Consulting Case

New products

Contents
Rovio to Maximize Revenues from Angry Birds...................................................................................1
Slack Technologies to Enter Brazil Market............................................................................................4
Tesla Motors to Introduce the New Tesla Model S..............................................................................7
Scientist Invents Magic Eye Drops That Cure Eye Problems...........................................................11
PIAA Corporation to Develop New Compact Fluorescent Lamps....................................................14
Netflix to Test New Streamed Video Product in 5 Pilot Cities...........................................................17
Allergan to Launch Botox Product for Migraine Treatment...............................................................19
How Much Money Could Galileo Make From Telescope?................................................................20
Coca Cola Experiments With a New Vending Machine.....................................................................23
Takeda Pharma to Delay Launch of New Drug Delivery Product....................................................25
Eclipse Aerospace to Deliver Eclipse500 Very Light Jet...................................................................27
Toyota Develops Next-Gen Hydrogen Fueled Car Engine...............................................................30
Fast Food Chain Sees Lower Profits With More Stores Opened.....................................................32
Starbucks Considers Selling Ice Creams in Coffee Stores...............................................................36
Moldovan Coffin Maker to Exit Coffin Manufacturing Business........................................................38
Former GE Scientist Builds a Perpetual Motion Machine.................................................................42
Mercedes-Benz Proposes One Key Fits All Locks on New Cars.....................................................44
Kmart to Test Radio Frequency Identification (RFID) in Stores.......................................................47
Cummins To Reduce Warranty Claims for Diesel Engines..............................................................53
China Southern Airlines to Fly New Guangzhou-Perth Route..........................................................56
Valeant’s New Asthma Drug Approved by Canada FDA..................................................................60
Airbus to Build New A380 Assembly Facility in France.....................................................................63
Restless Leg Syndrome Drug Requip Approved by FDA..................................................................66
Southwest to Offer Free Flight Ticket for Children Under 14............................................................69
Bayer Diabetes Care Launches Blood Glucose Meters....................................................................74
Red Wing Shoes Aims to Double EBIT in 3 Years.............................................................................77
Cordis to Launch New Drug Eluting Stent Device..............................................................................80
Local Organic Foods Grocer to Offer Prepared Food........................................................................83
Raytheon to Install Defense Systems on Commercial Planes.........................................................86
Children’s Healthcare of Atlanta Picks Oracle for Cloud...................................................................89
DHL to Replace Call Center with Online Tracking System...............................................................93
Adobe Systems to Not Introduce “Suite” Software Product..............................................................94
Sanofi New Drug Lowers Both Blood Pressure & Cholesterol.........................................................99
Nordic Paper Develops New Grease-proof Technology..................................................................102
Abbott Nutrition to Develop Five Year Growth Plan.........................................................................105
Dr Pepper Group to Launch New Bottled Water Product................................................................107
Motor Coach Industries to Debut New Luxury Coach Bus..............................................................109
Pfizer to Introduce Anti-smoking Drug Chantix in India...................................................................112
Cardinal Health to Sell New Non-invasive Surgical Technology....................................................114
Taco Bell Not to Offer French Fries in Their Restaurants...............................................................117
Airbus Builds A380 Super Jumbo to Challenge Boeing..................................................................118
Chase to Cross-sell Credit Card Insurance to Card Holders..........................................................121
Wells Fargo To Not Offer Reverse Mortgage Products...................................................................125
Rollins Pest Control to Adopt New Liquid Termite Pesticide..........................................................127
Medtronic to Introduce Prepackaged Sterile Procedure Kit............................................................129
Merial to Discontinue Swine Growth Hormone Product..................................................................131
Bank of America to Offer New Cash Back Credit Card...................................................................132
What Should The Price of an Indestructible Golf Ball Be?..............................................................135
John Deere to Not Manufacture Diesel Engines for Trucks............................................................138
DoubleClick Optimizes Customer Service for Big Publishers.........................................................140
Coors Brewing Company Considers Bottled Water Market............................................................142
Blizzard to Market New World of Warcraft Video Game..................................................................145
Marathon Petroleum to Offer Co-branded Credit Card....................................................................146
Bayer Healthcare to Launch New Asthma Drug in Canada............................................................148
Baxter Discovered Breakthrough Formula for Headaches..............................................................150
Medline to Launch Cholesterol Monitoring Device...........................................................................151
Abbott Laboratories to Co-Market Anti-Depressant Drug................................................................152
Philips Electronics to Divest from Home Solar Technology............................................................154
Country Music Television to Unveil CMT Magazine.........................................................................155
Code Publishing Company Delays Rollout of Law Code CDs........................................................156
BMW Introducing New X5 Luxury SUV.............................................................................................157
Capital One Cross Selling Prepaid Phone Card?.............................................................................159
Celtic Pharma Eyes Biologic Drug for Bacterial Infection................................................................163
Ryder to Grow Business & Offer Maintenance Only Product.........................................................166
Oral-B Responds to Competitor’s Battery Powered Spinbrush......................................................169
Bristol-Myers Squibb to Hire Sales Force for New Product............................................................171
Goodman Introduces New Residential Central Air Systems...........................................................172
Genentech Invents Preventative Drug for Heart Attack...................................................................174
AstraZeneca Offers to Sell Other Companies’ Drugs......................................................................175
BASF Develops New Sulfite Preservative Substitute......................................................................177
Research In Motion to Launch BlackBerry Torch 9800 Smartphone.............................................179
Expedia Evaluates Market Potential of Trip Add-On Product.........................................................181
Boston Scientific Develops New Hip Replacement Device.............................................................185
Oscar Mayer Introduces New Hot Dog..............................................................................................185
GE Defines Pricing Strategy for Eternal Light Bulb..........................................................................186
STEM Commercializes New CNS Stem Cell Product.....................................................................190
Eli Lilly Develop New Eyedrops That Cure Myopia..........................................................................192
Progressive Launch Pay As You Go Auto Insurance......................................................................194
Pfizer to Introduce New Cancer Drug................................................................................................196
Texas Instruments to Market Thermal-imaging Device...................................................................198
Elle Magazine Considers Selective Binding Ads..............................................................................199
Condé Nast Publications to Enter Men’s Magazines Business......................................................202
GE Develops Eternal Light Bulb That Lasts Forever.......................................................................203
P&G Pet Food Approached by Wal-Mart...........................................................................................204

Rovio to Maximize Revenues from Angry Birds

Case Type: increase revenues; new product.
Consulting Firm: McKinsey & Company first round full time job interview.
Industry Coverage: software, information technology (IT).
Case Interview Question #00784: Our client Rovio Entertainment Ltd., previously known as Relude and
Rovio Mobile, is a Finnish developer, publisher, distributor of video games and entertainment company
headquartered in Espoo, Finland. The company was founded in 2003 as a mobile game

development  studio named Relude, and was renamed to Rovio Mobile in 2005.
The year is 2009. Our client Rovio Entertainment has recently developed a simple, yet addictive puzzle
game for mobile devices called “Angry Birds”. In the game, players use a slingshot to launch birds at pigs
stationed in or around various structures with the goal of destroying all the pigs on the playing field. As
players advance through the game new types of birds become available, some with special abilities that
can be activated by the player. The Angry Birds game reached No. 1 spot in the Apple App Store paid
apps chart after six months, and remained charted for months after.
Angry Birds is the 52nd game released by the client Rovio. Rovio is considering how to maximize their
revenues from Angry Birds in the next few years. Mobile video games tend to have short life cycles. A
game receives the vast majority of its revenues within the first year of release. What would you
recommend to the client in order to maximize their revenues from Angry Birds?

Possible Answer:
Question 1: There are several types of business models for mobile games. Considering the brief
descriptions of each model below, can you list the pros and cons of adopting each model?
 Traditional: charge a one-time fee for players to download onto their mobile device.
 Free-to-Play: free for players to download, pay for micro-transactions (small payments) for extra
lives, special items, etc.
 Freemium /Advertising-Based: free for players to download, displays advertising in game.
 Subscription: free for players to download, pay monthly fee to continue to play (subscription
usually starts after first month)
Suggested Solution:
Model Pros Cons

 Upfront revenue does not

depend on how long players
continue to play after buying.
 More reliable sales forecasts.
 Possibility to change model if
Traditional
sales are lower than forecast.
 Free game leads to more
downloads and potentially micro-
transactions.
 Highest revenue potential if
Free-to-play game is a hit, as players get
addicted to buying content.
 Revenue tends come only at the
beginning of the product cycle.
 Less players will download due to
upfront cost.
 Players will look for ways around paying
for content even if they enjoy the game.
 Hard to get the balance between useful
in game items for sale and frustrating
players by forcing them to buy items.
  Players do not like advertising.
 Free game leads to more  Must focus on getting advertisers as well
downloads. as players.
 Advertising provides a steady  High need for retention means
stream of income if players are continuous teasers required to entice
Freemium
retained. players to remain (higher costs).
 Higher drop-off rates as players do
continue to pay if they are not playing
 Players like ad-free content regularly.
and lower upfront cost.  Need to have discounts/free trial periods
 Steady income stream from at the beginning which decreases revenues
Subscription
subscription. (revenue leakage).
Question 2: What metrics could be used to help estimate revenues for these models?
Suggested Solution:
Model Metrics

 Number of downloads;
All
 Player drop-off rate
Traditional Price of a download

Free-to-play  Average number of micro-transactions per player;

 Average price per mico-transaction
Freemium Revenue from advertisers (cost per view? Cost per click?)

 Cost of subscription – monthly? Discounts for longer

periods?
 Average length of subscription per player;
 Number of players that buy subscription after trying
Subscription
game.
Question 3: The client Rovio has estimates for downloads and pricing strategies for each business
model. Calculate the potential revenues for each option and suggest the most attractive option for the
client.
a. Traditional

 Downloads: 15 million.
 Price: $2.99
b. Free-to-play

 Downloads: 30 million within first month

 Price/Micro-transaction: $0.99
 The first month has the most downloads, then the number of players using the game drops
steadily and consistently over a year.
 Light Players (10% of players): Buy an average 1 item/month
 Heavy Players (1% of players): Buy an average 10 items/month
 If game is a hit, then revenue is tripled.
 Chance of a Hit: 20%
c. Freemium

 Downloads: 30 million within first month

 Revenue from Advertisers: 15 cents a month per user (number of users averaged over the
month)
 The first month has the most downloads, than the number of players using the game drops
steadily and consistently over a year.
d. Subscription

 Downloads: 30 million total

 Subscription Price: 0.99 cents per month
 Percentage of Players that start subscription: 15%
 Average Life of Subscription: 5 months
Suggested Solution:
Overall, the life cycle of a game, especially a mobile version, is very short compared to other products.
Therefore, except for a few huge hits (like Candy Crush Saga), the vast majority of revenue will be
captured within a year. Make your calculations with this in mind.

a. Traditional

Revenue: $2.99 * 15M = $45 million

b. Free-to-Play

 Average # of Players per month: (30m at start of year + 0 at end of year)/2 = 15 million
 Revenue from Light Players: 15m * 0.10 * $0.99 * 12 months/year = $17.8 million
 Revenue from Heavy Players: 15m * 0.01 * $0.99 * 10 * 12 months/year = $17.8 million
 Revenue: $17.8m + $17.8m = $35.6 million
 Total Weighted Revenue with potential for hit: $35.6m * (1 – 0.2) + ($35.6 * 3) * 0.2 = $50 million
c. Freemium/Ads

 Average # of players per month: (30m at start + 0 at end)/2 = 15 million

 Revenue: $0.15 * 12 * 15m = $27 million
d.Subscription

Revenue: 30m * 0.15 * 5 * $0.99 = $22 million

Conclusion: Judging by the calculated (expected) revenues, Free-to-Play is the most attractive option for
the client.
Note: Bonus points to the candidate if he or she uses the hit probability to determine the Free-to-play
revenue potential ($50 million vs. $35.6 million). An outstanding candidate will also need to point out that
choosing the Free-To-Play model depends on the client having a higher risk tolerance, as the revenues
are only greater if the game is a hit.

Slack Technologies to Enter Brazil Market

Case Type: new product; market entry.
Consulting Firm: Boston Consulting Group (BCG) first round job interview.
Industry Coverage: software, information technology (IT); startups.
Case Interview Question #00777: Your client Slack Technologies, Inc. is a computer software startup
company headquartered in San Francisco, California, United States, with additional personnel located in
Vancouver and Dublin. The company was originally called Tiny Speck, and their first

product  was a computer game called Glitch, a social massively multiplayer

online role-playing games (MMORPGs).
After Glitch was launched, it met with lukewarm interest from game players and the company
subsequently closed the product. Now the CEO of Slack Technologies wants to start selling professional
collaboration, file management and sharing tools internationally. These tools are sold as a software
package called “Slack”; they enable users to collaborate on team projects, share files, send instant
messages, hold online meetings, and do video chat. The market for this software would mainly consist of
business customers, including small and medium enterprises (SME) and large corporations. However,
this software will also be sold for personal use. The client Slack Technologies is deciding into which
market to launch their new product. How would you help them decide?
Possible Answer:
Question 1: What factors should be considered when selecting the target market internationally?
Suggested Solution:
a. Demand:

 Number of corporations and SME’s within the country

 GDP/average income: capacity of population to buy product
 Price point at which product could be introduced
 Size of population and wealth distribution
 % of population which is already using this type of software
 % of population which potentially could be won with this software
b. Logistical capabilities:
Infrastructure within country

c. Regulation:

 Political stability
 Acceptability of foreign investment
d. Competition:

 Size and number of competitors

 Level of technological advancement of competitors
Question 2: Please review the following information and advise which country is the most attractive
market to enter and why. Please also advise which is least attractive and why.
a. Brazil

 Largest economy in South America, with a GDP of $2.5 trillion (World’s 7th largest economy)
 Population: 200 million
 Working class: increasing middle/working class
 Technological advancement: 69 in IT ranking
 Competition: local players provide spreadsheet management solutions
 Regulation: liberal regulatory climate, government open to foreign investments, preferably new
companies should enter through partnership.
b. Spain

 Economy is in crisis, GDP: $1.4 trillion

 Population: 50 million
 Working class: 25% unemployment, large elderly population
 Technological advancement: 34 IT ranking
 Competition: large businesses are using spreadsheet analysis tools; small and medium business
market is not fully mature yet
 Regulation: liberal regulation, government is highly encouraging foreign investments to stimulate
economy
c. India

 GDP: $1.7 trillion

 Population: 1.2 billion
 Working class: median population age is 28, large working class, increase in informal workers in
formal sector
 Technological advancement: 83 IT ranking
 Competition: businesses often have custom-made IT solutions, technology is cheaply generated
 Regulation: complex, government intertwined in business, bureaucratic processes, government
slowly being more open to foreign businesses
d. Germany
 Mature market with slow economic growth, GDP: $3.2 trillion
 Population: 80 million
 Working class: Aging population, “moderately free” economy, labor freedom and business
freedom slipping; has large presence in commerce markets
 Technological advancement: 12 IT ranking
 Competition: several high end business tools are already being used by businesses, moderate
competition
 Regulation: Regulation fairly liberal, although bureaucratic processes
Suggested Solution:
Brazil is the most attractive market due to their growing middle class and only local competition, as well
as large growth potential. India is the least attractive market due to their low GDP per capita and
regulatory uncertainty.

Question 3: Please provide an executive summary regarding next steps to the CEO of Slack
Technologies.
Suggested Solution:
A strong candidate should:

1. Summarize the market dilemma of the client.

2. Explain which key market is the most attractive (3 key reasons).

3. Recommend next steps for the client:

 Evaluate the new market further

 Brainstorm a few ideas of market entry strategies
 Risks and potential ways to mitigate those risks.
Conclusion:
Brazil is the most attractive market, preferably the client should enter this market through partnership for
credibility in local culture, manage possible risks such as corruption, etc.

Tesla Motors to Introduce the New Tesla Model S

Case Type: new product; industry analysis; math problem.
Consulting Firm: McKinsey & Company first round full time job interview.
Industry Coverage: automotive, motor vehicles.
Case Interview Question #00759: Our client Tesla Motors, Inc. (NASDAQ: TSLA) is an American
company that designs, manufactures, and sells electric cars and electric vehicle (EV) powertrain
components. Headquartered in Palo Alto, California, Tesla Motors was incorporated in July 2003. Tesla’s
primary goal was to commercialize  electric vehicles, starting with a premium
sports car aimed at early adopters and then moving as rapidly as possible into more mainstream vehicles,
including sedans and affordable compacts.
The year is 2008. Mr. Elon Musk, Chairman and CEO of Tesla Motors, wants to know how to position a
new car model, the Tesla Model S in the market. The CEO has retained your consulting firm to advise
him.

1. Ask the candidate whether the EV industry is attractive for our client.
2. The CEO asked you to help him develop strategies to identify the right segment they can sell the new
vehicles to.
3. Secondary goal (if asked): Profitability.
Additional Information: (to be provided upon request)
1. Company
The client Tesla Motors is a startup, started in 2003 by Martin Eberhard and Marc Tarpenning, that has
developed a new patented battery technology that is validated and tested for viability in cars.

The client Tesla Motors has currently one product in the market (Tesla Roadster) and they are planning to
release their second vehicle (Tesla Model S) in the next 24 months.

When candidate asks about the current car model Tesla Roadster, provide the following information about
their current product.

2. Current Car Model

Purchase Price Segment

Tesla
Roadster $110,000 Premium Sports

The Tesla Roadster has the following ratings across its features (on a scale of 1-10)

Stylin
Purchase Price g Performance Quality Safety Features Green Rating

Tesla
Roadster $110,000 9 10 6 6 6 10
For segment worth and Competitor’s market share, refer to Exhibit B below.

Possible Answer:
1. Industry Attractiveness

The candidate should come up with the below structure for analyzing the industry attractiveness. Using
Porter’s 5 forces, it’s clear that the industry is attractive for incumbents.

 Buyer’s power: High

 Suppliers power: High in EV segment as the technology is new.
 Competition: Very High (entire auto industry)
 Substitutes: Very High (other modes of transportation)
 Barriers to Enter: Med-High. This means that it is hard for new entrants to enter.
2. Financial Status and Cost Structure

As a startup, the client Tesla Motors has yet to make a profit. Their first product Tesla Roadster sold 2000
units across 30 countries in the world.
The client Tesla Motors has funding from U.S. government, private equity firms and recently they went
public and raised money.
Depending on the target segment’s needs, the average production cost for different vehicles is given
below in Exhibit B (all costs inclusive in USD)

At this point, provide Exhibits A and B to the interviewee

Exhibit A: Electric Vehicle Utility By Feature

Exhibit B: EV Segments and Share of Competitors

 Segment Competitor Average Units Average Cost to
Segment Worth Share Sold Produce

Sports Segment $1 billion 80% 8,000 $90,000

Premium Sedan
Segment $1.2 billion 75% 18,000 $43,000

Sedan Segment $1.8 billion 82% 36,900 $38,000

Coupe/Other $1 billion 95% 32,000 $33,000

Calculations:
A. Average Price per Unit and Profitability per Unit (Ask the Interviewee to calculate):

Segment Competitors Units Cost to

Segment Size Share Sold Average Price Produce Profit/unit

0.8 * $1B = $800M/8,000 =

Sports $1B $800M 8,000 $100,000 $90,000 $10,000

Premium 0.75 * $1.2B = $900M/18,000 =

Sedan $1.2B $900M 18,000 $50,000 $43,000 $7,000

0.82 * $1.8B = $1,476M/36,900 =

Sedan $1.8B $1,476M 36,900 $40,000 $38,000 $2,000

0.95 * $1B = $950M/32,000 =

Coupe/Other $1B $950M 32,000 $30,000 $33,000 -$3,000

B. Potential market size and profitability calculations (this also requires information from the exhibits):

Segment Addressable Share In units Segment Profitability

Sports 20% 8,000 * (0.2/0.8) = 2,000 $10,000 * 2,000 = $20M

Premium Sedan 25% 18,000 * (0.25/0.75) = 6,000 $7,000 * 6,000 = $42M

Sedan 18% 36,900 * (0.18/0.82) = 8,100 $2,000 * 8,100 = $16.2M

$32,000 * (0.05/0.95) =
Coupe/Other 5% 16,842 -$3,000 * 16,842 = -$50M

Now, ask the candidate which segment to target.

Possible Answer:
The candidate should identify that per unit profitability is high for vehicle in premium sedan segment
($7,000). So this might be the profitable segment to go after. Also, because electric vehicle technology is
still new, customers in premium sedan segment might be willing to pay a premium for the eco-friendly
factor, whereas customers in other segments may not put much emphasis on this aspect as they are
more price sensitive.

3. Conclusion

A. Recommendation

 After doing the analysis, the client Tesla Motors should enter premium sedan segment for the
following reasons:
 Competition is low as addressable market size is 25%
 Segment profitability is high with $7,000 per unit profitability
 Customers in premium sedan segment are more likely to pay a premium for the eco-friendly
feature of our client model.
B. Risks

 Getting the product right to suit the customer needs is necessary as the client Tesla Motors is
already under financial pressure.
 The client may not be able to service all the vehicles in the premium sedan segment as the
segment is large. Relationships need to be established with service providers.
 As the client Tesla Motors is still new in the market, establishing brand value is necessary,
especially in the premium sedan segment where brands like BMW, Mercedes, Lexus compete.
Scientist Invents Magic Eye Drops That Cure Eye Problems
Case Type: new product; pricing & valuation; market sizing.
Consulting Firm: Bain & Company first round full time job interview.
Industry Coverage: Healthcare: Pharmaceutical, Biotech & Life Sciences.
Case Interview Questions #00756: For this case, our client is Dr. Rothman. Dr. Rothman works as a
research scientist at the National Institutes of Health (NIH), a major biomedical research facility located in
Bethesda, Maryland, USA. Recently, Dr. Rothman has invented an amazing new product for eye

conditions.
Long story short, the other day Dr. Rothman just accidentally discovered the chemical formula for Magic
Eye Drops in his research lab. One drop in each eye will cure short- or long-sightedness in any patient
with eye problems. But Dr. Rothman is a research scientist, not a businessman, and he has come to our
consulting firm because he wants to sell the intellectual property rights to his Magic Eye Drops to a large
pharmaceutical company that will have the resources to commercialize his invention. So, what should his
asking price be?
Additional Information: (provided upon request)
Dr. Rothman has secured an exclusive, worldwide patent for the next 20 years. After the patent expires,
generic versions will quickly be developed.
Obstacles to regulatory approval are not foreseen.

The Magic Eye Drops have no known side effects or risks.

Give the candidate bonus points for identifying laser surgery as the closest competitor, but tell him/her to
focus only on corrective lenses (glasses and contacts) as competitors for the purposes of this case.

Direct the candidate to focus only on the U.S. market.

Possible Answer:
1. Suggested Framework

The interviewer or case giver should allow the candidate to build a framework. Help the candidate
understand that this is a pricing & valuation case.

The candidate will develop a structure to estimate the Net Present Value (NPV) of future expected
revenues and costs.

To develop revenue projections, the candidate will have to estimate the market size and the optimal price.
An illustrative example of market sizing is given in the next section 2 “Market Sizing” and an estimate of
revenue, including pricing, is given in section 3 “Pricing & Revenue”.

Make the candidate brainstorm cost drivers. Once the candidate has listed all cost drivers, provide
him/her with the figures listed on slide 4.

2. Market Sizing

Age
Group Population Rate of Sight Problems Rate of Adoption Market Size

0-15 50M 20% 10% 1M

16-30 50M 30% 50% 7.5M

31-40 50M 40% 50% 10M

41-60 50M 50% 50% 12.5M

61-75 50M 60% 40% 12M

75+ 50M 75% 20% 7.5M

Total ~50M

Give the candidate bonus points for thoughtful and creative explanations of the assumed rate of sight
problems and assumed rate of adoption within each segment (e.g., adoption among young and old
patients will be lower because parents will be unwilling to test out a new technology on young children
whose eyes are still changing and elderly patients with fewer years to live will realize fewer years of
savings from not having to purchase new corrective lenses).

Give the candidate bonus points for recognizing that the market will grow over the course of the 20 year
patent. If the candidate raises this point, provide a projected annual growth rate of 3.5%. By the rule of 70,
this means that the market will double before the patent expires, resulting in a true market estimate of
100M consumers.

3. Pricing & Revenue

The candidate should weigh different pricing strategies: competitive, cost based and value based.

One pricing strategy is to use competitive pricing, using corrective lenses as the relevant competition.
Based on personal experience, general knowledge or interviewer-provided information, the candidate
should assume an annual cost of corrective lenses at about $200.

Revenue over the life of the patent (20 years) can be calculated as shown below:

 Market Size * Annual Value of Magic Eye Drops * Patent Life = Total Revenue
 ~100M * $200 * 20 years = $400B
The candidate may suggest factors that alter the price point – such as convenience (suggesting a higher
price point) and riskiness (suggesting a lower price point). The interviewer should accept reasonable
alterations.

The solution’s assumption of 20 years of revenue assumes that all customers will purchase as soon as
the product comes on the market. The candidate may reasonably adjust the years of revenue downward
to account for some customers waiting several years before purchasing.

Make sure that the candidate understands that we will disregard discount rates for the purposes of this
case. In other words, assume a discount rate of 0%.

4. Costs

Exhibit 1: List of Cost Driver

Costs Driver Cost

Management/Overhea
d 33% of operating costs

Operating Costs

Marketing $150M per year for first 10 years, $50M per year for last 10 years

Production $20 per drop

Distribution $100M per year

Costs Calculations

Costs Driver Cost Total

Marketing $150M * 10 years + $50M * 10 years $2B

Production $20 per drop * 2 eyes * 50M customers $2B

Distribution $100M * 20 years $2B

Operating Costs $6B

Management/Overhea
d 33% * $6B $2B

Total $8B

5. Conclusion

A. Recommendation

Dr. Rothman should put his invention up for sale at ~ $392B ($400B in Revenues – $8B in Costs). Sales
could however continue even after expiry of the patent.

This solution has been simplified by assuming a discount rate of zero, because calculating the NPV for
this case by hand would be overly complicated.

B. Next Steps

 Solicit buyers: Focus on strategic acquirers

 Attempt to start a bidding war
 Speak at conferences extolling the value
PIAA Corporation to Develop New Compact Fluorescent Lamps
Case Type: new product, new technology.
Consulting Firm: Boston Consulting Group (BCG) first round full time job interview.
Industry Coverage: Automotive, Motor Vehicles; Energy Industry.
Case Interview Questions #00742: Your client PIAA Corporation is a large diversified manufacturing
company with a number of products. They are a large player in the automotive industry but also have
products within the consumer products industry. The company’s products include professional racing

lamps, automotive halogen  lamps and bulbs, automotive H.I.D. lamps and
bulbs, automotive light-emitting diode (LED) lamps and bulbs, automotive aluminum road wheels,
automotive wiper blades and street lamps, LED daytime lamps, horns, oil filters, and radiator caps.
Acquisitions are commonplace in this industry and your client PIAA Corporation recently acquired another
company in the consumer products space. After the acquisition, the PIAA management team found that
the acquired company has some intellectual property that could lead to the production of low mercury
compact fluorescent light (CFL) bulbs. CFLs, like all fluorescent lamps, contain mercury as vapor inside
the glass tubing. While mercury helps achieve high performance, it also has hazardous properties. Most
CFLs contain 3–5 mg per bulb. The acquired company’s intellectual property could produce a new
generation of “eco-friendly” CFLs that contain as little as 1 mg per bulb.
So your client PIAA wants to know what they should do with the intellectual property. What would you tell
the client?

Additional Information:
Products: The client company PIAA doesn’t have CFL lighting products within their mix. They do
manufacture similar devices within their automotive sector such as bulbs in the cars so they have the
capability to manufacture this new product.

Customer: The client works with large retailers and wholesalers.

Technology: We believe the new technology will work and will have great performance. There are 10
other patents with this technology. The client is 5 years ahead of competition.

Pricing: Average current price is $5 per bulb but this new technology will increase light bulb price by 40%
(calculate $7)

Possible Answer:
1. Areas of Discussion
Evaluate the company and understand their product mix, customers and distribution. Then look at the
external environment to understand the competitive landscape size of the market, the various products in
the market and any barriers to entry. Once the company’s capacity to manufacture the light bulbs and the
competitive landscape are determined then determine if the intellectual property is more valuable for the
company to sell or to keep and manufacture the product.

The candidate should also state upfront that the client has four options:

 develop and market the new light bulb itself (i.e. acting on the intellectual property)
 sell the intellectual property to another company
 enter a joint venture with another company to develop and market the bulb
 hold onto the intellectual property and preserve the option to act on it
2. Analysis

To determine the best of these options the candidate will evaluate each. For the sake of simplicity, the
first two should be evaluated in depth first.

Option 1: develop and market the new light bulb itself.

This could be assessed on an NPV (net present value) basis over a number of years to capture the
replacement cycle and market growth.

Additional Information needed:

Revenues:

 Total market size of commercial (B to B) and retail (B to C) light bulb market

 Compact fluorescent light bulbs’ current share of this market and likely growth rate
 Evaluation of the client’s market share capture with the new low mercury technology
 Likelihood of competitor entry and potential impact on the client’s market share
 This is all to get to the total revenue per year (price x volume), which you would expect to change
from years 0 to 6
Example of Market Sizing:

Assuming the product will be sold first to households (B to C), then with success move to businesses (B
to B).

 Suppose 100 Million household in the U.S.

 20M – 1 bedroom – 8 light bulbs – 160M light bulbs
 40M – 2 bedrooms – 10 light bulbs – 400M light bulbs
 40M – 3 bedrooms – 12 light bulbs – 480M light bulbs
 Total 1040M light bulbs in market
This is a broad assumption since the business market (B to B) would be far larger and be a market to
target first. Distribution is likely far more consolidated as well. The candidate would ideally go beyond
consumer facts and have some sense of business data.

Costs:

Incremental fixed costs to current business: The candidate should go through the value chain of
“Development -> Manufacturing -> Packing -> Marketing -> Distribution” to evaluate any fixed costs that
would be added due to this business.

Costs of goods sold (variable costs): Include all costs from manufacturing, packing, marketing, distribution
to determine the total cost per bulb x Volume projected during the “Revenues” discussion above.

The candidate should then calculate the total operating profit per year (possibly factor in corporate tax to
be accurate) and calculate the NPV.

Option 2: sell the intellectual property to another company

The same data used above would be the value of selling the new technology. The candidate would need
to explore whether the value to another company would be greater due to any impacts on revenue (e.g.,
higher volume due to one fewer competitors entering the market) or costs (potentially a buyer has better
capabilities for the product and therefore the incremental fixed costs or variable costs of goods sold are
lower.

Option 3: enter a joint venture with another company to develop and market the bulb
This could be tested verbally rather than quantified for the sake of time. The candidate could ask about
the potential of reducing their own costs by outsourcing or partnering with another entity.

Option 4: hold onto the intellectual property and preserve the option to act on it
This is likely not a good option unless the market growth may spike so significantly in year 2 that it would
offset a new entrant in year 5. This would just be a good point of discussion.

Part #2: Interviewer: Based on the market sizing discussed above, consider what is the average life span
of the new light bulb.
Possible Answer:
A total of five years

So there are approximately 208 M light bulbs sold per year (total market 1040 M / 5 years),
so the maximum revenue per year is 208M * $7 = $1,456M

Assuming that they don’t capture the entire market.

Life of light bulb (at what point will the market be saturated and due to the longer life of the product. At
that point they can enter into businesses and then maybe international.
Look also at pricing later because if the product life span is 5 years versus current 6 months-1 year, then
there is possibly an opportunity for higher prices or to decrease the life span of the bulb so not to
jeopardize future sales.

Part #3 Recommended Conclusion: Interviewer: now, please summarize your findings.

Possible Answer:
Recommend the manufacture of the light bulb because it increases revenue by $17M for each percent of
the market they capture. They are also ahead of the competition so will be first to market and can become
the standard. They need to create marketing and education plans to accomplish commercialization of the
product since it is priced higher than current bulbs.

Additional things to consider:

 If there is excess capacity to manufacture, there will be additional costs.

 Create a prototype to see if bulb meets expectations.
 Financial capabilities to develop since the company has a strong R&D group.
Netflix to Test New Streamed Video Product in 5 Pilot Cities
Case Type: new product, new technology; operations strategy.
Consulting Firm: IBM Global Business Services (GBS) first round full timejob interview.
Industry Coverage: telecommunications & network; information technology (IT).
Case Interview Question #00736: Your client Netflix, Inc. (NASDAQ: NFLX) is the largest international
integrated communications provider. The company offers on-demand Internet streaming media available
to viewers in North and South America, the Caribbean, and parts of Europe (Denmark, Finland, Ireland,

the  Netherlands, Norway, Sweden, and the United Kingdom), and of flat rate
DVD-by-mail in the United States, where mailed DVDs are sent via Permit Reply Mail. The company was
established in 1997 and is headquartered in Los Gatos, California. It started its subscription-based digital
distribution service in 1999, and by 2009 it was offering a collection of 100,000 titles on DVD and had
surpassed 10 million subscribers.
Recently, Netflix is looking at ways to retain existing customers and gain new customers by increasing
their bandwidth for video content delivery. They have rolled the new technology out to 5 pilot cities in the
U.S. They started this initiative to address three consumer trends:
 Time shifting (e.g. Tivo)
 Location Shifting (e.g. Slingbox)
 Consumer streamed video content
Your consulting firm has been retained by the CEO of Netflix to assess the effectiveness of the initiative.
Specifically, you’re asked to address the following five questions:

 What factors would you consider to assess the client’s strategy?

 How the trends will affect that strategy?
 What analysis would you do?
 What data would you collect?
 Other factors to consider?
How would you approach this case?

Possible Answers:
Use of the new products/technology in the pilot cities. Usage rates will help determine the amount of
bandwidth required at peak times and help the client plan effectively for future network expansion. It will
also help the client estimate market potential.

Satisfaction ratings from pilot users. This will help them refine their product offerings and determine how
effective the enhanced services will be in retaining existing customers and drawing in new ones.

Competitors. Assess what the current competitors are in each of the trends (such as Tivo or Slingbox)
and how the product stacks up against them. Satisfaction ratings and market research could be used to
determine strengths / weaknesses and how to enhance services to compete effectively. Also, explore the
potential for stealing customers from other similar service providers to try to quantify the potential
additional market share and revenue captured from the network expansion.

Allergan to Launch Botox Product for Migraine Treatment

Case Type: new product; market sizing.
Consulting Firm: IMS Consulting Group first round summer internship job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00726: Your client is Allergan, Inc. (NYSE: AGN), a global specialty
pharmaceutical company focusing on five areas: ophthalmic pharmaceuticals, dermatology,
neuroscience, urology and cosmetics. The company produces neurologic product, Botox, which is used

around the world to  treat a variety of debilitating disorders associated with
muscle overactivity. In cosmetic applications, a Botox injection can be used to prevent development of
wrinkles by paralyzing facial muscles.
Migraine is a chronic neurological disorder characterized by recurrent moderate to severe headaches
often in association with a number of autonomic nervous system symptoms. Typically the headache
affects one half of the head, is pulsating in nature, and lasting from 2 to 72 hours. Associated symptoms
may include nausea, vomiting, and sensitivity to light, sound, or smell.
Recently, your client Allergan is considering expanding to the migraine market and has already begun
clinical trials in this arena. Their product is scheduled to launch in 2015. What is your estimate for the size
of the migraine market and the potential revenue?

Additional Information:
The product is given in the form of an injection every 2 months. It offers similar efficacy compared to
existing options but without any side effects. When given for migraines it does have some of the added
skin care benefits it is commonly associated with.

Possible Answer:
1. Analysis

Sizing the market:

 Population
 % of population diagnosed with migraines
 % treated with OTC (over the counter) vs. prescription medications
 % that have severe migraines
 Expected share for the product
Because the product requires an injection versus the current oral medication it requires more hassle and
thus will most likely be reserved for the most severe of patients. When moving to revenue the interviewee
should discuss potential issues involved in pricing such as:

 Insurance coverage
 Patients’ willingness to pay more than they currently are
 Inconvenience of MD visits for injections
 Skin care benefits from Botox
 The market leader in traditional prescription migraine treatments, Immitrex, lost patent protection
in last December and thus there will be very cheap alternatives available in the market. This should
be mostly bonus points but the interviewee could raise the issue of generic competition for existing
products or ask if generics exist.
Ultimately, the interviewer states that the client is going to price the drug at $200 per injection. Therefore
the therapy costs $1,200 per year and that is multiplied by the expected number of patients that will
receive Botox for migraines to get the annual revenue estimate.

Additional Question:
How might the launch of Botox for migraines affect their existing business in plastic surgery and should
the client launch under a separate brand name in the migraine market?
Possible Answer:
Launching under the same brand name Botox could cause a public outcry over the discrepancy in price
between the migraine version and the plastic surgery version given they are the identical drug. Also, it
could cause some patients to use the migraine form instead of buying the plastic surgery version, thus
cannibalizing some of the existing sales of Botox. On the other hand, keeping the Botox brand name
brings with it the strong reputation Botox has already built through its current use.

Launching under another brand name would allow the client to more effectively differentiate between the
two uses when advertising the product to consumers and physicians. It would also likely lessen the
backlash from the differential pricing.

How Much Money Could Galileo Make From Telescope?

Case Type: new product.
Consulting Firm: PricewaterhouseCoopers (PwC) Advisory first round summer internship job interview.
Industry Coverage: manufacturing; small business, startups.
Case Interview Question #00722: You’re a consultant in 17th century Venice, Italy and Powerpoint is
your art canvas. You have just been hired by Galileo Galilei (15 February 1564 – 8 January 1642). Galileo
was an Italian physicist, mathematician, astronomer, and philosopher who played a major role in the

scientific  revolution. One of his greatest achievements include improvements to

the telescope and consequent astronomical observations and support for Copernicanism.
The year is 1609. Your client Galileo Galilei has just invented a new and more powerful telescope, with up
to about 30x magnification. He’d like you to help him make some money off what he is sure will be a very
useful invention. What do you tell him? How much money would Galileo make from telescope?
Additional Information:
Galileo has a workshop, and 6 talented workers who can manufacture the telescopes for him. Each
worker is available 6 days a week, for 8 hours a day, and all-in labor costs are $10 per worker per hour.
Raw materials for a telescope come to $5 per piece, and one worker can make one telescope in 2 hours.
This data is only for the costs section of the problem.
Skills involved in making a telescope consist of grinding the lenses correctly, building the housing and
focal length adjustment mechanism, and assembling the parts.

The market being considered is the entire world.

No data is available on the populations of Italy, Venice, military, traders, frequency of travel, building,
warfare etc. The interviewer can respond to all requests for specific information on this stuff with “Why
don’t you try and derive an estimate for that?” As long as the assumptions are reasonable, most answers
are valid.

This is a brainstorming case – the interviewer is looking for creativity in an unusual context. Cases are not
dependent on historical facts so any inaccuracies in the candidate’s display of 17th century Europe
knowledge is given leeway.

Possible Answer:
1. Areas of Discussion
a. Company

Part of the “Company” bucket includes costs.

 Work out costs and production capacity based on the data above.
 Could suggest cost-based pricing
The candidate would also need to discuss the distribution strategy, which would likely involve selling the
goods to local merchants for overseas trading. Also, the company cannot likely produce to keep up with
initial demand so the good should be priced accordingly. Should more laborers be hired to increase
production?

b. Customers: Who would need a telescope?

I. Local

 Traders and sailors

 The military – army/navy
 Explorers – land/sea
 Architects and surveyors
II. Overseas

 Similar categories
 Geographic categories
 Europe is viable
 Asia, Middle East, America, Far East secondary markets
 Could rank in an Effort/Return quadrant matrix (some firms loves their matrices)
 Political considerations
 Profit sharing with traders
 Overseas monopoly
 Large potential demand, relatively slow supply
 High likelihood of local imitators
III. What do you think is the largest market, at each stage of the product timeline?

 Extra Credit: Very rough market-sizing (not the focus of the case)
 Could suggest (very rough) pricing based on willingness-to-pay
c. Competitors

 No patent structure means imitation is a serious problem.

 Ease of construction means reverse-engineering is not difficult. Obfuscation of the mechanism
may be necessary.
 6 workers are skilled engineers. Each is an intellectual property (IP) risk if they break away and
start up on their own – keep them happy and well compensated.
2. Cost Analysis
The math is incidental, and not the focus of the case. However, the interviewer may want to test the
candidate’s quantitative ability using the example below. The candidate should be able to express why
he/she would want to calculate the cost. Reasons can include the desire to assess how many telescopes
can be produced relative to an estimated market demand or estimated financial resources required to
operate the business.

Interviewer has already provided the following data:

 Six talented workers who can manufacture the telescopes.

 Each worker is available 6 days a week, for 8 hours a day
 All-in labor costs are $10 per worker per hour.
 Raw materials for a telescope come to $5 per piece
 One worker can make one telescope in 2 hours
Calculations:

 Cost per unit telescope = $5 + 2 * $10 = $25

 One week: 6 works * 8 hour/day * 6 days/week = 288 worker-hours
 # of telescopes manufactured in that time = 288 / 2 = 144 telescopes
 Total raw materials cost = 144 * $5 = $720
 Total labor cost = 288 * $10 = $2880
 Total weekly cost = $3600 for 144 telescopes.
3. Recommended Conclusion
Large market exists, both locally and overseas. The market will experience a short initial period of
monopoly after which imitators will provide serious competition – preventive strategies are necessary to
combat this.

Structure the response, but be as creative as possible in terms of your ideas. The math is incidental, and
not the focus of the case.

Coca Cola Experiments With a New Vending Machine

Case Type: new product.
Consulting Firm: NERA Economic Consulting first round summer internship job interview.
Industry Coverage: food & beverages.
Case Interview Question #00704: The Coca Cola Company (NYSE: KO) is a multinational beverage
corporation and manufacturer, retailer and marketer of nonalcoholic beverage headquartered in Atlanta,
Georgia. The company is best known for its flagship product Coca-Cola beverage, and it currently offers

more than 500 brands in  over 200 countries or territories and serves over 1.7
billion servings each day.
You are meeting with the head of new product development for Coca Cola Company to discuss a new
product delivery platform Coca Cola has developed. Coca Cola does not generally make its delivery
platforms – it is usually delivered through fountains or vending machines. But Coca Cola has recently
been looking into developing a new vending machine. It’s at the first level of screening. It was born out of
an idea the engineers at Coca Cola came up with and this executive needs to know whether to use the
vending machine or kill the idea.
This vending machine can change prices as the temperature changes. If it’s hotter outside, the price to
the consumer will be higher. If it’s cooler, the price goes down accordingly. Assume there is no extra cost
to making these new vending machines and that they can be easily implemented. How would you
evaluate this idea and what is your recommendation?

Additional Information: (Provide the following information if requested by interviewee)

 Coca Cola sales are seasonal – about 60% is bought in summer.
 A can of Coke sells for around $1.00. Costs to produce are: 20 cents manufacturing and 75 cents
in marketing. So there is 5 cents profit on each can.
 Coca Cola does not expect to make more money on sales through this vending machine. It
expects the high prices (in hotter weather) and low prices (in colder weather) to even out to be similar
to current revenues.
Possible Answer:
1. Areas of Discussion

(If the interviewee is really struggling) What problem at Coke might the engineers have been reacting to
when they decided to develop this machine?

 What problems were they trying to solve?

 Was it an attempt to reduce frequency with which Coke becomes “flat” in the summer?
 Was there an existing delivery problem that prompted Coke to take a shot at delivering Coke
themselves?
 Anything else?
(If the third bullet has been revealed) Coke isn’t expecting to make more money, but what might they be
trying to achieve? Think about the profit tree.
(If the interviewee thinks this is a no-lose idea) What might Coke want to think about before introducing
this delivery system? How might people react to it?

2. Recommended Conclusion

This is really a problem about two things:

 supply chain management/forecasting.

 how customers will react.
The benefit of this machine is that it allows Coke to better forecast demand (by stabilizing demand
throughout the year) and therefore better manage its supply chain and make distribution easier. While
that might cut costs slightly, only 20 cents of every 95 cents is from manufacturing. The major cost is
marketing. If it needs to cut costs it should look at marketing. Why? Because the reaction the public could
have to this machine is dangerous.

Coca Cola is thought of as an all-American product. Changing prices with weather is not aligned with the
way people see the product. They might feel cheated by the machine. The interviewee should definitely
have touched on: cost savings, supply chain/forecasting issues and public perception.

One point that the interviewee may want to explore is the fact that the machine only monitors the
temperature and price for Coke – it doesn’t necessarily generate more or less demand when it’s hotter or
colder – that trick is still confined to consumer behavior.

Takeda Pharma to Delay Launch of New Drug Delivery Product

Case Type: new product; operations strategy.
Consulting Firm: IMS Consulting Group second round summer internship job job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00700: The client Takeda Pharmaceutical Company Ltd is the largest
pharmaceutical company in Japan and Asia and one of the top 15 pharmaceutical companies in the
world. The company has over 30,000 employees worldwide and achieved $16.2 billion USD in revenue

during the  2012 fiscal year. Takeda Pharmaceutical is focused on metabolic

disorders, gastroenterology, neurology, inflammation, as well as oncology.
Takeda Pharmaceutical has come to your consulting firm for advice on a new drug product launch that
would treat a degenerative disease. A degenerative disease is a disease in which the function or structure
of the affected tissues or organs will increasingly deteriorate over time, whether due to normal bodily wear
or lifestyle choices such as exercise or eating habits.
What factors should Takeda Pharmaceuticals consider in terms of timing the launch of a new drug
product that just received FDA approval?

Possible Answer:
This is a qualitative strategy case with a nice twist at the end. The interviewee has to think outside the box
to get to the solution. There is room for the interviewee to draw the pharmaceutical value chain during this
case (added bonus).

