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The purpose of this handbook is to serve as a source
of inspiration during your interview preparation. We While it is possible to make it through manage-
recommend browsing through all sections of the ment consulting interviews without preparation, we
handbook to ensure that you are familiar with the strongly recommend that you do prepare, as it great-
various topics covered in it. The content will, how- ly improves your chances of securing a job offer.
ever, not be explicitly tested in any way during the The vast majority of successful applicants across all
recruitment process at QVARTZ. management consulting companies have prepared
by reading up on cases, practicing with friends and
IS THIS HANDBOOK RELEVANT brushing up on their arithmetic skills. Preparing is
FOR ME? especially relevant for non-business students who
may not be very familiar with business terminology
This handbook is relevant for you if you are prepar- and problem solving methods.
ing for upcoming interviews and are new to case in-
terviews. If you are already a seasoned case solver
or have read other literature on the topic, this hand-
book may be of less relevance for you. See our sec-
tion “Additional resources for case preparation” for
other recommended sources of information.


QVARTZ: a Nordic original . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

QVARTZ’ recruitment process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

The case interview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Types of case questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

How to open and close a case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Frameworks for business cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Profitability framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Industry analysis framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Mergers & acquisitions framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Product strategy framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Additional resources for case preparation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Quantitative preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Example cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

QVARTZ is a management consulting company extensively within transactions, commercial and op-
employing more than 240 professionals across our erational excellence programmes and organisational
offices in Stockholm, Copenhagen and Oslo. Our transformations. Our client base covers a range of
aspiration is to become one of the top-three con- industries, including private equity, energy, pharma
sulting companies in all Scandinavian markets – a & medtech, retail, transportation and many more.
seemingly tough goal, yet an inspiring challenge. Although most of our clients are large Nordic com-
panies, approximately 40% of our projects are car-
Even though firmly rooted in the traditional, profes- ried out outside the Nordics.
sional values of high-end management consulting,
QVARTZ was founded with the clear intention of At QVARTZ, we see consulting as a true career path,
changing the industry “from within”. Our ambition not just a stepping stone. We offer our consultants
is to become the leading consulting company in the the opportunity to influence their own career pro-
Nordic region by presenting an alternative to the gression and work life to the highest possible extent.
standard consulting model. A Nordic model with We strive to provide individualised matchmaking
less dependence on standard methodologies and between personal wishes and project opportunities
more emphasis on listening and giving advice based to ensure that our consultants develop and succeed.
on the client’s specific challenges and opportunities For the same reason, we attempt to nurture and de-
as well as our specific insight and experience. velop our consultants as much as possible through
mentoring and internal academies so that we can
While strategy development has always been the grow together as a company.
cornerstone of our offering, QVARTZ today works


QVARTZ’ recruitment process for full-time consul- Our junior consultants work on client projects just
tants is centred around a comprehensive two-day like any other consultant. They perform tasks simi-
recruitment camp. lar to those of newly hired full-time consultants, but
typically work 15-20 hours per week while complet-
Over two days you will get the chance to learn more ing their studies.
about what it is like to be a consultant at QVARTZ
and show us who you are through a combination The recruitment process for Junior Consultants con-
of interviews and group exercises on business di- sists of an introduction to QVARTZ, case interviews
lemmas. You will also meet many of your potential as well as a quantitative test. As for full-time con-
colleagues at QVARTZ, and the different sessions sultants, we make sure that the candidates get to
will offer you an opportunity to learn more about meet quite a few potential new colleagues during
yourself and moreover provide you with concrete the process.
input to be further applied in your career, whether
at QVARTZ or elsewhere. Among other things the If you want to know more about your career oppor-
programme includes tunities with QVARTZ, please visit

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WHAT IS A CASE INTERVIEW? 1. Would you thrive when solving
our clients’ problems?
In a case interview, the interviewer will present you with
a situation or a challenge faced by a fict%0ious c+)ġ The interviewer will assess your ability to combine
,*5ċŏYou are asked to analyse and solve the ,.+(!) skills such as logical reasoning, creativity, quantita-
through a discussion with the interviewer. The )&+.%05 tive skills and business acumen as well as your ability
of case interviews are based on real client proj!0/ŏ* to put it all together and structure the problem solv-
the interviewer may therefore have additional '*+3ġ ing process. The interviewer checks whether you can
ledge or information to draw upon during your insightfully think through the problem and then tailor
discussions than was initially presented. your approach to the problem at hand, rather than try-
ing to fit something in to a predefined framework. The
WHY CASE INTERVIEWS? interviewer also seeks to understand if you base your
conclusions on evidence rather than beliefs, and if you
Consultants solve problems. Case interviews are an ef- “sanity check” your answers to ensure they make sense
fective way of simulating the kind of problems we en- in the context of the case.
counter on a daily basis. They are a fast and concrete
way for us to understand how you frame and solve am-
biguous business problems. In addition, they also give 2. Would you work well with us and our clients?
you an opportunity to gain a better understanding of
the work we do and if a consulting career is what you Management consulting is based on teamwork. Your
want to pursue. ability to interact with others and your communication
and presentation skills are therefore of great impor-
WHAT DO WE LOOK FOR IN tance. The interviewer wants to understand if you are
THE CASE INTERVIEW? tactful and approachable, and how you handle con-
structive input. Additionally, he or she wants to evaluate
The case interview is designed to test skills that are if you present your arguments in a clear and concise
common to almost all consulting companies, though manner that would be easy for a client to follow. Do not
they may be described and weighted slightly different- be afraid to show that you are human; a welcoming and
ly in different places. During case interviews, the inter- attentive attitude goes a long way.
viewer is looking to answer at least two questions:


The group case session is designed to give you an op-

portunity to show how you work with peers on chal-
lenging problems. In addition to the problem solving
approach, teamwork along with effective communica-
tion and ability to show respect and empathy will be
evaluated. Throughout the group case solving process,
an interviewer will listen in on the group’s communica-
tion to observe how its members interact, and continu-
ously provide feedback.

Interview cases generally fall into two categories, Approaches
(1) Estimation or market-sizing cases, and (2) Busi-
ness cases. At times, the interviewer may also ask A) Extrapolation
you to include a market-sizing question as part of a One approach is to extrapolate a metric from one el-
larger business case. ement against an entire population. As an illustrative
example, you could answer the question “How many
1. ESTIMATION OR gas stations are there in Sweden?” by extrapolating
MARKET-SIZING CASES your knowledge about the number of gas stations in
your local region against the whole country.
In estimation or market-sizing cases, you are asked
to estimate a quantity that you will not likely know (E.g. three gas stations per 50,000 inhabitants in
in advance. Examples of estimation case questions a given city would bring you to 600 gas stations
are: “How many gas stations are there in Sweden?”; across Sweden, assuming a population of 10 million
“How many trains are in motion in the Stockholm people).
subway system right now?”; or “What is the value of
all coal produced in Sweden?”. B) Segment-by-segment breakdown
An alternative approach is to isolate the estima-
Typically, there is no one correct answer, yet the pur- tion per segment. Visually, you could do your cal-
pose of these cases is to understand how you work culations in a table format, which makes your work
logically through a mathematical problem, make well-structured and easy-to-follow. As an illustrative
reasonable assumptions and interpret mathemati- example, you could answer the question “How many
cal results. While you cannot prepare for the exact deodorants are sold in Sweden each year?” by seg-
problems, there are a few things to think about and menting Sweden’s population by logical age groups
possible approaches you could consider. and then making sound assumptions of the average
amount purchased per capita for each group.

