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Case - Baby Formula
Case - Baby Formula
com
Baby formula
Topic Difficulty Style
Market sizing Intermediate Candidate-led (usual style)
Pricing
Our client is a producer & distributor of baby formula. They sell worldwide
and have around 30% market share. Currently, they're looking at ways to
boost their market share whilst maintaining profitability. Recently, a
welfare program for poor children was started to give poor people vouchers to
purchase baby formula. Each state is opening up for bidding. The producer is
thinking about bidding in the program to be sole supplier, but they're not sure
how much to bid for these contracts.
They hired you to help them come up with an approach on how to determine
the amount they should bid for those supply contracts.
Comments
This is a market-sizing case, but also a brain-teaser since the case is left very
open.
However, remember that the company wants to know how they should
determine the amount to bid. Candidate is not required to calculate the actual
number, but they will be evaluated more on their ability to lay out a structure
and to explore aspects more in-depth.
Short Solution
Client should calculate the profit room he has to wiggle after taking into
account lower revenues, voucher discounts and associated costs.
Paragraphs highlighted in green indicate diagrams or tables that can be
shared in the “Case exhibits” section.
I. Background
The candidate should start by asking clarifying questions on how the program
& bidding works, especially if candidate never had any experience with tender
contracts.
The tender contract allows our client to bid to become the sole
supplier of baby formula for a single state.
Each program participant receives a voucher that gives them a
certain discount at the check-out which is around 15% of the
retail price.
The tender contract lasts for 12 months, so suppliers need to
participate for a full year, but the supply contracts can be extended
up to several years.
Whilst the revenue from these tenders is lower, the volume
associated with it makes it interesting to participate.
Most bids are determined based on profitability.
Candidate should now come up with early ideas on how to approach this and
basically every logical structure is deemed right as long as it is centered
around profitability. The client needs to issue a bid that gets him the contract
while still remaining profitable.
II. Analysis
III. Solution
Ask the candidate if the producer could expect another profit-stream from this
tender besides the actual contract value.
If a supplier wins the contract, it also means they get to increase the
amount of shelf-space in stores since they need to supply more
products.
All WIC participants buy these products in regular stores along with
other consumer products.
Possible answers: