Note To The Reader: Dear Consulting Club Member

Note to the reader
Dear Consulting Club Member,

This casebook is meant to provide you with a brief overview of consulting recruiting and
interview preparation as well as a number of practice cases. Please note that this is
meant to supplement the excellent work done by our and other schools in earlier
casebooks, so we strongly encourage you to not make this your sole reference.
Good luck!
- 2011 Wharton Consulting Casebook Editorial Team

Contents
2
Section Page #
¨  Introduction 3
¨  Interview Preparation 5
¤  Interview Overview – Fit + Case
¤  Sample Frameworks
¨  Practice Cases 26
¤  12 Practice Cases
¨  Links to Other Cases 95
¤  Cases from Firm Websites
¤  Other Case Resources
BIG PICTURE: CONSULTING RECRUITING INVOLVES
LOTS OF LITTLE THINGS… THERE IS NO SILVER BULLET
3
Your objective What resources you will need to use
Gather Info, •  Is consulting what you want to do? •  MBACM industry chats
•  Which firm do you want to join? •  Firm websites / Vault / WetFeet
Network &
•  Why do you want to join a certain •  Coffee chats
Decide firm? •  EISes
•  Connect the dots (pre-MBA to MBA •  Second Years / First Years from firms
to consulting) •  Speakers on campus
•  Get invited to interview (prepare •  MBACM resume review

Apply good resume and cover letter) •  Resumania
•  Second Years (at least 2 reviews)
Interview: •  Demonstrate ‘fit’ •  Prep ‘Fit’ questions thoroughly

-  Leadership •  MBACM mock interviews
Fit -  Team-player •  Interviews with Second Years
-  Well-rounded personality •  Read WSJ, Economist… something
Interview: •  Ace Cases •  Case books & Industry Primer Series!

Cases •  Core courses
•  Practice extensively with First Years
•  MBACM mock interviews
•  Interviews with Second Years
•  Reach out to consulting firm buddies
Contents
4
Section Page #
Contents: Interview preparation
5
¨  A typical consulting interview

¨  General tips
¨  Fit interview preparation with sample questions
¨  Case interview preparation
¤  What is a case? Case types and interview methods
¤  Problem solving – what is it?
¤  Overall flow of a case
¤  Tips to stand out
¤  Common Industry Snapshots
¨  Tips for giving cases
¨  Other resources
¨  Industry snapshots
A typical consulting interview
6
Meet & Greet The Fit The Case Wrap-up
Process
•  Wait in hospitality suite •  Interviewer may •  Interviewer will start case •  Your chance to ask
with other candidates / give personal questions
•  Keep track of time so that
recruiters background
you by when you are •  Walk back to hospitality
•  Interviewer asks for you •  Questions about expected to reach a suite with interviewer
by name resume / conclusion
•  Handshake / greeting experience
•  Walk to interview suite /

small talk
You should
•  Appear warm, •  Convince •  Maintain confident, •  Not ask stock questions
confident, professional interviewer that you controlled, upbeat •  A good chance to get to
are fit for the firm demeanor
learn about the
•  Pass the “airport interviewer’s personal
test” experiences at the firm
General tips
7
¨  Make a great first impression

¤  Professional appearance
¤  Preparation
¨  Have needed supplies
¤  Plenty of pens/pencils
¤  Graph/plain paper
¤  Serviceable portfolio
¨  Project confidence from start to finish
¤  Relax (hard to appear confident if not)
¤  Be yourself (extremely hard to be confident if not)
What is “fit”?
8
¨  Opportunity to project “consultant” during the interview

¤  Inquisitive, logical, confident, friendly, driven, happy
¨  When you describe yourself:
¤  Focus on a set of skills that the company wants
n  Communication
n  Leadership/Management
n  Work under pressure / ability to deal with conflict and ambiguity
¨  When you describe your fit:
¤  Don’t repeat slogans; most firms do the same things
¤  Focus on what the firms consider to be their unique factors (e.g. McKinsey’s
international reach, BCG’s thought leadership, Bain’s office culture etc.)
¨  For in-depth probing on leadership questions (typical of McKinsey)
¤  Prepare a 5-10 word ‘newspaper headline’ that encapsulates the story
¤  Prepare beforehand a 1-2 minute description that quickly lays out the context, the
actors and the complication
¤  Focus on your actions and thought process and the impact of your actions that led to
the solution / eventual success
Tips on the Fit Interview
9
¨  Almost every single interview involves at least some fit-

interview type questions
¨  Applicants have been turned down from the top consulting
firms for not having cleared the fit portions of interviews
¨  Very basic steps go a long way
¤  Smile
¤  Maintain eye contact
¤  Be honest and heartfelt
¤  Have a succinct story
¨  Practice can make perfect
¤  InterviewStream
¤  Mock fit interviews
Tips on the Fit Interview (cont.)
10
¨  Do
¤  Establish common ground (geography, family, interests, sports, etc.)
¤  Ask the interviewer friendly questions
¤  Be confident in your answers
¤  Talk about something other than your qualifications (you’re interesting, so
talk about it)
¨  Don’t
¤  Discuss something controversial
¤  Complain about anything
¤  Make up elaborate questions you know the answer to
¤  Repeat company slogans, mottos, tag-lines, etc.
¤  Focus only on your business qualifications and experience
Sample fit questions
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¨  Take me through your resume

¨  Tell me about a time when you exhibited leadership
¨  Tell me about a time when you had to solve a problem
¨  Tell me about a time when you failed
¨  Tell me about a time you had impact
¨  What kind of leader are you?
¨  Why Firm X?
¨  Why City Y?
¨  Why consulting?
¨  What is your greatest accomplishment?
¨  What would you say your biggest weakness is?
¨  What are your long-term goals?
¨  How do you like school?
¨  What is your favorite class at school?
¨  What did you do last summer?
¨  What do you do for fun?
Case types and case interview methods
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¨  What is a case?

¤  A business issue/problem company is facing in a few sentences
¤  Takes about 25 minutes; has limited data which is usually provided if asked for
¤  Approach to solution is more important than the final solution
¨  There are two common case interview methods:
¤  ‘Go with the flow’ cases (typical of most firms) – You will determine which
areas to explore and lead the discussion, i.e. drive the case
¤  Command and control (typical of McKinsey) – Interviewer guides the discussion
and case has heavy brainstorming components and quantitative work
¨  Common case types* (not a comprehensive list):
¤  Profitability ¤  Industry Analysis (incl. non-profit)
¤  Market Entry ¤  Market Sizing
¤  Acquisition ¤  Capacity Expansion (incl. outsourcing)
¤  Organization ¤  Investments
*Note: one case could span multiple case types

Overall flow of a case
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~3 min. ~1-2 min. ~12-15 min. ~3 min.
Understand Plan your Probe for Assert a

the question approach information conclusion
•  Listen actively •  Mention you will take a •  Follow your plan! •  Drive the case to a
•  Ask clarifying questions minute to plan your •  Ask specific questions conclusion before time
approach expires
•  Take judicious notes to test hypothesis
•  Draw out a framework •  Answer the question
•  Organize notes as slides •  Adjust hypothesis and
as checklist of topics to •  Take a definite stand
plan as data emerges
•  Formulate an initial explore
hypothesis about •  Organize notes as •  Make best conclusion
•  Select 3 to 5 major slides with data on hand
possible solutions topic areas
•  Highlight insights from •  Make recommendations
•  Write down key question •  Identify relevant sub-
any numerical and follow them with
topics calculations supporting evidence
•  Present plan of attack •  Note conclusions •  Address “risks” and
to interviewer – start “next steps”
with the most important
Tips: Communication, Notes & Math
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¨  Communication
¤  Explain your thought-process when presenting your plan
¤  Make hypotheses when asking questions/requesting information
¤  Go beyond verbal communication
n  Be engaging! Enjoy the case problem and work together to solve it!
n  Body language (eye contact, gestures, posture); smile often but do not overdo it
n  Facial expressions (Maintain composure at all times)
¨  Notes
¤  Write legibly, angle it such that the case-giver can see your work
¤  Use a new page for each theme you are exploring
¤  Circle/box insights for use in recommendations
¨  Math
¤  Draw math out clearly (especially for market sizing)
¤  Explain any assumptions (be reasonable with assumptions)
¤  Walk through your logic aloud and tie the result to the case
7 Tips to help you stand out in the case interview
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¨  Ask questions that help clarify the scope of the case and the exact question to be
answered
¨  Draw out as “MECE” (Mutually exclusive, collectively exhaustive) a framework / tree as
possible
¨  Talk about the most important branches first and explain why they may be the key
drivers; don’t just follow the sequence in which you wrote them
¨  When asking questions or for more data, preface them with contextual analysis, or
even a hypothesis as to what you expect the data show
¨  When doing math, relate the numbers qualitatively to the case, and identify/verbalize
the takeaways from your analysis
¨  ‘Brainstorm in buckets’: If asked to brainstorm, take a minute, identify the broad levers
that can answer the question, and run-riot with ideas. Structure and a logical approach
is always appreciated.
¨  When presenting recommendation – take a position! Be concise and top-down in your
recommendation (i.e. recommendation first with supporting arguments, tie in numbers if
possible). Then, mention the risks that invalidate your reasoning
A note about frameworks
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¨  There are an unlimited number of frameworks that can be successfully applied in case
interviews…
¨  …but knowledge of a few solid frameworks will go a long way (profitability, market
entry, go/no go investment, etc.)
¨  Sample frameworks can be found in the following places:
¤  Wharton, Ross, Stern, Tuck, Kellogg, and other school casebooks available on webcafe
¤  David Ohrvall “Crack the Case” and Mark Cosentino “Case in Point”
¤  Your knowledge from management, marketing classes and prior work experience – read the
CORE CONNECTOR published by the Wharton Consulting Club too
¤  Your own logical problem-solving abilities
¨  Cosentino and Ohrvall both offer “systems,” but these systems are essentially
combinations of individual case-type frameworks
¨  Use what(1) You are comfortable with, and, (2) works for you. Be as original as possible:
DEVELOP A FRAMEWORK THAT IS RELEVANT TO THE CASE PROBLEM QUESTION AND
INDUSTRY!
¨  Some sample frameworks are provided in the next few slides. But these are just meant
to get you started – do develop your own frameworks for each case!
Sample framework 1: Increase profits
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•  Client’s earnings / profits (or ‘bottom-line’ in Income Statement) has declined or stopped growing
Overview •  You need to recommend ways to increase profits
Sample
Framework
Market Revenues Costs Customer / Channel

