Case in Point

Question 1

What are the 4 most usted case scenarios?

Answer 1

1. Profit and loss
2. Entering a new market
3. Pricing
4. Growth and increasing sales

Question 2

What is the most important formula for profit & loss questions

Answer 2

E(P=R-C)M

• P = Profits
• R = Revenues
• C = Costs
• E = Economy or environment
• M = Market or industry

Question 3

Structure profit-loss scenario?

Answer 3

1. E = External factors: economy as such, environment
2. M = Core market Q’s: have our competitors’ profits also fallen
3. Internal: Core company questions: profit = Revenues - Costs
   
   1. Revenues: Price & Volume
   2. Costs: fixed costs and variable costs

Question 4

In a profit-loss problem, what is the first question?

Answer 4

Have our competitos’ profits also fallen?

• If yes: industry-wide problem: external factors
  
  • Effects of natural disasters
  • Rise of interest rates, tariffs
  • Supply chain constraints
  • Entry of new entrant into market
• If no: internal factors
  
  • ​increased costs;
  • lower revenues
  • outdated products

Question 5

What is the second question in a profit-loss problem?

Answer 5

• Q: by how much have profits fallen?
• You need two or three things that might be important
  
  • Eg. retailer: consumer confidence, disposable income, unemployment rate and maybe petrol prices.
• Eg. manufacturer
  
  • Exchange rate euro vs. other currences
  • Interest rates, taiffs, petrol prices
  • Other commodities

Question 6

Core questions to ask about the company

Answer 6

1. Revenues and profits for the last three years
   
   1. What are the major revnue streatms and what percentage of the total revenue does each stream represent?
   2. What are the major costs? Do they seem out of line?
2. Customer segmentations?
   
   1. Characteristics
   2. Changing needs
   3. Profitability by segment
3. Product mix?
   
   1. Costs / margins,
   2. Product differentiations?
   3. Market share?
   4. Cannibalization between products?
4. Production capabilities / capacity
5. Brand? Market leader?
6. Distribution channels
7. WCS = what constitutes succes
   
   1. Which metric to use?

Question 7

Core questions about the market?

Answer 7

1. Market size, growth rate and trends
2. Where is the market in its lifecycle:
   
   1. Emerging
   2. Mature
   3. Declining?
3. Industry drivers
4. Customer segmentation(s)?
5. Margins
6. Industry changes:
   
   1. M&A
   2. New players
   3. Change in technology
   4. New regulations
7. Distribution channels
8. Major players and market share
9. Product differentiation
10. Access to suppliers
11. Barriers to entry/exit?

Question 8

What are possible industry drivers?

Answer 8

• Brand, street cred
• Price
• content
• size
• endorsements
• Fads/culture
• Marketing
• Economics,
• Technology
• Geopolitcal events
• Bargaining power of buyers
• Bargaining power of suppliers
• Distribution channels

Question 9

Whatare possible barriers to entry?

Answer 9

1. ​​access to capical
2. distribution channels
3. raw materials
4. technical knowledge
5. human talent
6. Government regulations
7. Customer loyalty
8. sticky featers
9. market domination by one or two players

Question 10

What are barriers to exit?

Answer 10

Barriers to exit

• ​massive investment and non tranferable fixed assets
• contract requirements with suppliers
• government requirements:e g. major tax break
• costs of leaving a arket are higher than those incurred tocontinue competing
• barriers of empotions: we built our house on this market

Question 11

Questions to think about in a P&L case?

Answer 11

Revenues:

1. What are the major revenue streams and what percentage of that the total revenue does each stream represent?
2. Does anything seem unusual in th ebalance of percentages?
3. Have the percentages changed lately?

Costs:

1. Have there been any major shifts in costs?
2. Do any costs seem out of line?
3. If we benchmarked our costs against our competitors’ costs? What would we find?

Products:

1. Ask about advantages
2. Disadvantages

Question 12

What is a good clarifycing question when entering a new market?

Answer 12

Why does this company want to enter this market?

You want to first analyzet he company before the market. This way, you can look at the new market through thte company’s eyes, not just their own eyes.

Question 13

Steps for Entering a new Market?

Answer 13

1. Start off with questions on the company
2. Determine the state of the current and future market
3. Investigate the market to determine whether entry makes good business sense
4. If we decide to enter this market, what are the ways to do so?

