BIG ROCK

Product Launch Medium difficulty

Leisure & Tourism Interviewer-led case

This case discusses the launch plan of a new indoor climbing gym.

The case covers all elements of the case interview scorecard, with multiple opportunities to test
numeracy and creativity skills.

Problem definition

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Since the introduction of climbing as an Olympic discipline, there has been a surge in interest from the
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general public in the sport, and indoor climbing gyms have become very popular. Additionally, indoor
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climbing has become a highly social sport, where fellow climbers tend to hang out at the bar or eat
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something together after a training session.

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Your client is a friend who has created a business case for opening a new indoor rock-climbing gym,
called Big Rock. However, in order to secure a bank loan to fund the business, your client needs to
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demonstrate the viability of the venture and present a concrete implementation plan. In particular, the
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bank has asked for the venue’s location and layout, a marketing plan, and the price structure of services.
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Your client has asked for your help in preparing a response for the bank.
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Question 1 (Structuring)

How would you structure your approach to the question?

Additional Information
• A candidate’s structure should ideally aim to help demonstrate to the bank that the business is
credit-worthy, while addressing their questions. To do this a structure should aim to understand
the potential profitability of the business
• If a candidate mentions location, you may share that the client has two potential sites in mind (city
center and suburban) but has yet to make a choice between them

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Possible answer

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1. Location
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a. Determine which location is best to drive demand and revenue

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• Parking space
• Footfall / local population
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• Competition
• Features of the space
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b. Determine cost of location options

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2. Offering
a. Determine target service offering
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• Optimal service offering (e.g. number and type of climbing walls)

• Optimal additional amenities (e.g. shops, bar/restaurant)
b. Determine pricing for proposed offering
• How should we structure our pricing for each service (e.g. membership vs. one-off fees)?
• Where should we set our price point for each service based on competitor benchmarking and
customer demand?

3. Marketing plan
a. Assess ROI for direct marketing options:
• Social media advertising
• Local newspaper adverts
• Local radio adverts
• Flyering in town
b. Assess other indirect growth options, e.g. referrals
4. Financial projections

Question 2 (Judgement & Insight)

Your client has researched some location options and has identified one potential building in a suburban
area and another in the city center. Exhibit 1 summarizes the characteristics of each.

How would you decide between these two locations, and which would you choose?

Additional Information
• Exhibit 1 provides partial information. The key for the candidate is to think beyond the available data,
determine the factors to consider to make a recommendation, and make hypotheses or ask for

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missing information

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• If asked, you may share that:

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- There is no competitor near either location

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- The income levels in both areas are similar

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- The suburban location comes with parking space

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- Climbing centers typically present 200-500 square meters, and 10-20-meter height
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• The candidate can recommend either location, with a supporting rationale

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Possible answer
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In order to pick a location, we need to understand both its cost and its ability to drive traffic and revenue.
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Overall, the suburban location seems a superior option, but might require bigger initial investment:
need to convert the rent with total space
In terms of cost, the suburban location is 20% cheaper ($2,400 vs $3,000 per month). However, it is
much bigger, so might require a larger initial investment to equip.

In terms of ability to drive traffic and revenue:

• The city center location seems small in area (150 m²) and medium in height (13 m), which might limit
our total capacity as well as affecting our ability to host advanced climbers and offer ancillary
services (e.g., restaurants). On the other hand, the suburban location offers a very large space and
lots of height.
• The city center is likely to have a bigger population of young professionals, who have the disposable
income to socialize on-site. However, the suburban location may give access to more families with
children – with the potential to sell more classes and events (e.g., parties).
• The lower population density of the suburbs is somewhat offset by the fact that the venue comes
with parking space.
 • The style of the building is not very relevant, although the suburban location might require some
more investment to include an attractive restaurant / bar area

Exhibit 1: Location options

City Center Suburbs

Average size (ground surface) 10m x 15m 15m x 40m
Average height 13 m 26m
Population density 1.500 inhabitants / km² 500 inhabitants / km²
Building style Gothic Industrial
Monthly rent $20/m² $4/m²

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Question 3 (Creativity)

Now that the location is chosen, you move on to brainstorming potential revenue streams for the new
climbing gym.

What potential revenue streams do you foresee for a business like this?

Possible answer

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Direct climbing-related revenues:

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• One session entry ticket
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• Memberships
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• Rental of equipment (e.g., shoes, harnesses)

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• Classes
• Climbing parties for kids
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• Corporate team building events

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Non-climbing/ancillary related revenues:

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• Shop, e.g. apparel, equipment, chalk

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• Bar & restaurant

• Vending machines
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• Advertising on walls
• Referral fees to outdoor vacation/hike coordinators
Question 4 (Creativity)

The bar & restaurant will be a key revenue stream. However, the design of the building will have to be
decided upfront. Your client’s hypothesis is that the percentage of the surface used as a restaurant area
will strongly influence how long customers hang around for a drink or to eat after their training session.

How would you analyze this hypothesis?