•  Industry •  Product mix •  Client cost structure •  Customer Segment
-  Growth (g) -  Points of Parity / (Fixed / Variable) -  Which segment do
-  Revenues (R) difference our -  PP&E (Property, we serve?
-  Profits (Π) products and Plant & Equipment) -  Are they most
•  Competition competition prod. -  Overhead profitable?
-  C1 market share (s1) •  Pricing (P) -  SG&A •  Channels
-  C2 market share (s2) -  Competitive parity in -  Labour -  Current sales mix?
-  Etc. prices -  Materials -  Are they low-cost
-  Can we ↑ prices? -  IT / Systems channels?
•  Volume (Q) •  Benchmarks -  Do these channels
-  What’s our market -  How do our costs attract high margin
share? stack up vs. others? customers?
-  Enough capacity to •  Supplier power -  Incentive structures /
meet demand? performance
Sample framework 2: Market entry; Investment
and new technology
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•  Client is considering entering a new market. Your goal is to recommend whether or not they should enter it
Overview •  For these types of cases what is common is that the company is considering spending money to get some kind of
economic return. In addition to seeing whether the decision is financially sound, you have to test:
-  Likelihood of implementation success based on industry conditions and firm capabilities
-  Do a risk assessment
Sample
Framework
Strategic Logic Economics of decision Risks / Others

•  Why are they thinking of •  New market conditions •  Execution/entry barriers?
market entry? -  Total Revenues (R) -  Channel access?
-  Growth? -  Total Profits (Π) -  Regulatory barriers?
-  Mature current market? -  Growth (g) -  Does firm have $ to make
-  Response to competitor move? •  Competition in a new market investment?
•  Resources and capabilities -  C1 market share (s1) •  Risks
-  What does the firm have that -  C2 market share (s2) -  Implementation risk
makes them think they can be -  Etc. -  Political risks?
successful? •  Economics -  Currency risk?
§  Brand -  Investment required -  Macroeconomic risk?
§  Patents -  Expected share of revenues
§  Local expertise/partners -  Expected share of profits
-  Profitable? Payback period?
Sample framework 3: M&A deal
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•  Client is considering an M&A transaction

Overview •  Your goal is to recommend whether or not to do the deal
Sample
Framework
Strategic Fit Deal Economics Risk Assessment

•  Basic deal rationale •  Valuation (Know basic •  Has the company done
-  Cost synergy-focus? DCF!) acquisitions before?
-  Revenue-synergy -  Revenue &Costs -  Capability test
-  focus? -  CAPEX & Working Capital •  Organizational cultures
-  Early-stage co. being -  PBT (profit before tax) -  Compatible (high % of
acquired for technology? -  Taxes M&A deals destroy value
-  Response to competitor -  PAT (profit after tax) as cultures are not
move? -  Cost of capital (R) compatible)
•  Type of deal -  Value = (PAT / r) •  Need to manage PMI (Post
-  Vertical integration •  Deal Price merger integration process)
-  Horizontal •  Synergies •  Can investors not diversify
-  New market entry via deal -  Cost and Revenue by themselves
-  Diversification move -  New Firm value
•  New Value > Deal Price
Sample framework 4: Outsourcing
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•  Client is considering outsourcing an operation

Overview •  Your goal is to recommend whether or not to do the outsourcing
•  Do NOT make a recommendation on cost savings alone – explore areas like customer service
impact, premium customer segment impact etc
Sample
Framework
Strategic logic Decision Economics Risks / Others

•  Why are they thinking of •  Current costs (in-house •  Risks
outsourcing? operation) -  Implementation risk? Political risks?
-  Cost savings? •  Outsourced costs -  Currency risk?
-  Market entry into BRIC/other •  Initial investment •  Partner capabilities
markets? required -  Quality of service
-  Early-stage co. being -  Outsourcing consultants -  Lead time
acquired for technology? -  IT/System investments -  Technology
-  Response to competitor •  Net cost savings -  Customer service
move? •  Stakeholder mgmt.
•  Customers affected -  Stakeholders – job loss issues etc.
-  Which segments? -  Manage media & community
-  What are their needs?
IMPORTANT: Sometimes interviews might make a difference between Outsourcing and Off-shoring: former refers to functions that are
done outside firm’s boundaries. Latter refers to outsourced functions done in a distant location such as India or Ireland.
Sample framework 5: Non-profit organizations
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•  Client is a non-profit organization

Overview •  Your goal is to solve the specific problem for the organization
•  Important to display that you understand that non-profits have fundamentally different drivers
beside just the economics of a particular decision
Sample
Framework
Strategic Rationale Deal Economics Other

•  Mission of non-profit •  Planned investment •  Required capabilities
-  Health -  What will it cost? -  Does non-profit have what it
-  Education -  Do we have the money? takes to do this well?
-  Poverty alleviation
-  Etc. •  Returns, if any •  Risks
-  Response to competitor move? -  Will we be getting back -  How will media perceive this
•  Stakeholder opinions and likely money? decision?
reaction -  Will organization make / lose -  Critical to factor in
-  Donors money on this? stakeholder reactions – will
-  “Customers” – those who benefit this alienate donors, volunteers
from the non-profit’s services etc?
-  Volunteers
-  Paid staff
After developing a framework, problem solving
requires smart follow-up questions & insights
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•  Should client enter new market? What is NPV?

•  Should client do M&A? Post-merger integration risk? Ø Wide variety of decisions
Examples businesses face
•  How can client increase profits? Quantify increase.
•  How can client reduce costs? By how much? Ø Where possible, you will be
•  Should client make new investment? What is NPV? guided to quantify
•  How can client increase share? Quantify increase. improvement (i.e. to do
•  How can client grow revenues? Quantify increase. some basic applied math)
•  Should client outsource? Compare/value alternatives.
Some Strategic •  What are industry trends?

analysis •  Info on competitors/market shares?
solution Ø Not all issues/drivers will
•  Strategic rationale underlying decision?
drivers be relevant but list should
let you quickly zone in on
Economic •  What products? Prices? Volume?
key to problem
analysis •  What’s the cost structure?
•  Profit impact for client? Ø  For these drivers, think
about:
•  Which customer segments? a.  Changes over time?
Customers / •  What are customer needs / wants? b.  Compare client with
channels •  What channels? Sales force? competition etc.
•  Any regional/geographic concerns?
Ø This is meant to be a
Catch-all / •  What are the risks? thought starter – not a
Other •  Any regulatory issues? comprehensive list
•  Any organizational behavior issues?
Tips for giving cases
23
One should broadly follow these steps when giving cases to fellow students
Prepare yourself Make it real Step wise approach

ü Read the case thoroughly ü Make the experience as close to ü Introduce the problem statement
real as possible
ü Don’t give a case that you have not ü Allow 3~5 mins for candidate to
ü Be serious during the case even if
studied yourself gather her thoughts
you give the case to your best friend
ü Have any exhibits ready for use ü Be tough – test candidate’s ability ü Answer any questions that
during the case to deal with a negative vibes from candidate may have
interviewer
ü Be ready to take notes ü  Control the time. Do not exceed ü Guide the candidate accordingly if
30-35 minutes for the case portion! she is digressing from key issue
Ask questions Guide only when necessary Provide honest feed back
ü Best way to make cases interesting ü Give out information only when ü Go back to your notes and think of
to provide necessary hints indirectly right question is asked both strengths and weaknesses
- for ex by asking related questions ü Be specific – What was the mistake
ü Idea is to let candidate stretch and what’s the right approach
ü Follow the case flow as provided in herself and get a feel for real ü Be Honest – its in candidate’s best
the original format – It helps in situation interest to make mistake with you
objective assessment and learn from them
Remember that there is no one answer to any case! A candidate can be creative enough to take a new approach towards the problem.
Remember, cases are about problem-solving
abilities, not whether you are an industry expert
24
•  Case interviews span a broad range of industries. You may encounter everything from
Background Financial Services to Mining to Education to Formula 1
•  Those of you who have not worked as consultants before will likely not have any
background in most of these industries
•  This document can give you a very high level view of some ‘typical’ industries that
cases focus on
•  You MUST attend the industry primer series led by partners from various firms as they
will capture key insights and latest trends in those industries that tend to be popular in
cases
•  We believe that having a very basic overview of an industry helps to more

Our belief effectively tackle a case
•  At the very least it helps you construct a framework that is most applicable to that
particular problem context. Examples:
-  Consumer goods: branding is an important driver of success
-  Pharma: generics manufacturers pose a major competitive threat
Important •  Do not attempt to master industry specifics or memorize industry data

Warning! •  You primary objective over the next few weeks/months is to master case-based
problem solving… not to become an industry expert
• Spending a little time informing yourself about the basics of a few key industries should
improve your problem-solving ability. The following pages will help in this endeavor.
Contents
25
Section Page #
List of Practice Cases
26
Case Description Page #

¨  Case 1: New York Yoga Studio 27
¨  Case 2: Case 2: Investment in PTA plant 32
¨  Case 3: Zirgin Atlantic Airlines 35
¨  Case 4: National Zoo 40
¨  Case 5: Electronic Machines Division Turnaround 45
¨  Case 6: Due Diligence on Clothing Retail Specialist 50
¨  Case 7: Snacks Manufacturer Defending Market Share 58
¨  Case 8: Princeton-Plainsboro Hospital 63
¨  Case 9: Eat Co. Profitability / Turnaround 69
¨  Case 10: Beverage Manufacturers 75
¨  Case 11: Wine Supply Chain 81
¨  Case 12: Office Supply Stores 88
Case 1: New York Yoga Studio
Introduction
27
Problem Statement Narrative
A friend is considering purchasing a yoga studio that she is a member of. The yoga studio is located in the upper west side of Manhattan.
The yoga studio is small and has a community-like environment that customers love. Currently, there are 10 teachers each teaching 2-4
classes/week, with a total of 100 classes/month offered by the yoga studio. The current owner has ran the yoga studio for 5 years and
recently, the business suffered a loss. The lease ends at the end of the month, making it an appropriate time for the friend to acquire this
yoga studio. What are the key factors that the friend should be considering?
Overview for Interviewer
This case has two main components. First, evaluate the financial attractiveness of acquiring the yoga studio and second, measuring future
prospects. Some cost and pricing information will be provided to do this.
Case Type: Market Sizing, Profitability

Q1: Key Factors to Consider Framework
28
Yoga
Industry
External
100 Classes
20 people
Competitors
maximum
People /
class
Market % of
Evaluation Capacity
Price /
person /
Revenue
class
Number of
Teachers
Internal Profit
Salary/
teacher
Gave this framework when Cost

Lease
asked what information would
be needed to assess this
business Maintenance
Cost
Question 2a – Breakeven Point
29
Question 2a
The profit has decreased substantially in the past 2 years.
2010 à Profit of $24,000
2011 à Loss of $24,000
If they offered 100 classes/month and charged $10/student, what is the break even point (number of students/
class needed)?
Information to be Provided If Asked
•  Cost has been consistent à Revenue has gone down by $48,000 between 2010 and 2011
•  Total monthly cost is $8,000
•  Currently there are 100 classes
Calculations
•  Loss of revenue means that # of classes decreased or / and # of students per class decreased
•  Breakeven Point: Revenue = Cost
•  Cost = $8,000
•  Revenue = $8000 = 100 classes x $10/student x # of students / class = $1000 x # of students / class
•  # of students / class (Breakeven point) = 8 students / class
Question 2b – Breakeven Point
30
Question 2b
In 2011, they had a loss of $24,000. What was their average enrollment of students per class? By what
percentage does the yoga studio need to increase enrollment by to breakeven?
Calculations
•  Losing $2,000 each month ($24,000 / 12)