Question 14

How do you determine the state of the current and future market?

Answer 14

• What is the size of the current market?
• What is the growth rate? = ask for trends
• Where is the industry in its lifecycle:
  
  • Emerging
  • Mature
  • Declining
• Who are the customers and how are they segmented?
• What role does technology play in the industry and how quickly will that changee?
• How will the competition respond?

Question 15

How do you analyze the company when entering a new market-case?

Answer 15

• What are the company’s profits and revenues for the last three years?
• What is the company’s product mix?
• If this is about a new product:
  
  • Will it cannibalize an existing product?
  • Is the customer segmentation the same?
  • Can we use the same distribution channels?
  • Can we use the same sale forces?
  • How and where will this new product be produced?
  • Will we have to hire new workers or retrain current workers?
• How strong is the brand?
  
  • Is it market leader?
• What constitutes success?

Question 16

How do you investigate the market to determine whether entry makes good business sense?

Answer 16

• Who are the competitors and what market share do they have?
• How do their products differ from ours?
• How will we price our goods / services?
• Are substitutions available?
• Are there any barriers to entry?
  
  • Eg. lack of brand or street cred; capital requirements; access to raw materials; access to distributions channels; lack of human capital; government policy? Industries dominated by a small number of big players?
• Barriers to exit? How would we exit if this market sours?
• What are the risks: changing market regulation, technology?

Question 17

if we decide to enter the market, what is the best way to become a player = what are the ways to enter?

Answer 17

1. Start from scratch and grow organically
2. Acquire an existing player from within the industry = growing inorganically
3. Form a joint venture / strategic alliance with another player with a similar interest = what can each side bring to the venture?
4. Outsourcing: have someone else manufacture the product, with the client still handling marketing and distribution

—> Cost-benefit analysis for all scenarios

Question 18

How do you end an Entering a Market Case?

Answer 18

• Give a recommendation:

1. Yes: this is why, this is how, these are the risks
   
   • ​→ be sure to prioritize the risks based on impact and likelihood of occurrence and the next steps: both short term and long term.​
2. If no: then no
   • Give the reasons for the answer, list and prioritize the risks of not entering the market, based on the impact and the likelihood of occurrence. If possible, provide an alternative route for the client.

DO NOT: explain or mention the options you did not choose.

Question 19

What are the 2 main concerns with an M&A case?

Answer 19

1. Does it increase shareholder value?
2. Will the cultures mesh? = culture mismatch

Question 20

Key points in an M&A case for the buyer?

Answer 20

1. If the buyer is a PE firm:
   
   1. Why does the PE firm want to buy the company?
   2. What else does it own?
   3. What does it plan to do with it: hold, flip or break apart?
2. If one company acquiring another:
   
   1. Why?
   2. What other products do they sell?
   3. What are the synergies involved? = needs to make good business sense.

Question 21

What are some reasons to purchase in an M&A case?

Answer 21

• increase market access, boost the brand, increase market share
• Diversify the company’s holdings
• Pre-empt the competition from acquiring the company
• Target company is a threat
• Inherit management talent
• Obtain patents, licenses, products
• Gain from synergies, cost savings, cultural integration, expansion of distribution channels, cross-sell products
• Gain tax advantages
• Increase shareholder value

Question 22

What is the due diligence like in an M&A?

Answer 22

• What kind of shape is the target company in? Management, products, profitability, brand? What is the stand-alone value
• How secure are the markets, the customers, the suppliers?
• What are the margins like? Are they high volume, low margin

Question 23

What are the steps in a pricing case?

Answer 23

1. Investigate the company: Most important aspect: the company strategy or objective
   
   1. Market share
   2. Profits
   3. Brand positioning
2. Inveestigate the product
3. Determine a pricing strategy
   
   1. Competitive analysis
   2. Cost-based pricing
   3. Price-based costing

Question 24

How do we investigate a company in a pricing case,

Answer 24

• What products do they have?
• Is it the market leader?
• What is the pricing objective? = most important aspect: the company strategy or objective!
  
  1. Market share
  2. Profits
  3. Brand positioning?
• Is it in charge of its own pricing strategies or is it reacting to suppliers, the market and competitors?

Question 25

What is the second step in a pricing case?

Answer 25

• How does it compare with that of the competition? Are there any substitutions or alternatives? Where is the product in its growth cycle? Is there a supply-and-demand issue at work?

