Consulting Case

Industry analysis

Contents
Pacific Gas and Electric Prepares for Upcoming Deregulation..........................................................1
Tesla Motors to Introduce the New Tesla Model S..............................................................................5
What Kind of Companies Are They?......................................................................................................9
Cisco Evaluates the Outlook of Core Control Product Line..............................................................10
NYC Hotel Industry Bouncing Back After 9/11 Attacks.....................................................................14
Pfizer to Mitigate Negative Impact of Drug Re-importation...............................................................16
IBM to Sell Personal Computer Division to Lenovo Group...............................................................18
Teledyne to Re-store Profitability Across All 3 Divisions...................................................................22
Vestas to Build a Wind Turbine Manufacturing Plant in Midwest.....................................................24
vMars Petcare to Call Off $10 Million Marketing Campaign..............................................................28
Warburg Pincus Private Equity Considers Buying Vitamin World....................................................31
How to Analyze Economics of Electricity Market in Argentina?.......................................................33
General Atlantic to Not Invest in Puerto Rico Claro Wireless...........................................................35
Visa Develops Strategy to Improve Credit Card Profitability.............................................................38
Capital One Evaluates Credit Card Market of Mexico.......................................................................40
BASF Evaluates Cognis as Possible Acquisition Target...................................................................44
Barclaycard Analyzes the Future of UK Credit Card Industry...........................................................47
Brazil to Withdraw from International Tin Cartel.................................................................................50
Century Aluminum Develops New Technology in Plastics................................................................52
Avery Dennison to Turn Around Specialty Label Business...............................................................53
What Are Different Ways to Travel from NYC to Boston?.................................................................54
Belgium Considers Privatizing National Lottery to Cut Debt.............................................................55
Lucent Technologies to Reverse Trend of Declining Profits.............................................................57
Boston Beer Company Considers Entering Wine Business.............................................................60
Encyclopedia Britannica to Enter Online Web Business...................................................................61
Genentech Invents Preventative Drug for Heart Attack.....................................................................63
What Would Southwest Do If Oil Price Dropped to Zero?................................................................65
Why are Sinusitis Drug Sales Different Between US & Canada?....................................................66
DeVere Group Assesses Health Club Industry Trend.......................................................................68
Impact of 9/11 Attacks on NYC Healthcare Industry..........................................................................71
How to Evaluate the Future of Consulting Business?........................................................................76
Random House Explores Strategic Opportunity & Risk....................................................................77
Private Equity Firm TPG to Invest in Baby Food Industry.................................................................78
Why There is No Light Beer in the U.K.?.............................................................................................79
How Many Mazda Dealers Are There in the U.S.?............................................................................80
Nintendo Plans to Triple Video Game Division...................................................................................81
McKinsey Assesses Management Consulting Industry.....................................................................83
Alcoa Assess Cost Curve to Gain Competitive Advantage...............................................................85
Intel Clamoring for Protection from Washington.................................................................................86
The Rise and Fall of PeopleExpress Airlines......................................................................................87
GM Seeks Opportunity to Expand After-market Part Business........................................................89
Shell Pipeline Company Evaluates Potential of Pipeline Industry....................................................91
Why International Forest Products Makes So Much Money?...........................................................93
Office Depot’s Castor Revenues Flat and Profits Decline.................................................................94

Pacific Gas and Electric Prepares for Upcoming Deregulation

Case Type: industry analysis; competitive response.
Consulting Firm: Bain & Company final round full time job interview.
Industry Coverage: utilities; energy.
Case Interview Question #00766: The client is The Pacific Gas and Electric Company (NYSE: PCG),
commonly known as PG&E. It is an investor-owned utility that provides natural gas and electricity to most
of the northern two-thirds of California, from Bakersfield almost to the Oregon border. PG&E was founded

in 1905  and is currently headquartered in the Pacific Gas & Electric Building in
San Francisco.
Over the past several decades, many U.S. states have moved to deregulate their electric markets, with 24
states allowing for at least some competition among retail electric providers (REPs) including California,
Texas, and New York.
The year is 2009. As a combination gas and electric utility (regulated monopoly), the client Pacific Gas
and Electric Company was preparing for an upcoming change in the state regulatory environment when
electric power generation would become a competitive business. A new VP of Marketing and Sales was
put in place to prepare PG&E for the competitive marketplace. As part of a Bain case team retained by
PG&E to advise the new VP of Marketing and Sales, how would you go about this case?
Additional Information: (to be provided to candidate upon request)
Composition of PG&E’s customer base:

Residential Major Industrial and Remaining I&C

Customers Commercial (I&C) Customers Customers

Number of customers 1.8M 1,000 199K

Share of 2008 Revenues: (2008

Total Revenues = $1.0B) 50% 30% 20%

Possible Answer:
Step 1: Identify the critical issues
Interviewer: “Given this information, where do you think the case team should focus?”
1. Good Initial Questions

Are the gas and electric businesses inter-related?

- Do they serve the same customers? (some overlap)
- Will the de-regulation of electric power generation impact the gas business? (no)
- What is the relative size of the electric power businesses? (electric = 80% of revenues and 85% of
profits)

Is it therefore safe to assume that the composition of the overall customer base reflects the electric
business as well? (yes)

Good Answer:
Given the size and the dynamics of the electric power market I will focus on that part of the business. With
the emerging deregulation, the key marketing issue is customer retention.

Since the client will likely lose some customers with the upcoming deregulation (starting with a monopoly
they only have one direction to move) the key question is which segments of customers the client should
invest in retaining.

For extra credit articulate additional questions which drive to actions: what are their needs, how is the
organization aligned to meet those needs today and what organizational and strategic changes should be
made to improve the way we serve target segments.

Potential Pitfalls:
 Getting caught up in trying to understand dynamics of gas and electric businesses. a few simple
questions can make it clear that the electric business is what matters.
 Digging into detailed regulatory issues.
 Not identifying retention as the critical issue.
 Trying to develop strategies to retain all customers rather than focusing on segments.
Step 2: Specify an analytic framework
Interviewer: “How would you determine on which segments the client should focus?”
Useful frameworks:
a. Customer segments should be ranked based on two criteria:
- Value: profitability of power generation to the client.
- Vulnerability: risk of losing the customers (segments) to competitors.

b. “Value” should be based on lifetime value of the customer segment. This incorporates the investment
required to acquire the customers, their annual profitability, and the expected “life” of a customer.

c. Vulnerability would capture the likelihood of different segments of customers switching to competitive
offerings once deregulation occurs.

d. Extra Credit Observation: there is likely to be some correlation between value and vulnerability as new
entrants will probably attempt to target the highest value customer segments first.

Potential pitfalls:
 Trying to apply a “standard” framework to this fairly focused question–Keep it simple.
 Not considering all components of lifetime value (e.g., acquisition costs and lifetime) as that
ranking can vary considerably from a ranking based on current margin.
Step 3: Prioritize/Develop Hypothesis
Interviewer: “What is your hypothesis of which segments are highest priority?”
Good hypothesis:
a. The first step would be to further segment the customer base. Specifically, I am most interested in
understanding any sub-segments within major I&C customers (avgerage revenue of $300K) where needs
probably vary dramatically by industry (i.e., government, retail, process industries, etc.) There are
probably not major distinctions in the needs of residential customers by segment.

b. I would therefore hypothesize the following customer prioritization:

- Large Industrial customers should be the initial focus because they will be most valuable (high electric
usage in one location for a long time translates into low acquisition costs, high margins and a long life)
and the most vulnerable (easy to target and valuable to competitors).
- Large Commercial customers will rank second because large commercial customers (e.g., grocery
chains) are heavy users but harder to serve because of multiple locations and higher turnover (high
acquisition costs and shorter customer life).
- Small I&C and Residential customers are of lower value and are less vulnerable to competition because
their usage is relatively low, they are more costly for a competitor to target and for most individuals, the
electric bill is a relatively small expense so they will not go out of their way to seek an alternative provider.

Potential pitfalls:
 Failing to further segment customers misses a lot of the potential richness of the case.
 Digging into residential customer issues because that is what you understand best.
 Forgetting to consider the acquisition costs and customer life issues.
 Not clearly explaining any assumptions you are making.
Step 4: Structure/execute analysis
Interviewer: “What analysis would you have the case team perform to test your hypothesis?”
Good response:
a. Conduct customer research to further segment customers by needs and to assess the vulnerability of
segments based on propensity to switch/loyalty behavior.

b. To prioritize segments the case team must first estimate each of the major elements of the value
equation:

- Acquisition cost based on sales and marketing costs devoted to that segment (either tracked directly or
estimated through interviews/surveys of sales and marketing depts.)
- Volume based on usage for that segment (or in the case of 1000 Major I&C customers can track actual
historic usage by specific customers).
- Profitability margin based on usage patterns (peak loads, timing of peaks, etc.) developed in conjunction
with technical and finance resources from the client.
- Customer life based on industry research regarding the typical life of that type of business.

c. To assess vulnerability utilize output of research and supplement with an assessment of the
attractiveness of segments to likely new competitors (qualitative assessment).

d. Create a 2X2 matrix plotting segments based on value and vulnerability.

Potential pitfalls:
 Not being creative in places and ways to gather data and conduct analysis.
 Not attempting to get actual data or at least samples of actual data wherever possible and instead
relying on assumptions for critical drivers of value.
 Not articulating framework for visually capturing output of analysis to articulate/demonstrate the
answer.
Step 5: Drive to recommendations
Interviewer: “Based on your analysis, what should the client do?”
Good response:
Now that we have prioritized customer segments, the issue is how the client should apply sales,
marketing and potentially technical resources differentially against the highest priority segments.

Definite recommended actions:

 Focus marketing activities against developing programs that meet critical needs identified in
research (i.e., devices/programs to increase energy efficiency).
 Dedicate more sales/non-technical service support to highest priority segments (e.g., improved
billing services).
Potential recommended actions (evaluate cost/benefit tradeoffs):

 Invest more to deliver higher technical service (less downtime) to highest priority segments.
 More backup generators/systems where high priority customers may be clustered (areas with a
lot of process plants, for example).
 More technical personnel on duty to make repairs whenever system does go down.
Potential pitfalls:
 General/non-specific recommendations (e.g., improve service without describing how)
 Not distinguishing with actions you can definitely recommend now vs. actions that would require
additional research because of the investment required.
 Being unrealistic in recommendations.
Keys to the Case:
The background slide to the case does not clearly state the issue to be addressed. You must decide
where the leverage is without getting distracted by the existence of the gas business or delving into
regulatory concerns.

There is really only one framework that works for this case and it is not a “standard” framework. The
critical variables to prioritize customers are value and vulnerability (or risk of defection). A simple 2 X 2
matrix works best.

There are not a lot of numbers to use in this case but they can help you develop your hypothesis.

Be comprehensive and creative in the approach for analyzing the value of a customer. It is critical to
consider the lifetime value vs. just the margin. A methodology can be created where you calculate actual
inputs for most variables of the equation.

Driving recommendations to discussion on deploying actual sales, service and marketing resources is the
point of the case. The prioritization is interesting but the question is what do you do once you understand
how to prioritize.

Tesla Motors to Introduce the New Tesla Model S

Case Type: new product; industry analysis; math problem.
Consulting Firm: McKinsey & Company first round full time job interview.
Industry Coverage: automotive, motor vehicles.
Case Interview Question #00759: Our client Tesla Motors, Inc. (NASDAQ: TSLA) is an American
company that designs, manufactures, and sells electric cars and electric vehicle (EV) powertrain
components. Headquartered in Palo Alto, California, Tesla Motors was incorporated in July 2003. Tesla’s
primary goal was to commercialize  electric vehicles, starting with a premium
sports car aimed at early adopters and then moving as rapidly as possible into more mainstream vehicles,
including sedans and affordable compacts.
The year is 2008. Mr. Elon Musk, Chairman and CEO of Tesla Motors, wants to know how to position a
new car model, the Tesla Model S in the market. The CEO has retained your consulting firm to advise
him.

1. Ask the candidate whether the EV industry is attractive for our client.
2. The CEO asked you to help him develop strategies to identify the right segment they can sell the new
vehicles to.
3. Secondary goal (if asked): Profitability.
Additional Information: (to be provided upon request)
1. Company
The client Tesla Motors is a startup, started in 2003 by Martin Eberhard and Marc Tarpenning, that has
developed a new patented battery technology that is validated and tested for viability in cars.

The client Tesla Motors has currently one product in the market (Tesla Roadster) and they are planning to
release their second vehicle (Tesla Model S) in the next 24 months.

When candidate asks about the current car model Tesla Roadster, provide the following information about
their current product.

2. Current Car Model

Purchase Price Segment

Tesla
Roadster $110,000 Premium Sports

The Tesla Roadster has the following ratings across its features (on a scale of 1-10)

Stylin
Purchase Price g Performance Quality Safety Features Green Rating

Tesla
Roadster $110,000 9 10 6 6 6 10
For segment worth and Competitor’s market share, refer to Exhibit B below.

Possible Answer:
1. Industry Attractiveness

The candidate should come up with the below structure for analyzing the industry attractiveness. Using
Porter’s 5 forces, it’s clear that the industry is attractive for incumbents.