•  Revenue is $6,000 per month (-$2,000 = Revenue - $8,000)
•  Revenue = # of students per class x 100 classes à # of students per class = 6 students per class on average
•  Enrollment Increase: (8-6)/(6) = 33% = Need to increase enrollment by 33% per class on average
Conclusion
31
Conclusion
Based on your findings, what would you recommend your friend do?
I would advise my friend NOT to acquire this business, especially if she is looking for short-term profit. Just to breakeven
with the variable costs, enrollment needs to increase by 33%. In order to make a profit, the number of students needs to
increase by more than 33%, which is difficult in a short time span and in a small community where many yoga studios
already exist. There may also be high switching costs if people have already purchased annual yoga passes. The friend
would also need to invest a large amount of money initially to purchase the business from the current owner (fixed cost),
making it even more unlikely that the friend will be able to earn money from entering this deal.
Case 2: Investment in PTA plant
Introduction
32
Our client is a large producer of PET. PET is a type of plastic that is used mainly for producing bottles, such as the ones
you find in grocery stores. The main component of PET is PTA. Our client has a PET plant in the US and serves clients
both in the US and Europe. They have made the decision to build a PET plant in Europe to be closer to the clients. They
have asked you to evaluate whether they should also backward integrate and purchase a PTA plant and locate both plants
next to each other.
This is a relatively difficult case to structure. Leave it up to the interviewee to structure as he/she wishes and give him/her
information as requested. If the interviewee gets stuck, feel free to direct them towards what needs to be evaluated.
Information to be Given throughout the Case
Plant stand-alone evaluation Synergies evaluation

Cost of purchasing PTA plant of $750MM Overhead savings of $20MM per year
No taxes Logistics savings of $20 / metric ton
Plant producing at capacity (capacity of 1million metric tons per year)
Current price of $920 / metric ton
Market Assessment
Plant cost of $800 MM which stays for 50 years
Prices declining, expected to reach
Raw Material cost of $690 / metric ton
Energy cost of $30 / metric ton $800 / metric ton in 3 years
Overhead and logistics cost of $80MM per year
Case 2: Investment in PTA plant (cont’d)
Analysis
33
Potential Approach to Solving the Case
Evaluate the:
a)  Plant on a stand-alone basis
b)  Synergies achieved from backward integration
c)  Market evaluation and risks
a) Plant on a Stand-alone Basis
Things to consider:
-  Capacity
-  Revenue
-  Fixed costs (plant)
-  Variable costs (Raw materials, energy, overhead and logistics)
Calculations:
Plant producing at capacity of 1million metric ton
PTA price of $920 / metric ton
Plant cost of $800MM, which can be used for 50 years => Assuming straight line depreciation of $16MM / year
Raw Material cost of $690 / metric ton
Energy cost of $30 / metric ton
Overhead and logistics cost of $80MM => At capacity $80 / metric ton
=> Marginal profit of $120 / metric ton
Annual profit of $120*1 million - $16MM = $104MM (stand-alone)
Case 2: Investment in PTA plant (cont’d)
Analysis (cont’d) and Recommendation
34
b) Synergies Achieved from Backward integration
Overhead savings of $20MM by co-locating the plants next to each other

Logistics savings of $20 / metric ton => At capacity saving of $20MM
Total synergies achieved = $20MM + $20MM = $40MM
=> Annual profit of plant (after co-locating) is $104MM + $40MM = $144MM
c) Market Evaluation and Risks
Main risk being prices declining due to: Other benefits from purchasing PTA plant:
- Imports from cheaper manufacturing countries (e.g., China) - Guaranteed supply (however PTA is a
-  Decline in demand due to increased recycling of plastic bottles commodity and there is no real impact)
-  Decline in demand due to increased ‘green’ movement in Europe
-  Decline in demand due to innovation in product design (bottles requiring less plastic)
In an outside assessment, it is expected that prices will be approx. $800 / metric ton in 3 years
=> Annual profit = $144MM – ($920 - $800)*1 million = $24MM
It seems that the decreasing demand and increasing competition will be driving down
prices.
Recommendation The expected annual profit of the plant will be $24MM, out of which $40MM of
synergies from cost savings.
Given that the cost of the plant is $750MM, it seems like a very high price to pay.
Case 3: Zirgin Atlantic Airlines
Introduction
35

The CEO of Zirgin Atlantic Airlines, Richard Branford, is considering starting a new direct airline route from London to Montreal. Zirgin currently runs
flights in and out of both cities (as well as other cities globally) but not directly between the two cities. The company is currently at maximum capacity
on their existing jets so any new route would require the use of a brand new airplane.
Zirgin Atlantic operates a flat pricing structure for its customers and would like to charge all passengers $500 for a round trip flight on this route ($250
for a one-way ticket). Luckily, Zirgin Atlantic’s strategy group has already conducted preliminary research and has discovered that in this current
environment, this pricing could likely draw an average of 200 round trip passengers every day for the company.
Branford has approached us to recommend whether or not to open this new route for the company. If we do decide to go forward with the route, he
only wants to use one incremental airplane in order to avoid being over capitalized.
Zirgin Atlantic operates flights around the world and this new route would be a small addition to its global network. In addition, Zirgin Atlantic is a
subsidiary of Zirgin, a global conglomerate that also operates in the media and entertainment industry. However, Branford has wanted to provide
direct transportation to London for business people in Canada for some time. As a benchmark, the company targets a 6 year payback period on its
investments.
Overview for Interviewer Information to be Provided Up Front

This case has three main components. First is the stand-alone economics of opening The problem statement gives some initial information.
up this new airline route by purchasing a new plane. The interviewee will be asked to The rest of the information should be given as the
calculate a payback period and compare this to the company’s target payback period. interviewee works through the problem. The actual
numbers should make for fairly straightforward
Second, the interviewee will be asked to consider an alternative financing scenario calculations. The data assumes that prices, demand,
where a plane is leased instead of purchased. He/she will evaluate the economics of and costs stay the same year after year so no need to
this scenario and to provide thinking on the benefits/drawbacks to leasing versus consider growth or inflation. All the costs are also
buying. bundled into a generic variable / fixed split to make
calculations easier.
The third component is qualitative and asks the interviewee to consider upside
catalysts and downside risks of opening the new airline route.
Introduction
36
Part 1: If Zirgin decides to purchase one new plane to be used exclusively for the new route, does this investment meet
Zirgin Atlantic’s corporate investment criteria? Assume that demand, pricing, and costs stay the same year after year, and
that a new plane has a useful life of 25 years.
Revenue Questions / Answers

Information to provide: Optional mini-questions:
Daily passengers = 200 round trip passengers (or 300 one-way) 1.  Why would the days operational per year be
Avg ticket price = $500 for round trip (or $250 for one-way) 300 days instead of 365? It is impossible for
Days operational / year = 300(1) planes to be utilized all the time due to
controllable factors (scheduled maintenance)
Calculation: and uncontrollable factors (weather).
Daily revenue = Daily passengers * Average ticket price = 200 x $500 = $100,000 2.  What are some examples of variable costs for
Annual revenue = Daily revenue * days operational/year = $100,000 x 300 = $30M this case? Fuel, on-board labor, food/drinks
3.  What are some examples of fixed costs for this
Expensed Costs case? Gate fees, terminal labor, insurance
Information to provide: Main question:

Average variable costs(2) = $40,000 for a round trip flight Does the investment meet Zirgin’s corporate
Fixed costs (excluding price of plane)(3) = $3M / year investment criteria? Yes, on a standalone economic
basis, purchasing a new plane should generate a 5
Calculation: year payback period assuming no growth/decline in
Annual variable costs = Cost / round trip * Days operational = $40,000 x 300 = $12M demand or in pricing. This is below the company’s
Total annual costs = variable costs + fixed costs = $12M + $3M = $15M target of a 6 year payback. The useful life factors
into this analysis because, in order for the service to
continue, the company will have to buy a new plane
Payback Period in 25 years. However, since this useful life is fairly
long, the route will payback the initial investment 5x
Information to provide:
before a new plane is required.
Cost of purchasing a new plane (capital investment) = $75
Calculation:
Payback period = Capital investment / Annual profit = $75M / $15M = 5 years
Introduction
37
Part 2: Richard Branford comes back and tells you that instead of buying a new plane, the company can also lease a plane
$12M a year, renewable at the same cost year after year in perpetuity. Do you think the company should pursue this new
route with this lease? Assume that demand, pricing, and costs stay the same year after year.
Annual Profit
Information to provide:
Annual cost to lease a plane = $10M
Calculation:
Annual profit = Annual profit excluding lease costs – annual lease costs = $15M - $10M = $5M
Questions / Answers
1.  Is leasing a new plane economically profitable for Zirgin Atlantic? Yes. If Zirgin decides to lease a plane, then they will generate a profit of
$5M a year without having to buy a new plane.
2.  What are the financial and risk implications of buying a new plane versus leasing a plane? If Zirgin buys a plane, the company needs to
invest $75M in order to generate $15M a year, or $375M total over the 25 year useful life of the plane. On the other hand, if the company leases
a plane instead, then the company generates $5M a year without the heavy initial investment. Just looking at pure numbers, the company will
generate a lot more overall profit in a long period of time by buying a new plane. However, buying a plane also encompasses more risks. First,
the purchase of a new plane increases the PP&E/asset base of the company, which some investors may be wary about. Second, if the company
buys a plane and the route ends up being unsustainable, then the company needs to resell the plane or use it for another route. Leasing a plane
presents a much more attractive exit option. Third, buying a plane requires significant initial capital and depending on the financial strength of the
company, Zirgin may want to conserve this capital for other means. This capital can also be used for other projects that may generate even
better returns.
Introduction
38
Part 3: It seems like based on your analysis and the assumptions used thus far, it is financially attractive to open up this new
route. Aside from the pure economics of the route, what are some other potential upsides and risks to the plan?
Potential Upside (among others) Potential Risks (among others)

1.  Increase exposure / marketing: Even if the route was not 1.  Cannibalization: The case mentioned that Zirgin already operates
financially attractive on a standalone basis, opening up a new direct flights in and out of Montreal and London. Opening a direct route
route between cities could generate exposure for the Zirgin brand, between the two cities may cannibalize customers that already
especially because of Branford’s desire to increase the company’s make a similar trip (with stops or between nearby cities)
presence in Canada.
2.  Competition: Entering this new route invites competition from other
2.  Synergies with other routes: The new route may provide both airlines, especially among those with similar routes
revenue and cost synergies when combined with existing
operations. On the revenue side, a new direct route could mean 3.  General airline industry risks: There are inherent risks in the
new alternatives for transferring passengers (which could mean airline industry including high sensitivity to consumer spending
additional demand for other routes). On the cost side, the new route levels, large fluctuations in energy costs, administrative risks
can share administrative and labor costs with existing operations. associated with doing business on a multinational level, etc
Introduction
39
Part 4: You run into Richard Branford in the elevator as he is on his way to a meeting. He knows that you haven’t completely
finished your analysis yet but he wants a quick 30 second update on what your recommendation is.
Recommendation
The new proposed route seems attractive for Zirgin Atlantic. The economics appear most
favorable if the company buys a new plane, but depending on the capital situation and risk
tolerance of the company, the rental option is also financially viable. We should of course
view this in relation to other opportunities that the company is investing. There are also
risks to consider including how the new route will impact competition and existing Zirgin
operations. However, given the good economic implications of this opportunity, my
recommendation is to pursue the new route.
Case 4: National zoo
Introduction
40
1
The national zoo hires you to decide whether they should buy a panda. The client is looking to increase their revenues and profits.
Overview for Interviewer Information to be Provided If Asked

