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A Practical Guide on How to Crack Case Interviews
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A Practical
A Practical Guide on How to Crack Case Interviews
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Career Services would like to thank the following companies for their generous
contribution to the London Business School Case Book.
36 London Business School Case Book
Complication
• While ticket sales and revenues have continued to grow steadily, protability growth has lagged
Key question
• What is the root cause of the client’s lagging protability?
Please follow the steps below to guide you through the case.
Entertainment Co
Frame the Use framework to Dig deeper Develop insight s S ynt hesi se what Make a
problem guide analysis you learned recommendation
Given this framework, what questions would you ask your interviewer?
38 London Business School Case Book
Entertainment Co
CAGR
$1,000M
(05 – 10)
875
e 800
767
u 743
n
e
v
e
r
652
. 603
o 600
C
t
n 488
e
m
n
i 400 12%
a
t
r
e
t
n
E
200
0
2005 2006 2007 2008 2009 2010
London Business School Case Book 39
Entertainment Co
Entertainment Co
Develop a hypothesis that you can test; dig deeper into t he drivers that matter
Hypothesis: Entertai nment Co’s slow growth in protabili ty is a result of expansion to markets that are
unprotable or marginally protable
Revenues Costs
Interviewee: Avg ticket price Attendan ce ranges Fixed costs (which Variable costs range
varies from $100 from 75K to 210K are allocated by run from $50-60K
to $80 as result of different length) vary from $4M
run lengths and to $8M
occupancy rates
Entertainment Co
Frame the Use framework to Dig deeper Develop insight s S ynt hesi se what Make a
problem guide analysis you learned recommendation
What insights can you draw from the data you have?
42 London Business School Case Book
Entertainment Co
City A City C
3,000 3,000
Tickets sold
w w
o 2,000 o 2,000
h h
s s
r r
e e
p p
d
l d
l
o o
s Avg. atte ndan ce s Avg. atte ndan ce
s
t s
t
e e
k k
c
i
1,000 c
i
1,000
T T
0 0
1 0 9 8 7 6 5 4 2 1 7 4 1 8 5 2
1 1 2 3 4 5 6 7 8 1 2 2 3 4
w w
o w w w w w w w w w o w w w w w
h o o o o o o o o o h o o o o o
S h h h h h h h h h S h h h h h
S S S S S S S S S S S S S S
London Business School Case Book 43
Entertainment Co
Exhibit 5 – Ice-rink format introduced in 2010 to offer lower cost option for younger people/families
105
100
Ice-rink
2.0
75
65
50
Theatre Theatre
1.0
84%
25
0.0 0.0
2009 2010 Theatre Ice-rink
Entertainment Co
80 $100K-150K 80 45-64
60 60
$50K-100K
25-44
40 40
$25K-50K
20 20
<$25K 0-24
0 0
Theatre ticket buyers Ice-rink ticket buyers Theatre ticket buyers Ice-rink ticket buyers
London Business School Case Book 45
Entertainment Co
Key Insights
1. City X: Some markets may be able to sustain both formats without signicant cannibalization. Therefore using both
formats in the market may make sense.
46 London Business School Case Book
Entertainment Co
Frame the Use framework to Dig deeper Develop i ns ight s S ynt hesise what Make a
problem guide analysis you learned recommendation
Entertainment Co
Frame the Use framework to Dig deeper Develop insight s S ynt hesi se what Make a
problem guide analysis you learned recommendation
Entertainment Co
Entertainment Co
Frame the Use framework to Dig deeper Develop insight s S ynt hesi se what Make a
problem guide analysis you learned recommendation
Q: How would you Q: Given this Q: How can you Q: What insights can Q: How would you
frame the problem? framework, what dig deeper to nd you draw from the bring together
questions would you the source of the data you have? everything you have
A: Disaggregate ask your interviewer? problem? learned?
drivers and A: Some markets have
components of A: Drill into price and A: Dig in to price and much lower ticket A: Ice-rink show has
revenue and cost cost drivers over time cost drivers by market prices and at tendance, shorter run lengths,
or by different market suggesting that they may be appropriate
Q: Do you have a may be inappropriate where Theatre cannot
hypothesis? for such a high cost sustain long runs and
product cover FC. But in cities
50 London Business School Case Book
BCG
Iceberg PROFIT
Europe
Opening statement: Present the candidate with the slide Ask the candidate:
“Our client is Iceberg, a major titled: “UK ice cream tub prices” and “What strategies could Iceberg use
global branded ice cream producer. tell them: to address the performance issue in
Iceberg develops, manufactures and “The Associate on this case prepared Europe and how would you prioritise
markets ice cream products and this slide. What is causing the them?”
sells to retailers who, in turn, sell to performance issue in Europe?”
the end consumer. Ice cream is one (If the candidate is struggling, ask:
of the most protable products that “How should Iceberg segment the Tests strategic thinking, creativity
Iceberg makes. The business has market and what is happening in each and ability to prioritise and provide
grown at 5% led by North America segment?”) reasons
and developing markets. However,
Iceberg has recently seen poor
growth and competition intensifying Tests business intuition and “What are your recommendations for
in the European ice cream market, in the ability to interpret data, Iceberg’s management?”
London Business School Case Book 51
BCG
Iceberg
Ke case insights an excellent candidate might uncover (for the interviewer only; do not tell the candidate)
• There are 3 market segments: • Iceberg is winning market share in • In any given segment
economy, mass market and a shrinking mass market recommended: Iceberg’s volume,
premium-priced products margin or prot potential; its
• Premium segment is likely growing, competitiveness to customers
• Iceberg competes primarily in the as brands distinguish themselves and consumers (realising they are
mass market segment (dened as from the mass market to retain and different); and its ability to win
price points €2.00 – 3.99), with a grow margins against branded and p rivate label
~38% market share by value (€46m products
out of €122m), ~34% by volume • To compete, Iceberg should:
(15m L out of 44m L) — Drive volume to improve plant
utilisation (~35% in Western This case is long and candidates
Europe, vs. ~60% in North would not necessarily be expected
If the candidate delineates 3 America) and reduce unit to nish it
segments slightly differently, their costs, so that it is bet ter able to
market size and share numbers compete on price in the mass
would differ accordingly market
— Increase presence in premium
(relying on taste performance
• Mass-market consumers are and strength of brand)
becoming more price conscious — Optimise drivers of consumer
(sales of €2.00-2.59 are strongest purchasing behaviour besides
52 London Business School Case Book
BCG
Iceberg
7.00-7.99
1.50-1.99
1.00-1.49
0.00-0.99
Tesco Val. 2L Vanilla €0.78
0 5 10 15 20 25 30 35 40
London Business School Case Book 53
BCG
Iceberg
Exhibit: Iceberg global ice cream production plant utilisation (show to candidate if this data is requested)
Europe N America
100% 100%
80 80
Max Max
60 70% 60 70%
40 40
20 20
0 0
A B C D E F G H IJ K L A B C D E F G H I
Example of a possible case structure (for review after the case interview)
54 London Business School Case Book
BCG
Iceberg
Differentiation between poor, average and superior performance (for review after the case interview)
Identifing relevant Starts asking for a variety Asks a series of specic Denes information
information of information – no clear questions related to a needed, including
logic single logical line; identies rationale; identies key
some key points from points and explains their
the graphs; can process implications from the
answers and move on graphs presented
Running calculations / Calculates incorrectly that Correctly calculates Realises lowering price
drawing conclusions from Iceberg cannot compete at Iceberg can compete at may dilute margins and
London Business School Case Book 55
MARKET
Cupid’s Arrow ENTRy
Do not share an exhibits until Candidate is expected to continue Ask the candidate:
Part B with their case analysis. Share facts of “So, what recommendations would
the case or exhibits (see the following you make to Cupid’s Arrow’s
1) Structuring the case pages for details) when these are management?”
specically asked for by the candidate.
“Our client is Cupid’s Arrow, a
successful subscription-based online When sharing an exhibit, ask the Tests ability to synthesize and
dating agency. They currently operate candidate: structure their recommendations,
exclusively in the US market, where “What does this exhibit tell us? How business intuition and empathy
they are the market leader. Cupid’s might this affect Cupid’s Arrow’s entry
Arrow are considering entering the into the UK market?”
UK online dating market. What are
the main factors that they should
consider?” Tests business intuition and
56 London Business School Case Book
BCG
Cupid’s Arrow
Ke case insights an excellent candidate mi ght uncover (for the interviewer only; do not tell the candidate)
• The UK market will nearly double — The UK soul mates segment • Entry into the UK market could be
in size over the next 2 years and is may already be quite via organic growth or syndicated
quite fragmented with at least a few competitive: HappyHearts (33% from the existing US Cupid’s Arrow
new entrants share and 20% p.a. growth) and site, but would be fastest via
Lovebirds (23% share) together acquisition and rebranding of a
• Prot margin is healthy at 75% per have ~75% share and the soul smaller site, for instant network
customer (£180 p.a. per customer) mates segment is only 25% of effects between subscribers. Given
the UK market the anticipated pace of growth in
• Cupid’s Arrow may struggle in — UK may increasingly shift the UK market and the likely lock-in
entering the UK market (candidate towards soul mates, like the effect in this market based on the
may take a slightly different view US as online dating loses its size of a subscriber base,
of the future direction of the UK stigma, but it is not there yet acquisition and rebranding of a
market and optimal strategy, but is smaller site would be advisable
expected to support their position • Overall, the UK market is attractive,
with similar insights): but may require Cupid’s Arrow to
— There is greater stigma around adapt its image / focus in the UK This case is long and candidates
online dating in the UK (65%) more towards the interests of UK would not necessarily be expected
than in the US (35%), although customers (socialising / casual to nish it
this is declining over time dating) and to form a clear strategy
— Cupid’s Arrow’s core strength to compete against the aggressive
in the soul mates segment in growth of HappyHearts and the
London Business School Case Book 57
BCG
Cupid’s Arrow
300 CAGR
’12-’14 278
Other (~ 20 players <£2m)
+36%
250 Table4Two
TakeAChance
CAGR 204
) 200 TakeMeOut
m ’09-’12
£
( MatchMeUp
+19%
e
u 150 Lovebirds
n 150
e 133
v 30 HappyHearts
e
r
K 30 5
99 10
U100 89 10 10
30 10 23
30 22
20 23
50 20 22
20
20
30 40 50
20
0
2009 2010 2011 2012 2013F 2014F
58 London Business School Case Book
BCG
Cupid’s Arrow
Exhibit: US vs. UK perceptions of online dating (show to candidate if this data is requested)
Responses to questions from a surve
Question 1: Do ou believe there is a stigma Question 2: What are ou looking for from an
around online dating? online dating agenc?
50 50 60 60
40 50
s 40
t s
t
n n
e e 40
d d 40
n 30 n 35
o o
p 25 25 p 30
s s
e
r 20 20 e
r
25 25
15 20
% %
15
10 10
10
5
0 0
US UK US UK
Source: Survey of a random sample 20-45 year olds from the US and UK (n=100 in each country)
London Business School Case Book 59
BCG
Cupid’s Arrow
Example calculation for the size of the UK market (For review after the case interview)
UK population 60m
X
X
Number of UK
% of target range that
customers 33%
are single
0.5m
X
% of single potentials
Subscription revenue: that are interested in 25%
Total size of the UK internet dating
X
market (£/ear) X
BCG
Cupid’s Arrow
Examples of creative ideas to maxi mise success in the UK (for review after the case interview)
Candidate may take different views of optimal strategy – not all of these will apply
The UK has a stigma around online dating, compared Adapt marke ting to integ rate wit h the UK market
to the US market • Be less overt about nding “The One”
• Emphasise socialising and meeting new people
• Supplement UK sites with in-person social events
HappHearts is expanding aggressivel through Analse the tar get segments of HappHe arts
marketing campaigns • Survey the target customers to understand their needs
and identify those met by HappyHearts
• If this segment is attractive to Cupid’s Arrow in the
context of its new brand, offer initial sign-up deals (e.g.
rst 2 months free) and some free events
UK customers are looking for a different t pe of online Rebrand in the UK towards a more social focus
service (socialising / casual dating), less geared • Appropriate branding to attract a wider pool of singles
London Business School Case Book 61
BCG
Cupid’s Arrow
Differentiation bet ween poor, average and superior performance (for review after the case interview)
Making a market size Struggles to identify the Makes a clear structure Makes a clear structure for
estimate main drivers of the market. for estimation, makes estimation and completes
Does not have a rough no / very few errors with analysis with condence
idea of UK population. numerical steps and enthusiasm.
Struggles to provide Makes insightful
rationale for estimates. commentary around
Makes basic numerical estimate assumptions.
errors Acknowledges potential
other revenue sources.
62 London Business School Case Book
Eupe
Case Quesi
Our client is a budget airline considering entering a new market for business class ights. They are considering running an
all business-class service within Europe. They want your advice on whether this is a good idea, and if so, how they should
do it.
I Facs (tell the candidate if asked) ke Isighs (do not tell the candidate)
Q: What is the client’s current business • Issues exist around the brand of a low cost airline,
A: A range of cheap short haul ights from the UK to various meaning the rebranding might be necessary
European destinations
• Landing slots at hub airports are critical to business
Q: Do they offer any business class ights at the moment? travel, and will be very hard to acquire
A: No, but passengers can pay for various upgrades such
as speedy boarding and greater legroom • They do not have the full set of capabilities required to
deliver a business class service, so choice of partners
Q: How is their current brand perceived? will be critical
A: Extremely cheap, but very low quality service
London Business School Case Book 63
Sucue – Examples of typical questions that the interviewer could ask around each of the four areas
Cusmes Cmpeii
• Will their budget brand be a limitation or an asset? • Can this simply be launched as another route with a
• What capabilities do they have as a budget airline that different service?
are particularly useful? • Whom could they partner with?
• What do they not currently do that they will need to be • Is an acquisition or partnership a viable option?
good at? • Should they consider setting up a new company?
• Do they have access to landing slots?
64 London Business School Case Book
Calculai – Our rst destination will be Vienna. How much would we have to charge to break even with
25 / 32 seats lled?