Communicate your approach C) Driver breakdown

A third approach that works well for many estima-
Before you dig into the details, it is a good idea to tion or market-sizing cases, especially more uncon-
think through your mathematical approach on a ventional ones, is the driver breakdown approach.
high level and then briefly communicate it to the in- Here, you begin with the key metric and systemat-
terviewer. If the interviewer understands your mod- ically decompose it into its corresponding drivers.
el and its subcomponents, he or she can be certain Keep attempting different decompositions until you
that you are on the right track from the start, or po- find that the subcomponents are manageable to
tentially intervene and help you before you spend make assumptions around. As an illustrative exam-
time on an approach that may not work out in the ple, you could answer the question “How many golf
given time frame. balls are in the air in the US at 11 am on a Saturday
morning?” by breaking it down into its subcompo-
nents “number of golf balls in the air per course”
times “number of courses in the United States”, and
subsequently breaking those down further.


The business case interview is by far the most com- information; and your overall fit with the type of
mon type of case interview. A business case inter- work that we do.
view begins with the interviewer presenting you
with a challenge or opportunity faced by a company You can significantly increase your chances of be-
and asks you to analyse and resolve the situation ing successful in a business case interview by prac-
through a discussion with the interviewer. ticing. The opening and closing of the case is fairly
generic, practicing how to open will get you off to
Business cases are designed to simulate real life a good start and practicing how to close will make
consulting projects, and sometimes the interviewer your wrap-up more concrete and concise. The mid-
may even role play one or several “characters” in- dle part is more difficult and requires more natu-
volved in the case to get as close to a real project as ral talent, yet there are a number of methods and
possible. He or she could provide you with relevant frameworks which can help you along the way when
data upon request - or - after a given section of a practicing case interviews.
case, ask you to analyse or investigate certain top-
ics. The types of topics vary; you may for example The following pages contain a selection of approach-
investigate how to make a company’s distribution es and frameworks which might inspire you in your
chain more effective, how to best enter the Brazilian case solving. But keep in mind always to adapt your
soda market or how to make use of overcapacity in thinking. Interviewers look for candidates with busi-
a car manufacturing facility. ness acumen, who are able to develop high-quali-
ty frameworks on their own, in contrast to merely
The purpose of these types of cases is to under- repeating rehearsed frameworks. The key takeaway
stand several of your competences: the depth of is to use frameworks as a source of inspiration, but
your business acumen; how you structure and pri- not to force-fit a case into one just because you are
oritise issues; how you handle different types of familiar with it.


Strategy Organisation Operation

đŏ Increasing market share đŏ Incentive systems đŏ Cost-out

đŏ Market entry strategies đŏ Organisational design đŏ Strategic sourcing
đŏ M&A transactions đŏ Roles and responsibilities đŏ Supply chain optimisation
đŏ Starting a new business đŏ Post-merger integration đŏ Production capacity change
đŏ Competitive response
đŏ Pricing strategies
đŏ New product strategy


đŏ Listen carefully to the question and confirm that Either the interview comes to a natural close when
you have fully understood the assignment or you feel that you have solved the problem or when
problem the client is facing. A good way is to the interviewer steers you in that direction as time
paraphrase the question back to the interviewer. is running out. Regardless, a good close is one of
And take notes, especially if you are presented the most crucial parts of the interview. At this point
with data you have hopefully asked all the questions you want
and performed your analysis. So where do you go
đŏ Ask clarifying questions if necessary. Even the from there?
most obvious questions are sometimes appro-
priate to ask and it provides you with more time đŏ If you feel you need to, take a moment to collect
to think your thoughts

PROCESS INFORMATION AND đŏ Try to quickly take your interviewer through the
PRESENT YOUR APPROACH analysis as well as your most important findings

đŏ Ask for time to collect your thoughts and struc- đŏ Answer the question! If there is a clear question
ture your analysis. Often the interviewer leaves at the beginning of the interview, do not forget
the room to give you some time, while at other to answer it. If the question is whether or not to
times the interviewer may stay in the room – in enter a specific market, your conclusion should
either case, do not feel stressed and take the be just that, whether to enter it or not. Not all
time you need cases are the same but keep in mind to make
your conclusion as action-oriented as possible
đŏ Present to the interviewer how you are going to
approach your analysis. This is very important đŏ Lastly, back up your conclusion with support-
and often forgotten. Be a good listener, the in- ing arguments. Try to not include too many but
terviewer might give you hints on where to go rather spend time on the ones that you find
first or if you should rethink your approach alto- most important to your overall conclusion
gether. If this is the case, ask for another minute
to collect your thoughts

You will quickly find frameworks if you start look-
ing around for material on management consulting
interviews. Basically, frameworks are tools for you
to use when structuring your problem solving in a
case interview. Sometimes they could also just be a
checklist to avoid missing the most important steps
in the process. You should keep in mind that a case
question rarely turns out to fit perfectly into a pre-
defined framework – instead you will have to adapt
your approach and use the framework more as a
backbone in your analysis. In the following pages,
you will find four useful frameworks.

In many cases you will be expected to analyse the our competitors’ because our brand is the weakest
profitability of a company at a more granular level. in the industry, but it is possible to improve it by an
The profitability framework helps you to systemati- investment?).
cally break down the profitability drivers. Your goal
is often to isolate significant historic developments
(e.g. the cost of raw material has been surging); SEGMENT YOUR ANALYSIS
benchmark profitability drivers with competitors
(e.g. our prices are lower than our peers’); and evalu- Think of different ways to segment costs and
ate opportunities (e.g. is it possible for us to increase revenue. During a real project you will have
profits by boosting sales of product A?). The key to time to investigate several different ways of
solving these cases is often to understand the under- segmenting, but in case interviews the inter-
lying mechanics that produce the eventual anom- viewer often has a preferred segmentation.
alies in the numbers (e.g. our prices are lower than



đŏ Decompose by applying appropriate segmen- đŏ Decompose by applying appropriate segmen-

tation, e.g. tation (by e.g. looking at revenue)
– Business units đŏ Decomposing according to the value chain is
another powerful way of analysing costs, e.g.
– Customer types
1. Raw materials
– Large vs. small customers
2. Inbound logistics
– Geographies
3. Production costs
– Product types
4. Sales and distribution costs
– Sales representatives
đŏ Do not forget overhead costs (e.g. administra-
– Etc. tive, IT and marketing costs)


đŏ Identify increases or decreases in components (e.g. have units sold gone up, down or stayed consistent)
đŏ Understand if trends are company-specific or an industry-wide problem

The industry analysis framework is designed to help you gather information on a company’s external environ-
ment. At first glance, it may appear overwhelming but many of the elements are likely already familiar to you.


