PRACTICE PROBLEMS – MM1

1. As the head of procurement for your business, you are expected to choose from two suppliers.
Your organization follows a practice of rating suppliers and suppliers with the highest score on
select parameters are usually selected. Parameters and rating of the two suppliers are given
below:

Parameter Weightage Supplier 1 Supplier 2

Reputation 0.1 4 3

Reliability 0.2 4 2

Supply flexibility 0.1 2 3

Service reliability 0.2 3 2

Credit 0.2 2 2

Price 0.2 2 4

1 – Poor, 2 – Fair, 3 – Good, 4 - Excellent

a. Who is a better supplier of the two based on the parameters mentioned above?

2. Abhaya Tribal Welfare Organization (ATWO) works very closely with villages in and around
Channapatna town, near Mysore, in Karnataka. This town is also known as ‘Gombegala Ooru’
locally, meaning ‘toy town’. Sudish Gowda, proprietor of Marcom, a Mysore based market
research agency, has received a proposal from ATWO for promoting products manufactured by
the villagers. They are good at carpentry and pottery and ATWO wants Sudish’s advice on
determining the market potential. A preliminary study reveals that pottery has limited market
potential and carpentry products seem to have higher potential for revenues. Channapatna toys,
especially dolls have a strong recall value amongst the elders in households. ATWO shows samples
of toys and wooden utensils (spoon and spatula) produced in the villages near Channapatna.
Product quality and skill levels are good, but scope for standardization exists. Sudish feels that if
the artisans are trained in using wooden lathes, then a broader product range and higher revenue
potential is possible. With the advent of professional sports leagues in the country, there is a huge
potential for cricket bats and hockey sticks. Further, toys made from wood are natural and contain
no toxic elements and therefore are very safe for use by children. Additionally, durability is also
high. Sourcing will be done from a cluster of 150 villages, which possesses adequate raw materials
and manpower. Toys and utensils are usually made from ivory wood, pine, rubber, sycamore and
cedar trees. Sometimes, teak, rosewood and sandal trees are also used.
 Marcom conducts a market survey in Mysore and the following segments with potential sales
emerge:

Segment 1 – 8 years 9 – 17 years 18 – 35 years Households

Population /
100000 120000 330000 200000
Households (nos)

Demand Demand Demand

Demand (units
Demand  (units per (units per (units per
per annum)
annum) annum) annum)

Probability of purchase 0.20 0.14 0.12 0.20

Toys , Dolls 30000

Cricket bats / hockey

35000 35000 15000
stick (Sports Goods)

Board games 20000 40000

Kitchen utensils 100000

Wooden artefacts 10000

Average Price
Artefact
per unit (Rs)

Toys & Dolls 100.00

Cricket Bat / Hockey Stick (Sports Goods) –

400.00
Small (1 – 8 years)

Sports Goods – Medium (9 – 17 years) 550.00

Sports Goods – Large (18 – 35 years) 750.00

Board Games 300.00

Kitchen Utensils 100.00

Artefacts 1000.00

Based on the above facts, please answer the following questions:

a. Calculate the attractiveness of each segment in terms of revenue. [Revenue = (Product category x
probability of purchase x Price/unit)]
b. Sudish feels that at best they could target two segments. Which two amongst the four segments
would you choose to target?
c. In the long term, which segment (s), according to you holds maximum potential for profits. Justify
with reasons

3. M/s Bhojan India (BI) is the brain child of two young entrepreneurs, Nischal and Shashi. Both were
earlier colleagues at an MNC and managed different regions and franchisees. They have recently
started the firm, which is based in E.City at Bangalore. They wondered at the growth of Quick
Service Restaurants (QSR) and Pizza Delis’ which were able to quickly gain a foothold in the Indian
market, despite the cuisine being totally alien compared to the staple diet of Indians. They also
saw an opportunity in replicating this model with Indian cuisine in ‘Deli’ service model. The
biggest challenge, however, was the variability in Indian cuisine across regions and states. E.city
was at the outskirts of Bangalore, where most of the large software firms were located.

In addition, the suburb also hosts manufacturing plants, large hospitals and other support
organizations. The total population is 1 million people. Through their initial round of market
research, through FGDs, surveys and discussion with firms & customers, BI were able to clearly
demarcate three potential segments for their ‘Indian Deli’ service. BI intends to start only a deli
service and not a restaurant.

Segments

‘Young Employed’ (YE) – This segment comprises of employees working in software and other
organizations. Mostly, single, this segment’s expectation is healthy and wholesome food, especially
during breakfast and dinner. This segment can be classified as middle class and disposable income is
relatively high. They fulfill their breakfast requirement at home, bakeries close to their homes or local
restaurants. Lunch is usually consumed at workplace and dinners in restaurants, QSR, Pizza Deli or local
Thali restaurants (mess). E.city, being cosmopolitan in terms of its population may provide BI with a
good potential for Indian Deli.

‘Nuclear Family’ (NF), the second target segment comprises of married couples with a child or
two, and invariably both husband and wife are employed. For this middle to upper middle class
segment, eating out is not as frequent as YE, but may eat out on few occasions during the week. For BI,
this is an attractive segment, if they are able to migrate the few ‘eating-out’ occasions to Indian Deli.

‘Retired Duo’ (RD), the third target segment comprises of retired couples who again fall in
middle / upper middle class bracket, whose children are settled abroad / outside the city. Healthy
couples do not mind eating outside food, as this frees up time to pursue their avocations. A sub-segment
in this category includes couples with medical conditions, which forces them to eat low fat, low carb,
high fiber meals. They would not mind eating out or ordering a meal if suitable food is available on call.

A brief description of the segments and their preference for Indian Deli is given below. This data
has been collected by BI through a MR study and the samples closely represent the population.

Segment Population in Sample Size Break Fast (% Lunch (% of Dinner (% of

E.City (millions) (nos) of sample) sample) sample)

YE 0.25 300 25% 5% 45%

NF 0.20 300 5% 10% 25%

RD 0.05 300 10% 5% 35%

Others 0.50

Competition

In this suburb, there are four broad categories of restaurants or meal options – Fine-Dine, QSR,
Indian Deli and Thali meal hotels.

Fine-Dine restaurants cater to all segments and promise a good time for single as well as family
customers. About 10 of them are located in E.City. They usually are open between 11 AM and 11 PM.
They do not deliver food at home, although take-away is an option. The opportunity for BI is to cater to
the take-away demand by providing home delivery.

QSRs include restaurants like McDonalds, KFC, Pizza Hut, Mastkalandar etc. About 10 of them
are located in E.City. These provide a reasonable ambience for dine-in and their major revenue share is
from Deli business. This provides a good opportunity for BI, but to scale-up to the levels of service
quality and process adherence would take some time for BI. A small portion of their business could be
garnered by BI.

Indian Deli restaurants are very fragmented in E.City (10 major suppliers and 25 small), and
mostly comprises of unorganized units operating from their homes. There are some marriage
contractors who serve the local population during non-marriage seasons. There is limited choice in
terms of menu and processes for delivering quality food are not at par with QSR. Menu is dependent on
least cost and seasonal vegetables available in the market. The main advantages are lower cost and
assured delivery. BI is trying to establish itself in this segment and hopes to bring in a reasonably
broader menu and standardized processes for taking order and delivering food.
 Thali restaurants or popularly called as ‘mess’ provide limited fare and are small restaurants (25
in E.City). Food is mostly cooked in-house in limited quantities and these restaurants are open till food
lasts. Because of their low overheads, these restaurants provide food at relatively lower cost. They also
provide take-away services. BI is eyeing this category for its business volume.