I. Suggested Approach/Framework
The interviewee should think about the following areas within his or her framework.

 The Launch and Market Share Objectives of the client company

 The Competitive Landscape
 The Financial Implications
1. Objective of new product launch

a. Gain market share, slipping market share due to undifferentiated products.

b. Loyal patients have been moving to the competitor’s product; hence, we need to regain lost patients.
The new launch is for a drug delivery device.
c. The launch should also gain patients from the competition in order to build market share.
d. Improve corporate image.

2. Competitive Landscape

a. It is a $1B market, the client has 10% market share.

b. A key competitor is going to launch their new device in a matter of weeks. There is unrest on further
market share erosion and loss of current patients.
c. There are four major competitors in the market; one with 60% share (the company with an upcoming
launch) and the rest almost equally divided amongst the other three (which includes our client Takeda).

3. Financial Implications and Objectives

a. The goal is to double revenue within one fiscal year.

b. We are two months into the year and can potentially launch next month, but that will be a few weeks
after the competition has launched anyway.
c. The launch budget is $7 Million, 1/5 the competition’s budget for launch.
d. The value each patient offers is $150,000 annually for adults and $60,000 annually with pediatrics.

4. Other Factors
a. The positioning of the competitor’s product is along safety. Market research has indicated that this
resonates most with pediatrics.
b. We have 22 sales representatives in the field.
c. The rest of the competition has no launch plans.

II. Analysis
1. How many patients does Takeda need?

Client company makes 10% of a $1B market which is $100M and needs to make another $10M within
one year.

 This translates into about 67 adult patients ($100M / $150K = 667) within the fiscal year.
 The result is approximately 30 patients per sales representative within the year (667 / 22 = 30) –
to even out the distribution you can average one patient in the weaker territories and 30 – 50 patients
in the dense territories. (Please make a note that in defining what is weak/dense the upside potential
of a territory should be identified, not just the hold of our client in that territory).
2. Focused targeting

 Physicians/Clinics – Target physicians who are more concerned with patient quality of life and
ease of use (use publications and sales force input).
 Distribution centers – Target distribution centers that are not in long-term contracts with the key
competition and gain their loyalty.
 Patient Type – Focus on young adults with a high volume upside and more inclination towards
quality of life vs. safety (assuming all products meet safety standards by FDA guidelines).
3. Broadening reach to gain critical mass

 Large upside geographic centers – Research the location of clinics and consumers that have a
large uptake, but a more fragmented dipping into all products – aim at gaining their loyalties.
 Mid-size distribution centers – Since large distribution centers are in “grandfathered” contracts
with the competition, target the mid-size centers that have been ignored and cater to their population.
Try to lock annual high volume contracts.
 Patient Advocacy groups
III. Recommended Conclusion
Timeline – the new product launch should indeed be delayed as the client Takeda is still in the first
quarter and this gives them time to sharpen their strategy with us and leverage the following:

 Identify weaknesses from the competition’s launch.

 Allow the competition to preempt key customers and then target the unmet market.
 Wait until the competition has set their brand strategy and use the time to target a differentiated
brand strategy.
 Positioning and alignment with key customers especially while negotiating contracts with
distributors and clinics (the competitor contracts would be public knowledge at this stage).
There is benefit to being second-to-market, as long as a strategic plan is incorporated, inclusive of various
scenarios. However, there should not be a delay over three months as this might compromise the launch
uptake and time needed to gain critical mass.

Eclipse Aerospace to Deliver Eclipse500 Very Light Jet

Case Type: new product.
Consulting Firm: Hitachi Consulting first round full time job interview.
Industry Coverage: aerospace; startups.
Case Interview Question #00699: We have been approached by the co-founder and CEO of a start-up
company called Eclipse Aerospace Corporation. Based in Albuquerque, New Mexico, the company has
developed a small very light jet (VLJ). Eclipse Aerospace’s CEO needs our assistance in formulating a

strategy  to take its product to market.

To date the start-up company has spent $500 million in developing a prototype of the VLJ jet it calls the
Eclipse 500. The Eclipse 500 seats six people and comes appointed with leather seats and the safety
features of a Boeing or Airbus jetliner. However it has little legroom for passengers and no bathroom. It is
simple enough to be flown by only one pilot and travels at over 430 miles an hour – which is much faster
than other light aircraft that carry a similar number of passengers.
The U.S. Federal Aviation Administration (FAA) says it’s on track to complete the certification of the
Eclipse 500 jet within the next two months. The CEO of Eclipse Aerospace has asked us for advice on a
strategy to take the Eclipse 500 to market. We are meeting with the CEO in twenty minutes. What issues
would you want to explore with him initially?

Additional Information: Provide the following information if requested

1. Price
Eclipse Aerospace plans to sell the Eclipse 500 for $1.5M each.

2. Costs

 Rent per annum: $5M

 Financing costs per annum: $14M
 Plant & equipment per annum: $25M
 Salaries of full time permanent employees: $1M
 Variable labor cost per jet: $100,000
 Materials cost per jet: $1M
 Fixed overhead per annum: $5M
 Variable overhead per jet: $300,000
3. Competition

 Big players like Boeing and Airbus do not produce a small jet similar to the Eclipse 500 and there
are no indications that they intend doing so.
 Gulfstream, Cessna, Bombardier and Dassault all make corporate jets, although none of them
presently manufacture a jet of the size and performance of the Eclipse 500.
 Eclipse Aerospace understands that three companies may be developing a very light jet (VLJ),
namely Cessna, Honda and a start up Canadian company.
Possible Answer:
The interviewer is looking for the interviewee to construct a logical and coherent framework to analyze
this new product and its prospects. Many answers will be appropriate. This is an opportunity to drill down
into an interviewee’s answers and get them to explain their reasoning and why issues are important.

One approach is to use the 4P’s of Price, Promotion, Product and Place to set out issues to be
discussed with the CEO.
Also very relevant is the customer segment the company is targeting (which will lead onto the second
question).

Finally, the interviewee may want to explore the relevant supply chain and how the company intends
extracting value from it.

Question #2: The CEO of Eclipse Aerospace has indicated an interest in two potential markets in
particular: the corporate jet market and the Air Taxi market. The latter market is made up of operators
who intend using the Eclipse 500 to ferry passengers between cities currently under-served by the big
airlines.
Eclipse Aerospace does not have the resources to position itself in both markets. The CEO is convinced it
must choose one.

The corporate jet market is well-established with big players such as Gulfstream, Cessna, Bombardier
and Dassault dominating. This year the market for small to mid-size jets is estimated at $4 billion. Eclipse
Aerospace believes it could be a niche player and secure three quarters of one percent of that market.

The Air Taxi market is very much in its infancy and harder to estimate. Present estimates indicate sales
will be in the range of $200 million to $600 million. If we take the midpoint of this range, what market
share would Eclipse Aerospace need to secure to generate the same sales as the corporate market?

Possible Answer:
Estimated sales in corporate market = 0.75% x $4 billion = $30 million

Midpoint of Air Taxi market = $400 million

Market share required in Air Taxi market = $30 / $400 = 7.5%

Question #3: Aside from just potential revenues what issues should Eclipse Aerospace take into account
when choosing between the Air Taxi and the Corporate markets?
Possible Answer:
The interviewee can discuss numerous considerations here. The interviewer should engage the
interviewee in discussion and probe the answers given by him/her. Ask why, dig deeper, and test
understanding. The interviewee should be able to rationally and confidently discuss issues such as:

 potential competitor response, including the strength of the competitors

 market growth
 geography – location of key customers
 supply chain issues
 power of customers
 risk- the Air Taxi market is considerably riskier than the corporate jet market
 profitability – the air taxi market has few if any competitors and Eclipse Aerospace may be able to
command a higher margin
Porter’s five forces is a useful framework to employ in comparing the two markets.

Question #4: The CEO of Eclipse Aerospace has also indicated he wants to know how many Jets the
company needs to sell in its first year to break even ignoring sunk costs. It would be helpful if you could
provide a rough estimate.
Possible Answer:
Break-even Volume = fixed cost / net profit margin per unit = fixed cost / (price – variable cost)

If the interviewee does not recall the formula then give it to him/her and still require him/her to perform the
calculation.

The interviewee will need to ask appropriate questions to obtain the information he/she needs to perform
the calculation. Price and cost information are provided above.

 Annual fixed costs = $5m + $14m + $25m + $1m + $5m = $50m

 The price of a Eclipse 500 jet = $1.5m
 Variable costs = $100K + $1m + $300K = $1.4m per jet
 Break-even volume of jets = $50m / ($1.5m – $1.4m) = 500 jets
5. Conclusion: The CEO of Eclipse Aerospace has just entered the room. He looks at you and says “So,
what are your thoughts on my new plane?” How do you answer him?
Possible Answer:
The interviewer should look for the interviewee to be structured and concise here. A strong candidate
should pull approximately three key points that have been discussed and summarize them appropriately
for the CEO. The interviewee should also indicate the next steps they would take in the project, e.g.
confirm estimated financials, conduct marketing research to refine market, etc.
Toyota Develops Next-Gen Hydrogen Fueled Car Engine
Case Type: new product, new technology; market sizing.
Consulting Firm: Hitachi Consulting first round full time job interview.
Industry Coverage: automotive, motor vehicles; energy industry.
Case Interview Question #00698: Toyota Motor Engineering & Manufacturing North America, Inc.
(TEMA) is an automobile manufacturing and research and development company owned by Japanese
automaker Toyota Motor Corp. (NYSE: TM). It is the result of a merger of Toyota Motor Manufacturing

North America (TMMNA)  and Toyota Technical Center, U.S.A. (TTC) in April
2006, and has its headquarters at the former TMMNA headquarters in Erlanger, Kentucky.
You are an engineer working for TEMA. You have just invented a new engine that is fueled completely by
water. The new engine works like this: water-splitting catalysts first separate water into oxygen and
hydrogen gas, then the energy released by the combustion of oxygen and hydrogen is used to power
the engine just like a regular gas fueled internal combustion engine.
With the new engine, what would you do now?

Additional Information:
1. Product
 Water-splitting catalysts can be easily produced with negligible costs.
 There are no differences in the total production costs of a regular gas fueled engine and a water
fueled engine.
 There are no differences in engine performance.
2. Infrastructure

 Gas station can be switched to water easily.

 Water costs are minimal.
 How would this impact gas station business models? What are the implications for sale to a
specific company or industry wide? Consider network effects.
Possible Answer:
So, what options do you have?

1. Start a firm and manufacture engines for vehicles (cars, boats, airplanes, etc). Think about:

 Access to capital
 Management capabilities
2. Sell the technology/patent. Things to consider:
A. Sell the technology/patent to whom? Specific industry:

 car vs. airplanes vs. boats, etc.

 Military vs. private.
B. How would you price the new technology/patent? This new technology is a disruptor. Water engines
will completely replace gas engines.

Use the car industry as an example. The price of the new engine should be equal to the extra profit
derived from the delta price that car manufacturer(s) can apply to a water fueled car. The delta price that
the car manufacturer(s) can apply depends upon a quantification of the lower costs that customers will
face by not having to pay for fuel. In order to determine such number, it may be useful to know:

Size of U.S. car market:

 300 million people in the U.S.

 100 million households
 50M urban with on average 1 cars per household
 50M suburban with on average 2 cars per household
 150M cars, replaced every 10 years
 15M cars per year, 80% new, 20% old
 12M new cars per year
Fuel cost savings of water fueled car:

 150K miles per car over life of car

 25 miles per gallon of gas
 6K gallons over life of car
 $4 per gallon of gas
 $24K in gas saving
Consumers are probably willing to pay $5K to $10K in premium (tax benefits / green image). Therefore,
this translates into a $60B to $120B potential market just in car industry alone.

C. Patents

 Are patents generally enforceable?

 How complex is the technology?
 What are the implications for sale to a specific company or industry wide?
Recommended Conclusion:
Sell the patent/technology instead of starting a new firm from scratch.

Sell to as many industries as quickly as possible. Target the largest players because they have the capital
to buy the technology and the resources to integrate the technology quickly. Use competitive bidding to
raise the price.
Fast Food Chain Sees Lower Profits With More Stores Opened
Case Type: reduce costs; new product; math problem.
Consulting Firm: IBM Global Business Services (GBS) first round summer internship job interview.
Industry Coverage: restaurant & food service.
Case Interview Question #00695: Our client Freddy’s Frozen Custard & Steakburgers is a fast food
restaurant chain based in Wichita, Kansas. The company opened its doors 10 years ago, and today it has

more than a hundred locations in 17 of the 50 U.S. states.  Freddy’s made its
debut in 2002. In April 2011, the company opened its 50th store in Victorville, California, and in October of
2013 its 100th store in Bowling Green, Kentucky. There are currently 104 Freddy’s locations nationwide. It
continues to expand at a rapid rate. Freddy’s plans to open 400 more stores over the next 10 to 15 years.
Freddy’s menu items are prepared fresh, after order. Freddy’s offers frozen custard with a variety of
specialty sundaes and blended concretes. In an effort to increase sales and face increasing competition,
the company has just introduced a series of new products. While sales have increased in all 104 stores in
the country, some locations have experienced decreasing profits. How would you help the company
identify what the problem is?
Additional Information: Provide the following information if requested
The fast food chain Freddy’s Frozen Custard & Steakburgers used to sell only sweet products such as
frozen custard,mainly purchased as snacks or desserts. The ingredients in these products include fresh
produce items such as strawberries, bananas, and other fresh fruits.
Increasing competition and stagnant unit and gross sales motivated the company to introduce savory
products including steakburgers, hot dogs, and chicken sandwiches and increase traffic at off-peak hours
(peak hours in this case are afternoons, when people generally have a snack or dessert).

The new products (steakburgers, hot dogs, and chicken sandwiches) include a set of savory products
with ingredients requiring special ordering and handling. These ingredients also include fresh produce
such as lettuce, tomatoes, and cheese.

Most of the ingredients in both sweet and savory products include fresh produce.

Possible Answer:
An appropriate structure for this case is the profitability framework: Profits = Revenues – Costs
Revenues

Revenues = Price * Volume, and in this case even as the new savory products are slightly more
expensive than the old ones, customers have reacted positively and have started purchasing them.
However, there has been some product cannibalization, and the unit sales of sweet products have
experienced some decline.

Costs

Since revenues are not the main source of the problem, the interviewee should proceed to evaluate the
cost side if the equation: Costs = fixed costs + variable costs.

In this case fixed costs haven’t changed. Most of the stores have been in operation for some years now,
and the inclusion of the new products has not affected their operation significantly. Marketing and
advertising campaigns have been recently launched to promote the new products, but the costs were
evenly spread across all stores and are not of significant value.

The problem is with variable costs. Labor was already in place, and actually the new products increased
activity in slow times, but there wasn’t a need to hire additional personnel. The new products are sold
mainly at hours were the operation used to be slow in the past and has actually decreased slack time of
employees during those hours.

With all other costs being negligible, the main source of the problem is with the food cost. The bottom line
of the problem is that since the new products require special handling, the cost of some ingredients is not
the same for all store locations. The company has national contracts with its main suppliers, but as stores
are located in different geographic locations, seasonality and varying distributing costs has forced
suppliers to charge these ingredients at a premium.

Question #2: Given the problem is that the food costs are not constant for all stores, and that has
decreased profitability at some locations, suggest potential solutions to address this situation.
Possible Answer:
Exercise bargaining power over suppliers: Since the company has several locations throughout the
country and has signed national contracts with suppliers, it could try to negotiate discounted prices for
“troubled” locations.

Look for alternate local suppliers: Evaluate the possibility of purchasing certain products from local and
smaller suppliers, generally selling at lower prices.

Look for alternate and cheaper ingredients. This sounds risky because it could lower the quality of the
food sold.

Reduce the volume used. For the same reason, this sounds risky because it would change product
recipes.

Introduce alternate items at certain locations: This is also very risky, as it would take away uniformity from
the chain and may upset some customers. On the other hand, the company could take advantage of local
food preferences and offer unique creations to cater local markets.
Change the product mix: The total food cost is the sum of the individual food costs for each of the items
sold. Promoting products with higher margins would reduce the overall food cost and contribute to
increase profitability.

Combos and promotions: Grouping low and high cost items in combo meals (e.g. entrée + beverage +
dessert) could motivate clients to purchase more products and ultimately reduce the food cost by
promoting a more efficient product mix. Also, through discounts and promotions of products with higher
margins the company could improve the product mix.

Question #3: Let’s suppose that you decide that you want to launch a campaign to promote higher
margin products and improve profitability on troubled stores. You are provided with the following
information:
Before New Products were included:

Product
Type Average Price Average Cost Average Weekly Units Sold

Sweet $5.00 $1.00 4,000

After New Products were included:

Product
Type Average Price Average Cost Average Weekly Units Sold

Sweet $5.00 $1.00 3,000

Savory $6.00 $3.00 1,250

Assuming that food cost is the only significant cost, what should be the product mix the company should
sell, including the new products, to return to at least the same level of profitability without losing the
increase in revenue due to new products?

Possible Answer:
Old Profit = Total Old Revenues – Total Old Costs = 4,000 x $5.00 – 4,000 x $1.00 = $16,000
New Gross Sales = $5.00 x 3,000 + $6.00 x 1,250 = $22,500

Define Variables
X = Sweet products sold
Y = Savory products sold

New Profit = Total New Revenues – Total New Costs = Old Profit
New Profit = ($5.00 X + $6.00 Y) – ($1.00 X – $3.00 Y) = $ 16,000
New Profit = $4.00 X + $3.00 Y = $ 16,000 ————(1)
New Gross Sales = $5.00 X + $6.00 Y = $ 22,500 ————(2)

Solving for X and Y using equations 1 and 2, you get that the company should sell 3,167 sweet products
and 1,111 savory products.

Question #4: How does the total food cost under this new product mix compare to that under the less
profitable scenario?
Possible Answer:
Old Food Cost = $1.00 x 3,000 + $3.00 x 1,250 = $6,750
As a % of Sales = $6,750 / $22,500 = 30%

New Food Cost = $1.00 x 3,167 + $3.00 x 1,111 = $6,500

As a % of Sales = $6,500 / $22,500 = 28.9%

Change in Food Cost = (New Food Cost – Old Food Cost)/(Old Food Cost) x 100% = ($6,500 –
$6,750)/($6,750) x 100% = 3.7%

Question #5: If the client company wants to negotiate the prices of new ingredients (savory product) with
its suppliers to reach the improved profitability levels with the old price mix, what should be the price
discount it should ask for?
Possible Answer:
Total Target Savings = $6,750 – $6,500 = $250
Unit Savings = $250 / 1,250 = $0.20
Discount = $0.20 / $3.00 x 100% = 6.67%

6. Conclusion
The interviewee should have identified that this is a profitability problem focused on the cost side rather
than on the revenue side of the formula.

After addressing the main cost items, he/she should have been more extensive in asking questions about
the different cost items and should have identified that the problem was with the food cost.

As the interviewee prepares to wrap up, he/she should be able to recap the situation and cite a couple of
the potential solutions to the problem. Further, he/she could use the numbers to provide some insight
about the situation, mentioning how the new savory products have a higher food cost and how can some
of the solutions could be translated into tangible results.

Starbucks Considers Selling Ice Creams in Coffee Stores

Case Type: new product.
Consulting Firm: Capgemini Consulting first round summer internship interview.
Industry Coverage: food & beverages; restaurant & food service.
Case Interview Question #00693: Our client is Starbucks Corporation (NASDAQ: SBUX). Starbucks is
an American global coffee company and coffeehouse chain based in Seattle, Washington. As of
December 2013, Starbucks is the largest coffeehouse company in the world, with 20,891 stores in 62

countries,  including 13,279 in the United States, 1,324 in Canada, 989 in Japan,
851 in China, and 806 in the United Kingdom.
If you have been reading the newspaper lately, you have seen the news about Starbucks and how terribly
the company has been doing lately. The company planned to open a net of 900 new stores outside of the
United States in 2009, but has announced 300 store closures in the United States since 2008. Starbucks
has had no growth for quite some time and is facing strong competition from Dunkin’ Donuts, which has
partnered with Baskin Robbins at many of its locations. Recently, the senior management of Starbucks is
considering selling ice cream in their coffee shops. Do you think that they should add ice cream to their
retail coffee stores?
Possible Solution:
This “introducing new product” type of case is just to see how the candidate thinks. The interviewer (a
consultant at Capgemini Consulting) has no additional information because this is not a real case that she
has worked on, but rather just something she has been thinking about. The most important thing is that
the candidate is organized and hits a few key points. Some key points that should be discussed:

1. Customers: how are the customers at Starbucks different from those at Dunkin’ Donuts? –
Demographics, income, purpose/time of visit

2. Company: differentiating factors of Starbucks – the candidate must recognize that the atmosphere is a
key differentiating factor at Starbucks (as important as the coffee!)

 Who eats ice cream? Children are major consumers of ice cream. Having large numbers of
children running around Starbucks would threaten the atmosphere.
3. Product Cannibalization: Starbucks currently has high profit margins on frozen coffees and baked
goods. If its stores begin selling ice cream, they could see cannibalization of existing sales of these high-
margin items.

4. Operational issues:

 How would Starbucks store the ice cream- current stores are not equipped with freezer space, so
this would require major store renovations. Plus the freezers would take up a lot of space, which
means that the seating area would be smaller.
 Suppliers: Selling ice cream would probably mean adding a new supplier.
The candidate should offer a definitive 30 second pitch for his decision (go or no-go).

Once the candidate has determined that Starbucks should not sell ice cream, ask the candidate what
Starbucks should do to grow? The two things the interviewer is looking for is (1) Creativity and (2)
Organization. Candidates should not just list ideas for growth, but should organize or categorize them.
Some possible answers:

a. Introduce new product lines

 Introduce a non-specialty coffee (Starbucks has now done this with Pike Place Roast) as a
special offer during tough economic times to compete with Dunkin’ Donuts.
 Begin selling Starbucks ice cream in retail channels, but not in their coffee stores. (The company
has also done this)
b. Expand into new geographic areas

 Additional suburban areas, slightly further semi-rural areas

 Selective cities internationally (Starbucks is getting increasingly popular in Asia)
Moldovan Coffin Maker to Exit Coffin Manufacturing Business
Case Type: new product, new technology; pricing & valuation.
Consulting Firm: McKinsey & Company first round full time job interview.
Industry Coverage: manufacturing.
Case Interview Question #00689: Our client Moldovan Coffins is a high-end coffin maker in the country
of Moldova. Moldova, officially the Republic of Moldova, is a landlocked country in Eastern Europe
located between Romania to the west and Ukraine to the north, east, and south. Moldova declared itself

an independent  state with the same boundaries as the Moldavian Soviet

Socialist Republic in 1991 as part of the dissolution of the Soviet Union. The total population of the
country amounted to 4 million (2004 Moldovan census).
The owner of Moldovan Coffins business has seen substantial change in his market in recent years and is
contemplating the future of his business. Up until now, he has been in the business of building high-
quality, handcrafted coffins largely by hand with a skilled labor force. Recently, however, he has become
aware of a new technology that would allow him to build machine-made coffins with much less labor.
Should he invest in this new technology? And should he even remain in the coffin-making business in the
first place? Why or why not?
Possible Solution:
Note that this case requires the interviewer to drive key points in the discussion. Allow the candidate to
formulate a plan and then prompt him/her to consider each of the topics listed below.

Question #1: What strategic alternatives should the owner of the coffin business consider?
Possible Answer:
If the candidate doesn’t get all of this, help them along since we need to lay this foundation for the rest of
the case – We need to decide firstly whether to stay in the coffin business at all and if so, whether he
uses the new technology:

Option 1: Sell the business to a third party

Option 2: Sell the assets of the company and shut it down
Option 3: Keep operating as is
Option 4: Keep operating and invest in the new technology

Question #2: How would you figure out the current value of the coffin business? Provide the following
additional information if the candidate asks for it clearly and directly.
Market Size – If the candidate asks for the size of the market, first make him/her brainstorm about
different ways to determine market size. A good candidate should come up with at least 4 different ways,
such as:

 Calculate from the market’s total population, population growth, and birth rate.
 Review of death records for a period of time.
 Take sample of the number of obituaries in paper serving given population base.
 Calculate from total population, average life expectancy.
Question #3: Now make the candidate calculate the market size, giving them the following data:
 Population of Moldova: 4 million
 Population Growth: 0%
 Average Life Expectancy: 75 years
 Age Distribution: assume a flat age distribution, i.e. same number of people at every age.
 Burial Customs: 75% of deaths are buried in coffins.
Possible Answer:
(4 million) x (1/75) * (75%) = 40,000 coffins purchased per year.

Note that the candidate needs to quickly realize that every year, 1/75th of the total population will turn 76
and therefore (on average) will die.

Question #4: Now make the candidate calculate the value of Moldovan Coffins’ business, giving them the
following data:
Price – Coffins are priced at $5,000 for a hand-made high-end coffin.

Costs – Material accounts for 10% of the direct cost, while labor accounts for the other 90%. COGS is
$4,800 per coffin. Fixed costs for the business are $700,000 per year. Assume all assets are fully
depreciated and ignore taxes.
Competition – The client Moldovan Coffins has a 10% market share and a relative market share of about
1 (if asked, you may explain that relative market share is the ratio of the company’s market share to that
of its nearest competitor.)

Market Trends, Regulation, etc. – If asked about any exogenous factors, simply tell the candidate to
assume that the market is expected to continue as it currently is.

Possible Answer:
The candidate needs to calculate the value of the business now. This is a pure mathematical exercise.

 Margin per coffin = $5,000 – $4,800 = $200

 Contribution Margin = $200 per coffin x 40,000 coffins x 10% market share = $800,000
 Profit = Contribution Margin – Fixed Costs = $800,000 – $700,000 = $100,000
Assuming a discount rate of 10% (candidate can assume anything reasonable here as long as they are
consistent later), a perpetuity with cash flows of $100,000 per year has a present value of $100,000 / 0.1
= $1 Million. So the current business is worth $1M whether they keep it or sell it.

Question #5: So now what is the value of the company if it were shut down and the assets were sold?
Additional Information to give if asked:
Assets – Since the firm has been building coffins by hand, the fixed assets are essentially only the land
and improvements. These are owned outright by the company.

When the candidate asks for the value of the land, have them brainstorm ways that they might determine
this. They should come up with at least 3 good ways, such as:

 Look for comparable real estate and determine recent selling price.
 Find comparable commercial real estate and determine the rent per square foot, then discount
the cash flows generated by renting the property.
 Determine rate of appreciation for property in the area and then apply to book value of current
land and improvements.
Give the candidate the following information and have them calculate the value of the property:

 Book Value of Land: $20,000

 Book Value of Improvements: $80,000
 Years Owned: 48
 Average Real Estate Appreciation: 6% / year
Possible Answer:
Using the “rule of 72″, a 6% growth rate will double the investment every 72/6 = 12 years. Since the
property was held for 48 years, the current value will be $100K * (2 x 2 x 2 x 2) = $1.6M.

Since the assets ($1.6M) are higher than the value of the discounted cash flows ($1M), then it would
make more sense to liquidate the business and sell the assets.
Question #6: What would the value of the company be if the owner invests in the new technology?
Provide the following information if asked:
Investment – Investing in the new technology will cost the firm $1M.

Cost Savings – Material costs remain the same, but labor costs are reduced by 50%.

Proprietary Nature of Technology – The new coffin-making technology is being offered for sale by a
machine tool company, who holds the patent. They are not offering exclusivity to any customers (i.e. they
will sell to Moldovan Coffin’s competitors if possible).

Competitive Threat – It is not known whether the competitors have acquired or are planning to acquire
this new coffin-making technology.

Customer Preferences – While the machine-made coffins are not “hand made”, the quality perceived by
the customer is the same or better. It is believed that the customer will be indifferent between the quality
and appearance of a hand-made and a machine-made coffin.

Brand Impact – The candidate may argue that a machine-made coffin might negatively impact Moldovan
Coffin’s brand. If so, ask them how they would test this (e.g. consumer research), but tell them to assume
that it would have negligible impact.

Possible Answer:
Since Moldovan Coffins has no proprietary control over the technology, it is likely that competitors will
also acquire it, resulting in an overall lowering of the industry cost structure. If this is the case, price will
also fall as competition cuts price in an attempt to gain share. If we assume that gross margins remain the
same, since the industry competitive structure has not changed we can calculate the new margin
contribution as follows:

 Gross Margin = $200 / $5,000 = 4%

 Labor Cost = (4800 x 90%) x 50% = $2,160
 Material Cost = 4800 x 10% = $480
 COGS = $2,160 + $480 = $2,640
 Price = $2,640 / (1 – 4%) = $2,718
 Contribution Margin = $2,718 – $2,640 = $78 per coffin
 Profit/Loss = $78 * 4,000 – $700,000 = -$388,000
So the introduction of the new technology to the market might be expected to reduce industry profits,
making this business completely unprofitable.

Candidates could argue other scenarios, by assuming that the industry would be able to maintain higher
margins than we have assumed here, so the answer may be different. They should recognize, however,
that the introduction of this non-proprietary technology will significantly reduce industry pricing in the
absence of some other form of price support (such as branding, collusion between players, etc.)
7. Conclusion
A star candidate will see that his/her time is nearly up and will present a recommendation for the client
without prompting. If the interview is within 3 minutes of the end, ask: “The owner just called and said he
has an offer to buy his business. He needs to know whether he should take it right now.”

Possible Answer:
Given the credible threat of the industry becoming unprofitable due to the introduction of this new
technology, the owner should look to sell the company as soon as possible. Taking into account the
assets of the firm and the present value of the expected cash flows of the business itself, he should
attempt to liquidate the business and to sell the assets for around $1.6M.

If the owner is unable to sell the business now, he can continue to operate the business as a cash cow,
but should not invest in the business above what is necessary to keep it operating at its present level. He
should expect the business to become less profitable as the industry moves to mechanization, and should
eventually look to sell the assets of the company and close the firm.

Comments:
This case was given by McKinsey in one of their first-round interviews and is a typical “command and
control” style McKinsey case. In this style of case, the interviewer allows the candidate to drive the case
initially to explore possible routes to a solution. However, once the candidate has laid out a plan, the
interviewer takes control and asks the candidate to solve a few specific problems before coming to the
final conclusion.

When giving this case, allow for some initial planning and brainstorming by the candidate, but then firmly
take control of each of the “modules” described in the case. Try to move the candidate along through
each of them, since in the actual interview only those candidates that complete all of the sections will be
considered to have done well. This case tests mental horsepower and the ability to move to conclusions
quickly.

Former GE Scientist Builds a Perpetual Motion Machine

Case Type: new product; pricing & valuation.
Consulting Firm: Bain & Company first round full time job interview.
Industry Coverage: energy industry.
Case Interview Question #00681: I joined Bain & Company’s Boston office as an associate right after
business school. I was flying back from my client the other night, and working away on my laptop. Beside
me was seated a mad physicist who used to work for energy giant General Electric (NYSE: GE). The GE
physicist  first engaged me in a short conversation, and then he was very excited
to find out I was a consultant working at Bain. It seems that he has created the first perpetual motion
machine in the world. His machine requires no energy input, and keeps on going. The GE scientist wants
to know how to make money with it. How would you go about it?
Note: In general, a perpetual motion machine is a device which, once activated, would continue to
function and produce work indefinitely with no input of energy.
Possible Solution:
We started with a general framework on the things I would cover.

Question #1: The interviewer pushed me into the category of what the perpetual motion machine might
be used for and we stuck on cars.
Question #2: The interviewer then asked me what the size of the opportunity could be.
I did a quick market sizing, based on the total number of cars in the U.S., and what percentage I would
guess are traditional fuel vs. alternative fuel (a small %), and then assumed a % of those bought new cars
yearly and ended up with a large #. (40 Billion, I think)

Question #3: What would convince these people to buy our perpetual motion technology in their cars?
I talked about value proposition, pricing, awareness, proof of technology.

Question #4: How would we convince the traditional fuel customers to buy this?
Question #5: How would you price this? And how would this change over time?
I talked about making sure we covered our COGS, and then looked at EVC especially in terms of actual
fuel costs and time spent refueling, environmental feel good factor etc. I thought that initially we’d price at
a premium and later in the life cycle when it was more mature, I figured we’d potentially be competing on
price since other alternatives may creep in.

Question #6: What would GM think of this if we were to approach them with it?
I talked about how they would probably be thinking about the fact that their bread and butter business
(traditional fuel) would be threatened, but ultimately they would need to decide whether they thought the
competitors would come out with this before them, or whether they would want to be the first to market
with it. I also talked about how it may take a while to implement because of operational difficulties, design
etc.

Question #7: Would you invest with the mad GE scientist, if he asked you to? Why or why not?
Question #8: What is your 30 second elevator speech to billionaire investor Warren Buffet, who is known
to have an appetite for clean energy?
This is a source of limitless energy. As energy demand continues to grow it becomes a more and more
precious resource. Who would not want to invest in a limitless source of a precious resource?

Commentary:
Looking at the potential to use this perpetual motion machine technology in cars is clearly a great option
and the case approach that the interviewee went through looks pretty good.

Starting from a more generic level however I would probably tackle the question as follows:

If we look at the benefits of a perpetual motion machine, it is basically a source of energy. In assessing
potential applications of the technology then I would ask the question “Where is there the greatest
demand for energy?” or “Where is the best market for a new source of energy?”

This could lead to a reasonable discussion of a number of different options: energy at home, energy in
industry, energy in transport. Transport makes sense as a market to drill down on this product because it
is clearly such a large source of energy consumption.

From a pricing perspective you may need to think about the price of the technology as against the savings
that it generates. You would need to ensure there was still sufficient savings to justify consumers wishing
to try a new technology. Equally it would be important that the mad scientist prices the product so that car
manufacturers can implement the technology profitably.

Mercedes-Benz Proposes One Key Fits All Locks on New Cars

Case Type: new product, new technology.
Consulting Firm: Siemens Management Consulting first round summer internship job interview.
Industry Coverage: automotive, motor vehicles.
Case Interview Question #00665: The client Mercedes Benz is a multinational division of the German
automobile manufacturer Daimler AG (FWB: DAI). Headquartered in Stuttgart, Baden-Wurttemberg,
Germany, the company produces a full range of luxury cars, buses, coaches, and trucks. Since its

inception,  Mercedes Benz had maintained a reputation for its quality and
durability. Mercedes-Benz has introduced many technological and safety innovations that later became
common in other vehicles. Today, Mercedes-Benz is one of the best known and established automotive
brands in the world, and is also the world’s oldest automotive brand still in existence today.
Recently, the director of marketing at Mercedes-Benz suggests a bold change to the current design of car
keys. Currently, two separate keys operate the car ignition and open the doors. The Mercedes-Benz
marketing director proposes an innovative design where one key operates all lock mechanisms: a single
car key can open the doors, as well as start the ignition, open the glove compartment and also open the
trunk (boot) of the car.
How do you think about whether this a good idea or not?

Suggested Approach:
Cost-benefit analysis, NPV analysis

Possible Solution:
The goal of any business including automobiles is profit throughput that can be measured by the Net
Present Value (NPV)impact of the proposed change. For the proposed change to have a positive impact
on profit throughput, the change must be a net positive of change in cost structure or product demand
(benefits) weighed against the investment needed to implement the change (costs).
 Increased demand in this case must come from the product meeting customer needs better than
that of direct competitors or substitutes.
 Customer needs that this change might impact are simplicity, security, and cost of ownership
(related to security).
 It should also be considered if the improvement in meeting customer needs, if evident, is
defensible or would be easily copied.
1. Change in cost structure

In general, a regular 4-door car needs 6 locking mechanisms: one for the ignition, one for the trunk (boot),
and 4 for the 4 doors. For security reasons, the ignition locks are more complex, usually integrated with
the car’s electronic system.

For cost structure, the relative expense of using what is assumed to be the more complex locking
mechanism of the ignition on the doors and trunk (assumed 5 locks that would be more complex) would
have to be weighed against the reduced cost of developing or purchasing separate key and lock
mechanisms. As most automobile manufacturers are very large, it is assumed that the simpler locking
mechanism needed for the doors and trunk could be reused across many product lines or purchased from
large parts suppliers who supply the industry as whole and the development cost of a separate locking
mechanism would be low.

Therefore, the change in cost structure will be driven by the relative cost difference of buying 6 complex
locking mechanisms vs. 5 simple locking mechanisms and 1 complex mechanism. It is assumed that a
more complex locking mechanism needed for the ignition is a primary customer need (security).
Therefore, the hypothesis is that the net change of cost position is negative. It is also assumed that the
market power of buying more complex locking mechanism would not significantly impact the price
charged by suppliers or cost basis if developed internally. This hypothesis would be easy to check by
looking at the relative cost position of the different locking mechanisms and the discount structure
available for mass purchasing the various locking mechanisms.

2. Change in product demand

On the demand generation side, the product would have to create a net positive in demand across the
customer needs of simplicity, security, and cost of ownership.

The fact that the marketing director of Mercedes-Benz suggested this change hints at the fact that the
intuition is that customers may demand the increased simplicity of only carrying one key. This does not
seem intuitively true as the two keys are almost always carried on the same key ring so the relative
improvement to simplicity is probably minimal.

For security, there are two factors to consider, the theft of valuables in the car and the theft of car itself. If
more complex locking systems were to improve the security to valuables, then the value of going with the
more complex locking system on the doors and the trunk of the car may be a positive. The assumption,
however, is this is not the case as door locks are typically compromised not by picking the lock but by
compromising the areas around the lock (i.e. Slim Jim). Also, security systems, which are becoming more
common on cars, mute the effect of a more complex locking mechanism, as the key lock mechanism
becomes the non-primary mode of defense. I do not see how moving to one key would impact the chance
of theft of the entire car, as in either case the same locking mechanism would have to be beaten.

This also means that the cost of ownership, which could have increased if the change of car theft
increased due to insurance premiums, would exhibit no affect.

The customer reaction to a single key mechanism could be tested through surveying or product pilots
where a sample set of customers are given actual cars with one key and asked to gauge their reaction. Or
larger regional pilots could be run and the change in demand affect measured.

3. Required investment

The investment required to implement the change of eliminating a separate key and lock for the doors
and ignition is assumed to be minimal as key locking mechanism are fairly standardized and the ignition
key lock, which is probably more complex, could be transferred to the doors and trunk with minimal
amount of rework of the parts assembly infrastructure for building the auto.

The primary investment cost would then be the cost of piloting or surveying for the increase in customer
demand by implementing the change. Surveying and piloting costs can be significant, but it is assumed a
cheaper survey would suffice in this case to gauge demand so investment costs would be minimal.

4. Three final possible points to consider on demand generation.

One, an increase in demand is necessary but not sufficient to improve profit throughput, as the company
also needs to be able to meet the new demand generated. As auto manufactures almost always have an
excess of capacity, this is not an issue.

Two, even if this change was beneficial it could be easily copied by competitors and it is assumed that the
change would not provide any lasting brand advantage in the customers mind or raise the demand of the
sector as a whole. Therefore, in the long run, the cost reduction benefits would override the decision to go
forward and we have already argued the affect would be negative.

A final factor that should be considered is the assumption that the majority of cars sold in the US in the
past have included two keys and the two keys have most likely generated a lot of unanticipated use that
may be hard to anticipate that might cause customers to reject the change.

So, from a customer perspective, I would want to see the demand for this from customers to be strong
and the benefits large before implementing a change. Because it does not appear the proposed change
would positively impact cost position or increase demand significantly, my recommendation is against the
proposed change. I recommend even against investing to gauge customer demand as the long run
benefit would be in cost position and the assumption here is that the effect is negative.

Summary Comments
The candidate should start with a framework, and then works through to a hypothesis and how the
answer might be tested. All the customer factors or cost impact that could be considered are obviously
not included. The interviewer should look for a structured presentation that arrives at a hypothesis with
ideas how to test and a proposed answer.

Kmart to Test Radio Frequency Identification (RFID) in Stores

Case Type: new product, new technology; math problem.
Consulting Firm: Advisory Board Company second round summer internship job interview.
Industry Coverage: retail; information technology (IT).
Case Interview Question #00661: Our client is Kmart (often stylized as K-Mart), an American chain of
discount consumer goods retailer headquartered in Troy, Michigan, United States. The company was
founded in 1962 and currently is the third largest discount store chain in the United States, behind

Walmart (NYSE: WMT)  and Target (NYSE: TGT). As of January, 2011, Kmart
operated a total of 1,308 Kmart stores across 49 states, including 1,278 regular discount stores and 30
Super Stores (averaging 100,000 sq ft).
RFID (Radio Frequency Identification) is a new technology. RFID contains a wireless non-contact system
that uses radio-frequency electromagnetic fields to transfer data from a tag attached to an object, for the
purposes of automatic identification and tracking. It is a tiny system that consists of wireless technology to
transmit product serial numbers from tags to a scanner without human intervention. RFID technology is
widely seen as the likely successor to barcode technology.
Our client Kmart recently is investigating the possibility of requiring its Super Store suppliers to tag each
product with RFID. Kmart’s board requires that all major capital improvement projects recoup all costs
within 3 years or less. They have come to us to investigate this opportunity. Should we advise our client
Kmart to pursue it?

 If so, what risks are there?

 If not, what alternatives can we investigate?
Possible Solution:
1. Structure the solution
Below is one possible structure, one that is probably overkill. Any structure that is able to address all
relevant aspects of the issue is acceptable.

 Cost/benefit analysis
 Supplier relationships
 Consumer privacy concerns
 Technology considerations and capital outlay
 Internal change considerations
The main aspect of the structure for this “new product/new technology” case is cost-benefit analysis. If the
candidate delves into other areas (i.e. privacy concerns), the interviewer or case giver should be aloof
and mention that you do not have data on that subject. That should bring the candidate back to the
cost/benefit track.

2. Cost-benefit analysis details

I. Costs
The candidate may want to start with benefits first. The interviewer should direct them to start with costs
first. Costs are more interesting in terms of dissecting a graph, and for benefits the interviewer can give
candidate answers easily without requiring diving into calculations if time is running short.

Interviewer: Ask the candidate to brainstorm on what costs could occur. Let them generate 4-5 ideas,
then ask which is likely to be the greatest cost and why. Then, dive into details.
Present the candidate the “General Information” slide (Exhibit 1) for cost discussion. You could say: Let’s
examine the cost of rolling out RFID to individual super stores and distribution centers (DCs).

Kmart – General Information (Exhibit 1. slide to give to candidate)

30 Super Stores and 3 Distribution Centers (DCs)
Super Store Distribution Center

Financial

Sales/year $50M
COGS ($39.4M)

Total assets $3M $8M

Total inventory $1.5M $5M

Operational

Size 100,000 sq ft 400,000 sq ft

SKUs (unique products) 50,000 225,000

# of Employees 100 300

Average employee wage $20,000/year $20,000/year

*Note: all values are average per Store or per Distribution Center

Interviewer: Our client Kmart’s Strategic Planning Team worked closely with the IT department and came
up with the following chart to determine how many receivers, which will read the RFID tags, to install in
super stores. (Show Exhibit 2. “Kmart Super Store Receiver Layout” to candidate).

Exhibit 2. Kmart Super Store Receiver Layout

The following chart depicts the recommended RFID receiver layout for a standard Kmart Super Store. To
simplify analysis, store layout has been abstracted to high-level blocks, with each block having a specific
level of traffic.

Chart Legend
Low density – 4 receivers/10,000 sq ft
Medium density – 10 receivers/10,000 sq ft
High density – 20 receivers/10,000 sq ft
Interviewer:

 What does this chart indicate? (Wait for candidate’s answer; guide them if necessary).
 With this, can you determine the cost of rolling out RFID receivers to super stores?
 What are you missing? (Let the candidate compute; the candidate should realize that he/she is
missing information about the cost of RFID receivers, wiring, and systems).
 The cost of each RFID receiver, including all wiring and systems, is $100 per receiver.
 Now, what is the cost of rolling out the receiver to all super stores? (Let the candidate compute).
 Expected candidate math:
 First, compute number of receivers per 10,000 square feet Store space: 4/low * 2 low +
10/medium * 5 medium + 20/high * 2 high = 8 + 50 + 40 = 98/10,000 sq ft.
 Second, compute cost of receivers per Store: $100/receiver * 100,000 sq ft per store *
98/10,000 sq ft = ~$100,000/store
 Third, compute cost of receivers in all 30 super stores: $100,000/store * 30 stores = $3
million
Interviewer: Now, let’s look at the Distribution Centers. (Show Exhibit 3. “Kmart Distribution Center
Receiver Layout” to candidate). Let’s again assume that the total cost per RFID receiver, including all
wiring and systems costs, is $100 per receiver.

Exhibit 3. Kmart Distribution Center Receiver Layout

The following chart depicts the recommended RFID receiver layout for a standard Kmart Distribution
Center. To simplify analysis, distribution center layout has been abstracted to high-level blocks, with each
block having a specific level of traffic.

Chart Legend
Low density – 4 receivers/10,000 sq ft
Medium density – 10 receivers/10,000 sq ft
High density – 20 receivers/10,000 sq ft
 What is the cost of rolling out to all Distribution Centers? (Let them compute).
 Expected candidate math:
 First, compute number receivers per 10,000 square feet DC space: 4/low * 3 low +
10/medium * 5 medium + 20/high * 1 high = 12 + 50 + 20 = 82 receivers/10,000 sq ft.
 Second, compute cost of receivers per DC: $100/receiver * 400,000 sq ft * 82/10,000 sq
ft = ~$330,000/DC
 Third, compute cost of receivers in all 3 DCs: $330,000/DC * 3 DCs = ~$1 million
Interviewer: There will be an additional one-time cost of $8M for developing supporting computer systems
and training, in the first year. In addition, the cost of yearly maintenance will be $3M/year.

Expected candidate math (Note: a great candidate will summarize costs this way before moving onto
benefits):

 One-time costs: $8M (systems & training) + $3M (receivers in stores) + $1M (receivers in DCs) =
$12M
 Yearly costs = $3M
II. Benefits
Interviewer: Ask the candidate to brainstorm on what benefits could occur. Let them generate 4-5 ideas,
then ask which is likely to be the greatest benefit and why. Then, dive into details.

