sold and also risk involved should be minimum. 2.g. • • • • • • • • Revenue killers: Concentration of retailers.• If question is simply assess the strategy of a firm consider: 1. profit made increase. retailers demanding large introductory discounts for new products and high failure rate of new products. Reduce production of low margin products. If it closes one route. . It is better to leave customers to cannibalization to that to competitors. then cost also of cannibalization of that route’s customers. Use porter’s five forces. trade brands.

Supplier/Buyer Power (Supply/Demand Level). think and hit upon another ☺ Profit per unit = Price – Variable costs. Windmill Case. little kudos) o Hold Small Debt for Short Term . See what closest substitute is present and what cost it incurs on users. To maximize profit maximize this. See if your product has any advantage over the other (Ex. Suppose to decrease your cost you cannot help with one aspect. (Key is diversification).• To estimate the prices of a commodity follow Porter’s five forces.5% (Cannot change) • Credit Cards have different kinds of users : o Pay off on full each month: Charge high monthly fee Provide numerous services (Detailed reports. Threat of Substitutes need to be assessed to determine the market price of the commodity.currently $50 (Could change) Annual % rate = 14% (Could change) Merchant fee = 1. theft. Personnel (Cannot change) Bad credit. A new product or a recently launched product’s expansion: See following conditions: o Market Growth o Market share o Competition o Any barriers to entry? o Customer buying habits (all products from same dealer or different) • • • • • Credit Cards Cost Revenue Structure Costs Marketing. What cost if you quote would motivate buyers to buy your product. The suitability of these options will again depend on the particular environment. etc. Industry Rivals. Oil Tanker Case) Sales can be increased by: selling more of the current products to current customers selling new products to current customers selling current products to new customers selling new products to new customers. SG&A. (Cannot change) Other costs (Cannot change) Revenue Annual fee .

1. the higher the price of a product or service.e. the lower the price of a product or service. Conversely. The results indicate the overall industry attractiveness (i.e. the supply of another product will decrease.The lower the price of a product or service. Please remember that as the supply of one product increases.. all other things being equal.7 Porter’s Five Forces Michael Porter's Five Forces model analyzes the various competitive pressures at work in a given industry. ease of making a profit).). the smaller the quantity of goods consumers will be willing to purchase. the greater that demand for the quantity consumers will be willing to purchase (i. (We live in a world with finite resources but infinite demand. as well as the strength and influence that each of the competitive pressures have on the firms participating in the industry. Supplier will be willing to make more available (i.e. the greater the quantity of the item that will be produced. The following is a brief discussion of the five components. .. supply).. Price Supply Demand Quantity 1. The Demand Curve . points Access to Cash Advances. demand). the smaller the quantity producers will be willing to make available.Increase the APR slightly Decrease the annual fee o Hold heavy debt for long term Waive the annual fee Increase their credit limits Cash back programs. etc. Conversely.6 Supply & Demand The Supply Curve -The higher the price of a product or service. all other things being equal.

Pricing Structure in addition to this. The intensity with which the competitors are jockeying for position and competitive advantages indicates the strength of the influence of this force. Supplier Power. Buyers gain strength through their sheer size and when the purchase is critical to the seller’s success. Suppliers also have more power whenever they can affect the competitive well being of industry rivals by the reliability of their deliveries or by the quality and performance of the items they supply.The competitive threat posed by substitute products is strong when policies of substitutes are attractive. In addition. buyers' switching costs are low. the barriers to entry are diminished. and buyers believe substitutes have equal or better features. When the economics are promising for a complementary product. Also see Cost.Buyers become a stronger competitive force the more they are able to exercise bargaining leverage over price. Benefit of Complements – This is considered a sixth force that is not directly captured in Porter’s model. when a newcomer can expect to earn an attractive profit. service. quality.Suppliers to an industry are a strong competitive force whenever they have sufficient bargaining power to command a price premium for their materials or components. Five Forces Potential Entrants Complement Suppliers Industry Competitors Rivalry among existing firms Buyers Substitutes . the most powerful of the five forces is the competitive battle among rival firms which are already present in the industry.Often. Potential Entrants – This force measures the ease with which new competitors may enter the market and disrupt the position of the other firms. or other terms or conditions of sale. Threat of Substitutes . The threat that outsiders will enter a market is stronger when the barriers to entry are low or when incumbents will not fight to prevent a newcomer from gaining a market foothold. This force is the opposite of the Threat of Substitutes. there is a spillover effect on the primary product.Industry Competitors (Internal Rivalry) . Buyer Power .

