4 CASE SCENARIOS STRUCTURE

PROFIT AND LOSS

Whenever you hear the words bottom line, profits, costs, or revenues, you should immediately think:

Profits = (Revenues – Costs)

Revenue = Quantity x Price,

Costs = (Quantity x Variable Costs) + Fixed Costs

E(P=RC)M

The E represents the economy and/or environment,

M represents the market or the industry.

Economy And/Or Environment -

● Consumer confidence
● Disposable income
● Unemployment rate
● Petrol prices/ energy prices
● Dollar is doing against other currencies
● Interest rates
● Tariffs and cost of commodities
● Natural disasters/Scam/Crash/Pandemics
● War or geopolitics

Market or Industry -
Imp que to ask before you start: ask
“if it's a common trend faced by all competitors in that industry or just the client?”
The company -
● Revenues:
○ What are the major revenue streams, and what percentage of the total revenue does each stream represent?
○ Does anything seem unusual in the balance of percentages?
○ Have the percentages changed lately? If so, why?
● Costs:
○ Have there been any major shifts in costs?
○ Do any costs seem out of line?
○ If we benchmarked our costs against our competitors’ costs, what would we find?

Products -
● Ask about the advantages and disadvantages (product cannibalization, layoffs, side-effects.)
 ENTERING A NEW MARKET

So it’s not just “Do we enter?” but also “How do we enter and what are the advantages and disadvantages of each strategy?”

IMP
● They should analyse the company first, then the market. So ask, “Why does the company want to enter this market?”

HOW TO APPROACH
● Covering the company
● Current market
● Market and competition
● Recommendation

STEP 1: Questions about the company (what we can do with what we have already & will this affect our existing base)
Case Study : LMN - Company
● P&R -> Product mix -> Brand value
If new brand
○ Market factors
■ Cannibalise an existing product?
■ Customer segmentation(s) the same?
○ Resources factor
■ How and where will this new product be produced?
■ Will we have to hire new workers or retrain current workers?
■ Use the same distribution channels?
USP
What constitutes success?
STEP 2: Current and future market
Case Study : LMN - Market (1st quad)

STEP 3: Investigate the market

Case Study : LMN - Market (2nd 6 boxes)

STEP 4: Decide how to enter this market

Grow organically (or)
Acquire an existing player (or)
Form a joint venture/strategic alliance (or)
Outsourcing.

Recommandation
● If Yes:
○ “Yes, the client should do it.”
○ This is why, this is how, and these are the risks
○ Prioritise the risks based on impact and the likelihood of occurrence
○ Next steps – in both the short-term and the long-term outlook
● If No:
○ say no! Give the reasons for your answer
○ list and prioritise the risks of not entering the market, based on the impact and likelihood of occurrence
○ If possible, present an alternative plan
○ then add, “We can help you with that.”
 MERGERS AND ACQUISITIONS

The two most important factors about a merger are whether it increases shareholder value and whether the two cultures will mesh
well.

ANALYSE THE CLIENT COMPANY (pov)

● What does my company do, its market and customer segment and profits? Does it already own any company?
● Why does it want to acquire the target company? What is it planning to do with it?

ANALYSE THE TARGET COMPANY

● What does my company do, its market and customer segment and profits? How secure is it?
● What are the assets and liabilities?
● Why is this company in the market?
● How’s it doing with comparison to others in the market?
● Cultures

WORTH THE MERGE?

● Does it profit us in the long run? Will the client overpay?
● How quickly can we reach the breakeven point
● Are there synergies?
● Are there cultural get alongs
● Consumer base bias?
● How will competitors respond?
● Risks? Barriers?

REASONS TO PURCHASE
● Internal Gain
○ Increase market access, boost the brand, and increase market share.
 ○ Inherit management talent, patents or licences or products, or other human resources and physical assets.
○ Gain tax advantages and shareholder value
○ Gain profits and have cost cutting
○ Diversify the company’s holdings.

● External Gain
○ Target company is a threat
○ Pre-empt the competition from acquiring the company.

PRICING STRATEGIES

The two most important factors about a merger are whether it increases shareholder value and whether the two cultures will mesh
well.

STEP 1: Investigate the company

● How big is it? What products does it have, and is it a market leader in this field?
● What is the pricing objective: profits, market share, or brand positioning?
○ Eg. iPad: first to market; but pricey. Apple was going for profits.
○ Samsung: margins were smaller & the price lower. Going for market share.
○ Amazon Kindle Fire: Neck-to-neck price, the company makes more off the ancillary sales – books, movies, songs, and
Prime membership – than it would ever make from the sale of a single device. Focus on cross selling.
● Pricing strategies depend: reacting to suppliers, the market, and competitors? Or own?

STEP 2: Investigate the product

● How does it compare with that of the competition?
● Where is the product in its growth cycle?
● Is there a supply-and-demand issue at work?
STEP 3: Determine a pricing strategy
● Once you have determined the company’s objective, then you need to run through all three main pricing strategies.
○ Competitive Analysis:
Are there similar products out there?
How does our product compare with the competition?
Do we know the competitor’s costs? How are its products priced?
Is there a supply-and-demand issue?
What will the competitive response be?

○ Cost-based Pricing:
Sum(all costs) + Profits and find breakeven point
not a very good way to price anything

○ Price-based Costing:
What are people willing to pay for this product?
Cost of product > People willing to pay = then not worth entering
Cost of product + profit < People willing to pay = good market; Compare it with other products or services in
their lives. What did they pay in those cases?
Including miscellaneous charges within the price or extra. (Compare comp)

GROWTH AND INCREASING SALES

Increasing sales or growing the company are not the same as increasing profits. Increasing sales can mean increasing volume,
increasing revenues, or both.
Say you get an increasing revenue case, and the interviewer wants you to raise revenues by 10 percent. A good clarifying question
would be “By what rate have the revenues grown for the last three years, and do you have any forecasts?
STEP 1: Investigate the company
STEP 2: Investigate the market
● With existing product
○ Expand the number of distribution channels
○ Invest in a marketing campaign
○ Adjust prices
○ Acquire a competitor
● New product
○ Product line through diversification
○ Analyse the segments of the business with the highest future potential and margins
○ Create a seasonal balance
○ Find niches in developing industries with high barriers to entry.