 Buyer’s power: High

 Suppliers power: High in EV segment as the technology is new.
 Competition: Very High (entire auto industry)
 Substitutes: Very High (other modes of transportation)
 Barriers to Enter: Med-High. This means that it is hard for new entrants to enter.
2. Financial Status and Cost Structure

As a startup, the client Tesla Motors has yet to make a profit. Their first product Tesla Roadster sold 2000
units across 30 countries in the world.
The client Tesla Motors has funding from U.S. government, private equity firms and recently they went
public and raised money.
Depending on the target segment’s needs, the average production cost for different vehicles is given
below in Exhibit B (all costs inclusive in USD)

At this point, provide Exhibits A and B to the interviewee

Exhibit A: Electric Vehicle Utility By Feature

Exhibit B: EV Segments and Share of Competitors

 Segment Competitor Average Units Average Cost to
Segment Worth Share Sold Produce

Sports Segment $1 billion 80% 8,000 $90,000

Premium Sedan
Segment $1.2 billion 75% 18,000 $43,000

Sedan Segment $1.8 billion 82% 36,900 $38,000

Coupe/Other $1 billion 95% 32,000 $33,000

Calculations:
A. Average Price per Unit and Profitability per Unit (Ask the Interviewee to calculate):

Segment Competitors Units Cost to

Segment Size Share Sold Average Price Produce Profit/unit

0.8 * $1B = $800M/8,000 =

Sports $1B $800M 8,000 $100,000 $90,000 $10,000

Premium 0.75 * $1.2B = $900M/18,000 =

Sedan $1.2B $900M 18,000 $50,000 $43,000 $7,000

0.82 * $1.8B = $1,476M/36,900 =

Sedan $1.8B $1,476M 36,900 $40,000 $38,000 $2,000

0.95 * $1B = $950M/32,000 =

Coupe/Other $1B $950M 32,000 $30,000 $33,000 -$3,000

B. Potential market size and profitability calculations (this also requires information from the exhibits):

Segment Addressable Share In units Segment Profitability

Sports 20% 8,000 * (0.2/0.8) = 2,000 $10,000 * 2,000 = $20M

Premium Sedan 25% 18,000 * (0.25/0.75) = 6,000 $7,000 * 6,000 = $42M

Sedan 18% 36,900 * (0.18/0.82) = 8,100 $2,000 * 8,100 = $16.2M

$32,000 * (0.05/0.95) =
Coupe/Other 5% 16,842 -$3,000 * 16,842 = -$50M

Now, ask the candidate which segment to target.

Possible Answer:
The candidate should identify that per unit profitability is high for vehicle in premium sedan segment
($7,000). So this might be the profitable segment to go after. Also, because electric vehicle technology is
still new, customers in premium sedan segment might be willing to pay a premium for the eco-friendly
factor, whereas customers in other segments may not put much emphasis on this aspect as they are
more price sensitive.

3. Conclusion

A. Recommendation

 After doing the analysis, the client Tesla Motors should enter premium sedan segment for the
following reasons:
 Competition is low as addressable market size is 25%
 Segment profitability is high with $7,000 per unit profitability
 Customers in premium sedan segment are more likely to pay a premium for the eco-friendly
feature of our client model.
B. Risks

 Getting the product right to suit the customer needs is necessary as the client Tesla Motors is
already under financial pressure.
 The client may not be able to service all the vehicles in the premium sedan segment as the
segment is large. Relationships need to be established with service providers.
 As the client Tesla Motors is still new in the market, establishing brand value is necessary,
especially in the premium sedan segment where brands like BMW, Mercedes, Lexus compete.
What Kind of Companies Are They?
Case Type: finance & economics; industry analysis.
Consulting Firm: Oliver Wyman first round summer internship job interview.
Industry Coverage: Financial Services.
Case Interview Question #00712: Bank of America Merrill Lynch is the corporate and investment
banking division of Bank of America. It provides services in mergers and acquisitions, equity and debt
capital markets, lending, trading, risk management, research, and liquidity and payments management. It

was formed through the combination of the corporate and investment banking
activities of Bank of America and Merrill Lynch following the acquisition of the latter by the former in
January 2009.
You are a junior Equity Research Analyst recently hired by Bank of America Merrill Lynch. On your first
day of work, your manager wants to see how good your financial statement analysis skills are. Here is
information about three companies A, B, and C. What can you make of this data? And can you determine
what type of industry each company is in?
Revenue
Net Income After Taxes s Assets Liabilities Equity

Company
A 254M 2.6B 2.8B 1.0B 1.8B

Company B 7B 77B 1.121T 1.085T 35B

Company C 11B 348B 151B 89B 61B

Possible Answer:
This is a mini case about accounting and financial statement analysis. If the interviewee is absolutely
stuck, lead him/her to calculate Return On Assets (ROA), Return On Equity (ROE), Net Profit Margin,
Debt-to-Assets Ratio, Debt-to-Equity Ratio, etc. The Current Ratio cannot be calculated here because
Total Assets and Liabilities are provided, as opposed to Current Assets and Liabilities.

After calculations are complete, have the interviewee interpret the data. Based on the numbers, what kind
of companies do you think these are?

Analysis (Calculations to be completed by the interviewee.)

Net Profit
ROA ROE Margin Debt-to-Assets Debt-to-Equity

Company 254M/2.8B = 254M/1.8B = 254M/2.6B =

A 9% 14% 10% 1.0B/2.8B = 36% 1.0B/1.8B = 56%

Company 1085B/1121B = 1085B/35B =

B 7B/1121B = 1% 7B/35B = 20% 7B/77B = 9% 97% 3103%

Company
C 11B/151B 7% 11B/61B = 18% 11B/348B = 3% 89B/151B = 60% 89B/61B = 148%

Recommended Conclusion
Company A has the highest ROA and Net Profit Margin. However, it has the lowest ROE, Debt-to-Assets
ratio, and Debt-to-Equity Ratio. This suggests that Company A is perhaps a low volume, high margin
store, such as a jewelry store. (Company A is in fact Tiffany & Company).

Company B has the highest ROE, and Debt-to-Equity is out the roof! Additionally, it has the highest Debt-
to-Assets ratio, so it uses a lot of Debt, increasing the firm’s risk-exposure. Company B has the lowest
ROA among the companies. Assets and Liabilities are pretty equal. All of this suggests that Company B
may be a financial institution of some kind. (Company B is in fact Morgan Stanley).

Company C has the lowest Net Profit Margin, and Assets are almost twice the Liabilities. This suggests
that Company C is a high volume, low margin store, like a retailer of some kind. (Company C is in fact
Wal-Mart).

Cisco Evaluates the Outlook of Core Control Product Line

Case Type: industry analysis; math problem.
Consulting Firm: IBM Global Business Services (GBS) first round summer internship job interview.
Industry Coverage: telecommunications & network.
Case Interview Question #00711: Our client Cisco Systems, Inc. (NASDAQ: CSCO) is a diversified
technology corporation producing primarily telecommunications support equipment. With its headquarter
located in San Jose, California, United States, Cisco designs, manufactures, and sells

telecommunications infrastructure and networking equipment. The company’s

current portfolio of products and services is focused upon three market segments – Enterprise and
Service Provider, Small Business, and the Home.
You have been hired by the CEO of Cisco to evaluate a product known as “Core Control”. This product
handles basic call connectivity—recognizing phone numbers dialed and connecting outgoing calls to
recipients. The customers of this product are AT&T, Verizon, T-Mobile and the like, and our client Cisco
competes against companies like Lucent and Alcatel for sales. This is an IP-driven business, and the
market has experienced a significant downturn in the last year.
The CEO of Cisco has asked your consulting team to evaluate the future of the “Core Control” product
line. How would you approach this case?

Possible Answer:
The interviewee should quickly identify that this is a mature product and choose a framework that
identifies the potential issues. One approach may look like this (3C’s):

1. Company

a. What is Cisco’s strategy? Where does Core Control fit?

b. How lean is Core Control? A mature industry often requires price leadership.
c. What are the financials of Core Control product? Are we making money?
d. What is Core Control’s outlook:
 can we sell it off?
 can we milk it to fund R&D of new technology?
 can we bundle Core Control with a more profitable service?
 should we cut our losses?
2. Competition

a. Who are they?

b. Are they taking market share or leaving this declining market?
c. How easily will they cede market share to us?
d. Do they have advantages over us (cost leadership; brand strength; customer relations)?

3. Customers

a. Who are they?

b. Why aren’t they buying IP components (new technology, declining industry)?
c. Can we grow the market?

Question #2: The CEO of Cisco wants to use Core Control revenues to fund new R&D. Last year, our
client earned 15% EBIT on revenue of $8 billion from Core Control. This year, our client’s revenues are
expected to decrease with the market rate (quantified: Year 1 = $50 billion; Year 2 = $25 billion). You’ve
been asked to come up with a rough estimate of what the business might look like this year from a
financial standpoint, and offer some thoughts on what this could mean going forward.
Possible Answer:
This is primarily a “numbers case”, with the underlying exercise of estimating a cost structure. The
essential task of this case is to estimate a cost structure for this year, determine what the EBIT will be,
and discuss what this could mean for the business going forward. The interviewee’s thought process in
allocating costs is a crucial component of evaluation, and should involve some discussion of how and why
he/she decides to allocate costs into the respective line items.

Revenues

Very simply, the interviewee can assume that revenues will decrease by the market downturn, i.e. 50%,
from $8 billion to approximately $4 billion.

Costs

Interviewee should begin by identifying the following basic costs items (he/she can identify others, but if
so, interviewer should suggest that he/she bucket them into the following 4 basic items):

 CoGS: Cost of goods sold

 R&D: research & development
 S&M: sales & marketing cost
 G&A: general and administrative expense
A logical next step would be for the interviewee to determine the total costs from last year:

EBIT was 15%, so total costs were 85% of sales, or $8 billion * 85% = $6.8 billion

The interviewer should then ask how these total costs might have been allocated to the 4 basic costs
items. One useful method is to first estimate how much each cost item will be as a % of sales (with total
costs summing to 85% of sales). General breakdown should roughly align with:

 CoGS = 50% of sales

 R&D = 20% of sales
 S&M = 10% of sales
 G&A = 5% of sales
Generic logic behind this reasoning:

 CoGS will be largest cost item.

 Since product is “IP-driven,” R&D will be next biggest expense.
 S&M and G&A will be smallest cost items.
As long as the interviewee defends his/her reasoning, these percentages can be more/less than specified
above.

Next, using these %’s, the interviewee can derive actual cost amounts for last year (total costs = $6.8b):

 CoGS = 50% x $8b = $4.0b

 R&D = 20% x $8b = $1.6b
 S&M = 10% x $8b = $0.8b
 G&A = 5% x $8b = $0.4b
To extrapolate costs to this year, the interviewee should separate the above costs as fixed or variable
(interviewer should prompt the interviewee to do so if not done on their own):

 All or significant majority of CoGS will be variable (i.e. some small portion of CoGS may not vary
with sales).
 All or significant majority of R&D will be fixed.
 All or significant majority of S&M and G&A will be fixed (i.e. some small portion of S&M may vary
with sales).
Next, interviewee should split the calculated costs into fixed vs. variable costs. Exact cost breakdown will
vary, but should fall within basic parameters outlined above (i.e. majority fixed vs. variable, or vice versa).
For example:

 CoGS = $3.8 (variable) + $0.2 (fixed) = $4.0b

 R&D = $1.6 (fixed) = $1.6b
 S&M = $0.6 (fixed) + $0.2 (variable) = $0.8b
 G&A = $0.4 (fixed) = $0.4b
Thus, the interviewee will have derived (or thereabouts):
 $4.0b in variable costs
 $2.8b in fixed costs
The interviewee can then derive EBIT for this year.

With the 50% decrease in revenue, variable costs will also decrease by 50%, with fixed costs remaining
the same. Thus:

 $2.0b in variable costs, $2.8b in fixed costs.

 $4.8b in total costs
 EBIT = $4.8b – $4.0b = ($0.8)b
3. Conclusion: Now that you have evaluated the outlook for Core Control, how would you advise the
CEO of Cisco to proceed from here?
Possible Answer:
Based on costs and revenue, the interviewee should find that the Core Control business will lose money
this year.

The interviewee should provide commentary (outside of limited case facts) about why it may or may not
be a good idea to get out of this business, such as:

 market downturn could be an indication of the product’s obsolescence.

 since this is an IP-driven business, business is cyclical and this year’s investment in R&D could
generate a rebound next year.
The interviewee should also propose modifying the cost structure. Answers will vary, but the focus of this
case in the EBIT calculation.

NYC Hotel Industry Bouncing Back After 9/11 Attacks

Case Type: industry analysis.
Consulting Firm: Boston Consulting Group (BCG) second round full time job interview.
Industry Coverage: tourism, hospitality, lodging.
Case Interview Question #00686: The year is 2004, three years after the September 11th, 2001 terrorist
attacks. Our client is the Hotel Association of New York City trade organization. Established in 1878, the
Hotel Association of New York City is one of the oldest professional trade associations in the nation. Its

membership  includes more than 270 of the finest hotels in New York City,
representing more than 75,000 rooms and approximately 50,000 employees.
The client has come to us after the September 11 terrorist attacks to help them answer two basic
questions:

1. Estimate the monetary damages to the hotel industry in NYC.

2. Help develop a recovery plan
How would you go about this case?

Possible Answer:
Like many BCG second round case interviews, this case did not really deploy a rigid framework. Instead it
was a conversation about the issues that the hotel industry faced. As a result the BCG partner posed
questions and we then had a discussion around those questions.

First, ask the candidate what he/she thinks are the biggest issues facing the hotel industry after 9/11. A
good candidate will identify issues both on the revenue and cost sides.

Revenue:

 Decreased occupancy rates: Both from business travelers and leisure

 Decreased conference revenue
 Decrease in service revenue (restaurants, movie theaters, room service, etc.)
Cost:

 Loss of economies of scale increases average cost per room

 Increased cost of attracting employees to work in NYC
 Increasing advertising budgets to attract tourists/business
 Increased investment in security measures (limited)
After having listed all the items, ask the candidate which area he/she thinks is most important to restoring
health of the hotel industry. Candidate should identify revenue losses as the biggest driver. Push the
candidate to explain why revenue is the most important issue.

1. Calculate Lost Revenues:

To determine the amount of revenue lost, tell the candidate that the hotel industry uses a measure called
RevPAR. RevPAR, or revenue per available room, is a performance metric which is calculated by
multiplying a hotel’s average daily room rate (ADR) by its occupancy percentage. It may also be
calculated by dividing a hotel’s total guestroom revenue by the room count and the number of days in the
period being measured.

The formula for RevPAR is: % occupancy * Average Daily Room Rate.

The Average Daily Room Rate for NYC hotel industry has been the following pre- and post-September
11.

 2001 pre Sept 11: $200 (highest in U.S.)

 2001 post Sept 11: $100
 2002: $125
 2003: $175
Ask the candidate what information he/she would need to calculate the total lost revenue per year. Push
them until they get to total hotel rooms.

The total number of hotel rooms in New York City is 100,000.

Based on that how much money did the hotel industry lose in 2002 vs. 2001?

 2001 pre Sept 11: $200 * 100,000 * 270 days = $5,400,000,000

 2001 post Sept 11: $100 * 100,000 * 90 days = $900,000,000
 2002: $125 * 100,000 * 360 days = $4,500,000,000
 Loss in 2002: $4,500,000,000 – $$6,300,000,000 = -$1.8 billion
Next, ask how much money was lost in 2003 vs 2001:

2003 revenue: $175 * 100,000 * 360 days = $6,300,000,000

In year 2003, the hotel industry had recovered back to 2001 levels.

2. Develop a Recovery Plan:

What are the 3 things you would do to drive continued growth in 2004 and move the hotel industry
RevPAR to $200. If the candidate suggests price, push them on this and make them defend it.

Some possible answers:

 Partner with the city to increase advertising

 Partner with the city to promote safety and tourism in NYC
 Offer getaway packages – weekend specials, special treatments, etc.
 Ask for city loans to drive profitability recovery
 Add free amenities to the rooms (movies, discounted room service)
 Discounts the corporate meetings (free lunches, drink hours)
 Stay 3 get the 4th night free promotions
 Offer tickets to movie theater and sporting events to guests.
Pfizer to Mitigate Negative Impact of Drug Re-importation
Case Type: industry analysis.
Consulting Firm: Booz Allen Hamilton (BAH) first round full time job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00680: Lipitor, marketed by American multinational pharmaceutical
corporation Pfizer (NYSE: PFE) as a calcium salt, is a member of the drug class known as statins, used
for lowering blood cholesterol. As one of the best selling drugs in pharmaceutical history, sales of Lipitor
since it was approved in  1996 exceed USD $125 billion as of 2012, and the drug
has topped the list of best-selling branded pharmaceuticals in the world for nearly a decade.
Now the real case question: what do you think is going to happen after the 2012 United States
presidential election if Governor Mitt Romney wins and drug re-importation from Canada is legalized? I’d
like to know what you think the impact will be to the pharmaceutical industry in general, and to Lipitor in
particular. If it’s negative, how can we (Pfizer) mitigate it?
Additional Information: (to be provided after relevant questions)
 Lipitor is used to treat high cholesterol, and to lower the risk of stroke, heart attack, or other heart
complications in people with type 2 diabetes, coronary heart disease, or other risk factors.
 In the US, the Lipitor market is $7 Billion a year.
 Lipitor is manufactured in Puerto Rico.
 What is drug re-importation? Drug re-importation refers to the practice of importing back to the
United States prescription drugs that were originally manufactured in the U.S. and exported for sale
in another country. Most often, Americans re-import drugs for personal use by filling their
prescriptions in Canadian or Mexican pharmacies, either in person, or through mail-order or Internet
pharmacies.
 Why do consumers and other purchasers of drugs engage in drug re-importation? Because
prescription drugs like Lipitor often are sold at lower prices outside of the United States, some
Americans see re-importation as a way to potentially obtain access to other countries’ lower drug
prices.
 Drug reimportation is not currently legal in the U.S., so is mostly conducted via the internet.
Suggested Approach:
I would approach this case the same way as for any other case involving a regulatory change and you
can construct a series of questions that would get you to the right answer even if you know absolutely
nothing about pharmaceuticals before you start:

First, I would want to clarify what the change means – it appears that it means that drugs sold into
Canada from Peurto Rico can be re-imported into the US – Is there anything else?

Second, I would want to understand why anyone would want to re-import drugs from Canada – it appears
that drugs are available in Canada more cheaply than in the US creating market pressure to re-import
them into the US – why is this the case? Why wouldn’t they simply be bought cheaply from Peurto Rico
direct?

Next, I would want to look at the extent of drug re-importation that is likely to occur – how much of the
drug is currently sold in the US? In Canada? At what price is the drug sold in the US? In Canada? Are
there any costs associated with drug re-importation? Are there any limits on the amount that could be
readily re-imported (e.g. the total available supply)?

Finally, I would want to consider the flow on consequences – will the drug companies put the prices up in
Canada? Will they reduce the price in the US? Can they restrict supply to Canada?

Possible Solution:
Question #1: What is the impact?

Possible Answer:

I broke it up into a short term revenue impact and a long term impact on the pharma large margin model. I
drew the value chain for the drug model:
Pharma Company, PBMs (Pharmacy Benefit Manager, negotiates price) -> Pharmacy (sells) ->
Consumer (buys)

In between you have the doctors talking to the pharmacy and the healthcare plan ultimately picking up the
tab. We established that the health plans will be pushing for this, and the PBMs will put pressure on the
pharma companies as the gatekeeper to the contracts with health plans.

Question #2: What will be the financial effect?

Possible Answer:

I asked what the pricing was currently. Lipitor is sold for $70 per month, and we were looking at $30 per
month for the same drug in Canada. That meant the $7 Billion annual revenue would be $4 Bilion less.
Big effect!

Question #3: What can Pfizer to do mitigate if drug re-importation is legalized?

Possible Answer:

I asked if there were drugs that they sold in the US but not in Canada – there are. This is an option – they
can bump margins on those products. They can lower costs (they should already be doing this but
because their margins are so big, it’s not a priority). They can also limit the amount of cheaper drug
output to match the Canadian market size (i.e. since Canada’s population is only 10% of US, they can
release less and limit the market for the “re-imported” drugs).

I also suggested pushing for longer contracts with the PBMs so that we could extend past patent life of
Lipitor and keep margins, but the interviewer asked if the PBMs would have to allow that. They would also
know when they were coming off patent, so would likely not sign those types of contracts.

Comments:
Booz Allen and some of the industry specialist consulting firms will often ask case questions that are
industry specific and require the candidate to demonstrate your industry knowledge. In a Bain, BCG or
McKinsey case, it is extremely unlikely to ever expect you to have this level of knowledge about a
particular market before the start of a case but they can still be used as reasonable practice cases.

IBM to Sell Personal Computer Division to Lenovo Group

Case Type: industry analysis; business competition, competitive analysis
Consulting Firm: IBM Global Business Services (GBS) second round full time job interview.
Industry Coverage: computers; software, information technology (IT).
Case Interview Question #00674: The year is 2004. We were hired by International Business Machines
Corporation (IBM, NYSE: IBM) to support them with their portfolio strategy. Headquartered in Armonk,
New York, United States, IBM manufactures and markets computer hardware and software, and offers

infrastructure,  hosting and consulting services in areas ranging from mainframe

computers to nanotechnology.
Currently (in year 2004) they have 10 lines of business, including personal computers, servers,
mainframe computers, software, networking equipment, IT services, consulting services, etc. We are
evaluating to understand which businesses our client should divest from, and what should be the strategy
for the ones they keep. Specifically, our team is responsible for analyzing IBM’s personal computers (PC)
division. Should our client IBM invest or divest on its PC division?
Additional Information: (to be given to candidate upon request)
1. PC Market Environment (in 2004)

 Market growth trends

 Average 4% per year sales growth
 15% per year for notebook/laptops
 -5% per year for desktop PCs
 Fragmented Industry: 10+ players (Dell, HP, IBM, Acer, Fujitsu, Toshiba, Lenovo, NEC, Apple,
Sony, etc)
 Market Shares and Growth Trends
 Competitor A (Dell): ~20% and slowly growing
 Competitor B (HP): ~13% and slowly growing
 Our client (IBM): 5% and slowly declining
 Other competitors: ~60%
2. Client Company
 Our client IBM has a very strong brand that is synonym of quality and state of the art technology,
but so far its brand did not translate into the ability to charge a price premium on its products
 Manufacturing is currently 95% based on pre-configured systems.
 Our client IBM has not developed the capability to deliver customized systems in an
adequate time frame for end users
 Our client IBM sells PCs through its website, but online sales are negligible
 Our client IBM has its own sales force to cater to corporate customers, but penetration for
corporate customers is very low and this segment is not profitable for our client at this point.
 The Personal Computers (PC) division has no specific strategic importance to our client IBM.
3. Revenues and Costs

Important Notes to Interivewer

 Reveal only information that the candidate asks for.

 As soon as the candidate has information on Average Price, Gross Margins, Market Shares and
Number of Units sold by our client, you should ask him/her to calculate COGS (cost of goods sold)
and the number of units sold by Competitors A Dell, Competitor B HP, and our client IBM – only
COGS (Laptops and Desktops).
 In summary, table cells in blank should be calculated by the candidate
Laptops Desktops

Average Gross Average Gross
Price Margins COGS Units Price Margins COGS Units

Competitor A 8.0M 4.0M

Dell $1,000 9% $910 Units/year $600 5% $570 Units/year

Competitor B 5.2M 2.6M

HP $1,500 15% $1,275 Units/year $900 10% $810 Units/year

Our client 2.0M 1.0M

IBM $1,900 20% $1,520 Units/year $1,200 10% $1,080 Units/year

4. Competitors

A. Competitor Dell

 Competitor Dell’s core business is personal computers

 Dell uses a direct model for consumers and SME, and has a large and respected sales force for
corporate clients
 Dell focuses on made-to-order model, having inventory turns 3x our client IBM’s and 2x
Competitor B HP’s, and is renowned for its operational effectiveness
 Due to bargaining power with suppliers and its made-to-order model, Dell has negative working
capital
 Despite its lower gross margin percentages, Dell still has EBITDA margins 2x industry average
(when the industry average includes Dell).
 The industry’s average EBITDA margins not including Dell is negative.
B. Competitor HP

 Competitor HP’s core business includes personal computers, servers, networking equipment and
IT services
 HP sells through big block retailers to consumers, and through its own sales force for corporate
clients
 HP sells mostly pre-configured systems, but also delivers made-to-order computers
 HP has above market average EBITDA margins and inventory turns
5. Customers

Note: provide to candidate only characteristics explicitly asked for.

Consumer (30% of the laptops

market) Corporate (70% of the laptops market)

Preferred
Channel Direct service or retail Specialized sales force

Competitive Price, reliability, sales force/tech support

Features Price, customization options quality

Price Sensitivity High Medium-High

Expensive, not appropriate for corporate

Expensive, sleek, small level of travel due to less than stellar build quality,
customization, brand inspires quality reliability considered to be low because of
Perception of (although consumers are not sure if “sleek look”, inadequate tech support and
client’s products computers are of good quality) sales force

Perception of
Competitor Dell’s Affordable, fair quality and reliability, Affordable, decent quality, good sales force
products easy to order and excellent tech support

Perception of Expensive, very robust and reliable,

Competitor HP’s decent variety of system Expensive, very robust and reliable,
products configurations, “boxy” looking excellent sales force and tech support

Possible Answer:
Our client IBM is losing share in a market where strong players such as Competitor Dell are thriving
through the use of a direct sales model (and high customization level) for consumers, and strong sales
force and tech support for corporate customers.
Not considering Competitor Dell, the PC industry has negative average EBITDA margin, evidencing a
highly competitive environment.

Although our client IBM has a distinctive brand that many times is a synonym of quality and state of the
art technology, it was not possible to realize any price premium without compromising market share.

Our client IBM’s COGS is significantly higher than Competitors Dell and HP, possibly due to economies of
scale. Those competitors are also specialized on IT and personal computers, and have reached a high
level of operational effectiveness (especially Competitor Dell), as evidenced by their higher inventory
turns and higher EBITDA margins.