A brief summary of the average cost of food per person in various formats is provided below for
reference:

Average Cost / Fine-Dine QSR Indian Deli Thali Restaurant

person

Breakfast NA Rs 80 Rs 40 Rs 30

Lunch / Dinner Rs 200 Rs 150 Rs 100 Rs 75

BI then proceeded to conduct a second round of MR in E.City and data pertaining to this is given
below. Area Size & No. of households (Target segment) – 100 sq kms / 40,000 households.

Responses to Indian Deli from the target segment for Breakfast, Lunch or Dinner

Sample Size (N=300) Definitely would Buy Probably would Buy

YE 30% 30%

NF 15% 25%

RD 25% 25%

Thumb Rule = 80% of Definitely would Buy will actually buy and only 30% of Probably
would Buy will actually buy

Based on the above facts, please answer the following questions:

a. Which meal of the day should BI start its service with?

Fill the following table to answer this question

Segment Population Breakfast Lunch Dinner

 (million) % Nos. % Nos. % Nos.
population population population
Interested Interested Interested

YE

NF

RD

Total

b. Calculate the trial volume for the Indian Deli (Breakfast, Lunch or Dinner which BI should start its
service with) by filling the following table. Then find out trial volume for each segment separately
and add up to find the total trial volume

Category YE NF RD

Thumb Survey Total Thumb Survey Total Thumb Survey Total

rule Response Trial % rule Response Trial % rule Response Trial %

Definitely
0.8 0.8 0.8
would buy

Probably
0.3 0.3 0.3
would buy

Total NA NA NA NA NA NA

Trial Volume = Population of the segment x Trial Rate %

Trial Rate % = Thumb rule (%) x Survey Response (%)

Illustration:

If 20% is the response for ‘Definitely would buy’ and 10% is the response for ‘Probably would buy’, then
applying the thumb rule (given in the fourth table), the trial rate % is (0.8 x 0.2) + (0.3 x 0.1) = 0.19.
Trial Volume = Population (say 0.5 million) x Trial rate % (0.19) = 0.095 million units (B/F, Lunch or
Dinner)

(Hint: Please remember that there are three segments and total trial rate will be a sum of individual
segment’s trial rate)
c. What are the strategic options available for BI and what is the strategy that they should adopt to
establish themselves in the Indian Deli segment?
d. Describe the various branding elements that BI could use to create Brand Equity for their business.
Suggest a good slogan for BI.

a. Due to high pollution and congestion in large cities, air freshness products have become popular
recently. There are various ‘forms’ of air freshness products available in the market place and the
total market size is Rs 400 crores. Dabur India is the market leader with their brand Odonil. Other
players include P & G (Ambipur), Helen Curtis India (Premium), Reckitt & Benckiser (Air Wick) and
recent entrant Godrej (Aer).

Aer wants to evaluate the attractiveness of the Indian market and what ‘form’ of product to market.
Ms Garima, the business analyst has to prepare a short report on the same. Instead of considering
the usual PESTEL and Five Forces model, she decides to create her own logic for checking the
attractiveness of various ‘form’ segments. Different product forms and vital statistics pertaining to
them have been summarized below:

Revenue
Unit market Expected Gross Profit Competitive
Product Form market
share CAGR margin % Intensity
share
Electric 2% 15% 50% 25% Weak
Aerosol 11% 30% 30% 15% Moderate
Small containers 20% 20% 20% 10% Strong
Bars 65% 30% 5% 10% Fierce
Gels & Candles 2% 5% 10% 10% Weak
  100% 100%      

She decides to score each segment’s attractiveness by creating a decision table, which is provided
below:

Scores 1 2 3 4 5
Unit market share < =10% 11% - 20% 21% - 30% 31% - 40% > 40%
Revenue market share < =10% 11% - 20% 21% - 30% 31% - 40% > 40%
CAGR < = 5% 6% - 10% 11% - 20% 21% - 30% > 30%
Gross Profit Margin < = 5% 6% - 10% 11% - 20% 21% - 30% > 30%
Competitive Intensity Fierce Strong Moderate Weak Very weak

Based on the information provided above, please score each segment to find its attractiveness. Which
are the top two segments that Aer should concentrate on?