The candidate should come up with some of the following answers. These are lumped into three main
categories. Feel free to group their suggestions into one of the following, or say “that’s not
applicable/relevant to this case” if not classifiable.

Note: their framework may say Revenue/cost instead of Benefit/cost. If so, feel free to tell them that the
following benefits are effects on contribution to fixed cost, as opposed to revenue. They should realize
that we are not dealing with revenue directly in this case, but rather focusing on cost and on contribution.

a. Reduction in out-of-stock; Reduction in theft (both in-store and in distribution).

 Interviewer: Sales are projected to increase 0.1% a year as a result of the RFID technology.
 Expected candidate math: $50M sales/store/year (from General Information slide) * 30 stores =
$1.5B/year sales, $1.5B/year * 0.1% = additional $1.5M/year contribution.
b. Better inventory management; Faster cross-docking distribution.

 Interviewer: There is a one-time savings of 5% on total inventory once the distribution process
has been re-engineered. Assume that this happens within the first year.
 Expected candidate math:
 First, compute total inventory: inventory = $1.5M/store * 30 stores + $5M/DC * 3 DCs (all
#s from General Information slide) = $45M + $15M = $60M
 Next, compute one-time savings: $60M * 5% = $3M one time contribution.
 Note to interviewer: This is a really complicated calculation; if running out of time
(especially with 1/2 hour interview), feel free to directly give this number to the candidate.
c. Reduced in-store and warehouse labor; Faster checkout in store.

 Interviewer: We expect a decrease in Store and DC labor cost of 5% per year.

 Expected candidate math:
 First, determine total store and DC labor cost: labor = $20K/store employee * 100
employees/store * 30 stores + $20K/DC employee * 300 employees/DC * 3 stores = $60M +
$18M = $78M ~= $80M/year (expect rounding)
 Second, determine yearly cost decrease: $80M/year * 5% = $4M/year.
 Note to interviewer: This is a really complicated calculation; if running out of time
(especially with 1/2 hour interview), feel free to directly give this number to the candidate.
d. Total benefits

Expected candidate math (Note: a great candidate will summarize benefits this way before moving away
from benefit/cost analysis):

 One-time benefits: $3M (better inventory management & faster cross-docking)

 Yearly benefits: $1.5M (reduction in out-of-stock & reduction in theft) + $4M (reduction in labor &
faster checkout) = $5.5M
Note: the candidate is expected to set up a data table like the one below, as it directly answers whether
the client Kmart should consider this new technology proposal as-is.

Year Year 1 Year 2 Year 3 Year 4

Cost 12 + 3 = 15 3 3 3

Benefit 3 + 5.5 = 8.5 5.5 5.5 5.5

Net (year) 8.5 – 15 = -6.5 5.5 – 3 = 2.5 5.5 – 3 = 2.5 5.5 – 3 = 2.5

Net (cumulative) -6.5 -6.5 + 2.5 = -4 -4 + 2.5 = -1.5 -1.5 + 2.5 = 1

(All values in $Millions)

3. Risks to accepting technology

If the candidate determined (through incorrect math) that the client Kmart should accept the technology
as-is, they should begin to brainstorm risks. Here are some examples; the more descriptive their risks, the
less a math error should be held against them (especially if most of the math was correct):

 Technology risk: RFID is a rapidly changing technology. If Kmart makes a decision on one non-
standard technology type, that type may be phased out of the market if a different type is chosen as a
standard.
 Budget risk: Massive projects are inherently difficult, and as a result the project may surpass
budget. Depending on candidate’s calculations, there should be little leeway between recouping
expenditures and not recouping expenditures by year 4.
 Assumptions risk: There were many assumptions that were made, that could easily be incorrect.
 Growth/shrink risk: how do costs scale if company grows or shrinks?
 Other risks: let the candidate be creative.
4. Alternatives to the proposed plan

 Start small: instead of instituting a full roll-out on every products and every store, stage the rollout
based on geography or sales category.
 Distribution first, then retail: focus on implementing RFID for distribution as first phase of plan,
then on retail enhancement for second phase. Two separate phases will allow two separate periods
to recoup expenditure.
 Others: let the candidate be creative.
5. Summary

Interviewer: Give the candidates 2 minutes to create summary and summarize their findings at the end of
case.

Note: If the interview is given only 30 minutes, do not expect anyone to finish the case in full. Just ensure
that the candidate summarizes what has been discussed and gives a strong statement as to whether
he/she believes the client should pursue.

Cummins To Reduce Warranty Claims for Diesel Engines

Case Type: new product; operations strategy, supply chain optimization.
Consulting Firm: Siemens Management Consulting first round summer internship job interview.
Industry Coverage: industrial equipment.
Case Interview Question #00634: The client Cummins Inc. (NYSE: CMI) is a Fortune 500 corporation
that designs, builds, distributes and services engines and related technologies. Headquartered in
Columbus, Indiana, United States, Cummins sells in approximately 190 countries and territories

through  a network of company owned and independent distributors and dealers.

The company manufactures and markets a complete line of diesel and natural gas-powered engines for
on-highway and off-highway use. Its markets include heavy and medium-duty truck, bus, recreational
vehicle (RV), light-duty automotive and a number of industrial uses.
Recently, Cummins has designed a new diesel engine with significant new technology and significant new
content. It will meet all federal guidelines for at least 10 years. The client has spent significant research
and development (R&D) money on this new engine and expects to be able to charge a premium price to
recoup the investment. However, the client’s largest customer, representing 60% of all sales, has been
complaining about the quality of the new diesel engine.
Our preliminary research has shown that although our client Cummins promised their customers in terms
of soot emissions less than 3,000 ppm, but they are currently seeing 20,000 ppm (1 ppm = 1 parts per
million). What is wrong and what should the client do to rectify the situation?

Additional Information: (to be given to candidate upon request)

1. Product Design
The design process was unchanged for this new diesel engine. All testing was done the same as with
historical products. However, the FMEA analysis (Failure, Modes, and Effects Analysis, used to identify
and assess the ramifications of possible product defects) was skimped on. The significant new
technological components of the diesel engine were developed according to the client’s standard process.

2. Manufacturing

Cummins’ manufacturing plant uses a highly skilled and educated workforce. There is no learning curve
associated with the assembly of this new product.

3. Service

The client Cummins utilizes field technicians at the customer site. They are the ones reporting the
warranty data to the client. They are all well educated on the product.

4. Sub-assembly procurement

Traditionally, the client Cummins used few suppliers who delivered large sub-assemblies. Now, in an
effort to save costs, they have sourced many more suppliers to get the best price for each component and
are choosing to do more of the assembly themselves. However, all of these suppliers are delivering
products that meet the specifications delivered by engineering.
5. Defect Details: See the chart below detailing the frequency of top warranty issues (Figure 1).

6. Customers

Customers are concerned mostly regarding the quality of emissions.

Possible Answer:
Interviewer: So, how would you go about this case?

Candidate: OK, so in order to identify the problem we need to assess all the stages that the new product
is going through from the design to the moment it is ready to be sold to the customers.

We first need to understand what is changed in the design vs. the last model and if the new design is
meeting the customer requirements.

Then we need to look at the manufacturing process in terms of technology used, labor, if there is
something that was needed to be changed and was not.

We also need to investigate the parts supply for the product and understand if anything changed in
regards to the components that we are using for the new engine.

Last but not least I would like to see the main symptoms that customers claimed and compare them with
the previous engine.

Interviewer: Great. (provide chart and additional information)

Candidate: From the information provided it seems that there is nothing wrong with the new technology.

Interviewer: All right, so where do you think the problem comes from?
Candidate: I believe that one major change that the company made is in the base of suppliers, going from
a limited number of suppliers to a bigger number of suppliers. Is the fact that they have more suppliers
and are assembling the components in house a cause of the claims that we see in the warranty claim
chart?

Interviewer: Yes. You are right. Although each supplier is delivering to specification, there are tolerances
in these specifications.

Since the client is accustomed to specifying sub-assemblies, the tolerances were not tight enough for all
of the individual components. Therefore, the stack-up of tolerances causes the parts to have poor fit
resulting in leaks and lost parts.

Candidate: OK. So the root cause for the problems is the stack-up of tolerances.

Note: the interviewer needs to lead the candidate to identify this problem which is the stack-up of
tolerances; all the other information given initially is a red herring meant to throw the interviewee off; after
the interviewee has identified the problem, no matter how much help he/she gets, they need to come up
with a list of recommendations and their risks on how to solve the problem.

Interviewer: So, what do you recommend the client Cummins to do now?

Candidate: The company can reduce its warranty claims by increasing tolerances on procured parts,
increasing end product testing, or revising procurement agreement to order sub-assemblies.

The first opportunity is more expensive but we could look at ways to minimize costs. The second will
increase manufacturing time but would definitely decrease our warranty claims. The third option is more
expensive but we could perform a cost-benefit analysis between the 1st and the 3rd options.

Interviewer: Great! Thank you for your analysis.

China Southern Airlines to Fly New Guangzhou-Perth Route

Case Type: new product; math problem.
Consulting Firm: Bain & Company first round summer internship job interview.
Industry Coverage: airlines.
Case Interview Question #00627: Our client China Southern Airlines Company Limited is an airline
headquartered in Guangzhou, Guangdong Province, People’s Republic of China. It is the world’s sixth
largest airline measured by passengers carried, and Asia’s largest airline in terms of both fleet size
and  passengers carried. China Southern Airlines is one of China’s “Big Three”
airlines, alongside Air China and China Eastern Airlines. From its main hubs at Guangzhou Baiyun
International Airport and Beijing Capital International Airport, the airline flies to 121 destinations.
The client already operates two daily flights from Guangzhou, China to Sydney, Australia, offering
connections to Perth, Sydney. The CEO of China Southern Airlines has hired your consulting firm Bain to
evaluate a new direct flight between Guangzhou and Perth. Should they create this new route from
Guangzhou to Perth?
Additional Information: (to be given to candidate if requested)
1. Market

 At this point there is no other airline flying from Guangzhou to Perth, and there is only one
competitor Qantas Airways flying from Guangzhou to Sydney. Sydney to Perth is a domestic route
with one competitor.
 The market grows with GDP.
 15% of passengers from Guangzhou to Sydney (or return) have Perth as the original or final
destination
 China Southern Airlines’ current load factor in Guangzhou to Sydney flight is 80%
 Ticket price to fly from Guangzhou to Sydney or Guangzhou to Perth is $600 one way

2. Flight distance

 Guangzhou – Sydney = 4,800 miles

 Guangzhou – Perth = 3,800 miles
 Sydney – Perth = 2,350 miles
3. Aircraft type

 Airbus 319 (120 seats) has a maximum fly range of 4,000 miles
 Airbus 320 (165 seats) has a maximum fly range of 6,000 miles
 Airbus 330 (240 seats) has a maximum fly range of 7,000 miles
4. Costs

 Airbus 319 (120 seats) has a fixed cost of $41,000

 Airbus 320 (165 seats) has a fixed cost of $62,000
Possible Answer:
Interviewer: So, how would you go about analyzing this case?

Candidate: (Summarize the case and work on a framework) This case requires us to estimate the
potential market size of route Guangzhou-Perth, the growth opportunity, the competition as well as our
client’s resources. Also, any legal or governmental issue should be discussed.

Interviewer: OK. How would you estimate the market size (demand) for the Guangzhou-Perth route?
What do you need to know? I have been working with this client for a long time and might have the
needed information.

Candidate: Although we could estimate the size of the market, it might be more reasonable to look at the
current information the client company has about the indirect route. I would believe many passengers
already fly from Perth to Guangzhou by connecting flights in Sydney, right?

Interviewer: Correct.

Candidate: So I would like to find out the number of flights per day, the number of passengers per flight
and the percent of these passengers that actually have Perth as the origin or destination.

Interviewer: Very well thought. It is a smart decision to start more conservative. Our client China Southern
Airlines currently flies twice a day from Guangzhou to Sydney and back. It currently operates Airbus 320
in this route, with 80% load factor. 15% of the passengers have Perth as the origin or destination. I can
also tell you some aircraft limitations:

 Airbus 319 (120 seats) has a maximum fly range of 4,000 miles
 Airbus 320 (165 seats) has a maximum fly range of 6,000 miles
 Airbus 330 (240 seats) has a maximum fly range of 7,000 miles
Candidate: This gives us 165 * 80% = 132 passengers per flight or 132 * 2 = 264 passengers per day
(one way), of which 15% or 40 have Perth as the origin (and final destination). We should have in mind
that if the client offers the new Guangzhou-Perth direct flight, it will reduce the load factor of the
Guangzhou-Sydney route from 80% to 68%.
Aside from our own cannibalization, I would expect that by offering this new route our client China
Southern Airlines will be able to take customers from its competitors, right? Actually, does the client have
any competition on its current routes?

Interviewer: There is only one competitor flying from Guangzhou to Sydney, but this competitor has a
code-share agreement with a domestic airline that flies from Sydney to Perth. From Guangzhou to
Sydney the competitor flies an A330 (240 seats) daily with the same 80% load factor. Also, 15% of its
passengers have Perth as the origin or final destination.

Candidate: This gives us an additional 240 * 80% * 15% = 30 passengers/day. Before we conclude that
our client will be able to steal these customers from the competition, let’s analyze the pricing points. Do
you have any information of prices?

Interviewer: Both our client and the competitor charge $600 per one way from Guangzhou to Sydney or
Guangzhou to Perth.

Candidate: It is interesting to see that the passenger pays the same fare to fly from Guangzhou to Sydney
(4,800 miles) and from Guangzhou to Perth (4,800 + 2,350 = 7,150 miles). So basically we have the
same price and potentially a faster trip. Unless we find any competitive advantage other than travel time,
we could assume our client is able to steal all the Guangzhou-Perth customers from the competitor.

I would also imagine that by entering into this route our client would have first-mover advantage and the
competitor would not enter this route if they didn’t think that it could steal share from our client.

Interviewer: This makes sense. Basically you have estimated a conservative demand. What else would
you analyze?

Candidate: We know the potential demand; although there is an expected growth in the industry let’s see
whether this route would be currently profitable. What do we know about the cost structure?

Interviewer: The total fixed cost of operating A319 and A320 are $41,000 per flight and $62,000 per flight
respectively. There are some variable costs, but they are marginal.

Candidate: Basically for route Guangzhou-Sydney the client must use an A320, but A319 is an option for
route Guangzhou-Perth. Let’s analyze the daily revenue, cost, and profit for each route:

Revenues from Guangzhou to Sydney: (165 * 80% * 85%) * $600 = $67,320

Cost for Guangzhou to Sydney: $62,000 (A320)
Profit: $67,320 – $62,000 = $5,320
Profit margin: $5,320 / $67,320 ~= 8%

Revenues from Guangzhou to Perth: (40 + 30) * $600 = $42,000

Cost for Guangzhou to Perth: $41,000 (A319)
Profit: $42,000 – $41,000 = $1,000
Profit margin” $1,000 / $42,000 ~= 2.4%

I am assuming the client could use the A320 for the main Guangzhou to Sydney route and A319 for the
new Guangzhou to Perth route. As we can see, the former route will remain profitable (8%) and the new
route will give a 2.4% margin.

Interviewer: So, what is your conclusion?

Candidate: Taking into consideration that a 2.4% margin is not a very bad number for the airline industry
and that our assumption does not take into consideration an additional demand generated by the new
faster route from Guangzhou to Perth, the client should at least launch a trial of this new route. The
former route, from Guangzhou to Sydney, will remain profitable.

Interviwer: Very good. Thank you.

Note:
This is a typical Bain style case. The interviewee should feel free to bring in their understanding of the
airline industry as they see fit. This was a real case that the interviewer (a manager at Bain & Company)
had worked on during his time at Bain. The interviewee should take some time to structure his/her
thoughts before discussing the case.

The interviewer was expecting the interviewee to structure a framework, which would look at the big
picture that any MBAs should have in mind about the airline industry. A strong candidate would have to
arrive into final numbers as well as in a final conclusion.

Some important elements are:

 First player in the market

 Cannibalization and complementary business
 Discuss trade-offs
Valeant’s New Asthma Drug Approved by Canada FDA
Case Type: pricing & valuation; new product.
Consulting Firm: FTI Consulting first round summer internship job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00626: Our client Valeant Pharmaceuticals International, Inc. (NYSE: VRX,
TSX: VRX) is a Canadian pharmaceutical company with activities spanning the drug discovery pipeline
from target identification through clinical trials and commercialization. Headquartered in Laval,
Quebec,  the company’s focus is on neurology, dermatology and infectious
disease with several drugs in late stage clinical trials.
Valeant’s first drug has just been approved by Health Canada, the equivalent to the United States Food
and Drug Administration (FDA). It is a new treatment for asthma. The client Valeant Pharmaceuticals has
hired FTI Consulting to help them assess what is the right price for this new treatment and they will also
need FTI Consulting’s help with completing an application to the Canadian government for price
approval. The second step is necessary because, as you may know, Canada’s government subsidizes
healthcare costs and we will discuss this in greater detail later in the case.
How would you go about this case?

Additional Information: (to be given to candidate if requested)

The candidate should consider what additional information will be necessary to address this case and ask
for the data as they see fit.

 Research and Development (R&D) costs for this new asthma drug are estimated to be $5 billion.
 Beyond R&D, marketing is the largest cost for a new pharmaceutical. The interviewer, however,
will ask the interviewee to assume that marketing costs are $0 at this stage and there are no variable
costs.
 There are three segments to the asthma market:
 Basic – 2% of the population – have a periodic asthma attack, use 1 inhaler per month
 Serious – 2% of the population – use 1 inhaler per week
 Acute – 1% of the population – use 1 inhaler per week, but attack sometimes results in
hospitalization or even death.
 The client Valeant Pharmaceuticals’ new treatment is classified as preventative. It is a pill that
must be taken every day.
 Regular inhalers cost $10 each. This is the common treatment for asthma.
 Acute patients that result in hospitalization spend on average 1 night/year in the hospital at
$1,000 and the rate of death is 1%.
Possible Solution:
Interviewer: First, let’s discuss the possible ways of framing the client’s first question – how should it price
this new asthma drug?

Candidate: Well, for pricing there are three different methods I can think of:
Cost based pricing – set the drug price at cost and add a percentage markup
Value based pricing – set it at what customers are willing to pay
Determine Minimum and Maximum prices

Interviewer: Great, now, can you go through the steps to solve this problem and provide a price to the
client?

Candidate: OK, so let’s try cost based pricing first. I would assume that the company has both fixed costs
and variable costs. Have we gathered any information from the client about its cost structure?

Interviewer: Well, what do you think would be its largest costs?

Candidate: Given what I know about the pharmaceutical industry and the extensive R&D for drugs, I
would guess Research and Development.

Interviewer: Good, R&D costs are $5 billion. What would you guess are some other key categories of
costs?

Candidate: Marketing is usually a big cost.

Interviewer: Right. For this case, let’s assume marketing is $0 and there are no variable costs. (Where
possible, the candidate could have tried to anticipate this chain of questions and suggested, without being
asked, the key categories of costs that might be relevant)

Candidate: Next, I would want to size the Canadian market for this new asthma drug, assuming that we
will only sell it in Canada. To do this, let’s say the population of Canada is approximately 30 million
people. We would now need to estimate the percentage of the population that is asthmatics?

Interviewer: You’re right. There are 3 segments to this market:

 Basic – 2% of the population – have a periodic asthma attack, use 1 inhaler/month.

 Serious – 2% of the population – use 1 inhaler/week.
 Acute – 1% of the population – use 1 inhaler/week, but attack sometimes results in hospitalization
or even death.
Also, the client’s new treatment is preventative. It is a pill that must be taken every day.

Candidate: OK, so let’s assume every segment will use this new drug. 30 million * 5% = 1.5 million
people. However, I would expect that there would be some barriers to switching and not all potential users
will switch from inhalers.

Interviewer: OK, so now how do you set the price?

Candidate: I want to determine the price to break-even. For a pharmaceutical company, I think 5 years is
acceptable.

 To break even in 5 years: 1.5 million * Total Revenue = $5 billion (R&D)

 Total Revenue = $5 billion / 1.5 million = $3,300
 Use 350 days per year for simplicity, one pill every day over 5 years = 350 * 5 = 1,750 pills
 $3,300 / 1,750 pills = approximately $2/pill
Interviewer: So, do you think this price should be the minimum or the maximum?

Candidate: This is the minimum because it is the break-even price.

Interviewer: OK, now let’s consider the second half of the case. As I mentioned, the Canadian
government subsidized medical costs, let’s for the sake of this case say that it pays back its citizens for
medical treatments. How do you determine how to set the price so that the government will agree to pay
it?

Candidate: Assuming that the Canadian government is paying for the current treatment, I would want to
know their current spend and determine what the difference is between that and the new drug. Do you
know how much the government is currently paying asthma patients for their inhalers?

Interviewer: The cost of inhalers is $10 each. Also, acute patients that result in hospitalization spend on
average 1 night/year in the hospital at $1,000 and the rate of death is 1%.

Candidate: So I want to determine how much the government is currently spending on inhalers.

 Basic: 30 million * 2% = 600,000 people, 1 inhaler per month, 600,000 * $10 * 12 = $72 million
total
 Serious: 30 million * 2% = 600,000 people, 1 inhaler per week, 600,000 * $10 * 52 = $312 million
total
 Acute: 30 million * 1% = 300,000 people, 1 inhaler per week, 300,000 * $10 * 52 = $156 million
total
Total government is spending on inhalers: $72 + $312 + $156 = $540 million a year.

Now I want to determine how much the government is spending on hospitalizations.

$1,000 per night * 1 night/year * 300,000 people = $300 million/year

Total government spend = $540 million + $300 million = $840 million

Over five years: $840 million * 5 = $4.2 billion

So with the new drug, we calculated the break-even at five years to cover $5 billion in R&D. With inhalers,
in five years, the government is spending $4.2 billion.
Interviewer: Good, so with this information, summarize for me the minimum and maximum price.

The candidate should now summarize results to the interviewer and state what you think the minimum
and maximum prices should be. Make sure to note that the new pill is a preventative measure, as
opposed to the current method of using inhalers as treatment. A good summary will be structured and go
back through the steps used in solving the case. At this point you can also bring in other parameters that
may not have been discussed in the case such as the price on-patent versus off-patent, or the potential
larger international market for this drug.

Airbus to Build New A380 Assembly Facility in France

Case Type: operations strategy, supply chain optimization; new product.
Consulting Firm: Booz Allen Hamilton (BAH) first round summer internship job interview.
Industry Coverage: aerospace & defense; airlines.
Case Interview Question #00624: Our client Airbus SAS is an aircraft manufacturing subsidiary of EADS
(European Aeronautic Defence and Space Company, Euronext: EAD), an European aerospace and
defense company. Based in Blagnac, France, a suburb of Toulouse, and with significant activity across

Europe,  Airbus produces approximately half of the world’s jet airliners.

The A380 is a new double-deck, wide-body, four-engine jet airliner manufactured by the Airbus company.
It is the world’s largest passenger airliner which is able to hold up approximately 800-900 people. For
instance, the Airbus A380-800 provides seating for up to 853 people in all-economy class configurations,
and the future version A380-900 will have a seating capacity of approximately 900 passengers in
economy-only configuration.
Originally designed to challenge Boeing Company (NYSE: BA)’s monopoly in the large-aircraft market,
the Airbus A380 made its initial flight on 27 April 2005 and entered initial commercial service in October
2007 with Singapore Airlines. Parts for the A380 airplane are manufactured in multiple sites across
Europe. The client Airbus has provided us the following information on site production:

 Cockpits (flight deck, the area usually near the front of an aircraft from which a pilot controls the
aircraft) are produced in Northern Spain
 The fuselage (an aircraft’s main body section that holds crew and passengers or cargo) is
produced in Northern Germany
 Wings are produced in Northern England
 Landing Gears/Interior are produced in Southern France
The client Airbus has asked us to determine where it is most economical to assemble the A380 airplane.
How would you go about the case?
Suggested Approach:
This is an operations strategy case with a major focus on supply chain optimization. It involves the
application of processes and tools to ensure the optimal operation of a manufacturing and distribution
supply chain. This includes the optimal placement of inventory within the supply chain, minimizing
operating costs, including manufacturing costs, transportation costs, and distribution costs. The candidate
should form a structured approach to investigate the components that make up assembly, including costs
and capabilities.

Possible Solution:
Interviewer: So, how would you determine the most economical site to assemble the A380?

Candidate: Well, I would like to look into the specific costs incurred from the A380 assembly process and
also determine the capabilities for assembling the planes across different locations (labor skill and supply,
etc).

Interviewer: OK, I like your approach. Let’s focus on costs for now.

Candidate: Great. I assume that the major costs of assembly would be transportation, labor, and PP&E
(property, plant and equipment). Also, I would think that there would be tax incentives to assembling in
one country versus another.

Interviewer: Good. Let’s focus on transportation and labor for now, as these are the most significant cost
drivers. What are some of the areas that you might analyze for potential assembly locations?

Candidate: I would look at the existing sites where our client manufactures parts, as well as other areas in
the region that may have low cost propositions, such as Eastern European countries that may have
cheaper labor costs than Western Europe.

Interviewer: Let’s take France as one location since it is the mid-point of the four manufacturing locations
and compare it to the Czech Republic where labor is significantly less expensive than Western Europe.

Candidate: Well, the location in France would incur less cost because the client would already have the
landing gears and interior at the facility, and would have to transport the other three parts over a shorter
distance. However, the labor costs in France would likely be significantly higher than those in the Czech
Republic. Do we have any information about transportation and labor costs in each of these areas?

Interviewer: Well, we have determined that labor accounts for about 70% of the total costs of assembly
and transportation accounts for the other 30%. Disregard the other costs such as real estate, etc.

Candidate: Great. Since labor accounts for 70% of the cost, let’s start there. Do we have any details
about how much labor costs in the Czech Republic relative to France?
Interviewer: Labor in France is 1.5 times higher than labor in the Czech Republic. What do you think that
total transportation costs would be in France relative to the Czech Republic?

Candidate: Since these parts are so large, I would assume that a major part of transportation is actually
packing and loading the pieces on a large truck.

Interviewer: You’re right. In fact, the marginal cost of each extra mile transported is close to zero. The
most significant cost incurred is labor costs associated with the loading of parts for transportation.

Candidate: I would assume that the landing gears and interior are fairly small and wouldn’t incur as large
expenses for loading/unloading compared to the wings or the fuselage.

Interviewer: You’re right. In fact, the interior and the gears are the easiest to pack of all the four parts and
the fuselage is the hardest (most expensive). What would you recommend to our client Airbus?

Candidate: Well, I would recommend they assemble the A380 airplane in the Czech Republic. Since labor
accounts for 70% of the total cost, and the labor in Czech Republic is about 33% less expensive than
France, the client would save a significant amount of money, assuming that the skill level is constant
across the two locations.

Additionally, the transportation costs would not be lower in France since the majority of transportation
expense is incurred by loading/unloading the parts and the interior/gears are the easiest to pack. It might
be worthwhile to analyze Germany as a potential assembly location because the fuselage represents a
significant portion of our transportation costs. The transportation savings may balance out the higher cost
of labor in Germany (as compared to Eastern Europe).

Interviewer: Very good. One last question – our client Airbus knows the demand for A380 jumbo jet will be
100 airplanes per year and they are trying to determine how large a new assembly facility they should
build. How would you go about figuring this out?

Additional Information: (Candidate should ask for this data)

 It takes 9 months to assemble one A380 plane
 One A380 airplane requires a space of about 300 feet by 300 feet
Candidate: Well, we know that it takes 9 months or 0.75 of a year to produce one A380 airplane, so we
need space to produce 75 planes in the facility (100 * 0.75 = 75). Also, one plane requires 300 * 300 =
90,000 square foot of space. So the total assembly facility would need to be 75 planes * 90,000 sq. ft. per
plane = 6.75 million sq. ft.

Interviewer: Excellent. Let’s wrap it up here. (The interviewee will now be asked to summarize high level
findings and make a recommendation to the client Airbus regarding where it should produce and
assemble A380 airplanes and the requirements for this assembly facility and operation).
Restless Leg Syndrome Drug Requip Approved by FDA
Case Type: new product.
Consulting Firm: IMS Health Consulting Group first round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00611: Our client Glaxo Smith Kline plc (LSE: GSK, NYSE: GSK) is a
multinational pharmaceutical, biotechnology and consumer healthcare company headquartered in
London, United Kingdom (UK). It is the world’s fourth largest pharmaceutical company measured by 2009

prescription drug sales (after Pfizer, Novartis, and Sanofi). GSK has a portfolio of
products for major disease areas including asthma, cancer, virus control, infections, mental health,
diabetes, and digestive conditions.
GSK has an existing drug brand-named Requip that has been on the market for several years. Requip
was first approved by the United States FDA (Food and Drug Administration) for treatment of Parkinson’s
disease in 1997. Parkinson’s disease is a degenerative disorder of the central nervous system. Early in
the course of the disease, the most obvious symptoms are movement related; these include shaking,
rigidity, slowness of movement and difficulty with walking and gait.
One of the side effects for Parkinson’s disease is RLS or Restless Legs Syndrome. This is a neurological
disorder characterized by an irresistible urge to move one’s body to stop uncomfortable or odd
sensations. It most commonly affects the legs, but can affect the arms, torso, and even phantom limbs.
GSK’s existing drug Requip is often used to treat patients with RLS. The client GSK wants to understand
whether it would be profitable to roll out a new drug specifically targeting RLS and has asked IMS Health
Consulting Group to evaluate this idea. How would you go about this case?

Possible Solution:
Interviewer: So, how do you want to structure this case?

Candidate: (I first structured my thoughts on paper. I divided the sheet of paper into two sections – the
Costs and Benefits of rolling out a new drug specifically targeting RLS)
 Costs:
 FDA approval process
 Manufacturing Costs
 Marketing Costs
 Benefits:
 Market Size
 Competition
 Our Market Share
  Pricing – Economic Value to Customer (EVC), Cost-Based Pricing, and Competitive
Pricing
Interviewer: What information do you want?.

Candidate: Let’s start with the cost side. Do we have any information on that?

Interviewer: Well, we know that the client GSK is already on phase 2 of the new drug trial. They have
feedback on the new drug – it has great efficacy and very low side effects. They estimate that this new
drug can be rolled out in one year. Other than this information, I do not have any cost numbers and costs
are not important.

Candidate: So, let’s look at the benefits. Do we know anything about competition?

Interviewer: This is an emerging market with no official competition, though like our existing drug Requip,
there are other general Parkinson’s disease drugs that are being used to treat RLS. In the Parkinson’s
drug competitive spectrum, however, we are positioned in the following way

Market Share

 Client GSK – #1 in market share: 30%

 Company #2 in market share: 25%
 Companies #3 – #10 in market share: 45%
Candidate: Given that we have existing competition, what about any emerging competition on the
horizon?

Interviewer: The client GSK is expecting new competition in year 2012/2013 and that this competition will
have a new drug for RLS that has twice the efficacy of the client’s drug. Can you size up the U.S. market
for this new RLS drug so we can better assess the benefits before delving further into the competition?

Candidate: OK. The size of the US population is 300 million. Do we know what percentage of the
population has RLS?

Interviewer: 0.13%

Candidate: Then, let’s say the total market is roughly 400,000 people. But how many people with RLS
actually seek treatment?

Interviewer: Only about 30% knew or sought treatment for RLS.

Candidate: That leaves us with a market size of 120,000 people. Now let’s get a dollar amount for the
market size. Do we already have an established price and dosage for the RLS medication?

Interviewer: The RLS medication had to be taken twice a day and that each pill cost 5$.
Candidate: Then the revenue per day is 120,000 * 10$ = $1,200,0000 per day.

Interviewer: Can you calculate this annually?

Candidate: Well, there are 365 days in a year.

Interviewer: Stop. As with most medication, the patient does not take the medication every day of the year
but would take it about half of the year, those days when they felt the symptoms were particularly strong.

Candidate: Well, then it would be 150 days, so we get $1,200,0000 * 150 = $180 million annually.

Interviewer: What about the marketing plan for this new RLS drug?

Candidate: Well, let’s look at all of the participants of the supply chain and their interests:

The client GSK —> Health care provider —> Physician —> Pharmacist —> Patient

The client deals with manufacturing and marketing – their interest is profit.

Health Care Provider will determine whether the EVC (Economic Value to Customer) is substantial and
the price low enough to authorize the physicians to prescribe the durg – their interest is low costs.

Physician will prescribe according to EVC – their interest is efficacy.

Pharmacist has no direct impact on the drug other than being the middle man.

Patient, depending on whether informed or not, may or may not ask for the drug, they often trust the
Physician with respect to efficacy, they usually listen to the Health Care Provider with respect to price.

Given those participants, the best marketing approach would be to target the Physician because the price
at 5$ a dose, 2 times a day was already pretty low and would probably appease the Health Care Provider.
Also, since this is the only FDA approved drug of its kind, the Physician could encourage the Health Care
Provider to accept this on their list of approved drugs. Marketing approaches to reach the Physician could
include:

 Publications
 Free Samples
 Bundled Products (with the other Parkinson’s drug)
Interviewer: How should we advise the client GSK to price the drug if they are questioning their 5$ a dose
price?

Candidate: We could take three approaches to pricing the drug

Competition based pricing – in this case as there is no direct competition, we would look at the prices of
the substitutes for the client’s new drug – the Requip drugs that were currently used to treat RLS despite
not being FDA approved for that use.

EVC (Economic Value to Customer) based pricing – in this case the value of this drug to the customer is
that it is designed specifically for RLS and therefore can be used more accurately to treat RLS than the
other substitute drugs. I estimate the EVC price to be high given this background.

Cost based pricing – in other words how much does the drug cost to manufacture – plus the client may
want to pad number to try and make back the R&D costs put into developing this drug.

Interviewer: Good. Thanks.

Southwest to Offer Free Flight Ticket for Children Under 14

Case Type: new product; math problem.
Consulting Firm: Seabury Group first round full-time job interview.
Industry Coverage: airlines.
Case Interview Question #00608: Our client Southwest Airlines (NYSE: LUV) is a large low-cost carrier
in the United States headquartered in Dallas, Texas. As of November 2012, Southwest Airlines operates
scheduled service to 78 destinations in 39 states. The airlines does not use the more traditional “hub and

spoke” flight routing system of most other major airlines, preferring instead the
“Point to Point” system. Therefore, it has notably large operations in certain airports.
Recently the President and CEO of Southwest Airlines has hired Seabury Group to evaluate a
promotional campaign for one of its routes, both in terms of the economics and risks involved. The
promotion aims to offer full fare passengers a complimentary ticket for one child under the age of 14 on
the same flight. Should they implement this promotion? What are some of issues that must be
considered?
Suggested Approach:
This case was given by a former Bain consultant, involving the airline industry and it is a typical Bain style
case. This was definitively a real case scenario, and the interviewer had clearly had that experience
before. The candidate should take the time to structure his/her thoughts before starting discussing the
case.
The interviewer was expecting the candidate to structure a framework, which would look at the big picture
that any MBAs should have in mind about the airline industry. A strong candidate would have to arrive
into final numbers as well as in a final conclusion.
Some important elements of the case were:

 Contribution margin (breaking down fixed costs and variable costs)

 Consumer behavior
 Market segmentation
In this case, the candidate focuses only on the full-fare passengers. The numbers would be different if the
candidate focuses on both sets of fares. For simplicity, try to make the candidate focus on the full fares.

Additional Information: (to be given to candidate if requested)

1. The specific route that Southwest Airlines is planning to launch the promotional campaign is between
Chicago Midway International Airport and Las Vegas McCarran International Airport.

 Seats available: 1,500,000 per year

 Seats sold: 1,000,000 per year
2. Customer segmentation: Business (50%) and Leisure (50%) passengers

3. Only two types of tickets:

 Full fare ($300 one way)

 Discount fare ($100 one way)
4. Of Business passengers: 100,000 fly discount, 400,000 fly full fare

5. Marginal cost of $10 per passenger per trip

6. Percentages of children travelers will be given in the case

Possible Solution:
Candidate: (Summarize the case and work on a framework). This case requires us to estimate the
financial impact of this promotion – revenue, cost and profit – as well as the risks involved. We want to
anticipate any legal or governmental issue and competition response, and evaluate internal constrains,
consumer behavior and market demand.

Interviewer: OK. I have some data available if you need. How would you go about estimating the
economics of this promotion?

Candidate: I will start this analysis by looking at Profit = Revenues – Costs. I will break down Revenues
and Costs respectively as Price * Volume and Fixed Cost + Variable Cost.

Let me start with Revenues first. Although we could estimate the size of the market for this route (to
calculate for Volume), it might be more reasonable to look at the current information the company has
about this route. What is the current sales load factor of our client’s Chicago-Las Vegas route?
Interviewer: Our client offers 1,500,000 seats per year, of which only 1,000,000 are usually sold
(passengers that have actually flown during the year).

Candidate: This represents a 66.7% load factor. In terms of pricing, how many different fares does our
client sell?

Interviewer: What do you think?

Candidate: I can think of First Class, Business, Economy, and Discounted.

Interviewer: Actually our client Southwest Airlines only has two different price points, Full fare and
Discount. Full fare is $300 one way and Discount is $100 one way. Discount fare is usually sold al least 3
weeks in advance of the departure date.

Candidate: Do we know the share of each?

Interviewer: Fair enough. 40% of the customers travel with discount tickets.

Candidate: So I am assuming 400,000 passengers were discount and 600,000 were full fares. Let me
estimate the total revenue.

400,000 discount passengers * $100 fare + 600,000 full-fare passengers * $300 fare = $220,000,000

Interviewer: Perfect. What would the contribution margin be?

Candidate: As I said before, I will break down costs into Fixed and Variable Costs. Aircraft leasing, crew,
maintenance and airport staff are some of the fixed costs. Variable costs are actually marginal, such as
meals and ticketing. Fuel would be primarily fixed but would also change according to the number of
passengers.

Interviewer: What about if I told you that we outsource luggage handling?

Candidate: Then it would become a variable cost.

Interviewer: Right. We ran some calculations and found out that the variable cost is $10 per passenger
per one-way flight.

Candidate: So we should then segment the customer base to estimate the economics of the promotion.
Before I start doing so, let me discuss the possible outcomes of this promotion:

 Some of the current passengers might end up bringing their children for free, without generating
any additional revenue.
 Business passengers might get upset with the increase in the number of children on board.
 Competition might start a price war.
 Loss of revenue because current paying passengers (children) might get to travel for free.
 Customers might get used to the promotion (consumer behavior) which would negatively impact
the company in the case of a fare increase or cancellation of this promotion.
Interviewer: Very good points. How would you go about segmenting the customer base then?

Candidate: I guess we could break it in business and leisure travelers.

Interviewer: That is correct. Out of the discount tickets, 100,000 are business travelers. Out of the full
fare, 400,000 are business travelers.

Type Business Leisure Total

Full fare 400,000 200,000 600,000

Discoun
t 100,000 300,000 400,000

Total 500,000 500,000 1,000,000

Candidate: (Set up data table and run the calculations) So basically on the other end of the 500,000
business travelers, we have 500,000 leisure travelers. We should also estimate the number of
passengers that would bring kids along. I believe we should only focus on full fare passengers because
with a fare of $300, because even with an additional passenger for free the full fare price would still be
higher then purchasing two discount tickets.

Interviewer: Good point. We ran a marketing research and found out that out of the business travelers,
none of the them are currently traveling with children, and only 10% would bring children after the
promotion. Out of the leisure passengers, on average 50% of them have children, and 50% of those with
children are currently traveling with children. After the promotion, all of the full fare leisure passengers
with children would bring children with them.

Candidate: So, for full fare passengers, the percentage of people who bring children with them are:

Type Business Leisure

Before promotion 0 50% * 50% = 25%

After promotion 10% 50% * 100% = 50%

Most likely after the promotion we will face the following scenario:

 We will lose 50,000 paying children passengers: current full-fare child leisure paying passengers
who would be flying for free with their parents = 200,000 * 25% = 50,000
 We will gain 50,000 new children flying for free with leisure passengers: 200,000 * 50% * 50% =
50,000
 We will gain 40,000 new children flying for free with business passengers: 400,000 * 10% =
40,000
What do we know about new passengers that will be attracted by this promotion?

Interviewer: The research shows 150,000 new customers attracted by this campaign.

Candidate: This is equal to an additional 300,000 passengers (150,000 paying customers along with their
children). Let’s see the total impact on margin:

 Total demand: 1,000,000 (existing) + 50,000 + 40,000 + 300,000 (new customers) = 1,390,000.
This number is still below the total capacity of 1,500,000 passengers per year.
 Losing contributed income: 50,000 * ($300 – $10) = $14,500,000 in contribution margin.
 Additional cost from non-revenue passengers: (50,000 + 40,000 + 300,000) * $10 = $3,900,000
 Additional revenue from new passengers: 150,000 * ($300 – $10) = $43,500,000
 Net additional margin = $43,500,000 – $14,500,000 – $3,900,000 = $25,100,000
Interviewer: Are you sure this is your final number?

Candidate: Absolutely not. As I previously said, we should expect to lose some business passengers
which won’t be satisfied with the increase in the number of children on-board.

Interviewer: Our research shows that 50,000 business passengers won’t fly with Southwest Airlines
anymore because of that.

Candidate: This represents a loss of contribution margin of 50,000 * ($300 – $10) = $14,500,000. But still,
our initial number $25,100,000 – $14,500,000 = $10,600,000

Interviewer: You are right. Before we analyze whether there are other costs that you haven’t considered,
what could our client do to minimize this loss of business passengers?

Candidate: Our client could try to create different lines for boarding, different check-in lines and keep
children seated in the back of the airplane.

Interviewer: I like your idea of different lines for boarding. Any other cost to be considered?

Candidate: We discussed the $10,600,000 of contribution margin, but we did not discuss overheads and
sales expenses.

Interviewer: Actually this promotion will cost our client $3,000,000 per year.

Candidate: This leaves $7,600,000 as a net result of this promotion.

Interviewer: So, what is your conclusion?

Candidate: I would recommend the promotion.

Bayer Diabetes Care Launches Blood Glucose Meters

Case Type: new product.
Consulting Firm: Huron Consulting Group first round job interview.
Industry Coverage: healthcare: hospital & medical.
Case Interview Question #00599: Our client is Bayer Diabetes Care, a business sub-division within
German chemical and pharmaceutical giant Bayer AG (FWB: BAYN)’s pharmaceutical and medical
products subgroup Bayer HealthCare. As a worldwide leader in diabetes care product innovation, they

make equipment for blood sample test labs. Specifically, their machines are
used to test blood samples for their glucose levels, meaning they are used to monitor diabetes. Their
machines are very expensive, often costing more that $20K, and they must be operated by professionals.
They also make the consumables that go in these machines.
Currently, Bayer Diabetes Care has a presence only in Europe. The market for these large blood glucose
testing machines is growing very slowly and Bayer Diabetes Care is looking for more growth. Recently,
their R&D department has designed patient-operated machines that can do simple blood glucose level
tests. These devices are small and portable, are easy to operate, and do not need much in the way of
extra consumables.
Bayer Diabetes Care is considering launching this device, called blood glucose meters or Glucometer, in
the United Kingdom. They have retained your consulting firm to examine what considerations they should
have in this new product launch. How would you advise them?

Suggested Framework:
The first step to solving this “new product launch” case is to establish a framework. Ideally, the candidate
would take into account both internal and external factors, the characteristics of the customers, and the
geographical location (why UK).
 Internal considerations: capabilities, capital, culture
 External considerations: competition, regulation, market trends
 Customers: market size, segmentation, preferences, payment assistance
 Geographical location: why UK, why not other places, why not other value-added services for
their core product?
Once the candidate gets through the framework in this case, it’s more or less listen and respond so try to
think about the implications of what you’re being told and analyzing.
This case represents a mix of numbers and detail analysis, then the candidate should pay attention to the
need to step back and consider what the numbers are telling you. Take a moment to think about the
numbers in context and it should be fine.

Additional Information: (to be given to you if asked)

The UK market size of this Glucometer product is 108,000 people per year

 The population of the UK is about 60 million.

 20% of that population is over 65 years old.
 Of those over 65 years old, 5% are currently diabetes sufferers.
 Of those under 65, 1% of the population are currently diabetes sufferers.
 10% of the population buys Glucometer every year
Revenues will be 2.16 million pounds a year in 4 years

 Price point on these new Glucometer devices today is 120 pounds.

 The marketing department project that the price will fall by 50% in 4 years (60 pounds)
 Total market size will grow by 33% in terms of people with diabetes (144,000 people)
 In four years the client Bayer Diabetes Care will have acquired a 25% market share (36,000
people)
Possible Answer:
Interviewer: So, how would you go about this case?

Candidate: I would look at both internal and external factors, the characteristics of the customers, and
why the UK vs. elsewhere.

 Internal considerations: capabilities, capital, culture

 External considerations: competition, regulation, market trends
 Customers: market size, segmentation, preferences, payment assistance
 Geographical location: why UK, why not other places, why not other value-added services for
their core product?
Is there anywhere in specific you’d like me to start?

Interviewer: Let’s start with the customers. You said you wanted to think about the market size for this
new product. How would you do that? What would you need to know?

Candidate: Well, I’d need to know the percentage of the UK population with diabetes, the total population,
then the percent that could afford this device. I’d need a price as well if you wanted the market size in
pounds or euros.

Interviewer: Let’s just do it in terms of people and add in the pounds later. So the population of the UK is
approximately 60 million. 20% of that population is over 65 years old. Of those over 65 years old, 5% are
currently diabetes sufferers. Of those under 65, 1% of the population are currently diabetes sufferers.
Candidate: Through my calculation I get 1.08 million people.

 20% of 60 million = 12 million;

 5% * 12 million = 600,000;
 1% * 48 million = 480,000;
 600K + 480K = 1.08 million
Interviewer: Right, now what else do you need to know?