Question 26

What is the third step in a pricing case?

Answer 26

Determining a pricing strategy:

1. Competitive analysis
2. Cost-based pricing
3. Price-based costing

Question 27

What is competitive analysis?

Answer 27

• 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?
• Are there substitutions available?
• Is there a supply-and-demand issue?
• What will the competitive response be?

Question 28

What is cost-based pricing?

Answer 28

• Take all our costs and add a profit → that way, you will know your break-even point.
• Why is this not a very good way? = if you misjudge the market, you will have to cut prices, which will squeeze margins.

Question 29

What is price-based costing?

Answer 29

• What are people willing to pay for this product? If they are not willing to pay more than what is costs you to make it, it might not be worth making.
• Profit margins vary greatly by industry
• Consider: what your product will be worth to the buyer = compare it with other products or services in their lives, what did they pay in those cases?

Question 30

What is important to remember in a growth and increasing sales case?

Answer 30

• ! Increasing sales or growing the company is not the same as increasing profits! With increasing sales you are less interested in costs.
• Increasing sales can mean:
  
  • Increasing volume
  • Increasing revenues
    
    • or both!
• Clarifying questoin to increase revenues by 10%:

Question 31

What are the steps involved in a growth and increase revenue case?

Answer 31

1. Learn about the company, the size, resources and products;
2. Investigate the industry:
   
   1. Is it growing and how is the client growing compared with the industry?
   2. Are the client’s prices in line with its competitors?
3. Increase volume and revenues

Question 32

How can you increase volume and revenues?

Answer 32

• Expand the number of distribution channels
• Increase the product line through diversification of products or services
  
  • particularly with products that won’t cannibalize other products
• Analyze the segments of the business with the highest future potential and margins
• Invest in a marketing campaign
• Acquire a competitor: certainly when a company wants to increase market share
• Adjust prices:
  
  • Take into account the price sensitivity of the customer
• Create a seasonal balance: increase sales in every quarter
• Grow and find niches in developing industries with high barriers to entry → less competition and more notice if someone is trying to enter.

Question 33

What are some key questons for industry analysis?

Answer 33

• Where is the industry in its lifecycle: Emerging - Mature - Decliing
• How has the industry been performing (growing, declining) over the last one, three, five and ten years?
• How have we been doing compared to the industry?
• Who are the major players and what market share do they have?
• has the industry seen any major changes lately?
  
  • new players
  • new technology
  • increased regulation
• what drives the industry?
  
  • marketing, products, size, economics, technology, price, quality, endorsements?
• Profitability? What are the margins?

Question 34

What are some key questons for suppliers?

Answer 34

• How many are there?
• What is their product availability?
• What is going on in their market?
• How is the supply chain?
  
  • Are the companies that supply you getting what you need from their suppliers?

Question 35

What are some key questons for the future?

Answer 35

• Are players entering or leaving the market?
• Are any mergers or acquisitions going on?
• Are there any barriers to entry or exit?
• Substitutions: what alternatives are there?

Question 36

What do you need to think about when developing a new product?

Answer 36

1. Think about the product itself?
2. Think about market strategy
3. Think about customers?
4. Think about funding
5. Think about consumer adoptions rates

Question 37

What is relevant for developing a new product wrt the product itself?

Answer 37

• What is special or proprietary about it? Is the product patented? For how long?
• Are there similar products out there? Are there substitutions?
• What are the advantages or disadvantages of this new product?
• How does this new product fit in with the rest of our product line?
• Can our sales force sell it?

Question 38

What do you need to think about when thinking about market strategy wrt developing a new product?

Answer 38

• How does this strategy affect our existing product line?
• Are we cannibalizing our own sales from an existing product?
• Are we replacing an existing product?
• How will this strategy expand our customer base and increase our sales?
• What will the competitive response be?
• If we are entering a new market, what are the barriers to entry?
• Who are the major player, and what are their respective market shares?

Question 39

What do you need to think about when thinking about customers wrt developing a new product?

Answer 39

• Who are our customers and what is important to them?
• How are they segmented?
• How can we best reach them?
• How can we ensure that we retain them?
• What is the cost per customer?

Question 40

What do you need to think about when thinking about funding wrt developing a new product?

Answer 40

• How is the product being funded?
  
  • Does our company have the cash or are we taking on debt?
    