The candidate should treat the case as an investment: explain how the revenues Visitors per year: 600,000 (50% children)
could increase and write down the cost structure of acquiring a panda.
Ticket price:
Provide information when asked. • Adults: $15
• Children: $10
Bonus:
• Compare the zoo to other entertainment options Panda costs:
• Look for other sources of revenue, related or not with the acquisition of the • Acquisition: $890,000
panda
• Transportation: $335,000
• Financial risks, and how to finance the investment
• Maintenance: $300,000/annual
• Enclosure: $1.475M
• Panda Consultant: $200,000
After buying a panda, the San Diego zoo increase

their number of visitor by 12% (and maintained this
number from then)
Acquisition of 1Panda
2
Math (1 Panda) Overview for Interviewer

Adults Children Ini:al Investment (2,700,000) The candidate should estimate the
Tickets 300,000 300,000 Acquisi<on (890,000) incremental revenues if a Panda is
Transporta<on (335,000) acquired.
+ 12% 336,000 336,000
Incremental 36,000 36,000 Enclosure (1,475,000)
Cost per <cket 15 10 Then calculate the initial investment (the
Incremental revenues $ 540,000 $ 360,000 cost of the consultant should be
considered as a sunk cost, since the zoo is
paying you prior and regardless the final
t0 t1 => future decision).
Incremental revenues $ 900,000
Ini<al Investment $ (2,700,000) The cost of maintenance is annual.
$ (300,000)
CF $ (2,700,000) $ 600,000
Assume the panda will live 100 years,
NPV = -‐$2.7M + ($0.6M/.20)
perpetuity can be used.
NPV (1 panda) $ 300,000
Partial Conclusion & Next Question (Would it be a good investment to buy 2 pandas?)
Since the NPV is positive, it seems to be a good investment.
If it is a good investment, what if the zoo decides to buy a second panda? Would it be a good idea?
And what else could happen if they buy 2 pandas? (Imagine they can procreate and there is a 90% chance the zoo could sell the baby
panda next year)… Would it be a good investment to buy 2 pandas?
Acquisition of 2nd Panda – 2nd Panda bought at the same time as 1st
3
Overview for Interviewer Math (Acquisition of 2nd Panda)

Provide information when asked. The Ini:al Investment (2,700,000)
Adults Children
candidate should not automatically Acquisi<on (890,000)
Tickets 300,000 300,000
assume all the figures used in acquiring Transporta<on (335,000)
Incremental (10%) 30,000 30,000
the 1st panda will apply in acquiring the Enclosure (1,475,000)
2nd panda. Cost per <cket $15 $10
Incremental revenues $ 450,000 $ 300,000
Two possible solutions – 2nd panda bought

with the 1st panda at the same time, or
the 2nd panda is bought after the 1st
t0 t1 => future
A second panda will drive an additional Ini<al Investment $ (2,700,000)
10% increase in attendance (tickets). $ (300,000)
CF $ (2,700,000) $ 450,000
The zoo will incur in the same amount of NPV = -‐$2.7M + ($0.45M/.20)
cost to acquire a second panda. NPV (panda 2) $ (450,000 )
They would sell the baby panda at Sale of baby panda = -‐$0.89M * (90%)
market price ($890,000). Sale of baby panda $801,000
NPV (baby panda) = 0.801/1.20
NPV (baby panda) $ 667,500
There’s a 90% probability that the NPV (panda2+baby panda) = -‐$2.7M + ($0.45M/.20) + (0.801/1.20)
pandas procreate and the zoo can sell NPV (panda2+baby panda) $ 217,500
the baby panda.
Acquisition of 2nd Panda – 2nd Panda bought after the 1st
3
Overview for Interviewer Math (Acquisition of 2nd Panda)

Provide information when asked. The Ini:al Investment (2,700,000)
Adults Children
candidate should not automatically Acquisi<on (890,000)
Tickets 336,000 336,000
assume all the figures used in acquiring Transporta<on (335,000)
Incremental (10%) 33,600 33,600
the 1st panda will apply in acquiring the Enclosure (1,475,000)
2nd panda. Cost per <cket $15 $10
Incremental revenues $ 504,000 $ 336,000
Two possible solutions – 2nd panda bought

with the 1st panda at the same time, or
the 2nd panda is bought after the 1st
t0 t1 => future
A second panda will drive an additional Ini<al Investment $ (2,700,000)
10% increase in attendance (tickets). $ (300,000)
CF $ (2,700,000) $ 540,000
The zoo will incur in the same amount of NPV = -‐$2.7M + ($0.54M/.20)
cost to acquire a second panda. NPV (panda 2) $ 0
They would sell the baby panda at Sale of baby panda = -‐$0.89M * (90%)
market price ($890,000). Sale of baby panda $801,000
NPV (baby panda) = 0.801/1.20
NPV (baby panda) $ 667,500
There’s a 90% probability that the NPV (panda2+baby panda) = -‐$2.7M + ($0.54M/.20) + (0.801/1.20)
pandas procreate and the zoo can sell NPV (panda2+baby panda) $ 667,500
the baby panda.
Conclusions
4
Question Should the National Zoo acquire a Panda?
Acquire 2 pandas:
•  NPV (Panda1) = $0.3M
Recommendation •  NPV (Panda2) = $(0.45) or $0M
•  NPV (Baby Panda) = $0.67M
NPV Total = $517, 500 or $967,500
• Not procreating
• Life expectancy: biggest risk, significant value of the PV is driven by the assumption of
Risks perpetuity
• Concurrency (other zoos’ actions)
• Not reaching target of incremental revenues (amount of tickets)
The current analyses are based on one single factor, increased visitors, in generating value. The
zoo should also explore other revenue sources to the acquisition of panda to mitigate the risk.
• Increase revenues through merchandise related to pandas
• Increase the price of tickets (price sensitivity analysis)
Next Steps • 2-part tariff (to see the pandas)
• Memberships
• Rent the pandas
• Why a panda?
Case 5: Electronic Machines Division Turnaround
Introduction
45
Our client is a $500M machine manufacturing company with 5 business units in the U.S. He hired us to work with the Electronic Machines
division, which is a $25M business and 5% EBITA.
He envisioned to grow the division to a $100M business and 20% EBITA. This machines are used to manipulate steel in different industries
(not relevant which industries) and are about the size of a PC.
The client wants to know whether this goal is possible or what he should do with this business unit.
How would you approach this question and what would you recommend him?
Information to be Provided Up Front

The information provided in the statement is all the candidate receives at this point. Once the candidate asks the right questions,
information should be given (see next page).
The candidate should :
•  Understand the problem and what 5% EBITA means
•  Explore the industry (introduction of new technology), competitors (2 big players), and sales channel (distribution)
Focus next on how to increase revenues, then how to improve profitability (reducing costs)
Revenue stream
46
Overview for Interviewer What could the client do to transform a $25M

(Information to be provided If asked) business to a $100M one?
About the industry: The candidate should have understood the

•  The electronic machine is a $1B industry, stable (not growing, not shrinking) competitive landscape , that the company is
•  Our client is the #3 out of 10 players (the candidate should infer there are 2 main “new” in the industry and is not leader in the
competitors) market.
•  The 2 biggest competitor have 40-42% market share each one
•  All companies offer products with same quality, same service, same warranty, etc. Type of Market Client
machines ($1B) ($25M)
(there’s no point of differentiation)
•  The machines are sold through distributors (regional, local…size of distributors is not Old 90% 40%
relevant) technology (900M) (10M)
•  Distributors only carry 2 brands each, they won’t carry more because they need to New 10% 60%
keep inventories of spare parts, etc. technology (100M) (15M)
•  Sales of the machines represent only 5% of their revenues. Distributors make money The company must sell through distributors, and
by selling consumables. does not have power of negotiation with
About the products: distributors. The top 2 competitors have most of
•  There are 2 types of machines: old technology (it has been in the market for 40 the old technology market.
years) and new technology (10 years) In order to increase its revenues, it needs to
•  90% of the market is old technology. Despite the benefits of the new technology, convince distributors to carry its products.
customers are not willing to pay the price
It needs to disrupt the market and create
•  Prices: old technology sold at $1,800 and new technology sold at $2,800 demand of the new technology machines. It
About the company: could lower the price to make it more attractive
•  They entered the market 10 years ago, by inventing the new technology. Hence, to customers and distributors.
60% of their revenues comes from the new technology machines sales. BUT, how much it could lower the price and
•  Other business units are more profitable maintain/increase profitability?.
Cost stream
47
If the company decides to sell the new technology machines at Information to be provided If asked
the same price that the old ones. What could they do?
(Remember that the client want to improve the business) •  Materials: 60% of COGS
•  Labor : 15% of COGS
•  Fixed costs:15% of sales
The candidate should ask what is the current cost, and write down This is all the information needed (remember EBITA)
a cost structure. a) Materials:
• China: 50% (vs. current cost)
By how much do they need to reduce costs? • Mexico: 50%
The candidate should explore options to improve costs. However • Malaysia: 60%
since the client would need to reduce costs almost by 45% (from
$2,660 to $1,440= $1,220), the candidate should come with the b) Labor :
idea of outsourcing production or moving it to another country. • China: $2/hr
• Mexico: $4/hr
Where could they produce (which countries)?... Mexico, China and • Malaysia: $2/hr
Malaysia. Provide information upon request (see math in next • US: $15/hr
page).
c) Fixed costs: same
The company should move the operation to Malaysia. d) Other costs? Distribution
The candidate should mention risks, such as impact on quality, • China: $50/machine
learning curve, culture, leading with government, response of • Mexico: $20/machine
competitors; and opportunities, such as entering new markets.
• Malaysia: $50/machine
Math
48
By how much do they need to reduce costs? Where should they produce?
Current Situation Proposal US China Mexico Malasya

Price $ 2,800 $ 1,800 Price $ 2,800 $ 1,800 $ 1,800 $ 1,800
$ 2,240 Variable Cost $ 2,240 $ 993 $ 1,066 $ 892
Total COGS $ 1,170
Materials savings 50% 50% 70%
Materials 60% $ 1,344 Materials $ 1,344 $ 672 $ 672 $ 403
Labor 15% $ 336 Cost per hour $ 15 $ 2 $ 4 $ 2
Overhead 25% $ 560 Labor $ 336 $ 45 $ 90 $ 45

Overhead savings 60% 50% 30%
Fixed costs 15% $ 420 $ 270
Overhead $ 560 $ 224 $ 280 $ 392
EBITA 5% $140 20% $ 360 Distribution $ - $ 50 $ 20 $ 50
Fixed costs $ 420 $ 270 $ 270 $ 270
TOTAL COST $ 2,660 $ 1,440 TOTAL COST $ 2,660 $ 1,263 $ 1,336 $ 1,162
EBITA $ 140 $ 537 $ 464 $ 638
Conclusions
49
What would it be your overall recommendation to the client?