Our client IBM also is not aligned with customer needs for both consumers and corporate clients, and
would have to improve significantly its tech support and sales force size and effectiveness. Investing in
improving its sales force size and effectiveness would lead to high capital investments and would take a
long time to ramp up on the learning curve.

Therefore, our client IBM should divest from its personal computers division since it seems unlikely that it
will be able to compete effectively in that market and the overall market attractiveness is low.

An outstanding candidate would also consider the implications to our client IBM’s brand, potential
companies that would acquire the division, and other alternatives to remain in the PC market such as
alliances, outsourcing production, etc.

Teledyne to Re-store Profitability Across All 3 Divisions

Case Type: industry analysis.
Consulting Firm: Siemens Management Consulting first round full time job interview.
Industry Coverage: aerospace & defense; electronics.
Case Interview Question #00658: Our client is Teledyne Technologies Inc. (NYSE: TDY), an industrial
conglomerate based in Thousand Oaks, California, United States. Teledyne Technologies currently
operates with three major divisions: A. Digital Imaging, B. Instrumentation and Engineered Systems, and

C. Aerospace and Defense Electronics.

Recently, every one of Teledyne Technologies’ three divisions has reported poor profits. The CEO of
Teledyne Technologies has hired your consulting firm to advise him how to re-store profitability. How
would you approach this case? What should the CEO do to maximize value for his shareholders?
Additional Information:
The interviewer should read this information well before he/she gives the case. The same type of
information (Competition, Cost Structure, Revenues, Pricing, Market Trends, Customer Preferences, etc)
is available for each of the three divisions, but make the candidate ask for each division’s information
separately rather than summarizing the data for them. Do not offer any information without being asked
specifically and concisely for it.

Division A: Digital Imaging

 Competition – The client Teledyne Technologies is the clear market leader with 60% market
share.
 Cost Structure – Manufacturing is done in Asia by all firms and is largely considered to be as low-
cost as possible.
 Revenues – This division generates over 60% of the firm’s revenues but gross margins have
been declining in recent years. The high fixed costs maintained by this division have moved net
income into the red as gross margins have declined.
 Pricing – Prices have been becoming increasingly competitive. Division A has had to price
aggressively to maintain sales volume, even with its strong market leadership position.
 Market Trends – The overall market for division A’s product has been shrinking in the last few
years and looks like it may continue to do so.
 Customer Preferences – Customers are moving to an entirely new product category as a
substitute, and prefer the product category of Division A less and less.
 Threat of Substitutes – A new product category is filling the customer need previously served by
Division A’s product. Division A is not well positioned to enter this new category.
Division B: Instrumentation and Engineered Systems

 Competition – The firm has only 5% and is one of many players in the market.
 Cost Structure – This market is relatively new and it is believed that costs can be reduced
significantly from their current position.
 Revenues – Revenues have been low but growing. The division is running a negative net cash
flow as it is currently investing in marketing, R&D, and plant capacity.
 Pricing – A wide range of prices exist in the market currently with margins generally high.
 Market Trends – The overall market is growing at 10% a year and is expected to experience
significant growth in the near future.
 Customer Preferences – This is a relatively new product category and consumers are not yet
sure what they want or like.
Division C: Aerospace and Defense Electronics

 Competition – The firm has 50% share with only one other major competitor and a few minor
ones.
 Cost Structure – The firm has significant economies of scale and has the lowest variable cost in
the market. Significant expenditures are being made in marketing, R&D, and plant capacity in an
attempt to grow revenues.
 Revenues – Revenues have been strong with good operating margins, but have been flat for the
past few years.
 Pricing – Division C has a price leadership position in the market.
 Market Trends – The overall market is not growing and expected to remain flat for the
foreseeable future.
Possible Solution:
A star candidate will see that his/her time is nearly up and will present a recommendation for the client
without prompting. If the interview is within 3 minutes of the end, ask the candidate: “The CEO just called
and wants to know what he should do.”

Good Answer: Clearly the conglomerate needs to rationalize its company portfolio to maximize
shareholder return. Each of the three divisions is in a different stage of the market lifecycle and needs to
be treated accordingly.

Division A finds itself in a declining industry with no apparent way to move into a new product category.
As the incumbent firms struggle to maintain volume in a shrinking market, prices have fallen along with
volume. Operating income is no longer enough to cover a high fixed cost base and the company is
bleeding with little chance to recover. Division A should be divested immediately.

Division B is in an emerging growth market. While it is not making money today, it is in a favorable
industry and represents a strong investment opportunity. The division should invest aggressively in R&D,
marketing, and production capacity in an attempt to become the market leader by developing
differentiated, branded products.

Division C is the leader in a mature industry and has the ability to generate a steady stream of cash for
use in other investments – namely Division B. Division C should streamline operations by eliminating all
expenditures not directly needed to maintain profitability and should be managed as a cash cow.

Note:
This case is fairly straightforward in the analysis, but the difficulty lies in keeping the information straight
between the three divisions. The interviewer should give out the information freely, but make the
candidate ask for each piece of information for each division. In order to crack this case, they will need to
have neat and orderly notes and be able to quickly form a mental picture of each of these different
divisions.

Note that this case is also difficult because there is only very vague information about the client’s products
or industries. This is not important to the case, so don’t make anything up – just tell the candidate that
they should focus on the information they have.
Vestas to Build a Wind Turbine Manufacturing Plant in Midwest
Case Type: market entry, new market; industry analysis.
Consulting Firm: Siemens Management Consulting first round full time job interview.
Industry Coverage: energy industry.
Case Interview Question #00643: Our client Vestas Wind Systems A/S (OMX: VWS) is a Danish
manufacturer, seller, installer, and servicer of wind turbines (used to generate electricity by harnessing
wind power). It is the largest European manufacturer of wind turbines. The company

currently  operates manufacturing plants in Denmark, Germany, Italy, Romania,

Britain, Spain, Sweden, and Norway, and employs more than 20,000 people globally.
Wind energy is currently growing very rapidly in China and in the US. By the end of year 2012, there will
be capacity issues in the US. The client Vestas Wind Systems currently has production capability in the
US and would like to enter the US market. The CEO of Vestas has elicited your consulting team to help
determine two issues:
 Where to build its manufacturing plant in the US?
 How many manufacturing plants to build?
This case only concerns North American Operations. How would you go about helping solve the client’s
problem?

Additional Information: (to be given to candidate upon request)

 Importing wind turbines from Europe to the US or to Asia is impractical because each wind
turbine weights 80 tons and there are very high import tariffs that add additional costs.
 The US manufacturing plant will be online by 2013 and the expected demand for our client’s
products is 1,500 units. If prompted this is 40% of the total market size.
 Market growth for the next 5-8 years is 10% by volume.
 There are 2 existing US manufacturers (General Electric, United Technologies Corporation) of
wind turbines with General Electric being the dominant player. There is no differentiation between the
different wind turbine products.
Possible Structure for the solution: use to guide the candidate
Key Areas Guidance for each area (do not read verbatim)

 Factors: infrastructure, labor, tax, competition, etc.

 The candidate should realize that the competition is competent and seek to
understand from where they currently source.
Part & Material  Competition sources from the Midwest (heavy auto supply base).
 Shipping costs and an integrated supplier network are most important
Supply
drivers.
  Assembly is not terribly complex (low tech). Once the different sub-
assemblies are in house, the manufacturing is simple mechanical assembly (very
little welding or complex process).
 All Vestas’ engineering design is done in Europe.
 Product mix – only one type of turbine is currently slated for production in
Manufacturing
the US.
 Transport the finished wind turbines must be by rail to achieve any
efficiency.
 Need to understand where the demand is. Building the plant closer to the
Transport
areas of heavy demand will reduce transportation costs.
 Customers will be required to perform their own installation.
 Our client Vestas provides nominal support when required but installation is
Installation
not difficult.
 Our client Vestas is interested primarily in making and selling wind turbines.
 Routine maintenance can be performed fairly easily by any trained
technician. There are numerous independent contractors that are licensed to
repair the wind turbines (fragmented market, low barrier to entry – unattractive
Service
market)
Possible Answer:
We first need to understand the demand for wind turbines and the market share that our client Vestas
Wind Systems can achieve. Being a growing market I would also want to assess the market growth rate.
This will help us understand if we need additional capacity.

Then I would continue by assessing if we actually need a manufacturing plant in the US. Maybe we can
import wind turbines from other locations at cheaper cost that opening a new plant.

In order to try to suggest a location for the plant we need to understand some of the factors that will
influence this new location:

 Where the supply will be coming form, taking into account infrastructure, labor, taxes,
competition, shipping costs, etc.
 Where the customers are located
 What level of service we need to provide to these customers
 Is it possible to outsource manufacturing
 Where the manufacturing costs are cheapest
The last component that cannot be ignored is competition. We need to know how segmented the market
is and how the competition is doing.

Taking into account that China is the second fastest growing market for wind energy, I would also like to
assess the possibility of exporting wind turbines to China.
Interviewer Notes: (not to be given to candidate)

1. US Market Share of Wind Energy by Region (Figure 1)

 The candidate should attempt to understand how demand is distributed and rationalize the
manufacturing location with the Midwest supply base.
 The candidate should also recognize that the plant site must be located near the supply base, but
tend towards the est to be closer to demand.
 Supply base is the region that contains the majority of plants that would supply the constituent
parts for the wind turbine assembly.
2. Economies of Scale

The candidate should immediately ask how economies of scale affect the production costs of each wind
turbine. Chart to be given only upon request: Figure 2. Relative effect of plant scale on costs (Cost Per
Unit vs. Annual Plant Capacity)

Other Additional Information to be given upon request:

 A 1,500 units plant would cost $40 million dollars investment ($30 million being the building).
Each additional 500 units in capacity will increase the costs by $15 million.
 If 2 plants were built, the additional operation costs would be $15 million per year. The
transportation savings would be $7 million per year.
 Note that we cannot build a plant with a lower than 1,500 units capacity.
Calculation of Future Demand Growth:
Future Demand Projection

Year Client’s share** Market*

2013 1,500 3,750

2014 1,650 4,125

2015 1,815 4,538

2016 1,997 4,991

2017 2,196 5,490

2018 2,416 6,039

2019 2,657 6,643

2020 2,923 7,308

* based on 10% market size growth

** based on a constant market share of 40%

For 3,000 units capacity (the capacity that the client will need to have by year 2020 with a 10% increase
in the market size and same market share of 40%):

 If only one plant built:

Cost = $40 + $15 * 3 = $85 million
Note that the capacity does not have to be added from the beginning and the high capacity will
decrease the cost per unit
 If 2 plants built:
Cost = $40 * 2 + ($15 – $7) * 8 years= $144 million
A good candidate will make a Final Recommendation:
With all these information my recommendation is for them to build one plant that should be located near
but to the southwest of the Midwest supply base. I suggest only one plant because the costs associated
with building and operating 2 plants are much higher than for only one plant. However this plant needs to
be sized to accommodate the future growth (approximately 100% increase by year 2020 given no
increase in market share). Even in this case, the costs are a lot higher for having two plants over one
plant.

There are some other risk associated with this decision that were not taken into account here, like
competition. We would need to assess the competitive response and the effect it will have on the market
share.

vMars Petcare to Call Off $10 Million Marketing Campaign

Case Type: industry analysis, marketing.
Consulting Firm: Navigant Consulting first round job interview.
Industry Coverage: consumer products.
Case Interview Question #00564: Our client Mars Petcare US is the pet food subsidiary of American
food manufacturing company Mars, Incorporated. Headquartered in McLean, Virginia, USA, Mars, Inc.
produces confectionery, pet food, and other food products with USD $30 billion in annual sales in 2010.

The company is entirely  owned by the Mars family and is ranked as the 5th
largest privately held company in the United States by Forbes Magazine.
Mars Petcare competes in the $16 billion United States pet food market. Currently they have four
products segments: dry food for dogs, wet food for dogs, dry food for cats, and wet food for cats. Recently
the Chief Marketing Officer of Mars Petcare US is considering a $10 million marketing campaign for one
of their pet food segments. Which of the four segments do you recommend? And why?
Additional Information: (to be given to candidate if asked)
1. Pet Food Industry

 There are 50% cats, 50% dogs in the US pet market

 There are more dog owners in the US, but cat owners tend to own many more cats, so the total
number of each animal is approximately the same
 On average, a dog weighs twice as much as a cat (or is twice as large)
 Food consumed by a pet, either a dog or a cat, is proportional to its weight
2. Product

 Pet foods have the same inputs: general processed meats

 Each kind of pet food can sells for the same price

3. Exhibit 1: Campaign Estimates by Segment (provide only if asked)

Dry dog Wet dog Dry cat Wet cat

$7.5 $2.5 $4.0 $2.0

Market size billion billion billion billion

Mars Petcare market share 30% 40% 10% 5%

Competitor’s market share 30% 10% 30% 40%

Mars Petcare profit margin 12% 18% 5% 10%

Expected market share increase from the $10 milion

marketing campaign +1% +2% +4% +5%

Possible Answer:
The candidate should identify size of each market and then evaluate the profitability of each segment.
The dog market is twice the size as cat, but the estimated increase in profitability from wet cat is the
largest. However, after calculations, the profits increase from wet cat are $10 million (in first year) and
cost of the marketing campaign is also $10 million, so essentially not making any money. The client
company may have better options / investments for the $10 million.