    • Can we support this debt under various economic conditions?
• What is the best allocaiton of funds?

Question 41

What do you need to think about when thinking about customer adoption rates wrt developing a new product?

Answer 41

• How many units can we expect to sell
• Note: a new product usually between 3-5% percent:
  
  • Rogers Adoption/innovation Curve

Question 42

What is relevant for starting a new business from a venture capitalist point of view?

Answer 42

• Management
  
  • How experienced is the management team? What are its core competencies?
• Market and strategic plan
  
  • Barriers to entry
  • Who are the major players and what are their respective market shares?
  • What will the competitive response be?
• Distribution channels:
• Products and services
  
  • What is the competitive edge? What are the disadvantages?
  • Is the technology proprietary
• Customers
  
  • How can we be reach them? How can we retain them?
• Finance
  
  • How is the project being funded? What is the best allocation of funds?

Question 43

If a competitors introduces a new product or pciks up market shares, which questions do we need to ask?

Answer 43

• What is the competitors’ new product and how does it differ from our product?
• What has the competitor done differently?
• Have any other competitors picked up market share?
• Have the consumers’ needs changed?
• Has the competitor increased or expanded into new channels?

Question 44

Which responses might include if our competitor has introduced a new product?

Answer 44

• Analyze our current product and redesign, repackage or move upmarket?
• Introduce a new prouct
• Increase our profile with a marketing and public relations campaign
• Build customer loyalty
• Cut prices
• Lock up raw materials and talent
• Acquire a competitor and another player in the same market
• Merge with competitor to create a strategic advantage and become more powerful
• Copy the competitor

Question 45

What is relevant in a turnaround case?

Answer 45

• Analyze the company and industry
  
  • Why is it failing? Bad products or servicees? Bad management? Bad economy?
  • Are our competitors facing the same problem?
  • Do we have access to capital?
  • Is the company publicly traded or privately held?

Question 46

What are possible actions in a turnaround case?

Answer 46

• Learn as much as possible about the company and its operations
• Analyze services, products and finances
• Secure sufficient financing so your plan has a chance
• Review the talent and temperament of all employees and get rid of the deadwood
• Determine short term and long term goals
• Devise a business plan
• Visit clients, suppliers and distributors and reassure them
• Prioritize goals and get some small successes

Question 47

What are the categories to think about cutting costs?

Answer 47

1. Labor
2. Production
3. Finance

Question 48

What are ways to cut costs with regard to costs?

Answer 48

• Cross-train workers
• Cut overtime
• Reduce employer pension plans
• Lay off
• Convert workers to owners
• Contemplate lay offs
• Institute across)-the board pay decreases

Question 49

What are ways to cut costs with regard to production?

Answer 49

• Invest in technology
• Consolidate production space to gain scale and create accountability
• Create flexible production lines
• Reduce inventories = JIT
• Outsource
• Renegotiate with suupliers
• Consolidate suppliers
• Import parts

Question 50

What are ways to cut costs with regard to finance?

Answer 50

• Have customers pay sooner
• Refinance your debt
• Sell nonessential assets
• Hedge currency rates
• Redesign health insurance

Question 51

What are some uncontrolled risks?

Answer 51

1. A new entrant into your market, particularly a market disruptor
2. Price war as a competitive response initiated by a competitor
3. New government regulations
4. Manageability of different regions, costs or workforce needs
5. Tariffs, shifting suppliers
6. Supply chain inconsistencies, bankruptcy of suppliers
7. Increased fuel or commodity prices
8. Currency shifts
9. Geopolitical events
10. Workforce gaps, not enough skilled workers, higher wages because of low unemployment
11. Population shifts
12. Environmental disasters

Question 52

What are some controlled risks?

Answer 52

• Salesforce risks, shifting product priorities based on commisions
• Systems risks: eg. meger or conversion
• Inventory risks, too much or too little on hand, changing needs, storage, tied up capital
• Public image after a crisis or an endorser’s mishaps
• Other revenue streames collapsing
• Caanibalization
• Losing brand loyalty and consumer trust
• Lower product quality because of costs cuts
• Workforce turnover

Question 53

Revenue synergies

Answer 53

• Distribution channels/networks
• Access to new markets
• Broaden customer base
• Broaden customer solutions

Question 54

Costs synergies

Answer 54

• Selling, General, and Administrative Expenses (SG&A) savings, eliminate redudancies
• Improving scale
• Supply chain:
  
  • Transport
  • Warehouses
  • Plant / production
  • Suppliers
  • Raw materials
• Bulk ordering
• Negotiating and buying power

Question 55

Financial synergies

Answer 55

• Selling of redudant assets
• Tax advantages

Question 56

What are some disrupting external/macro factors?