Candidate: I need to know how many people will buy this device.

Interviewer: Let’s assume that 10% of the population buys every year. How many people is that?

Candidate: 108,000

Interviewer: Does that sound like a lot to you?

Candidate: Not really. We’re talking about a company that sells machines for over $20K apiece, so
without knowing anything about the price of this new product it seems like this is a pretty small total
market to be going after.

Interviewer: Alright, we’ll come back to that. Assume the price point on these machines today is 120
pounds. The marketing department project that the price will fall by 50% in 4 years. Also, in 4 years they
assume the total market will grow by 33% in terms of people with diabetes. In addition, in four years we
will have acquired a 25% market share. What will our revenues be in 4 years?

Candidate:

 The unit price will fall to 60 pounds (120 pounds * 50% = 60 pounds);
 The number of purchases in a given year will grow to 144,000 (108,000 * 133% = 144,000);
 Our market share is 25%, so there will be 36,000 people buying (144,000 * 25% = 36,000) at 60
pounds per person;
 That brings to a total revenue number of 36,000 * 60 = 2.16 million pounds.
Interviewer: Good. Now how does that number sound to you?

Candidate: It still sounds a little low for the type of growth I believe the client company is looking for.

Interviewer: So what are some levers you might pull to increase that number?

Candidate: There are a number of drivers. First there is the population size – you might want to include
other countries or markets to increase the overall field you’re competing in. From market share, you could
try to position yourself differently, maybe as the more convenient option or the most trusted one. Or you
could try to keep prices high. I’d think the most logical would be to try to hit more people overall.
Interviewer: You mentioned price. How would you think about pricing this product?

Candidate: I would think about the value added to consumers in terms of the convenience offered and
money saved. If this means they don’t have to go to the physician then they will be saving time and
money.

Interviewer: Do consumers always pay for their trips to the doctor?

Candidate: No. Often insurance would pay, so they might be willing to do some sort of a copay for
devices like this. The devices might also prompt people to keep better tabs on their blood-sugar levels
which insurance companies would like a lot. After all, the major cost to insurance companies is the
catastrophe, so anything cutting down those chances would probably be a good investment.

Interviewer: Right. So if you had to summarize what we’ve looked at so far, what would that be?

Candidate: We’ve looked at the current size of the market in the UK for consumer blood-sugar monitoring
devices, as well as the growth potential in four years. There seem to be lots of benefits to the customers
and to insurance companies, meaning the product should be accepted if effective. However, it seems that
a product launch just in the UK market has limited revenue potential. We would recommend the client to
consider including other countries or markets in introducing this new product.

Interviewer: Excellent!

Red Wing Shoes Aims to Double EBIT in 3 Years

Case Type: growth; new product.
Consulting Firm: NERA Economic Consulting first round job interview.
Industry Coverage: apparel, clothing & textiles.
Case Interview Question #00596: Our client Red Wing Shoe Company is an American footwear
company based in Red Wing, Minnesota, United States. The company designs and manufactures casual
mid-price leather shoes and leather boots for men and women. It is a private company that has been

owned by the  founder’s family for more than 80 years. In addition to

manufacturing footwear under their own brand name, Red Wing Shoes also manufactures shoes under
the Irish Setter Boots, Vasque, Carhartt , and Worx brands.
The client company currently does all manufacturing at company owned factories in China. The Beckman
family, owner of the Red Wing Shoe Company, wants to sell the company in 3 to 5 years, but, before
doing so they target to double the EBIT (earnings before interest and taxes) to achieve a higher selling
price. You have been hired to help achieve this goal. How could the client accomplish this?
Additional Information: (to be given to candidate if asked)
1. Industry Background
 Leather shoes and leather boots is a mature market
 The market is very fragmented with many players
 The U.S. retail market for leather shoes and leather boots is about $1 billion in annual sales
 50% of the retail markup is from wholesale
 The industry has seen 5% growth per year
2. Red Wing Shoe Company

 Red Wing Shoes owns 30% of the current U.S. wholesale market
 Their main distribution is major department stores
 The client has a gross margin of 50%
Possible Answer:
The interviewer should provide background numbers on the leather shoes and leather boots market. The
candidate should do a good job driving through the numbers to find the client company’s current and
projected EBIT. Then the candidate should brainstorm options for growing the business. When presented
with further information regarding new products, the candidate should describe both positive and negative
aspects of launching new products.

quantitative analyses and qualitative evaluations

Interviewer: First of all, let me provide you with some facts we have drawn out regarding the market, as
well as our client’s operations. Go through the numbers and determine what our clients current EBIT, as
well as its projected EBIT is 3 years from now, assuming it makes no changes in its current business
model? (presents figures of the “Additional Information” mentioned above)

Candidate: (processes the numbers, determines the wholesale market size, the client’s market share, the
client’s current EBIT, and forecasted EBIT in three years).

 The entire retail market = $1 billion

 Wholesale market = 50% = $500 million
 Red Wing Shoes’ market share = 30%, or $500 million * 30% = $150 million
 Red Wing Shoes’ gross margin = 50%
 Red Wing Shoes’ annual profit = $150 million * 50% = $75 million
 Industry growth rate = 5%
 EBIT in Year 1 = $75 million * (1 + 5%) = $78.75 million
 EBIT in Year 2 = $78.75 million * (1 + 5%) = $82.69 million
 EBIT in Year 3 = $82.69 million * (1 + 5%) = $86.82 million
* Note: Retail and Wholesale are different. Manufactures like the client are often the wholesalers who sell
to retailers. Thus retail buyers are direct customers of the client.
Interviewer: Those numbers look accurate, now let’s talk about growing the EBIT by 100% in 3 years.
What alternatives might our client pursue with hopes of achieving this goal?

Candidate: There are several alternatives the client can pursue. These include:

1. Extend exsiting product lines, e.g. produce other kinds of shoes

2. Make private labels for other companies – Many retail companies look for opportunities to grow. One
way is by selling footwear. For example, Polo casual shoe division is produced by an outside company.
3. Become a licensee – similar to private label idea. However, this will create higher profit for our client
because licensing fee is usually 5% – 10% of total sales.
4. Increase distribution channel – internet/online sales, mom and pop shops, boutiques. The industry is
extremely fragmented. Use Red Wing Shoes’ long family history and reputation as an advantage.
5. International expansion – tap into the markets that are similar in fashion taste to the US market, i.e.
Canada. China might be a good choice too since our client’s shoes and boots are produced there. In
addition, China is a large market.

Interviewer: Lots of those sound interesting. We actually have already collected some information
regarding possible new product launches. Based on this information, what are some of the pros and cons
of the following two alternatives, and which would you recommend? (the interviewer presents the table
below)

Leather Accessories Market (gloves, purses, Higher-end Shoes (evening shoes,

wallets, belts etc.) dress shoes)

Wholesale Market
Size $500 million $200 million

Gross Margin 40% 50%

Annual Growth 3% 15%

3 major brands dominate the

Other Market Info Highly fragmented market

Candidate: Based on the provided information, I think the pros and cons break down something like this:

Arguments for Leather Accessories:

 Larger wholesale market. Our client is looking for short term growth strategy (3 – 5 years) and
this product would give higher profit.
 It is a highly fragmented market thus with our client’s reputable history and existing relationships
with buyers, our client can become a dominate player quickly.
 Higher probability of a consumer buying a pair of shoes and purse than two pairs of shoes in one
shopping trip.
 In fashion, it is difficult for a low end brand to trade up to a higher end market.
Arguments for Higher-end Shoes:

 There is no need to invest money on PP&E (property, plant and equipment). Our client can use
current existing facility with minor changes.
 Higher future growth.
 The client can use the same sales force to sell the product.
 The client already has relationships with shoe buyers in department stores.
 Our client is known as a reputable shoe maker. The customers already know and trust our brand
and product.
Weighing the two alternatives against each other, I would recommend targeting the X market for reasons
A, B, and C (here, which market the candidate actually selects is not as important as the clarity and
content of the argument presented).

Interviewer: Very good!

Cordis to Launch New Drug Eluting Stent Device

Case Type: new product; pricing, valuation.
Consulting Firm: Trinity Partners first round job interview.
Industry Coverage: healthcare: hospital & medical.
Case Interview Question #00592: The client Cordis Corporation is a medical device company owned by
Johnson & Johnson (NYSE: JNJ), a large multinational medical devices, pharmaceutical and consumer
packaged goods manufacturer. Cordis is currently headquartered in Bridgewater Township, New Jersey,

United States. Their product lines include stents, distal protection devices,
catheters, and guidewires. In the technical vocabulary of medicine, a stent is a mesh “tube” inserted into a
natural passage/conduit in the body to prevent, or counteract, a disease-induced, localized flow
constriction.
Best known for their cardiovascular stents, Cordis recently developed a revolutionary new product that is
positioned to replace the current products in the market. The product, called Drug-Eluting Stent or DES, is
the first of its kind. DES is a peripheral or coronary stent (a scaffold) placed into narrowed, diseased
peripheral or coronary arteries that slowly releases a drug to block cell proliferation. This prevents fibrosis
that, together with clots (thrombus), could otherwise block the stented artery.
Cordis Corporation wants to launch the new DES device in Europe in the near future and then bring it to
the U.S. in 6 months. They are one year ahead of its competition with regard to R&D of the product. As
part of a consulting team retained by the company to help introduce the new product into the market, you
have been tasked with the following questions.

Question #1: How do you determine what price to charge for DES device? What are the issues that need
to be considered?
Possible Answer:
Three areas should be explored to determine the price of the new DES product:

 Current price of existing products and rationale for current price (value-based or cost-based)
 Benefits of new product vs. old product in terms of decreased side effects or repeat procedures
 Buyer’s willingness to pay
Additional items that could be considered include:

 The cost of the new DES device

 Total R&D costs (if not considered sunk costs)
 Any customer acquisition cost
 The cost of overhead and sales force
Question #2: What is the “Cost Neutral Point” – the point at which the cost of the new DES product
equals that of the old product, given the following data:
 Hospital cost of an operation = $5,000 per patient
 Old product cost = $1,000/unit
 Number of units needed per operation = 2
 Frequency of repeat procedure (using existing product) = 50%
 Frequency of severe complication resulting in open heart surgery = 30%
Is there any more information that you would need to calculate the Cost Neutral Point?

Possible Answer:
I would need more information:

 What is the cost of open heart surgery operation? $30,000

 What is the frequency of repeat procedure using DES device? 0%
 What is the frequency of severe complication using DES device? 5%
 How many units of DES device will be necessary per operation? 2
To determine how much the new DES device is worth, we can set up a calculation table:

Item Old New

Hospital cost $5,000 $5,000

Product cost per operation $1,000 * 2 = $2,000 X * 2 = 2X

Subtotal $7,000 $5,000 + 2X

Repeat procedures 50% * $7,000 = $3,500 $0

30% * $30,000 =
Severe complication $9,000 5% * $30,000 = $1,500

Total $19,500 $6,500 + 2X

To calculate the value of DES device at Cost Neutral Point: $19,500 = $6,500 + 2X
X = ($19,500 – $6,500) / 2 = $6,500

Question #3: What factors might allow Cordis Corp to price the new product above the cost neutral
point? What needs to be considered?
Possible Answer:
 Risk / Malpractice Insurance costs
 Value of reduction in pain (to patients)
 Higher success ratio (without repeat procedure and/or severe complication)
 Cost savings of keeping fewer DES device’s in inventory, etc.
These and other factors might allow us to price DES device above the Cost Neutral Point.

Question #4: The client Cordis Corp has decided that it wants to sell DES device at a premium above the
cost neutral point, but a survey of potential customers (Hospital Purchasing Departments) showed that
they are only willing to pay $4,000 per unit. Now what would you recommend?
Possible Answer:
Is the $4,000 per unit figure a single data point or an average? – An average across many customers
surveyed

Then, there are two things we can do:

 Manage Cordis Corp’s expectations that they should really expect something close to $4,000/unit
 Increase potential customers’ “willingness to pay”
Question #5: How can we increase customers’ “willingness to pay”?
Possible Answer:
Two thoughts:

Communicate the benefits, both “soft” benefits (e.g., decreased pain or frequency of re-operation) and
“hard” benefits (financial) to the additional stakeholders (i.e., patient advocate groups and insurance
payers) in the decision. Work with them to “pressure” the potential buyers of DES device to spend the
additional money to realize the added benefits of the new device.

Publish research articles about the efficacy of the new device in reputable medical journals, e.g., Journal
of the American Medical Association (JAMA), New England Journal of Medicine, The Lancet, etc. and use
those to convince doctors to pressure hospital administration to increase “willingness to pay” for the new
DES device.
Note:
This is largely a “launching a new product” case with a focus on pricing the new product. The case giver
should actively walk the candidate through a set of qualitative and quantitative questions. The case giver
should stick to the script of the case questions. To the effect that the candidate struggles, the case giver
can assist the candidate to get back on track.

The candidate should be structured in answering qualitative questions and crunch through any numbers
thrown his or her way, always keeping in mind how they tie back to the larger issues.

Local Organic Foods Grocer to Offer Prepared Food

Case Type: new product.
Consulting Firm: Bain & Company first round job interview.
Industry Coverage: food and beverages; retail.
Case Interview Question #00568: Our client The Real Food Company is a local organic and natural
foods grocery store located in San Francisco, California. Organic foods are foods that are produced using
methods that do not involve modern synthetic inputs such as synthetic pesticides and

chemical  fertilizers. Organic foods are not processed using irradiation, industrial
solvents, or chemical food additives.
Currently, the client sells only raw vegetables, fruits and some produces. Recently, the manager of The
Real Food Company has seen the success national grocery chains (Whole Foods Market, Kroger,
Costco, Walmart, Safeway, etc) have had with prepared food offerings and they are looking to duplicate
that success. They are looking to us to help them decide which of the following three options to pursue:
 Option 1: Pre-made food. Our client will buy a custom cooler and have employees produce and
wrap a number of sandwiches every morning before the store opens.
 Option 2: Full Service Counter. Our client will build a full size deli counter and staff it throughout
the day with employees who will make sandwiches to order.
 Option 3: Partnership. Our client will partner with an outside chain (e.g. Subway, Quiznos) and
install a mini-restaurant in the front of the store.
What would you recommend and why?

Additional Information: (to be given to you if asked)

1. Company
 Number of store customers = 2,000 per day
 Average purchase per customer = $100
 The client company has a required payback period of 1 year
2. Revenues

Option 1: Pre- Option 2: Full Service Option 3: Full Service

Revenues Made/Cooler Counter Partnership

Consumer 1% increase in the # of 2% increase in the # of

effect 0% change customers customers

Meals bought 5% of customers 10% of customers 10% of customers

Client share 100% 100% 20%

Price of meal $5 $10 $10

3. Costs

Option 1: Pre- Option 2: Full Option 3: Full Service

Costs Made/Cooler Service Counter Partnership

Initial outlay $30,000 $500,000 $250,000

Overhead (power, maintenance, 10% of meal

etc.) $3/day revenue 10% of meal revenue

Materials (food, utensils, etc.) 30% of meal 30% of meal $0

Labor cost $40 per day $300 per day 0

Opportunity cost (lost grocery

revenue from space reduction) 0 (Small cooler) $1,000 $3,000

Possible Answer:
This is a typical “launching a new product” type of case. The “Profits = Revenues – Costs” framework will
be a useful element. The challenge is to maintain a clear and consistent framework throughout multiple
calculations that include fixed and variable numbers.

The candidate should be pushed to identify revenue, fixed and variable costs and to identify the different
categories. Good answers identify the basics of labor, food / materials and overhead. Better answers
identify the opportunity cost of losing floor space and the new grocery revenues gained through increased
customer traffic.

Calculations
Option 1: Pre- Option 2: Full Service Option 3: Full Service
Made/Cooler Counter Partnership
Total Revenue

Meal revenue = (% buying meals *

total customers * meal price * client 5% * 2,000 * $5 * 10% * (2,000 + 20) * 10% * (2,000 + 40) *
share) 100% = $500 $10 * 100% = $2,020 $10 * 20% = $408

Consumer effect revenue =

(Consumer effect * average total 1% * 2,000 * $100 = 2% * 2,000 * $100 =
purchase) $0 $2,000 $4,000

Total Revenue / day $500 $4,020 $4,408

Total Cost

Variable cost – overhead $3 $2,020 * 10% = $202 $2,040 * 10% = $204

Variable cost – materials / food 30% * $500 = $150 30% * $2,020 = $606 $0

Fixed cost – opportunity $0 $1,000 $3,000

Fixed cost – labor $40 $300 $0

$150 + $40 + $3 $202 + $606+ $1,000 $204 + $3,000 =

Total Costs / day =$193 + $300 = $2,108 $3,204

$4,020 – $2,108 = $4,408 – $3,204 =

Profit / day $500 – $193 = $307 $1,912 $1,202

$1,912/ $4,020 = $1,202 / $4,408 =

Profit Margins $307 / $500 = 61% 48% 27%

$30,000 / 307 = 98 $500,000 / $1,912 = $250,000 / $1,202 =

Payback Period days 262 days 208 days

Note: estimates are sufficient for payback period ($30,000 / $300 = 100 days, $500,000 / $2,000 = 250
days, and $250,000 / $1,250 = 200 days).

The key takeaway of the case is that Option 2 is the best option and it falls within the expected payback
period of 1 year.

 Option 1 has the highest profit margins, but simply does not have enough volume
 Option 3 is not as profitable despite the increased customer effect revenue
Case specific talking points:
 Option 3 cost structure can insulate the company in poor economies (no employees to maintain,
immune to food costs since food comes from the retailer)
 Option 1 is easy to start or stop in times of demand
If time permits, a secondary goal of the case is to identify key issues surrounding the different options.
Creativity is recommended. Some possible talking points include:

 Competition – How will other local/national chains react, how will local fast food restaurants
react?
 Joint promotion – Can prepared food be used to drive more sales in other grocery products (e.g.
coupons for a meal and a bottle of soda, or including a particular brand of chips with a meal)
 Centralized prep / distribution – partnering with other local stores could drastically reduce pre-
made food costs
 Operations improvement with food inventory – can unsightly, but safe fruits/vegetables be used?
 If we encounter unexpected drops or expansions in demand, how quickly can different options
adapt?
Raytheon to Install Defense Systems on Commercial Planes
Case Type: new product.
Consulting Firm: Bain & Company first round job interview.
Industry Coverage: aerospace & defense.
Case Interview Question #00565: Our client Raytheon Company (NYSE: RTN) is a major defense
contractor for the United States government. Headquartered in Waltham, Massachusetts, the company is
an industrial corporation with core manufacturing concentrations in weapons, military, and commercial
electronics. It was previously involved in corporate and special-mission aircraft until early

2007.  Currently Raytheon is the world’s largest producer of guided missiles and
the fifth largest defense contractor in the United States by revenue.
There has been a growing threat from regional terrorists who are shooting down commercial airplanes
with rocket launchers. There is a potential solution to the problem: to equip commercial aircrafts with anti-
missile defense systems, called IRCMs (infra-red counter measures). These devices defend against
ground-to-air attacks. The United States Congress has approached our client requesting these systems to
be installed on commercial airplanes. Do you recommend they take the deal? Why or why not?
Additional Information: (to be given to you if asked)
1. Market

 There are about ~6,000 commercial airplanes in the U.S.

 About 50%, or ~3,000 airplanes are eligible for installation of the IRCM anti-missile defense
systems.
 The client Raytheon thinks they can capture 50% of the market (so 1,500 planes in total); there is
another major competitor Northrop Grumman (NYSE: NOC) who would have the remaining half. This
competitor also competes in the rest of our client’s product and service lines.
 U.S. government law says that that the government must use more than one provider (minimum)
to maintain a “competitive market”. So, there will always be another competitor.
 The market has seen stagnant growth over the past few years.
 Airlines have no problem with installing the anti-missile defense system, so this is not an issue.
2. Product
 The anti-missile defense system is installed beneath the airplane. It is a small device and
installation is easy.
 The device uses infra-red lasers to redirect the missile away from the plane, but the missile is
then just sent in another random direction (The system can’t control where it goes, it can only ensure
that the missile doesn’t hit the aircraft).
 The U.S. government will pay $2 million per installation.
 The anti-missile defense systems need re-installation every 10 years.
3. Company

 The client’s current total revenue is USD $15 billion.

 Variable cost per system is USD $1.75 million.
 Annual fixed costs: $250 million for factory & manufacturing, $250 million for management and
employees, and $250 million in R&D.
Possible Answer:
This case focuses on the profitability of the new anti-missile defense system. Selling to Congress means
losing money, but there is also a huge opportunity to go overseas. That opportunity may make it worth
taking the deal.

There is also a major strategic threat: the major competitor will have 50% of the market. What if the
competitor doesn’t accept the job (then our client gets the entire market)? What if competitor moves
overseas?

1. Market Opportunity

6,000 planes * 50% (are eligible) * 50% (client’s market share) = 1,500 planes
$2 million per installation fee means $2 million * 1,500 = $3 billion opportunity

2. Profits

Revenue: $3,000 million

Variable costs: $1.75 million * 1,500 = $2,625 million
Gross margin: $3,000 – $2,625 = $375 million
Total fixed costs: $250 + $250 + $250 = $750 million
Profits: $375 – $750 = -$375 million

So, taking the deal will not be profitable, but there may be other opportunities.

3. Opportunities

Expand geographically: what other governments would be interested? (Fixed costs stay the same if the
client expands internationally, so marginal profit can turn into positive.)

 Ones with many commercial flights over terrorist areas

 Middle East and Southern Asia
What are the criteria in selecting governments to sell the system to? Any governments NOT willing to sell
to?

 If they can pay (can they afford it?)

 Type of government (is it democratic?)
 Level of corruption in the government
 Competitors in the new market
 PR issues
4. Final Recommendation

The client Raytheon Company should start in the U.S. market, then expand into other countries. However,
the client should also consider potential risks associated with the deal, such as:

 What if competitor does the same?

 What if we don’t sell in U.S., how will appear to other areas of the business?
 Political: what if government changes its mind?
 Internal: do we have the capacity for immediate production and installation of 1,500 systems?
 Who takes responsibility for the missile after it is diverted from the commercial airplane? What if
people on the ground are killed? (Ethical and PR issue.)
Children’s Healthcare of Atlanta Picks Oracle for Cloud
Case Type: new product, new technology.
Consulting Firm: IBM Global Business Services (GBS) first round job interview.
Industry Coverage: healthcare: hospital & medical; software, information technology (IT).
Case Interview Question #00556: Our client Children’s Healthcare of Atlanta is a not-for-profit
healthcare organization formed in 1998 when Egleston Children’s Health Care System and Scottish Rite
Children’s Medical Center merged. The organization now owns a number of pediatric-accredited hospitals
in the southern 10  states, offering family-centered care while providing
specialized medical procedures and supplies, age appropriate play therapy, psychosocial support and a
hospital-based school program. With more than a million annual patient visits, the client Children’s
Healthcare of Atlanta is one of the country’s leading pediatric healthcare providers.
The client has been among the highest revenue-earning players in the southern 10 states. Recently, their
IT department realizes that their data storage capacity is not large enough with the increasing needs
internally. They are interested in using cloud computing only for additional data storage needs. Should
they do it? If so, how long until our client breaks even (compared to the current IT system)? If not, what
strategic alternatives can you offer?
Exhibit 1: Revenue and Local Market Share

2009 Expected Revenue Growth

$mm Local Market Share

Florida 300 30

Kentucky 80 33

Georgia 550 66

Alabama 400 49

Texas 180 21

North Carolina 120 27

South Carolina 40 29

Louisiana 50 35

Oklahoma 60 42

Virginia 40 22

Exhibit 2: Cloud Computing Vendors

Cloud computing Public stock: Relations Recent news

market share year-over-year
 change with us

Acquired Sun Microsystems, a

Oracle major data storage company based
Corporation 12 2.1% medium in Texas

Dell Entered 4 different emerging

Computers 8 -12.3% medium markets in last 3 months

Exhibit 3: Costs

Installation cost Cloud service Energy Full-time Annual fee

Cloud Options (one-time cost) fee ($) consumption engineers ($)

Self 50 kW per hour

implementation $5.0 million 0 per server 10 0

Oracle 2.5 per day

Corporation $2.1 million per server 0 2 700,000

2.0 per day

Dell Computers $2.7 million per server 0 3 600,000

Exhibit 4: IT Costs For Continuing With Current Storage System

Costs are in millions of U.S. dollars. Straight-line represents long-run trend line.
Costs include existing storage needs and storage needs from growth in demand. Costs will remain
constant after 2010.

Additional Information: (to be given to candidate if asked)

 Cloud computing is a style of computing in which data is stored as a service over the internet, as
opposed to traditional storage on local servers. It means that a company does not have to pay for the
physical storage devices, but instead pays a service fee to a vendor to store data over the internet.
 The client company is also considering “self implementation” of cloud computing: purchase and
implement the equipment itself, rather than pay a service provider.
 Our client need 1 server for each $300 million in new revenue in each location. For example, a
location with $200 million in new revenue requires 1 server, $400 million in new revenue requires 2
servers, and $700 million in new revenue requires 3 servers.
 Cloud computing vendors being considered are Oracle Corp. and Dell Computers.
 For Exhibit 3:
 1 kW costs $0.02 on average.
 Servers run all the time (24 hours per day, 365 days per hour).
 Annual cost of full-time engineer: $100,000 per engineer.
Possible Answer:
This “whether to adopt a new technology or not” type of case involve several steps.

First, the candidate must determine what the capacity needs are; this is based on new revenue in each
location (Exhibit 1). Then discuss the vendors who can offer the storage service: Oracle and Dell. Oracle
appears a little bit more successful and also more focused on our client’s region, the southern United
States.

Next, the candidate must calculate the cost of each of the options in Exhibit 3. The vendors have the
lowest annual cost and between them, Oracle has the lower installation cost. Then, these costs can be
compared to Exhibit 4, the costs of continuing with the current IT system and not self implementing cloud
computing or using an outside vendor.

Then, the candidate can calculate a breakeven time. The savings from the new cloud system is the
difference between Exhibit 4 (continuing with current IT system) and Exhibit 3 (self implementing or using
vendors for cloud computing system). Use these savings to calculate how many years until the initial
installation cost has been recouped.

Calculations:
Exhibit 1: New revenue used to calculate number of servers needed: 1 per location plus 1 extra for
Georgia and Alabama = 12 server needed.

Exhibit 2:

 Oracle appears to have more of a focus in the geography of our client, based on the recent
acquisitions of Texas based data storage company Sun Microsystems.
 Market share and relations are both comparable.
 Public stock performance is irrelevant in this case, except perhaps to suggest that Oracle is
managing its business better in a recession.
Exhibit 3: Annual costs of the new cloud computing system
 Self Implementation: 50kW / hour * (365 * 24) hours * $0.02 / kW + 10 engineers * $100, 000 per
engineer = $1,008,760
 Oracle: $2.5 / server * 365 * 12 servers + 2 engineers * $100,000 per engineer + $700,000 =
$910,950
 Dell: $2.0 / server * 365 * 12 servers + 3 engineers * $100,000 per engineer + $600,000 =
$908,760
Note that all of these annual costs is lower than the projected cost of the current IT system ($1.2 million in
2009, $1.5 million in 2010).

Exhibit 4: Costs are rising dramatically. Projections will be used in breakeven calculations

 Using self implementation, savings are approximately $200,000 in year 1 ($1.2 million –
$1,008,760) and $500,000 in year 2 and thereafter ($1.5 million – $1,008,760).
 Using either vendor, savings are approximately $300,000 in year 1 and $600,000 thereafter.
Add the number of years of savings to reach the initial installation cost (one time cost):

 Self Implementation: $200K + ($500K * 10) = $5.2 million, or in the middle of year 10
 Oracle: $300K + ($600K * 3) = $2.1 million, or 3 years
 Dell: $300K + ($600K * 4) = $2.7 million, or 4 y ears
Conclusion: The option with the lowest annual cost and fastest breakeven is to use the vendor Oracle
Corp.
Finally, a strong candidate will also discuss creative thoughts about details in the case, such as:
suggestions to negotiate the contracts in different ways, changing costs of power consumption over time,
and costs of engineers in the future.

DHL to Replace Call Center with Online Tracking System

Case Type: new product, new technology.
Consulting Firm: Ernst & Young (EY) first round job interview.
Industry Coverage: freight delivery, shipping services; software, information technology (IT).
Case Interview Question #00551: Our client DHL Express USA is a division of the international logistics
and shipping company Deutsche Post (FWB: DPW) providing express mail services. DHL is a world
market leader in sea and air mail. Originally founded in 1969 to deliver documents

between  San Francisco and Honolulu, DHL expanded its service throughout the
world by the late 1970s. The company is now primarily interested in offshore and inter-continental
deliveries.
DHL turned their attention to the overnight market in the US following the success of FedEx, and first
opened a major distribution hub in Cincinnati in 1983. Since then DHL Express USA has been in the
business of delivering time sensitive shipments all over the United States. Currently, when a DHL
customer sends a package, he or she must call DHL’s call center and provide a tracking ID in order to find
out where the shipment is and when it is expected to be delivered. Recently, our client DHL Express USA
has asked you to advise whether or not to implement an online tracking system for their customers to
track shipments. What would you recommend?
Additional Information: (to be provided to candidate if asked)
 DHL Express USA currently has about 1,000,000 customers per year in the United States.
 DHL Customers average 10 shipments per year and call once per shipment.
 80% of customers use the phone tracking system.
 Each phone call costs the company about $1.50. This takes into account the costs of call center
agents, training, utilities, technology, etc.
 The cost of implementing the new online tracking system will be $1.5 million.
 Our client DHL estimates that 90% of customers who are aware of and are able to track online
will use the new online tracking system over the legacy phone system.
Possible Answer:

This new technology/new product case requires the candidate to identify the costs associated with the
current legacy system, the costs associated with implementing a new online tracking system, and to
estimate the potential savings. By asking the right questions and using an exhaustive structure, the
candidate should discover all relevant cost information. However, it will be up to the candidate to come up
with some marketing strategies of how to implement the new program and to make some assumptions
about how many customers will adopt the new online tracking system.
1. Calculate current costs

1,000,000 customers * 10 shipments per year * 1 call per shipment * 80% utilization rate * $1.50 per call =
$12 million

2. Online Utilization

Because the implementation cost of the new online tracking system is $1.5 million, to breakeven in year
1, at least 1 million phone calls need to be saved ($1.5 million / $1.50 = 1 million).

The candidate then should be encouraged to determine what percent of customers will need to switch
and be asked if the number is feasible. Safe assumptions and clear reasoning are important.

 Among the 1,000,000 customers, 80% or 800,000 of them use the phone tracking system.
 In order to save 1 million phone calls in year 1, at least 1 million / (10 shipments per year * 1 call
per shipment) = 100,000 customers will need to switch from the phone tracking system to the new
online tracking system.
 100,000 / 800,000 = 12.5%. So, 12.5% of the customers who currently use the phone tracking
system will need to switch.
 This number seems feasible given that the United States has close to 80% internet penetration
rate.
3. Raising Awareness and Additional Discussion

The interviewer should ask the candidate how they would go about raising awareness of the new online
tracking system. Some possibilities are:

 An automated voice on the phone system informing callers of the online version.
 Possible stickers or information on the boxes.
 Direct mail to originating addresses.
 Marketing campaign.
4. Additional Ideas

An outstanding candidate should take the concept one step further and suggest new ideas or more
factors that have been omitted. Some of the addtional ideas worth discussing include:

 Varying the costs provided.

 Maintenance cost of the new online tracking system.
 Time value of money.
 Impact on organizational structure could also be addressed as the new online tracking system
may eliminate much of the call center eventually.
Adobe Systems to Not Introduce “Suite” Software Product
Case Type: new product; operations strategy.
Consulting Firm: KPMG Strategy second round job interview.
Industry Coverage: software, information technology (IT).
Case Interview Question #00548: Your client Adobe Systems Incorporated (NASDA: ADBE) is a large
multinational computer software company founded in 1982 and headquartered in San Jose, California,
United States. The company has historically focused upon the creation of multimedia and creativity

software products,  with a more-recent foray towards rich Internet application

software development. Currently the company makes photo editing, web design, video editing, and
desktop publishing software.
The client Adobe Systems has historically been the market leader in two of the four software product
categories (photo editing and desktop publishing). Its software products in the other two categories (web
design and video editing), however, are newer and have failed to achieve significant market share so far.
The company has traditionally sold its four point products separately. Recently the CEO of Adobe is
considering introducing a new business model where customers can purchase an integrated “Suite” of the
four products for $1,000. Furthermore, it will raise the prices of the products in the two categories it
dominates (photo editing and desktop publishing) to motivate customers to purchase the Suite instead.

Adobe conducted a concept test on the Suite product, and would like your assistance in deciding whether
to go forward with the Suite product launch. Case Part #1: Will the proposed “Suite” strategy increase
company profitability or not?

Additional Information:
Exhibit 1: Results of Concept Test – Customer preference shares (Show Exhibit 1 to the candidate up
front)
Photo Web Video Desktop
Software Category Editing Design Editing Publishing

Customers who will purchase the Suite 75% 70% 70% 40%

Customers who will purchase only the point

product 20% 30% 30% 50%

Customers who balk 5% 10%

Note: customer overlap
 Of the desktop publishing customers who chose to purchase the Suite, 50% would have also
bought photo editing software.
 All of the web design customers who chose to purchase the Suite would have bought photo
editing software as well.
 All of the video editing customers who chose to purchase the Suite would have bought photo
editing software as well.
Instruction to Interviewer: Once the candidate has asked appropriate questions and layed out a logical
framework to the first three exhibits, ask him/her to calculate the profitability of this strategy based on the
results of the concept test.
Caveat: Don’t worry about upgrades or software lifecycles, assume all customers buy full versions of the
product.

Possible Answers:
Profitability Analysis
1. Question: What are the current prices of each of the four products, and how will they change in the new
business model?

Answer: See Exhibit 2. Interpretation: the increased pricing of photo editing and desktop publishing
products may motivate some customers to buy the Suite instead, but also may cause some customers to
balk.

2. Question: How many customers will upsell to the Suite?

Answer: See Exhibit 1.

3. Question: How many customers will the company lose because of the increased prices for the photo
editing and desktop publishing products?

Answer: See Exhibit 1.

4. Question: Will the company capture any new customers who will purchase the Suite who would not
have purchased any point products?

Answer: Assume that all Suite customers are upsold from point products.

5. Question: What are the variable costs of producing each of the products?
Answer: See Exhibit 2. Interpretation: the photo editing and desktop publishing products yield the most
profitability, but the new Suite will also be fairly profitable

6. Question: Are there additional fixed costs that the company will incur to launch the new product?

Answer: Assume that additional fixed costs and synergies gained from the product strategy are a wash in
the short term.

7. Question: How many units of each product does the company sell?

Answer: See Exhibit 3.

Calculations for Base Case Scenario

Desktop
Software Category Photo Editing Web Design Video Editing Publishing Total

Base case units 600,000 200,000 200,000 800,000

Price per unit $600 $300 $500 $500

Revenue $360 M $60 M $100 M $400 M $920 M

Costs per unit $60 $90 $125 $100

Profits $324 M $42 M $75 M $320 M $761 M

Calculations for Suite Scenario

Software Photo Web Video Desktop

Category Editing Design Editing Publishing Suite Total

Balkers -30,000 0 0 -80,000 0

1,050,00
Upsell -450,000 -140,000 -140,000 -320,000 0

Overlap -440,000

Revised Units 120,000 60,000 60,000 400,000 610,000

Price per unit $700 $300 $500 $600 $1,000

Revenue $84 M $18 M $30 M $240 M $610 M $982 M

Costs per unit $60 $90 $125 $100 $250

$769.4
Profits $76.8 M $12.6 M $22.5 M $200 M $457.5 M M

A good answer to the analysis is that although the Suite strategy is slightly more profitable than the status
quo ($769.4 M vs. $761 M), it’s not a clear winner. An outstanding candidate will easily grasp the impact
of cannibalization and price increases on the product mix.

Case Part #2: Start by giving answer to Case Part #1 if the candidate did not calculate correctly.
Background: It appears that there is marginal upside for the company in pursuing the Suite strategy from
a near-term profitability standpoint. Question: What are some additional long-term factors that the
company should consider to make a decision on the Suite strategy?
Possible Answers:
Do a market opportunity analysis.

1. Question: Examine growth, market share, and size of each category.

Answer: See Exhibit 3. Interpretation: the newer categories represent significant market opportunities in
terms of both size and growth.

2. Question: What is the overlap between customers in each category?

Answer: Almost all customers own products from at least three of the four software categories when you
include their ownership of competitive products. The majority of our client’s customers own competitive
products in the web design and video editing categories.
3. Question: Will customers actually adopt the video editing and web design software as a result of
owning the Suite if they were previously using competitive products?

Answer: Research shows that after customers who own our client’s market leading software products and
try the company’s video editing and web design software products will switch from competitors 75% of the
time.

4. Question: What does the competition look like in the video editing and web design markets?

Answer: Both categories are currently fragmented by numerous small companies.

Based on the direction of market growth, it is imperative that the company gain success with its newer
products in order to maintain long-term growth. Given the high amount of customer overlap, it is probably
wise for the company to leverage its current market leadership in the photo editing and desktop publishing
categories.

Sanofi New Drug Lowers Both Blood Pressure & Cholesterol

Case Type: new product; pricing & valuation.
Consulting Firm: Putnam Associates second round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00547: The client Sanofi S.A. (previously Sanofi Aventis, Euronext: SAN,
NYSE: SNY, FWB: SNW) is a multinational pharmaceutical company headquartered in Paris, France. It
mainly engages in the research and development (R&D), manufacturing and marketing of pharmaceutical

products  for sale principally in the prescription market, but the company also
develops over-the-counter (OTC) medication. As of 2010, Sanofi is the world’s fourth largest
pharmaceutical company by prescription sales and it covers 7 major therapeutic areas: cardiovascular,
central nervous system, diabetes, internal medicine, oncology, thrombosis and vaccines.
Recently, Sanofi has come up with a new idea for selling its two blockbuster drugs. One of them is for
lowering blood pressure (BP) and the other is for lowering cholesterol. The client’s R&D department is
experimenting a new drug that is a combination of these two drugs. They think this will generate more
revenues in the near term.
The client Sanofi would like you to help them with the following three questions:

 Is this a good idea?

 If so, how should they price the new combo drug?
  What is its impact on the client’s revenue?
Additional Information:
1. Client and Product Background (Good candidates will start this discussion before the interviewer has to
lay it out for them)

 The client Sanofi is an established player in the U.S market (focus of this case).
 Both the drugs under consideration are prescription drugs and the new drug they are thinking of
will also be a prescription drug.
 No additional cost was incurred in this combination drug and it has already received FDA
approval.
2. Other Relevant Data (Wait to see if the candidate asks for this relevant information before giving it to
them)
 Market: The client has 50% market share for both the cholesterol and BP drug
 Substitutes: There are no other products like the combination drug in the market
 Competition: One other competitor (50% share for both the cholesterol and BP drug)
 Patent: Available for ~10 years (for both the individual and combination drug)
3. Following is the summary of survey of several doctors and HMOs (health maintenance organizations
that provide or arrange managed care for health insurance or self-funded health care benefit plans), on a
scale of 1 to 5 with 5 being the best.

Client’s New Combo Client current Competition current

Drug portfolio portfolio

BP BP
Cholesterol drug drug Cholesterol drug drug

Efficacy 5 4 4 3.5 3.5

User
Convenience 5 3 3 3 3

Drug Interaction None Small Small Small Small

Side
Effect/Safety None Small Small Small Small

# of Customers ? 40,000 50,000 40,000 50,000

Price to HMOs ? $40 $30 $40 $30

Consumers currently pay a co-pay of $10 per prescription for 1 month worth of medicines.

Also, currently 30,000 of the total 90,000 customers for both the client and competitor use both the
cholesterol and BP drug.
Note: User convenience is a measure of compliance or how often patients consume the drugs properly on
time. This is higher for the combo drug as it is only one pill compared to the current two pills. This is
expected to cause the patients to take the proper dosage of both the pills more frequently.

Suggested Approach:
The candidates should identify the key entities in the industry value chain like doctors, HMOs, hospitals,
and the end consumer (bringing in the government and state agencies is a bonus though this is outside
the scope of this case).

The next step will be to identify the feasibility of the idea which should include the key aspects of drug
efficacy, side effects, interactions etc.

Finally, the candidates should try to estimate a price that the market will bear for this product. Here, the
co-pay for end customers should be used properly. Also, the candidates should address the
cannibalization effect of introducing this new combination drug (very important) and its impact on overall
revenues.

Bonus points: If the candidate mentions the benefits of increased compliance to the HMOs (because of
reduced long-term costs to them) and consequently makes an assumption that they may be willing to pay
more than the current $50 for the two drugs together to the client.

Possible Answers:
1. Pricing for the new combination drug

Current Scenario:

 Consumers currently pay 2 * $10 = $20 co-pay for a month’s prescription of both the drugs
 HMOs currently pay $40 + $30 – $20 = $50 to the client for a month’s prescription of both the
drugs
 Client receives a total revenue of $70 * 30,000 = $2.1 million/month from customers who buy both
drugs
Combo Scenario:

 Since the new combo drug is more effective and convenient than the current two drugs,
customers can be charged and are able and willing to pay $15 co-pay for a month’s prescription of
both the drugs. Note that $15 is still less than the current $20 co-pay customers pay for the two
separate drugs.
 Good candidates will ask if there are any changes to pricing for the new drug or even speculate
on it. If the candidate does not raise the issue then let them swim around for a while to see if they
come back to it. Eventually, if they don’t ask then give it to them.
 HMOs pay for combo drug = $50 for a month’s prescription of both the drugs (assuming HMOs do
not pay more than before)
 Cannibalization Effect: Assume all 30,000 customers who buy both the drugs will start buying the
new combo drug. Lost revenue = ($70 – ($50 + $15) ) * 30,000 = $150,000/month
2. New customers from competition

The client could potentially get a reasonable share of the competition’s 30,000 customers who use both
the drugs (because of benefits of the combo drug and the reduction in monthly co-pay).

Let’s say that they get 50% of competitor’s customers: This translates to a revenue of ($50 + $15) *
15,000 = $975,000/month

3. Net impact on client’s revenue (Short-term)

Net direct impact is a revenue growth of $975,000 – $150,000 = $825,000 per month. In the long-term,
there is potential to woo more competitor customers.

The above are strong positives but good candidates will point out that competition may make their own
combo drug and ask about if they have such a drug in the pipeline (they did, but it failed). In any event,
the competition is expected to eventually create a competitor drug. This will cause the advantage to
shrink a little bit in the long-term.

4. Potential Synergies in launching the new combo drug

 Distribution (Sales force, Doctors, Pharmacies, Hospitals, HMOs): Well established and the same
distribution network which can be used for the combo drug.
 Marketing and advertising: Current marketing programs can be used to push the new combo drug
to consumers. Currently, client has a very effective Direct-to-Consumer marketing.
Nordic Paper Develops New Grease-proof Technology
Case Type: new product, new technology; pricing & valuation.
Consulting Firm: Siemens Management Consulting 2nd round job interview.
Industry Coverage: paper products; food & beverages.
Case Interview Question #00539: Your client Nordic Paper AS is a Norwegian industrial company
operating in Norway and Sweden. The company is one of the leading producers of Grease-proof Paper
and Kraft Paper in the world, with worldwide sales network. It has four paper mills and two pulp

mills,  located all within 250 kilometers of one another.

The production of Grease-proof Paper is unique in that there are many mechanical differences in the
production process compared to other paper production lines. In particular, these machines require a
larger upfront capital expenditure. Nordic Paper sells this grease-proof paper to bag converters. The bag
converters add glue and produce the actual bag of packaged food such as popcorn, then turn around
and sell it to major packaged food companies for resale.
Recently, the R&D department at Nordic Paper discovered a new technology to reduce paper bag’s
grease soakage by 10 fold. This is achievable by a relatively simple modification to the current paper
production equipment at a negligible cost. Should Nordic Paper adopt the new technology to make their
grease-proof paper? Why or why not?

Instructions to the Interviewer:

The objective of this new technology/new product case is

 To understand the market impact of a new technology / product

 To conduct quantitative analysis in order to understand industry economies
 To form a pricing strategy
Suggested Approach:
 Identify profitability drivers for the client and client’s customer
 New opportunity identification
Question #1: Where might the value be in this new technology or new product?
Possible Answers:
 For end users (e.g. popcorn consumers)
 “cleaner” experience
 For bag converters
 Reduced costs
 Stronger pricing power vs. non-adopting competitors
 Novel applications (other markets – to be explored later)
Question #2: Where would there be more value, end users or bag converters?
Possible Answer:
End users probably don’t care much, they usually dump paper bag into a bowl, not really concerned about
grease drip on outside.

Bag converters may care more – if they can reduce costs or raise prices somehow with superior
packaging.

Additional Information: to be given to candidate

Bag converters like the new technolgy/product. They currently create double-ply popcorn bags and now
would be able to create single-ply.

Bag converters’ current cost breakdown:

 $0.30 / 2 sheets
 $0.10 / receptor (film applied to bag)
 $0.05 / popcorn
 $0.05 / other manufacturing costs
 $0.50 total cost
Client Nordic Paper’s cost breakdown: $0.10 / sheet (1/2 fixed cost, 1/2 variable cost)

Question #3: How much does grease soakage decrease using single-ply of new paper?
Possible Answer:
If the new paper can reduce paper bag’s grease soakage by 10 fold (using double-ply), using single-ply of
new paper would decrease soakage by 5 fold.

Question #4: What is driving bag converters’ desire for this new technology/product?
Possible Answer:
We need to explore current economics and what changes by going from 2-ply to 1-ply. First of all, bag
converters’ costs will decrease $0.15 (1 sheet instead of 2 sheets). New total cost would be $0.50 – $0.15
= $0.35.