What are the main cost items that you would expect an airline such as this to face?
Costs
2 pilots @ £700 ph
6 00 0kg @ £0. 5 / Kg £ 250 0 / i ght £600 / ight £1500 / ight £900 / ight £1400 / ight
3 crew @ £400 ph
• The gures in each cost item can be given to the interviewee, althoug h they should expect to make a reasoned
estimate where possible
London Business School Case Book 65
Diffeeiai be wee p, aveage ad supei pefmace (for review after the case interview)
Ideifig eleva Struggles to identify what Identies a number of the Identies a number of
ifmai the cost categories are, major cost categories, can the cost categories,
does not ask the right make reasonable rule of understands what drives
questions to get there thumb estimations them and can make
estimations
ruig calculais / Struggles with arithmetic, Reaches an answer and Reaches an answer
dawig cclusis fm unable to work out a break shows the ability to sense easily and demonstrates
facs even gure check their numbers structure in their approach
Ideifig e implicais Thinks of only basic ideas Comes up with 3-4 ideas Comes up with a wide
ad ex seps; for the airline service, for the airline service which range of ideas, including
demsaes ceaivi probably things that are are at least sensible innovative ones that may
66 London Business School Case Book
Case Quesi
Our client is a packaging coating company that produces coatings to protect beverage cans. They are experiencing a prot
margin erosion and would like you to help them restore protability without modifying their cost structure.
I Facs (tell the candidate if asked) ke Isighs (do not tell the candidate)
Q: Where and what is the company producing? Without touching at the cost structure, volume, price &
A: They provide European llers with coating for the inside product mix are the key levers to improve margins.
of beverage cans.
The most effective margin lever is price, hence we shall
Q: What explains the margin erosion & is competition facing focus on improving the pricing strategy.
the same challenge?
A: The reason is macroeconomic: a slow economic recovery
since the nancial crisis & a raw material volatility have been
affecting the entire market.
Example f Sucue
Increase Average Selling Price of existing products Increase Market Share at existing customers
(Elasticity) (more often, more per command, for longer, etc.)
Improve Product Mix by selling more high margin products Reach out to new customers
(Positioning) (within the existing area or in new regions)
Sucue – How do you set price and what are the main pricing strategies?
68 London Business School Case Book
Ceaivi – Let’s now focus on value-based pricing: what could be the customer benets of a coating product
for the inside of cans of soda?
Belw Aveage: Aveage Abve Aveage
Thinks about a couple of product Suggests: Same as before plus a couple of the
features but does not manage to • Reduce down time to increase following:
translate them into benets for the productivity • Protect brand image (scratches ,
customers • Reduce product usage taste, customer claim)
• Reduce labour cost • Provide local support
• Extend product life expectancy
• Full legislatio n compliance
• Shift ordering responsibility to the
supplier
Quaiaive aalics – What is the potential price increase to be realized thanks to a value-based pricing
strategy on a coating product for soda cans?
Q: What is the price and volume sold of our product?
A: We sold 500 ts of AquaCoat at €2.25 / kg to our only client
London Business School Case Book 69
‘Diffeeiai be wee p, aveage ad sup ei pefmace’ (for review after the case interview)
ruig calculais /
dawig cclusis fm • No clue on how to • Mixes units or makes a • Perfect ow to come
70 London Business School Case Book
Uied kigdm
Case Quesi
Our client is a mobile network operator in the UK. It has recently been suffering from high costs driven by increasing data
usage, and this has led to a fall in prot. They want to explore options for increasing their revenue
I Facs (tell the candidate if asked) ke Isighs (do not tell the candidate)
Q: Is it just data usage driving costs? • The market for mobile network operators is becoming
A: Yes. Growth in data usage leads to the need for constant commoditised – there is little to distinguish between
investment in the network infrastructure and higher running networks and customers switch easily if prices are
costs too high
Q: Are we interested in reducing costs? • The money in mobile internet is made by those who
A: Of course, but it’s out of our scope control the content, not the ow of data
numbe f Devices • Increase market share by winning customers from other networks
— How? If those customers also consume a lot of data, what will the impact
on costs be?
• Create new devices that people may sign up to in addition to their existing
ones
— What sort of device? How will we charge for the data on it?
Usage • Drive increased usage of those services where we are able to charge on a
‘per-usage’ basis
— Would we have to lower price to do that? Are there ways we could
increase the value-add of our ser vices?
• Conversely we could try to discourag e data usage if it is charged on a at fee
basis, to reduce costs rather than increase revenue
— How? Introduce limits?
Ceaivi – Transmitting data is becoming commoditised. How else might the network generate revenue from
mobile internet?
Psiives negaives
Ceae ce ad chage • The network will get the full revenue for • Network operator likely to have no
cusmes f i any content it creates experience at generating content
Chage f hsig • Can provide customers with a easy • May be difcult to persuade content
ce, i.e. a web pal way of nding suitable content owners to provide content if they can
whee ce wes • Could be a distingui shing feature for offer it for free elsewhere
pa f hei ce be the network, e.g. Apple Apps Store
icluded
ohe sevices e.g. cedi • Creates a new revenue stream for the • Requires close involvement of device
cad eades, sle ca networks manufacturers and access to new
aces ec markets
London Business School Case Book 73
Calculai – How much additional revenue could we generate if we charged users £0.05 per Mb rather than
£5 monthly xed fee? Would you recommend doing this?
Diffeeiai bewee p, aveage ad supei pefmace (for review after the case interview)
Ideifig eleva Does not understand that As a minimum identies Would identify what is
ifmai the xed fee for data is the that charging for data with driving data usage, and
problem, and focusses on a xed fee is the problem, then begin to discuss other
other factors instead and suggests alternatives ways of generating revenue
from this
ruig calculais / Fails to account for the The right answer as a An unders tanding of
dawig cclusis fm current revenues, or a minimum, structured by whether this is a good
facs simple average of data use each usage segment idea based on more than
across all customers a comparison of numbers,
showing good commercial
sense
Ideifig e implicais Thinks in terms of pricing One or two good ideas As per an average
London Business School Case Book 75
L.E.K. Conuling
NewCo Perol Reailer INvEstmENt
Cae Background
You are an entrepreneur on an island However, you do not have any She asks you to estimate what capital
of 50 million people. You feel that there meaningful capital and are going to you are likely to need in the business.
is an opportunity to invest in petrol need to raise the investment required
retailing (there are already 1,000 petrol so you visit your local banker.
stations on the island).
If prompted, the interviewer will clarify that no additional information is available to answer the question.
You have not been given much The approach set out below starts together with a reasonable assumption
information with which to form a by determining the potential sales of for the required rate of return on
view of the size of the investment the new petrol outlet, which in turn capital, the amount of capital required
required. Before starting to answer the depends on the total market size from the bank can be calculated.
question, it is worth taking a minute and expected market share. The
to think through a logical framework economics of the business are then
to structure your response, and to mapped out to develop an estimate
76 London Business School Case Book
L.E.K. Conuling
Exaple calculaion:
• 20m households on the island (assuming 2.5 people on average per household)
L.E.K. Conuling
Queion 3: Wha are he econoic of he buine likely o look like?