1. Market

Drivers of market demand: the number of pets, the number of meals per day, the size of each meal
Estimate division of market between cat and dog, for example: divide by size or by weight
Since a dog weighs twice as much as a cat, and needs to consume twice as much food as a cat, the $16
billion market means $5.33 is cat and $10.67 is dog, thus dog foods may be more desirable to target.

2. Calculations based on Exhibit 2

Dry dog Wet dog Dry cat Wet cat

New market
share 30% + 1% = 31% 40% + 2% = 42% 10% + 4% = 14% 5% + 5% = 10%

New total $7.5 billion * 31% = $2.5 billion * 42% = $4.0 billion * 14% = $2.0 billion * 10% =
revenue $2,325 milion $1,050 milion $560 milion $200 milion

Marginal $7.5 billion * 1% = $2.5 billion * 2% = $4.0 billion * 4% = $2.0 billion * 5% =

revenue $75 milion $50 milion $160 milion $100 milion

Marginal $75 million * 12% = $50 million * 18% = $160 million * 5% = $100 million * 10%
profit $9 milion $9 milion $8 milion = $10 milion

From initial calculations, it seems wet cat segment is the most profitable one. However, considering the
$10 milion cost of the marketing campaign, the expected value of the campaign is $0. Now ask the
candidate:

 Is it still worth doing the marketing project?

 What if profit margin for dry cat goes to 10% and for wet cat goes to 20% (doubling both profit
margins), what is the new profitability?
 Does your recommendation change?
3. Final Recommendation

Wet cat is the best segment to go. However, before we proceed with the marketing campaign, we need to
question some of the assumptions made in the above analysis: what if the marketing campaign costs
more? What if it’s more or less effective?

Given that the marketing campaign may not actually bring any tangible benefits to client, the $10 million
can be better spent in other ways, for example:

 Make food for different animals

 Expand outside of the U.S. market
 Vertically integrate
Warburg Pincus Private Equity Considers Buying Vitamin World
Case Type: private equity & investment; industry analysis.
Consulting Firm: Cambridge Associates first round job interview.
Industry Coverage: retail; healthcare: nutrition.
Case Interview Question #00540: Your client Warburg Pincus, LLC is a global private equity firm with
offices in the United States, Europe, Brazil, China and India. The firm currently has approximately $30
billion in assets under management and invests in a range of sectors including consumer, industrial and

services (CIS), energy,  financial services, health care, technology, media and
telecommunication (TMT), and real estate. Headquartered in New York City, New York, Warburg Pincus
is a growth investor and its active portfolio of more than 125 companies is highly diversified by stage,
sector and geography.
You have been tasked by Warburg Pincus to determine whether or not they should buy Vitamin World.
Vitamin World is a retailer of vitamins and nutritional supplements. They have 1,000 stores nationally
in malls. They sell general vitamins and minerals under the “Vitamin World” brand, and sports nutrition
products under the “Precision Engineered” brand.
How would you analyze the industry, determine whether or not Warburg Pincus should purchase Vitamin
World and identify potential issues of concern?

Instruction to the Interviewer:

The objective of this “private equity investment” & “industry analysis” case is

 To see if the candidate can identify a relevant structure

 To see if the candidate can identify the salient points of a market analysis
 To see if the candidate can drive to a profitability analysis of the value proposition
Note: This case does not call for a valuation analysis (e.g. discounted cash flow, DCF); steer the
candidate away from this approach and get them to focus on the market and industry analysis and
objectives of the client (a PE firm).
Question #1: How would you structure your analysis to help you make a recommendation?
Suggested Structure:
 Internal analysis of current customers
 Market overview and competitive positioning
 Customer trends survey – future opportunity identification
 Value proposition development
Question #2: Target customers of Vitamin World are one-third of the young men between the ages of 18-
34 who are the heaviest user and spend an average of $50 a month. 30% of these fitness buffs shop at
Vitamin World and there are 50% profit margins. What would happen if we could increase the Vitamin
World brand to 35% adoption?
Possible Answer:
300 million people in the U.S., divide into 5 age groups of 60 million each: 0-20, 20-35, 35-50, 50-65, 65-
80
Current customer base

 60 million people (age 18-34)

 50% are men
 one-third or 33% are fitness buffs
 30% shop at Vitamin World
 Thus, 60 million * 50% * 33% * 30% = 3 million
Annual Revenue

 $50 per person per month, or $50 * 12 = $600 per person per year
 3 million * $600 = $1.8 billion
Profit margin 50%, Annual Profit = $900 million

If we could increase the Vitamin World brand to 35% adoption, profits would increase from $900 million
to:

 $900 million * (35%/30%) = $1.05 billion

 or 60 million * 50% * 33% * 35% * $600 * 50% = $1.05 billion
that is an increase of: 35% / 30% – 1 = 17%

Question #3: Warburg Pincus requires a 50% increase in profits. How does this satisfy their
requirement? How could you go about increasing their profits?
Possible Answer:
17% does not satisfy Warburg Pincus’s requirement of 50% increase in profits. The following approaches
can be employed to further boost profits.

1. Increase revenue:

 Increase the breadth of the product line

 Expand outside of malls and into fitness clubs
 Expand into schools and pro-sports teams
 Begin selling to women – develop a female brand
 Add a “diet” segment
 Setup vending machines at spas and fitness clubs
2. Increase margins:

 Begin selling in bulk

 Expand outside of malls into fitness clubs
 Improve operational efficiencies
 Buy capacity
 Outsource Production
3. Financing:
 Increase the leverage of the firm
 Increase the depreciation expense (increases Cash Flows)
 Renegotiate leases with the malls
Question #4: Ask the candidate to give a 30-second summary and recommendation.
How to Analyze Economics of Electricity Market in Argentina?
Case Type: finance & economics; industry analysis.
Consulting Firm: Analysis Group first round job interview.
Industry Coverage: energy industry.
Case Interview Question #00525: You are a consultant on a project to study the economics of the
electricity market in the South American country of Argentina. The current population of Argentina is
around 41 million. The electricity market in Argentina has three types of electricity plants: coal fired, oil

fired and gas fired.  The table below summarizes the economics of each type.
Type of power plant based on fuel source Coal Oil Gas

Cost per unit of electricity 35 75 125

Price per unit of electricity 50 100 175

Annual market supply available (units of electricity) 10 15 25

The market operates on a “Marginal Price” basis – That is, the price of all units of electricity sold will be
equal to the price of the last unit sold. For example, if the market demand equals 50 units then the price of
all 50 units sold will be $175 per unit irrespective of it is coal fired, oil fired or gas fired. How would you
analyze the electricity market in Argentina?
Possible Answers:
This industry analysis case tests the candidate’s economics fundamentals and quantitative skills. The
candidate just needs to answer the following questions.

Question #1: Draw a demand curve for a demand range 0 to 50 units.

 Possible Answer:
See Figure 1, the demand curve for electricity market in Argentina.

Question #2: Who makes the most profits ($) when the market demand is 35 units?
Possible Answer:
At demand = 35 units the market price per unit will be $175 per unit. From the calculations done in the
table below, the oil fired power plants will make more profits.

Type of power plant Coal Oil Gas

Cost per unit 35 75 125

Price per unit 175 175 175

Capacity sold at demand = 35

units 10 15 10

Profits (175-35) * 10 = 1400 (175-75) * 15 = 1500 (175-125) * 10 = 500

Question #3: Assuming no further capacity addition, within what demand ranges

(1) Coal fired plants make more $ profits than others?
(2) Oil fired plants make more $ profits than others?
(3) Gas fired plants make more $ profits than others?
Possible Answer:
a. Coal fired plants are the most profitable for all values of demand between 1 and 25 units.
b. Oil fired plants are the most profitable when demand is between 26 and 50 units
c. Gas fired plants are never the most profitable. They make the least dollar profits among the 3 in the
given demand range

Calculations: Profits in dollars

Plant type Coal Oil Gas

Demand = 1 – 10 (50-35) * 10 = 150 0 0

Demand = 11 – 25 (100-35) * 10 = 650 (100-75) * 15 = 375 0

Demand = 26 – 50 (175-35) * 10 = 1400 (175-75) * 15 = 1500 (175-125) * 25 = 1250

Question #4: What are the implications of this kind of market conditions for your client who is in this
market?
Possible Answer:
A new competitor who may enter the market can change the market economics depending on what type
of power plant the new player sets up and how much capacity it installs.

It is important to forecast demand accurately and if required diversify the portfolio with a combination of
different types of power plants.

General Atlantic to Not Invest in Puerto Rico Claro Wireless

Case Type: private equity, investment; industry analysis.
Consulting Firm: Cornerstone Research final round job interview.
Industry Coverage: financial services; telecommunications.
Case Interview Question #00454: Your client General Atlantic (GA) is a global private equity investment
firm headquartered in Greenwich, Connecticut, United States. The firm invests through growth capital
injections, control buyouts, industry consolidations, build-ups, recapitalizations, and PIPEs (private

investment in public equity). In addition to funding, the firm provides strategic

support to portfolio companies. Founded in 1980, GA manages approximately $17 billion in capital and
employs more than 75 investment professionals world wide.
Recently, the client has asked you to do due diligence on Claro Wireless (formerly Puerto Rico
Telephone), a Puerto Rican telecommunications services company. The company is the third largest
player on the market and has 20% market share. Historically, Puerto Rico has seen double digit growth in
demand for wireless services.
Is this a good business for your client General Atlantic to invest in? Please help them assess the target
company’s future growth and profitability (a full-blown valuation is unnecessary).

Suggested Approach:
Perform a detailed industry analysis due diligence from the following 4 aspects:

 Market Demand
 Pricing
 Cost Structure
 Competition
Possible Answers:

1. Market Opportunity
Candidate: How large is the wireless market in Puerto Rico?

Interviewer: (Do not directly give the candidate an answer, but ask them to try to estimate the figures
below)

 Population of Puerto Rico is 4.0 million

 Number of people who currently subscribe to wireless service is only 1.6 million people (40%
penetration)
 Growth rate of population is 2% per year in Puerto Rico
Candidate: Does 40% market penetration mean that Puerto Rico represents a great market opportunity?

Interviewer: (Do not directly give the answer, but ask the candidate what information they would look for
to answer this question. Some good ideas may include:

 Forecasted growth rate for wireline services in Puerto Rico (info n/a)
 Compare Puerto Rico to more developed countries or more mature markets to see what market
penetration in wireless services looks like over time (good answer, but info n/a)
 Compare Puerto Rico to more developed countries or more mature markets to see how much
demand for wireline services has declined and use substitution rates (good answer, but info n/a)
 Consider purchasing power in Puerto Rico – 50% of population lives under the poverty line (show
Figure 1 to candidate)
2. Pricing & Market Sizing
Candidate: Have prices for wireless services remained steady in Puerto Rico?

Interviewer: (Show Figure 2 to candidate)

Good interpretation: there is downward pressure on prices, which have declined quickly in recent years.

Ask the candidate to calculate the market size.

Math: Total Potential Market = 4.0 million people * 50% potential customers * $30 per customer per
month (estimated) * 12 months = $720 million

3. Cost Structure
Candidate: How do the target company Claro Wireless’s fixed and variable costs compare with those of
the competition?

Interviewer: (Show Figure 3 to candidate)

Good interpretation: the network costs (variable costs) are for the most part comparable; the target
company’s fixed costs are slightly higher but will improve slowly with some low economies of scale.

Candidate: Are there any significant capital requirements for the target company to scale up its network?

Interviewer: No
4. Competition/Barriers to Entry
Candidate: Who are the other major competitive players in the market?

Interviewer: AT&T and Sprint together own 70% of the market; they have recently entered the market by
purchasing existing companies.

Candidate: Are there any significant regulatory issues that limit growth?

Interviewer: No, regulation is not an issue here.

5. Conclusion
 The client GA should be wary of this investment because the wireless service market is
approaching saturation in Puerto Rico.
 The target company Claro Wireless does not have significant cost advantages over competitors
and prices are declining, putting a squeeze on profitability.
 The existence of large competitors with major market share and deep pockets is also a big
concern.
Good Answer:
 In order to solve this case, it is important that the candidate dig deeply into the market opportunity
in Puerto Rico. A good candidate would be able to come up with at least two different ways of
measuring whether 40% penetration is a lot or a little.
 The candidate should cover all of the framework elements above to make sure that he
understands the full picture before coming to a final recommendation.
 The candidate should be able to interpret the exhibits correctly.
Excellent Answer:
 Candidate takes into consideration Puerto Rico’s status as a developing market and hits on the
issue of consumer purchasing power as being central to the market opportunity.
 Candidate makes the connection between declining prices and market saturation.
 Candidate thinks of additional information that would help him make a better recommendation
(i.e. future GDP growth in Puerto Rico, market potential for valueadded wireless services, return
demanded by the private equity client).
 Candidate does total potential market calculation easily and adds in other variables to fine tune
the number.
Visa Develops Strategy to Improve Credit Card Profitability
Case Type: improve profitability; industry analysis.
Consulting Firm: Capital One final round job interview.
Industry Coverage: financial services.
Case Interview Question #00406: Visa Inc. (NYSE: V) is a multinational financial services corporation
headquartered in San Francisco, California, United States. It facilitates electronic funds transfers
throughout the world, most commonly through Visa-branded credit cards and debit cards. In 2008,
according to The Nilson Report, Visa held  a 38.3% market share of the credit
card market and 60.7% of the debit card market in the United States. In 2009, Visa’s global network
(known as VisaNet) processed 62 billion transactions with a total volume of USD $4.4 trillion.
Question #1: Suppose that you are a consultant hired by Visa to help them develop strategic plan to
increase the profitability of their credit card business on an individual account basis. How would you go
about it?
Possible Answer:
Profit structure for a credit card company on an individual customer basis comes from two parts:
 Revenue = interest rate charged to customers on the outstanding balance + annual fees + usage
of CC balance statements as an advertisement vehicle + late fees.
 Variable Costs = opportunity cost of capital (passive rate) + operations costs (monthly
statements) + (non-recoverable credits) * (probability of permanent loss).
Advertising, fixed costs and the rest of period costs are not taken into account as they impact the profit
structure independently of the profitability on an individual basis.