đŏ Industry growth
đŏ Business life cycle
đŏ Is the industry cyclical, stable or counter cyclical?


Client Competitor A Competitor B ...

Market share


(differentiation, packaging, prices, etc.)

Other drivers
(brands, loyalty, etc.)



đŏ Suppliers đŏ Economies of scale

– Have their costs shifted? đŏ Is there better technology?
– Bargaining power? đŏ Can we change our staff?
đŏ Raw materials đŏ Is outsourcing a possibility?
– Has the price changed?
– Is the economy affecting prices?


đŏ What is the channel mix? đŏ B2B or B2C?

đŏ Distributors đŏ Preferences
– Have their costs shifted? – Product
– Bargaining power? – Distribution
đŏ Sales personel – Price
– Are there large differences in competences? đŏ Has the bargaining power shifted?
– Is the right incentive system in place?
đŏ Marketing



đŏ New players in the market or new players entering? đŏ Can we change the mode of transportation to be more effective?
đŏ Substitute products? đŏ Can we manage inventory more effectively?
đŏ Is the market getting consolidated?

This framework is seemingly quite narrow in scope and perhaps not as important as the other frameworks.
It is, however, not uncommon for transactions to come up in business case interviews and it is good idea to
have thought them through in advance, especially if you have no previous experience from transaction work
or studies.


đŏ What does the client do? đŏ Can we afford the company?

đŏ What do our financials look like? đŏ Is the price fair?
đŏ Potential reasons for M&A đŏ Are there any benchmark transactions?
– Increase market share or access đŏ How do we finance the transaction?
– Economies of scale or scope đŏ What is our expected return?
– Learning curve advantages
– Diversification
– Pre-empt competition
– Tax reasons


đŏ Use a light version of the industry analysis đŏ Do we expect to make an exit?

framework đŏ For how long are we going to hold the
đŏ How are we planning to sell the company?

This framework is similar to the industry analysis framework but with some important differences and addi-
tional issues.


đŏ How does the product and its features com- đŏ Do we sell similar or competing products
pare to competing alternatives? today?
đŏ Is there an intended price level for the prod- đŏ Do we benefit from economies of scale or
uct? scope?
If no, consider đŏ Is there a risk of cannibalisation?
– Cost-based pricing đŏ Do we have the capabilities necessary to in-
(Applying a margin on top of costs) troduce the product? (e.g. technical knowhow,
– Market pricing financing, operational set-up, suppliers)
(Based on prices of competing products)
– Value-based pricing
(What are customers willing to pay?)
đŏ Is our technology protected by patents?


đŏ Who are the target customers? đŏ What is the revenue potential?

đŏ Are there different customer segments? (e.g. đŏ What are the corresponding costs?
businesses vs. consumers?) đŏ Are there any capital expenditure requirements
đŏ Is there an overlap with our existing customer to consider?
base? đŏ What is the break-even volume?
đŏ What are the customers’ key purchasing đŏ What would be the expected payback period?
đŏ Do we have an appropriate distribution set-up?
(e.g. retail sales, internet sales, direct salesmen
or distributors)

SOURCE COMMENTS A recent and popular case site developed by a

former consultant.
The site includes a range of material containing
useful and concentrated frameworks and case tips.
The materials come in the form of videos and PDFs
and are typically free of charge. However, beware
that the site is designed to encourage you to make
large add-on purchases not necessary for interview

Case Interview Secrets Same as above, in book format.

Author: Victor Cheng

How to Get Into the Top Consulting Firms: A book written by a VP of a large American con-
A Surefire Case Interview Method sulting firm.
Author: Tim Darling The book offers a condensed overview of how to
create problem solving structures and communi-
cate like consultants. It also provides ten well-writ-
ten practice cases.

Case in Point One of the most frequently used case preparation

Author: Marc Cosentino books.
The book contains detailed descriptions of case
interviews and samples of how a case interview
may play out.

The Pyramid Principle Almost all consultants have a copy of this book.
Author: Barbara Minto This is not a typical case interview preparation
book, but reading it will provide you with a solid
understanding of how consultants work with struc-
ture and communication.


Most management consulting companies put em- HOW ARE YOU TESTED
phasis on a candidate’s numerical capabilities, and QUANTITATIVELY?
strive to test these in one way or another as part of
the recruitment process. Numerical skills are easy to Normally you will be tested on
improve with practice and we strongly recommend
that you put some time aside for practicing numeri- đŏ Your ability to make computations accurately
cal accuracy and speed by repeating basic arithme- and efficiently without a calculator
tic operations.
đŏ Your ability to develop and communicate
WHY ARE YOU TESTED a numerical model
đŏ Your ability to interpret quantitative
We need to be confident that every team member measures and data
is able to structure and carry out quantitative anal-
yses. Most client recommendations are based on
quantitative evidence. Comfort with numerical es-
timations and arithmetics is also a cornerstone of a
consultant’s sanity checking procedures.



Interviewer Our client, a Scandinavian private equity fund, is considering an acquisition of a Swedish
company that produces freshly squeezed juice. We have been invited to help the client
evaluate the attractiveness of such an investment. What are the key elements for us to
look at?

Candidate Just to be clear, are we talking about a retail juice chain or a wholesale juice manufacturer?

Interviewer Good question, we are evaluating a manufacturer/wholesaler.

Candidate Interesting, let me think about my approach for a short while.

Interviewer Sure, I’ll be back in a minute or two …

The interviewer walks out of the room and returns a couple of minutes later

Candidate All right! On a high level, I would like to understand

1) The attractiveness of the market in terms of size and growth

2) The competitive landscape and the target company’s competitive position
3) The company’s current business portfolio and its performance

Interviewer Okay, that sounds appropriate. Why don’t you start with the size and growth of the mar-
ket? How would you estimate the size of the Swedish juice market?

Candidate Okay, let me take a minute to think through my approach.

The candidate thinks for about a minute and resumes the conversation

Candidate In order to estimate the market size in terms of value, I need to look into the drivers of
market value, which are (a) yearly juice consumption in litres and (b) price per litre. I’ll start
with the consumption.

Interviewer Okay, good. It sounds like you have a good overall approach but I would like you to refine
your structure a bit; what do you think is an appropriate customer segmentation to find
out how much juice is consumed every year?

Candidate Hmm, we could segment the consumers into different categories both in terms of be-
haviour and in terms of age groups.

Interviewer Sounds good!

Candidate Let’s start with the behavioural parameters. Since we are only focusing on the wholesale
market, I will look at the consumption of pre-bottled juice. This is more or less the same as
breakfast consumption, according to my experience. Let’s create three types of breakfast
juice drinkers; a) everyday drinkers, b) occasional drinkers and c) non-drinkers. I assume
that the weekly consumption within the three groups is: a) 7 glasses (1.5 litres), b) 2-3
glasses (0.5 litres) and c) nothing.

Interviewer Great, then you mentioned that you were going to analyse age groups. How?

