QT CO

Profitability Low difficulty

Consumer goods Interviewer-led case

The case investigates profitability issues for a consumer goods company. It covers all elements of the
case interview scorecard except creativity.

Problem definition

Your client is a US-based baby product manufacturer, called QT Co. The company is the market leader

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in strollers and car seats, offering the safest products on the market, which is a feature that parents value

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greatly. In addition to the exceptional product quality, QT Co. has managed to keep its prices competitive
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especially relative to the competitors in the premium end of the market in which they play. Despite QT
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Co.’s market leadership, they have watched their profits dwindle significantly over the past two years. In
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fact, the last quarter saw profits that were 30% lower than the same quarter two years earlier. The CEO
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is wondering what she can do to correct this trend of declining profitability.

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What can QT Co. do to increase profitability?

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Additional information
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If asked, please share that:

• QT Co. goal is to achieve $100 million in annual profit as soon as possible
• Profits are currently at $70 million, and have been decreasing by 30% from their value two years ago
• QT Co. only sells in the US and Canada
• QT Co. sells 3 products: Strollerall, Case seat, and Duo. All have seen declining volume
• QT Co’s main rival has begun selling exclusively online
• Overall market has been increasing
• Sales channels for QT Co: Bigbox and specialty retailers

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Question 1 (Structuring)

How can QT Co. improve its profitability?

Possible answer

1. Increase revenues (i.e., look at volume and price through different angles)
a. By products
b. By sales channels
c. By geography

2. Lower costs

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a. Fixed costs

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• Manufacturing overhead

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• Marketing
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• R&D
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b. Variable costs
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• Manufacturing unit cost

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• Warrantees
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• Distribution
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 Question 2 (Judgement and insights)

We have gathered information on QT Co sales volumes by product and channel [share Exhibit 1 and
Exhibit 2].

What can you conclude from these exhibits?

Possible answer

These two charts show the volume of sales by product and by channel for QT Co, and allow us to gather
several insights:

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● The overall volume has declined by 25% in 2 years (from 1.2M to 900k units sold). This is likely to
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explain our 30% decline in profits.
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● The online channel is gaining popularity, at the expense of Bigbox and Specialty retailers. Online sales
are now around 7% of the market, and are expected to reach 20% in 3 years. This only explains a small
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portion of our decline in volume.

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Further analyses are needed to investigate:

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● Whether we should start selling our products online

● What are the other causes of our decline in volume
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Exhibit 1: Sales volume by product for QT Co.

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Exhibit 2: Relative total value of sales by channel (market)

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Question 3 (Numeracy)

The client understands from your analysis that the issue is not the quality of the products, but the
channel through which they are sold. An analysis your team performed internally showed that introducing
sales through online channels could boost sales volumes by 10% per item.

How much would this increase QT Co.’s profits?

Additional information

If asked, please share that:

• Prices: Strollerall: $400; Care seat: $250; Duo: $600

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• Margin: 20% for all items

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Possible answer
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Increase in profit = Increase in volume x profit margin per product

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Product Price Profit margin Volume (Y0) 10% volume Increase in

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per product increase profit

Strollerall $400 $80 350k 35k $2.8 million
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Care seat $250 $50 300k 30k $1.5 million

Duo $600 $120 225k 22.5k $2.7 million
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Total $7 million

Introducing the online channel could increase profits by $7 million for QT Co., a 10% increase from their
current profit. However:
• this is still $23 million short of the $100 million target
• setting up an online channel will be costly, may cannibalize current revenue and create conflicts with
our off line distributors

Further analyses are needed to progress this further (which items to sell, at which price, how to handle
shipping and fulfillment) and identify other growth opportunities (e.g., add a new product line, expand
internationally)

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Question 4 (Synthesis)

The CEO just walked into the case team room and is looking for an update on what you have
discovered. She is looking for a quick, thirty-second synthesis of key findings.

What do you tell her?

Possible answer

You have asked us to identify how QT Co. can bring its profit back to $100 M of profit.

We recommend that you consider selling online. Market-wide sales are shifting online are expected to
account for 20% of the market in 3 years. Adding online sales could boost profits by $7 million annually.

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However, this will only get you 25% towards your profit improvement target.
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To close the gap, while we explore how to establish your online presence, we need to further explore
what has caused the drop in volume despite the growth in the market, by looking at your product range,
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pricing, attractiveness, and performance within your existing sales channels.

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Stumbling on numerical questions?

Find out how to get the math right in the Interview Prep
Course.

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