Case: Hariswerve

Some students are not clear about Q2a. We concluded that the average price of boat would have
most probably gone up and the slope of the line should be upward pointing.

Please make sure to understand this concept very well, as this is one of the building blocks of your
skills in consulting.

I will take some approximate number to show you how the logic works. The below calculation is to
show you the logic. Don’t worry about the assumptions that is made.

Let us assume that there are 2 competitors in the market. Since Hariswerve is losing market share, it
means that the other competitor is gaining share and has a larger percentage of the market. Let us
assume that Hariswerve had a sales of $120M in 2007. We will assume that the other competitor is
$130M. That makes a total market size of 120+130 = 250M. So, the share of Hariswerve = 120/250 =
48%, and the other competitor becomes 52%. So now we have a clear picture of the base year.

In 2011, Hariswerve revenue has gone up by 22% (122 – 100 as shown in the graph). So the new
revenue is now = 120x1.22 = 146.2M.

The share of Hariswerve has dropped by 10% (as seen the top graph). So the new share of
Hariswerve reduces from 48% to (48%*90% = 43%). If share is 43% and revenue is 146.2, the total
size of the market is 146.2/0.43 = 340M. That automatically says that in 2011, competitor sales is
340 – 146 = 193M.

Now come to the number of boats. Assume that in 2007, there were 100 boats registered. 100 is just
to understand the logic. So, in 2011, the number of boats will be 125 (as per the registration graph)

2007: Average price per boat = 250M (which is total market) divided by 100 boats = 2.5M per boat
(don’t worry on the absolute price)

2011: Average price per boat = 340M (which is the total market) divided by 125 boats = 2.72M per
boat

So from 2007 to 2011, the average price of boat has gone up from 2.5M to 2.72M. This is an
increase.

All this may seem complex, but try to assimilate the logic of the calculation. If you do this math of
market size, market share, price increase/decrease, and practice a few times in the subsequent
case discussions, you will become good at this.

Please make sure to follow this document and understand it. I want to get the basics right for all of
you before we jump to more complex cases.