Having already estimated the revenue
for the site, there are two possible Exaple calculaion:
approaches here. One would be
to identify the various elements of • Typical operating margin = 5%
xed and variable costs and develop
estimates for each of these. The • EBIT = £500k (£10m x 5%)
second (simpler) approach is to
consider typical operating margins
for retail businesses, and assume this
business would perform in line.
Marakon
AirJet Inc. PROFIT
North America
• AirJet Inc. is a U.S. manufacturer volume increase year-over-year • AirJet’s senior management team
of small, regional airplanes. It of 10% and 5%, respectively, and has hired a team of consultants to
manufactures two types of aircraft: revenues of $794 million and $225 help the company develop a value-
London Business School Case Book 79
Marakon
AirJet In c.
Using a typical protability framework, the candidate should make the following observations
• The Jet Engine business is • The problem lies with the Jet • Jet engine parts are complex and
unprotable while the propeller Engine business typically bought from specialized
business is highly protable OEMs
• Gross margins in the Jet Engine Additional information
business are much lower than the • Costs and hence margins are in
Propeller business line with market average
The candidate should focus the rest of the discussion on the Jet Engines business and under standing market size,
growth and protability within the segment. Provide the following information (in full or as requested)
Marakon
AirJet Inc .
Key insights
1 The market is protable and growing with the average Good candidates would seek to explore the market growth.
competitor generating 5% economic prot margins Additional information for discussion:
— Total Revenues = $3520 mn
— Revenue per aircraft = $3520/440 = $8mn The market is expected to continue growing at 7% for the
— Cost per Aircraft = $6.8m + 10 % of $3300mn Capital next 10 years due to:
= $7.6mn a Changes in regulation (e.g. Open Skies) and
— Economic Prot per aircraft = $8 mn - $7.6 mn = $0.4 globalization (India, China) have lifted restrictions on
mn U.S. based airlines to service these segments
— EP Margin = 0.4/8 = 5% b The current customer base for AirJet is largely US based
2 AirJet has the largest market share at 25% (was 20% 3 c Success of newer businesses such as Fractional Jet
years back) Programs (time sharing of jets)
3 AirJet growing at ~15%, market growing at ~7% d Expected replacement cycles as older jets are retired
4 Four other competitor s control the remaining market
ranging from 16-22%
5 There is no dominant competitor in the jet engine
business
Competitive Position
London Business School Case Book 81
Marakon
AirJet In c.
• The main driver of protability • The Lessor segment makes • Lessors comprise the largest
between segments is solely large purchases and exploits a customer segment [more than 50%
price without doing any math, negotiating leverage over AirJet of the total market by volume]
since operating cost per aircraft — Segment 1: 80 planes, our
produced and delivered is the • Average revenue per customer is: share 12.5%
same regardless of the intended $390M/ 60 aircraft = $6.5M per — Segment 2: 120 planes, our
customer aircraft from Lessors, compared to share 33%
$8.4M from Afuent Individuals and — Segment 3: 240 planes, our
$8.0M from Corporate Customers share 25%
Prompt the candidate to develop alternatives for solving the protability issues. Some suggestions based on
participation choices
82 London Business School Case Book
Marakon
AirJet Inc .
Discuss with the candidate possible p ros and cons of each alternative. Specically for Alternative 3 (enter the leasing
business) the following information
information should indicate that it is a good oppor tunity that can help prop-up the Lessor
segment as well
• Market Growth:
Growth: The jet engine, • Market Economics: • Customer: AirJet has marketing
Customer: AirJet
regional aircraft leasing market is i The aircraf
aircraftt leasing market relationships with all aircraft end-
large and growing. In 2011, the new is protable with the average users who are leasing their aircraft
aircraft leasing market represented competitor generating ROE’s of from the company’s aircraft lessor
almost 50% of all new aircraft ~15% (cost of equity ~10%) customers. AirJet works with these
delivered (with operating leases ii The key driver of protability is end-users to help them congure
comprising half) and is expected to cost of funds. AirJet would be the plane during the front end of
grow 5% per year at parity the sales process
• Competition: Three aircraft
Competition: Three
lessors (also AirJet’s customers)
dominate the market with a
combined share of 65%
If time permits and the candidate has reached a satisfying solution for the protability issue, use the rest of the time to
London Business School Case Book 83
eop
Cs Bckgond
This document is intended to help that the following case is a good The example below is set up to teach
prepare you for the case portion of a example of the type of case many of you how to approach a typical case.
McKinsey & Company interview. While our interviewers use. However, in most
interviewers at McKinsey have a good interviews the interviewer will only ask
deal of exibility in creating the cases a selection of the questions in this
they use in an interview, we believe case.
Conx
The interviewer will typically start the case by giving a brief overview of the context, ending with a question that is the
problem denition. At the end of the description you will have an opp ortunity to ask any questions you might have to
clarify the information that has been provided to you.
Let’s assume our client is OldPharma, Biological R&D is vastly different Shod OldPharma cqi
a major pharmaceutical company from small molecule R&D. To gain BioF?
(pharmaco) with USD 10 billion these capabilities, pharmacos can
84 London Business School Case Book
OdPhm
Qsions
In McKinsey & Company case interviews, the interviewer will guide you through the case with a series of questions that
will allow you to display a full range of problem solving skills. Below is a series of questions and potential answers that
will give you an idea of what a typical case discussion might be like.
Qsion 1
What factors should the team consider when evaluating whether OldPharma should acquire BioFuture?
a good ns od inc d h BioF’s mking o ss OldPharma’s cpbiiy gps
fooing: cpbiiis. Especially how in bioogics, R&D, sales and
V of BioF ’s dg pipi n. promotional messages will be marketing, etc.
Number of drugs currently in delivered, e.g., relationships with key
London Business School Case Book 85
OdPhm
Qsion 2
The team wants to explore BioFuture’s current drug pipeline. The team decides to focus rst on evaluating the value of
BioFuture’s drug pipeline – both its current port folio, as well as its ability to generate drugs on an ongoing basis. What
issues should the team consider when evaluating the value of BioFuture’s existing drug pipeline?
Ensure to mention different issues instead of immediately diving very deep into one issue. Then ask your interviewer if
he/she wants to go deeper on any of them.
a good ns od in cd h • Costs to manufacture and sell, e.g., • Side effects and potential legal
fooing: marketing, distribution, etc. exposure, e.g., potential law suits
Fh cos of r&D ni ch dg due to unexpected side effects
is dy o b sod. • Press about these drugs, e.g., have
famous doctors called for this kind • Emergence of substitutes – are
Poni v of sing ch d g. of drug, is it only slightly improving competitors working on substitutes
• Market size, e.g., size of patient on what is on the market already? already? Is it about speed and
population, pricing does BioFuture have enough
researchers working on the
• Market share, e.g., number of a vy good ns od so respective drugs?
competitive drugs in R&D or on incd h fooing:
the market; different side effects, risk v • Strength of underlying patents, i.e.,
86 London Business School Case Book
OdPhm
OldPharma believes that the likelihood of success of BioFuture’s primary drug candidate can be improved by investing an
additional USD 150 million in a larger Phase II trial. The hope is that this investment would raise the success rate in Phase II,
meaning that more candidate drugs successfully make it to Phase III and beyond. By how much would the Phase II success
rate need to increase in order for this investment to breakeven?