Additional information
• The candidate can answer in different ways – the most important thing is for her/him to identify and
explain at least one of the suggested responses

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• Competitive benchmarking – research other climbing gyms to compare their restaurant size (and
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food & drink revenue, where possible)

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• Customer research – use interviews or surveys to understand consumer preferences

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• Other sports center benchmarking (e.g. tennis, squash) – compare their restaurant size and food &
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drink revenue
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Question 5 (Numeracy)

You decide to run a customer survey to test the hypothesis and determine the optimal building design,
with a focus on the impact of spending at the bar/restaurant as a result of % of space allocated to the
climbing surfaces. Exhibit 2 shows the willingness to pay (WTP) per session (i.e., price for entry) plus the
time and amount spent at the bar/restaurant, as a function of the building design.

Using this information, what is the optimal building design?

Additional information
• To solve this question, the candidate must calculate the total gross profit from the bar for each

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scenario, plus the WTP, to determine the most sensible option

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• A candidate should recognize that the gross margin for each service is essential to the eventual

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answer, but supply this directly if it is not asked for. Variable cost for use of the wall can be assumed

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as negligible, but cost of goods sold for the bar/restaurant is 50%

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Possible answer
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Calculating the profit from the bar for each layout option:
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[Average time at bar (min)] x [Average spending ($/min)] x [gross margin %] = Average profit at bar ($)
• 50%: 70min X $0.25/min X 50% = $8.75
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• 60%: 60min X $0.25/min X 50% = $7.5

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• 70%: 50min X $0.25/min X 50% = $6.25

• 80%: 20min X $0.2/min X 50% = $2
• 90%: 10min X $0.2/min X 50% = $1

Combining this with WTP:

[Average profit from the bar ($)] + [WTP ($)]:
• 50%: $8.75 + $6 = $14.75
• 60%: $7.5 + $11 = $18.5
• 70%: $6.25 + $17 = $23.25
• 80%: $2 + $19 = $21
• 90%: $1 + $20 = $21

The optimal layout from our options is 70% climbing area, resulting in an entry price of $17 per session
and an expected $6.25 bar profit per person.
Exhibit 2: Willingness to Pay and time spend at bar/restaurant as function of building design

% Building climbing area 50% 60% 70% 80% 90%

WTP / session ($) 6 11 17 19 20
Average time at bar (min) 70 60 50 20 10
Average spend ($/min) 0.25 0.25 0.25 0.2 0.2

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Question 6 (Numeracy)

You also learn from the customer survey that people have a high tendency to start climbing after they’ve
tried it once. To leverage this finding, and attract a bigger audience, your client is considering
implementing a marketing campaign. The idea is to rent a portable climbing wall to allow the general
public to try wall climbing. The campaign will run on Saturday and Sunday and the details are in Exhibit
3.

How would you assess whether this is an effective marketing campaign?

Additional information

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The candidate should approach this as an investment decision. Provide the following information when

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requested:

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• Hourly wage of $30 per operator; two operators have to work simultaneously

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• Assume only one person can try the wall at a given moment in time
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• Assume an average utilization of 80% during the course of the weekend

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• Assume a new climber will go climbing after the try-out three times on average (many don’t succeed
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in making the habit stick)

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Possible answer

Return = Additional Profit - Investment

Additional Profit = # new climbers * Average number of sessions * [gross margin per session]
# new climbers = # tried * % start climbing * % your gym
# tried = [operating hours * utilization] / time per try-out
# tried = [16hrs * 80%] / 10min
# tried = 76.8 tries
# new climbers = 76.8 tries * 50% * 70% = 26.8
Additional Profit = 26.8 climbers * 3 climbs * ($17 + $6.25) = $1,870

Investment = Rent + Wage

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= $500 + [2 operators * 8 hours * 2 days * $30/hr]

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= $500 + $960
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= $1,460
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Return
= $1,870 - $1,460 = $410 or a return on investment of ~20%
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Based on these calculations, the campaign offers a small positive return on investment. We could
consider alternative campaigns, or improve this campaign by decreasing its cost, increasing the
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rate at which climbing becomes a habit, or increasing the likelihood that they choose our gym (e.g., small
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discount coupon for first session at our gym).

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Exhibit 3: Portable wall campaign data

Rent / day ($) 250$

Operating hours 10AM – 6PM
# Operators 2
Conversion to climbing at an indoor gym 50%
Chance to choose your gym 70%
Duration of try-out 10min

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Question 7 (Creativity)

Your client asks how they can improve the return on investment for the climbing wall marketing
campaign.

What ideas do you have to help increase the return on investment?

Additional information
This should be added as an optional additional question if time permits, and in particular if an additional
data point on a candidate’s creativity would be useful.

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Decrease cost
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• Buy the portable wall

• Change the organization so it can be manned with one person only, or used by two climbers at once
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Increase conversion
• Take a picture of the user and email it for free, feeding the contact details into our CRM
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• Provide discount for first Big Rock gym session

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• Provide free coaching in the first session, if booked within two weeks
• Provide package discount for signing up/pre-paying for 5 sessions
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Question 8 (Synthesis)

What recommendation would you put forward to your client on how best to implement their Big
Rock business idea?

Possible answer

You have asked us to propose a location, price point, and marketing strategy in order to land the bank
loan. We believe that we should:
• Choose the suburban location, which offers a lower cost and a more suitable area
• Dedicate 70% of the area to climbing walls to maximize margins, at $23.25 per session

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• Pilot the portable climbing wall to acquire new clients, as it should generate a 20% ROI

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Before we finalize our response to the bank, we need to look further into the pricing of our offering,
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develop full financial projections and improve the return of our marketing campaign.
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