When considering change.8 "Star" Diagram/Organizational Analysis In doing an organizational analysis. as a whole. Vision should define Strategy. Corporate Culture must reinforce all seven components.9 The BCG Growth-Share Matrix The BCG Growth-Share Matrix provides a valuable framework that enables us to identify and evaluate the company's products relative to market share and the extent to which the market. is expanding or contracting. If one component is changed. managers will have trouble if they are in a decentralized structure while information and planning systems are centralized. recruit and develop the personnel the organization needs to accomplish its objectives. each as independently held businesses. . Strategy determines Structure and Decision Support Systems that are required to make the organization function. The Reward Systems must reinforce what you are trying to accomplish strategically and the Human Resource Systems must select. For example. it is most likely that the other components will have to be changed to be consistent with each other. Vision Strategy Decision Support Systems Human Resource Systems Structure Reward Systems Organization Culture Performance Problems arise when these seven components do not reinforce one another. all seven components must be considered. 1.1. The model can also be utilized to analyze a portfolio of companies held by a single organization by classifying them within the matrix. one should consider all seven components of the organizational unit.

deliver it to the market. not the company as a whole. that the unit achieves competitive advantage. Problem Child (also called "Question Marks") — A product with low market share in a high-growth market. Therefore an astute business manager would want to drop a “dog” from the product line.” It is at this level. maybe slow yet consistent growth isn't so bad. "dog" is certainly not "man's best friend. the product life cycle. something that is defective or undesirable). as indicated in the exhibit below. mother is concerned because her child is not growing as anticipated. it is analogous to a "bomb" (i. accelerating cash flow and. Michael Porter calls these activities “value activities. Hi Low Hi Market Share Low Star Problem Child Cash Cow Dog Profitability 1.e. Primary activities create the product or service. Since the cow is generating milk (i.Products or categories businesses are as follows: Star — A product with high market share in a high-growth market. Cash Cow — A product with high market share in a low-growth market. not coincidentally..10 Value Chain A business manager must understand the internal relatedness of the many activities involved in the production of a product or service.. Dog — A product with low market share in a low-growth market." Rather. cash). the marketer may elect to "milk the cow dry. every mother's prayer.e. Another perspective is that the manager shouldn't be quite so concerned if the product has carved out a little niche that is impervious to the competition.e. The value activities are grouped into nine categories. The categories of . something that fails miserably) or to a "lemon" (i. In this sense." so to speak. create a demand for the product. and provide after-sale support. Every business unit is a collection of discrete activities ranging from sales to accounting that allow it to compete. unless there are some extremely important overriding issues that outweigh the products market performance..

What value is added to the manufacture and sale of gasoline at each point in the value chain. (e. information systems. Support activities provide the input and infrastructure that allow the primary activities to take place. so that it can price its products lower than its competitors and win a large market share. or focus...g. purchasing. The categories are company infrastructure. manufacturing. value chain analysis provides a structure that provides great insight into the flow of activities that lead to the creation and distribution of a particular product or service. operations. Finally. Each of these strategies is described as follows: Overall Cost Leadership: Here the business works hard to achieve the lowest production and distribution costs. The real key in this strategy is for the firm to achieve the lowest costs among those competitors adopting a similar differentiation or focus strategy. Firms pursuing this strategy must be good at engineering. shared procurement). for example) and hurt the film that rested its whole future on being the lowest cost producer.11 Generic Strategies (Porter) Michael Porter suggests that business strategies can be classified as pursuing cost leadership. outbound logistics. One example is if the company strives to be the service leader in its . and by whom?).primary activities are inbound logistics. marketing and sales. human resource management. Value Chain Company Infrasructure Human Resource Management Information Systems Procurement Support Activities Primary Activities Inbound Outbound Operations Logistics Logistics Marketing & Sales Services 1. and service.g. Value chain analysis is also helpful in determining which value activities are best outsourced and which are best developed internally. and remaining so in the long run. and procurement. The problem with this strategy is that other firms will usually emerge with still lower costs (from the Far East. Value chain analysis is useful in discerning possible synergies among various units of an organization (e. Differentiation: Here the business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market. Texas Instruments is an excellent implementer of this strategy. differentiation. and physical distribution of the products.