The interviewer would tell you to assume that if the drug is successfully marketed and sold, it would be worth USD 1.2
billion (i.e., the present value of all future prots from selling the drug is USD 1.2 billion).
a vy good ns od inc d • To breakeven, i.e. to make the Phase II probability would have to
h fooing: $150 million investment worth increase from 40% to 80%
Investment would need to increase while, value of the candidate (70% x 80% = 56%)
probability of success in Phase II drug that passes Phase II would
from 40% to 80% (increase of 40 need to increase to $540 million • This seems like a very big
percentage points). There are multiple + $150 million = $690 million. This challenge as an increase by 40
London Business School Case Book 87
OdPhm
Qsion 5
Post-acquisition, OldPharma believes that it will be necessary to consolidate all biologicals R&D into one center. There are
two logical choices: OldPharma’s existing headquarters in Germany, and Biofuture’s
Biofuture’s current headquarters in San Francisco.
OldPharma does not have any current biologicals facilities or operations in Germany, so new facilities would have to be built.
How would you think about this decision?
a vy good ns od inc d • Overall easier to integrate • Easier to retain the entrepreneurial
h fooing: BioFuture’s R&D capabilities into spirit and culture of BioFuture
rsons fo consoiding OldPharma
OldPharma’s copo HQ in • No need to rebuild e.g.
Gmny. rsons fo consoiding in manufacturing plants, research
• Better coordination with non- BioF’s
BioF’s Sn Fncisco ocion. facilities
biologicals R&D at OldPharma • Less likely to see ight of talent:
many top scientists would likely
• Better coordination with other leave rather than relocate to
business units of OldPharma (e.g., Germany
marketing, manufacturing)
• Easier to recruit and nd top
• Easier to intermix scientist
scientistss in research talent in San Francisco
biologicals and traditional R&D vs Germany
units, and transfer any unique
capabilities & knowledge
88 London Business School Case Book
OdPhm
Qsion 7
On the third day of the engagement you run into the Vice President of Business Development for OldPharma in the cafeteria.
He asks what the team’s current perspective is on the BioFuture acquisition and what next steps you are planning to take.
How would you respond?
th is no igh o ong ns on in Phase II trials is not likely to be a OldPharma. There are signicant risks
hh o by o no by nd h protable investment; secondly, one of to this as well, given the “two worlds”
vios ys on ho o bid n your competitors, DrugMax, currently nature of their organizational cultures.
gmnion. On possib vy has a cooperation with BioFuture for
good ns od b: its lead drug candidate. This needs to As next steps
ste ps we therefore
therefo re want to
An acquisition
acquis ition of BioFuture
BioFutur e can be taken into account when trying to better understand the feasibility of
bring two major sources of value to acquire BioFuture. We are still looking bridging the cultural gap and better
OldPharma: the value of its existing into other potential synergies, but it understand pros and cons of different
compounds and the potential value of appears unlikely that OldPharma can consolidation options; estimate the
integrating its research capabilities into justify the cost of an acquisiti
acquisitionon purely cost of this research integration; get
OldPharma based on BioFuture’s existing pipeline a better understanding of the value of
BioFuture’s future potential to develop
In terms of BioFuture’s existing pipeline The greater source of upside is likely to drugs
there are a couple of challenges: rstly, be the long-term benets of integrating
the proposed idea of investing heavily BioFuture’s research capabilities with
London Business School Case Book 89
New
rfshNo! Sod PrODuCt
lauNCH
Noh amic
Cs Bckgond
This document is intended to help believe that the following case is a good The example below is set up to teach
prepare you for the case portion of example of the type of case many of you how to approach a typical case.
a McKinsey & Company interview. our interviewers use. However, in most
While interviewers at McKinsey have interviews the interviewer will only ask a
a good deal of exibility in creating selection of the questions in this case.
the cases they use in an interview, we
Conx
The interviewer will typically start the case by giving a brief overview of the context, ending with a question that is the
problem denition. At the end of the description you will have an opp ortunity to ask any questions you might have to
clarify the information that has been provided to you.
rfshNo! Sod
Qsions
In McKinsey & Company case interviews, the interviewer will guide you through the case with a series of questions that
will allow you to display a full range of problem solving skills. Below is a series of questions and potential answers that
will give you an idea of what a typical case discussion might be like.
Qsion 1
What key factors should RefreshNow! consider in deciding whether or not to launch O-Natura?
• Take time to organize your thoughts before answering. This tells the interviewer that you think about the problem in
a logical way
a good ns od inc d h Compios. Which products is packaging, or distribution? Is it
fooing: O-Natura going to compete with? possible to accommodate O-Natura
Consms. Who drinks avored Which companies are key players and in the current production and
water? Are there specic market how will they react? distribution facilities? What impact
London Business School Case Book 91
rfshNo! Sod
Qsion 2
After reviewing the key factors RefreshNow! should consider in deciding whether to launch O-Natura, your team wants to
understand the beverage market and consumer preferences to gauge potential success of O-Natura.
The bottled market splits into non-sparkling, sparkling, and imports. Flavored water falls within non-sparkling. Your team
has gathered the following information on the U.S. bottled water market. The information shows an estimate for the share of
avored water, as well as the current share for the two main products: Cool and O2Flavor.
exhibi 1
Ficiios xhibi
u.S. Bod mk
Millions of gallons
Cool
20%
70%
92 London Business School Case Book
rfshNo! Sod
a vy good ns od inc d 1 O-Natura would need to sell 400 2 O-Natura would need to capture a
h fooing: million units in order to break 12.5% market share:
O-Natura would need to capture a even: — Non-sparkling avored bottled
12.5% market share of avored non- — Variable prot per unit = water market = 5% x 8,000
sparkling bottled water in order to $2.00 – $1.90 = $0.10 million gallons = 400 million
break even. Therefore, O-Natura would gallons
need to be the Number 2 product in — Break even units = Total xed
the market: costs / Variable prot per unit — O-Natura sales in millions of
= $40 million / $0.10 per unit = gallons = 400 million units / 8
400 million units units per gallon = 50 million
gallons
Qsion 3
RefreshNow! executives believe that the company’s position as the top 3 beverage company in the country gives them
strategic strengths toward achieving the desired market share. However, they ask the team to characterize realistically what
they would need to achieve that target.
London Business School Case Book 93
rfshNo! Sod
Qsion 4
Within the key drivers for market share, RefreshNow! wants to know which to tackle rst and what the strategy should be.
Therefore McKinsey helped RefreshNow! design and run a study to understand branding and distribution. The following
information shows results from the study, based on a sample of target consumers. What can you conclude from the study in
regards to the preferred marketing image and strategy of O-Natura?
20
Café / restaurant 10
Sports drink 20 10 70
Convenience store 30
94 London Business School Case Book
rfshNo! Sod
Qsion 5
The team now explores RefreshNow! ’s internal operational capacity to fulll the projected O-Natura demand. RefreshNow!
has decided to produce O-Natura from an existing dedicated production line in a single facility. In order to be on the safe
side in case of increased demand they plan for an annual capacity of 420 million bottles (units) of O-Natura. The production
line they have in mind currently operates for 20 hours per day, 7 days a week and 50 weeks per year. The speed for the
current bottling process is 750 units per minute.
Is the current production capacity sufcient to fulll the desired annual production plan of 420 million bottles of O-Natura?
a vy good ns od inc d • Daily production = 750 bottles per • Annual production = 6.3 million
h fooing: minute x 60 minutes per hour x 20 bottles per week x 50 weeks per
RefreshNow! Would need to increase hours per day = 0.9 million bottles year = 315 million bottles
its capacity because it would currently
only allow to produce 315 million • Weekly production = 0.9 million
bottles of O-Natura: bottles per day x 7 days per week
= 6.3 million bottles
Qsion 6
Given the need for a specialized production process for O-Natura, the company has decided to add a new production line to
only one of their 5 facilities. What factors should they consider in selecting the adequate plant?
London Business School Case Book 95
rfshNo! Sod
Qsion 7
The RefreshNow! CEO has seen the team’s analysis and conrms that the decision to launch O-Natura has been made.
The product will be marketed as a sports drink, produced in the Midwest US, and distributed through supermarkets,
convenience stores, and spor t outlets. He asks the team what the company should start doing tomorrow?
Ensure to mention different insights instead of immediately diving very deep into one insight. Then ask your interviewer
if he/she wants to go deeper on any of them
a vy good s pons od in cd Mking o s dsigning nch Ss o s dsigning podc
h fooing: sgy. ppoch nd ining fo
Finnc o oc qid • Design product identity, message, associs.
socs fo nch. packaging, etc. • Collaborate with marketing in
• Communicate launch decision and dening message for retail outlets
timeline to Finance department • Create advertising and promotional and consumers
campaign
• Analyze upfront investment and • Design distribution strategy and
ongoing protability targets • Dene any channel-specic allocate resources for new product
considerations (e.g., displays,
• Secure resources required for alternative campaigns) • Design and deliver product training
initial investment and allocate to for sales
96 London Business School Case Book
Monitor Deloitte
Footloose PROFIT
Europe
Footloose: Introduction
Duraex is a German footwear Together, these four brands represent on-the-job purposes. Casual boots is
company with annual men’s footwear approximately 72% of the 5.0 billion € the fastest growing sub-category, and
sales of approximately 1.0 billion German men’s boot market. The boots is geared more towards white collar
Euro(€). category includes four main sub- workers2 and students who purchase
categories: these boots for week-end / casual
They have always relied on the boot wear and light work purposes.
market for the majority of their volume Work boots, casual boots, eld and
and in this market they compete with hunting boots, and winter boots. Work The four key competitors in the market
three other major competitors. boots is the largest sub-category and are Badger, Duraex, Steeler, and
is geared to blue collar workers 1 who Trekker.
purchase these boots primarily for
Competitor Proles
Badger and Steeler are both well
established as work boot companies, Market Share of Work and Casual Boots by Company
London Business School Case Book 97
Monitor Deloitte
Footloose
Exhibit One – Propensit y to buy boots by population segment (Male Population 12+)
80%
Bought work boots
in past year
70
Bought casual boots
98 London Business School Case Book
Monitor Deloitte
Footloose
100%
16%
21% 21%
26% Other
Other Other
Other
80
6% 14%
13% Athletic Store Apparel Stor e
Dept. Store 11%
)
Sporting Goods
%
( 16%
e 60 15% Dept. Store
r 35% 13%
a Discount / Outlet
h Shoe Store Discount / Outlet
S
l
e
n
n 40 23% 22%
a
h Athletic Stor e Safety / Work
C
54%
Shoe Store
20 39%
28% Safety / Work 28%
Shoe Store Shoe Store
0
Duraflex Badger Steeler Trekker
London Business School Case Book 99
Monitor Deloitte
Footloose
180(€)
170 euros
160
Company Margin 22%
140 euros
140
Monitor Deloitte
Footloose
Answer Q1: How big is the work boot ma rket (expressed in euros)? Does Duraex get more of its
revenue from work boots or casual boots?
To nd the size of the market, we can use the following equation:
(Average Boots Price) x (% of male population that bought work boots in past year)
x (total population for the segment) x (number of pairs bought in a year)
Exhibit One gives us the populations for each segment and the percentages that bought boots. We therefore need to
nd the number of boots so ld and the average pr ice of each p air . For this question, the candidate will need to make some
assumptions.
1 Average number of boots purchased per user 2 Average price per pair of boots
• For work boots, we know that blue collar workers Work boots cost more (compare Blue Collar vs. Student) so
purchase an average of 2 pairs per year (from the average price should be higher than 140 € for all (150 €
Introduction, Footnote1) is reasonable); casual should be lower than student (100-110
€ is reasonable).
• White collar workers and students who buy work
boots probably use less rigorously and less frequently,
therefore probably only 1 p air per year
Monitor Deloitte
Footloose
(Average Boots Price) x (% of male population that bought work boots in past year)
x (total population for the segment) x (number of pairs bought in a year)
(€100 x 20% x 11Mill x 1) + (€100 x 35% x 12 Mill * 1) + (€ 100 x 55% x 7 Mill x 1) = €1,025 Mill or €1.0 Bill
Or:
# Pairs
% Buying Work work boots
Population Boots bought / year Price Per Pair (€) Segment Size (€)
Blue Collar 11.0 Million 20% 1 100 220 Million
White Collar 12.0 Million 35% 1 100 420 Million
Student 7.0 Million 55% 1 100 385 Million
Total 1.0 Billion
Summary
• We know from Exhibit 1 that Duraex has a 16% share of the work boot market and 40% of the casual boot market,
therefore:
102 London Business School Case Book
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Footloose
Answer Q2: Explain why Badger is outper forming Duraex in the work boot market.
According to the data we have, and what we know as industr y dynamics, the an alysis can be split in 4 main a reas that would
demand further study:
• Distribution
• Pricing
• Cost analysis
Even if you have many good ideas to answer this question, you won’t be impressive without STRUCTURE. You don’t
need a formal framework, just be methodical and organised in your approach – and summarise at the end!
Monitor Deloitte
Footloose
Cost Analysis
Summary
• Duraex is not meeting the key needs of blue collar workers, as it is weaker than competitors on the critical ‘Comfort’
dimension
• Badger prices its boots more competitively, which is likely to be particularly appealing to the large work boot market; this
104 London Business School Case Book
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Footloose
Justication: Implications:
• Represents approximately 40% of Duraex’s business • Enter safety / work channel – we may be faced with
(from question 1), making it very difcult to protably pressure from Badger exerting inuence on retailers in
ignore this market this channel
• While Duraex does have greater market share in the • Build “comfort” and “quality / durability ” perception
casual boot market, we know from information given in among blue collar workers
the case that the casual boot market is smaller in size
than the work boot market, which may indicate less • Increase proportion of costs allocated to materials and
opportunity for share growth; also, we derive lower labour – potentially reducing company margin
margins (15% vs. 21%) from casual boots (from Exhibit 4)
• There may be unique / niche positioni ngs for Duraex
• Given that Badger is introducin g a new work line, they (suggestions should be well thought out)
may see new growth potential in the market which
Duraex may also want to capitalise on • Introduce sub-brand or increase promotion of brand
with a focus on blue collar workers: may include on-
• Building a stronger image among blue collar workers site promotions, advertising in industry publications,
may entice them to try other Duraex footwear products or advertising in magazines / on television during
programmes with a higher blue collar readership /
viewership
106 London Business School Case Book
Europe
Case Background
MPC is a global mobile phone handset manufacturer that has seen its market share in Europe (by value) slip from 20% ve
years ago to 1% today. MPC has discussed its ambition to become relevant in Europe again and has set itself a stretch
target to get back to its previous market share position. The European handset market has traditionally been dominated by
two players but the last few years has witnessed new entrants from the far East.