More importantly, bag converters adopting the new technology can potentially squeeze out competition by
lowering prices and still maintaining strong profit margin.

Question #5: What is client Nordic Paper’s profit margin without adopting the new technology?
Possible Answer:
Without the new technolgy, Nordic Paper’s cost is $0.10 per sheet and sale price to bag converter is
$0.15 per sheet, therefore profit is $0.05 per sheet, or $0.10 per bag. Profit margin is $0.05 / $0.15 =
33%.

Question #6: How should the client Nordic Paper price a sheet of the new grease-resistant paper?
Possible Answer:
Variable cost remains $0.05 / sheet still.
Assuming the same level of production, fixed cost now becomes $0.10 / sheet.
Total cost now is $0.15 / sheet.
Sale price to bag converter can logically fall in a range from $0.15 to $0.30 per sheet:

 $0.15 sale price produces no client profit

 $0.15 – $0.25 sale price produces less profit / bag than current product (current profit is $0.10 per
bag), no advantage to the client
 A price greater than $0.30 costs more to bag converter than current product, no advantage to bag
converter
 $0.25 – $0.30 price range produces advantage for both the client and bag converter
Therefore, the client should price the new grease-proof paper $0.25 – $0.30 per sheet.

Question #7: What are some other applications or markets for this new technology?
Possible Answers:
 Grease-resistant food storage (anything from Tupperware to restaurant to-go boxes)
 Other packaging materials
 Auto mechanics industry (bolts, rings, etc)
 Restaurant industry (floor mats for instance)
Abbott Nutrition to Develop Five Year Growth Plan
Case Type: growth; new product.
Consulting Firm: IMS Health Consulting Group 2nd round job interview.
Industry Coverage: healthcare: hospital & medical; healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00538: Our client is Abbott Laboratories (NYSE: ABT), a global, diversified
pharmaceuticals and health care products company headquartered in North Chicago, Illinois, United
States. In 2010, Abbott have over USD $35 billion in revenue and have had strong growth. In addition to

pharmaceutical  products, Abbott also has a broad range of medical devices,

diagnostics and immunoassay products as well as nutritional products.
Abbott has a division called Abbott Nutrition. In the U.S. dietary supplement and nutritional products are
not sold as pharmaceutical drugs so FDA approval is not needed. Abbott Nutrition has $500 million in
revenues and they have had moderate growth. You have been asked by the Head of Abbott Nutrition
division to develop a five year growth plan for them, determine the prospects for growth, and identify any
other issues. How would you go about it?
Instruction to the Interviewer:
The objective of this “growth” case is

 To see if the candidate can come up with a comprehensive framework to get to a solution
 To see if the candidate can complete some quantitative analysis
 To see if the candidate can demonstrate creativity
Suggested Approach:
 Examine current product mix
 Assess current market situation (demand, growth, size, perception of Abbott brand)
 Core capabilities and opportunity identification
 Identify potential risks and possible competitor response
Question #1: Most of their emphasis has been on one product line called Ensure, a family of liquid
nutritional supplements, sometimes also known as a meal replacement drink. The beverages are meant
to be administered orally, or through nasogastric tubes, directly to the recipient’s stomach. Recipients are
either individuals unable to eat or experiencing undesirable weight loss, through age, infirmity or disease.
The product has had slow revenue growth but is a strong brand. Why has revenue slowed?
Possible Answers:
 Competitors have launched competing product
 Evidence has proven ineffective
 Market has shifted away from meal replacements
 Decrease in marketing spend
 Celebrity endorsements have had scandals
 Price has recently raised
 Initial discounts used to establish the brand have been lifted
 Packaging sizes have changed
 Changes in distribution methods
 Changes in retailer compensation (poor placement)
Additional Information:
1. Ensure’s sales figures

Last Year This Year Next Year

Price per 6-
pack $10 $8 $9?

Revenues $350m $400m ??

2. This year’s sales volume:

Big-Box Stores: 30%, will lose 4% in sales volume for a 1% increase in price.
Other Retailers: 70%, for price increases less than 20%, no change in sales volume.

Question #2: (Quantitative Analysis) If they raise their prices to $9 next year, what will their revenue be?
Possible Answer:
Current Sales Volume

 If they had $400m in revenues at $8/each, they sold 50 million units this year
 Big Box Stores: 50m * 30% = 15m
 Other Retailers: 50m * 70% = 35m
New Sales Volume

 A price increase from $8 to $9 is a 12.5% increase

 Big Box Stores will have 4% * 12.5% = 50% decrease in volume, or 15m * (1 – 50%) = 7.5m
 Other Retailers will have no change in volume because 12.5% < 20%, so still 35m
New Revenue: (7.5m + 35m) * $9 = $382.5m

Question #3: Should they raise the price to $9 or not? Note: revenue would decrease from $400m to
$382.5m.
Possible Answer:
It is unclear. We don’t know what the margins are.
Question #4: Would a company ever choose to see their sales decrease?
Possible Answer:
Yes, if they could increase their profit margins significantly with only a small decrease in sales.

Question #5: If the decision to raise the price was already made, what would be more profitable in this
situation, if the per unit margin was lower or higher?
Possible Answer:
The per unit margins would preferably be higher to make up for the slight decrease in sales.

Question #6: Abbott Nutrition is thinking of launching a new dietary supplement product for diabetics,
Alpha.
 Price of Alpha: $1.50/day
 There are currently 20 million diabetics in the US, among them 70% are diagnosed
 20% of those diagnosed actively treat their condition
 There are three other competitors with similar products, so Abbott would only be able to grab
20% market share
What is the revenue potential for this new product?

Possible Answer:
(20m * 70% * 20% * 20%) * $1.50/day * 365 days = $306,600,000

Question #7: Is this new product a strong area for growth for Abbott?
Possible Answer:
This is significant for Abbott Nutrition division, as it is a 60% increase in sales over current revenue of
$500 million, but it is not large enough to make a major difference for Abbott ($35 billion in revenue, $300
million is less than 1%). Remember, the client is Abbott Nutrition division, NOT Abbott. Relying on $300m
of new revenue for a $35 billion company is not a long-term growth plan.

Question #8: Ask the candidate to give a 30-second summary of his/her findings.

Dr Pepper Group to Launch New Bottled Water Product
Case Type: new product.
Consulting Firm: OC&C Strategy Consultants first round job interview.
Industry Coverage: food & beverages.
Case Interview Question #00534: Dr Pepper Snapple Group Inc. (NYSE: DPS, formerly Cadbury
Schweppes Americas Beverages) is an American soft drink company based in Plano, Texas. The
company was created by the merger of Dr Pepper, Inc. and The Seven Up Company in 1986. Currently,
Dr Pepper Snapple Group is  the third largest producers of soda beverages, after
Coca-Cola and Pepsi. Their product lines include soft drink brands 7 Up, Dr Pepper, Diet Rite, RC Cola,
Canada Dry, Sunkist, etc.
Recently, the client Dr Pepper Snapple Group is thinking of launching a new product called “Natural
Flavored Bottled Water”. They are looking to distribute this product directly to supermarket retailers such
as Wal-mart. What are the key risk factors they should be looking at and should they launch the new
bottled water product or not?
Instruction to the Interviewer:
The objective of this “new product launching” case is

 To see if the candidate can determine the major concerns of a new product launch
 To see if the candidate understands the relationship between manufacturer and retailer
Suggested Structure:
 Current product mix
 Larger market trends and growth trends
 Complications and risk factors
Additional Information: to be given to candidate
The client Dr Pepper Snapple Group currently has five plants and sell a broad array of carbonated and
non-carbonated beverages.

Question #1: What are some other channels they could sell this bottled water product through, besides
supermarket retailers?
Possible Answers:
 Fairs and outdoor public events
 Sports team marketing
 Health clubs
 Vending machines at schools and large companies
 Spas and Resorts
Question #2: What do you think would be most profitable to market: small quantities at higher prices or
larger quantities at big-box retailers?
Possible Answers:
There is no right or wrong answer here, just look for a well thought out argument (if the candidate asks for
case facts, ask them to make assumptions).

Question #3: What concerns would you have with Dr Pepper launching a new product?
Possible Answers:
 What are the economics of the new product?
 What volume of sales can they realistically expect?
 Is there a competing brand that is already established in the market?
 How will their peers (Coca-Cola and Pepsi) respond?
 Will retailers be willing to carry their brand?
 Is this product a commodity and do retailers already carry their own brand at a lower price?
 Does the company have the expertise to make this product? (General new product concern)
 Will they get increased shelf space or will this just cut into their other sales? (Important!)
Question #4: Ask the candidate to give a 30-second summary of the case.
Motor Coach Industries to Debut New Luxury Coach Bus
Case Type: new product; pricing & valuation.
Consulting Firm: Deloitte Consulting 2nd round job interview.
Industry Coverage: transportation; automotive, motor vehicles.
Case Interview Question #00522: The client Motor Coach Industries International Inc. (MCII) is a bus
manufacturing company based in Schaumburg, Illinois, United States. The company is a leading
participant in the North American coach bus industry and the current market leader in semi-luxury bus

segment. Their customers  are typically passenger transport companies who

carry passengers over long distances.
Currently MCII has a luxury coach bus product called “Speed” in the market and is their best selling
product line. They have another product being developed called “Velocity” that they plan to launch very
soon. However, they are not sure if there will be acceptance for the new product from the customers. You
are a consultant hired by the CEO of MCII, and your task is to help them understand how to convince
the customer to buy the new “Velocity” bus. How will you go about this case?
Notes to the Interviewer:
There are three main objectives to this “launching a new product” case:

1. The candidate has to consider those attributes that will be important to the customer – Guide the
candidate to this
2. Try to understand the benefits of “Velocity” over “Speed” and do a bunch of math
3. Provide creative recommendation to avoid product cannibalization

Suggested Structure:
Given the objective of marketing this new product to the customers, the key elements here are:

 Find out what aspects of a bus the customer values

 The benefits of “Velocity” over “Speed” and quantify the benefits
 Risks of launching “Velocity” bus
 Final recommendation
Assume there is no direct competition for the product now and for the next 2 years.

Question #1: What do you think are the key attributes that the client’s customers value?
Possible Answers:
 Price
 Fuel economy
 Reliability of the vehicle
 Appearance, design and styling
 Features and comfort for passengers
 Maintenance cost
 Warranty period
 Enough service support and network
 Availability of spare parts
 Ergonomics for the drivers
 Safety features
 Financing options
 Life of vehicle
 Delivery lead time
Question #2: How would you evaluate the benefits of the new “Velocity” bus over “Speed”?
Additional Information:
The interviewer can provide the following details to the candidate. Here we focus only on benefits from
reduced maintenance cost, reduced fuel cost and increased load factor due to comfort. Don’t provide the
candidate with any data unless specifically asked for. The question to be asked is: how would you
calculate the total annual benefits?

Table 1. Data to be provided to calculate cost benefits – All data on a per vehicle basis

Speed Velocity

Average miles traveled per

day 600 600

No. of days in a year 250 250

Miles per gallon 10 12

Cost per gallon $2 $2

Maintenance cost per mile $0.3 $0.25

Table 2. Data to be provided to calculate revenue benefits – All data on a per vehicle basis
 5% increase in load factor* due to added luxury and
Annual revenue increase comfort

Current load factor 80%

New load factor 85%

Available No. of seats 40

Seats occupied on average – Speed 32

Annual profit in dollars per occupied seat per

bus $1,750

*Load factor is the actual number of passengers in a bus divided by the total number of seats in a bus

Table 3. Final Calculations – To be performed by the candidate

Speed Velocity

600 miles per day * 250 days * $2 per 600 miles per day * 250 days * $2 per
Fuel cost per year gallon / 10 mils per gallon = $30,000 gallon / 12 mils per gallon = $25,000

Annual 600 miles per day * 250 days * $0.3 per 600 miles per day * 250 days * $0.25 per
maintenance cost mile = $45,000 mile = $37,500

Annual Reduction in fuel cost for ‘Velocity’ over ‘Speed’ $30,000 – $25,000 = $5,000

Annual Reduction in maintenance cost $45,000 – $37,500 = $7,500

Seats expected to be occupied – Velocity 40 * 85% = 34

Increased annual profit because of improved load factor $1,750 * 2 = $3,500

Total incremental annual benefits per year per vehicle $5,000 + $7,500 + $3,500 = $16,000

Question #3: If you have to price this new “Velocity” bus, how would you do that? Assume that the life of
the vehicle is 3 years and the customers retire all vehicles after 3 years. Assume that the current price of
the “Speed” bus is $107,000.
Possible Answer:
The maximum price = current price of 1 “Speed” bus + 3 years * total annual incremental benefits =
$107,000 + 3 * $16,000 = $155,000

Question #4: What are the potential risks of launching “Velocity” bus?

Possible Answer:
Product cannibalization

Question #5: How would you manage this conflict? Expect some creative answers from the candidate.
Question #6: At the end of the case, ask the candidate for a 30 second summary of his/her finding.
Pfizer to Introduce Anti-smoking Drug Chantix in India
Case Type: market entry, new market; new product.
Consulting Firm: Putnam Associates second round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00511: Your client Pfizer, Inc. (NYSE: PFE) is a large multinational
pharmaceutical corporation. Headquartered in Midtown Manhattan, New York City and with its research
headquarters in Groton, Connecticut, United States, Pfizer produces a wide range of drugs. Global

revenues in year 2010  are USD $67.8 billion.

Pfizer is in the business of making anti smoking drugs such as Chantix. Chantix (trade name Chantix in
the USA and Champix in Canada, Europe and other countries, usually in the form of varenicline tartrate)
is a prescription medication used to treat smoking addiction. It both reduces cravings for and decreases
the pleasurable effects of cigarettes and other tobacco products. Through these mechanisms the drug
can effectively assist some patients to quit smoking.
The client wants to sell Chantix at a premium price. You have been hired as a consultant to find out if the
product can be introduced in a country like India – and if so, what is the expected target market, market
share and a feasible price at which the drug should be sold. How would you go about it?

Possible Answer:
Candidate: Since this is a market entry and new product launch case, I would like to structure my
discussion around theproduct characteristics (development and customization) for the Indian market and
then move on to the launch (competition, distribution and promotion) part of the case.
Interviewer: This sounds fine to me. Also, please note that this product Chantix is not entirely new; it has
been introduced in other countries like the U.S. and Canada already.

Candidate: OK, that experience should definitely help us. To start with, can you tell me something more
about the product? How is it different?

Interviewer: Unlike the lozenges or patches, this product is completely nicotine free. It is 5 times more
effective as proved by lab results and 50% of the test results responded to the pill (which in this industry is
an extremely high number thus indicating success).
Moreover, it is a drug that cannot be sold over the counter – it requires a prescribed dosage given by the
doctor. It is to be taken for 3 months daily, 3 times a day.

Candidate: That is good. It gives us the advantage to position our product as superior due to the higher
efficacy of treatment. I would like to take up the competitive scenario next so that we can decide the price
before determining the overall market size.

Interviewer: That’s a fair point. So, there is no similar product in the Indian market. Cheaper products like
lozenges exist but they contain nicotine and sell for 1 Indian rupee (INR) per unit.

Candidate: There are two ways that we can price a new product in a 
non-competitive market: Cost based pricing and ‘willingness-to-pay’ based pricing. In the first case, I
would calculate the cost to the client company and charge a margin on the same while in the second
case, I would calculate the propensity of the consumer to pay for this drug. This would vary with my target
segment chosen. The curve would look something like this (Figure 1).

Ideally, we should be able to calculate the optimal profit case by considering the trade-off in sales volume
vs. price for various price points. The solution will also be influenced to an extent by the growth rates of
the different target segments overall, say movement of people to upper-class from lower-middle class.

Interviewer: Hmm…that is good. In our case, let us assume we did this and came up with INR 8 per unit.
You think that sounds reasonable?

Candidate: I think a price of INR 8 per pill is feasible because of the lab results – people will be convinced
that it is a medically prescribed drug and since it is a pre-scheduled dosage for 3 months, results are
guaranteed. We can also stress on the fact that it is nicotine-free and indirectly position this as a life
saving drug.

Interview: OK, let’s estimate the market size assuming we decide to price it at INR 8 per unit.

Candidate: Let’s take Delhi as a base case. Population: 15 million. Target segment: 40% of the population
smoke * 20% of them would want to quit smoking * 75% can afford the Chantix drug = 9 million people.
Each person will need: INR 8 per unit * 3 pills per day * 90 days = INR 2160 to quit smoking. So, 9 million
* INR 2160 ~ INR 20 billion, or USD $400 million.
We can now assume that this drug will reach out to 25% of the population across India (2011 population
1.2 billion, urban + rural since its effective and one-time payment to quit smoking), which means the total
market size is USD $400 million * (1.2 billion/15 million) * 25% = $8 billion.

Interviewer: Very interesting. What will drive the market growth for our market share?

Candidate: The market growth rate will be affected by the sales and distribution coverage, willingness of
people to quit smoking and addition of new smokers who would want to quit after sometime. We can look
to capture about 80% of this market eventually, assuming no major competitor enters the market, which
can be prevented by intellectual property rights and patent support.

Since this is a prescription drug, the bulk of the promotion costs in this industry are in targeting the
doctors and pharmacists via direct sales agents or Medical Representative to convey the pros and cons
for them to (a) prescribe the drug and (b) keep it in their pharmacies. This will drive our market share from
the potential market size.

Interviewer: Good. Any other costs/concerns that you would like to address?

Candidate: The training costs for the direct sales agents will also be critical as this is a new product and
local agents would need an in-depth understanding of the product. The number of sales people can be
calculated by total workload method: Assuming Doctor/Population ratio and say 3 doctors per day and
repeat visits every 2 months; and pharmacist/population ratio and 3 pharmacists per day and repeat visits
every 15 days.

The supply chain will have to be considered too – the warehousing, distribution network, retail chains, etc.
We can perform the cost benefit analysis for using middle distributors vs. direct distribution.

Interviewer: Great, I think we have covered all the aspects of the case. Thank You!

Cardinal Health to Sell New Non-invasive Surgical Technology

Case Type: new product.
Consulting Firm: Putnam Associates 2nd round job interview.
Industry Coverage: healthcare: hospital & medical.
Case Interview Question #00494: Our client, Cardinal Health, Inc. (NYSE: CAH) is a Fortune 500 health
care services and medical devices company based in Dublin, Ohio, United States. Cardinal Health
specializes in health care supply chain services, providing pharmaceuticals and medical products to more
than 40,000 locations  each day. The company is also a major manufacturer of
medical and surgical products, including gloves, surgical apparel and fluid management products.
Recently researchers at Cardinal Health have just invented a new product for non-invasive surgical
procedures. Our consulting firm has been retained to evaluate the market potential for this product. Their
questions to us are: Should they introduce this new product in the market? If yes, how? If not, why not?
Possible Answer:
This is one of the “new product launch” type of cases. Our discussion should revolve around two threads:

 firstly, what is the market for this product?

 and secondly, what is our client’s capability to succeed in this marketplace?
The discussion would extend not only to a “yes or no” decision for introducing the new product, but
evaluating options foreither entering the marketplace as against valuing the technology for sale to
potential buyers.
Candidate: First, I would like to know some background details on the new technology, our client, and the
market.

 For the technology, I need to understand the impact of this technology in the medical world and if
it is here to stay.
 For the client, I would need to look at our client’s core competence and its competitive advantage
in the marketplace.
 Finally, I would need to understand the marketplace’s potential and growth.
Interviewer: Sounds like a plan. First thing first, how would you go about establishing if this new
technology is here to stay?

Candidate: I would establish this by speaking with market analysts, surgeons, medical providers, and
insurance companies (payers) to understand if this technology would provide a sustainable business
model for our client. This would include understanding the size of the market, its growth potential and the
factors that drive competitive advantage in this marketplace.

Interviewer: Good. The market size for the non-invasive surgical product is $500 million a year in the
United States, and the market is expected to grow at 35% for the next 10 to 15 years. For our discussion,
let’s focus only on the US market.

Candidate: Hmmm, $500 million, this certainly looks like a large market. Our next step would be to
examine the market competition and the factors that drive competitive advantage in this marketplace.
Interviewer: At this point in time, the client Cardinal Health faces only one major competitor GE
Healthcare in this market, with sales of about $250 million annually, and very strong R&D and marketing
capabilities. Do you believe new competitors will be attracted to this marketplace in the future?

Candidate: I think new competitors would be attracted to this marketplace if the technology is widely
adopted in the marketplace, entry barriers are low, and the market opportunity presents high margins.

Interviewer: Actually the technology does look promising – it cuts surgery costs by 20% on average and
shortens post-surgery recovery times by 5 to 10 days, and is expected to be widely accepted in the
marketplace. The technology is not patented, the development timeframes for this technology is about 6
months, and we are expecting gross margins of about 60% to 70% for the major players. We do not have
any information if any other player is looking at this technology at this moment.

Candidate: Given the low entry barriers (no patent, short R&D timeframes), high margins (60% to 70%)
and available market space, I would expect new competitors to enter the market pretty soon.

Interviewer: How much market share do you think our client Cardinal Health can acquire?

Candidate: We are looking at GE Healthcare, the market leader, with 50% of this market, and a potential
threat of new competitors in the short term (6 months to 1 year). Given our client’s time-to-market lead of
6 months over potential newer entrants, we can conservatively estimate to acquire about half of the
remaining market – about 25% market share in 4 to 6 months – by our early presence in this marketplace.
This leads us to revenues of about $125 million annually. From a revenue standpoint, this marketplace
looks attractive. Now, I would like to to examine what our costs would be if we were to enter the
marketplace.

Interviewer: There is one constraint, however. This rapidly evolving technology would require an annual
recurring R&D investment of about $100 million for Cardinal Health.

Candidate: From the cost standpoint, this does not look viable since we estimated earlier that our annual
revenues would be in the range of $125 million. Hence, this new product does not look like a viable
business for Cardinal Health.

Interviewer: So, what’s your conclusion?

Candidate: I would recommend that they do not enter this business.

Interviewer: Well, considering that the R&D sunk costs have already been incurred, what other options
does our client have?

Candidate: The alternate option would be to sell this new technology to a third-party by performing a
valuation on this technology and examining the market for potential buyers.
Interviewer: Great! We have narrowed down to three potential buyers who might be interested in
acquiring the client’s technology. Now, can you help the client perform due diligence to set a price for the
new technology?

Taco Bell Not to Offer French Fries in Their Restaurants

Case Type: new product.
Consulting Firm: Cognizant Business Consulting (CBC) first round job interview.
Industry Coverage: restaurant & food service.
Case Interview Question #00487: Taco Bell is an American chain of fast-food restaurants based in
Irvine, California. As a wholly owned subsidiary of Fortune 500 restaurant company Yum! Brands, Inc.
(NYSE: YUM), Taco Bell mainly serves American-adapted Mexican food, such as tacos, burritos,

quesadillas, nachos,  other specialty items, and a variety of “Value Menu” items.
The Taco Bell chain serves more than 2 billion consumers each year in more than 5,500 restaurants in
the U.S., more than 80% of which are owned and operated by independent franchisees.
Recently, Taco Bell is thinking of offering French fries in their restaurants. They have done several market
studies, conducted focus groups, and surveyed customers about the idea. So far they have concluded
that 20% of their customers would purchase French fries. As part of a Cognizant Business Consulting
team hired by Taco Bell, you have been asked to determine whether they should go ahead with the
French fries idea. How would you go about the case?
Possible Answer:
This is a “new product launch” case. It requires that the candidate first use the information provided to
estimate the size of the market and then do a cost-benefit analysis to see what the actual profit potential
might be. Finally, the candidate must evaluate other factors, which might weigh into the decision.

Candidate: OK, to evaluate this problem, I would like to look at the revenue that might be generated by
selling French fries first and then look at the cost of producing French fries.
Interviewer: Sounds good, go ahead.

Candidate: If 20% of customers are willing to purchase, then we need to know the total number of
customers.

Interviewer: We know that there are 5,500 Taco Bell stores and 1,000 customers per store per day.

Candidate: OK, so there are 5,500,000 total customers per day. Since 20% will order fries, then they will
sell 1,100,000 orders of fries per day. Next, we need to know the profit per order of fries.
Note: It may be easier to evaluate the profitability per store, especially if the interviewer throws out weird
numbers for the total numbers of stores.
Interviewer: Well, for simplicity, let’s assume that fries sell for $1.00 and cost $0.80 to produce.

Candidate: So you have a $0.20 profit per order, which means the profit on selling French fries would be
$0.2 * 1,100,000 = $220,000/day, or multiplied by 350 days for a year gives you $77,000,000.

Interviewer: What do you think of that number? Are there other factors that you think Taco Bell should
consider? (If the candidate wants to pursue more detail, assume fixed costs are $10,000 per store per
year for producing French fryer and variably costs are only potatoes, salt and oil.)

Candidate: Well, based on that analysis, it seems like a highly profitable business, however I might have
some of the following concerns.:

 Confidence in the 20% figure. What if not that many customers will buy French fries?
 Cannibalize other sales. What would be the margins on the items that we are cannibalizing?
 Increased volume on other products seems highly questionable. Is it likely to be an add-on
purchase?
 Damage brand image. This is the big one in this case. Positioned as a Mexican food restaurant,
can Taco Bell differentiate itself from its competitors (McDonald’s, KFC, Burger King, Wendy’s, etc) if
it offers French fries?
Comments:
In this analysis it is important to realize that from the numbers only, this French fries idea seems like a
great business. However, the intangibles are extremely important. The key is to be able to view the BIG
PICTURE.

Airbus Builds A380 Super Jumbo to Challenge Boeing

Case Type: new product; pricing & valuation.
Consulting Firm: Bain & Company final round job interview.
Industry Coverage: aerospace & defense; airlines.
Case Interview Question #00485: The Airbus A380 is a double-deck, wide-body, four-engine jet airliner
manufactured by the European aircraft corporation Airbus, a subsidiary of European aerospace company
EADS (European Aeronautic Defence and Space Company, Euronext: EAD). Currently, it is the world’s

largest passenger  airliner. Originally designed to challenge Boeing (NYSE:

BA)’s monopoly in the large-aircraft market, the Airbus A380 (Dubbed the “Super Jumbo” by the media)
made its maiden flight in April 2005 and entered initial commercial service in October 2007 with
Singapore Airlines.
Back in the 1990s, Airbus was trying to decide whether to produce the super jumbo or not. Bain &
Company was hired to advise them. As a consultant working on this case, you have been tasked with
evaluating the feasibility of Airbus A380 superjumbo project. Specifically, should Airbus enter the market
of large-aircraft or not? How much can they sell them for?
Suggested Approach:
What immediate thoughts came to your mind (or should have) when you heard the problem statement
(based on the type of case, for example, market entry versus cost reduction, pricing versus profitability)?
— Must first understand market. Do not attack the case immediately.

How did you prioritize the issues and what information did you filter out? — Top down thinking:
 Understand the market dynamics
 Study competitors, i.e. Boeing
 Look into financial implications for Airbus
What additional information did you ask for and what information did you get? — I was given an initial
information sheet with: sunk costs, airliner costs, number of seats on airplane. Later on I asked for
information on the demand, market shares, and capacity utilization.

Your approach or framework? — Market, competitors, financial implications

Visual representation — Financial calculations on a sheet to calculate the break even quantity.

Verbal — Presentation was mostly verbal.

How did you summarize your analysis/case? – I gave summary of the whole case. Recommendation was
to enter into the super jumbo market based on financial calculations. These calculations showed that
Airbus would have to maintain 40% (their current market share) of the market for super jumbo over the
next 10 years to break even. Clearly, this is a feasible goal given that competitor Boeing does not have
anything similar lined up.

Additional Information: (to be given to you on a info sheet)

 Airbus A380 sunk costs (research & development) are $50 Billions
 A380 super jumbo average life is 25 years.
 Number of seats on Airbus A380: 500 – 600
 Number of seats on Boeing 747: 400 – 500
 Cost of a traditional jet = $150 Million
 Plus some extra information on competitors and assets needed to produce Airbus A380.
Possible Answer:
Candidate: I want to figure out overall market, competitor response, and then get into the financials.

Interviewer: That sounds fine, go ahead.

Candidate: How many jumbo aircrafts are bought per year currently?

Interviewer: About 50 per year.

Candidate: Is this demand constant or does it fluctuate year by year?

Interviewer: For simplicity assume constant.

Candidate: Who are the major players in this market?

Interviewer: Boeing and Airbus only.

Candidate: What is the market share?

Interviewer: 30 for Boeing, 20 for Airbus.

Candidate: How close are they running to capacity (what might response be) to understand the
competitive response?

Interviewer: They are both at 75% capacity.

Candidate: Are these planes only used on long haul flight? (to figure out pricing).

Interviewer: Yes.

Candidate: Is the demand expected to grow?

Interviewer: Assume constant.

Candidate: OK, I think I got the major things out of the market. Now I want to talk about competitors. Does
Boeing have a similar cost structure?

Interviewer: Yes.

Candidate: Are there long term contracts in place?

Interviewer: Generally yes, but these are somewhat like options.

Candidate: Does Boeing have anything similar lined up?

Interviewer: No, but they are thinking about stretching their current 747 model.

Candidate: Can current production assets be used for something else? Are they fixed or sunk?
Interviewer: Not relevant, so assume no. Costs are sunk.

Candidate: Now with a better idea about market and competitor, I would like to look at financial side. What
are the Variable Costs of producing a super jumbo airplane?

Interviewer: Fixed costs are $50 Billion, variable costs are $150 million per airplane.

Candidate: (At this point I want to estimate the incremental revenue for these airlines from the super
Jumbo and based on this figure out how much they would pay)

Assumptions: Airbus A380 has 150 more seats than Boeing 747, seat occupancy rate (passenger load
factor) is 80%, so 150 * 80% = 120 extra people per flight, assume two flights per day for the super
jumbo, average ticket price: $800 for international flight. Therefore, 120 * $800 * 2 = $200K, an extra
$200K per day per plane.

Assume the airplane is in place 300 days per year, thus $200K * 300 days = $60M per year of
incremental revenue. Incremental costs: $20 million costs because of extra fuel + a few more staff
needed but not much more.

Hence, over a lifetime of 25 years an additional ($60M – $20M) * 25 years = $1B profits. Since these
profits are uncertain and discounting over lifetime, let’s assume we can charge $400M for each Airbus
A380 super jumbo.

We will make $400M – $150M = $250M per airplane. To account for the $50B sunk cost in research &
development, at least 200 A380 need to be sold. This means that for the next 10 years they would need
to sell at least 20 super jumbo airplanes every year. This is in line with their current market share.

Interviewer: OK, so what should they do? Summarize your findingse for me.

Candidate: Based on financial calculations, the client Airbus should enter into this market of large jumbo
jets. (Takes interviewer through calculations and market data found) Their A380 super jumbo aircraft can
be sold for around $400M per plane. The client should be able to break even in 10 years if they can keep
up or even slightly grow their current market share of 20 jumbo jets per year.

Interviewer: Excellent! Now let’s move on to the next case.

Chase to Cross-sell Credit Card Insurance to Card Holders

Case Type: new product; math problem.
Consulting Firm: Capital One Business Analyst first round job interview.
Industry Coverage: banking; financial services.
Case Interview Question #00472: Chase Bank is the consumer and commercial banking subsidiary of
J.P. Morgan Chase & Co. (NYSE: JPM). The bank was known as Chase Manhattan Bank until it merged
with J.P. Morgan & Co. in year 2000. With more than 5,100 branches and 16,100 ATMs nationwide, J.P.

Morgan Chase is one  of the Big Four banks of the United States with Bank of
America, Citigroup and Wells Fargo. In 2004, J.P. Morgan Chase acquired Bank One, making Chase the
largest credit card issuer in the US.
Recently, the credit card division of Chase is considering launching a new financial product: cross-selling
credit card insurance policy to its credit card holders. Credit card insurance usually come in a variety of
forms. The four main types are credit life insurance, disability insurance, unemployment insurance, and
property insurance. For this case Chase plans to launch unemployment credit insurance only. The
insurance product works this way:
 customers who buy the unemployment credit insurance policy would pay 1% of their monthly
balance for insurance premium;
 if customers are involuntarily laid-off or downsized, they can file insurance claim and Chase
would pay their credit card debt in the month they are laid-off;
 customers’ credit card purchases after the involuntary unemployment would not be covered.
Question #1: Is this credit card insurance product going to be a profitable business for Chase?
Additional Information:
 On average Chase credit card holders spend $1000 in credit card purchase each month.
 Market research predicts that, due to bad economic environment, 5% of Chase credit card
holders who buy the unemployment credit insurance policy would file insurance claim within 6 months
of buying the insurance.
 There is no additional cost to Chase in terms of IT implementation, management, and
maintenance of the insurance program.
Possible Answer:
To evaluate whether the credit insurance program will be profitable or not, we will have to weigh both the
cost and the benefit of the program. To simplify the calculations, let’s suppose 100 people will purchase
the unemployment credit insurance policy.

1. Cost

100 people, 5% will file insurance claim in 6 months, average monthly balance is $1000, thus costs to
Chase = 100 people * 5% * $1000 = $5000

2. Benefit

100 people, paying 1% of their monthly balance ($1000) for 6 months, revenues to Chase = 100 people *
1% * $1000 per month * 6 months = $6000
3. Net Profit

Profit = Revenue – Cost = $6000 – $5000 = $1000 per 100 customers

Therefore, by doing a simple cost-benefit analysis, it seems the credit card insurance program will be a
profitable business for Chase.

Question #2: We haven’t talked about marketing cost and customer acquisition cost associated with
launching the credit insurance program. Chase’s marketing department will be using direct mail marketing
to acquire customers. It costs Chase Bank $0.25 to send out a mail. Market research has shown that the
direct mail marketing campaign only has 1% response rate, meaning among the mails sent out to Chase
credit card holders, only 1% card holders will actually buy the credit insurance. Now, adding the marketing
cost, is the credit card insurance program a profitable business?
Possible Answer:
With a low response rate of 1%, in order to have 100 customers buying the credit insurance, Chase
needs to send out 10,000 mails at least. Thus, marketing cost = 10,000 * $0.25 = $2500.

Now, Profit = Revenue – Cost = $6000 – $5000 – $2500 = -$1500 per 100 customers

Therefore, by adding the marketing cost of $2500, the credit insurance product becomes unprofitable
now.

Question #3: What if the response rate of Chase’s direct mail marketing campaign doubles to 2%? Will
the business be profitable?
Possible Answer:
With a response rate of 2%, and insurance claim rate remains at 5%, for every 10,000 mails sent out, 200
people will buy the credit insurance product, and 200 * 5% = 10 people will file insurance claim within 6
months.

1. Cost

Marketing cost: 10,000 mails * $0.25 = $2,500

Insurance claim: 10 people * $1000 = $10,000

2. Benefit

200 people * 1% * $1000 per month * 6 months = $12,000

3. Net Profit

Profit = Revenue – Cost = $12,000 – $10,000 – $2,500 = $-500 per 200 customers. So, it looks like even
with a doubled response rate of 2%, Chase is still going to lose money.
Question #4: What is the required response rate in order for Chase Bank to break-even in the credit card
insurance business?
Possible Answer:
Assume that the break-even response rate is X%, for every 10,000 mails sent out, 100X people will buy
the credit insurance product, and 100X * 5% = 5X people will file unemployment insurance claim within 6
months.

Cost = Marketing cost + Insurance claim = $2,500 + 5X * 1000 = 2,500 + 5000X

Revenue = 100X * 1% * $1000 per month * 6 months = 6000X

To break even, profit = revenue – cost = 6000X – (2,500 + 5000X) = 0, X = 2.5

Therefore, Chase’s direct mail marketing campaign will have to achieve a response rate of at least 2.5%,
in order for the credit insurance program to break even.

Question #5: Assume that the credit insurance claim rate is unknown, what would the relationship
between insurance claim rate and response rate be if Chase wants to break even for the credit insurance
product? Draw a graph to show their relationship. What does the graph tell you?
Possible Answer:
Let the credit insurance claim rate be Y%, and response rate X%. Again, for every 10,000 mails sent out,
10,000 * X% = 100X people will buy the credit insurance product, 100X * Y% = XY people will file
unemployment insurance claim within 6 months.

Cost = Marketing cost + Insurance claim = $2,500 + XY * 1000 = 2500 + 1000XY

Revenue = 100X * 1% * $1000 per month * 6 months = 6000X

To break even, profit = revenue – cost = 6000X – (2500 + 1000XY) = 0, Y = 6 – (2.5/X)

To plot the graph, we could get the (X, Y) for a few points:

 X = 0.417, Y = 0
 X = 0.5, Y = 1.0
 X = 1.0, Y = 3.5
 X = 2.5, Y = 5.0
 X = 5.0, Y = 5.5
 X = 10.0, Y = 5.75
The insurance claim rate (Y) vs marketing response rate (X) is shown in Figure 1.

From the graph, we can see that: even if the insurance claim rate (Y) only increases slightly, Chase would
have to significantly increase the direct mail marketing response rate (X) in order to break even.
Therefore, to make money for the credit insurance product, it would make much more sense for Chase to
keep the insurance claim rate under control instead of trying to boost direct mail response rate.

Wells Fargo To Not Offer Reverse Mortgage Products

Case Type: new product.
Consulting Firm: Capital One first round job interview.
Industry Coverage: banking; financial services.
Case Interview Question #00461: Wells Fargo & Company (NYSE: WFC) is a multinational diversified
financial services company. Headquartered in San Francisco, California, United States, the company has
operations all over the world. Currently Wells Fargo is one of the Big Four banks of the United States, the

fourth  largest by assets (after J.P. Morgan Chase, Citigroup, Bank of America),
the second largest by market capitalization, and the second largest in deposits, home mortgage servicing,
and debit card.
Let’s suppose you are working for the Division Head of Wells Fargo’s home mortgage business in San
Francisco which lends to individual home buyers. The Head of home mortgage reads about a bank in
Florida that is offering reverse mortgages. He wants to know if his division should offer this product or not.
How would you help him make a decision?
Additional Information:
What is a Reverse Mortgage?
A Reverse Mortgage, as the name implies, is the inversion of a normal mortgage. The bank pays you an
annuity stream in exchange for the proceeds from your house when it is sold. The sale happens when
you die or go into the nursing home. The bank will only provide a reverse mortgage for up to 50% of the
market value of the house.

A reverse mortgage is a loan available to seniors aged 62 or older, under a Federal program administered
by the United States Department of Housing and Urban Development. It enables eligible homeowners to
access a portion of their equity. The homeowners can draw the mortgage principal in a lump sum, by
receiving monthly payments over a specified term or over their (joint) lifetimes, as a revolving line of
credit, or some combination thereof. The homeowners’ obligation to repay the loan is deferred until owner
(or survivor of two) dies, the home is sold, they cease to live in the property, or they breach the provisions
of the mortgage (such as failure to maintain the property in good repair, pay property taxes, and keep the
property insured against fire, etc).

Possible Solution:

This is a “launching a new product” type of case with a few strategic issues scattered at the end. The key
to successfully cracking this case is to have the interviewee estimate the market potential for this new
product and then compare the expected costs of distributing the product.
1. Market Estimation
The key is that the client, this head of home mortgage, is looking at the San Francisco market only.

Variable Value Comment

San Francisco’s Population 4M

% of population that is retired

(>65) 10% San Francisco is a “young” city.

% of retirees that own majority The equity value of the house = market value – mortgage
of equity in their homes 75% value. So only people with lots of equity would be interested.

% of above with low incomes

(<$30K) 2/3 People with high incomes don’t need an annuity

This gives us an approximate market size of 4M * 10% * 75% * 2/3 = 200,000 people = 100,000
households.

2. Revenue Estimation
The bank charges a 1% origination fee on value of total equity mortgage. Assume each household has a
mortgage of $200,000 on average. Loans are securitized so the bank doesn’t receive any interest
payments. You can assume a 5% market penetration rate.

Thus, we can calculate the estimated revenue:

100,000 households x
5% penetration rate x
$200,000 mortgage x
50% bank loan value x
1% origination fee =
$5 million in revenue

3. Costs
A major obstacle the bank faces is product distribution. The bank will most likely have to use a direct
sales force (very expensive) to reach its target customers (people >65 with low incomes).

4. Recommendation
The market potential is too small to bother with, especially since the product is very easy to copy. Plus,
the reverse mortgage offers few synergies with client’s existing products and customers. So, the client
should not offer the new reverse mortgages product.

Rollins Pest Control to Adopt New Liquid Termite Pesticide

Case Type: new product.
Consulting Firm: LEK Consulting 2nd round job interview.
Industry Coverage: consumer products; chemical industry.
Case Interview Question #00438: The client Rollins Inc. (NYSE: ROL) is a premier consumer and
commercial services company based in the United States. Through its wholly owned subsidiaries,
including Orkin Inc., PCO Services, HomeTeam Pest Defense, Western Pest Services, and The Industrial

Fumigant Company, Rollins  provides essential pest control services and

protection against termite damage, rodents and insects to over 2 million customers in the United States,
Canada, Mexico, Central America, the Caribbean, the Middle East and Asia from over 500 locations.
Recently, your consulting firm has been retained by the CEO of Rollins to evaluate the feasibility of
adopting a new form of termite pesticide. Specifically, your job as a consultant is to recommend which
product the company should use and how they should market their choice. How would you approach the
case?
Possible Answers:
This a marketing case (whether to adopt a new product or not), so use the 3C’s framework:
Company/Product, Customers, Competition.

1. Company/Products – Quality
Current Product: The current product is a two phase operation a technician places baiting boxes into the
ground around the client’s house. After two weeks the technician returns to see if the termites have eating
the wood bait. If there are signs of termites, the technician will fill the baiting boxes with “laced” wood
which will effectively kill the colony.

New Product: The new product is a liquid application that is applied (sprayed) onto the foundation of the
house regardless of termite infestation.

Notes on the two products:

 Both products are equally effective

 Both products are equally safe
2. Company/Products – Price & Cost
Treatment Renewa
Type 1st Year l

Cost Price Cost Price

Liquid $750 $1,000 $100 $200

Baiting $1,100 $1,500 $250 $300

Notes on Profits:

 Here the interviewee should calculate the profit and realize baiting is more profitable in the first
year, $400 opposed to $250.
 What the interviewer needs to do is to make them think about the renewal aspect, i.e. the
customer.
 There are no fixed costs associated with the liquid treatment.
3. Customers – Renewals and Profits
Customers renewal rates diminish from their initial application, the interviewee should calculate the
contribution margin of renewal rates by multiplying the percentage by the profit of a renewal.

Customer Renewal Rates:

1st Year 90%

2nd
Year 80%

3rd Year 70%

4th Year 60%

5th Year 50%

6th Year 0%

Total Profit with Renewal

 Liquid: $250 + $100 * (90% + 80% + 70% + 60% + 50%) = $600

 Baiting $400 + $50 * (90% + 80% + 70% + 60% + 50%) = $575
Therefore, overall Liquid is more profitable.

4. Customers – Product Preferences

In a customer survey we found the order of their preferences.

1. Efficacy
2. Safety
3. Price
Notes on Customer Preferences:

 Since the efficacy (effectiveness) is the same for both products, this is not a concern.
 There is a perceived safety associated with baiting opposed to spraying (liquid), so the client is
going to have to educate its customers that both applications are equally safe.
 The liquid application is less expensive for the customer for the initial application and for renewal
5. Competition
There are no local competing companies at the moment, but companies in adjacent towns are offering the
liquid service at the same prices you are considering.

Notes on Competition: The interviewee should understand that the competition will offer the product if
they do not.

6. Overall Recommendation
 Initially the company should offer both products to meet customers who prefer safety over price
and price over safety.
 The client should spend money on educating consumer that liquid application is as safe as the
old baiting method.
 The client needs to monitor competition to ensure the dominate position in town.
Medtronic to Introduce Prepackaged Sterile Procedure Kit
Case Type: new product.
Consulting Firm: GE Healthcare 2nd round job interview.
Industry Coverage: healthcare: hospital & medical.
Case Interview Question #00424: Medtronic Inc. (NYSE: MDT), based in the suburban Minneapolis,
Minnesota, USA, is one of the largest medical device and technology companies in the world. As an
integrated healthcare solution provider, the company operates six main business units which develop and
manufacture devices and therapies to treat more than 30 chronic diseases,
including heart failure, Parkinson’s disease, urinary incontinence, obesity, chronic pain, spinal disorders,
and diabetes.
Recently, Medtronic is thinking about introducing a new product for its medical supplies division. The
product is a pre-packaged, custom-made sterile procedure kit. You have been hired by Medtronic to help
them decide whether to launch this new product or not. How would you go about the case?
Additional Information:
The procedure kit would contain sterilized apparatus used in operating rooms (e.g., gloves, sutures,
swabs, etc).

The kit would be sold for approximately 20% more than if the items were purchased individually.

The kit contains all the equipment needed for particular kinds of basic medical and/or surgical procedures
(i.e., removal of an appendix).

Possible Answer:
This is a classical “launching a new product” type of case. At a minimum, the job candidate should
determine three things:
1. market size for the new product
2. the economics of the business
3. value proposition.
The maximum market size can be estimated by the sum of the market sizes of all the individual
components (~800MM/year). Realizable sales are dependent on the individual market segments and their
economics in adopting the pre-packaged sterile procedure kits.

Hospitals could save on labor costs (nurses currently have to prepare the sterilized components in the
operating room), ordering costs (each component is ordered and tracked separately), and administrative
costs (pre-packaged kits allow for consolidation of suppliers). Pre-packaged kits should also be easier to
monitor and manage, thereby reducing stockouts. Since each kit would set up for a certain type of
operation, the economics of purchasing each kit would vary by the complexity of the operation.

The pre-packaged kits would most likely be sold to institutions that perform certain medical procedures on
a regular basis. It turns out that 70% of individual component sales are made to large hospitals, with the
remaining going to smaller institutions. The large hospitals will realize potentially larger savings than
smaller institutions, since they tend to perform the same procedures often. Thus, kit sales are likely to
represent some percentage of sales of individual components to large hospitals.
In assessing the economics of the business, the candiate needs to consider both the cost to provide kits
and the potential cost savings to hospitals.

