Framework Studies Flashcards
Profitability Framework
transactions = M/S x Market Size
Clarifying Q (when asking questions, lead with an answer prompt): guided case:
How much has profits decreased?
Across all business sectors or certain ones?
How are competitors doing?
Step 1: Find Root Cause: Compare how it was in the past with how it is now
Revenues (business specific) - Costs (specific) + Other Considerations
Revenues = # of transactions x average transaction value + other potential revenues
# transactions (revenue) = Market share x Market Size
3 C’s
Market Size problem?
Market share:
Are we losing market share? Look at competitors
Company: marketing?
Average price:
3 C’s
Overall Demand: market declining/identical service/ change in consumer behaviour
Pricing: Losing product mix (cheaper plans)
Competitors: Losing revenue/sale (price wars)
Costs = fixed + variable (costs to make, costs to sell, support costs)
Variable: name specific variable costs (labor/COGS/transport)
Fixed: name specific fixed costs (rent/utilities/salaries)
Cost to losses: spoilage/inventory loss
Qualitative: change in supplier/manufacturer
Step 2: Potential Solutions and Choose Best One:
Consider how to improve revenue/lowering costs, or other costs (such as taxes)
M&A Framework
Clarify Q: goal of the acquirer? Specific reason?
R:
Markets : what is the size, growth, market share of the market to enter?
Quantitative Tests for comparing markets: must connect with the company at hand
Market size: price x transactions
Market share: revenue/total market size - how much they control
Growth: easier to compete for market share;
Overall Profitability in market
Competitive landscape?
Barriers to entry? tariffs/legal/supply chain/distribution
Company (Target):
Is Target positioned to capture market growth?
In both distribution and brand recognition
Is target profitable?
Synergies:
Revenues: product gaps
Projected Increase in revenues?
Test: Revenue: increase in P (% of uptake x price difference) + increase in Q (% of buying second good x price)
Projected increase in margins?
Margins: (% of margin for basket 1 x quantity basket 1) + (% margin basket 2 x quantity basket 2)
Costs
distribution/supplier synergies: better network and bargaining power
Can we merge facilities to reduce fixed costs?
Cost to acquire:
Investment to acquire? Compare to projected revenue + cost savings - payback period
Risks:
Post-merger integration - people/process/systems
Gov regulations
Build it ourselves
Market Entry/ Product Launch Framework - Should we Launch?
Clarify Q: goal - M/S, revenue?
Market: is there potential demand/demand in this market? →
Market Size/Growth/Profit margins (is the market profitable for every major player)? - grow market by changing ends of market sizing structure
Why do customers buy?→ price points/marketing/brand
Key Customer Segments?
How much of the market can we get?
Major players/market share can we capture?
Do we face barriers to entry? -> tariffs/regulation/supply chain/distribution?
Company financials: costs to enter/launch
revenue/profit forecast
Investment - brand/operations/distribution - ROI / break even period over cost of entering
Cannibalization of other products?
Products: Differentiation
Product advantages: Can we hit quality/price/delivery? Compare to existing products
Brand recognition? - headstart?
Growth Strategy
Clarify Q:
if sharp short-term decline - there may be one reason causing decreasing in revenues. If slow decline, there may be multiple reasons.
Step 1: Understanding Context/problem: markets, products, financial performance
Market: How is demand changing?
Where to target revenue growth? M/S, growth, profitability (product categories)
Purchasing behaviour/ways of buying analysis - pricing?
Competition: what are their strengths and where can they do better than us?
Do “company analysis” and compare with competitors (M/S, growth, profitability)
Company: what are our strengths to capture this growth?
Positioning in fastest segments
Competitiveness (product/price/brand)
R&D + Marketing/distirbution → can we create new brands/products that increase sales?
Step 2: Growth OPTIONS
1. Short term/small problem - Business as usual, new business model, expansion
2. Long term/large problem - new revenue streams, geographies, partnerships, M and A
2. Assess risk for each strategy and how to mitigate
3. Create execution plan for growth strategy
Competitive Reaction
Clarify Q:
How many customers have we lost?
Short term/long term issue?
Goal of business: regain profits? Or regain M/S?
Step 1: Understand Context:
Customers: why are customers leaving client/other players?
Are they unsatisfied with our client? About what? → look at M/S lost vs competitors
What do customers value → do customer survey to ask for reason of switch
Competitor: what’s so special about competitor?
What are their key capabilities? What did they do well?
What is competitors cost structure and financing? → Do they have lower margins? Do they have money to last?
What is their long term strategy?
Company: what constraints do we have?
Supplier/supply chains → can we compete in price?
R&D: can we develop a better product?
Step 2: Evaluate Options:
Retaliate: makes sense if other options are poor and if new entrant movement is structural/one company
Price war/patent war/legal war
Copy: price/channel/product: makes sense only if they have one advantage
Acquire: makes sense if unique, uncopyable advantage (e.g. brand)
Differentiate:
Non-Business Frameworks
Find the contextual categories (segments help see what categories to investigate), then find the main drivers in each category (what parts of the system to pull)
How to find second-order effects:
Find the first layer effects for each actor first
Chain reactions: how each player would react in response to the first layer effects
Companies lower prices → get more orders → customers buy more/competitors lose orders → competitors lower prices = market price rebalance
Pricing Framework
Theme: costs (min); value (max)
Customers:
What is the perceived value of the good?
Market size of the customer segment we are targeting? Are they price sensitive?
Product:
Product differentiation: features and processes + methods
Cost per unit?
Competitors:
What are they pricing at?
Market share?
Do they have competitive advantage?
Company:
Brand impact of pricing? For high value customers
Cannibalization of other products?
Choose pricing strategy based on context:
Competitors based pricing: look at comparable - keep in mind competitors will adjust prices upon entry
Cost based pricing: total costs + profit margin - based on question 1
Value based pricing: segment costs by willingness to pay - survey
Operations Framework
Process improvement case interviews: understand the problem, address the problem
People: are staff to blame?
Management - sapped morale?
Quality of workers
Training of workers
Processes: new operation processes?
New policies to manage work?
Increased safety requirements?
Systems: new technology/supply chain?
Supply chain changed?
Equipment changed? Technology changed?
Raw materials changed?
Exogenous factors:
Weather?
Market forces?
Product Launch/Market Entry Framework: HOW to launch?
D: size, preferences, key competitors
Reduce financials: R levers, C levers
Entry Strat:
Create ourselves?
Partner with someone in market?
Buy company?
Hurdles:
Regulation? distribution/supplier?
Product introduction: timeline to go to market, integration with existing processes
Investment Framework
Market:
Size Growth
Customers: who? Price sensitivity? Key segments?
Profit margin of key players?
Competitors:
Who? Others share? Compared to target share?
Competitive response
Company:
Revenue/cost
Operational improvements
Pricing?
Product compared to others?
Investment: how much?
Payback? Alternatives?
Exit?