In order to increase profitability on a per account basis, the credit card company can either focus on
increasing the revenue side or lowering the cost side.

To increase the Revenue side, the credit card company can:

 Lower the APR to attract consumers with high outstanding balances s these are the profitable
ones.
 Promote the balance statements as a direct to home marketing vehicle (although impact would be
minimal).
 Increase late fees to promote a higher minimum payment success and reduce the risk in the
client portfolio.
To decrease the Costs side, the credit card company can:
 Lower operations costs with minimal impact as they are currently in line with industry
benchmarks.
 Lower the percentage of the customer base with non recoverable credits.
Question #2: You have talked about the composition of the credit card client pool made of different
customers, please go more deeply into that and tell me how it affects Visa’s profitability.
Possible Answer:
There are three types of clients:

 A type clients that purchase in line with their income and make full payments every month. These
clients are the least profitable as the profit source from the rate differential is lost.
 B type clients that have future income growth expectations and thus spend above their current
means. These clients usually have a significant outstanding balance and thus are highly profitable.
 C type clients that default on their payments behind spending above their means. These clients
are the costlier ones as the probability of not recovering the outstanding balance grow with the
increase in the latter.

Question #3: Now that you have defined the

client base, how would a chart with individual account profitability on the Y axis and rank the three types
of clients from least profitable to more profitable on the X axis look?
Possible Answer:
See Figure 1.

Question #4: What would you do to improve the credit card customer base mix?
Possible Answer:
The first thing would be to attract more profitable customers. That is to go after the ones that have a
higher probability of having an income increase. To do this you could do targeted marketing towards
students, people that just got a job offer, people having a child.

To attract the general public that usually has a high outstanding balance you could lower the APR rate if
the elasticity of the market is high and thus increase the number of users that would benefit from a lower
rate (B type customers).

To avoid attracting Type A customers you can have a higher annual fee and thus make it not worthy for
them to apply for a card but worthwhile for the B type customers.

To cleanse the portfolio of the C type customers, you could increase the late fees (through high interest
rates) to such levels so as to promote on time payment.
Capital One Evaluates Credit Card Market of Mexico
Case Type: market entry, new market; market sizing; industry analysis.
Consulting Firm: Capital One final round job interview.
Industry Coverage: financial services.
Case Interview Question #00405: Capital One Financial Corp. (NYSE: COF) is a U.S.-based bank
holding company specializing in credit cards, home loans, auto loans, banking and savings products.
Recently, Capital One is analyzing growth strategies for its credit card business in a developing country

(Mexico). The goal is  to focus on individual clients to whom it offers internet
banking and retail channels. The company wants to measure the opportunities in individual credit cards
as a stand alone business.
The target country Mexico has a population of ~100 million. The most representative demographic
segments are as follows:

 High Income: > $3,000/month

 Middle Income: > $1,000/month and < $3,000/month
 Low Income: < $1,000/month
As a financial solution advisor working on this project, you have been asked by the project manager to do
the following two analyses:

1. Estimate the Market Size of the individual credit card business for each of the demographic segments
in Mexico.
2. Identify the most attractive customer segments for Capital One.

Question #1: Before we commence that analysis, first tell me how you would go about assessing the
potential of this new business.
Possible Answer:
One way to measure market potential is by annual revenues. The different sources of revenue for credit
cards are:
 Interest Income: interest rate * average outstanding balance
 Transaction Income: transaction fee * average consumption
 Membership Fee Income: Annual membership fee * number of credit cards.
The interviewee should also suggest other factors he/she would take into account including:

 Costs associated with the different segments; such as Administrative Costs, Risk Cost, Service
Cost and Marketing Costs.
 Competitor analysis: who are the key players in the market and which segments are most
competitive?
 Brand positioning: is current brand positioning compatible with the most attractive segments?
 Current coverage: is Capital One ready to serve the most attractive segments in terms of
geographical coverage for retail and in terms of customer service (e.g. sophisticated support for High
income and straightforward support for Low income)?
Question #2: Let’s now turn to the first analysis the project manager has requested. What is the
approximate market size in dollars for this business in Mexico?
Possible Answer:
Below is one suggested answer, but obviously a number of approaches might legitimately be used.

The first step is to go from the population of Mexico to the number of credit cards. The interviewee should
realize that not everybody will have a credit card; people under-age or without any income should be
excluded. In a developing country like Mexico, we can assume that 50% of the population might have
access to a credit card. Next we should breakdown the qualifying population into the three demographic
groups to then calculate the number of credit cards:

 High Income: 10% of qualifying population, average of 2 credit cards per person.
 Middle Income: 20% of qualifying population, average of 1 credit card per person.
 Low Income: 70% of qualifying population, average of 0.5 credit cards per person.
Total population = 100 MM. The number of credit cards by segment and total would be

Customer
segment Customers Credit cards per customer Total cards

High 5 MM 2 10 MM

Middle 10 MM 1 10 MM

Low 35 MM 0.5 17.5 MM

Total 37.5 Million

The next step is to calculate Capital One’s potential revenues from different sources.

a. Interest Income: At this point, the interviewee should be provided with the monthly interest rates and
average outstanding balances per credit card for the three segments:
 High Income: 4% interest rate, $0 average outstanding balance.
 Middle Income: 7% interest rate, $300 average outstanding balance.
 Low Income: 10% interest rate, $140 average outstanding balance.
b. Transaction Income: For this calculation, provide the interviewee with the following information: the
transaction fee is 1%, and the average annual consumption per credit card for the three segments is:
 High Income: $3,000/year consumption
 Middle Income: $2,000/year consumption
 Low Income: $1,000/year consumption
c. Annual Membership Fee: Provide the interviewee with the following information when he/she gets to
this point: the annual fee is fixed and is different for the three segments:
 High Income: $70 membership fee
 Middle Income: $50 membership fee
 Low Income: $30 membership fee
Based on this information, the total revenue for the credit card market is summarized as follows:

Customer Segment High Middle Low Total

10 10
Total # of Cards MM MM 17.5 MM 37.5 MM

Interest Rate 4% 7% 10%

Average balance per month $0 $300 $140

Interest income per customer per

year $0 $252 $168

a. Total Interest Income (MM) $0 $2,520 $2,940 $5,460

Transaction fee 1% 1% 1%

Consumption per customer $3,000 $2,000 $1,000

b. Total transaction fee (MM) $300 $200 $175 $675

Annual fee $70 $50 $30

c. Total annual fee (MM) $700 $500 $525 $1,725

Total Income (MM) $1,000 $3,220 $3,640 $7,860

Question #3: What is your assessment of the most attractive segments for Capital One?
Possible Answer:
The figures in above Section 2 show that the biggest segments are the Middle and Low income
segments. But to make a final recommendation the interviewee should take other aspects into account,
some of them mentioned above.

The Low income segment is the largest in terms of income opportunity but will require the following
considerations:

 Higher default probability (discounted in the interest rate but not in terms of administrative costs)
 Higher costs because it requires a higher number of cards and clients to serve
 Higher marketing expenses if the current Capital One brand positioning is not compatible with the
segment (as hinted by the case description)
 Higher cost to serve, since this segment is less likely to use low-cost automated channels (e.g.
Internet-based online banking, telephone banking, etc) and will require new branches to service the
segment.
On the other hand, the Middle income segment is slightly smaller in terms of income opportunity but may
be more attractive given the factors mentioned for the Low income segment. The cost advantages are
impossible to quantify with the available information. However, they are strong enough to conclude that
the Middle income segment is the most attractive to Capital One. The interviewee should be able to
identify some of these items or additional ones and reach to the same conclusion.

BASF Evaluates Cognis as Possible Acquisition Target

Case Type: mergers & acquisitions; industry analysis.
Consulting Firm: McKinsey & Company final round job interview.
Industry Coverage: Chemical Industry.
Case Interview Questions #00366: The client BASF SE (FWB: BAS) is a large global chemical company
headquartered in Ludwigshafen, Germany. BASF has retained McKinsey to evaluate Monheim, Germany-
based Cognis, another large player in the chemicals industry, as a possible merger/acquisition candidate.

Both BASF and Cognis are bulk commodity chemical producers. Our consulting
team’s main job is to analyze the future prospects of the target company’s main product line: a bulk
chemical that is used in the production of plastics.
Our consulting team has to analyze Cognis, the target company’s future prospects in its major product
line. As the team leader of this case assignment, what information do you need to know and how would
you structure the analysis to determine if the proposed merger/acquisition is a good idea or not?
Note:
At this stage in the project, our consulting team is not in a position to make a final recommendation, but is
more interested in gathering the appropriate data. This is different from most consulting case interviews in
which the purpose is to come out with a recommendation for the client.

Additional Information: (to be revealed during the course of the case interview)

 Production of this chemical has been declining slowly for several years.
 Prices have declined rapidly.
 There are 8 major producers of this chemical with market share divided the following way: the
largest producer has a 30% share, the second largest has a 20% share, and our target company has
a 15% share. The rest is divided among the remaining 5 competitors.
 Profitability in the industry is relatively low. The two largest competitors earn small returns, our
target company is breaking even, and the remaining competitors are operating at a small loss.
 The largest competitor has just announced plans to substantially increase capacity.
Possible Solutions:
This is a merger/acquisition and industry analysis case in which Porter’s Five Forces framework might be
useful, but it isreally an exercise in how to uncover the underlying drivers of the facts given in the case. In
general, the interviewer was more interested to see if I could ask the right questions to collect data.
There are countless paths that the analysis could flow down. Presented here are some of the most
obvious to consider. A satisfactory response would include addressing the following issues:

1. Industry & Market Analysis

Candidate: What buyers or target markets make final use of this chemical product? What is the nature of
the growth and profitability of these end markets?

Interviewer: The chemical was used primarily in the automotive related industries.

Candidate: Is this industry or product regulated in any way that affects cost, pricing, or profitability?

Interviewer: Environmental and pollution regulation apply in the normal way to the chemical production
process, but nothing out of the ordinary.

Candidate: How much production capacity exists in the industry compared to the demand today? And
compared to the estimated demand in the future?

Interviewer: Much more capacity than necessary.

Candidate: What is the current capacity utilization in the industry? How about our target firm Cognis?

Interviewer: Both the industry and our target firm are operating at approximately 70% capacity.

2. Company/Product
Candidate: What is the relative cost position of our target company Cognis compared to the rest of the
competitors?

Interviewer: Our target company has a reasonably good position compared to the rest of the industry in
terms of size, age and efficiency of equipment, and financing.

Candidate: How diversified is this target company and does this product represent a significant source of
revenue?

Interviewer: It is a significant source of revenue, but the most competitive producers are adequately
diversified.
Candidate: Are there additional niche or value-added uses for this chemical or its by-products that are as-
yet untapped?

Interviewer: Nothing really significant.

3. Competitions
Candidate: How rational or volatile is pricing between competing firms?

Interviewer: The industry players often engage in price cuts to temporarily increase market share, but
usually suffer falling profitability as a result.

Candidate: Do we know the reason for the largest competitor announcing capacity increases? Are they
trying to introduce a credible threat to deter future entry or expedite exit from the industry?

Interviewer: We are not sure but it could be possible.

Candidate: Are entry or exit costs prohibitive?

Interviewer: Market entry is expensive due to the unique fixed costs of producing this chemical. Exit is
relatively inexpensive.

Candidate: Has the number of competitors or their market share changed significantly in recent years?

Interviewer: Competitors have been in this industry for a long time and many plants are fully depreciated,
making exit inexpensive. Market share has not changed significantly in recent years.

4. Synergies in Merger/Acquisition
Candidate: Are there operational improvements that the target company Cognis could make to enable it
to be more efficient or other management expertise that our client’s company could bring into the
merger/acquisition?

Interviewer: Yes, on both accounts.

Candidate: Are there scale economies in production or distribution?

Interviewer: Yes, economies of scale exist in marketing and transport, but are much smaller in production.

Candidate: Are there other synergies between our client’s company and the target company such as
product mix, cross-selling opportunities, raw material purchase, etc?

Interviewer: Not significant at this point.

Barclaycard Analyzes the Future of UK Credit Card Industry
Case Type: industry analysis; market sizing.
Consulting Firm: Booz & Company second round job interview.
Industry Coverage: banking; financial services.
Case Interview Question #00363: Your client Barclays PLC (LSE: BARC, NYSE: BCS) is a global
banking and financial services company headquartered in London, United Kingdom. As of 2010 it is the
world’s 10th-largest banking and financial services group and 21st-largest company according

to  a composite measure by Forbes magazine.