 Consider cost to provide kits: Inventory, Marketing, Distribution, etc.

 Consider cost savings to hospitals: reduced administration & increased productivity.
Merial to Discontinue Swine Growth Hormone Product
Case Type: new product.
Consulting Firm: Towers Watson 2nd round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00417: The client Merial is a multinational animal health and pharmaceutical
company. It was formed as a joint venture between Merck & Co. and Sanofi-Aventis in 1997. Merial is
now the animal health subsidiary of global pharmaceutical company Sanofi-Aventis (Euronext: SAN,

NYSE: SNY, FWB: SNW).

Merial is an industry leader in innovation, and provides an ample range of pharmaceutical products
(veterinary drugs, vaccines, growth hormone, antibiotics, etc.) to improve the health, the well-being and
the yield of the domestic pets, farm animal and poultry, e.g. cattle, chicken, horses, and pigs, etc.

Over the past few years, the firm has spent $50 million per year on developing a new biotech product for
pigs. If the investment continues, it will be ready to market in two years. Should the client continue with
the development of this new product?
Additional Information: (to be given to candidate if asked)
1. Company

The client Merial is the largest firm in the industry, with sales of $2.6 billion in 2010. There are several
other competitors, the next largest has sales of $1.8 billion.

2. Product

The biotech product under development is a swine growth hormone. It produces faster growth for pigs,
and reduced fat in the meat. The product has to be injected daily for the 100 days prior to sale.

3. Customers

Savings to pig farmers if the growth hormone is as follows:

 20% less fat ($10/head)
 20% less time to adulthood ($20/head)
Currently 100 million pigs are raised each year in the US.

Possible Answer:
1. First, determine customer interest by performing a telephone survey on current clients. It turns out that:
 20% of the clients like it (small pig farms)
 50% are neutral (medium pig farms)
 30% hate it (big pig farms)
Conclusion is that sales for the new swine growth hormone product will likely be low.

2. Next, evaluate competitive landscape. It turns out that:

The competitors have their own research programs underway. In three years, it is expected that one
competitor will have a similar product which only has to be injected every four days. Another competitor
will have a similar product coming out in four years which only has to be injected once every two weeks.

Conclusion is that the client’s sales for the new swine growth hormone product will be taken away by the
competitors in a couple of years who have a much superior product.

Recommendation for the client:

Do not continue with the development.

Bank of America to Offer New Cash Back Credit Card

Case Type: new product; math problem.
Consulting Firm: Capital One second round job interview.
Industry Coverage: financial services; banking.
Case Interview Question #00412: The client is the Global Consumer and Small Business Banking
(GC&SBB) division of Bank of America (NYSE: BAC). Headquartered in Charlotte, North Carolina, Bank
of America is a multinational banking and financial services corporation, and is the second largest bank

holding company in the United States by assets, and the fourth largest bank in
the U.S. by market capitalization as of 2011.
The GC&SBB is the largest division in the company, and deals primarily with consumer banking and
credit card issuance. Recently, the division head of Bank of America’s credit card business is considering
launching a new cash-back reward credit card called “BankAmericard Cash Rewards”. The goal is to
significantly grow their credit card business. You have been hired to advise them on rolling out this new
product.
Question #1: Is this new cash-back reward credit card a good idea?
Additional Information: (to be given to you only if asked)
Bank of America credit card business has two main revenue sources: merchant fee and interest earned

on customer’s unpaid balance.

 The bank receives 1% of the transactions from merchants.

 The credit card has an interest rate of 12.99% APR (Annual Percentage Rate).
 There is no annual fee for the credit card.
Cash back Rewards

 Customers earn a fixed percentage for different categories of purchase charged to the credit
card.
 Detailed cash-back percentage of the reward program is shown in Figure 1.
 There is no expiration on earned cash back rewards.
Average customer is expected to carry a balance of $1,000 on the card and have transactions worth
$5,000 a year.
Average customer spending break-down is shown in Figure 2.
Possible Answer:
This “new product” type of case is a simple math problem in which the candidate will have to evaluate the
cost and benefit of the cash-back reward credit card. The calculation is best performed on an individual
account basis.

Cost: cash back paid per year

$5000 * 25% * 5% + $5000 * 15% * 3% + $5000 * 60% * 1% = $115

Benefit: merchant fee and interest earned per year

$5000 * 1% + $1000 * 12.99% = $180

So, it looks like the new cash-back reward credit card will be a profitable product, if there is no other cost
involved.

Question #2: Bank of America currently has 5 million regular credit card accounts with no cash-back
rewards. For these accounts, customers carry a balance of $800 on the card and make transactions
worth $4,000 a year on average. Should Bank of America allow the regular credit card to be converted to
the new cash-back card?
Possible Answer:
For the regular credit card, Bank of America earns merchant fee and interest, but does not pay any cash
back. Net revenue = $4000 * 1% + $800 * 12.99% = $144.

From Question #1, we already determined the net revenue for a cash-back credit card = $180 – $115 =
$65.

Therefore, they should not allow regular account to be converted to cash-back account.

Question #3: Six months after Bank of America rolls out the cash-back reward credit card, they haven’t
seen the expected growth in terms of the number of new account opened. The marketing department
comes up with a promotion idea: For the first 50,000 new cash-back reward credit card accounts,
customers can get a $100 cash back bonus after they make $500 in purchase within 90 days of account
opening. How many new credit card accounts does Bank of America need in order to break even?
Possible Answer:
Assume that all the 50,000 new card members will be able to make $500 in purchase within 90 days and
earn the $100 bonus.

To break even, set revenues – costs = $65 * X – 50,000 * $100 = 0, solve the equation X = 77,000.

What Should The Price of an Indestructible Golf Ball Be?

Case Type: pricing & valuation; new product.
Consulting Firm: Bain & Company second round full-time job interview.
Industry Coverage: sports, leisure & recreation.
Case Interview Question #00408: You are an engineer working for Callaway Golf Company (NYSE:
ELY). Based in Carlsbad, California, United States, Callaway is a global sporting goods company that
designs, manufactures, markets and sells golf equipment, golf balls, golf accessories and

golf  lifestyle-related products in more than 70 countries worldwide.

Recently, you invented a new type of golf ball. The magic golf ball is indestructible and is not possible to
lose. Very eager to release the new golf ball to market, you are not so sure how much to charge for it.
What should the price of the golf ball be?

Additional Information:
None, the candidate will have to generate all assumptions on his/her own.

At some point the interviewer may want to provide the following information:

 No need to take into account the time value of money.

 The new type of golf ball costs $200 to produce with no R&D or fixed costs.
Possible Answers:
Interviewer: How would you approach this case question?

Candidate: I think that in thinking about how to price this golf ball we need to consider two things, the cost
to produce the golf ball and how much the average customer would save over his lifetime by using it.

Interviewer: Why are those two items relevant?

Candidate: Well, we need to price the golf ball above cost (fixed, variable, and R&D costs) so that we
make money on the ball. But we can’t price the ball above the amount that a customer is going to save on
other types of golf balls if he uses ours.
Interviewer: OK, I agree with that.

Candidate: Am I correct to assume that I am to build up assumptions?

Interviewer: That is correct.

Candidate: OK, lets start with the market size in terms of people. I’m going to assume that there are 300
million people in the United States.

Interviewer: That’s a reasonable assumption.

Candidate: When I was growing up, half of my family played golf. But that’s a bit more than average, so
let’s say that one-fifth of the US population plays golf. That means that 60 million people in the US play
golf.

Interviewer: I’m having trouble seeing how that relates to how we price the ball.

Candidate: You’re right, I wanted to generate a market size just to get a sense of how much money we
could one day make. Let me get back to the price of the ball.

I’m going to assume each golfer plays golf 2 times a month and uses 3 ball every time he plays. That
means that each golfer uses 72 balls a year. Let’s just round down to 70.

Let’s also assume that a golfer plays golf his whole life but on average picks it up when he is 35. And let’s
assume that the average life span is 70 years old. That means the average golfer plays for 35 years. If he
uses 70 balls a year, he uses 2,450 balls over the course of his life. Let’s just round that to 2,500.

Now we need to come up with how much an average golf ball costs. I want to say that a pack of 3 costs
$5.

Interviewer: Let’s just call it $2 a ball.

Candidate: OK, at $2 a ball that means the average golfer spends $5,000 over the course of his life. But
we have to discount that to account for the time value of money.

Interviewer: Let’s not worry about that for the moment.

Candidate: Great. So $5,000 would be the most you could charge. The least you could charge would be
the cost of the ball. How much does it cost to produce the ball?
Interviewer: $200 a ball.

Candidate: OK. Are there any fixed costs? Also, how much have we invested in R&D to develop that?

Interviewer: I think those are excellent points, but let’s not worry about that right now.

Candidate: OK, then I would say we should price the ball between $200 and $5,000.

Interviewer: I want you to tell me exactly where we should price the ball.

Candidate: Well, if the customer is perfectly rational, then anyone less than 35 is willing to pay up to
$5,000. But there will be some golfers older than 35, which means they will have fewer years of play and
be willing to pay less. Plus, $5,000 is an awful lot for a ball and some people don’t know for sure that they
will play golf for their whole life. We’d have to do some market research to come up with the correct price,
but I think somewhere around $2,000 would be appropriate.

Interviewer: That seems like a lot.

Candidate: It is a lot, but the price of the ball is well below how much the average golfer would spend on
balls.

Interviewer: What would you do for older golfers?

Candidate: I think that maybe you could offer the ball at a discount, something like movie discounts for
seniors, etc.

Interviewer: But what about a 15-year-old who doesn’t have enough money to buy a ball?

Candidate: Well, I suppose you could discount it for him, too.

Interviewer: But by how much? You’re selling a cheap ball to a kid who’s going to play for more than 50
years!

Candidate: You’re right. Well, what if you arrange for financing for the ball.

Interviewer: This is intriguing, tell me more.

Candidate: Well, it’s a bit like a student loan, where you would arrange financing so that the 15-year-old
only has to pay a small amount up front and then pays for the rest over time, with principle and interest
payments.

Interviewer: I like that idea. What’s the problem in terms of the market for this ball?
Candidate: Well, the funny thing about this ball is, let’s suppose you sell one to every golfer in the world.
Because the ball never wears out, you have no new market except for the population growth rate. And
that’s only for incremental growth, because when someone dies they can pass it on to someone else.

Interviewer: You’re right. And when we told this to the potential investors, they didn’t like that at all. They
didn’t like that they’d put in money now for a business that won’t have a market after a year or so. What
would you say to them?

Candidate: I’d say, look, you have the opportunity to invest in a company that is going to sell $2,000 golf
balls to 60 million people overnight, and the balls only cost $200 to make. That’s a huge revenue
generation opportunity. You could get your return out after a year and go invest in something else.

Interviewer: Totally correct. They’d be crazy to pass that opportunity up. Nice job!

John Deere to Not Manufacture Diesel Engines for Trucks

Case Type: new product.
Consulting Firm: IBM Global Business Services (GBS) first round job interview.
Industry Coverage: industrial equipment; agriculture, farming.
Case Interview Question #00402: Your client Deere & Company (usually known by its brand name John
Deere, NYSE: DE), is a leading global manufacturer of agricultural and farming machinery based in
Moline, Illinois, United States. Deere and Company agricultural products, sold under the John Deere

brand name, include tractors,  combine harvesters, cotton harvesters, balers,

planters/seeders, sprayers, and ATVs. The company is also a leading manufacturer of construction
equipment and forestry equipment, as well as a supplier of diesel engines and drivetrains (axles,
transmissions, gearboxes) used in heavy equipment.
The client John Deere operates a diesel engine manufacturing line, which currently has excess capacity.
The President of John Deere is considering using their excess capacity to manufacture truck engines but
does not want to make any additional capital investments. You have been hired to advise the President
on this matter. Should the client pursue this idea or not? And why?
Additional Information: (to be provided to candidate if asked)
1. The client company’s diesel engine operation produces three diesel engine product lines: 4-liter, 8-liter,
and 12-liter.

2. The diesel engine market in the U.S. breaks down as follows:

Producer Current production Capacity

Large player (non-farm-equipment) 80,000 110,000

Other players (non-farm-equipment) 10,000 25,000

Client John Deere 5,000 20,000

Other farm equipment

manufacturers 30,000 40,000

3. Current variable cost profile for client John Deere and its main competitor (indexed to client’s total
variable costs):
Variable cost Labor Parts Other variable costs Total

Client John
Deere 20 60 20 100

Main Competitor 20 54 12 86

4. Client’s variable cost profile at a volume of 20,000 engines (maximum capacity)

Variable cost Labor Parts Other variable costs Total

Client John
Deere 20 57 16 93

5. The demand profile for the

last couple of years is depicted in the graph below (Figure 1), with U.S. demand for diesel engines
expected to increase to 160,000.

Possible Solution:
This “launching a new product” type of case should be approached through a combination of the 3C’s and
profitability framework.

The demand graph shows the characteristics of an economic cycle; the high point is likely temporary.

The candidate should realize that the client John Deere can only compete if the marginal cost of
production is equal or lower than that of its main competitor.

Based on the information provided, the total cost will still be above the marginal cost of the main
competitor; therefore, the client cannot compete in this market.

DoubleClick Optimizes Customer Service for Big Publishers

Case Type: new product.
Consulting Firm: PricewaterhouseCoopers (PwC) second round job interview.
Industry Coverage: software, information technology (IT); online business.
Case Interview Question #00391: Your client DoubleClick Inc. (NASDAQ: DCLK, acquired by Google for
USD $3.1 billion in March 2008) is a technology company headquartered in New York City, New York,
USA. The client is in the business of online advertising, providing Internet ad management and serving

services. They generate revenues by placing ads (links, text, image, video, and
rich media ads) on websites of other web content publishers, e.g. Wall Street Journal’s WSJ.com,
America Online’s aol.com.
DoubleClick currently has ~500,000 clients (web content publishers) who are grouped into three tiers,
based on their web traffic. Tier A are big online content networks with billions of page views and ad
impressions per month. Tier B and Tier C are medium-sized web content publishers and small online
content providers with millions of page views per month.
Tie
r % customers Total Revenue

A 5% $500M

B 15% $300M

C 80% $200M

DoubleClick recently invested $80M in implementing a program that optimized customer service for
clients in Tier A. The new program resulted in increased revenue per publisher (customer) within Tier A
by 20% (based on initial data). The program involves a customer service representative looking at a
customer website and offering customized ad design and placement recommendations for each
publisher. Better ad design and placement would result in a much higher click through rate (CTR) for the
ad, thus increasing DoubleClick’s revenues.

Now, your client DoubleClick is considering rolling out this new program to the other two Tiers and has
hired you to assist them with the implementation.

Key Assumptions:
 The return over the cost of capital should be similar across all Tiers.
 Net and gross margins are similar across all Tiers.
Question #1: How might the Customer Service models differ across the 3 Tiers?
Possible Answer:

Think about the revenue per customer generated at each Tier (See the analysis below for calculations of
average revenue per customer). Human customer service representatives invest more time in high value
customers of Tier A. Reps will spend less time in Tiers B and C, and more automation will be used given
the large number of customers and low revenue per customer in Tiers B and C.
Average Revenue per Customer in each Tier:

 Tier A: $500M / (5% × 500,000) = $20,000

 Tier B: $300M / (15% × 500,000) = $4,000
 Tier C: $200M / (80% × 500,000) = $500
Question #2: What budget would you estimate for the implementation to Tier B and Tier C?
Possible Answer:
The implementation budget for each Tier (since return on cost of capital is the same) should be
proportional to the total revenue in that segment. Implementation budgets should be in a ratio as follows:

 Tier B: $300M / $500M = 60% of Tier A, implementation budget = $80M * 60% = $48M
 Tier C: $200M / $500M = 40% of Tier A, implementation budget = $80M * 40% = $32M
Question #3: How much would DoubleClick spend on servicing each customer in the different Tiers?
Possible Answer:
The amount in time or dollars spent on the service upgrade should be in proportion to the revenue
generated per customer in each Tier (since a uniform margin is expected to be maintained across all
Tiers). The cost to service each customer should be as follows:

 Tier A: $80M / (5% × 500,000) = $3,200

 Tier B: $48M / (15% × 500,000) = $640
 Tier C: $32M / (80% × 500,000) = $80
Question #4: Which Tier would you chose for the next implementation of the optimized customer service
model? Why?
Possible Answer:
The next implementation should be done within Tier B. Tier B together with Tier A accounts for 80% of all
revenue and will therefore result in the largest lift through the optimized revenue model. Since Tier C
represents only 20% of sales, DoubleClick could take the time to leverage further learnings from the
implementation in Tier B before rolling it out to Tier C. This is critical if DoubleClick finds that the increase
in revenue in Tier B is lower than the expected 20%.

Question #5: How can DoubleClick implement the new program to improve performance in Tiers B & Tier
C when service time/cost per customer in those Tiers is significantly less than in Tier A?
Possible Answer:
DoubleClick should identify a scalable service optimization solution by analyzing the process used during
the implementation in Tier A. The analysis should identify trends along the vertical (up that customer Tier)
and horizontal (similar customers across Tiers) segments.

Several opportunities exist for process improvement:

 Develop best practices for customer service representatives to more efficiently identify the most
common optimization opportunities in each vertical or horizontal segment. This would help improve
efficiency during the process.
 Identify optimization opportunities in Tier A that can be automated. Service in Tier B is likely to be
semi-automated and the service in Tier C is likely to be fully automated.
 Outsource parts of the process (especially the labor-intensive portions).
 Charge a price for the program, if the redesign process increases traffic to the publisher/customer
website.
Question #6: Give a recommendation to the client summarizing your findings.
Possible Answer:
Our analysis showed that DoubleClick’s Revenue per Customer in Tier B is 1/5 of Tier A, and Tier C is
1/40 of Tier A.

We recommend the client to find ways to automate and leverage experience from Tier A implementation
to lower cost per customer in proportion with revenue per customer in each Tier.

Client should implement next in Tier B with a budget that is 60% of Tier A. It’s very possible that reducing
cost to 1/40 for Tier A for Tier C is not feasible without relying on full automation.

Coors Brewing Company Considers Bottled Water Market

Case Type: new product.
Consulting Firm: Deloitte Consulting second round job interview.
Industry Coverage: food & beverages; tobacco & alcohol.
Case Interview Question #00365: The client Coors Brewing Company (a regional division of the world’s
fifth-largest brewing company, the Canadian Molson Coors Brewing Company) is a leading beer brewer in
the United States. Coors is responsible for over twenty different brands of beer in North America, the
most notable of  which are Coors, Killian’s, Caffrey’s, Keystone, and Blue Moon.
Coors is also well known for operating the Golden, Colorado brewery, the largest single brewery facility in
the world.
For the last several years, the client Coors Brewing Company has been experiencing stagnant sales and
flat profits in an increasingly competitive industry. Therefore, they are trying to evaluate every possible
growth opportunities. The following are the key problems and issues that brought the client to your
consulting firm:
 A high level senior executive, the Chief Marketing Officer (CMO) at Coors has noticed a steady
and substantial increase in the consumption of bottled water products in the U.S.
 Believing that the assets required to produce bottled water are very similar to that of beer, the
CMO wants to recommend to the CEO that they begin production of bottled water products.
The CMO has asked your firm to help build the case for why they should enter the bottled water market to
achieve their sales and profit goals. How do you develop the business case for him? What
recommendations would you have for this company?

Additional Information:
Client is facing increased competition from microbreweries (A microbrewery or craft brewer is a brewery
which produces a limited amount of beer, and is usually associated by consumers with innovation and
uniqueness), and has already explored ways to penetrate the international market; however, this alone
will not enable them to meet their current goals of increasing both sales and profits by 300% in five years.

Possible Solutions:
I. Industry Analysis: assess the market potential & profitability
1. What is the expected growth rate for bottled water industry?
 After 3 years of 30% growth, the bottled water market has flattened, with future annual growth
expected to be <10%.
 However, recent industry analysis suggests that current manufacturing capacity among the major
bottled water producers will not satisfy basic domestic demand.
2. What is the competitive environment of the bottled water market like and how does that compare with
the beer market?

 There are 3 major bottled water producers who sell nationally.

 Beer market is highly fragmented with many regional brands.
3. What are the key success factors/core competencies for a Bottled Water manufacturer relative to Beer
Brewer?
 For Beer, regional brand strength and distribution coverage.
 For Bottled Water, low bottling costs, national brand name recognition and distribution coverage.
4. What capital investments are required? (Interviewee should not assume client is correct in his
assumption)

 Capital investment requirements for packaging beer vs. bottled water are different: plastic
bottles/jugs/coolers for water vs. aluminum cans/glass bottles and kegs for beer.
5. What is profitability of bottled water line? Economic Value Added (EVA), Return On Net Assets
(RONA), contribution margin? How does this align with client’s overall performance objectives?

II. Customers
1. Who is our target market for the bottled water? How large is the market? How does that compare with
beer? Are they compatible?

2. What will be market acceptance of a beer producer in bottled water market?

III. Company
1. How does the proposed new bottled water product fit with client’s current line of business?

 Client employs a focused manufacturing strategy – each plant produces a few specific product
lines.
2. What is the expected impact on client’s beer market share due to loss of production capacity for bottled
water? Are there any seasonal/cyclical impacts?

3. What are the regulatory/labeling requirements for bottled water? Do they differ substantially from
client’s current product line of beer?

4. Does client have marketing/sales force infrastructure and capabilities to operate/run bottled water
business successfully?

5. How do distribution channels of competitors compare to those of the client? Can the client use their
current distributor network for bottled water products?

 Very different – client sells primarily to distributors who sell to restaurants and liquor stores;
competition (major bottled water producers) sells to distributors who sell to grocery/mass
merchandise outlets and offices/homes.
IV. Other questions that may be asked:
 How would you go about estimating the annual market potential/sales of the bottled water
market?
 What would be the existing competitors’ (the 3 major bottled water producers) response to client’s
entry into this industry?
 If your recommendation were counter to your client’s belief, how would you go about
communicating your recommendation to him/her?
 Are there alternative strategies to entering the bottled water industry (i.e. outsourcing, contracting,
forming joint venture with major bottled water producer)?
 What if you learned that there was going to be a new entrant in the bottled water market? What
analysis would you focus on to determine if you should change your recommendation?
Blizzard to Market New World of Warcraft Video Game
Case Type: new product; investment.
Consulting Firm: Booz & Company 2nd round job interview.
Industry Coverage: entertainment; online business.
Case Interview Question #00362: The client Blizzard Entertainment Inc. (currently owned by holding
company Activision Blizzard, NASDAQ: ATVI, majority owned by French conglomerate Vivendi SA) is a
video game designer, developer and publisher based in Irvine, California, United States. Blizzard has

created several successful  PC video games, including the Warcraft, Starcraft

and Diablo series.
Recently, Blizzard Entertainment has developed a new version of the popular Warcraft video game called
World of WarCraft. World of Warcraft (WoW) is a massively multiplayer online role-playing game
(MMORPG) that consumers can play either alone or with friends over the internet. It will cost the client
$25 million to advertise the new video game. They require a 200% margin on their marketing investment.
Should the client invest the money or not? Why?
Instruction to the interviewer:
The objective of this “investment” type of case is:

 To see if the candidate can identify multiple sales channels and revenue streams.
 To see if the candidate can make a logical market sizing estimation.
 To see if the candidate can conduct basic profitability analysis.
Question #1: What are the multiple revenue streams and possible prices charged for each revenue
stream? What would the customer adoption rate be?
Possible Answer:
 Retail sales for the video games – $50/each
 Online monthly subscription fees – $10/month (every other customer will purchase this for 6
months)
 Subsequent version upgrades – $30/each (every third customer will purchase the upgrades)
Question #2: What is the expected revenue of the average customer?
Possible Answer:
Value of an average customer:
 Video game cost: $50
 Online subscription service – 50% will purchase 6 months of service at $10/month: 50% * 6 * $10
= $30
 Upgrades – 33% of customers will purchase for $30: 33% * $30 = $10
 Total: $50 + $30 + $10 = $90
Question #3: Estimate the potential number of customers and the implied revenue? Assume the market
is for US males ages 10-25 years old.
Possible Solution:
Market Sizing:

 Assume there are 300 million people in the US – equal distribution from age 0-75.
 All people ages 10 – 25 would be 15/75 = 20% of the total US population
 Males ages 10 – 25 would be 10% of the total US population
 Market size is 300 million * 10% = 30 million potential customers
Total Revenue:

 Assume that 10% of potential customers play this type of multiplayer online role-playing video
game;
 50% of them will buy this new World of WarCraft game;
 number of customers will buy the game = 30 million * 10% * 50% = 1.5 million;
 Implied revenue = $90 per customer * 1.5 million customers = $135 million in potential revenue
Question #4: Should the client invest $25 million in marketing the new World of WarCraft game or not?
Possible Answer:
Potential revenue $135 million / $25 million marketing investment = 5.4 = 540%. This is far greater than
the 200% margin required by the client. Therefore, the client Blizzard Entertainment should invest the
money.

Question #5: Ask the candidate for a 30 second wrap-up/concluding recommendation.

Possible Solution:
We have identified three types of revenue streams for client’s new video game which will bring a revenue
of $90 per customer. The potential number of customers for the World of WarCraft game is estimated to
be 1.5 million, resulting a total revenue of about $135 million, which is 540% of initial marketing
investment. Therefore, we recommend the client to invest the money.

Marathon Petroleum to Offer Co-branded Credit Card

Case Type: marketing/operations strategy; new product.
Consulting Firm: American Express 2nd round job interview.
Industry Coverage: oil, gas & petroleum industry; financial services.
Case Interview Question #00356: Your client Marathon Petroleum Corporation (NYSE: MPC) is a U.S.
based oil refining, marketing, and pipeline transport company with its headquarter in Findlay, Ohio.
Marathon Petroleum operated as a subsidiary of Houston, Texas-based Marathon Oil Corporation (NYSE:

MRO)  until July 1, 2011.

Marathon Petroleum has its own credit card that many of its customers use at Marathon gas stations
when they fill up their car with gas. Recently, other oil companies have begun entering into partnership
agreements with major banks for co-branded credit cards (i.e. Shell and CitiBank, BP and Chase). The
client Marathon wants to know if it should do the same. Either way, should Marathon continue to offer its
own credit card?
Possible Solution:
Basically, the 3C’s — Customer, Company, Competitors, seems like an appropriate framework to solve
this “launching a new product” type of cases.
1. Customer
Candidate: Do current customers value the Marathon credit card – do they use it?
Interviewer: About 20% use it and like it.

Candidate: Would a co-branded credit card draw new customers or increase customer loyalty?

Interviewer: Yes, people indicated they’d be more likely to visit our gas stations if we had the co-branded
credit cards. However convenience is the main consideration when selecting a location.

2. Company
Candidate: Is the client company currently performing the credit card processing in-house – is it
profitable?

Interviewer: Yes, they’re doing it in-house but are not making much money on it.

Candidate: Would the co-branded credit card processing be out-sourced – does it offer attractive
margins?

Interviewer: That’s an option; the margins appear to be better if processing is out-sourced.

3. Competitors
Candidate: How many competitors have co-branded credit cards?

Interviewer: Only two (Shell, BP) so far, but others are looking.

Candidate: If they don’t move now, would their choice of partners be limited?
Interviewer: Probably.

Recommendation:
Offer the co-branded credit card, but out-source it. Given that existing customers use and like the
company card, they should continue offering it, but attempt to shift customers to use the co-branded card.

The data processing operations for its credit cards should also be out-sourced. They should research
marketing (co-marketing) tactics that could improve the attractiveness of the credit card to the company’s
customers – with the intent of increasing the number of customers.

Additional Issues to discuss about:

 Consider the marketing research that had been conducted.
 Explore the focus of the client company (they made no money trying to run credit card
processing).
Bayer Healthcare to Launch New Asthma Drug in Canada
Case Type: pricing & valuation; new product.
Consulting Firm: IMS Health Consulting Group second round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00349: Your client Bayer Healthcare USA is the Pittsburgh, Pennsylvania
based American arm of global healthcare and pharmaceutical company Bayer AG (FWB: BAYN). The
company is involved in the research, development, manufacture and marketing of products that aim

to  improve the health of people and animals. The Healthcare division of Bayer
comprises a further four subdivisions: Bayer Schering Pharma, Bayer Consumer Care, Bayer Animal
Health and Bayer Medical Care.
Recently, Bayer Healthcare is ready to launch a new drug for the treatment of severe asthma. The drug is
essentially the same as what is in the market today, but it is stronger, faster, and can treat severe cases
that are not properly treated with today’s medicine. The new asthma drug is seen as a breakthrough and
the client is planning to launch this drug in Canada very soon. How should the client price the drug?
Possible Answers:
The first question I asked the interviewer was a general one: Why are they launching this drug in Canada
and not the US?

There was no real answer to this, but in the end I determined that the key issue (the location issue) was
that in Canada the government essentially runs the medical system. The next question I had was driving
at understanding the pricing system for asthma drug that is already in the market, as this would be a
relevant benchmark for pricing our client’s new drug.
Candidate: How much does today’s asthma drug go for?

Interviewer: It is priced at about $5.

Next I inquired about the COST of the new drug compared to the older one.

Candidate: How do the costs of manufacturing and selling the new drug compare to the current one?

Interviewer: They are essentially the same.

Then I hypothesized that I would need to determine the incremental value of this improved drug to
determine how much more than the $5 drug the client could charge, and then to determine the optimal
price of the drug to maximize profits.

I then asked the following questions, to drive at the factors that were important in determining this
incremental value.

Candidate: How price elastic are the Canadian customers?

Interviewer: The Canadian government actually pays for these drugs for the elderly and poor, while health
insurance companies pay for drugs for other citizens.

I conclude that the price elasticity of the consumers themselves is not crucial here; rather, it is essential to
determine how much the Government values this better drug. When I say this, I am asked to estimate
how to calculate this incremental value to the Canadian Government. I propose the following:

 Determining the actual costs of increased hospital and doctor visits of citizens who come back
time after time when the old medicine is not effective. These visits would be eliminated with the new
drug.
 Determining the cost of “pain and suffering” of citizens who feel the affects of severe asthma. This
is difficult to quantify, but I estimate that the Government would put a significant value on this if data
were shown to them about this suffering.
Recommendations for Client:
In the end, the Government is crucial here, because they in effect set the price. Therefore it is up to our
client company to quantify the difference between this new drug and the current one. Obviously the drug
company would need to investigate this and put together a convincing story. Nevertheless, I proposed
that $30 or so would be reasonable, based on the information that we know right now.

Interviewee’s Comments:
Remember the importance of regulation/other external factors and of identifying the decision
maker/purchaser vs. consumer of a product; a new and improved product is not everything!
Baxter Discovered Breakthrough Formula for Headaches
Case Type: new product.
Consulting Firm: Boston Consulting Group (BCG) 2nd round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00346: Suppose you are the CEO of Baxter International Inc. (NYSE: BAX), a
large global health care and pharmaceutical company with headquarters in Deerfield, Illinois, United
States. The company had sales of $12.8 billion in fiscal year 2010, across three

manufacturing  divisions: BioScience, Medication Delivery, and Renal.

Recently, your company just discovered a breakthrough formula for treatment of common headaches.
What would you do now? Remember to take the CEO approach and address the question from a top
level management’s perspective.

Additional Information: (to be given to candidate if asked)

Product: The product has passed the first round of in-company testing very successfully. We are highly
confident that it will be able to provide the masses instant relief from almost all types of headaches. This
is a unique discovery, and no existing product comes close to it in terms of effectiveness.

The interviewer offered almost the same answers to all my other questions — “please make a reasonable
assumption”.

No tables and no graphs are provided for this case.

Possible Solution:
1. Test structured thoughts:

What is critical – given the limited time, the candidate should first outline a high level picture (the scope)
and then probe thedetails of each section making reasonable assumptions and displaying their
knowledge of framework and tools.
2. One example of setting such a high-level outline is to explore:

 Company’s current status

 Impact of new discovery
 Feasibility of product’s market successs
 Next steps for the firm.
3. Having done something akin to the above, the candidate should be able to proceed on the detailed
analysis by leveraging some framework like 3C’s (Customer, Competitor, Company) analysis,
Internal/External elements, SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis, Cost-
Revenue and profitability, etc, and make necessary assumptions like implications of FDA regulations,
patent protection, clinical testing success, competitor response etc.

Interviewer’s Comments:
Essentially, to deliver a winning solution for this case, the candidate needs to provide a structure to the
problem, flush out issues with probing analysis, and produce a clear next-steps summary for the firm.

Medline to Launch Cholesterol Monitoring Device

Case Type: new product.
Consulting Firm: Trinity Partners 2nd round job interview.
Industry Coverage: healthcare: hospital & medical.
Case Interview Question #00316: The client Medline Industries Inc. is a medical device manufacturer
and distributor of health care supplies based in Mundelein, Illinois, United States. The company’s
customers include hospitals, physicians’ offices, extended care facilities, and dialysis centers. Its

manufacturing and distribution capabilities encompass more than 100,000

products ranging from surgical instruments to hand sanitizers.
Recently, the client has patented a new product called “cholesterol meter”. This product is designed for
patients who have a history of high cholesterol, and can be used easily at patient’s home. The cholesterol
meter is able to monitor and control their cholesterol levels through patented technology. Your consulting
firm has been retained by the CEO of Medline Industries to help them launch the new cholesterol meter.
How should they introduce this new product to the market?
Possible Solution:
A “new product introduction” type of case is best approached with the 4 P’s (Product, Place, Price,
Promotion) marketing framework. To start with, however, it is important to understand what market you
will be working in and therefore what your marketing strategy should be.

1. The following list of questions can be used to assess the market:

 Who are your customers and what is their purchasing pattern;
 How big is the potential market;
 Who are your competitors and what are their strategies;
 What are our strong and weak points comparing to those of competition;
 What are our costs of manufacturing the new product;
 What are the future market trends?
2. Your marketing strategy should be then based on those facts:

 Product
 Place
 Price
 Promotion
Additional Note:
In this case, consumers’ purchasing pattern will be quite unusual in the sense that product decision and
pricing decision are separated: neither decision makers (doctors) nor consumers are paying for the
product. Usually it is health insurance companies that pay for cholesterol meter.

Abbott Laboratories to Co-Market Anti-Depressant Drug

Case Type: new product.
Consulting Firm: Trinity Partners 2nd round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00314: Your client Abbott Laboratories (NYSE: ABT) is a global, diversified
pharmaceuticals and health care products company headquartered in Abbott Park, North Chicago, Illinois.
The company has 90,000 employees and operates in over 130 countries, with more than $35 billion in

revenue in year 2010.

Recently, a drug discovery research team at Abbott Laboratories has developed an effective anti-
depressant drug using a type of selective serotonin reuptake inhibitor (SSRI). The drug has just been
approved by FDA and Abbott wants to get it to the market as soon as possible. However, the problem is
that they do not have any experience in marketing drugs. You have been hired by the CEO of Abbott
Laboratories to help them launch the anti-depressant drug to the market. What would you suggest Abbott
do?
Possible Answer:
The first thing that I did was outline the options that our client had. I detailed three different ways they
could do so, and pointed out that they should choose the option that would be the most profitable for
them. The three ways would be to:

1. Sell the drug directly themselves;

2. License the technology/patent to someone else and receive royalties;
3. Co-market the product with someone else.
As I analyzed which option would be best, I used the 3 C’s framework (Competitors, Costs, Customers) to
tackle some key issues.

I. Competitors
1. What are the competitors doing?

I discovered that there were 2 significant competitors who made of 100% of the market. One drug had the
same efficacy as our drug with roughly the same level of side effects. The other drug had the same
efficacy with fewer side effects. Naturally the second drug was priced a little higher. I flagged this issue as
being relevant because there is already a product in the market with better attributes than ours. This
would certainly mean that our product afforded us no real competitive advantage, and we would just be a
me-too product.

2. What is the market size and growth rate?

It is pretty big and growing at greater than 20% compounded annually.

3. Can the manufacturing capacities of the other manufacturers meet this demand?”

No. This leads to the hypothesis that the client’s drug could still be profitable in this market, even if it is a
me-too drug, as capacities of the other companies to provide the drug were limited.

II. Costs: What are the marketing costs for the drug?

I found that once the drug was ready to go, the sales component of the cost structure was over 70% while
the manufacturing was only 10%. Given that we do not have a sales infrastructure in place, and it would
require significant investment to establish and train one, I am starting to lean away from the “market the
product ourselves” option.

III. Customers: Who needs this drug?

My analysis of the customers revealed that currently the demographics of the market are such that the
price of this type of drug is not a major issue (wealthy people take these drugs). These people are willing
to pay a premium to avoid side effects; so wealthy people will buy the competitor’s drug that has fewer
side effects. However, the growth of the market will be driven by the fact that people who are not wealthy
will begin taking this type of drug. Therefore we are not locked out completely by the competitor’s better,
higher priced drug.

IV. Recommendations for Client:

In the end, I recommend that our client not market the drug themselves (too much investment required),
but they should go forward in pursuit of a co-marketing agreement with someone who does have the
sales infrastructure in place as this looks like it could be a profitable opportunity.
Philips Electronics to Divest from Home Solar Technology
Case Type: market sizing; new product.
Consulting Firm: Alvarez & Marsal 2nd round job interview.
Industry Coverage: energy industry; electronics.
Case Interview Question #00311: Your client Koninklijke Philips Electronics N.V. (Royal Philips
Electronics, Euronext: PHIA, NYSE: PHG) is a global electronics company headquartered in Amsterdam,
Netherlands. Philips is one of the largest electronics companies in the world with €25.42 billion in sales in

2010. The company is  organized in a number of sectors: Philips Consumer

Lifestyle (formerly Philips Consumer Electronics and Philips Domestic Appliances and Personal Care),
Philips Lighting and Philips Healthcare (formerly Philips Medical Systems).
Recently, the Research & Development (R&D) department of Philips has developed a new product: a
device that could replace all energy costs (electric, gas, heating, air conditioning, etc.) using solar
technology. The estimated price of the device to the customer would be $5,000/house, with a pay back in
2 to 3 years. The R&D department says that the estimated investment for the device is $100 million.
Question to you: What is the potential market for the device in the U.S.? How would you estimate the
percentage of market that will install the device?
Possible Answers:
1. Hypothesis: this device is mainly targeted at residential market.

The U.S. population is 300 million and there are ~100 households. Assuming that half of the American
people live in apartments and the other half live in houses. Therefore, there are 50 million houses in the
US = potential market size. An Net Present Value (NPV) analysis looks good here: estimating a 10%
margin on the product, total market potential = 50 million houses * ($5,000/house) * 10% = $25 Billion!
This looks even too good to be true!!
2. To estimate the percentage of market that will install the device, we could run a market survey.

Further facts revealed by interviewer: A survey shows that 30% of homeowners are interested in the
device. Additional question: How do we test this percentage?

Possible Solutions:

 Pre-order. This is risky since this would be expensive and would require a small sample (big
confidence error).
 Look at similar energy saving devices (new refrigerators, showerheads, etc), see what is the
percentage of people who actually bought it after showing interest.
The job candidate was then told that people in the US don’t buy energy saving devices. They would rather
spend their money some other way. Market therefore is small and the project was stopped.

3. Final Recommendations for client:

The potential market is too small. Right now, we should advise the client not to invest huge amount of
money in the device. These kinds of products require an important word of mouth and the company must
be ready either to spend a lot on advertising or to have a long payback period. The other solution is to
spend more on R&D to decrease the investment and the price billed to the customer.

Country Music Television to Unveil CMT Magazine

Case Type: new product.
Consulting Firm: Arthur D. Little 1st round job interview.
Industry Coverage: mass media & communications; entertainment.
Case Interview Question #00264: Your client is Country Music Television (CMT). CMT is an American
country music oriented cable television network headquartered in Nashville, Tennessee. Its programming
includes music videos, taped concerts, movies, biographies of country music stars, game shows, and

reality programs.  CMT is owned and operated by MTV Networks, a subsidiary of

Viacom Inc. (NYSE: VIA).
Recently, the CEO of Country Music Television wants to put out a magazine. What should they consider
regarding offering the magazine?

Possible Answer:
This case is about launching a new business product and warrants the 3C’s framework. A standard 3C’s
analysis would tell you that there are some Competitors in this market; that there is some demand
from Customers, but our client probably wouldn’t be able to capture much of the market; and that
(Company) while they know a lot about country music, they don’t know much about magazines.
All in all, this would probably generate a net loss. The answer might seem to be “No”. However,
answering the question correctly actually requires us to know what the motive of the company is in
undertaking this venture.

Ordinarily, we assume that the goal is for the venture to be profitable, and we recommend against doing it
if it doesn’t look profitable. If we had asked up front what the motives were, we would have learned that
they weren’t sure about the profit potential of the venture, but that their motive was actually simply to use
the magazine as a way to build the brand of their Cable TV network, much like ESPN has done with its
ESPN Magazine and ESPN Online.
Once knowing this, the focus of the analysis should fit to whether building the brand in such a way would
translate into more profits for the company as a whole (has it worked for other companies such as ESPN?
etc.)

Code Publishing Company Delays Rollout of Law Code CDs

Case Type: new product.
Consulting Firm: Booz Allen Hamilton (BAH) 1st round job interview.
Industry Coverage: publishing, mass media; law
Case Interview Question #00262: Our client Code Publishing Company (CPC) is a legal document
publisher located in Seattle, WA, with a strong reputation based on high-quality products, friendly service,
and integrity. The client’s main products are Law Code books (reference books that contain state and

federal laws, and come out every year or so in order to remain up-to-date).
In the last several months, the client Code Publishing Company has repeatedly been receiving requests
from customers that they publish the law code books on CD-ROM. The demand seems pretty strong for
such a new product. Should they do it or not? Why?

Possible Answers:
This is a “launching a new product” case, so applying the 3C’s framework is a good approach here.

If you start with the Customers, you might ask about the demand for this product. It turns out that over
50% of your customers would want to buy the law code books on CD.
As for Competitors, no one else has done this yet, so there are no direct competitors to worry about.
Finally, if you look at the Company, you would learn that they are solely a publishing company with no
experience in making CDs. However, they could outsource the production to a company that specializes
in CD production.
The 3C’s have led to ask the right questions and gather the right data. Now it’s time to insert some
business thinking. One thing to worry about is product cannibalism, i.e., if they make the law code CDs,
will it create new customers, or merely cause their existing customers to switch over to the new product?
It turns out that since the CDs would be cheaper than the books, people who wouldn’t ordinarily buy the
book would buy the CDs, so there would be new customers. However, 50% of the current book
customers would switch to the CDs.

It also turns out that they would make the same profit per CD as they made per book this past year. The
numbers would therefore seem to suggest a “YES” to the CDs. The problem, however, is that they’ve
already sunk all of these fixed costs into their book operations, and need to sell a high volume of books to
recover their costs. If they lose 50% of their book customers, their book operations will collapse. So, the
answer is NO!

BMW Introducing New X5 Luxury SUV

Case Type: new product.
Consulting Firm: ZS Associates final round internship interview.
Industry Coverage: automotive, motor vehicles.
Case Interview Question #00257: It is in the late 1990s. You are a management consultant retained by
German luxury car manufacturer BMW (FWB: BMW). The CEO of BMW is interested in entering the
sports utility vehicle (SUV) market after noticing the market has grown dramatically worldwide in the past

two years.  The client currently has no experience with manufacturing these
types of SUV vehicles. How would you advise the CEO about what his company should do?
Possible Answers:
1. Understand, Clarify and Confirm: Interview Tips
 Write it down – As the interviewer presents the case, write down key facts. You will need to recall
these facts later on in the case study.
 Restate the problem and establish the objective – Vocalize to your interviewer the issues you
plan to evaluate. Don’t be thrown by terms you’re not familiar with — if you don’t know what it means,
ASK!
 Start with one of your identified points and drill down – Think about what information you’ve been
given, and what areas you would like to explore even further. Begin to focus your thought process on
one or two lines.
 Ask applicable questions – The interviewer expects you to ask for more information.

2. Demonstrate Your Understanding by Identifying The Key Issues Involved In The Case.

Business
Issues Example

What impact will the client’s entry have on sales and pricing of SUVs? Should your
Profitability client invest funds in developing a new vehicle?

Should the client invest in the infrastructure necessary to make SUVs? Are there
Investment additional costs with training the line staff to make these vehicles?

Business Does the client currently posses sales channels and infrastructure adequate to
 compete with incumbents? What are the impact on the organization of establishing
Operations this new line?

How much market share would the client stand to gain if it enters the market? What
Market competitive response can it expect from incumbents? Is there another way to enter
Impacts the market without alerting the incumbents?

3. Utilize Frameworks To Develop Hypotheses

Framework Hypothesis

The client’s reputation for high quality in luxury vehicles will continue to be a
competitive advantage; therefore, the client should leverage their brand image. The
current fuel crisis may pose a threat to the SUV market, thus fuel efficiency would be
SWOT Analysis key.

There is little position in the high-end market for SUVs; therefore the client should
consider creating a lower-end model for every day users; pricing would have to be
Four P’s amenable to the price-sensitive consumer.

BCG’s Growth The SUV market is growing slowly and the client’s current position will support a new
Share Matrix line of vehicles.

Porter’s Five Incumbents will vigorously defend their market share – additional analysis is
Forces required; significant investment to modify the factory will be required to make SUVs.