To move the production from the U.S. to Malaysia, to reduce costs and improve EBITA to 20%.
Negotiate with distributors, offer regional exclusivities. And once the operation is stable (quality, distribution, etc), the company can
decrease the price (or run promotions) to drive demand from the old technology to the new technology in the US, as the current obstacle
on replacing old technology is primarily due to pricing.
At the new price, they could sell the new machines in Asia, under a different brand, and generate extra revenues.
Risks: Competitors can lower price as well.
Case 6: Due Diligence on Clothing Retail Specialist
Introduction
50

A PE fund is thinking about acquiring a clothes retail specialist, leader on the French market. The French clothing retail market is
composed of 2 segments:
•  Urban: trendy, high quality, quite expensive
•  Suburban: mass market, lower quality, low prices

We only have a few data on the target: total annual sales $800m, 800 stores, 4 brands on both the urban and suburban markets.

The PE fund hired us to help them do the due diligence of the firm, in order to assess if it’s worth bidding for it or not.
This is similar to a strategy case, in which you have to assess the market opportunities, competition, and the companies competitive
advantage.
In a real due diligence project in consulting firm, the project team will develop framework and identify key areas to assess, and then ask
questions to the target. Therefore, an ideal candidate in this case interview should be able to come up with a framework that is
appropriate to assess a clothing retail company, and be able to ask relevant questions in each aspect.
The format of this interview is largely driven by the interviewer. However, an ideal candidate should be able to drive insights and
implication on each question asked by the interviewer, and used those to form a view and the conclusion
Framework
51
Step 1: Develop an overall framework to assess the target

Market:
•  Size & growth (volume and price)
•  Trends
•  Market segments characteristics
•  Drivers of this market
o  Buyer & supplier powers
o  New entrants & substitutes
o  Competition
–  Market shares & their evolution
–  Market fragmented or not?
•  Distribution channel
•  Regulations
Company standalone:
•  Business and revenue models (how do they generate cash?)
•  Competitive advantage?
•  Specific asset, knowledge, resources, capabilities?
•  Key financials & cost structure
•  Management
Deal itself:
•  Synergies with PE portfolio
•  Risks (implementation, regulation-trust, environment, etc.)
Case6: Due Diligence on Clothing Retail Specialist
52
Step 2: Interviewers will probe questions according to the framework developed
Market:
•  The market is flat in value over the last 5 years (~$25Bn) but volumes have been growing over the same period (~2% per year).
What could explain this?
o  According to market value = volume x price, the only reason that can explain this situation is a decrease in price offsets the
increase in volume
•  What could be the drivers of the decrease in prices?

o  Candidate should explore different reasons based on what might be relevant, combining and distilling from various 4Cs, 5Cs,
4Ps concept. Here, customers, competitions and supply chain are most likely to explain cost drivers
o  Change in demand: consumers asking for lower prices; customers are buying more clothes in each season and look for cheaper
options
o  Development of new types of players: H&M and Zara with trendy but low price products
o  Decrease in supply cost, such as outsourcing to lower cost countries such as China, Vietnam, Cambodia, Philippines, etc.
53
Step 2: Interviewers will probe questions according to the framework developed
Company:
•  Cost structure: which type of indicators could you use to assess the profitability of a retail store? Especially if you want to benchmark
stores from the same brand.
o  An ideal candidate should have basic understanding that retail is driven by floor space
o  Indicators: sales / sq feet, (or sales / employee)
•  For one given brand, we have: 15 suburban stores: average size = 1500 sq ft and average profitability (sales / sq ft) = $1,500 per
sq ft, 20 urban stores: average size = 800 sq ft and average profitability = $2,800 per sq ft. What is the total annual sales of this
brand?
o  Basic quant question.
o  Suburban: 1500*1,500*15 = $33.75m
o  Urban: 800*2,800*20 = $44.8m
o  Total = $78.55m
•  If I tell you that the sum of the sizes of the stores (both urban and suburban) is 40,000 sqft, what would be the profitability margin (in
sales/sqft) of the brand?
o  Total sales / total size = $78.55m / 40,000 sqft = ~$2,000 / sqft
o  Basic quant question following the previous question. An ideal candidate should cross-check this result with data given: answer
should be in the range between $1,500/sqft and $2,800/sqft based on the data given in previous question
54
Step 2: Interviewers will probe questions according to the framework developed (con’t)
Company:
•  We’d like to speak about a concept which is very common in the retail industry. To do so, let’s look now at the target’s investment plan:
•  Year 1 – it opened its first store and gross margin was 10%
•  Year 2 – same store but gross margin increased to 25%
•  Year 3 – same store but gross margin remained flat to 25%. Manager decides to open new stores from now on
•  Year 4 – 1 additional store: total gross margin = ~18%
•  Year 5 – 3 additional stores: total gross margin = ~17%
•  Year 6 – 10 additional stores: total gross margin = ~16%
•  Overall gross margin kept decreasing over those years and the PE fund is worried about that. Is the fund right to worry about it?
Why/why not?
o  Ideal candidate should distinguish the difference between individual store gross margin and total gross margin, the concept of
“average”
o  Candidate should also ask for additional questions and draw curves to visualize the situation. For example, ask evolution of
sales for 1 store, then evolution of costs; could also ask what happened in year 1, 2, 3, etc.
o  Hints from interviewer would be given when candidate probe the right question: 1) all stores are similar, 2) no cannibalization
or coordination diminishing returns, and 3) mainly fixed costs
o  Key concept: the ramp-up concept in retail industry. One given store reaches its full potential only after a 2 year ramp-up
period. The total gross margin will depend on the mix of new stores and matured stores.
–  The gross margin of a new store is 10% after 1 year, 25% after 2 years and remains flat afterwards
–  In year 4, two stores – one new and one matured, the average gross margin = 10%+25% / 2 = ~18%
o  The fund should “de-average” the total gross margin and look at the margin evolution of the same stores, i.e. the SS (same
store) margin. If the SS margin of a matured store decreases when new store is opened, the fund should be worried as the
market might be saturated. However , if the total gross margin is due to the store mix, then the fund should not worry about it.
55
Step 2: Interviewers will probe questions according to the framework developed (con’t)
Company:
•  Based on your answer, if there were 3 additional stores and 2 stores in year 7 and 8 respectively, what was the evolution of the
overall gross margin?
o  The total gross margin should increase as the expansion slowed down and more existing stores would reach their mature state.
The overall impact of new stores on total gross margin would decrease.
o  è An ideal candidate should be able to draw on this question to identify the conclusion and implication. Candidate should
state that if the target’s total gross margin increased after year 7 and 8, then the fund should not worry as the decrease in
total gross margin in previous years were due to rapid expansion.
Recommendation
56
Can you summarize what we did together in 1 min?

An ideal candidate should be able to summarize the key facts during the discussion and draw implication.
•  Despite the total market value is flat but business volume is increasing. The decrease in price may drive the less competitive
players out of the market.
•  During this period, the target seems to have maintained a healthy margin and the interim drop in margin was due to the rapid
expansion. It also seems that there are still rooms for further expansion until the market becomes saturated.
•  In order to make a more informed decision on the investment, we might need to look into how other competitors are playing in
the market, the supply chain management to maintain cost competitive. However, with information we have now, there is no
significant risk observed yet and hence should still be a “go” before assessing other aspects.
Case 7: Snacks Manufacturer Defending Market
Share Introduction
57

Our client is PLD, a global manufacturer of snack foods and beverages. PLD has been a market leader in China’s potato chips (PC)
market for over two decades now but is facing increasing local competition. Most notably this year, the company’s volume share in South
China region declined from 60% to 20%, and the company hired us to find out why and how to react.
This is a competitive strategy case.
For the first part, the interviewer should diagnose the root cause of share loss by understanding changes in both market size and the
client’s volume (Vol. Share = Vol. / Market Size) in South China region. After realizing that the share loss is primarily driven by Market
Size increase due to a disruptive innovation brought by a new local competitor, the interviewer should guide the discussion on whether this
is a real competitive threat – given the client’s volume had been relatively stable and their user base intact.
For the second part, interviewer should guide creative thoughts on innovation, supply chain management and sales/marketing strategies
to react to the situation. This is the fun part and the interviewee can recommend several strategic choices in both short term and long term.
Case Type: Competitive strategy case / innovation
Case Style: Guided in part 1, open end in part 2

Share Introduction
58

(Information to be provided If asked)
Products
•  Consumers see current potato chips products as commodities, so average price is similar across competition. Currently all potato chips
are fried but PLD is considering to introduce baked products which use minimal or no oil in production.
Consumer
•  There’re primarily two groups of consumers in the PC market – the Fun Seekers who prefer current fried products for crispy mouth
feel and the LOHAS group who strongly demand baked products with less or no oil. Fun Seekers make 80% of total market
consumption but more people are switching to the LOHAS group.
•  Assume no seasonality in consumption.

Market Size and Competition
•  Last year, PLD recorded 500,000 tons of sales in national PC market with 40% share, followed by WWT (10%) and DLT (5%)
•  South China Region accounts for 10% of overall PC market. Last year PLD sold 120,000 Tons of PC in this region with 60% market
share. Rest of the market goes to WWT (20%) and DLT (20%).

South China Volume National Volume
PLD 60% 120,000 40% 800,000
WWT 20% 40,000 10% 200,000
DLT 20% 40,000 5% 100,000
Total 200,000 2,000,000
Share Introduction
59
Step 1: Diagnose the change in volume share (60%->20%) in South China:
Volume share = Volume / Market Size (Discussion Volume share = Volume / Market Size (Discussion based on South Volume share =
Volume / Market Size (Discussion based on South China region)
a)  What’s our volume this year? It’s 100,000 Tons till end of Sep.
•  Interviewee should realize this is about 10% volume growth, as last year 90,000 Tons (12,000 * 9/12) was sold by end of Sep,
assuming no seasonality.
•  The interviewee should also realize market size grew dramatically (100,000/ 20% = 500,000 Tons by Sep, versus 200,000 Tons
full year last year)
•  Interviewee should then understand the market share loss was not caused by volume decline, but by a jump in market size.
b) How were competitors doing? WWT and DLT volumes are also growing at 10%
•  Interviewee should realize WWT and DLT were growing at the same rate as us so were not driving market growth; it must be that
new competitors entered the market.
•  Most importantly, the new competitors now command a majority market share. (volume by PLD+WWT+DLT = 200,000 *( 1+ 10%)
= 220,000 tons, which is less than half of the nowadays market of 500,000 tons)
Share Introduction
60
Step 2: Understand what are the new competitors doing and the implication to PLD:
Discussion based on South China Region.
a)  Could you tell me about the new competitors?
•  There was only one new competitor, XCD which entered the market in the middle of this year
•  This competitor was doing exceptionally well. An excellent candidate would quantify XCD’s performance by looking at its monthly
sales – XCD was in the market for only 3 months (now is Sep) but generated 280,000 tons of sales! It means XCD’s monthly volume
was more than 8 times of ours (280,000 / 3 = 93,000 tons, for us it’s 100,000/ 9 =11,000 tons)
b)  Why this competitor is doing so well?
•  Explore 4P: Product, Price, Place and Promotion (in a less rigid way).
•  The interviewer will hint that the key is product – they introduced a baked product
•  Interviewee should realize it was the LOHAS group who was buying the newly launched baked product.
c)  What do we know about LOHAS group in South China? LOHAS group was only 20% of the market volume but now more than half.
Frequency of eating potato chips has not changed for either of the two groups.
•  Interviewee should start thinking where the new LOHAS consumers came from.
•  Apparently most of them were NOT “switchers” coming from the Fun Seeker group, considering LOHAS is now bigger than Fun
Seekers despite Fun Seeker groups were actually growing (volume growing with frequency stable).
•  An excellent candidate would reason that the majority of LOHAS consumers this year were previous non-users of potato chips.
Reasons could be that these people concerned about oil in the fried product. They are now coming into the category to buy XCD’s
baked product which is not oily.
Share Introduction
61
What would it be your overall recommendation to the client?

