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Kikkofun - Case 1 (CN0)

Case 1 (CN0) -- Kikkofun

CLIENT SITUATION

Kikkofun is a $200 million producer of novelties designed to make great gifts for friends and family
(e.g. wine stoppers shaped like chess pieces). The company is based in the United States. Profit at
Kikkofun has declined in recent years, causing concern among their management committee. The
team is desperate for insights into why profits have declined and what they should do about it.

NOTES FOR INTERVIEWER

Relevant Facts (answer if asked)

1) Our profits have declined from $100M in 2006 to $80M in 2011

2) Financial History

TABLE
2006 2007 2008 2009 2010 2011
ONE ($M)

Revenue 204 201 199 198 198 200

Cost of
74 76 79 82 86 90
Goods Sold

Other costs 30 30 30 30 30 30

Profit 100 95 90 86 83 80

(Disclose each piece only when the candidate specifically asks for it)

Revenue is declining a bit, but cost

of goods sold is a greater factor,
INSIGHT #1:
having increased dramatically.

Overall, Kikkofun’s margins are

significantly worse than what they
INSIGHT #2:
were before.
Ask: Why might the cost of
goods sold be increasing?

Costs of Goods Sold could be rising

due to changes in the supplier
currency exchange rate, suppliers
INSIGHT charging us more for their items,
#3: increased shipping / transportation
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costs, increased tariffs, increased

costs of raw materials being passed
3) Our channel / re-seller along to us…but COGS as a
segments are: Vacation proportion of revenue may also be
shops, Airshop, Bullseye,
increasing because the overall price
Stencil Gifts, and
Jungle.com. realized is worse.
4)
Sales by Channel

TABLE TWO
($M 2006 2007 2008 2009 2010 2011
Revenue)

Vacation
102 94 86 79 73 67
shops

Airshop 20 20 20 19 19 18

Bullseye 29 30 31 32 33 35

Stencil Gifts 12 12 13 13 13 14

Jungle.com 41 45 49 54 60 66

Sales to vacation shops have

INSIGHT #4: decreased while by sales to
Jungle.com have increased.

5)
Profits by channel

TABLE
THREE 2011
($M Profit)

Vacation
47
shops

Airshop 11

Bullseye 9

Stencil Gifts 3

Jungle.com 10
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It occurs to candidate to calculate

the profit margin percentage ($
INSIGHT #5:
profit / $ revenue).

Ask: Can we increase the price? Where?

We could increase the price in

certain channels where we have a
INSIGHT #6: larger proportion of the products
sold to the end custumer.

CALCULATIONS

The candidate must calculate the gross margin percentage of each channel.

Rounding a bit is acceptable here. The correct answers are:

Margin
CALCULATION
Profit Revenue (Profit /
ONE
Revenue

Vacation shops 47 67 70%

Airshop 11 18 60%

Bullseye 9 35 25%

Stencil Gifts 3 14 22%

Jungle.com 10 66 15%

The individual distribution channels

INSIGHT themselves aren’t squeezing
#7: Kikkofun any more than they used
to, but the mix of distribution
channels shifting to Jungle.com
means we’re getting worse overall
margins.
Ask: Why do you think our
margins are worse with
Jungle.com?

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This online retailer delivers inferior

margins to Kikkofun likely because
INSIGHT #8: their customers are more price
sensitive and have a wealth of
options available to them when
shopping online.
Interviewer reference:

% %
REFERENCE
Revenue Profit

Vacation
34% 59%
shops

Airshop 9% 14%

Bullseye 17% 11%

Stencil Gifts 7% 4%

Jungle.com 33% 12%

TOTAL 100% 100%

Jungle.com delivers sales

INSIGHT
comparable to Vacation shops, but
#9:
only offers a fraction of the profits.

Ask: So, what options do they have?

The sorts of products that Kikkofun

sells are not particularly unique or
special, subjecting them to price
INSIGHT competition. To keep its margins,
#10: Kikkofun needs to increase price
where it can and provide genuine
innovation perhaps by getting a
clearer understanding of the unique
Copyright Victor Cheng / All needs of their end consumers.
Rights Reserved 2012 / Not
for use by unauthorized
parties

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