4. Test Your Dominant Hypotheses

 Establish assumptions
 Resources and production elements will remain constant
 PPE (personal protective equipment) investment is a one time fee
 There are significant ongoing costs to bringing line workers along the learning curve and
cross-training in making SUVs and luxury cars
 Examine the pertinent questions
 What are the costs of entering this market?
 Will the introduction of a new SUV impact the sales of current SUVs?
 What are revenue probabilities?
 How does timing affect decision and/or action?
 Develop a test to verify if the hypothesis is correct
 The client should enter the market if the potential profits demonstrate a higher return on
investment than remaining out of the market
 Conduct analysis to determine the outcome of the test
 Refine hypotheses and examine alternatives
5. Final Recommendation
 Summarize hypotheses based on analysis: Investing in the necessary infrastructure will not be
profitable.
 Describe areas for further examination: Market based studies should be conducted to determine
the impact of brand promotion and advertising on sales and customer retention.
 Make a recommendation: The client should enter the market, but the client should leverage its
key strength – its brand – to attract consumers.
 Further analysis will be required to determine the most effective method for branding.
 It may also be worthwhile to undertake scenario planning based on various ways in which the
Global Oil and Gas economics could play out.
Capital One Cross Selling Prepaid Phone Card?
Case Type: new product; finance & economics.
Consulting Firm: Capital One final round job interview.
Industry Coverage: telecommunications; financial services.
Case Interview Question #00256: Suppose you have just been appointed the manager of the Cross
Sells team at Capital One (NYSE: COF). You and your team are responsible for evaluating opportunities
to market non-credit card products to our credit card customers. This usually involves products from

outside vendors that we can sell to our customers at a premium.

One potential cross-sell opportunity that is sitting on your desk right now is the Prepaid Phone Card—a
piece of plastic you can use to pay for long distance telephone calls. Users of the card would call an 800
number, enter the card’s PIN, and then enter the destination telephone number. The outside vendor
tracks card usage and minutes remaining. Your responsibility is to determine if the product will be
profitable for Capital One and how to maximize this profit.
First, take a few moments to determine what are the most important factors that will help you decide to
accept or reject the Phone Card cross-sell.

Questions to Consider:

Following is a list of some of the most important questions to consider:

 How much does each Phone Card cost Capital One?
 Are there any other costs involved, such as a set-up fee?
 Are there any constraints on how many minutes each Phone Card has?
 Are there any constraints on how much we can sell the cards for?
 How much do competitors charge for the Phone Cards?
 How much do our cross-sell products usually sell for?
 How many customers usually buy our cross-sell products?
 What distribution channels are available for marketing the Phone Cards to our customers?
 How much would this marketing cost?
Here are some other questions you might have thought of, but for simplicity’s sake, we will not consider
their implications during the remainder of the case:

 How does the Phone Card opportunity compare with other cross sells we are considering? Maybe
the product is profitable, but there’s another, even more profitable product we could offer instead.
 How do our customers feel about receiving cross sell offers? Are there any who have told us that
they do not want to receive these offers? If so, our market size may be somewhat limited.
 Does offering a Phone Card to a credit card customer have any impact on their profitability as a
credit card customer? If they buy the Phone Card, we will charge the fee to their Capital One credit
card, and if they carry a balance (i.e. don’t pay off their bill every month), then we can earn interest
on the price of the Phone Card.
 If a customer purchases a Phone Card, might that purchase indicate something about the
customer’s credit risk that we wouldn’t otherwise have known? Maybe the customers who would want
to buy Phone Cards are the ones whose phones have recently been turned off for non-payment! If
this is true, then offering this cross-sell would be even MORE attractive, since it would help us to
identify these customers before they “charge off” (i.e. default on their credit card debt).
Assumptions
Luckily, the vendor who wants to sell us the Phone Cards has already provided a lot of the information
you need in an introductory e-mail. The e-mail has several key points:

 The phone card may be sold at any price, and other companies have sold the cards for up to
$0.75 per minute.
 The card may be sold with any number of minutes on it.
 Capital One must pay $0.20 per minute sold.
 Capital One must pay $2.00 per card sold for account set-up, which includes card materials, the
vendor’s system programming, and postage.
 The vendor notes that the Phone Card could be a good addition to Capital One’s cross sell
program, which ordinarily offers products in the $5 to $30 price range.
Question #1: Let’s assume that Capital One has decided to sell 60-minute Phone Cards at a price of $30
each. How much profit do we make on each card sold?
Possible Answer: Capital One’s profit per card is $16. For your reference, the equation is shown below:
Profit per card sold = (Revenue per card) – (Expense per card) = $30 – (($0.20/min * 60 min) + $2.00) =
$16

Question #2: Does anything big seem missing from the above equation?
Possible Answer: The thing that we haven’t considered yet is marketing costs. (In reality, we haven’t
considered several things, but the lack of marketing expense has the biggest impact.) It will cost Capital
One to tell our customers about the Phone Card offer, but we didn’t include any of that expense in the
equation on the previous section.
Question #3: How should Capital One market this product?
Possible Answer: There are several different distribution channels we could use.
 Statement Inserts – Little slips of paper we put inside customers’ monthly statements, which they
return to us when they mail us their payments.
 Bangtails – Slips of paper that are attached to the backs of the envelopes that customers use to
mail in their payments. If they are interested in buying the product, they can rip off the stubs and put
them inside the envelopes.
 Statement Messages – A line or two of text typed on the remittance stub of each statement (the
part a customer rips off and mails back with the check). It might say something like, “Check this box if
you would like to purchase a Capital One Phone Card, good for 60 minutes of long distance calling,
for only $30!”
 Direct Mail – We could send our customers a letter-separate from their monthly statement-
describing the Phone Cards in detail.
 Outbound Telemarketing – We could place telephone calls to our customers describing the cards
and asking them if they would like to purchase one.
Question #4: Please take a few moments to think about the distribution channels above. How are they
similar? How are they different? What factors would be most important in determining which distribution
channel you should use? In other words, what additional information would you need to know about each
channel to decide which is best? For the purposes of this case, you do not need to think about all the
variables for every distribution channel—just try to think of the two main variables that apply to all of them.
Possible Answer: The two most important factors you need to consider are cost and response rate.
Cost: It is easy to see that cost will vary a lot depending on what distribution channel you decide to use.
For example, with outbound telemarketing, you have to pay the salary of the telemarketer plus the cost of
the call (or outsource the job to a professional telemarketing firm, which isn’t cheap, either). If you decide
to use direct mail, you will need to pay the cost of printing the letter and other marketing materials, plus
the envelope, plus the postage. On the other extreme, if you decide to go with statement questions, then
it costs us nothing-we already print statements anyway, and we have automated scanners to capture the
responses.

Response Rate: The percent of customers you solicit who decide to purchase the Phone Card will vary
considerably as well. And as you might suspect, cost and response rate are often positively correlated-the
more a marketing effort costs, the more people respond to it, and vice versa. For example, a lot of people
might respond to a direct mail solicitation, but far fewer would respond to the statement question. After all,
it’s hard to miss a letter in your mailbox, but you could easily overlook a line or two at the bottom of your
statement. Plus, if we send out a letter, we have a lot of room to include persuasive text and beautiful
photos discussing the benefits of the Phone Card, but if we decide to go with a statement question, we
have only two short lines of text to make the sale. Having more space and flexibility to promote the
product would have a big impact on what percent of people choose to buy it.

Additionally, there are lots of other factors you might have thought of that also deserve consideration. A
few are outlined briefly below:

 Time to Market: It takes a lot more time to use some of these channels than others. If we thought
a lot of other companies were going to increase their marketing of Phone Cards in the near future, we
might decide to use a channel that gets us to market fastest.
 Operational Impact: Going with one channel might take a few hours of a single person’s time,
whereas another channel might require us to mobilize an entire department for a week. Although this
sort of implication can be included in the “cost” consideration above, it is also valuable to consider it
separately.
 Customer Perception and Preference: Some customers don’t like receiving telemarketing calls
from us, so we need to consider this when formulating our marketing campaigns.
Question #5: The decision of which distribution channel to use is a very interesting one, but it is too
lengthy to consider here. Let’s assume that you decide to use the statement insert channel. Each insert
will cost you $0.04, which includes everything—all the way from the graphic designer’s time, to the cost of
printing them, to the cost of stuffing them in envelopes. And don’t worry—our postage costs won’t go up.
We already send all of our customers statements anyway, and since we are very careful to make the
inserts extremely lightweight, we won’t incur any incremental postage costs from marketing this product.
Assuming that we must sell 60-minute cards for $30, what response rate would be required to break even
on the insert?

Hint: “Breaking even” means that you neither gain money nor lose money on a project—your total profit is
$0. The break-even point for a given variable is a very useful figure in business, since it tells you the point
when you start making (or losing!) money.

Possible Answers: There are a number of different ways you could have chosen to solve this break-
even problem, but the answer is the same no matter which way you do it.
Method 1: Assume that you mail 100 inserts, and then determine how many people would have to
respond for the profit to equal zero.

Let R = the number of responders, net profit = 0 = (Revenue per card sold) – (Expense per card sold) =
$30*R – [($0.20*60)*R + $2.00*R + (100*$0.04)] = 30R – 12R – 2R – 4, 16R = 4, R = 0.25 people per
hundred, so R = 0.25%

Method 2: Same as method 1, except you don’t assume a certain number of customers.

Let R = response rate, net profit = 0 = (Revenue per card sold) – (Expense per card sold) = $30 –
[($0.20*60) + $2 + ($0.04/R)] = 30 – 12 – 2 – (0.04/R), (0.04/R) = 16, 16R = 0.04, R = 0.25%

Method 3: Break even occurs when (Profit per piece mailed) = (Marketing cost per piece mailed).

Response rate R = (# of cards sold / # of pieces mailed), You can multiply any expression by (1/R)*R, or
(# pieces mailed/ # cards sold)*(# cards sold/# pieces mailed), since this expression is equal to 1. Recall
from the assumptions that marketing cost per piece mailed = $0.04, so (Profit/piece mailed)*(# pieces
mailed/# cards sold)* (# cards sold/# pieces mailed) = $0.04.

After you cancel out “pieces mailed” from the first two elements of the equation above, you get the
following equation: (Profit/card sold)*(# cards sold/# pieces mailed) = $0.04.
This evaluates to (Profit/card sold) * R = $0.04, since R = (# cards sold/# pieces mailed). Recall from
earlier in the case that the profit per card (without marketing expense) is $16, therefore, $16R = $0.04, R
= 0.25%

Any way you look at it, the answer is the same—if more than 0.25% of customers who receive the Phone
Card offer decide to purchase a card, then we will make a profit. If fewer than 0.25% of customers
respond, then we will lose money.

Does 0.25% sound like a reasonable expectation? Although it’s impossible to tell in advance what the
actual response rate would be, 0.25% sounds achievable, so the Phone Card cross sell is definitely worth
testing.

Final Note: Actual case interviews are dynamic, one-on-one interactions with an interviewer—not just
some problems laid out on paper. You are encouraged to ask intelligent questions and engage in
discussion around the problem. We’re not just looking for great analytical skills—communication counts,
too.
You may find that Capital One’s case interviews have a more quantitative focus than the cases given by
other firms. This is intentional—Capital One’s cases are examples of the sort of work people do at Capital
One every day. By discussing actual problems taken from everyday work, job candidates get a taste of
what working at Capital One is really like.

Celtic Pharma Eyes Biologic Drug for Bacterial Infection

Case Type: private equity, investment; new product.
Consulting Firm: IMS Health Consulting Group final round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00249: Our client Celtic Pharma is a global private equity firm focused
specifically on the pharmaceutical and biotechnology industry. Their primary business model is to acquire
direct ownership or controlling stakes in novel, differentiated and commercially attractive pharmaceutical

products in the late stages  of clinical and regulatory development.

Recently, the senior management of Celtic Pharma is considering investing in a small but growing
biotechnology company that is currently in the process of developing a novel biologic-based drug that
prevents bacterial infection for premature babies. Should they invest in the biotech company? And why?
Possible Answer:
Candidate: Before we start I would quickly like to know a little more about the private equity company
Celtic Pharma – what are their investment philosophy and their objectives?
Interviewer: The client is only focused on the biopharmaceutical market and their main objective is to
decide on whether or not to invest in new and upcoming drugs related to their market.

Candidate: To evaluate this opportunity I would like to look at the following areas:

 The market — potential, competition, etc.

 The company — its management, probability to success, etc.
 The risk– regulatory, development, commercialization, etc.
Tie it into a financial analysis to see if it meets the investment company’s objectives.

Interviewer: That seems fair. Where would you like to start?

Candidate: I would like to start with the market and get a feel for the commercial potential of the drug. Is
this drug being developed for the US market only?

Interviewer: Yes, the drug is just for the US market.

Candidate: I would like to understand how big the US market for premature babies is.

Interviewer: Well, 0.1 % of the total number of babies born in a given year is premature babies. There are
~50 million babies born a year.

Candidate: Therefore 50,000 babies are born premature every year. Do all babies that are premature
need the drug?

Interviewer: No, only the premature babies that are sick need the drug. Premature babies are broken into
two categories, more developed and less developed. Out of the 50,000 babies born every year, 60% are
more developed and 40% are less developed. The more developed babies have a 10% sick rate while the
less developed babies have a 20% sick rate.

Candidate: Therefore out of all the babies that are premature, 50,000 * (0.6*0.1 + 0.4*0.2) = 50,000 * 0.14
= 7,000 actually get sick – which is our client’s potential market. What is the maximum price that our client
could charge for the drug?

Interviewer: I would like you to estimate that. How would you do it?

Candidate: I would like to compare the costs of competing treatments to see the costs that the use of this
drug can save. This would set the base price – the benefits to the baby would mean that parents would
probably be willing to pay a premium to this cost. But to be conservative let’s use the cost method. How
much does the treatment of this cost?
Interviewer: Sick premature babies usually stay in the hospital for 7 days longer than regular premature
babies. The hospital costs are $3,000 per day.

Candidate: Therefore, the weekly costs are $21,000 per week. If you multiply the $21,000 per week *
Number of sick babies (7,000) = Total potential revenue is $147,000,000 (conservatively). What does it
cost to manufacture the drug product?

Interviewer: $120,000,000. Note: At this point, some candidates will feel that this is a positive return, so
the investment firm should invest in this biotech company, but they are wrong.

Candidate: If we charge $21,000 per sick baby, what will the reimbursement from the insurance company
to the biotech company accounting for the margins of the health care provider?

Interviewer: The reimbursement is around 90% from the health care provider.

Candidate: Therefore, the total revenue is $147,000,000 * 0.90 = $132,300,000.

Interviewer: Do you think it is a good investment for the client?

Candidate: Well, I want to look at the internal rate of return (IRR) for the private equity firm and see if the
current investment can meet those expectations.

Interviewer: The IRR is 15% for the company.

Candidate: Since the IRR is 15% lets do a back of the envelope calculation assuming that the sales are
flat going forward and the cost structures remain constant. Based on the above assumptions and using
the perpetuity formula for estimating IRR on this investment we get:

Constant Cash Flows every year = 132,300,000 – 120,000,000 = 12,300,000,

120,000,000 = 12,300,000/IRR, therefore IRR = 12,300,000/120,000,000 ~ 10.25%.

Looks like the return on this investment is much below the benchmark for the company on other
investments.

Interviewer: Is there any upside in your analysis you would like to check?

Candidate: Well yes, the following:

 As I had mentioned the price could be a little higher since the value of the drug to parents would
be higher – we should do a market research, or benchmark with other such products to estimate this.
 The cost structure can be looked into – outsourcing to lower cost locations could be possible.
 We have considered only the US market, there could be other markets globally that can be
tapped.
 We can try for government and other grants/subsidies since this product is a socially beneficial.
 We should look at future growth and do a more rigorous NPV analysis.
Interviewer: And what are the major risks that we need to analyze?

Candidate: Some of the risks are:

 The probability that the development fails.

 The patent window before competition comes in.
 The time for it to be launched in the market.
Interviewer: If the client wants to still go ahead with the investment, what would be some of the reasons
why they would be doing so?

Candidate: It could be that:

 The Biotechnology company has lot of other products in the pipeline and want to be an early
investor taking into consideration the future payoffs.
 There are trials which indicate a substantial potential that the product can be extended to adult
patients who go through surgery.
 New regulations coming in that the product needs to be given to all the newborn babies.
 The company would be a good acquisition candidate as it fits into the overall strategy with other
biotech investments.
Interviewer: So what would be your final recommendation?

Candidate: As it stands, the investment opportunity does not look feasible. However, a more rigorous
analysis as I mentioned above should be carried out before taking a final decision.

Ryder to Grow Business & Offer Maintenance Only Product

Case Type: add capacity, growth; operations strategy; new product.
Consulting Firm: A.T. Kearney final round job interview.
Industry Coverage: transportation.
Case Interview Question #00226: The client Ryder System, Inc. or Ryder (NYSE: R), is an American-
based Fortune 500 provider of leading edge transportation, logistics and supply chain management
solutions worldwide. Headquartered in suburban Miami, Florida, Ryder’s global operation has total
revenue of more than $6.5 billion in 2007.

Ryder’s product offerings include: LM, which provides leasing and programmed maintenance of trucks,
tractors and trailers to commercial customers; SC, which manages the movement of materials and related
information from the acquisition of raw materials to the delivery of finished products to end-users; and
DCC, which provides a turn-key transportation service that includes vehicles, drivers, routing and
scheduling. The focus of this case is on the Leasing & Maintenance (LM) group.
The growth in the overall number of truck registrations has slowed, 2.2% CAGR (Compound Annual
Growth Rate). The LM market is declining. However, the client’s revenues within the LM market have
been flat. The client has asked your help to put together a growth strategy. More specifically, Ryder is
looking at achieving significant growth over the next 2 years and is looking for some major improvements.

Note: This case is a classic growth strategy case which involves penetrating a new segment by offering
new products. The candidate will be tested on his thoughts for achieving organic growth and on some
light quantitative analysis.
Question #1: In general, what are the different ways to achieve organic growth?
Possible Answer:
 Achieving growth through current products offered to current customers (reducing prices).
 Achieving growth through new products offered to current customers (cross selling).
 Achieving growth through current products offered to new customers (Expansion).
 Achieving growth through new products offered to new customers (Penetration).
Questions #2: What are your thoughts on the current market dynamics facing the client? Taking this into
account, please recommend an organic growth strategy.
Additional Information: (to be provided during the course of the interview)
1. Market and growth: 4.7M truck registrations annually (slow growth 2.2% CAGR).

2. Market and customer is segmented as follows:

 For Hire: 21% (customers who use trucks for hire).

 Private: 60% (customers who own and maintain their own trucks.
 Lease and Manufacturing: 11% (customer who buy trucks on lease with packaged maintenance
program).
 Financing: 8% (customers who finance purchase of their trucks through banks and other groups).
3. Competition: Client and one other competitor U-Haul own 24% each of LM market. The remaining 50%
is divided up by smaller players.

4. Product/Offering: The offerings in the LM market are highly undifferentiated. Each offering has an asset
(truck, tractor, and trailer) and a maintenance program for the asset. The asset is owned by the provider
and the customer pays a fixed monthly price for leasing the truck (based on the brand, age and financing
term) and subscribing to the maintenance program. Subscribing to the maintenance program is no
optional as the truck is not owned by the customer. The customers are requited to sign contracts for the
specified term with the provider.

Possible Answer:
The candidate should be able to figure out that the client has grown primarily through acquisitions. Here’s
why. The LM market is declining but the client has maintained revenues. Increasing prices is not an
option since the product offering is highly undifferentiated. Enough said. The client needs to look
elsewhere. This is basically a case on penetrating a new segment.

Another key point: If LM market is declining and truck registrations are increasing (albeit slowly), there
must be another segment that is increasing share within the overall market. That would be the private
segment.

What does the private segment need? There are big customers (grocery chains, retail outlets etc.) who
are not really interested in leasing trucks and freeing up capital. They may however be interested in
maintaining their trucks since that is by no means their core competency.

This means that the current LM product (asset + maintenance) no longer appeals to them. Hence we
need to offer a new maintenance only product. This product will likely be lower priced since it involves
only the maintenance component.

Question #3: What are some of the key challenges with introducing an additional new product (especially
one that is lower priced)?
Possible Answer:
 Cannibalization: Existing customers may want this product as well.
 Service differentiation: the client may be unable to provide differentiated service based on the
type of customer and may end up over serving customers.
Question #4 (ask only if time permits, otherwise skip to Question #5): How would you go about
formulating what product to offer to the private customers? What process or steps would you follow?
Possible Answer:
1. Qualitative Assessment: Interview prospective customers, conduct focus groups and brainstorming
sessions with subject matter experts to find out what the private customers needs are.

Formulate several hypotheses and list attributes that the new product should have (like different service
levels for maintenance program in terms of priority servicing, regional or national coverage of shops that
customers can take their trucks to).

2. Quantitative Analysis: Conduct a survey to measure the interest and preference for the attributes
outlined in the qualitative assessment. The sample size should be representative of the truck industry
across private customers and other segments and the different types of customer industries (e.g.
construction, groceries, utilities etc.)

3. Capability Assessment: Can the client do this? What would it cost them? What upfront investments
need to be made? Can the existing infrastructure support the new products and new customers? Can the
customer service differentiate? Are there any cultural challenges?

4. Business Case: Use the findings to build a business case quantifying the revenue opportunity using
estimated pricing and estimated customer volumes from the survey.
Question #5: If the client Ryder captures 1% of the private market by introducing this new product, at
what rate do his overall revenues increase?
Possible Answer:
Client has 24% of 11% of 4.7M trucks. = ~2.6% of 4.7M trucks. If Ryder captures 1% of the private
segment, its market share will be 3.6%. This represents an increase of 1/2.6 = 38%.

Oral-B Responds to Competitor’s Battery Powered Spinbrush

Case Type: new product; business competition/competitive response.
Consulting Firm: Booz & Company 1st round internship interview.
Industry Coverage: household goods & consumer products; electronics.
Case Interview Question #00218: Your client is Oral-B, the consumer products division of The Gillette
Company (acquired by Procter & Gamble in 2005, NYSE: PG) that produces toothbrushes. Oral-B’s
product portfolio consists primarily of a “manual” toothbrush that retails for $3 and an electric
“rechargeable” power toothbrush that retails for $50.

One year ago, a major competitor Church & Dwight Co., Inc. (NYSE: CHD) introduced a battery-powered
electric spinbrush under the Arm & Hammer brand that retails for $5 and now controls 1% of the
worldwide toothbrush market. The client Oral-B currently lacks a comparable offering and would like to
know whether it should develop a similar product or not, and why.
Additional Information: (To be provided if specifically requested)
Hint: (to be provided only if the interviewee struggles significantly with the initial structuring of the
problem) The client typically views the market in terms of margins and “per customer per year” metrics.

One year ago, the worldwide market was made up of 80% manual and 20% rechargeable toothbrushes.
The spinbrush’s 1% market share gain has come mostly at the expense of rechargeable toothbrush sales.

 Manual toothbrush:
 The client Oral-B’s net profit margin on sales of manual toothbrushes is 66%.
 The average manual toothbrush user goes through 4 toothbrushes per year.
 On average, 2 toothbrushes per year are given to manual toothbrush users free of charge
by their dentists.
 Rechargeable toothbrush:
 Rechargeable toothbrushes are sold as two separate components: a “base” that retails
for $50 (with a 60% net profit margin) and an associated “head” that retails for $5 (with a 90% net
profit margin).
  1 base and 1 head are needed at all times for the device to work; no other components
are compatible.
 The average base last 10 years.
 The average rechargeable toothbrush user goes through 2 heads per year and
purchases bases as needed.
 Spinbrush:
 No specific cost data is known for the competitor’s spinbrush offering.
 Client product development believes it could produce a spinbrush “knockoff” at a cost of
$3 per brush.
Possible Answer:

1. Analysis:
The most effective approach for this case should begin by calculating figures in terms of profit per
customer per year for the three kinds of toothbrush.

 Manual: (2 toothbrushes purchased) x ($3 retail price) x (66% profit margin) = $4 profit per
customer per year.
 Rechargeable: (2 heads purchased) x ($5 retail price) x (90% profit margin) + (1/10 base) x ($50
retail price) x (60% profit margin) = $9 + $3 = $12 profit per customer per year.
 Spinbrush: Assuming production costs would be the same for the client and its competitor: (2
toothbrushes purchased) x ($5 retail price – $3 cost of production) = $4 profit per customer per year.
2. Solution:
At this point the analysis becomes more qualitative in nature. While the manual and spinbrush products
are similar in terms of profitability, the manual toothbrush addresses the mass market (80% market share
at a $3 retail price point) and is unlikely to lose share to the spinbrush. However, the rechargeable
segment is most profitable for the client and is clearly threatened by the introduction of the spinbrush. If
the client were to respond with a “knockoff” spinbrush, it would likely hasten the demise of its own
profitable operations.

3. Conclusion:
Therefore, the client Oral-B should not develop spinbrush product and should consider alternative means
to respond to the competitor’s spinbrush “disruptive technology”.

Bristol-Myers Squibb to Hire Sales Force for New Product

Case Type: new product; HR/organizational behavior.
Consulting Firm: Easton Associates final round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00208: You have been retained by the VP-Sales of Bristol-Myers Squibb
(NYSE: BMY), a large pharmaceutical company headquartered in New York City. The company has just
obtained FDA approval for a new product that will take between 6 and 9 months to bring to the market.
Your task is to advise the VP of Sales on the following two questions: 1. Should he hire a sales force for
the new product? 2. If so, how many salespeople should he hire?
Additional Information:
 This new product is an adjunct to chemotherapy.
 The target market will be oncologists (cancer specialists).
 The company currently has no sales force for existing similar products.
 The product currently has no competitors.
 The company has a lead-time of 1-2 years before competitors enter the market.
Possible Answer:

To make the decision on whether to hire a sales force or not, the job candidate can first do a cost-benefit
analysis of the hiring.
Benefit
1. Estimate sales revenues without a sales force. In this case, Bristol-Myers Squibb plans to rely on an
advertising campaign that will educate the target market of oncologists, as well as eventual consumers
(cancer patients undergoing chemotherapy) about the product and its benefits.

2. Estimate sales revenues with a sales force. In this scenario, the company plans to use the sales force,
but will continue with the same level of advertising as in the previous option. The difference between the
two gives an estimate of incremental revenues with the sales force.

3. Compare the margin on the incremental revenues (benefit) with the costs of hiring the sales force
(cost).
Costs
4. Determine the costs of hiring a sales force. Key points that candidate should keep in mind in detailing
the methodology:
a. There is a minimum efficient size for a sales force. Hiring a lower number may mean that the benefits
of the sales force will not be fully realized.
b. There are fixed costs and variable costs in hiring the sales force.
c. In determining costs, consider the following factors:

 number of oncologists that one salesperson can cover

 time per sales visit per oncologist
 frequency of visits to each oncologist
 geographical spread of oncologists (more widely dispersed oncologists imply that sales force will
spend a greater percentage of time on the road)
 growth in compensation over time for sales force.
5. After estimating costs and benefits on a per annum basis, project net benefits into the future, keeping in
mind the entry of new competition.

6. Discount the net cash flows at company’s WACC (Weighted Average Cost Of Capital) or other
appropriate discount rate to arrive at the decision.

Note: This case bears some similarity to the “Pfizer to Introduce New Cancer Drug” case, so check out
that case too.
Goodman Introduces New Residential Central Air Systems
Case Type: new product.
Consulting Firm: Gallup Consulting final round job interview.
Industry Coverage: energy; utilities.
Case Interview Question #00201: Our client Goodman Global Group, Inc. is a privately held company
(owned by private equity firm Hellman & Friedman and previously controlled by Apollo Management)
which manufactures residential and light commercial indoor heating and cooling products and systems.
As the market leader in residential central air conditioning systems (with 40% market share in the U.S.),
the company is profitable with 10% EBIT (Earnings Before Interest & Tax).

Goodman Global has a large R&D department that has just designed a new technology for residential
central air conditioning systems. The new technology is much more energy efficient and it cuts electricity
requirements (and hence costs) by 50% to produce the same cooling effect. Should the client introduce
the new technology right now? If so, how would you advise them to introduce the new product?
Additional Information:
1. Goodman Global is the market leader in new technology inventions.

2. The durability of this new technology is 3 years, i.e. the closest competitor will take 3 years to copy the
unit.

3. Revenue/Cost of old unit v.s. new unit:

old unit new unit

Revenue $2000 $???

Parts and Labor $1000 $3000

R&D, Sales etc $400 $400

Fee to external
distributor $400 $400

Profit $200 $???

4. There are certain economies of scale expected as manufacturing produces more of the new units, as
the volume increases to over 100,000 units, costs will decrease by 20%.

5. The candidate should notice that some costs are fixed and some are variable. Also that the external
distributor is currently receiving $400 or 20% of the unit cost, will the company be able to keep the
distributor at a fixed fee of $400 or will they argue for an increase to 20% of resale value?

6. The lifespan of the unit is 10 years.

7. The U.S. is split into 4 regions for air conditioning usage: Northeast, Northwest, Southeast, Southwest.
Average expenditure for electricity running air conditioning per year: NE – $700 per year; NW – $300 per
year; SE – $1500 per year; SW – $ 1200 per year.

8. How do people choose air conditioning units? — 80% of sales are made on ‘price’ of the unit. 20% of
sales are made on the ‘lifetime value’ of the unit.

9. Goodman Global’s sales are 40% of total market, 30% to the price segment and 10% to the lifetime
value segment. (Notice their old product appeals more to the lifetime value segment…the client has 50%
of the lifetime value market)

10. There is only 1 other large player with a 40% market share and 6 regional players share the remaining
20% of the market.

Possible Answers:

1. To answer the question whether to introduce the new product or not, first answer these two question:
“Is the new product going to be profitable? Will it make the overall business more profitable?”
 Look at Revenue/Cost plus building or stealing more market share.
 Get the cost information for the old and new product, try to decide if it will be possible to gain a
10% EBIT on the new product, What price do you think you can sell the new product for?
 To decide this look at the lifetime savings customers get from using the new product, the SE
region customers will save $7500 over 10 years. If this is worth say $5000 today, could argue how
many people are willing to invest today for savings over the next 10 years and knock this down lower.
 Even if this is only worth $3000 to them we could sell the unit for $5000. This creates an EBIT of
$1200 or 23%. This would lead you to believe that yes, Goodman should introduce the new product.
2. Now consider how to launch the new product.

Target ‘heavy’ user areas? Think about how and why people buy air conditioning; get information as to
product/unit choice. Now see that company needs to target consumers who buy according to ‘lifetime
value’. A good answer would consider other issues such as marketing strategy, market to people with
environment concerns as well as costs?

A very good answer would finally consider cannibalization of the company’s old product. Will the company
continue to sell only its old product in the more cost conscious regions of the NE and NW. How much of
our market for the new product will be lost sales of our old product? How much can we expect to steal
from competitors?

Genentech Invents Preventative Drug for Heart Attack

Case Type: new product; pricing & valuation; industry analysis.
Consulting Firm: IMS Health Consulting Group second round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences; insurance: life & health.
Case Interview Question #00193: The client Genentech, Inc. (Genetic Engineering Technology, Inc.) is
a biotechnology and pharmaceutical corporation headquartered in San Francisco, California, USA.
Genentech has hired your consulting team because its research department has just invented a
preventative medicine for heart attacks that took two years to develop and that will be ready to market in
six months. The drug is a tablet with no side effects and it significantly reduces the chances of a heart
attack.

The marketing department of Genentech has decided to price the new drug at $300 per year. What is
likely to happen to the healthcare industry if the new drug is sold at this price?
Additional Information:
Product
 The tablet must be taken every day.
 The drug has already been approved by FDA.
 Assume that Genentech has unlimited manufacturing capacity for this product.
 The drug will be prescribed through cardiologists.
Customers
 Potential customers are Americans aged 50+ that are high risk for heart attacks.
 Of Americans aged 50+, 40 percent are considered high-risk.
 Of high-risk Americans, 25 percent will have a heart attack by age 70.
 40 million Americans are over 50. (Ask candidate to estimate this figure)
 It costs a health insurance company $50,000 to cover every heart attack.
 There are no viable substitutes for this new drug product.
Possible Answer:

First, calculate potential market for the product:

 40 million x 40% = 16 million Americans are at high risk for heart attack.
 16 million x 25% = 4 million Americans will have a heart attack by age 70.
If the interviewee does not calculate the market size, interviewer should ask how health insurance
companies will decide whether or not they will cover this new drug product. The candidate may attempt to
determine if it is cheaper for health insurance companies to cover the product or simply let people have
heart attacks.

As we calculate above, there are 16 million Americans age 50 or older who are considered high-risk for
heart attacks. One quarter of these (4 million) will have a heart attack by age 70.

1. If a health insurance company were to cover their prescriptions for this medication for 20 years, the
costs would be:
16 million x $300/yr x 20 years = $96 billion. Assuming a 10% discount rate, the net present value (NPV)
of this amount is about $40 billion.

2. If the health insurance company were to let people have heart attacks and then treat them afterwards,
the costs would be:
4 million x $50,000 = $200 billion. The present value of this amount is about $200 billion / (1.10^20) = $30
billion.

Conclusion: Given this price, health insurance companies might not be willing to provide coverage for
this medication. They might just choose to let people have heart attacks and then treat them afterwards.
AstraZeneca Offers to Sell Other Companies’ Drugs
Case Type: new product; math problem.
Consulting Firm: Trinity Partners final round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00191: The client AstraZeneca plc (LSE: AZN, NYSE: AZN) is a global
pharmaceutical company headquartered in London, United Kingdom. As the world’s seventh largest
pharmaceutical company measured by revenues, AstraZeneca has operations in over 100 countries and
has a portfolio of drug products for major disease areas including cancer, cardiovascular, gastrointestinal,
infection, neuroscience, respiratory and inflammation.
AstraZeneca has a strong existing sales force. However, new drug products in the pipeline have failed at
the Research and Development (R&D) stage. Hence, AstraZeneca’s sales force is currently underutilized.
Question #1: AstraZeneca has advertised in trade journals, offering to sell other companies’ products.
The response has been excellent and AstraZeneca wishes to narrow down fifteen possible new drug
products to the two most viable candidates. How can it do this?
Additional Information:
 AstraZeneca’s traveling sales force visits customers (doctors and pharmacists) at their place of
business.
 AstraZeneca is known for its high-quality, moderately priced line of pharmaceuticals.
 AstraZeneca may have other competing products in development or may be moving away from
some market segments.
Possible Answer:

The basic approach is to determine which products are the best fit with the existing distribution channel
and AstraZeneca’s current strategy.
 A 2×2 matrix analyzing what AstraZeneca currently desires to sell and what it wishes to sell in the
future would provide one solution to this case. The matrix should have a high / low value proposition.
 The fifteen potential products must be analyzed for their match potential with AstraZeneca’s
current and future pharmaceutical product lines.
 The recommendation must also consider whether AstraZeneca will have sufficient sales force
capacity when its own new drugs are launched.
 Different price points: Premium, Moderate, Discount or Branded verse Generic.
Question #2: The new drug product development process consists of three phases. AstraZeneca has
determined the cost and success rate at each phase as shown in the following table:
Phase Cost per Product Success Rate

R&D $2 million 10%

Testing $10 million 20%

Product
Rollout $50 million 80%

How many drug products does AstraZeneca need to undertake in order to generate two successful ones?
What is the total cost associated with developing two successful drug products?
Possible Answer:
The quantitative part of the case requires the job candidate to do the calculations in a reverse way: from
Product Rollout phase to Testing, and to R&D:

Cost per #
Phase Product Success Rate # Leaving Phase Products Total Cost

Product
Rollout $50 million 80% 2 3 $150 million

Testing $10 million 20% 3 15 $150 million

R&D $2 million 10% 15 150 $300 million

Total Cost 600 million

Thus, 150 drug products require development in order to generate two successful ones. The total cost
associated with developing two successful drugs is $600 million.

BASF Develops New Sulfite Preservative Substitute

Case Type: new product.
Consulting Firm: Oliver Wyman final round job interview.
Industry Coverage: chemicals; restaurant & food service.
Case Interview Question #00184: The client BASF SE (FWB: BAS) is a large global chemical company
headquartered in Ludwigshafen, Germany. A new chemical that can be used as a substitute for sulfites,
has recently been discovered and patented by BASF USA’s R&D department.
Currently, sulfites are used to preserve packaged foods such as fruits and vegetables. They can generally
increase the shelf-life by 10-14 days. Two percent of the US population is allergic to sulfites, some to the
point where they could die from consuming them. The United States FDA has been leaning towards
eliminating sulfites, and in fact they have been banned in some others countries. The new substance has
been tested only on fruits and vegetables, and there are no side effects.

BASF USA has retained your consulting team to help them develop a marketing strategy for the new
chemical compound. How can this new substance be commercialized?

Additional Information:
Customers
The primary buyers of sulfites are produce companies, who in turn sell their products to grocery stores
and restaurants. Grocery stores sell sulfite products such as bagged vegetables, such as carrots, and/or
prepackaged salads. Restaurants use sulfite products to help preserve vegetables which they purchase
prepackaged.
Product
 Sulfites are basically used for keeping fruits or vegetables like lettuce fresh when they are
packaged.
 Sulfites extend the shelf-life of some foods by 10-14 days is priced at $1.50/ pound.
 Other sulfites substitutes extend shelf-life by 3-5 days and are priced at $1.50/pound.
 Without using sulfites or other substitutes the shelf-life is less than 24 hours.
 The new substance extends shelf-life by 10-14 days and costs $6.00/pound ($5.00 raw materials
only).
 Reliable research indicates that the patent is not imitatable.
 One pound of sulfites is required to treat 20,000 pounds of vegetables or fruits. It also takes 1
pound of substitutes to do 20,000 pounds of vegetable or fruits. One pound of fruits or vegetables
costs approximately $1.00.
Distribution
 Grocery stores have a turn rate of 200 to 300 (per year). This means that they hold fruit or
vegetables for about 2 days before they are purchased by customers.
 Restaurants have a turn rate of 100 (per year). This indicates that they hold the fruits or
vegetables for about 3.5 days.
 Produce companies take one day to get their products from the produce company to the
restaurant/grocer.
Possible Answer:

A quick calculation shows that it costs less than one cent per pound of product to use the new substance.
The bottom line, the cost of the new sulfite preservative substitute to the produce company is insignificant
compared to the cost of the fruits or vegetables.
 Grocery stores do not receive the produce until it is already 3 days old, which means that other
existing substitutes for sulfites give the produce a shelf-life at the grocery store of 0-2 days. This does
not give ample time for consumers to store and use the product after purchase. The other substitutes
for sulfites are not a viable option.
 Restaurants do not receive the produce until its already about 4.5 days old which means that
other existing substitutes for sulfites are not a viable option
Thus, other existing sulfite substitutes are not a good option for the new chemical or sulfites. The new
chemical’s primary competition will still be sulfites. A three-pronged approach may work best:

 Enter markets where sulfites are already banned. Can charge very high prices there due to the
lack of alternatives and small amount of sulfites needed for large amount of product.
 In other markets, highlight the lack of side-effects to win over market share from sulfites.
 Explore the ethical and logistical issues of getting sulfites banned in other markets. This might be
accomplished through petitions and/or getting new regulations imposed. If sulfites are banned, the
new chemical would enjoy a very lucrative monopoly.
Other issues the job candidate might want to consider are manufacturing and distribution.

Research In Motion to Launch BlackBerry Torch 9800 Smartphone

Case Type: pricing & valuation; new product.
Consulting Firm: Simon-Kucher & Partners (SKP) final round job interview.
Industry Coverage: electronics; telecommunications, network.
Case Interview Question #00176: Your client is Research In Motion Limited (RIM) (TSX: RIM, NASDAQ:
RIMM), the Canada-based telecommunication and wireless device company best known as the developer
and manufacturer of the BlackBerry smartphones. The Vice-President of Marketing at RIM enlists your
help with a tricky problem.

The time is in early August, 2010. RIM is preparing to launch the BlackBerry
Torch 9800, a new, innovative smartphone that combines a physical QWERTY keyboard with a sliding
multi-touch screen display and runs on the latest BlackBerry OS 6. The phone contains many new
features that other smart phones do not have, and considerable hype surrounds the expected launch on
August 12, 2010. Given this situation, how would you go about advising RIM in determining the right price
for the BlackBerry Torch 9800 smart phone? (Just to price the hardware, not the contract or other
components) What information would you want to have?

The VP of Marketing has only 15 minutes to listen to your analysis. Walk her through the issues as you
see fit. Please ask for any information that you need.
Question #1: What information would you want to have?
Possible Answer:

In the first part of the case (qualitative analysis), the interviewer is testing your business sense, creativity
and knowledge of pricing strategy. Potential lines of discussion include:
 Goals of pricing strategy
 Product lifecycle
 Penetration strategy
 Price structures (upfront, rebates, recurring charges)
 Value vs. competition (products & services)
 Costs
 Other potential revenue streams (downloads, data plan revenue sharing, accessories)
 Cannibalization
 Capturing differences in customer willingness to pay, and ways to do so
Question #2: Assume for now that the marketing department, in conjunction with SKP, has done a
market research to determine customer willingness to pay and has found the following data:
 20% of potential buyers are willing to pay up to $800.
 40% of potential buyers are willing to pay up to $600.
 The remaining 40% of potential buyers are willing to pay up to $400.
At what price would you suggest RIM launch the new BlackBerry Torch 9800 smart phone, and why?

Possible Answer:
The second part of the case is for testing candidate’s analytical and quantitative skills. Again, be creative!
An excellent idea would be to suggest strategies (segmentation, product differentiation, etc.) to extract the
maximum willingness to pay out of all customers. Then the interviewer would explain that for the purposes
of this case, the product must have a single price.

Common Traps: Not realizing that a lower price capture the customers with a higher willingness-to-pay;
Not asking for cost; Not knowing what to do with the volume. Calculating revenue instead of profit.

The goal is to set a price that is profit optimal (should know from previous line of questioning). Price and
profits are related by this function: Profits = Revenues – Costs = Volume x Price – Costs

Costs = Fixed + Variable. In this case, interviewer gives variable cost of $300, no fixed costs.

Doing the Calculations

Since any market size will yield the same answer, choose an easy number to simplify calculation, e.g. 1,
10, 100. Remember, this part of the case is for the interviewer to test your ability to ask for the right
information, handling basic math, answering the right question, knowledge of the profit function, and
problem solving skills.

Pricing Strategy Option Price Cost Profit per Phone Volume Profit

#1 $800 $300 $500 20% x 1 $100

#2 $600 $300 $300 60% x 1 $180

#3 $400 $300 $100 100% x 1 $100

Making a Recommendation
In making a recommendation, the interviewer is testing your confidence in your work, your ability to speak
clearly and concisely, and again your creativity and business sense. The following are some of the points
you would need to address when making the final recommendation:

 What information have you been asked to provide?

 What objective(s) are you trying to achieve?
 Can you think of a concise, creative scenario in which a different solution might apply?
Sample Recommendation: “I would recommend charging $600, since it is the profit-optimal price for this
smartphone. If, however, we have the flexibility to change the price over time, I would launch at $800 and
later reduce to $600.”

Common Traps: Disregarding the initial question and objectives (pricing); Getting bogged down by the
details.

Question #3: Suppose RIM launched the BlackBerry Torch 9800 smartphone at $600 retail price and
later confirmed the volume forecasts at this price point. A few months after the launch, the VP of
Marketing comes back to you and she says that they would like to drop the price on the phone. The
company’s plan is to lower the price to $450, but they want your advice first. How would the volume you
would need at $450 compare to the volume achieved at $600 if the goal is to not sacrifice any profits?
(Assume customers remain at all price points)
Possible Answer:
The goal here is to maintain profits. The interviewer is testing candidate’s ability of calculating break-even
point, logic, math skills and quantitative analysis.

In Part #2 of the case, it has already been shown that at retail price $600, volume is 60%, and profit =
($600 – $300) x 60% = $180.

If the retail price is to be dropped to $450, in order to for RIM to keep the same amount of profit, sales
volume will have to be boosted to $180/($450 – $300) = 120%, twice as much as 60%. Therefore, the
marketing department would have to double the sales volume after the price drop.

Sanity Check: Is doubling volume possible given current percent of market? What other things would you
recommend?
Expedia Evaluates Market Potential of Trip Add-On Product
Case Type: new product; market sizing.
Consulting Firm: Mercer Consulting final round job interview.
Industry Coverage: E-commerce, online business; tourism, hospitality, lodging.
Case Interview Question #00175: Your client Expedia.com (owned by Expedia Inc., NASDAQ: EXPE) is
an online travel website that currently sells all major travel products – airline flight tickets, hotel rooms, car
rentals, vacation packages, and cruises. Their major competitors are Travelocity, Orbitz and Priceline.

They are interested in entering a new market where consumers can add
additional destination products to their trip, such as airport transfers, show tickets, tours, etc. A consumer
will begin booking their trip as normal, and before concluding, will be presented with these additional
product options. Expedia calls this new product a “Trip Add-On”.

Before Expedia invests money in developing this new capability, they’ve asked you to evaluate the market
potential of this offering and provide a go/no-go recommendation with associated risks. How would you go
about it?
Possible Answer:

This case combines new product development and market sizing. The biggest challenge for the
interviewee is to think about what data he/she needs and how to gather this data. The interviewer should
let the job candidate drive the discussion as much as possible in uncovering the necessary data.
Revenue Drivers
The table below gives a complete overview of the product mix breakdown for your client Expedia. This
data is the first piece of important information. The interviewer should let the job candidate try and ask for
this information themselves.

Product % of Transactions % of Revenue

Air Flight 60 55

Hotel 20 25

Package (flight & hotel) 3 5

Car Rental 15 10

Cruise 2 5

Total per Year 10 million $3 billion

Next, the candidate should recognize that the new Trip Add-On products will be sold in combination with
the existing products. More specifically, a customer can only purchase a Trip Add-On together with a flight
ticket, hotel, package, car rental, or cruise product. They can never purchase a Trip Add-On by itself.

The critical estimation the candidate needs to provide is the conversion rate associated with each
product. The conversion rate associated with the air flight product is the number of Trip Add-Ons
purchased with the air product divided by the total number of air product transactions. For example, if
Expedia made 1000 air flight transactions and sold 150 Trip Add-Ons with these air transactions, the
conversion rate would be 15%.