Candidate In addition to the behavioural aspects, I believe that age is relevant due to different life-
styles. I think that the share of people who belongs to the different behavioural groups (a,
b and c) varies with age. I would like to start off by defining the age groups: 0-20 years,
20-40 years, 40-60 years and 60-plus.

Interviewer Okay, tell me why you chose those age groups?

Candidate Hmm, I get your point; I need to explain the rationale for defining different age groups
which has to be connected to the different lifestyles I was talking about.

Interviewer That’s right!

Candidate OK, so 0-7 is the first group and I assume they do not drink juice at all. The next group is
7–20 as they typically live at home with their parents and are not buying juice themselves.
Based on my experience, half of these people do not drink juice at all, in fact many of them
don’t even eat breakfast. I assume 1 out of 4 drinks every day and the rest drinks a couple
of times per week. The next group is 20-65, which is basically the working population. If
I look at my friends and family, there are about 50% who do not drink juice at all. Then I
think there is a slightly higher share of everyday drinkers than in the 7-20 age group. Based
on my experience, I assume 30%, leaving us with 20% drinking occasionally. Finally, in the
group 65-plus I think the share of everyday drinkers goes down a bit due to lower income,
I assume 20% and I think the non-drinkers are still about 50%, leaving us with 30% occa-
sional drinkers.

Behavioural distribution Weekly litres/behavioural type

Number of Total yearly

Ages Everyday Occassionally Never Everyday Occassionally Never Total week
people consumption

0-7 700,000 0% 0% 100% 1.5 0.5 0 - -

7-20 1,300,000 25% 25% 50% 1.5 0.5 0 650,000 33,800,000

20-65 4,500,000 30% 20% 50% 1.5 0.5 0 2,475,000 128,700,000

65-plus 3,500,000 20% 30% 50% 1.5 0.5 0 1,575,000 81,900,000

Total 10,000,000 4,700,000 244,400,000

Interviewer Excellent, what do you do next?

Candidate Let’s continue with (b), price per litre. Based on my experience from ICA, a package of
juice is about SEK 18 per litre …

Interviewer Okay, but before you do the calculation I would like to ask you – there is an element, which
you’re missing, can you think of what it is?

Candidate Ah! Yes, since we are talking about a wholeseller, my price includes a retailer mark-up
which should not be considered in the wholeseller market.

Interviewer Yes, that’s it. There is also another consideration. What do you think that is?

Candidate We are only talking about one juice type here. Maybe we should consider different types
of juices?

Interviewer Yes, what would that mean?

Candidate That we get different prices for different juices; I would say that there are three basic types
with different price levels; high end, low end and private label.

Interviewer Exactly, I’ll help you out and give you some numbers.

The candidate runs the numbers based on an assumed retail price and calculates
backwards to find out the wholesale price

Volume in Price/litre to
Share of sale Retail price VAT Retail mark-up Total value
litres retailer

high end 10% 24,440,000 30 25% 20% 20.0 488,800,000

65% 158,860,000 18 25% 20% 12.0 1,906,320,000
low end

Private label 25% 61,100,000 20 25% 60% 10.0 611,000,000

Total 100% 244,400,000 3,006,120,000

Candidate Okay, so given these price levels, I arrive at approximately SEK 3 billion in wholesale value.
In terms of weaknesses of the estimation I would say that the consumption assumptions
are the ones that I’m least comfortable with. If I had more time I would dig deeper into that.

Interviewer What do you think of SEK 3 billion? Is it realistic?

Candidate Well, a simple sanity check is to find out how much that would be per person per week,
and it is about SEK 6 plus retail mark-up across the entire population. To me, that sounds
reasonable, which would make 3 billion a realistic estimate.

Interviewer Okay, it sounds like you have thought this through. Assume for the rest of the case that
your estimate of SEK 3 billion is correct. So what’s next?

Candidate Next I would like to look at the market growth and if we have any information on whether
it is set to grow in the next years.

Interviewer Okay, you can assume that the market has been declining by 4% per year over the past five
years and is set to continue do so over the next five years.

Candidate Is that 4% in real decline or nominal decline?

Interviewer Good question, assume it is 4% in nominal decline.

Candidate Okay, so is it fair to assume that we can expect even more than 4% real decline in the next
five years?

Interviewer Yes. So where do you want to go next?

Candidate Next I would like to analyse (2) the competitive landscape and the target company’s com-
petitiveness to see if it might have some kind of unique position in a particularly attractive
subsegment because overall, the market does not seem very attractive.

We will wrap up the case example at this stage. We do, however, encourage you to try and think what your
approach would have been in mapping the competitive landscape and how you would have proceeded in
analysing whether we should recommend the private equity fund to acquire the company or not.


Interviewer After years of engineering work, you finally have the world’s first commercially viable
spacecraft. It costs you EUR 50 million to build. From its launch pad outside Paris, it can
take a load of up to 12 passengers into space, orbit earth and then return safely eight hours
later. There are no safety concerns whatsoever. The spacecraft can do three trips per week
and the operational costs related to the trips (salaries, fuel, maintenance) are EUR 75,000.
There are no competing products, and the design is effectively protected by patent rights
for the next 25 years. It will take you three years to build an additional spacecraft.

My question to you is: how would you take the product to the market in the next three
years, before you could have another spacecraft?

Candidate So we’re talking about a commercial spacecraft here? Our goal is to push this thing to the
market, right? Okay, let me make sure that I caught all the details in the data.

đŏ In terms of costs, we have invested EUR 50 million, and each

round trip costs us approximately EUR 75,000.

đŏ We can do three trips per week, so basically 150 trips per year,
and each trip can carry 12 passengers.

đŏ Our technology is completely protected for the next 25 years.

Did I get all that right?

Interviewer Yes, that’s right. What I want you to start with is deciding on a couple of areas that you
would like to investigate further.

Candidate Okay, give me a minute and I’ll collect my thoughts a bit.

The candidate takes around three minutes and then resumes the conversation

Candidate All right - there are a couple of areas that I would like to explore, which fall into three main

1) What is the market for commercial space trips?

2) What are the economics behind the operation?
3) How do we market the space trip?

My primary concern with area (1), the market, is that I want to understand the product and
situation a bit better. My hypothesis is that the demand is rather high in relation to our
supply …

Interviewer Well, the demand would depend on the price, right?

Candidate Yes, of course you are right. I would like to explore the dynamics of the market
by understanding:

(1.1) Who are our potential customers? What are the segments? What are their
considerations when buying a ticket?

(1.2) How big is our market? What I would like to figure out is whether we can fill
our capacity or not.

(1.3) What is the competition like? I.e. are there any substitutes?

For (2), the economics, I would like to do a break-even analysis to understand whether it
is a profitable idea, and if yes, how much room do we have left for marketing?

For (3), marketing, I don’t have a clear idea yet. But we’ll dig deeper into that later.

Interviewer Good. I would like to hear your thoughts on topic (1.3), competition, what do you think?

Candidate Well, I don’t know of any other space trips, and I guess it is safe to assume that no one else
will develop such a concept in a three-year period?

Interviewer You are right, and in addition, I did mention that there are no competing products,

Candidate You are right, I forgot to note that down.

Interviewer No problem, so what about substitutes?