a)  Is this a real threat?
•  A good candidate should consider both short term and long term.
•  In the short term, XCD seems to be growing on its own without stealing users from us, and they are only selling in a small regional
market (South China only 10% of national volume).
•  But in the long term, giving the LOHAS trend and XCD’s huge success in South China, XCD is likely to go nationally. In fact, South China
was only a test market for them.
b)  How should we react?
•  In short term, focus on protecting our business in South China and other regions by increasing marketing investment, do promotions or
introducing new flavor to excite the Fun Seekers group.
•  In long term, come up with our own baked product or consider buying the new competitor.
Case 8: Princeton-Plainsboro Hospital
Introduction
62
Princeton-Plainsboro Hospital is a large New Jersey single-site hospital serving a wide range of patients. The
hospital's board is concerned because they have noticed a decline in the hospital's earnings from medical services
even though the number of patients have remained static. The hospital has hired you to help them figure out what the
problem is and come up with a strategy for increasing earnings.
Overview for Interviewer Information to be Provided Upfront
This case has two main components. First, investigate No specific information is needed upfront except to
the decline in earnings for the hospital, then use that as note that the hospital is large and serves a very wide
a basis to develop a new corporate strategy. The range of patients.
investigation of earnings will be more structured with
defined information and calculations to be completed. Please also hand candidate the exhibit entitled
However, the strategy development is open-ended and “Average reimbursement per patient at Princeton-
gives the interviewee the opportunity to be creative. Plainsboro."
Discussion Points
63
Key Discussion Points

1. Industry overview
•  The discussion begins with some overview of the hospital industry, particularly where a hospital’s earnings come from.
•  Answer any questions related to the industry either with specific information from the following discussion points, from personal
knowledge, or just state that they are irrelevant to the case but assumptions can be made.
•  Health reform is a good discussion to have, but unnecessary for the case.
2. Earnings Calculation
•  Provide information as requested by the interviewee.
•  Have the candidate speculate on sources of revenue for the hospital.
•  Have the candidate speculate on sources of costs for the hospital.
•  After discussing revenues and costs, give the candidate the attached revenue and costs charts.
•  Public insurance includes Medicare and Medicaid.
3. Strategic Discussion
•  Once the cause of the earnings decrease is known, talk about some solutions to the problem.
•  Corporate development (merger/acquisition, joint venture, partnership) needs to be explored.
4. Presentation
•  Discuss risk and rewards.
•  Concise delivery of conclusions to CEO.
Financial Analysis of Investment Options
64
Average reimbursement per patient at

8,000
Princeton-Plainsboro
7,000 Patients w/ private
insurance
6,000
5,000
Patients w/ public
Dollars
4,000
insurance
3,000 Uninsured patients
2,000
1,000
0
2004 2005 2006 2007 2008 2009 2010
Year
Earnings Analysis
65
Question Why are Earnings Declining?

Problems:
Given the attached chart, what was the operating margin for the
hospital in 2004 and what is it in 2010? •  Operating margin has dropped ten fold from 32%
to 3.2%
Information to be Provided If Asked •  Biggest problem is drop in public insurance

(Medicare/Medicaid) reimbursement amounts.
Per patient costs:
•  2004: $4,000; 2006: $4,400; 2008: $4,600; 2010: $4,800 •  Private reimbursement also fell
Patient Mix by Insurance type was constant over time:
•  Private: 50% •  Costs are rising steadily over time
•  Public: 40%
•  Uninsured: 10% •  Overall, revenues are dropping
Calculations
•  2004: Average per patient revenue for all patients = 6,800*(50%)

+ 5,300*(40%) + 3,300*(10%) = $5,850. Margin = (Rev-Costs)/Rev
= ($5,850-4,000)/$5,850 = 31.6%
•  2010: Average per patient revenue for all patients = 6,300*(50%)
+ 3,700*(40%) + 3,300*(10%) = $4,960. Margin = (Rev-Costs)/Rev
= ($4,960-4,800)/$4,960 = 3.2%
•  Actual number of patients do not matter as we are just looking for
margin
•  Assumptions/rounding can be made, adjust answers accordingly
Strategic Recommendation
66
Question Suggested Strategies

Revenue:
Given the answer to the first question, what would you recommend •  Charge more for services (could partner with
the hospital do? other hospitals in state when negotiating
reimbursement rates)
•  Attract more high margin private insurance
Information to be Provided If Asked patients via advertising, etc.
•  Acquire, joint venture, or do some sort of
corporate development with local specialty clinic
Market: There are no other large hospital direct competitors within
that serves private insurance patients with high
a 20 minutes drive. There are specialty clinics and other small
reimbursement
private practices that cater to niche patient groups.
•  Lobby the government to raise public
reimbursement rates
Costs:
Areas to Cover (lead candidate through) •  Buy supplies for less (could partner with other
hospitals in state when negotiating prices)
•  Make sure the candidate considers corporate development with •  Attract lower cost patients with selective
a local specialty clinic that has desirable (profitable) patients advertising, etc. (e.g. target young rather than old,
•  Can acquire by purchasing etc)
•  Can enter into a joint venture or partner to provide some •  Find efficiencies/synergies somewhere with a
services in hospital, split profits with external specialist purchase of a clinic
doctor
•  Can try entering niche specialties alone by opening up a
new office and hiring staff
Wrap Up
67
Key Discussion Points

Make sure the candidate wraps up the case by describing what was explored and what the recommendations are to the CEO.
Candidate needs to first cover calculation of margins and implications. Then the candidate needs to cover relevant strategies with their
potential risks and rewards.
Case 9: Eat Co. Profitability / Turnaround
Introduction
68
Problem statement narrative

Our client is a prepared food company known for its tasty and organic products, Eat Co. The company sells its products in supermarkets
for home preparation and also to delis for on-site preparation. Eat Co has experienced a steady decline in its profits. The company’s
main source of revenue is from its deli products. The deli products segment had revenue of $120 million in the most recent financial year.
The client has engaged us to determine (i) why profits are declining and (ii) how to turnaround its profitability.
Part 1: causes for declining profits
69
Part 1: The candidate should create the following framework to determine why profits are declining
EXTERNAL FINANCIAL INTERNAL
•  Is the market growing or shrinking? •  Are costs increasing? Cost breakdown •  What is our product mix?
•  Who are the competitors? •  Are revenues declining? •  Is it mismatched with the market?
•  What is happening in the economy? •  What are our prices? How do they
•  Are there any factors that are compare to our competitors?
impacting our clients? For example, •  Do we have promotions and discounts
diet changes and how are these impacting our sales
•  What factors influence our customers’ volume and margins?
purchasing? •  What has our competitors been doing
to market and develop their products?
•  How do our products compare to our
competitors?
Additional information
An excellent candidate will look at both the external and financial factors before moving to the internal factors. This candidate will also
lead the interviewer from one bucket to the other and address most of the points under each bucket. An excellent candidate will also ask
for cost information, as this is a profitability issue.
70
Additional Information Provided by Interviewer

Provide the candidate with Exhibit 1 for analysis. The candidate should ask for costs, then provide Exhibit 2. If not, provide candidate
with exhibit 2 once the candidate has concluded analysis of Exhibit 1.
Exhibit1: Average Product Information – EAT CO Calculations

DELI SUPERMARKETS The candidate should calculate that delis have an average product loss of
$6-($3+$4) = ($1) and Supermarkets have an average profit of $7-
Selling Price $6 $7
($3+$0.50) = $3.50
Costs
At this point, the candidate should ask for competitor information and
-Raw Materials $3 $3 quantities sold for supermarkets. If the candidate asks for quantities sold
-SG&A $4 $0.50 for deli, remind the candidate that the revenues were given before and
were $120 million. Candidate should realize that quantity is 20 million.
The supermarkets section sells 10 million units (provided by interviewer).
Deli Loss:
Option 1: Deli Loss = $120 million (given at the start of the problem) –
($7*20 million) = $20 million
Option 2: Deli Loss = 20 million * $1 (Loss calculated above) = $20
million
Supermarket Profit:
Option 1: Supermarket Profit = $7*10 million – [($3+$0.50)*10 million]
= $35 million
Option 2: Supermarket Profit = $3.50 *10 million = $35 million
71
Additional Information
The candidate should conclude that the Eat Co is making profits from the supermarket division but the deli section is a loss maker. Eat Co’s
total revenue is $190 million but its profits are $15 million.
The candidate should suggest that the Eat Co consider (1) decreasing costs in the deli section and (2) re-focusing on the supermarket
section. Finally, the candidate should say that the deli section provides the drag on the company’s profitability even though deli products
generates more revenues than supermarket products.
An excellent candidate will ask for (1) competitor information and (ii) calculate total profit/loss for each section and for the both sections.
The candidate should ask for competitor information. If interviewee, doesn’t ask for it then provide it to the interviewee.
Exhibit 2: Average Product Information – Competitors Calculations

There are 7 competitors The candidate should calculate the competitor profits
DELI SUPERMARKETS
Selling Price $5 $8 Deli Profits = $5 – ($0.50 +$2) = $2.50
Costs Supermarket Profits = $8 – ($3+$2.5) = $2.50
-Raw Materials $0.50 $3
-SG&A $2 $2.50
At this point, the candidate should highlight that Eat Co has an
Average quantity 35 million 20 million
advantage over its competitors in the supermarket section with
higher average profits due to lower SG&A. The candidate should
also point out that Eat Co’s deli products have an average loss of
$1.00 while competitors have an average profit of $2.50.
Part 2: Profitability Turnaround
72
Part 2: Instructions for the interviewer

Ask the candidate to provide some ideas to turnaround Eat Co
Ideas for the interviewee

Deli Section – Align costs with competitors. This will yield $6 - ($2.50) = $3.50 in profit per product. Total profit will increase by $90
million ($3.50 – (-$1) ) * 20 million = $90 million.
Re-focus on the supermarket section and try to generate greater sales in this section. Eat Co can double sales from 10 million to 20 million.
This will increase revenue by $7*10 million or $70 million and can increase profit by $35 million. It should be noted that this assumes that
Eat Co can double its market share. Even a more conservative estimate of 20% growth, will increase profits by $7 million (2 million *
$3.50) and revenue by $14 million ($7 * 2 million)
Eat Co can also increase its prices to $8 to be in line with competitor prices once this price increase can be justified and generate
additional revenue of $10 million (($8-$7)*10 million) and additional profit of $45 million ($8*10 million – ($3+$0.25)*10 million)
Find another distribution channel : sell to schools for meal time preparation and airlines for onboard meal service
Close down the deli section if costs cannot be decreased and focus solely on the supermarket section. The total supermarket section has
total market size of 140 million items (7 competitors in exhibit 2 and 20 million average items sold) and Eat Co has 10 million/140 million
or about 7% of market share. The company can increase its marketing and try to gain market share
Recommendation
73
Recommendation
I would recommend that Eat Co looks at (i) aligning its costs with competitors in the deli products segment, this will generate additional
profit of $90 million instead of its loss of $20 million and (ii) developing its distribution to supermarkets as Eat Co has only 7% of the
market and sells 50% less than its competitors in this segment. An increase of 20% in sales in this segment will increase profits by $7
million. The risk is that competitors will retaliate to Eat Co’s attempts to increase its market share in the supermarket section and there
are risks to product quality when aligning costs with competitors if it compromises Eat Co’s product quality. The next step would be to
look more closely at cost reduction options in the deli section and how to gain share in the supermarket segment.