Barclaycard is the global credit card and loan business unit of Barclays plc. The Barclaycard was the first
credit card introduced in the UK, coming into service in 1966. It enjoyed a monopoly until the introduction
of the Access card in 1972. Currently, Barclaycard claims it is Europe’s leading issuer of credit cards with
10.4 million customers in the UK and 10.8 million outside the UK. You have been hired by Barclaycard to
analyze the future of the UK credit card industry.
Question #1. First, what do you think are some of the issues and challenges facing credit card
companies in the UK?
Reason behind the quesiton:
Interviewers are looking for a candidate’s ability to structure their answers to an open-ended question.
There is flexibility to concentrate on areas where you feel comfortable, e.g. market demand or internal
company issues such as operational challenges.

Possbile Answer:
There are three immediate issues facing credit card companies in the UK:
First, the UK market is close to saturation, so there are limited numbers of new customers out there and
hence growth opportunities may be limited.

Second, there has been an increase in customer switching rates between card companies — a situation
which is facilitated by the intenet. Hundreds of websites offer card comparison tools, and therefore card
offerings are now a lot more transparent.

And third, there is an increasing number of companies in this area, as non-traditional players such
supermarkets and the post office have recently emerged.

As a consequence of these three issues, competition is much greater – so credit card companies need to
put continuous effort into retaining customers and pricing competitively.
Question #2. Okay, so given that credit card companies are facing increasing competition, what do you
think they should be offering consumers?
Reason behind the question:
Interviewers may take the answer from the first question and drill down into one area. In this case, the
interviewr is testing your business intuition, and your ability to apply general knowledge to the topic at
hand.

Possible Answer:
The key drivers of competitive differentiation are price, features and service. These are not mutually
exclusive, and the mix and emphasis will depend on the target consumers and the company brand. At the
low end of the market, reducing price may be the only option, whereas at the high end, where consumers
have more money and less time, convenience and speed usually become more important. In this case, it
may be worth introducing a 24 hour customer service to attract higher end customers. However, will all
additional features and services the cost-benefits must be carefully considered.

Question #3. One feature which has recently been developed is “wave and pay” – a touchless payment
system. The consumer simply swipes a card over a reader and the transaction is complete. How many
people do you think could be using touchless credit cards in 2010 in London?
Reason behind the quesiton:
This is known as a “market sizing” case question. The most important thing to note is that although it is
important to drive to a definite numerical conclusion, the interviewer cares more about your thought
process than the answer. Of course, this is also a test of your numerical skills, and the interviewer would
like to see you to perform a rough “sanity check” at the end to test whether your answer is in a realistic
range.

Possible Answer:
Well, there are roughly 6 million people living in London. The Oyster Card’s (Oyster card is a form of
electronic ticketing used on public transport services within the Greater London area of the UK) recent
partnership with Barclaycard (A credit card variant of the Oyster card was launched by Barclaycard in
September 2007 and is called OnePulse. The card combines standard Oyster card functionality with Visa
credit card facilities) means that it is realistic that the majority of all Oyster Card users would want to own
a touchless credit card by 2010 as they would be familiar with the technology and see the direct benefit. I
estimate that 90% of the people in London own an Oyster Card as public transport is the quickest and
most convenient way to travel around London for the majority of Londoners.

However, there would be some people that live outside of London that commute to London to work, so I
estimate 30% of 6 million people are in this group — 6 million because whilst the surrounding London
area would be less densely populated than London, the georgraphical reach is much wider, and 30%
because I believe that the majority of those living outside of London perhaps don’t work in London, e.g.
those that have moved out of London for a “quieter life” or to attend university.

so, out of the 7.2 million total so far (90% of 6 million plus 30% of 6 million), the under 18s won’t be
eligible to own a credit card and it is unlikely that the older generation, say the over 60s, will be keen to
take up the new credit card technology. Cash will remain a strong contender for these groups. There will
also a small group of wealthy people who probably don’t use public transport and a small group of people
who aren’t “credit worthy”. I estimate that the total size of these excluded groups to be roughly one third of
the 7.2 million people.

This now gives me a total of (7.2 * 2/3 = 4.8) million people who will be using touchless credit cards in the
London area.

I have considered the groups of people that may not make the effort to apply for a touchless card but
believe this will be compensated by those not mentioned in any of the groups above that will sign up
purely as a response to marketing efforts. Therefore, my estimate remains as 4.8 million.

Hints & Tips:

 Use the paper provided to note down your thoughts if it helps. You can also use the paper to
draw charts or diagrams that help demonstrate your answer (bt that isn’t necessary).
 Don’t be afraid to ask the interviewer for some help if you are stuck, or at least to check that your
assumptions are realistic. Talking through your think aloud will help the interviewer follow your logic.
 Use this question as a chance to demonstrate your creative thinking. There are many paths you
can take to come up with an answer, so use this question to really impress the interviewer.
Question #4. What factors do you think might slow the take-up of touchless payment systems?
Reason behind the quesiton:
This question has been posed as a reality check. The interviewer is seeing if you can relate the question
around customer take-up back to the real world. It will be an opportunity for you to show that you
understand there are many factors at play which could affect the 3.5 million result you came up with in the
previous question.

Possible Answer:
Well, three things come to mind. One is a possible technology-cost issues, another is fraud implications
and the final one is competition.

With regards to technology, retailers will have to deal with an additional payment system if they want to
offer touchless payments on top of Chip and Pin, making the infrastructure requirements more
complicated. for example, Chip and Pin terminals may not be fully compatible with touchless readers, so
two pieces of equipment would be required. Any implementation of this new technology may also be
costly for the retailers, so it seems likely that some may be reluctant to install the touchless payments
systems.

Customers may also be reluctant to use these cards as they require no verification to make purchases,
increasing the possibility of fraud and therefore making the touchless cards unattractive.

With regards to competition, if touchless payments can only be used for transactions of £10 or less, then
usage amongst the touchless card owners could vary greatly as users may still need to carry additional
cash or the standard credit cards. Therefore, some groups, such as bigger spenders, may prefer to stick
to using one credit card which eables them to complete both low and high-value transactions.

Question #5. So, based on our discussion today, can you give me a summary of your view on the future
of the credit card industry in the UK?
Reason behind the quesiton:
The interviewer wants you to demonstrate that you can summarize the conversation concisely, picking out
the most important points, such as the “whats” and “whys”.

Hints & Tips:

 When doing this kind of summary, it might help to picture yourself passing your manager in the
office, where he/she would like you to give them a quick overview of your findings.
 Take time to recap on the discussion before speaking, so that you don’t miss out any important
points.
 Don’t repeat the whole conversation word for word as you shouldn’t be going into a lot of detail at
this wrap-up stage.
Possible Answer:
Greater competition is increasing the pressure on credit card companies to better match customer
requirements. Changing lifestyles are skewing the trend towards speedier transactions and more
convenience. For this reason, a touchless payment system may be the “next big thing” and customer
take-up should be quite high (in London in particular, due to the widespread use of Oyster Cards).
However, issues around implementation and fraud may still need to be overcome before it is widely
accepted. Perhaps the bigger challenge to come is making touchless payments a true substitute for cash.

Brazil to Withdraw from International Tin Cartel

Case Type: finance & economics; industry analysis.
Consulting Firm: Cornerstone Research 2nd round job interview.
Industry Coverage: mining & metals production; international trade.
Case Interview Question #00347: The International Tin Council (ITC) was an organization which acted
on behalf of the principal tin producers in the world to buy up surplus tin stocks to maintain the price at a
steady level. The organization was established in 1956, following on from the work of the

International  Tin Study Group, which was established to survey the world supply
and demand of tin.
Essentially ITC is a tin mining cartel consisting of four biggest tin producing countries: Indonesia, China,
Brazil, and Russia. Every year the four governments get together to decide how much tin to produce
according to demand forecasts, and allocate the production quota evenly among them. Now, Brazil is
thinking about withdrawing from the cartel. The President of Brazil comes to you for advice. What would
you tell her?
Possible Answer:
This case is to test your understanding of basic microeconomics concepts. I need to determine if it is
more profitable for Brazil to mine according to the guidelines of the cartel, or on their own.

Candidate: What are the relative production costs of each of the countries?
Interviewer: Brazil and Russia have a 10% cost advantage over Indonesia and China (Alternatively, you
may be asked how you would find out the production costs of each country).

Candidate: What volume does each country produce and sell, historically?

Interviewer: Last year, Brazil and Russia both produced twice as much as Indonesia and China (you may
get actual numbers, but very often you will get broad generalizations like these).

Candidate: What is the demand curve facing the producers?

Interviewer: A basic downward sloping demand curve (drawn as such on a piece of paper).

I wanted to derive the price implied by the supply and demand curves. The KEY to this question is to
derive the world supply curve. The basic concept is from ECON 101: supply curve is the sum of marginal
cost (MC) curve of all producers. Here we only have four producers.

Based on what I found out from my questions, I know that the supply curve will be a step function and can
compare the price with Brazil’s marginal cost. Based on Brazil’s cost position on that supply curve, I can
decide whether Brazil will be better off producing on their own.

Recommendations for Client:

I recommended that Brazil go it alone, based on their favorable cost position, and the fact that the
remaining countries did not have enough volume to “open the flood-gates” in an attempt to punish me for
leaving the cartel.

Interviewee’s Comments:
My answer was right on, but I did not mention the possibility of non-cartel producers who could fill the
world supply or the effect of other substitute products of tin such as aluminium, synthetic polymer,
plastics, etc.

Notes:
Game theory suggests that cartels are inherently unstable, as the behaviour of members of a cartel is an
example of a prisoner’s dilemma. Each member of a cartel would be able to make more profit by breaking
the agreement (producing a greater quantity or selling at a lower price than that agreed) than it could
make by abiding by it. However, if all members break the agreement, all will be worse off.
There are several factors that will affect the firms’ ability to monitor a cartel:

 Number of firms in the industry

 Characteristics of the products sold by the firms
 Production costs of each member
 Behaviour of demand
 Frequency of sales and their characteristics
Century Aluminum Develops New Technology in Plastics
Case Type: new business; industry analysis.
Consulting Firm: Cornerstone Research 2nd round job interview.
Industry Coverage: metals production; manufacturing.
Case Interview Question #00338: Your client Century Aluminum Company (NASDAQ: CENX) is the
second largest primary aluminum producer in the United States. Century Aluminum was formed in 1995
by Glencore International of Switzerland as a holding company for its aluminum-producing assets. Based

in Monterey, California, the company manufactures molten aluminum, as well as

standard-grade ingot, extrusion billet, and other value-added primary aluminum products.
Century Aluminum is experiencing decline in sales over the last several years. Also, over the past year it
has been working on developing new technology in plastics. The client is slightly ahead of competition in
this technology development. Should the client continue development of plastic or remain in the aluminum
industry?
Possible Solution:
Essentially there are three parts to this case question.

 First, is plastic an attractive industry and is it more attractive than aluminum in the long term?
 And second, does the client company have capabilities to become a profitable player in the
plastic industry?
 An additional consideration is what is to become of the client’s aluminum business. Can the two
businesses be run together without adding significant complexity costs? Is there any sizeable
synergy between the two (production and/or distribution)? If not, can the aluminum business be sold
for the right price?
1. Let us consider aluminum market first. Explore the reason for client’s sales decline in aluminum market.

 Is plastic replacing aluminum?

 What about cannibalization of existing aluminum products?
 What are the likely actions of competitors? – High rivalry in declining aluminum industry will lead
to price wars and declining profits.
2. Evaluation of plastic market:

 Does plastic offer significant benefits to customers?

 Are their needs satisfied by plastic?
 What is the cost of entry into the plastic market? – Minimum efficient scale for plastic is 10% of
the volume of the aluminum market.
 Are there any other substitutes to aluminum and plastic?
Interviewee’s Comments:
No specific answer was required for this case. The key issues were:

 potential cannibalism
 high rivalry in a declining industry (aluminum) that will lead to price war and declining profits.
Avery Dennison to Turn Around Specialty Label Business
Case Type: industry analysis; business turnaround.
Consulting Firm: FTI Consulting 2nd round job interview.
Industry Coverage: manufacturing; office products.
Case Interview Question #00333: Our client Avery Dennison Corporation (NYSE: AVY) is a global
manufacturer and distributor of self-adhesive specialty labels, office products, and various other paper
products. The client company is currently headquartered in Pasadena, California, United States, with

manufacturing and distribution facilities in over 60 countries.

The client Avery Dennison has been losing money in their specialty label business for the last three years.
They have brought you in as an outside consultant to help address the problem. There are two questions
for you:

(1) Should the client Avery stay in this industry or not?