Candidate Good question, the closest thing I can think of is different types of leisure trips, which
aren’t really comparable to this, if you ask me. My hypothesis is that there are no real sub-
stitutes. I mean, what compares to travelling to space?

Interviewer I agree. Let’s assume there are no substitute products either, so effectively there is no com-
petition of any kind for the remainder of the case.

Candidate Okay, then I would like to continue with the first branch of the analysis: (1.1), customers,
who are they in this situation?

Interviewer Well, what do you think?

The candidate takes about half a minute to think before he proceeds

Candidate This is a bit tricky, because I would assume that the vast majority of the human population
would be interested in travelling to space – but, as we concluded, this depends on the tick-
et price. For example, I would definitely go for EUR 100, but maybe not for EUR 1 million
in my current situation. The key takeaway here is that: the higher the price, the fewer the
people who would be interested in a ticket.

Interviewer Yes, of course. Can you look at the customer group and price issue from another angle
perhaps? Let’s assume we are looking at the market for the next three years.

Candidate Ah, yes, we could look at how many tickets we could possibly sell per year, and divide this
by the number of inhabitants in the world. I think this can give us a clue as to how much
we can charge for the tickets.

Interviewer Okay, let us explore that.

Candidate We have around 150 trips per year, with 12 passengers each, which adds up to 1,800 seats
per year to fill. Considering a world population of 7 billion people, this corresponds to less
than one person in a million. Given that, I think it is safe to assume that we could charge a
lot for these tickets. I mean, one person in a million is quite a small group of people.

Interviewer That sounds reasonable, with that in consideration I would like you to go into issue (2), the
economics, and run some numbers on the break-even price for the first three years.

Candidate All right, we have two cost components that I noted down during the introduction of the
case, the initial investment cost and the round trip cost. I’m not completely sure of whether
we should consider the initial investment as a sunk cost or use it in the break-even analysis.
My suggestion is that we should include it.

Interviewer Great! Do that.

The candidate writes down his calculations on a piece of paper

Candidate Okay. I will translate both costs into costs per seat, so given that and assuming that there
are no additional costs, the investment cost of EUR 50 million will be EUR 16.7 million per
year, and a little less than EUR 10,000 per seat, let’s assume EUR 9,500. The round trip cost
of EUR 75,000 becomes EUR 6,250 per seat since we have 12 seats. So in total we have a
cost per seat of around EUR 16,000, which would be our price if want to break even after
three years.

Interviewer Okay, what does that tell you? That we should charge at least EUR 16,000 per ticket?

Candidate It completely depends on the circumstances. If the useful life of the spacecraft is three
years we would have to charge significantly more to make a good profit but if the useful
life is longer it could be a viable option to charge the €16 thousand.

Interviewer Good thinking, unfortunately we don’t have any information on the useful life right now so
let’s leave it at that. But what about EUR 16,000, how do think that ticket price sounds?

Candidate Well, since we are looking at the “one-in-a-million-most-willing-to-pay-person” as our cus-

tomer group, I think that it is safe to assume that we can charge at least that. EUR 16,000
is a lot but I am confident we could sell the tickets to at least that price. As I mentioned
before, however, I think we should make a large marketing campaign to build some mo-
mentum around the demand so we might want to add a bit of a margin on top of that EUR
16,000 if we are to break even including that in three years.

Interviewer That is true. We should probably try to make a splash before the launch, but at the same
time, a big attraction like this might almost sell itself, don’t you think?

Candidate Well, yes, you might be right but we should still ensure that the word gets out there so we
don’t risk not filling the seats during the first weeks before the word spreads.

Interviewer Okay, so what are your ideas on marketing?

We will wrap up the case example at this stage of the case. We do, however, encourage you to try and think
what your approach would be for a marketing campaign for the first commercial space trip.


Interviewer Our client, the Swedish window manufacturer “Vertical Windows”, is considering enter-
ing the German market. The company has an annual revenue of EUR 600 million and is
currently the market leader in Sweden, and one of the top three in Denmark and Norway
– 90% of its sales are within the Nordic region. Vertical Windows also has sales and pro-
duction facilities in the UK.

What aspects do we need to look into in order to evaluate whether entering the German
market is an attractive opportunity for Vertical Windows?

Candidate Ok, let me think about how to approach this issue for a moment.

Interviewer No problem. I will grab a coffee and be back in a couple of minutes.

The interviewer returns to the room after a short break.

Candidate To assess how attractive it would be to enter the German market, I would start by looking at:

1) The size of the German market

2) Market growth – to better understand the dynamics
3) Current profitability in the industry, if information is available
4) Vertical Windows’ product offering versus current market demand

Interviewer Good, it sounds like an approach that can provide useful insight to get us started. How
would you estimate the size of the German market for windows?

Candidate First, I would start by estimating the number of households in Germany, to get an idea of
the total number of windows sold. I know that the population in Germany is roughly 80
million. Assuming that each household counts, on average, two people, this would give us
a total of 40 million households.

Interviewer The assumptions you have made so far are fairly accurate, but maybe we should slow
down a little bit and try to structure our approach a bit more, so that we do not miss out on
any important details? For example, would private households represent the only potential
market for a company selling windows?

Candidate Yes, of course. In addition to the residential market, we also have to consider the non-resi-
dential market. Maybe I should set up an issue tree to make the analysis more structured?

Interviewer I think that is a good idea!

Candidate sketches a simplified issue tree on his paper

Residential market

Market size
Non-residential market

Market growth

Attractiveness of the German market



Candidate I use the four elements initially mentioned as the base of my issue tree, and I will continue
down the “market size” branch first. I would like to complete the analysis of residential
property before moving on to non-residential.

Interviewer That is fine.

Candidate So, if we have 40 million households, these can be split into flats and houses. Is it fair to say
that the split could be 50/50 between family houses and apartments?

Interviewer Sounds fair, so let us go with that.

Candidate Great, obviously houses would have more windows than apartments, so this has an in-
fluence on our total number of windows. I would say houses have, on average, twice the
number of windows compared to those of apartments. Perhaps 10 windows per house and
5 windows per apartment are reasonable estimates?

Interviewer I agree that those numbers sound reasonable.

Candidate Then that would give us a total residential market size of: (20 million apartments x 5 win-
dows) + (20 million houses x 10 windows) = 300 million windows in the residential market.
I think the residential market is larger than the non-residential market by a decent margin.
Perhaps 2/3 of all windows are residential and 1/3 is non-residential?

Interviewer Sounds reasonable. Anything else we need to consider here? Would this be the total mar-
ket size – and what does this number actually imply?

Candidate Given that we have estimated the residential market to 300 million windows, the total
market would amount to about 450 million windows. However, windows are normally not
changed every year, so annual sales would not be 450 million windows. I do not know too
much about windows, but is it fair to say they are changed, on average, every 20 years?

Interviewer Do not worry! This is not a test of your knowledge of the lifetime of windows, but I would
say your number is a bit low and that a better estimate would be 30 years. What else do
you need in order to get an idea of total annual sales?