Product Form Unit Revenue Expected Gross Competitive Total

 Profit
market market Intensity Segment
CAGR Score margin %
share Score share Score Score Score
Score
Electric

Aerosol

Small
containers

Bars

Gels & Candles

4. M/s Reliance Jio is expecting to launch their services by October, 2016. They have finalized their
target customer segments by conducting a preliminary market research. Their services include
voice (outbound and inbound telephone calls), data (access to internet browsing, mails and social
media sites) and Value Added Services (VAS) that includes ringtones, themes, movies and music
downloads. Primarily they are targeting three age groups. Based on available data, they were able
to finalize product bundles for the target groups and prices. Data on product bundle, proposed
tariff (rate) and expected margins are provided in table below:

Voice Data VAS Data VAS

Age Group Voice Tariff
(minutes) (MB) (units) Tariff Tariff

18 to 30 years
250 1000 2.5
(Young)

Above 30 years Rs 60 per Rs 90 for Rs 40

and less than 50 350 800 2.0 100 minutes 1000 MB per unit
years

Above 50 years 200 800 1.0

Profit Margin (%) 30% 30% 20%

They conducted concept testing of the product bundle and tariff with the target customer
groups. Findings from the market survey conducted are summarized below. As expected, the
younger age group was not so satisfied with the tariff structure. The other two segments were
satisfied. The younger group (18 – 30 years) wanted 2000 MB of data and 4 units of VAS at the
price of 1000 MB of data and 2.5 units of VAS respectively. While this will reduce margin, it is
expected to add 10 million additional customers. It is a real challenge for the product
management team at Reliance Jio.
Should they chase volume or profits? In a recent meeting, the CEO had reiterated that the
company did not intend to adopt discounting as a strategy for acquiring customers. However,
the product team can offer discounts to attract new customers, as long as they are able to
generate Rs 6 billion as margins. As part of the product management team, please complete the
analysis and suggest whether you should provide discounts to the ‘Young’ segment and add 10
million additional customers.

[Hint: Please go through the details carefully and fill in the tables accurately to get the
answer]

Expected
Sample Favorable Unfavorable
Age Group no. of Qualitative Comments
Size (nos) to concept to concept
users

“Not satisfied. 2000 MB

of data and 4 units of
18 to 30 years 140 45% 55% 30 million VAS for the same price
as 1000 MB of data and
2.5 units of VAS”

Above 30 years
“Great. Good value for
and less than 50 150 70% 30% 40 million
money”
years

Above 50 years 110 75% 25% 10 million “Very Happy”

Margin per unit of product

Voice (per 100 min) Data (per 1000 MB) VAS (per unit)

Revenue (Rs) Margin (Rs) Revenue Margin (Rs) Revenue (Rs) Margin (Rs)
(Rs)

60 18 90 27 40 8

Total Margin per customer

 Voice (Rs) Data (Rs) VAS (Rs) Total
Age Margin
Group Margi
Minutes Revenue Margin MB Revenue Units Revenue Margin (Rs)
n

18 – 30 250 1000 2.5

30 – 50 350 800 2.0

> 50 200 800 1.0

Expected margin from business (Initial Estimate)

Expected no. of
Margin per Total Margin
Age Group customers
customer (Rs) (Rs billions)
(millions)

18 – 30 30

30 – 50 40

> 50 10

Total

a. Calculate the loss in margin for age group 18 – 30 years due to providing 2000 MB of data and 4
units of VAS at the same price @ 1000 MB of data and 2.5 units of VAS.

b. Total Revised margin with the new offer to the ‘Young’ customer group.

c. Initial Margin Estimate generated vs Revised Margin Estimate. Would you recommend going for
additional 10 million customers, by providing a discount? Provide workings in the box below and
state your decision.

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