Answer 56

1. Weather: hurricanes, wildfires, floods
2. Worldwide health pandemics
3. Geopolitical events
   
   1. Climate change
   2. Brexit
   3. Tariffs
   4. MeToo
   5. Workers taking to social media against the policies of their own company
   6. Tweets
4. Politician going after an industry or company
5. Transportation: airline crashes
6. Changes in disposable income: interest rates, currency, oil, consumer confidence
7. Technology: new or hackers

Question 57

6 factors that move the markets?

Answer 57

1. Change in interest rates by the central bank
2. Higher prices
3. Change in inflation
4. Recession expectations
5. Earning
6. Momentum / FOMO

Question 58

If sales are flat and profits are taking a header?

Answer 58

• You need to examine both revenues and costs but always start with revenues side first!

Question 59

If sales are flat but market share remains relatively constant?

Answer 59

• That could indicate industry sales are flat and that your competitors are experiencing the same issue

Question 60

If your case includes a decline-in sales problem

Answer 60

1. Overall declining market demand: eg. soda sales have dropped because bottled water becomes beverage of choice
2. The possibility that the marketplace is mature or your product obsolute: eg. vinyl records
3. Loss of market share because of substitutions: eg. video rentals have declined because of numerous substitutiosn

Question 61

If sales and market share are increasing but profits are declining?

Answer 61

• Investigate whether prices are dropping and / or costs are climbing
• Investigate changes in product mix and margins and if players are leaving the market

Question 62

What are some If-profit scenarios?

Answer 62

• If profits are declining because of a drop in revenues, concentrate on marketing and distribution issues.
• If profits are declining because of rising expenses:
  
  • Concentrate on operational and financial issues: eg. COGS (cost of goods sold); labor rent and marketing costs

Question 63

What if profits are declining but revenues have gone up?

Answer 63

Review:

• Changes in costs
• Any additional expenses
• Changes in prices
• the producct mix
• Changes in customers’ needs

Question 64

What are some If-product scenarios?

Answer 64

• If a product is in its emergin growth stage, concentrate on R&D, competition and pricing
• If a product is in its growth stage, then emphasize marketing and competition
• If a product is in its mature stage, focus on manufacturing, costs and competition
• If a product is in its declining stage, define niche markets, analyze the competition’s play or think exit strategy

Question 65

What are some pricing scenarios?

Answer 65

• If you lower prices and volume then rises, then pushed beyond full capacity, your costs will shoot up as your employees work overtime, your profits will suffer.
• Volume and costs are easier to change than the industry price levels, unless all parties agree to charge their prices together
• The perfect strategy for the high-cost producer is one that convinces competitors that market shares cannot be shifted except over long periods of time. The highest practical indystr prices are to everyone’s advantage
  
  • Price wars are determental

Question 66

When are prices stable?

Answer 66

1. Growth rate for all competitors is approximately the same
2. The prices are parallelling costs
3. The prices of all competitors are roughly of equal value

Question 67

What are the 8 broad framework buckets?

Answer 67

1. Market attractiveness
2. Competitive landscape
3. Company capabilities / attractiveness
4. Customer segments / needs
5. Profitability / financials
6. Strategic alternatives
7. risks & Mitigations
8. Own

Question 68

What is the profit formula?

Answer 68

Profit = (Price - Variable Costs)*Quanity - Fixed Costs

Question 69

What are frameworks for answering qualitiative questions?

Answer 69

1. Internal vs external
2. Short term vs long term
3. Economic vs non economic
4. Quantitative vs qualitiative
5. Direct vs indirect
6. Supply vs demand side
7. Upside vs downside
8. Benefits vs costs

Question 70

What is a structure to use for recommendations?

Answer 70

• I recommend that [insert recommendation] for the following three reasons: … For next steps, I would look into the following two areas:…”
• Further next steps:
  
  1. Buckets in your framework that you have not covered
  2. Open questions you do not have the answers for
  3. Potential risks of your recommendation