Candidate Thanks! So, this would give a number of 15 million windows sold in Germany every year. To
estimate annual sales, I would need the average price of a window. Does EUR 400 sound
like a fair guess?

Interviewer EUR 400 per window sounds like a good estimate.

Candidate Great! Then that would give us total annual sales of 15 million windows times EUR 400,
which gives annual sales worth EUR 6 billion.

Interviewer Does that number make sense to you?

Candidate Vertical Windows currently has a revenue of 600 million from sales in the three Nordic
countries. Altogether, the Nordics are about one quarter of Germany in population size;
following the same reasoning as before, this means that the total Nordic market should
be about 1.5 billion. With a market share of 40%, Vertical Windows could be making 600
million in sales. So, given this, I would say the estimate is within the ballpark.

Interviewer That was a good approach to check your estimate. Let us use 6 billion as the market size
for Germany. What should we look at next?

Candidate Next, I would like to look at growth: How has the market developed historically and are
there available predictions for the upcoming years?

Interviewer The market has been, and is predicted to remain, stable.

Candidate Ok, then I think it is safe to say that there will be no change in market size. Next, I would
like to look into the profitability of the industry – do we have any data on this?

Interviewer Yes, we do. Looking at the largest players in Germany, they are currently operating at a
lower profitability than that of the Nordic countries.

Candidate Ok, I would need to continue my investigation whether Germany would be a good fit for
our client’s company.

Interviewer I think that is a good idea. How would you do that?

Candidate First, I think it would be interesting to look at the competitive landscape to see if the mar-
ket is fragmented or consolidated. Secondly, I would ideally like to see if the company has
any kind of competitive advantage it can benefit from.

Interviewer We actually have some data on the competitive landscape.

The interviewer hands over the following diagram to the candidate.

The European vertical windows market split by market share

European vertical window market

100% – total market size

100% 100% 100% 100%

Market share of top 3
20% players in the market






Sweden Denmark Norway Germany

Candidate It looks like the German market is much more fragmented than the Nordic markets, indi-
cating that there are no large players dominating the market but rather a lot of smaller
players. This might actually be good for our client, since then there is no player that can
easily start a price war to keep our client out of the market.

Given that the current competitive landscape looks fairly good, I think we should look into
our client’s product portfolio to see if there are any pockets in the market that look obvi-
ous for it to take advantage of.

Interviewer Let us do that!

Interviewer provides data.

The European vertical windows market split by market material

European vertical window material

100% – total market size


50% Wood/Aluminium
53% 37%
37% Aluminium

7% 4%

80% 53%
42% 41%

8% 4% 4%

Sweden Denmark Norway Germany Vertical Windows

Candidate My first observation is that Vertical Windows currently does not offer windows in the seg-
ment that is the largest in Germany, PVC. This is an immediate concern, as it reduces the
addressable market by 41%, unless Vertical Windows would be able to broaden its portfo-
lio to include also PVC windows.

Interviewer I agree that it reduces the addressable potential of the German market, but do you per-
ceive it to be a reason not to enter the market?

Candidate No, I would not dismiss the German market based on this information, since Vertical Win-
dows’ strongholds are “wood” and “aluminium”, which still account for 54% of the German
market. Furthermore, Vertical Windows has a somewhat similar situation in Denmark and
Sweden, where woods/aluminium represents roughly 50% of the market but constitutes
only 10% of Vertical Windows’ total sales.

Interviewer I think you are right in that we should not dismiss the German market simply because Ver-
tical Windows cannot address the entire market. To help you in the continuation of your
analysis, we have also been provided with some data on the price levels of the different
window types. Does this new data give you any additional reflections regarding the attrac-
tiveness of the market?

Price level by window type

Price levels by material




PVC Aluminium Wood Wood / Alu

Candidate Well, Vertical Windows sells mainly the slightly more expensive windows, which indicates
that its value proposition is that of a premium brand rather than an economy brand. As
a premium brand, you will typically have greater margins and be less dependent on high
volumes, making the fact that Vertical Windows currently can address only 59% of the
German market less troubling. In fact, this convinces me that the German market does
have an attractive pocket that Vertical Windows should address by trying to enter the
market as a premium brand.

Interviewer Exactly. So how would you sum up the analysis at this point?

Candidate Based on the provided information and the conducted analysis, I would say that entering
the German market is a potential next step for Vertical Windows. This conclusion is based
on the attractiveness of the market in terms of its size and competitive situation. Fur-
thermore, Vertical Windows’ main segments constitute 54% of the German market, which
represent a significant pocket to tap into.

Interviewer Vertical Windows has actually reached the same conclusion as you did in your analysis. It
has started to develop a market entry strategy for Germany and it has also started talking
to a German window manufacturer, which it thinks may represent an interesting acquisi-
tion target

We will wrap up the case example here. We do, however, encourage you to try to reflect over what your ap-
proach would be in order to analyse the potential acquisition as a means for supporting Vertical Windows’
market entry.


Interviewer We are on our way to the Danish affiliate of Toyota Motors to attend a meeting with the VP
of sales. The VP is currently in the process of setting the budget for 2014, when he calls us
to resolve a growing concern of his. For the year 2015, he has set the total sales budget of
the new Toyota Prius to 5,000 units. However, he is a bit concerned whether this target is
realistic or not.

As a consequence, he has asked us to provide an initial assessment of the feasibility of

his budget target. Furthermore, he would like some pointers for initiatives that could help
increase the sales of the vehicle.

Candidate I am not familiar with the car, but I believe it is a hybrid car?

Interviewer That is correct. It is a medium-sized, hybrid car.

The interviewer shows a picture of the car.

Candidate Great! Let me make sure I have understood the task correctly. The VP of sales for the Dan-
ish affiliate of Toyota Motors wants to know if it is realistic to sell 5,000 Toyota Prius cars in
the Danish market in 2015. Furthermore, he is interested in possible initiatives to increase
sales of this particular car.

Interviewer That is right!

Candidate I do not have any further questions right now, but I would like to have a minute to gather
my thoughts.

Interviewer Take the time you need.

Candidate takes a minute to gather her thoughts and organise her high-level approach in
bullet points to solve the task.

Candidate I want to start by looking into the feasibility of selling 5,000 units. In order to do this my
suggested approach is:

1) Define the total number of passenger cars in Denmark and then estimate the
number of new cars sold each year

2) Do a segmentation of the market to achieve an understanding of the addressable

market for Toyota Prius

Interviewer Your approach sounds good. I would like you to continue with the analysis of the passen-
ger car market.

Candidate Give me a minute to structure my approach a bit.

The candidate takes another minute to gather her thoughts around the main drivers of the
Danish car market. She then takes a marker and walks up to the whiteboard.

Candidate To calculate the total car population I would like to use number of households as a starting

Interviewer Sorry for interrupting, but before you proceed I would like to know if this approach will
capture the entire passenger car fleet?

Candidate I think it will cover the majority since this approach will account for the B2C market, and
it will also account for business fleets used by employees since these are often used pri-
vately as well. One part of the B2B segment which is not covered is the taxi segment, but
I would presume that the taxi market is quite small. I could of course add an additional
analysis of the taxi segment, if you consider it to be relevant?