Question
What volume does MPC need Information to be provided as a Suggested approach:
to regain its past market share response to candidate questions: 1 Assess the size of market in ve
position and what key challenges • Assess only the ve key markets of key countries by volume and value
does it face in getting there? UK, Germany, France, Spain and 2 Assess what MPC needs to
Italy (populations of 60m, 80m, achieve to reach its goal by volume
65m, 45m, 60m) and value
• European mobile market is 3 Discuss the key challenge s that
dominated by four key operators ABC needs to overcome
that handset manufacturers sell to
London Business School Case Book 107
The main task will come in the next section where the candidate will need to demonstrate the ability to rationalise what this
ambition means for MPC.
Example calculation:
UK Ger Fr Sp It Total T5
Population 60 80 65 40 60 305 Data provided
Ratio of Mobile penetration 1.25 1.25 1.25 1.25 1.25 Assumptions from candidate
Mobiles in circulation 75 100 81 50 75 381 Calculation required
Smartphone % 35% 35% 35% 35% 35% Data provided
Smartphone [mn phones] 26 35 28 18 26 133 Calculation required
Feature phones [mn phones] 49 65 53 33 49 248 Calculation required
Smartphones replacement rate [yrs] 2 2 2 2 2 Assumptions from candidate
Feature phone replacement rate [yrs] 3 3 3 3 3 Assumptions from candidate
Smartphones sold in a year [mn phones] 13 18 14 9 13 67 Calculation required
Feature phones sold in a year [mn phones] 16 22 18 11 16 83 Calculation required
Value of avera ge smar tphone [ EUR] 300 300 300 300 300 Assumptions from candidate
Value of aver age featu re phone [EU R] 100 100 100 100 100 Assumptions from candidate
Market value [EUR bn] 5.6 7.4 6 3.7 5.6 28.3
MPC current market share [value EUR bn] 1% 01 01 01 0 01 03
108 London Business School Case Book
Case Background
A private jet charte r company, PJC, has 5 aircraft, Lea r Jets which are used by busin essmen, head s of state and high
net worth individuals. The jets are now 8 years old and while recent performance has been very good, there are some
individuals in the company who think it is time to replace the eet as it is looking a little tired. In fact, customers are
beginning to say that they prefer competitors’ planes because they are new, but this might be just because the cabins
are more up to date. The market is growing and PJC remains the market’s leading prestige brand. If the aircraft full the
customers’ criteria, there is enough demand to go round.
Question
Should Privet Jet Co replace its Information to be provided as a Suggested approach:
eet? response to candidate questions: 1 Establish that the options are:
Aircraft Utilisa tion a do nothing, continue with the
• Aircraft utilisation is measured existing eet
in Block Hours – 500 hours is b replace the eet with new
considered excellent aircraft
• Older aircraft are less popular – in c refurbish the existing eet
London Business School Case Book 109
StepInterview
The 1: IdentifyProcess
the evaluation structure
A simple evaluation mode l can be used The key differentiator here is criteria including cost, safety, prestige,
to generate three NPV cases. The key recognising that there is a third way – comfort and the latest facilities (e.g.
point here is to rst create a baseline refurbishment. This is hinted at in the being able to connect phones and
case in which the cash ow of a do- question and will be made available laptops while in ight).
nothing approach is calculated. Once in the information above should the
this has been achieved, the same candidate ask the right questions. The
calculations can be re-run for the other aircraft age is a key driver of costs but
investment scenarios. the customer is driven by a range of
Calculate revenue from declining Calculate revenue which will hold rm as Calculate revenue which will hold rm
utilisation as customers choose customers continue to use PJC’s newer as customers continue to use PJC’s
competitors’ planes’ over PJC planes newer planes (cabin not aircraft is
important)
Calculate variable costs driven by cost Calculate variable costs which will
per Block Hour, which will increase over remain stable due to lower maintenance Calculate variable costs driven
the time due to aircraft age and fuel costs on newer planes by cost per Block Hour, which will
110 London Business School Case Book
Developing a top-down revenue and In addition, variable costs (xed costs that the company is no longer
cost model over 5 years will enable can be ignored in this comparison) are growing; a lack of investment leads to
the candidate to build a cashow rising as the aircraft spends more time stagnation and eventual decline.
and NPV. For the baseline case, on the ground being xed, fuel costs
revenues will decline over time as the increase. By 2013, the engines will
aircraft interiors look increasingly old have completed the maximum 4,500 The comparison only needs to be
compared to newer aircraft owned by hours and will require an overhaul completed for a single aircraft but
the competitors. In 5 years’ time, as costing USD 1 million for two engines. it is important that the candidate
many as half of all bookings are going clearly states this assumption.
to competitors. The resultant cash ow will be positive
but the candidate should recognise
Case Question
A free-to-air TV network is experiencing stagnating revenues. At the moment, a major shareholder is seeking to exit and is
expecting management to create and deliver on a growth strategy for the group. You are supposed to support management
in nding ways to grow revenues through diversication.
Intro Facts (tell the candidate if asked) Key Insights (do not share with the candidate)
Q: What are the client’s current revenue streams? • The core business, TV advertising, is stagnating.
A: More than 90% of revenues stem from T V advertising Additionally, winning market share from other free-to-air
TV broadcasters is hard to achieve
Q: How is the T V advertising market developing?
A: In general, it follows the economy, but the share of TV in • Client’s main assets are promotional power, brand, and
overall ad spending is stagnating / declining content
17.6
17.27
16.84
Other
15.55 15.74 0.8
15.16 0.8 0.8 Outdoor
14.84
0.7 0.8 1.5 2.1 2.2 Online
0.3 0.7 0.7 0.8
0.3 0.4
2.6 2.8 2.9 3.0 2.9
2.6 2.7 Other print
5.3 4.9
4.8 4.8 4.8 4.9 4.7 Newspapers
North America
Intro Facts (tell the candidate if asked) Key Insights (do not tell the candidate)
All of the required facts are in the ar ticle • The company invested $400m in launching a satellite
Further assumptions to be provided by the interviewer • Theoretically the best way to assess whether this is a
good business is to per form an NPV analysis. But that is
too complicated for mental maths
Rural Broadband
A newly launched $250m satellite will While most satellites are primarily used intensive services such as Netix and
soon start transmitting broadband for one-way broadcasting, ViaSat-1 Hulu has increased. “Wild Blue hasn’t
internet to rural US consumers the will be able to handle the two-way changed its service for six years,” he
latest effort by telecommunications transmission of data at 140 gigabytes said. “That isn’t considered a good
groups to satisfy sk yrocketing demand per second. That is more bandwidth value anymore.” ViaSat had revenues
for high speed residential data than the combined capacity of Intelsat of $223m in the most recent quarter
services. and SES, ViaSat’s two largest peers, with net income of just $8m.