An excellent candidate will drive the case, and make accurate calculations while coming up with conclusions to move the case forward. This
candidate creates a thorough framework and needs little prompting from one step to the next. The candidate recognizes that Eat Co has
under-developed opportunity in the supermarket segment based on the quantitative work and see that deli section can be re-tooled to
increase overall profitability. The candidate makes a thorough conclusion using information in the case and provides next steps.

A good candidate is able to generate ideas and move the case forward with logical though not in-depth calculations. The candidate is also
able to work through the math.
Case 10: Beverage Manufacturer
Introduction
74

Our client is one of the top three beverage manufacturers in the U.S. They are thinking of launching a new flavored non-
sparkling water product. The company is a vertically integrated beverage manufacturer that makes the drinks, has five
bottling plants, and owns their own distribution channels.
They have asked us to determine whether or not they should launch the new product, how to do it, and what the marketing
strategy should be.
Overview for Interviewer Information to be Provided Up Front

Let the interviewee ask questions based on his or her structure. They The information provided in the statement is all
should quickly ask questions about some of the following issues: the candidate receives at this point. Once the
•  Size of the entire flavored water market candidate asks questions related to the
•  Breakdown of the flavored water market by category (i.e. market, please hand out the next page.
sparkling vs. non-sparkling)
Provided Data
75
Flavored Non-sparkling
Flavored Water Market by
Water Market by Product
Category
12%
10%
Sparkling Others
18% Easy Drink
90% Non- 70%
Sparkling O2
Market Sizing
76
What insights do you draw from the information provided?

The interviewee should now volunteer some key insights, which should include:
•  Non-sparkling water represents a small share of the overall market
•  Only two competitors have large market shares à our client may have an opportunity to emerge as a third large
competitor in this highly segmented market
What is the potential size of the non-sparkling water market?

The candidate should ask what units the market size should be calculated in (i.e. revenue, bottles sold, etc). In this
case, ask the candidate to calculate both the size of the non-sparkling water market in terms of number of bottles sold
and revenue.
The following information should be provided to the candidate upon request:

•  There are 8 million gallons of water sold in the entire flavored water market per year
•  All drinks in the flavored non-sparkling water market are packaged in 16 oz bottles and our client plans to do the
same
•  There are 64 ounces in a gallon
•  We can assume that drinks are priced, on average, at $1 per bottle
Math
The interviewee should go through the following calculations:
•  10% of 8 million gallons = 800,000 gallons of non-sparkling water sold per year
•  Each bottle contains 16 oz; since there are 64 oz in a gallon, then there are 4 bottles per gallon
•  800,000 gallons * 4 bottles in a gallon = 3.2 million bottles sold per year
•  3.2 million bottles * $1/bottle = $3.2 million revenue per year
Breakeven Analysis
77
How long would it take the client to break even on a new product in the non-sparkling water market?
Information to be provided upon request:

•  Variable cost per bottle of flavored non-sparkling water = 90 cents
•  Start-up launch costs, including all initial R&D and marketing costs = $400,000
Math
$400,000 / 10 cent profit per bottle = 4 million bottles need to be sold to breakeven
The interviewee should note that 4 million bottles is larger than the entire annual market for such products, so it will take
a few years to reach this amount (assuming there is no change in the overall market size).
The interviewee should determine a reasonable market share goal. The important thing is not to come up with an exact
market share target, but to back up whatever assumption s/he makes with logical reasoning. For example, here is a
possible thought process:
•  Since the new entrant is a major company, it should have strong brand name power and distribution networks.
Since the other main competitors have 12% and 18% and our product is backed by a strong company, our
company will come in somewhere in that range. Let’ s use the mid-point 15% as an estimate.
•  15% of 3.2 million bottles = 480,000 bottles to sell per year à approximately 0.5 million bottles
•  4 million bottles to breakeven / .5 million bottles à it will take approximately 8 years to breakeven
•  Candidate should note that 8 years is an “eternity” in a market like beverages where new beverages emerge
constantly and trends change quickly
Positioning
78
If our client wanted to go ahead with the product launch, how should they position the product in the market?
The interviewee should ask for information on how the two main competitors are positioning their drinks currently. When
s/he asks, provide them with the following results from a recent customer survey:
Respondents’ preferred
beverage type
Percentage of Respondents
Final Questions and Recommendation
79
What insights do you draw about positioning from the Final recommendation to CEO?
previous chart?
The client’s new product will be in the “other” category and A good response will include some variation of the following
should try to gain share among that sub-market points:
•  This is probably a questionable investment at best
The client should position the product as a sports drink or •  It will take a substantial amount of time to
leisure beverage, since those are the categories where breakeven, probably longer than what is reasonable
“other” has the largest market share for a product in the beverage industry
•  If the client still decides they want to launch a
What risks should our client consider when thinking product in this space, they should leverage their
about proceeding with this venture? strong brand and distribution network to market a
sports drink and/or leisure beverage
Possible answers include:
•  Changes in the customer preferences for
beverages (i.e. flavored water is a fad)
•  Response from competitors
•  Cannibalization (i.e. how many other similar
products does our client make?)
•  Unfavorable breakeven time period given previous
analysis
Case 11: Wine Supply Chain
Introduction
80
Problem statement narrative

Our client is a winery located in California and they sell wine all over the US. They produce various marketing materials to be used in the
displays in stores where their wines are sold. These marketing materials are either pushed by the central Corporate Marketing team or
pulled by regional sales field offices. These marketing materials are stored in a central warehouse in Chicago and over time a lot of
obsolete materials have been accumulated. Our client needs our help in reducing obsolete materials and improving their bottom line.
Overview for interviewer

The interviewee may ask some clarifying upfront questions related to the goal of improving the bottom line. The client is looking to
improve their profitability by reducing obsolete materials and getting the right mix of marketing materials.
Additional information related to the client’s goal

This information may be provided upon request:
•  Right now, the client spends $20 million on marketing materials ($3 million in freight, and $17 million in materials)
•  The corporate marketing team is large and pushes the marketing products without asking the field sales teams
•  The field sales teams are regional and can pull marketing materials sometimes when they are needed
Profitability enhancement
81
Brainstorming ideas for increasing Profitability

The candidate should present a framework to tackle the problem.
External
-Competitors: Are competitors also using marketing materials in the same way?
-Customers: Are customers responsive to these materials? (maybe the company is not making the right ones)
-Suppliers: Are the suppliers of these marketing materials efficient? (maybe they are not delivering the materials on time)
Internal
-Mix of Corporate and Field Sales Team: Who is more effective?
-Corporate Marketing Team:
-How do they push the materials out?
-Is the forecasting accurate?
-Field Sales Team
-How are materials pulled?
-is the forecasting more accurate?
Additional information related to the client’s goal

The key should be the wrong mix of corporate marketing team pushing out materials and the field sales teams not pulling enough
materials. The field sales teams are more knowledgeable in their markets and which materials will work.
External factors are not so much at play as inaccurate forecasting by the corporate marketing team.
Supply Chain Optimization
82
Supplier Map: Instructions for interviewer:
Present Exhibit I and II to the interviewee.
Prompt: Given this network of suppliers of marketing materials

and wine retailers where these marketing materials end up, what
can you advise the client on how to reduce the obsolete materials
and optimize their networks.
Key things the interviewer should notice from the maps:

• Many suppliers in the south west (blue) and orange (west) areas,
with less suppliers near the warehouse in Chicago
• Many retailers in the south west (blue) and orange (west) areas,
Retailer Map: and green (midwest ) areas
• Options for optimization might include:
• Setting up a second warehouse between the west and the
southwest areas
• Moving the warehouse to the south west (blue) area so it
is more central
• Changing suppliers to be concentrated near the
warehouses
Follow up question
83
Question
A third party operator has approached our client with the following offer: They will install a website based platform to manage the
inventory and will reduce the inventory in the Chicago warehouse by 50%, and reduce inventory holding costs by 10%. The third party
will charge $5MM for this website. Should our client accept this deal?
Calculation Additional Information to be given during discussion
• Benefits/Costs Analysis • The current inventory in Chicago is $17 million and is not
• Benefits: expected to grow in the future
• Inventory: Save $8.5 Million ($17MM x 50%) • Inventory will be reduced by 50% only once to $8.5MM going
• Inventory Holding Costs: Save .1MM/Year ($1MM x forward
10%) • Inventory holding costs are $1MM/year for $8.5MM of
• Total Savings: $8.6MM inventory and will be reduced by 10% and the benefit will
• Costs: $5MM continue going forward
• Benefits in the first year outweigh the costs, and benefits will
continue to be realized in the future
• The interviewee should also mention that there are other options
as better firms or doing this internally which can even bring in
more benefits
Recommendation
84
Recommendation
Interviewee should mention the following:

• Client should optimize its corporate marketing and field sales mix in terms of marketing materials
• Client should also consider moving/adding warehouses, but a cost/benefit analysis should be conducted
• Client should go ahead with a website based platform to optimize its supply chain but should also look at other options available
Interviewee should also mention any risks such as added cost of changing warehouses and risk of investing in a third party operator
of their supply chain
Exhibit I-Suppliers of Wine Marketing Materials
85
Suppliers of Wine Marketing Materials (% of total Marketing Materials Supplied
13%
10%
Chicago
37% 12%
28%
Exhibit II-Retailers of Wine using the Marketing Materials
86
Retailers of Wine (% of total Marketing Materials Received)
7%
Chicago 18%
27%
28%
20%
Case 12: Office Supply Stores
Introduction & Discussion Points
87
Introduction / Context
Our client is Office Supply Stores (OSS), a national office products company with revenue in excess of $7 billion in its last
fiscal year. OSS sells various office supplies and services, business machines and related products, and office furniture
under national and private label brands. It also provides high-speed, color and self-service copying, other printing services,
faxing, and shipping services. The company operates approximately 1,000 brick-and-mortar stores in the United States and
Canada, an e-commerce division and catalog business. OSS has more than 12 million customers, comprising of small,
medium and large businesses as well as individual consumers.
Over the past two years, Office Supply Stores has been experiencing declining profitability. The CEO has retained our firm
to help determine what is causing the problem and how OSS might address those problems.
What key areas would you want to explore in order to understand OSS’s decline in profitability?
q Market
q Industry (industry has seen decline in revenues, profits and/or growth)
q Competition (more competition, such as online or new players, has reduced market share and revenue)
q Revenue
q Product Mix (poor merchandising, sales in high margin services have declined faster than lower margin products)
q Volume (sales have decreased, client is losing market share to existing competition or new entrants)
q Price (discounting in response to competition, increased markdowns)
q Costs
q Management/Overhead (too many middle managers, higher SG&A costs as percent of sales, distribution costs)
q Store Operations (increases in store rent, labor costs, shrinkage/theft, renovations in store)
q Cost of goods sold (lower gross margins, price increases from suppliers, higher transportation costs)
q Customers/Channels
q Segments (losing more profitable customers, change in mix of business and personal customers)
q Channels (sales decline in stores and catalog, more customers shopping online, Amazon)
Discussion Points (cont’d)
88
Discuss possible solutions to the decline in profitability at OSS. Feel free to offer hypothesis.
q Increase Revenue
q Invest in online, mobile and multi-channel platforms to respond to changes in customers’ channel preference
q Segment customers and hire dedicated sales team to target business customers
q Improve product mix and add higher margin services
q Increase private label products to improve margins and reduce supplier bargaining power
q Improve inventory management (avoid lost sales due to out of stocks and markdowns)
q Evaluate price increases on niche products
q Explore other sources of store revenue, such as offering national brands for store-within-a-store, increasing supplier-
paid promotions and leasing parts of the store to complementary retailers (coffee, fast food)
q Reduce Costs
q Reduce fixed costs, such as management/administration, SG&A costs and other overhead (management and store)
q Re-negotiate leases with landlords
q Work with suppliers to reduce product costs, find savings in distribution and/or offer special promotions
q SKU rationalization (discontinue poor selling items and concentrate on best sellers)
q Close underperforming stores
q Other
q Consider M&A opportunities
Exhibit
89
Additional Information (Provided by Interviewer)

After reviewing the basics of OSS’s business, the team believes that one of the root causes of OSS’s poor financial
performance is a decrease in revenues and growth. The team decides to further investigate how OSS manages its
customer segments and has gathered information on 4 segments: large, medium and small businesses, plus individual
consumers. Please provide interviewee with Exhibit 1.
Exhibit 1. Customer Segment Data
# of customers Average Avg gross

Segment (in thousands) purchases Frequency margin
Large business 15 $ 10,000 /quarter 15%
Medium business 50 5,000 /quarter 15%
Small business 300 2,500 /quarter 20%
Individual consumers 12,000 250 /year 35%
Calculations
90
Using Exhibit 1, what is the contribution margin of all segments (in dollars and percentage terms)?
(OPTIONAL FOLLOW-UP) What is the share of sales and profit of one or more segments?
Contribution
# of customers Average Avg gross Annual sales margin (in
Segment (in thousands) purchases Frequency margin (in thousands) thousands)
Large business 15 $ 10,000 /quarter 15% $ 600,000 $ 90,000
Medium business 50 5,000 /quarter 15% 1,000,000 150,000
Small business 300 2,500 /quarter 20% 3,000,000 600,000
Individual consumers 12,000 250 /year 35% 3,000,000 1,050,000
Total 12,365 7,600,000 1,890,000
Contribution margin (as percent) = $1,890k / $7,600k = ~ 25 percent

Share of sales: Large (8%), Medium (13%), Small (39%), Individuals (39%) –OR– Business (61%), Individuals (39%)
Share of profits: Large (5%), Medium (8%), Small (32%), Individuals (56%) –OR– Business (44%), Individuals (56%)
Recommendation
91
Other than profit, what other factors would you consider before choosing a segment to target?
q Market size, growth potential, trends, current market share and historical data of each segment
q Customer acquisition costs
q Internal capability and investments/costs required to serve the segment
q Customer lifetime value (CLV) and retention (business customers may face higher switching costs and be less price
sensitive than small businesses and individuals)
q Ability to upsell services and increase sales to customers in the segment
Based on your analysis, what segment would you recommend OSS target?
Feel free to make hypothesis on the other issues noted in the previous question.
q Large & Medium Businesses
q Benefits: Larger recurring orders, lower cost to serve (as percent of sales), do not require brick-and-mortar stores
(lower costs), opportunity to upsell service contracts/warranties
q Risks: Investments in dedicated national sales team, low margin, competitive, smaller population compared to small
businesses and individuals
q Small Businesses
q Benefits: Recurring orders, low cost to serve (as percent of sales), opportunity to upsell service contracts/warranties,
better margin than medium and large businesses
q Risks: Investment in dedicated sales team, require more upfront investment to find
q Individual Consumers
q Benefits: Large population, high margin, multi-channel benefit (store/online)
q Risks: Harder to retain (low switching costs, price sensitive), may prefer online (Amazon), require more service (as
percent of sales)
*** Any answer is acceptable. It is more important to discuss the benefits and risks with targeting one or more segments.
Conclusion
92
Based on what we have discussed, and any other ideas you have on improving OSS’s profitability,
what would you recommend to OSS’s CEO? Please provide at least 2-3 recommendations.
q Reiterate one or more segments to target, including a discussion of the benefits, risks and next steps (execution)
q Discuss ideas discussed in Q1 and corresponding solutions proposed in Q2 with similar structure
q Revenue: Invest in multi-channel platforms, improve product and service mix, etc.
q Costs: Reduce overhead, SKU rationalization, close stores, etc.
q Recognize the macro challenges facing brick-and-mortar businesses, such as office supply, electronics and book stores
*** Any answer is acceptable. It is more important to provide the elements of a good answer.
Sample Recommendation/Answer
q Target small and medium businesses
q Execution: Hire dedicated local sales team, pilot in small markets, expand sales team into larger markets,
find products/services to upsell to increase margins
q Benefits: Recurring orders, opportunity to increase current sales through upselling, better margins than larger
businesses, lowers cost to serve (as percent of sales), easier to target than individual customers
q Risks: Investment in dedicated sales team and acquiring small business customers, lose sales and profit from other
customers (large businesses, individuals), competition
q Other recommendations
q Invest in online, mobile and multi-channel platforms
q Improve product mix and add higher margin services; increase private label products to improve margins
q Re-negotiate leases with landlords
q Work with suppliers to reduce product costs, find savings in distribution and/or offer special promotions
q SKU rationalization (discontinue poor selling items and concentrate on best sellers)
q Close underperforming stores
q Consider M&A opportunities
q  BONUS: Recognize the macro challenges facing brick-and-mortar businesses
Contents
93
Section Page #
Recommended cases from company websites
94
Firm Name Link to Case

McKinsey http://www.mckinsey.com/Careers/Apply/Interview_tips/
Practice_case_studies
Bain http://www.joinbain.com/apply-to-bain/interview-preparation/
default.asp
BCG http://www.bcg.com/join_bcg/practice_cases/default.aspx
Oliver Wyman http://www.oliverwyman.com/careers/61.htm
AT Kearney http://www.atkearney.be/index.php/Join-us/preparation.html
Other Case Resources
95
Please see the Wharton Consulting Club webcafe for more casebooks from
prior years and other schools
https://webcafe.wharton.upenn.edu/eRoom/mba/consultclub/0_8cde4

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Dear Consulting Club Member,

- 2011 Wharton Consulting Casebook Editorial Team

Your objective What resources you will need to use

• Get invited to interview (prepare • MBACM resume review

Interview: • Demonstrate ‘fit’ • Prep ‘Fit’ questions thoroughly

Interview: • Ace Cases • Case books & Industry Primer Series!

¨ A typical consulting interview

Meet & Greet The Fit The Case Wrap-up

• Walk to interview suite /

¨ Make a great first impression

¨ Opportunity to project “consultant” during the interview

¨ Almost every single interview involves at least some fit-

¨ Take me through your resume

¨ What is a case?

*Note: one case could span multiple case types

~3 min. ~1-2 min. ~12-15 min. ~3 min.

Understand Plan your Probe for Assert a

Market Revenues Costs Customer / Channel

Strategic Logic Economics of decision Risks / Others

• Client is considering an M&A transaction

Strategic Fit Deal Economics Risk Assessment

• Client is considering outsourcing an operation

Strategic logic Decision Economics Risks / Others

• Client is a non-profit organization

Strategic Rationale Deal Economics Other

• Should client enter new market? What is NPV?

Some Strategic • What are industry trends?

Prepare yourself Make it real Step wise approach

• We believe that having a very basic overview of an industry helps to more

Important • Do not attempt to master industry specifics or memorize industry data

Case Description Page #

Problem Statement Narrative

Overview for Interviewer

Case Type: Market Sizing, Profitability

Gave this framework when Cost

Information to be Provided If Asked

• Losing $2,000 each month ($24,000 / 12)

Problem Statement Narrative

Overview for Interviewer

Information to be Given throughout the Case

Plant stand-alone evaluation Synergies evaluation

Potential Approach to Solving the Case

a) Plant on a Stand-alone Basis

b) Synergies Achieved from Backward integration

Overhead savings of $20MM by co-locating the plants next to each other

c) Market Evaluation and Risks

Problem Statement Narrative

Overview for Interviewer Information to be Provided Up Front

Revenue Questions / Answers

Information to provide: Main question:

Potential Upside (among others) Potential Risks (among others)

Problem Statement Narrative

Overview for Interviewer Information to be Provided If Asked

After buying a panda, the San Diego zoo increase

Math (1 Panda) Overview for Interviewer

Overview for Interviewer Math (Acquisition of 2nd Panda)

Two possible solutions – 2nd panda bought

Overview for Interviewer Math (Acquisition of 2nd Panda)

•  Get invited to interview (prepare •  MBACM resume review

Interview: •  Demonstrate ‘fit’ •  Prep ‘Fit’ questions thoroughly

Interview: •  Ace Cases •  Case books & Industry Primer Series!

¨  A typical consulting interview

•  Walk to interview suite /

¨  Make a great first impression

¨  Opportunity to project “consultant” during the interview

¨  Almost every single interview involves at least some fit-

¨  Take me through your resume

¨  What is a case?

•  Client is considering an M&A transaction

•  Client is considering outsourcing an operation

•  Client is a non-profit organization

•  Should client enter new market? What is NPV?

Some Strategic •  What are industry trends?

•  We believe that having a very basic overview of an industry helps to more

Important •  Do not attempt to master industry specifics or memorize industry data

•  Losing $2,000 each month ($24,000 / 12)

•  What could be the drivers of the decrease in prices?

b)  Why this competitor is doing so well?

b)  How should we react?

Information to be Provided If Asked •  Biggest problem is drop in public insurance

•  2004: Average per patient revenue for all patients = 6,800*(50%)