Ask the candidate to ballpark conversion rates by product. It is not important that the candidate gets the
numbers suggested below; however, it is important that he/she provides some rationale for their
estimation. Factors that would be good to consider are:
 Intuition as to what current products are best associated with the new Trip Add-Ons. A package
would be most logical because the customer is looking to buy their entire trip at once, while a cruise
would be least logical since the customer will be tied up on the cruise-ship for their entire trip and
unlikely to need a Trip Add-On.
 Available competitive data from annual reports, press releases, or tour operators.
 Other offerings that may be currently sold in the booking path. An example of this would be travel
insurance.
Suggested conversion rates by product: Air Flight 5%. Hotel 10%. Package 20%. Car Rental 2%. Cruise
1%.

Other revenue drivers:

 Market reach: 50%.

 It won’t be possible to offer Trip Add-Ons in all markets, so the transaction numbers would have
to be cut by a market reach factor. Major markets like New York, Chicago, Las Vegas, etc. would be
included, but secondary markets (e.g. Charlotte, Indianapolis, etc) become too fragmented to support
Trip Add-Ons.
 Average retail price of an add-on: $100.
Again, it’s not critical that the candidate gets the suggested numbers correct, but make sure they provide
a logical rationale.

Sample Revenue Calculation:

# Trans
Product % of Trans (MM) Conv Rate Trip Add-Ons

Air Flight 60 6.0 5% 300,000

Hotel 20 2.0 10% 200,000

Package (flight & hotel) 3 0.3 20% 60,000

Car 15 1.5 2% 30,000

Cruise 2 0.2 1% 2,000

Total 10.0 592,000

592,000 potential Trip Add-Ons x 50% market reach x $100 average retail price = $29.6 million (round up
to $30 million)

Cost Drivers:
 COGS (Cost of goods sold): 80%
 Note that the client only retains 20% of the total retail revenue of the Trip Add-On
 Other variable costs: $10 per transaction
 Potential drivers include: computer hardware (direct variable), credit card fees (direct variable),
customer service (allocated), technology staff (allocated), and general overhead (allocated)
 One-time development cost of $3 million
Sample Cost and Profitability Calculation:
Cost = 80% x ($30 million) + $10 x (296,000 transactions) = $27 million

Assume the one-time development costs takes place in Year 1. Also, assume future growth rate is zero
and the discount factor is zero (e.g. $30 million in revenue for each year after Year 1, which is also the
present value).

Profit in Year 1 = $30 million – $27 million – $3 million = $0 million

Profit in each subsequent year in present value = $30 million – $27 million = $3 million

Other Considerations
1. Competitive environment
All Expedia’s major competitors (Travelocity, Orbitz, Priceline, etc) are currently selling Trip Add-Ons.
Your client is late to the game. Although competitors are publicly traded, it is hard to find specific data
related to the performance of their Trip Add-Ons. But the general feeling is that this has been a good
venture for them from a financial perspective.

2. Risks

 Adding an extra step in the booking path and negatively impacting existing products. For
example, making the booking path longer by adding Trip Add-Ons could potentially hurt the client’s
air flight product sales. This would be detrimental given the transaction and revenue volume the air
flight product provides.
 Fulfillment and customer service are new challenges that need to be addressed. How does the
client provide the customer with the necessary ticket to gain entry to their Trip Add-On? Mail is an
expensive option that would further eat into their profit margin.
 If Expedia does not implement Trip Add-Ons, will their competitors have a long-term product and
strategic advantage?
 Can the client meet a new product challenge from an organizational standpoint? Do they have the
resources to mobilize a dedicated team to take ownership?
3. Financial Issues
In the sample calculations, the profitability is zero in Year 1 and $3 million per year afterwards. Assuming
this represents free cash flow, is this a reasonable return given the financial and human resources
required? (Note – an excellent candidate would bring up whether or not the client is meeting its cost of
capital).

Recommendation: Make sure the candidate provides a go/no-go recommendation to the client that
captures the essence of the discussion. Additionally, they should bring up at least two risks with the
decision they are recommending. Whether or not the candidate recommends proceeding with the project
is not critical to succeeding with this case.
Boston Scientific Develops New Hip Replacement Device
Case Type: new product.
Consulting Firm: Deloitee Consulting second round job interview.
Industry Coverage: Healthcare: Hospital & Medical.
Case Interview Question #00150: Your client is Boston Scientific Corporation (NYSE: BSX) (abbreviated
BSC), a worldwide leading developer, manufacturer and marketer of medical devices whose products are
used in a range of interventional medical specialties. Recently, a surgeon who consults to Boston
Scientific has developed a minimally invasive approach to hip replacement surgery — involving two 1.5-2
inch incisions to replace the hip joint instead of the standard 6-10 inch single incision.

The main advantage of the new approach is that the muscles and tendons surrounding the hip joint are
avoided or separated and never fully cut through as they are in the traditional approach. Therefore,
patients are in less pain from the incision and their recovery time is shorter. Rather than the standard 3-5
days in the hospital, 80% of patients go home the same day as the surgery. The major drawback of the
surgery is that it requires longer time in the operating room — 3 hours versus 2 hours in the traditional
approach — and so far has only been performed on younger, healthier patients with commercial
insurance (versus Medicare). Also, the new procedure cannot be performed on obese patients.
The device used in the new approach is exactly the same as the device used in the traditional single-
incision approach; however, the instruments are slightly different (smaller) and need to be specially
manufactured by Boston Scientific.

Boston Scientific has hired your consulting team to advise them on commercializing the new hip
replacement approach. Specifically, they want to know two questions:
1. Is there an economic benefit to this new approach to hip replacement surgery?
2. If so, how can your client reap financial success from it? If not, what can they do to make it
economically successful?

Possible Answers:

No answer is provided yet. Feel free to share your own answer/solution or any thought to this case by
leaving a comment below.
Oscar Mayer Introduces New Hot Dog
Case Type: new product.
Consulting Firm: Buck Consultants first round job interview.
Industry Coverage: Food & Beverages.
Case Interview Question #00139: You have been hired by Oscar Mayer, an American meat and cold cut
production company. Oscar Mayer is wholly owned by food and beverage conglomerate Kraft Foods Inc.
(NYSE: KFT) and is best known for its hot dogs, lunch meats, bologna, bacon and other lunchables

products.
The food processing department of Oscar Mayer recently introduced a new hot dog to the market. Sales
in the first two weeks have far exceeded the marketing department’s projections. Your client thinks they
may need to add more capacity. What advice would you give them?

Possible Answers:
The following are relevant questions about the product and market you should want to ask your client
regarding consumer’s buying preferences, competitive break-up, sales and promotions, etc.
 Is your hot dog product significantly different from others on the market? (fat free, cheese filled,
etc). In this case, the answer is NO.
 Does your product appeal to a specific market niche that others do not? (kosher, sports fans,
specific ethnic recipe, etc). In this case, the answer is NO.
 Is your hotdog product priced significantly lower than other products out there? In this case, the
answer is NO.
 Have you been offering grocers and distributors a special introductory price? In this case, the
answer is YES.
It appears that the client’s initial sales surge has been influenced by one-time buyers attracted to the low
price promotion. Follow-up questions might include:

 How often do most grocers re-order hot dogs? In this case, 2 times/week
 Has Oscar Mayer received any re-orders? In this case, the answer is NO.
At this point you should ask your client to re-evaluate their marketing department’s projections. Hot dogs
are somewhat of a commodity product that compete primarily on price. There are numerous well-
established firms in the industry with no one firm holding a large market share. In this case, adding more
capacity is not a good idea.

GE Defines Pricing Strategy for Eternal Light Bulb

Case Type: pricing & valuation; new product.
Consulting Firm: McKinsey & Company first round job interview.
Industry Coverage: Utilities; Energy Industry.
Case Interview Questions #00131: Your client is General Electric Company (NYSE: GE), a multinational
conglomerate corporation headquartered in Fairfield, Connecticut, US. The company operates through
four segments: Energy, Technology Infrastructure, Capital Finance and Consumer & Industrial. In 2011,

Fortune magazine ranked  GE the 6th largest firm in the U.S.

Recently, researchers in GE’s Energy Division have just developed a new product: a new light bulb that
can last eternally. Your job is to help them go to market by defining their pricing strategy. The new light
bulb cost $1 billion in total to develop.

Possible Answers:
Me: Are the new light bulbs different from conventional light bulbs in any other way? Are the light bulbs
intended to replace regular incandescent light bulbs or fluorescent light bulbs?
Interviewer: You can assume that the new light bulbs can be used to replace both incandescent and
fluorescent light bulbs. You can further assume that the new bulbs are perfect replacements for these
types of bulbs (i.e., they are available in two different forms, one that is exactly like any other
incandescent bulb, and one that is like any other fluorescent bulb).

Me: In order to determine the optimal pricing strategy, we’ll need to look at both microeconomic and
marketing theory. First, it may be useful to determine the upper and lower limits on the price GE can
charge for its new light bulbs. In general, price is bounded by two things: the product’s economic value to
the customer (EVC) and the company’s average cost in producing the product. The EVC sets the upper
bound in price since a person will not pay more than the product is worth to her, and the average
production cost sets the lower bound since the company can not earn economic profits if the price is
below this point (in the short run, however, the company will want to produce as long as price is above
average variable costs since this yields a positive contribution to fixed costs). The optimal price must fall
somewhere within this range.

Interviewer: How would you determine the lower and upper limits in price?

Me: The average total cost of production can be obtained by considering fixed costs for the product (e.g.,
overhead and administrative costs), plus manufacturing costs, plus distribution costs, plus selling costs,
and so on. Of course, the average cost will vary with the level of production. Generally, the average cost
function is U-shaped (where the x-axis measures quantity and the y-axis measures average cost).

Note that the average total cost of production is independent of the $1 billion development costs. This
makes sense since this is a sunk cost. The sunk cost does affect the overall return on investment (ROI)
and the internal rate of return (IRR) for the project, however.
The EVC can be computed as follows: First, we assume for simplicity that the resale value of the new
light bulb is negligible after it has been used for many years (this is akin to any other old household item).
We further assume that the average person will be able to use one of the new light bulbs for 50 years
before it is discarded (either because it is accidentally broken or because the person dies and his
belongings are disposed of). Finally, we assume that a normal light bulb lasts an average of 6 months and
costs $.50.

Now, to compute the EVC we need to determine how much one of the new light bulbs will save a person.
Since we assume that the new light bulb has an effective life of 50 years, it will save a person $1 a year
from having to buy two old light bulbs for 50 years. Thus, the EVC is approximately the net present value
of a $1 annuity for 50 years (to be more accurate, we would have to consider the economic value of the
time savings from having to buy and replace normal light bulbs, the reduced risk of being electrocuted
from not having to frequently changing normal bulbs anymore, and so on. We assume that this is
negligible.

At the same time, however, we must also realize that the new, significantly more expensive light bulb may
be accidentally broken prematurely (e.g., while moving to a new house), resulting in an economic loss for
the customer. The probability of this should be considered in the EVC.).

Interviewer: Good. Now how would you determine the optimal price?

Me: From microeconomics theory we know that the optimal, profit-maximizing price is given by the
equation: P = ( Ep / (1 + Ep) ) x MC, where Ep = price elasticity of demand for the new light bulb, MC =
marginal cost of producing the new light bulb

Interviewer: How would you get the elasticity and MC data that you need to use the optimal price formula?

Me: The marginal cost of manufacturing, packaging, distributing and selling the new light bulb can be
obtained by performing a cost study of these processes. For instance, the marginal costs associated with
manufacturing will include the costs of raw materials, direct labor, and energy. Of course, the marginal
cost will vary with the level of production. In general, the marginal cost curve is roughly U-shaped.

The elasticity function is more difficult to obtain. Generally, this is hard to derive in real life, especially for a
new product that lacks past sales data. However, GE may be able to estimate the demand and elasticity
function for the new light bulb based on its historical sales data of normal light bulbs. Using this data in a
regression analysis, it can determine what the key drivers of demand are. For instance, it can perform a
regression analysis with sales quantity as the dependent variable and price and bulb lifespan as the
independent variables (the exact type of regression model will need to be determined – i.e., logarithmic,
linear, exponential, etc.).

The elasticity function may also be estimated by conducting a survey of potential customers of the new
light bulb. In this survey, customers can be asked what quantities they would purchase the new light bulb
at different price points. This data can then be used to derive the elasticity function.
Interviewer: This sounds like a lot of work. Do you really need to do all of this to determine the optimal
price?

Me: No, you’re right. The optimal price can be accurately estimated. We know that at the industry level,
demand for light bulbs is highly inelastic since light bulbs have become a necessity and there are few
substitutes for them (cross-elasticities are low).

At the same time, however, light bulbs are a commodity. Thus, at the firm level, there is nearly perfect
competition for light bulbs, and demand is perfectly elastic for any single firm.

As a result, the optimal pricing strategy for GE is to price its new bulbs slightly below the EVC for the new
bulb (which is equivalent to pricing is slightly below the market price for conventional bulbs) since this will
provide consumers a savings in using the new bulb (this assumes that the average production cost for the
new bulb is below this price level. If it is not, it is not economical for GE to produce and sell the new bulb).
If GE were to price its bulbs above its EVC, consumers would have no incentive to purchase it. If it were
to price the new bulb at the EVC, the new bulb would offer no advantages to a conventional bulb, and it
would just be another commodity bulb. As a result, it would not allow GE to significantly increase sales
and profits.

GE needs to consider a few other issues in its pricing strategy. First, it should price its new product low
initially to induce trial. Second, severe cannibalization of its conventional bulbs is likely to result. Thus, GE
needs to ensure that the sale of its new bulb will offer a higher contribution margin than that from the sale
of its conventional bulb. Lastly, GE needs to consider the industry’s competitive reaction. Since the
industry is a commodity market, P = MC, and thus, it is unlikely that competitors can afford to compete by
lowering the price of their products. They may, however, attempt to build their brands to make their
product less of a commodity.

Interviewer: How would your analysis be different for GE’s business customer segment (i.e., for
businesses that use the new bulb to replace fluorescent lights)?

Me: In our consumer analysis, we assumed that the economic value due to the time savings from not
having to buy and replace new bulbs is negligible (primarily because the opportunity cost is negligible –
what is the opportunity cost of saving 2 minutes to pick up light bulbs while at the grocery store or from
saving 2 minutes at home installing the bulb?) With business customers, however, this is not the case.
The elimination of the need to replace bulbs periodically will save businesses money from having to hire
maintenance personnel to do this. Thus, the EVC for businesses will be higher than that for consumers,
and GE can charge businesses a higher price.

In addition, we also assumed that the resale value of a new bulb that has been used for many years is
negligible for the consumer since, aside from garage sales, it may be difficult for the individual seller to
locate a buyer (this is currently changing as a result of the Internet, though. But, then again, how many
people would be willing to pay a non-negligible amount of money for an old household item, such a
hammer or an old mirror, both of which can theoretically last a long time like the new GE light bulb?). This
is not the case with business customers, however, since the resale market for old business furniture is
relatively strong. In addition, it is likely that the expected lifetime of a bulb used in a business environment
will be longer than that used in a consumer’s home. The reason for this is that bulbs are generally fixtures
in the office building even as the occupants in the building change. Thus, the expected lifetime of the new
bulb in a corporate office is likely to be about the same as that of the building. These factors will allow GE
to charge an even higher price to its business customers.

Interviewer: Good. I think that’s all I wanted to cover with this case. Do you have any question for me
about the firm?

Note: This case is different from the GE Develops Eternal Light Bulb That Lasts Forever case because it
deals with developing a pricing strategy for a new product as opposed to analyzing the effect of new
product on the industry.
STEM Commercializes New CNS Stem Cell Product
Case Type: new product; mergers & acquisitions.
Consulting Firm: Simon-Kucher & Partners (SKP) second round job interview.
Industry Coverage: Healthcare, Pharmaceutical, Biotech & Life Sciences; Small Business, Startups
Case Interview Question #00129: You client StemCells, Inc. (STEM) is a small life sciences and biotech
startup based in Palo Alto, CA. The company has invested a huge amount of money in research

&  development (R&D) and was recently granted a patent for a new
breakthrough in using human neural stem cells product to treat chronic spinal cord Injury. The client has
retained your consulting team and wants to know what approach it should take to commercialize this new
product. How would you go about analyzing the case?
Additional Information: ( to be given to you if asked for)
 How long is the patent protection? 10 years
 Are there any competitors? No. This product would create a new market
 Market potential? The client expects sizable immediate demand
 How much money has been invested in R&D? Substantial amounts
Possible Answers:

Part 1: Market Strategy –  the following aspects should be discussed

 Managing hyper growth
 Optimal acquisition strategy (new customers)
 Appropriate pricing via EVC (Economic Value to the Customer) analysis
Part 2: Operations Strategy – the following aspects should be discussed
 Costs: fixed and variable
 R&D Resources/Strengths
 Required Capabilities: Buy, Build, or Partner?
 Manufacturing: in house vs. outsourcing
 Marketing & Sales
 Distribution Channels
Part 3: Finance Strategy – Discuss the following aspects
 Debt vs. Equity to finance growth
 Timeline to break even
Part 4: External Factors – Discuss the following aspects
 Legislation
 Suppliers of raw materials
Partt 5: M&A Potential – Interviewer asks the candidate to discuss various entry strategies available to
the client with respect to introducing the product in the market.
Possible Answer:
 STEM has several options:
 Acquire a company that provides manufacturing and marketing capabilities
 Joint venture with another company
 Outsource manufacturing, marketing and distribution channels
 Grow skill sets organically, ergo more slowly
Part 6: Evaluating M&A options – Interviewer asks the candidate to evaluate the pros and cons of the
different strategies suggested above
Possible Answer:
Given that STEM is a small R&D startup, its core competency is not in the area of manufacturing,
marketing, and sales. STEM should certainly pay attention to the profitability of these strategies, but also
bear in mind the risk (while going alone may allow STEM to keep all the profits, it has many more pitfalls
than teaming with an established player in the industry.)
The following comparison matrix presents the pros and cons of the various strategies

Criterion Develop capability internally Get external partners

Speed Slow Fast

Cost Benefits Expensive Cheap

Growth / Future capabilities Fast and sustainable growth Slow growth

Part 7: Patent Pricing Strategy – Interviewer informs the candidate that STEM has decided to sell the
patent to an established pharmaceutical firm and asks how he/she might derive an acceptable price for
the product from the pharmaceutical company.
Possible Answers:
 Conduct Economic Value to the Customer (EVC) analysis
 Surveys to potential customers in order to conduct a conjoint analysis
 Chance to price discriminate among segments (if it can tweak product attributes)
 Analyze past introductions of new products for historical sales trends
 Focus group experiments in separate, comparable regions (to find price elasticity)
 Lower the price in one and raise the price in the other
 Compare the sales volume over a period of time
Part 8: Consumer Segmentation – Interviewer informs the candidate that the new market has two
segments, healthcare providers and home users and asks him/her to list some differing characteristics
between the two segments that might affect the client’s marketing strategy.
Possible Answers:
Criterion Healthcare Provider Home User

User’s preferences Cost, Maintenance Ease of use, reimbursable costs

Who is the Decision

Maker? Doctor / Procurement Manager User/Parent/Spouse

Contact strategy Trade shows, Direct marketing Doctor(push)/TV, or print ads (pull)

Experienced sales force to convince

Resource requirements doctors or procurement manager Convenience, ease of use

Interviewer’s Note: This is a “Launch New Product” case combined with a piece on M&A. The case is
structured on the 3C’s framework and combines the following two questions:
1. What are the core competencies of this company?
2. Do they have the funds to develop the capacity in-house, or should they be looking for a partner or
buyer for the patent?
Eli Lilly Develop New Eyedrops That Cure Myopia
Case Type: new product; pricing & valuation; market sizing.
Consulting Firm: Campbell Alliance 2nd round job interview.
Industry Coverage: Healthcare: Pharmaceutical, Biotech & Life Sciences.
Case Interview Questions #00119: The client is a marketing vice-president of Eli Lilly and Company
(NYSE: LLY), a major global pharmaceutical company headquartered in Indianapolis, Indiana. Currently,
he is working on a business plan for a new revolutionary product. Researchers in the Research and

Development (R&D) division of Eli Lilly have recently developed  new eyedrops
which completely eliminate Myopia (nearsightedness) in 60% of the cases (the cases caused by eye
strain rather than irregularly shaped eye lenses) if the drops are used twice a day.
Question Part 1: The marketing vice-president has been working on a business plan but is having a
difficult time with one piece of information. The client needs a directional estimate of the retail price they
should set for the new drops so that he can complete the business plan. How would you help the client
structure his thinking on the price and what is your back-of-the-envelope estimate on the price that he
should use in the business plan?
Possible Answer:

One rough cut pricing analysis would determine the market price for the product that is being replaced…in
this case, eyeglasses or contact lenses. For example, if eyeglasses cost $120 and last on average 2
years, then a two-year supply of drops could be sold for $120.
A more advanced analysis might determine that eyedrops are simple to use and completely trouble-free
so that they should replace the most expensive option including all the costs associated with that option.
For example, this may include $100 per year in optometrist fees, $180 in contact lenses ($120 per pair
plus on average each user loses on lens in a year), and $25 in contact lens cleaning solutions and other
supplies, for a grand total of $305. Using this example, the retail price of the one year supply of drops
should sell for $305.

The most advanced issue trees will include the fact that this new product is actually much better than the
alternatives, issues of dynamic pricing strategies (e.g. start high and reduce over time to best understand
elasticities), and pricing so that marginal revenue equals marginal cost.

Question Part 2: After talking through the pricing issue, you agree with the client that the price of the
drops should be roughly $200 per year. Because you have been so helpful, the client wants to discuss
one more issue. You look at your watch and determine that you have precisely 10 more minutes before
you absolutely must leave for the airport. The client explains that he needs to complete his baseline
business plan within an hour so that he can share it with the Eli Lilly management committee later that
afternoon. He would like you to help him produce a ballpark estimate of the market for the eyedrops
product. Specifically, what dollar level of sales might he be able to expect per year in the long run in the
US market?
Possible Answer:
Because you have already estimated a reasonable price, you must now estimate the number of yearly
supplies that the client can expect to sell in the US. One possible organizing structure (with estimates) is:

1. Estimate the number of people in the US: 300 million

2. Estimate the percentage of (1) using corrective eyewear: 20%
3. Estimate the percentage of (2) that are nearsighted: 70%
4. Use the client’s figure for the percentage of (3) that can be helped: 60%
5. Estimate the percentage of people that will adopt the new product: 50%
6. Put it all together: (300 million)(0.2)(0.7)(0.6)(0.5) = 12.6 million people
7. Multiply the number of people by the price per unit (12.6 million)($200 per unit) = $2.5 billion

NOTE: this market sizing approach assumes a proprietary product with no competition. If a competitor is
assumed, market share must also be considered.
Progressive Launch Pay As You Go Auto Insurance
Case Type: business competition/competitive response; new product.
Consulting Firm: ZS Associates 2nd round job interview.
Industry Coverage: Insurance: Property & Casualty.
Case Interview Questions #00114: Your client Progressive Corporation (NYSE: PGR), also known as
Progressive Casualty Insurance Company through its subsidiaries, is a major insurance company that
provides personal automobile insurance, and other specialty property-casualty insurance and related

services in the United States.

Progressive has just learned that its major competitor GEICO has announced the initial roll-out of a new
program in Texas. GEICO calls the new program “Pay as You Go” in which a GPS tracking device is
installed in each insured car as part of the program, and reports the location of the insured vehicle on a
minute-by-minute basis and records the miles traveled. Progressive wants to know whether it should
respond and how.

Additional Information:
 The client company Progressive is unremarkable in the industry, on par with the top five players
(GEICO, State Farm, Allstate, Progressive, Nationwide Insurance).
 No particular competitive advantage exists. The auto insurance industry is rather commoditized.
 There is heavy price competition within the industry, and the industry is highly regulated.
Possible Answers:
The interviewee may focus on the following issues raised by this fact situation:

Customers
 What customers would this policy attract? What customers might it drive away?
 Are there privacy issues? Legal issues?
 Why Texas? Any other locations?
Company
 How much to install a GPS in every vehicle?
 Who pays for it – the client or the customer?
 What will the cost be for monitoring every GPS?
 What processes need to be set up to deal with this product – monitoring, reporting, liaison with
police for stolen vehicles?
 What would the policy implications be when certain information was discovered – e.g. customers
speeding, erratic driving.
Competitor
 Is the competitor a national player?
 What is its coverage/market share?
 Are its prices / cost structure competitive?
 Are the competitor’s customers similar or different than our client’s?
 Are other competitors considering this?
Conclusion
The point of this case is to identify the impact this new program could have on the car insurance industry.
The key aspect of course is the fact that cars using this insurance policy will be tracked at all times.

The interviewee should discuss issues of privacy and invasion as a consequence, but benefits afforded to
those insured on this policy: someone who doesn’t drive much, the elderly, or someone with a very short
commute, may benefit from lower costs under this program.

Rental car companies can use this program to track the whereabouts of its vehicles. Some companies do
this already, with the “black box” data recorders. The GPS system would be more involved. Rental
companies should consider how this would affect its customers – would they want the rental company to
know their every move? This brings us back to “Why Texas?” Rental companies likely have stipulations
on cars rented in Texas that they are not driven over the border into Mexico. With GPS tracking, this
practice could easily be monitored. There are legal / official benefits to this program, including potential
aid to police / FBI / DEA institutions seeking to reduce illegal drug / immigrant trafficking across the US /
Mexico border.

Additionally, the GPS tracking system can be used to assess driving habits of the insured, and perhaps
more accurately describe the “risk rating” of the driver. Insurance companies base policies and premiums
heavily on risk ratings. A good driver, under this program, could likely be offered an extremely
competitively priced premium – a concern for the client company. Additionally, if the pricing is solely
based on usage, a poorer driver, who drives infrequently, but has been quoted high prices by other
insurers, may be offered a lower rate by this new program.

The successful interviewee will engage in a conversation that addresses the risks and issues raised by
the introduction of the new technology. The Texas location is important; they should recognize the
proximity of a foreign country and the potential for the crossing of international boundaries. Privacy is
another concern: what customers will be comfortable utilizing this program? Will the company introducing
this be able to greatly undercut the client’s premiums by appealing to certain low-usage drivers, and steal
a great deal of market share?

There is no right answer; a thoughtful discussion that addresses these issues in a logical manner is a
successful interview.
Pfizer to Introduce New Cancer Drug
Case Type: new product; investment; HR/organizational behavior.
Consulting Firm: Accenture 2nd round job interview.
Industry Coverage: Healthcare: Pharmaceutical, Biotech, Life Sciences.
Case Interview Questions #00108: Your client Pfizer (NYSE: PFE) is one of the largest pharmaceutical
companies in the world, ranking number one in sales. Based in New York City and with its research
headquarters in Groton, Connecticut, Pfizer produces a wide range of drugs including Lipitor (atorvastatin,

used to lower blood cholesterol),  the neuropathic pain/fibromyalgia drug Lyrica

(pregabalin), the oral antifungal medication Diflucan (fluconazole), the antibiotic Zithromax (azithromycin),
Viagra (sildenafil) for erectile dysfunction, and the anti-inflammatory Celebrex (celecoxib).
Currently, Pfizer has only one product on the market for cancer treatment ($500MM in annual sales). In 6
to 12 months, Pfizer is planning on introducing a new drug to the market. The new drug is also for cancer
patients and target audience will be oncologists. There is one major competitor (Gleevec made by
Novartis) for Pfizer’s current cancer drug product. If the new drug is introduced within a year, there will be
no competition for at least one year. Current sales force is comprised of 1000 sales representatives and
most reps joined company to be in an entrepreneurial environment. The company has been selling only
one cancer drug product for the past 5 years. To successfully introduce the new drug to the oncology
market, Pfizer will need to invest money in expanding its sales force.
Your job as an external consultant is to help Pfizer think through the question: Should they invest money
in expanding their sales force?

Additional Information:
 The life of a new drug patent is 17 years; however, most of this life is spent in the R&D and FDA
approval processes.
 Being first-to-market is extremely important to a new product’s success.
 Selling cycle: sales reps call on doctors to discuss products —> doctors recommend products to
patients —> patients choose and buy products to use —> health plan or insurance company
reimburses patients.
 Cancer drugs are generally very expensive; however, most of the patient’s out-of-pocket costs
are covered by their health plan or insurance company.
 To sell cancer drugs to oncologists requires experienced sales people with technical backgrounds
(oncologists do not see sales reps easily) — it usually takes 6 to 12 months to recruit and train a new
sales organization.
Possible Answers:

Key Issues – Problem Decomposition

 What is the potential demand (in units) for the new drug product?
 How many cancer patients are there?
 How frequently will patients use the product?
 What is the recommended dosage per usage occasion?
 What unit price will the company be able to charge for the new product?
 How will price be set for the product in the marketplace?
 What is the size of the sales force investment which will be required to support the new drug?
 What is the average annual cost of a sales rep?
 How many additional sales reps will be needed to successfully introduce and adequately support
the new cancer drug product?
 How many oncologists will need to be called upon?
 How often will each oncologist need to be called?
 What will be the average length of an oncologist call?
 Where is the point of diminishing returns for sales calls?
 How will potential demand be impacted by the number of sales representatives selling the new
product?
Additional Considerations and Questions to ask:
 How would you estimate the demand for the new cancer drug product?
 What approach would you use and what data would you want to see?
 How would you set the price for the new cancer drug product?
 Is this product likely to be price elastic or price inelastic?
 What if there was competition for the new cancer drug product?
 If the client decided to invest, should they go with one combined sales force (for both new drug
and existing drug) or two separate sales forces (one for each product)?
 What would you want to consider in deciding between one or two sales forces?
 How similar are the two products and target audiences?
 Are the two target audiences located in geographic proximity to each other?
 Will the new product distract sales reps from selling the current product (or vice-versa)?
 What will be the likely impact of each alternative on employee satisfaction?
 If they went with one combined sales force, how would you determine how much sales effort
should be spent on each product?
 What other sales channels (other than direct) might the company want to consider and why?
 What other factors might be important to consider in making these decisions?
 Strategic direction of the company.
 Financial situation (cash flow, capital availability, etc).
 Current sales organization structure and reward system.
 Potential barriers to entry for new competitors.
 Other investment opportunities (i.e., opportunity cost).
Texas Instruments to Market Thermal-imaging Device
Case Type: new product.
Consulting Firm: Booz Allen Hamilton (BAH) 2nd round job interview.
Industry Coverage: Electronics; Defense; Software & Information Technology.
Case Interview Questions #00107: Your client Texas Instruments Inc. (NYSE: TXN), widely known as
TI, is an American company based in Dallas, Texas. TI is renowned for developing and commercializing
semiconductor and computer technology. The Defense Electronics Division of TI has a thermal-imaging

device that they would like to market commercially.

This Forward Looking Infrared (FLIR, it uses detection of thermal energy to create the image assembled
for video output) device in development will allow firefighters to locate people in burning buildings. The
small handheld device can look through thick smoke to identify people behind walls and huddled in
closets. Its small LCD screen will provide an image showing the outline of human figures and other
features in the room. Should Texas Instruments continue development of this device and market it?
Possible Answers:
While several frameworks would be appropriate for this new product case, the Marketing 4 P’s is a good
place to start. You could start out by saying:

“First, I would want to analyze the product itself: does it have any competitors and is the product really
needed?
Next, I would want to understand the company’s costs. Military and defense produces are not particularly
cost conscious, can they produce this device at a cost that local fire departments can afford?

Then, I would want to gain an understanding of how this product would be promoted & marketed. How do
companies that provide fire equipment currently reach their target customers? Do the firefighters
themselves make the purchase decisions or do they recommend purchases to a city administrator that
has the final decision?

Next, I would need to look at the distribution. Is fire equipment typically sold through wholesalers or do
companies sell direct? If wholesalers are used, do we need to make arrangements with them to get
access for our product? Also, can we keep our product affordable after including commissions for sales
reps and the wholesaler margins?”

After an opening roadmap as stated above, it would then be useful to drill down into each area to try to
arrive at a final answer.
1. Product – Is a product of this nature really needed (interview with fire departments could reveal this)?
Can firefighters really use this product while holding onto axes, hoses, and other things needed to do their
job? Competitors? Product weight and size? Likely competitor response if there are none now.
2. Price – How do product costs compare to other firefighting products or competitors providing a like
product? Is the price within the budgets of fire departments? If a price war erupts with a competitor, can
the company maintain sufficient margins to be profitable.
3. Promotion – Need to segment marketplace into city high rise, urban (3 story and lower buildings,
apartments), and suburban (single-family homes), etc.? Does the product appeal to all three segments?
How do each of these segments purchase fire equipment and who makes the decisions? Are there strong
brand names in this category that our company would have to overcome? In case of strong brands, does
it make sense to form a partnership with an existing manufacturer of firefighting equipment?
4. Place – Distribution path, Do only a few suppliers have access to the purchase network. Would you
build the product to order or do you envision keeping inventory in the supply chain? Currently, you do not
have a sales and service force because you deal with military contracts. Perhaps it would be better to
outsource these roles or again, form a partnership with a company that has expertise in these areas.
Based on the answers to these and other questions, you can arrive at a qualified answer. Something like
“based on the information gathered so far, it looks like an attractive opportunity. The competitive
environment is light, there is a clear need for the product, and the company can produce the device at an
attractive price for local governments. Sales and marketing is a concern, but the company can explore
partnerships to attain these capabilities. Of course, I would want to do a more thorough analysis before
making a decision for the company to go forward”.

Elle Magazine Considers Selective Binding Ads

Case Type: new product; math problem.
Consulting Firm: Capital One 2nd round job interview.
Industry Coverage: publishing, mass media & communications.
Case Interview Questions #00066: Your client Elle is a major fashion magazine that focuses on
women’s fashion, beauty, health and entertainment. Hachette Filipacchi Media, the publisher of Elle
Magazine recently has been offered by a printing company a proprietary new process called “selective

binding”  which enables publishers to customize the pages included in readers’

magazines based on demographic data known about the reader. For example, an ad in Better Homes &
Gardens for lawn chemical services could be placed only in those issues going to subscribers who live in
houses and not to those living in condominiums or apartments. In this way, advertisers can focus their
communications on the demographic segment they are targeting.
As a consultant to Elle, would you advise your client to take advantage of this new process and offer
selective binding to its advertisers?
Possible Answers:
This is a pretty straightforward “launching a new product” case that can be solved by cost-benefit analysis
framework. Elle magazine would want to consider offering the new service to its advertisers if it would be
able to enhance its earnings by being able to charge its advertisers a premium for being able to more
exactly and efficiently target the demographic segment they want to reach. Of course the increased
revenue from the any premium must be able to offset any revenue lost as advertisers stopped targeting.
The interviewee could start the analysis by obtaining the following information form the interviewer:
Candidate: What demographic breakdowns can be made in the magazine’s database?

Interviewer: The only breakdown possible on your database is between subscribers who make under
$50,000 and those who make over $50,000.

Candidate: What it total readership, the proportion of readers who are subscribers (as opposed to
newsstand buyers), and the proportion of subscribers in each demographic category?

Interviewer: There are 1 million readers per month, 80% of who are subscribers. 25% of subscribers
make under $50,000 and 75% make over $50,000. The same mix applies to the newsstand buyers
according to readership audits.

Candidate: What proportion of the client’s advertisers target each demographic category of readers?

Interviewer: Most advertisers are selling high end fashion products, so 75% of them are targeting the high
income group.

Candidate: What is the cost of the selective binding service and what does the magazine charge for its
ads?

Interviewer: The service is being offered to your client free for 3 years since the printing company wants
to promote this new service’s use by getting a major magazine to start using it. The client charges $50 per
thousand full page ad (selective binding can only be offered on full page ads). Therefore revenue
associated with a single inserted page (front and back) in an issue is $100 per thousand page.

Candidate: What does the client’s closest direct competitor for advertisers charge for ads and what is their
readership like?

Interviewer: The client’s closest direct competitor has 500,000 readers, 100% of whom are subscribers.
Effectively, all of their readers make over $50,000. They charge $70 per thousand for their full one page
ads.

Since the printing cost to the client of selective binding is zero, the client simply needs to evaluate cost on
the basis of revenue per thousand gained or lost as their advertiser base uses the service to better target
their ads to their desired segment. Presumably, instead of 100% of advertisers paying the full
$50/thousand per page, the 25% of advertisers targeting the lower income segment will choose to
advertise only to the 25% of subscribers targeting the high income segment will choose to advertise only
to the 25% of subscribers falling into that segment and the 75% of the advertisers targeting the high
income segment will advertise only to the high income subscribers (75% of subscribers). Assume that all
advertisers continue to advertise in 100% of the newsstand copies. The revenue effect of this change can
be calculated by looking at the impact the change would have on average ad rate per thousand on
subscription readership:

New ad revenue per page = Old ad revenue per page X [(% low income subscribers X % low income
target advertisers) + (% high income subscribers X % high income advertisers)]

Thus, new ad revenue per thousand page = $50 X [(25% X 25%) + (75% X 75%)] = $31.25 < $50 (old ad
rate)

Now the question is, can ad rates per thousand on the selective binding portion of ads sold be increased
sufficiently to increase average revenue per thousand over what it is today? To answer this question, your
client’s ad rates must be looked at from the perspective of their advertisers. If you consider the
advertisers targeting the high income group, their alternative to advertising in your client’s magazine is to
put their ad dollars toward the 100% high income readership competitor. The cost per thousand high
income readers with the competitor magazine is:

(Page rate X total readership)/(portion of readers who are high income) = ($70 X 500,000)/500,000 = $70

Thus $70 is the maximum price per thousand the client can charge its advertisers for selectively bound
ads before the advertisers would switch to their competitor. Note that currently, the client is a cheaper buy
for these high income advertisers even though they are paying to reach readers they do not want: ($50 X
1 million)/750,000 = $66.67

If the client charged $70/thousand for selectively bound ads, average revenue per thousand to the client
would be: $70 X [(255 X 25%) + (75% X 75%)) = $43.75

Since $43.75 is less than the $50 that advertisers are currently paying, the magazine should not offer
advertisers the selective binding service.

Of course, there are other issues which interviewees might want to mention such as the possibility of
price discriminating between high and low income advertisers, the potential for and cost of expanding the
advertising base using selective binding as a selling tool, etc. However, it is important by the end of the
interview to have reached a recommendation regarding the initial question posed by the interviewer. To
mention these other possibilities and areas for further investigation is certainly worthwhile, but it is also
important not to get too far off track or to complicate the issue so much that a final recommendation is
never reached.
 Condé Nast Publications to Enter Men’s Magazines Business
Case Type: market sizing; new product.
Consulting Firm: Strategos 2nd round job interview.
Industry Coverage: Publishing, Mass Media & Communications.
Case Interview Questions #00037: Your client is the CEO of Condé Nast Publications, a worldwide
magazine publishing company with main offices located in New York, Chicago, Miami, Madrid, Milan,
Tokyo, London, Paris, and Moscow. Condé Nast produces a line of educational magazines as well as a

line of  women’s magazines such as Vogue, Glamour, W, Allure, Self, etc. Both
businesses are profitable but are not growing quickly. The CEO wants to start a third line of monthly
magazine in the US targeted at 30-50 year old men (e.g. GQ Magazine, Maxim, Esquire, etc). His stated
goal is to generate circulation revenues of $10 million in the first year. He has hired you to figure out
whether this goal is possible. How would you go about it?
Possible Solution:
This is an estimation/market sizing case. The key here is to clearly define your assumptions. The specific
answer is not important as long as you are making reasonable assumptions. For example:

Target Customers
Assume the total US population is approximately 320 million. Based on a normal distribution with the
average life span of 80 years, approximately 1/2 of the population falls between 30-50 or about 160
million people. Approximately 1/2 are male or 80 million.
Of the 80 million 30-50 year old men in the country, assume that at least 1/2 would read a magazine or 40
million. Given the wide range of magazines on the market assume that only 10% of magazine readers
would want to read a men’s magazine or 4 million target customers.

Market Share:
As a new magazine assume that you can generate a 5% share of the men’s magazine market in year one
or 4 million * 5% = 200,000 customers.

Revenues:
Based on what other magazines sell for ($2.50-$5.00) assume a cover price. Lets say $3/magazine at the
news stand and $2/magazine for a yearly subscription. Now make some assumptions on how many
customers will buy on the news stand versus subscription, lets say 50% subscribe (100,000) and 50%
buy at the news stand (100,000). This comes out to 100,000 * $3 + 100,000 * $2 = $300,000 + $200,000
= $500,000. Finally, this is a monthly magazine. For simplicity assume that all target customers buy a
magazine every month. This would generate total revenues of $500,000 * 12 or $6 million.
Conclusion:
In this case, given Condé Nast CEO’s stated goal of $10 million in circulation revenues in the first year, it
would not make sense to launch the magazine.

GE Develops Eternal Light Bulb That Lasts Forever

Case Type: new product; industry analysis.
Consulting Firm: Marakon Associates 2nd round job interview.
Industry Coverage: Energy Industry; Utilities.
Case Interview Questions #00036: Your client is General Electric Company (NYSE: GE), a multinational
conglomerate corporation headquartered in Fairfield, Connecticut, US. The company operates through
four segments: Energy, Technology Infrastructure, Capital Finance and Consumer & Industrial. In 2011,

Fortune magazine ranked GE the 6th  largest company in the U.S.

GE Energy’s Global Research Lab has developed a super-durable filament for light bulbs; with this
filament, the light bulb will never burn out The lab is ready to license this new product and technology to a
light bulb manufacturer. What will be the effect on the light bulb industry?

Additional Information: (to be given to you if asked)

The light bulb industry is dominated by two multinational producers. The two companies sell their
products side by side for essentially the same price in similar outlets internationally. There are a several
small local players in various regions of the world who produce local brands and some private store brand
light bulbs. There have been no technological innovations in light bulbs for many years.

Possible Solution:
One outcome is that one of the two major players purchases the technology. If the technology is patented
and exclusively licensed, this player may enjoy an advantage for a limited time. If the producer makes
enough bulbs at a low enough cost, all customers will eventually switch over to the permanent light bulb,
thereby drying up the industry, putting the competitor out of business and greatly reducing their own
business.
Another solution is that all of the players obtain some version of this technology. If that were to happen,
the price for this product would decline to the normal industry profit level, and customers would shift to the
permanent light bulb. Over time, all bulbs would be permanent and the industry volume would greatly
decrease, making the industry more competitive and wiping out industry profits.
Note: This case is different from the “GE Defines Pricing Strategy for Eternal Light Bulb” case because
one deals with developing a pricing strategy for a new product while the other analyzing the effect of new
product on the industry. You may also want to check out the solution to that case.
P&G Pet Food Approached by Wal-Mart
Case Type: new product; operations strategy.
Consulting Firm: Deloitte Consulting internship interview.
Industry Coverage: Household Goods, Consumer Products; General Merchandisers.
Case Interview Questions #00004: Your client Procter & Gamble Co. (P&G, NYSE: PG), a leading pet
food manufacturer, has experienced a loss of market share and a downturn in top line revenue over the
past 5 years. P&G’s primary channel of distribution is veterinarians who recommend the brand to their

customers  and sell directly from their offices. In fact, veterinarians are largely
responsible for the launch of the company and the identity of the brand, as they contributed freely to the
development of the quality formula that distinguishes P&G from competitors.
P&G now must make a decision critical to its future. The company has just been approached by retail
chains Wal-Mart (NYSE: WMT) and asked to sell its most popular products through Wal-Mart’s chain of
stores. There is one problem: Wal-Mart would sell the products at significantly lower prices than could the
veterinarians. You have been asked to help P&G decide whether to pursue this alternative channel of
distribution, and if so, how?
Additional Information: (to be given to you if asked):
 The number of veterinarians distributing P&G’s products has remained constant over the 5 year
period in question.
 There are a number of customers who have been purchasing P&G products from veterinarians
that continue to do so; however, an increasing number of customers are more resistant to paying the
premium prices attached to P&G products and instead purchase pet food from discount retailers like
Wal-Mart.
 After covering fixed costs the company enjoys a substantial profit off its premium priced goods.
 P&G products are only sold at veterinarians’ offices and consumers generally associate high
quality and nutritious value with the pet food. Consumers that are willing to pay premium prices for
P&G products believe that the food is superior to any close substitute on the market. Since these
consumers trust that their veterinarians would only recommend the best, they subsequently choose
only P&G products. The brand name is recognized widely and is always aligned with quality.
 While P&G’s current customers value perceived quality, Wal-Mart customers value price. As a
result, Wal-Mart customers, who make purchasing decisions based on price, will not place high
enough value on quality to pay a premium to obtain it. To cater to this potentially highly profitable
 customer segment, P&G must instead compete with other pet food companies in the Wal-Mart
domain on price.
Possible Answer:
Suggested Frameworks:
In establishing a framework for this case, be sure to look at these three factors:

 The reasons for the downturn in revenue and loss of market share
 The impact of increased sales volume
 The importance of P&G’s unique positioning
Possible Solution:
1. Create a new line of products under the P&G name with cheaper/lower quality inputs – while this may
initially draw customers at Wal-Mart, I would not recommend this strategy. I think P&G would lose nearly
its entire veterinarian business as it may damage its brand image through the new offering. P&G would no
longer be associated with its current superior standing in the industry.

2. Create the new product line and sell Wal-Mart the rights to sell the goods generically, under the Wal-
Mart name – while I think this strategy would work, I think P&G is not leveraging one of its core strengths:
its brand. So while it will sell more volume with this strategy, I do not think it will reach its potential
earnings if it employed a different strategy.

3. Create a new line of products under a new name that is just endorsed by P&G – this may be the most
feasible solution. While the new product line would enjoy benefits being associated with the major brand,
it still stands on its own with a new, unique name. Thus, the two offerings will be differentiated and neither
should cannibalize the other’s sales.

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