Mr Dankberg said.
The new satellite from ViaSat will give Shares in the company are up 16 per
the Nasdaq-listed company, based Intelsat, the worlds largest provider cent over the past month to about
in California, the ability to effectively of xed satellite services, recently $47, giving it a market capitalisation of
compete with other non premium outlined plans to invest $1.3bn in four $2bn. Its Wild Blue service has about
internet providers, which still are new satellite launches by the end of 400,000 customers in the US paying
the only options for millions of US 2012. ViaSat, in October successfully about $50 per month for satellite
consumers. launched its new ViaSat-1, one of the internet services. Mr Dankberg hopes
highest capacity data satellites in the to treble the number of subscribers in
Its bandwidth will also be used to world. Launched with a Proton rocket the coming year with capacity from the
power the in-ight wireless internet in Kazakhstan, the satellite is now in new satellite. The company also makes
service for JetBlue, the US carrier. geosynchronous orbit 22,500 miles money by supplying components to
London Business School Case Book 117
Rural Broadband
Differentiation bet ween poor, average and superior performance (for review after the case interview)
Identifying relevant Does not correctly identify Identies, amount invested Understands that
information sum invested (which is and attempts to drill down consumer choice in rural
written into the story). Fails into denition of rural, but markets very different
to understand importance stops short of a convincing to other markets. Eg. No
of rural target market for reason why rural market is 3G & unlikely to be cable
the product an important denition internet. Only choice is
DSL. Probes to nd out
about DSL distance limits
Running calculations / Does not size the market Is able to correctly size the Sizes the market and is
drawing conclusions from correctly – ie. does not market using appropriate able to relate size of market
facts use estimates to drill down assumptions/guided by the to likely market revenue
London Business School Case Book 119
Case Backgund
It was the end of the week; Paul Marcun was shutting down for the day, no closer to resolving his dilemma. As Vice
President for Ethicon Endo Surgery (EES) in EMEA, he had been working on the business plan for the next nancial year
when his attention was drawn to the data on the trocar business. It was clear that something was going on in the market and
that he needed to quickly get to the bottom of it.
EES is one of the Johnson & Johnson’s surgery globally through innovation in The EES product range for
medical devices businesses, product design, high quality products, laparoscopic surgery includes access
specialising in products used for open professional education and excellent devices (trocars), stapling devices,
and minimal access surgery as well support teams across the world. This ligating devices, surgical instruments
as advanced energy devices. The contributed to the increase in lap and advanced energy devices.
business has grown from start-up in surgery adoption from inception in
1992 to a $4.7B1 global business. With 1990 to estimated 40% in 2010.
headquarters in Cincinnati Ohio, its
business extends across all regions.
Cmpettve landscape4
In 2010, Ethicon Endo-Surgery led Applied Medical held the third-leading Hospitals in developed markets
the European market for trocars position in the disposable trocar will typically sign an annual supply
with the ENDOPATH XCEL trocar market in 2010, and has been rapidly contract with a trocar manufacturer
range, followed closely by Covidien. gaining market share in Europe over so that switching between suppliers
ENDOPATH XCEL is seen as the the last few years, particularly in the during a year is uncommon. However,
premium top performing trocar in UK, Germany, and France. Applied emerging markets are often tender
the market. Both of these rms were Medical competes in this market by driven for quarterly purchases.
successful by holding strong positions offering its products at a much lower
in the disposable segment, which price than Ethicon Endo-Surgery and In the much smaller reusable trocar
generates about 3 times the revenue of Covidien, which allows it to secure segment, KARL STORZ is the market
the reusable segment (about 5 times in contracts among cost-conscious leader, followed by Olympus. A few
developed markets). Furthermore, both hospitals. Applied Medical is also other competitors were also active in
of these companies are well-known expanding its reach into the emerging the European trocar market, including
international rms with high-quality markets of EMEA with its low cost Richard Wolf, Aesculap (a B. Braun
devices and wide product ranges. offering being very at tractive to those company), and CONMED. See table 2
markets. for market share estimates. Also see
Both of these companies are well table 3 for estimated relative pricing.
positioned to remain leaders in the
trocar market through 2015.
122 London Business School Case Book
Paul’s dlemma
The data from the eld was showing ENDoPATH XCEL tca upgade The BASX pject
increasing price pressure in the There has been very limited innovation EES has developed a new range of
trocar business with more customers in the trocar product space. The trocars called BASX. These trocars
considering the lower cost trocars product technology has largely are suitable for basic laparoscopic
as a way to reduce procedure input remained the same over the last 20 procedures but not considered ideal
costs. It increasingly looks like the years with only limited enhancements for advanced procedures8. There is
ENDOPATH XCEL will struggle to made by the leading competitors. the possibility to launch this product.
maintain its market share at the current However, EES has been working on The manufacturing and distribution
price point. A number of marketing some signicant enhancements to the costs of the BASX will be similar to
teams from countries in the region are ENDOPATH XCEL range which would the ENDOPATH XCEL so that there
considering price changes to respond signicantly improve its performance will be gross margin variation with
to the growing low cost competition. by addressing some of the key ENDOPATH XCEL based on the
This will have signicant implications concerns reported by physicians in relative price decided.
on the business plan numbers for next performing laparoscopic surgery.
year and into the strategic planning
horizon. He also has two projects to
consider in deciding a plan for the
trocar business.
Yu challenge
London Business School Case Book 123
Exhbts
Table 1 – EMEA Tca Maket Estmates
Value Maket n MUSD 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 CAGr
Total market (reusable & disposable) $‘M $414.46 $434.72 $454.82 $467.16 $477.61 $491.40 $505.63 $520.78 $537.09 $555.71 $575.11 3.01%
reusable market $‘M $ 109.38 $114.61 $119.05 $119.56 $ 120.04 $ 120.83 $121.74 $122.70 $124.15 $ 126.06 $127.89 0.97%
D is po sa bl e n ew ma rke t $‘M $ 3 05 .0 8 $ 32 0.11 $ 33 5.7 7 $ 3 47.6 0 $ 357. 57 $ 370 .5 6 $3 83 .8 8 $ 39 8. 08 $ 412.9 4 $ 42 9.6 6 $ 4 47. 23 3 .67%
EES Sales $‘M $176.12 $187.48 $202.54 $212.26 $220.05 $229.13 $238.86 $249.12 $260.03 $272.12 $284.80 4.29%
Non-EES Sales $‘M $ 128.96 $ 132.64 $133.22 $ 135.35 $137.53 $141.43 $ 145.03 $148.96 $ 152.90 $157.54 $ 162.43 2.64%
Total market growth rate 4.89% 4.62% 2.71% 2.24% 2.89% 2.90% 3.00% 3.13% 3.47% 3.49%
Source: Internal Estimates