inspect them carefully. but it is hardly possible to be all of these the worst. The firm gets to know the needs of these segments and pursues either cost leadership or a form of differentiation within the target segment. This has been Canon's strategy in the copy-machine field. and the industry. Annstrollv Rubber has specialized in making superior tires for farm-equipment vehicles and recreational vehicles and keeps looking for new niches to serve. the highest quality producer. A firm can only pursue one of these strategies at a time. Prospector— These firms are the first-movers and the innovators. The firm that carries off that strategy best will make the most profits. Thus. Thus the firm seeking quality leadership must make or buy the best components. Porter suggests that firms that do not pursue a clear strategy . but it is common for a company to shift from one strategy to another as its situation. The firm cultivates those strengths that will give it a competitive advantage in one or more benefits. According to Porter. These firms are not necessarily innovators. those firms pursuing the same strategy directed to the same market or market segment constitute a strategic group.12 Strategic Types (Miles & Snow) Miles and Snow have divided strategic options into four categories (in contrast to Porter's three Generic Strategies). 1. Defender—those firms that have a leadership share of the market will often concentrate on staving off the competition. the technology leader. the lowest-cost firm among those pursuing a low-cost strategy will do the best. Thus. While this strategy may be profitable in the short run. . the style leader. This strategy is akin to Porter's focused companies. Analyzer— Analyzers pick apart the market very carefully looking for niches and demand/supply gaps. put them together expertly.industry.“middle-of-the-roaders" -. changes. and so on. letting others show them the way to success. Reactor— Such companies are second-movers. its long-term value is questionable. leveraging their advanced position along the learning curve and their name recognition to maintain a superior market position. moving to erect as many barriers to entry as possible. but instead concentrate their efforts in very carefully and narrowly defined efforts. Focus: Here the business focuses on one or more narrow market segments rather than going after a large market. This is a highrisk strategic avenue to follow. They are closely related to Porter's Low Cost Producers. They react to changes in the market and moves of their competitors and so must maintain flexibility. but those who are successful can change the way the game is played and create very strong competitive advantages.

1. Semi-variable Costs: The costs of production that vary with the quantity (Q) produced. but not directly. and adaptability to changes. The necessary sales are called the BEQ. JIT calls for synchronization between suppliers and customer production schedules so that inventory buffers become unnecessary. The BEQ is calculated by dividing the fixed costs (FC) by the price minus the variable cost per unit (P-VC): BEQ = FC/(P-VC) The price minus the variable cost per unit is called the contribution margin. Effective implementation of JIT should result in reduced inventory and increased quality. such as the cost of adding new production capacity when Q reaches certain levels.Cost of Goods Sold (COGS) Labor Materials . multiply the quantity sold times the contribution margin and subtract the total fixed cost. In other words. Fixed Costs (FC): The costs of production that do not vary with the quantity (Q) produced: these costs generally include overhead costs. Variable Costs Variable Costs (VC): The costs of production that vary directly with the quantity (Q) produced: these costs generally include direct materials and direct labor cost.) Break-even Point: Break-even analysis is a managerial planning technique using fixed costs. and the price of a product to determine the minimum units of sales necessary to break even or to pay the total costs involved. variable costs. In other words.1. these are discrete costs.14 Fixed vs. (Typically.1 Income Statement Net Income .For profitability cases you should explore cost and revenues 1. The contribution margin represents the revenue left after the sale of each unit after paying the variable costs in that unit. the amount that "contributes" to paying the fixed cost of production.15 General Models 1. This technique is also useful to make go/no-go decisions regarding the purchase of new equipment.13 Just-in-Time (JIT) (Very Important in reducing costs. the materials arrive at the customer's factory exactly when needed. productivity. To determine profits. or break-even quantity. Profit = Q x (P-VC) .FC 1. Inventory costs tend to zero) The goal of JIT production is a zero inventory with 100% quality. Financial Frameworks .

Overhead Delivery Gross Margin .Sales General &Administrative (SG&A) Operating Profit . Reserves Shareholders Equity 2. plant & equipment Intangibles Liabilities Accounts Payables Other Short Term Debt Long-term Debt Other Liabilities. Porter’s Five Forces Suppliers Potential Entrants Buyers Substitutes Industry Competition Complements – the forgotten force Common Stock Retained Earnings .Interest Expense Earnings before Taxes (EBT) -Taxes Net Income 1.Depreciation .2 Balance Sheet Assets Cash Investments Accounts Receivables Inventories Property.

An example of an issue tree is provided with China Factory case.1 Raw Materials o Who makes the plastic needed for golf balls? o Obtain the quantity of material supplied and work from there.1 3.4 4.3 3. Business System 3. Focus on most important branches or components first. Top-level identifies the highest level issues that need to be answered to solve the problem.1.5 5. Break each level down into parts that are more manageable.2 3. Use MECE (Mutually Exclusive and Collectively Exhaustive) to ensure that all issues are covered.1 4. Issue Tree 4. 5.3 4.2 Demand side Who purchases golf balls? How many golf balls do they need each year? R&D Product Development Innovation Responsiveness Manufacturing Cost Quality Speed Supply Marketing Pricing Product Place Promotion Distribution Cost Channel 4. Supply chain 5.3.2 Do not use this framework in an interview without practicing it a few times before hand. Framework for a Zinger case like “How many golf balls in Albuquerque?” .4 4.1 5.

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