Interviewer You do not need to do the additional analysis for the taxi market, I agree that it is most
likely fairly small. So for now, let us assume that Toyota Prius is only sold B2C and B2B for
business fleets. With that sorted, you can now continue your analysis of the market for
passenger cars.

Candidate Great! I will start the analysis by assuming that the average size of a household is two
people and that the population size in Denmark is roughly 6 million, giving us a total of 3
million households in Denmark. The households can then be divided into three main types,
depending on their access to a car:

The candidate explains the structure of her matrix.

Per cent of Number of

Number of cars
households households

Households with
20% 600,000 1,200,000
two cars or more

with one car 60% 1,800,000 1,800,000

with no car 20% 600,000 0

Total 100% 3,000,000 3,000,000

Candidate Given that 20% of the households own two cars, and 60% of the households own one car,
the total number of private passenger cars in Denmark is 3,000,000. To calculate how
many new cars are sold each year, I will assume that the average lifetime of a car is 15
years. The total number of new cars sold each year is then 200,000 cars (3,000,000/15),
depending on one additional assumption, notably that the total population of cars remains

Interviewer Good. I agree, but could you elaborate on how you found the percentage split for the num-
ber of cars per household?

Candidate Absolutely! Based on my experience from the Nordics, I believe that the majority of house-
holds in Denmark have at least one car, which is why I have set the share of households
without a car to 20%. Out of the households with a car, I am quite certain that most of
them only have one car, explaining why I have set that share to represent 60% of all house-
holds or 75% of all households with a car.

Interviewer That makes sense. Do you want to continue the analysis of the 200,000 cars or is that the
addressable market for Toyota Prius?

Candidate The 200,000 cars do not reflect the addressable market for the Toyota Prius. There are
different needs in relation to size and usage. Hence, I will break down the market further by
looking into four main types of cars: SUVs, family cars, mid-sized cars and compact cars.

Interviewer Can you think of another dimension that is relevant when choosing a car?

Candidate I suppose that price is also an important differentiator. Other consumer typology, such as
age, could also be relevant, but given the limited information, consumer typologies would
be complicated to analyse with reasonable certainty – unless it is possible to obtain this
information from the client?

Interviewer We do not have any more information regarding consumer typologies – and it can also
be difficult to operationalise such segmentations – so price sounds like a good additional
segmentation parameter.

Candidate Ok, let me organise the different parameters into a matrix to get a clear overview of the
different car segments.

Candidate sketches a matrix on the whiteboard.


Premium Share of total

Price fighter Mainstream
segment market

SUV 10%

Family 30%

Mid-sized 8% 24% 8% 40%

Compact 20%

Share of
mid-sized market 20% 60% 20%

Candidate I have added percentages of the estimated market split for the two dimensions by first
estimating the split based on car size, and then estimating the distribution across price
levels within the mid-sized market.

Interviewer Excellent, but before you continue with your analysis, could you explain the reasoning be-
hind your percentage splits?

Candidate Yes, of course. The first split of the market, by size, is based on my own observations of
the cars people drive in the Nordics. I perceive that most cars are either family or mid-
sized cars, but that compact cars are still fairly common. SUVs, on the other hand, are less
common. With that in mind, I have assumed that SUVs make up 10% of the market, and
that the more common compact cars have a market share twice as large of 20%. Thus, the
remaining 70% are family and mid-sized cars, between which I consider mid-sized to be a
bit more common, and has therefore set its market share to 40%.

Interviewer I agree with your reasoning. Would you please also elaborate on your reasoning for the
split of the mid-sized market based on pricing?

Candidate I have only considered the mid-sized market for the market share split based on pricing
due to the assumption that Toyota Prius only competes in the premium-priced segment
for mid-sized cars, and I believe that the split based on pricing will vary with the car size.
My view is that within the mid-sized car segment most cars are found within the main-
stream pricing segment, why I have assumed these to stand for 60% of the market. For
the remaining 40%, I believe the split to be 50/50 between “price fighter” and “premium”,
which is why both segments make up 20%. Do you agree with the assumptions and the
underlying reasoning?

Interviewer It sounds fair.

Candidate Ok. Given this, the market in which Toyota Prius operates accounts for 8% of the total an-
nual sales of new cars. This gives us a market of 16,000 new cars each year, which implies
that Toyota Prius would have to take roughly one third of the market in this segment to
meet the sales budget.

Based on this, I would say that selling 5,000 Toyota Prius cars in Denmark in 2015 is very
ambitious and probably unrealistic. Especially given the fact that Toyota Prius uses hybrid
technology and is therefore only relevant for parts of the premium segment for mid-sized

Interviewer I agree, what do you do next?

Candidate Now that this is clarified, I would like to move on to the second part of the VP’s request and
identify possible measures to increase sales.

I would like to divide initiatives to boost sales into three main types of growth levers:

1) Enter new segments

2) Increase the addressable market by making the car more affordable
3) Increase awareness through marketing

Interviewer I think those are three relevant levers. What are the possible segments for the first lever?

Candidate This brings us back to our initial discussion about the market, from which I would consider
the possibility of increasing sales in the B2B market. The attractiveness of this initiative
depends partly on how active Toyota already is in the B2B segment. This initiative covers
both taxi fleets and business car fleets. One approach to attract large companies would be
to convince them to update their business car fleet to include more green cars. This is also
an approach that could be used towards the largest taxi companies.

Interviewer Good. What is your assessment of the two other growth levers?

Candidate The second measure for increasing sales is to make the car more affordable. The segmen-
tation matrix tells us that making the car more affordable and hereby gaining access to
the mainstream segment could increase the potential market by 300% or 48,000 cars.
In order to avoid reducing the actual price of the car, another approach for tapping into
the market could be to offer attractive leasing solutions, seemingly making the car more

The third initiative involves increasing awareness about the car and its qualities as a green-
er alternative to conventional passenger cars.

Interviewer Could you please elaborate on how you would proceed the process of increasing awareness?

Candidate I would suggest two main approaches to increase overall awareness, hereby also increas-
ing the chance of getting people to consider a hybrid car over a conventional car – hope-
fully the Toyota Prius in particular:

1) Make an above-the-line (ATL) marketing investment, such as TV commercials, that

could help increase overall awareness of Toyota Prius and promote the qualities of
a hybrid car

2) Implement an ambassador programme, where celebrities are used as ambassadors

for the car, hereby attracting extra attention

Interviewer Excellent! Do you have any last comments?

Candidate I would just like to sum up the case by saying that the budgeted sales target of 5,000
cars in 2015 is very ambitious due to the size of the addressable market. However, there
are measures that could be made to increase sales and, hopefully, reduce the gap. These
include entering new segments, make the car more affordable and increase awareness.

We will wrap up the case example at this point.


Interviewer A Nordic private equity fund is considering the acquisition of a Swedish wood pellets man-
ufacturer. The company is currently owned by an industrial conglomerate.

Wood pellets are used as heating fuel. They are manufactured by compressing sawdust
into pellets. Pellets are extremely dense and can be produced with a low moisture content,
which allows them to be burned with a very high combustion efficiency.

In this case, only the heating of buildings with wood pellets is in scope.

The first question our client asked was to assess whether there will be a future demand for
wood pellets. What do you think would be a good structure to analyse future demand for
wood pellets?

Candidate Let me take a minute to structure my thoughts.

Interviewer Of course, take the time you need.

A minute passes and the candidate resumes the conversation …

Candidate In order to assess the future demand for wood pellets, I would like to divide the issue into
two main parts:

1) Who are the main users of wood pellets?

2) What is the substitute for using wood pellets?

Interviewer Interesting, let us start with looking at the first one. Who are the primary users of wood

Candidate Since pellets are used for heating, owners of any kind of building in need of heating is a po-
tential customer. There are different set-ups for heating a building. In my view, multi-family
houses and commercial buildings in cities are primarily connected to central heating sys-
tems, and would therefore not be direct users of pellets. The primary customers of pellets
would be A) small family houses and B) commercial buildings in rural areas.

Interviewer You mention central heating systems, what kind of fuel do they use?

Candidate I see your point. Central heaters can probably also run on pellets.

Interviewer Good! So, you have now identified three main types of customers. What would the alter-
native for wood pellets be in each category?

Candidate I believe that there is a different dynamic to each segment. There are central heating sys-
tems running on garbage, wood – well, anything that burns basically. They buy fuel in great
quantities and probably shift it depending on price.

Candidate For small houses, demand is more static. They can use electricity, oil or geothermal for
heating, but they do not shift fuel. Shifting fuel would be connected to an investment in a
new boiler. So, the installed base would perhaps be slightly more stable over the invest-
ment horizon.

Interviewer Yes, there is a different dynamic in play for each segment. Could you describe in an overall
way how you would investigate future development in each segment?

Candidate One could look at the historical development and growth rates, and of course get hold of
an industry expert to provide additional market insight.

Interviewer That sounds like a good approach. Let us say that after looking at historical data and
conducting expert interviews, we found that the demand from small houses is declining,
commercial is increasing and central heating is flat lining.

Candidate So there will be a demand for wood pellets over the investment horizon, but no spectac-
ular growth.

Interviewer That sounds like a good hypothesis.

I will provide you with some additional information about the target company, so you can
evaluate the attractiveness of the potential investment.

đŏ The target company is a pioneer in the industry and

was established some 25 years ago

đŏ According to the management team, the company has a very

strong brand and excellent customer relations which enable a
modest price premium compared to its competitors

đŏ The company’s business model is to operate four factories

in forest areas where it sources sawdust from local sawmills
(50-100 km from the production sites)

Would you say that the pellets company is an attractive target for the private equity fund?

Candidate Hmm, the attractiveness of the investment is determined by the private equity fund’s abil-
ity to increase the value of the firm and ensure that it becomes an attractive target when
selling again. Buy low and sell high, right?

Interviewer That’s right. And how would they try to increase the value of the company?

Candidate There should be a case for how to increase the company’s profits, either by increasing
revenue or lowering the cost base – or both.

Interviewer Ok, if we start by looking on the revenue side, what could be done there?

Candidate Well, the company already has a strong brand and good relations with its customers. But,
wood pellets is a really basic product, a commodity – I mean, I would not pay extra for a
branded bag charcoal for the barbeque. I wonder if the company’s price premium is sus-
tainable over time …

Interviewer What options could the company pursue to increase revenue?

Candidate Well, the market is not really growing, so to increase revenue they either need to gain mar-
ket share or raise product prices.

Interviewer Is raising prices a possible strategy? What do you believe is the most important criterion
for the customer when shopping for wood pellets?

Candidate Assuming that the quality is equal across suppliers, the most important thing would be
the price.

Interviewer That is right, so how would you go about determining the target company’s market

Candidate Since wood pellets are a commodity, the price is determined by the market and the suppli-
ers’ competitiveness is about being the most cost-efficient. The way forward would be to
make a cost comparison across the value chain for the target company and its competitors.

Do we know who the other suppliers of wood pellets are in Sweden?

Interviewer Good question, there are three main categories of competitors in the market. A) medi-
um-sized suppliers with a similar set-up as the target company, B) large forest companies
and C) international importers.

Candidate Do the largest forest companies operate their own sawmills, and can, thus, produce the
pellets out of sawdust from their own wood production?

Interviewer Yes, they use their own sawdust for the production.

If you were to make a structured comparison of the different competitors’ value chain, how
would you approach this?

Candidate Give me a minute to gather my thoughts.

A minute passes …

We have three types of competitors, and a value chain for producing and distributing
pellets consisting of four main steps: A) acquiring raw material B) transportation to pro-
duction, C) production and D) distribution. By evaluating each step per competitor, we can
identify advantages and potential disadvantages to base our assessment on.

Value chain

A) Raw material B) Transportation C) Production D) Distribution

Candidate We concluded that the large forest companies have a minor advantage compared to the
target company with regards to raw material. Also, the large forest companies have an ad-
vantage when it comes to transportation, by having the production of pellets in immediate
connection to the sawmills.

Interviewer Good. As you mentioned, the forest companies have back-integrated their operations and
co-located the pellets production with the sawmill. How could you assess the advantage
of having the production next to the sawmill?

Candidate Well, that depends on how much sawdust you need to produce one unit of pellets?

Interviewer The density of sawdust is six times less than in pellets, which is the whole idea of the

Candidate So, in order to produce one truckload of pellets, they would need to transport six loads of
sawdust between the sawmill and the production site. That is a pretty big disadvantage
for the target company.

If we look at production, are there any significant economies of scale when producing
wood pellets?

Interviewer Production costs are almost equal across competitors. There is no economy of scale that
is relevant in this case.

Candidate Looking at the final step of the value chain, distribution, importers would have a disadvan-
tage, as they need to ship the pellets in by boat. Shipping costs are still low, so perhaps it
is just a minor disadvantage.

So, summing up the cost advantages and disadvantages and plugging them into a matrix
organised according to value chain and competitors, we see that the target company
holds a poor competitive position compared to their competitors.

Candidate explains the rationale behind his matrix.

Value chain

Raw material Transportation Production Distribution

A) Equal to target company - - -/+ -/+

B) Forest companies + + -/+ -/+

C) Importers + + -/+ -

Candidate Do you have any information on the recent market development such as sales or market
share per competitor?

Interviewer The forest companies and the importers have only been on the market for a couple of
years, but have quickly gained significant market share from the traditional players (like
our target company). This proves that we are facing a price game, and that customer re-
lations is not a sustainable competitive advantage but rather a reflection of the manage-
ment team’s wishful thinking.

Candidate That further supports my suspicion.

The large forest companies have integrated the pellets production directly with their saw-
mills, hence, they have a structural advantage that the target company cannot mitigate.

Interviewer Interesting, so what recommendation would you give to the investment committee?

Candidate The structural disadvantage compared to competitors will make it hard for the target com-
pany to compete on price. We already see signs of this disadvantage in the current market,
with the company’s decreasing market share.

In my view, the wood pellets company would not be a good investment for the private
equity fund.