(2) If the client has decided to stay in this industry, how can you quickly help them turn around their
unprofitable business?
Possible Solution:
First, I would like to understand whether specialty label is an attractive industry to be in the long run. One
of the possible approaches here is to understand current industry structure and the industry trends by
applying Porter’s Five Forces analysis.
1. Current industry structure
 Rivalry: The client company Avery is the largest player in the market, responsible for 54% of
sales; other competitors are primarily small “mom and pop” producers.
 Customers: High-end cosmetic companies prepared to pay premium for the client’s color
matching ability.
 Barriers to entry: Low, competition may increase in the future.
2. Next issue to consider: industry trends

 is it a growing industry;
 how is competition likely to evolve;
 what capabilities are required to compete in the future and does the client company possess
them;
 are substitutes likely to evolve (other materials, other technology);
 how powerful and concentrated are our suppliers;
 how high are the exit costs.
Next, I’d like to develop business turnaround and profitability improvement strategy. Profit = Revenues –
Costs. A poor profitability means that either revenue goes down, costs go up, or both.

1. Let us look at Revenues first.

Revenue = number of units sold * price per unit. It turns out there were no changes on the revenue side.

2. Costs = fixed costs + variable costs

What are the major cost drivers for specialty labels? They are labor (variable) and artwork (fixed).

 It turns out client’s variable costs are the same as industry average and have been constant over
time.
 Client’s fixed costs are quite significant, therefore there are significant economies of scale in this
business.
Recommendations for Client:
The costs will be brought down if sales go up because of economies of scale. Therefore, the client should
spend heavily on marketing to help spur sales.

What Are Different Ways to Travel from NYC to Boston?

Case Type: industry analysis.
Consulting Firm: Hay Group first round job interview.
Industry Coverage: transportation.
Case Interview Question #00301: What are the different ways you can travel from New York City, New
York to Boston, Massachusetts?
Possible Answers:
A typical answer for this question would be:

You can take the train, or fly by the airplane, or drive a car, or take a bus.

Practically, that is pretty much the answer, but this is not what management consulting firms are looking
for in a case interview. Consider this alternative answer and the difference between the two:

There are 3 ways you can travel: 1) by land, 2) by sea or 3) by air.

1. If you travel by land, you can drive a car, take the train, take a bus, ride a bicycle, or walk if you are
patient.
2. If you travel by sea, you could sail, take a motorboat or look into a ferry.
3. By air, there is the air shuttle, or a helicopter if you can afford it.
The second answer shows the structured thinking that is important to consulting. Consultants solve
problems by breaking them down into their constituent parts. This should be done in a MECE (mutually
exclusive, collectively exhaustive) way. Notice that in the second answer, there is no way of travel that
does not fall into one of those first three buckets, and yet each of those buckets is by definition different
from each other. This is what you want to aim for during the structuring portion of a case. Practice it and
practice again.
Remember, the case portion of consulting interview is designed to test a job candidate’s structured,
logical thinking and problem solving ability. I won’t dwell on the need for math skills, creativity and
business familiarity beyond saying that they are necessary. However it is worth taking a moment to think
about the structured thinking, as it can be an adjustment for many people in preparing case interviews.

Belgium Considers Privatizing National Lottery to Cut Debt

Case Type: industry analysis; organizational behavior; economics.
Consulting Firm: Booz Allen Hamilton (BAH) final round job interview.
Industry Coverage: government & public sector; entertainment.
Case Interview Question #00248: Suppose you are a senior executive at Booz Allen Hamilton (BAH).
The other day you met the Belgian Minister of State Owned Enterprises and he asked you whether it
would be a good idea to privatize the National Lottery in Belgium (i.e. also to liberalize the market and to

open it to the competition).

Before accepting the engagement, you perform a quick analysis of the situation in order to see whether
the idea is worth spending more time on or not. Remember, your firm has a reputation of excellence to
maintain and does not want to be involved in any projects that could potentially fail. What is your
recommendation? Do you accept the project? Why is it a good or a bad idea to privatize Belgium’s
National Lottery?
Additional Information:
Here are some background facts about the National Lottery industry in Belgium and previous
privatizations.

The National Lottery enjoys a monopoly and offers different products. For all of them, the probability to
win is fixed by the Government, as is the price of each ticket. By now, half of the bets must be returned to
players. The other half goes to charities or development projects (that have to be financed anyway) after
the distribution and administrative costs have been paid. Lottery tickets are distributed through
newspapers kiosks and supermarkets who receive a fixed amount per ticket sold. Lottery gains are tax-
free.

In the recent years, the Belgian Government has privatized the telecom market and it has been a huge
success. The incumbent and the new entrants make much more money than before. The Belgian
Government is trying to reduce its debt and is looking for other privatization opportunities.

Possible Answer:

Interviewer: How would you approach this case?

Candidate: I would look at the Net Present Value (NPV) of selling the National Lottery now versus the
NPV of the future profits if the Lottery is not sold.

Interviewer: Very good start. How would you evaluate the NPV of selling now?

Candidate: Well, I guess it would be the discounted value of the future cash flows that a private operator
would earn.

Interviewer: So far so good. What would influence the future cash flows?

Candidate: The demand. Is there any way to boost the overall demand for the Lottery in Belgium?
Interviewer: No, the market is stable and saturated. Let me rephrase my question: how would the cash
flow from a private operator be different from those of the National Lottery?

Candidate: If the demand does not change, we could perhaps be more efficient and reduce our costs.

Interviewer: Indeed, but the National Lottery is already run independently from the Public Administration
and is considered quite efficient. What else?

Candidate: I guess the private operators would have to pay taxes. Their cash flows would be lower than
those currently earned by the National Lottery that does not have to pay taxes. Therefore, the NPV of the
future cash flows would be lower than in the current situation. So I recommend that the Government does
not privatize the Lottery because the selling price would be lower than the NPV of keeping it.

Interviewer: Not so fast! You said they would have to pay taxes. Correct. Taxes are collected by the
government, so it should compensate for the lower selling price. So taxes are not the issue here. What
else would you consider in a liberalized market?

Candidate: I expect the different companies to compete.

Interviewer: Indeed. What would be the consequences?

Candidate: Since the only way for competitors to differentiate themselves is to return a higher percentage
of the bets to the players, I am afraid that they would enter in a destructive war that would reduce their
margins. If that is the case, their future cash flows would decrease. The consequence is that the NPV is
also reduced as well as the taxes collected on their earnings. So the Government would be worse off
privatizing the Lottery business.

Interviewer: Home run! So would you accept the project?

Candidate: No, I think our firm can create more value on other projects.

Note: This is a final round case given by a partner. It is a conceptual case. There are no numbers. The
goal of this case is to apply concepts from microeconomics. This case is controversial as different people
can come up with different answers. Therefore, it is more important to develop a consistent set of
arguments than to reach the solution. Please acknowledge that other arguments could be developed. The
interviewer should not try to force the interviewee to come too quickly but rather let him/her develop all
his/her points. Then, ask him/her to proceed by elimination in order to come to a final recommendation.
Lucent Technologies to Reverse Trend of Declining Profits
Case Type: business turnaround; industry analysis.
Consulting Firm: Parthenon Group first round internship interview.
Industry Coverage: telecommunications & network.
Case Interview Question #00244: The client Lucent Technologies, Inc. is a technology product
warehouser that purchases a range of voice/telephony telecommunication and network technologies
(both simple and complicated) from original manufacturers, and then sells them to a group of resellers,

who in turn sell them  to end consumers. The supply chain structure is like the
following: Manufacturer –> CLIENT –> Reseller –> End Consumer.
The reseller market can be divided into 3 segments: Corporate (largest), Value-Added (medium), and E-
tailer (smallest). Our client has experienced eight quarters of declining profit. You have been hired to find
out the cause and provide recommendations to reverse this trend. How would you go about it?
Additional Information: (provided to you if asked)
The client is the largest company in the industry, with a number two competitor almost as large and
several smaller players. There have been no new market entrants in recent years and all firms sell at
industry-wide prices. The industry can be divided exclusively into three segments, for which the following
data exist:

Table 1. Market segments and client’s market share.

Client Industry Client Industry

Market size unit avg. price Market size unit avg. price
Year 2000 ($ million) sales ($) Year 2002 ($ million) sales ($)

Corporate 20 1,000 5,000 Corporate 15 1,000 3,000

Value-
Value-Added 45 1,500 10,000 Added 40 1,250 8,000

E-tailers 10 2,500 2,000 E-tailers 5 2,000 1,000

Total/Averag
e ??? ??? ??? ??? ??? ???

The interviewee will be asked to do some calculations and complete the above table.

Possible Solution: 

After some calculations, the data from the completed Table 2 should lead the interviewee to the following
conclusions:
 The overall industry has shrunk, both on a price and volume basis, indicating it’s a bad business
to be in.
 Overall market size has declined 20%: 1 – (60/75) * 100% = 20%.
 Average price has declined 28%: 1 – (4,000/5,555) * 100% = 28%.
 The client’s overall market share has shrunk from roughly 33% in Year 2000 to 25% in 2002.
 Year 2000: (1*5 + 1.5*10 + 1.5*2 ) / (20 + 45 + 10) = 25/75 = 33%
 Year 2002: (1*3 + 1.25*8 + 2*1) / ( 15 +40 +5 ) = 15/60 = 25%
 Value-added is the largest segment and client has lost the most market share in it, down from
33% in Year 2000 to 25% in 2002.
The falling prices can be interpreted to mean that a price war has begun in the industry, perhaps due to
short-sighted competitive responses to new technologies. The falling volume can be interpreted to mean
that the client and its competitors are getting cut out of the value chain, as manufacturers have begun to
sell directly to resellers and end consumers.

Based on the available data, deteriorating metrics across the board suggest that the voice/telephony
technologies industry is mature and rapidly approaching obsolescence. Absent novel opportunities for
differentiation, there is little that the client can do to return to profitability under these market conditions.
Recommendations should recognize this reality and likely address options for exiting the industry via
diversification, firm sale, and/or closure.

Table 2. Market segments and client’s market share (completed).

Market Client Market Client

size ($ unit Year size ($ unit Industry avg. price
Year 2000 million) sales Industry avg. price ($) 2002 million) sales ($)

Corpora
Corporate 20 1,000 5,000 te 15 1,000 3,000

Value- Value-
Added 45 1,500 10,000 Added 40 1,250 8,000

E-tailers 10 2,500 2,000 E-tailers 5 2,000 1,000

1*5 + 1*3 +
1.5*1 1.25*
0+ 8+
20+45+ 1.5*2 75,000/ 15+40+ 2*1 = 60,000/
Total/Avera 10 = $75 = $25 (20/5+45/10+10/2) = 5 = $60 $15 (15/3+40/8+5/1) =
ge M M $5,555 M M $4,000
Boston Beer Company Considers Entering Wine Business
Case Type: new business; industry analysis.
Consulting Firm: Cognizant Business Consulting (CBC) second round job interview.
Industry Coverage: tobacco & alcohol; food & beverages.
Case Interview Question #00206: The client Boston Beer Company (NYSE: SAM) is a large American-
owned brewery headquartered in Boston, MA. Best known for its Samuel Adams brand of beer, Boston
Beer Company is looking for opportunities to generate more revenue. It is facing a very competitive

market  in the beer industry and wants some diversification in its product
portfolio. Currently, they do not have too much cash at hand and are open to the idea of financing projects
through debt.
After a vacation in California one of the VPs of the company suggests that they should consider venturing
into the wine business. According to him, it’s still in the alcoholic beverage industry, and there seems to
be evidence that wine drinkers is a growing demographic. Thus, they might be able to make some
money through the wine business. Is this a good idea?
Possible Answer:

This case does not have any specific information – the candidate must be tested for structure,
organization and creativity in his/her analysis. The candidate should perform an industry analysis to
determine what to do. One of the suggested approaches is to:
1. Determine the current landscape – How is wine made, what does one need? Vineyards -> grapes ->
processing -> bottling -> aging -> distribution.

2. How much expertise is involved? Are there any similarities between beer brewing and wine making? A
lot of expertise is involved since there are no similarities between beer brewing and wine making, i.e.
negligible techniques from the beer industry can be utilized.

3. The candidate at this point should realize that wine making is a very different beast, and in addition the
aging process implies storage costs and capital investment lockup. These two points should be
considered the main barriers to entry

 How many winemakers are currently in the market place

 What is the capacity utilization of the current wine makers
 What is the current profit margin in the business
 Perform a market analysis/assessment – is the wine market really growing?
 How loyal are the customers, are they price sensitive, brand sensitive?
 Are there economies of scale involved
 Advertisement costs, distribution channels, preexisting alliances.
 Are there economies of scope possible (Most probably not, but can be broached if a interesting
option is thought of)
 Touch on financial requirements
Based on the above answers the candidate should suggest that this will not be a viable option due to:
Lack of expertise required to make wine, excessive cash required due to storage costs. No significant
economies of scale except maybe distribution channels, but don’t have to enter the wine business for
that.

Encyclopedia Britannica to Enter Online Web Business

Case Type: new business; industry analysis; mergers & acquisitions.
Consulting Firm: ZS Associates final round job interview.
Industry Coverage: E-commerce, online business; mass media & communications.
Case Interview Question #00194: A wealthy Swiss trader who has amassed large amount of money
while working for UBS Global Asset Management (SIX: UBSN, NYSE: UBS) wants to invest part of his
personal fortune. He has just bought the Encyclopedia Britannica, Inc., an old and respected
encyclopedia company. He now wants to enter the Internet and online business field. You have been
hired as a consultant to help him put a plan together. How would you advise him?

Additional Information:
 The Swiss trader has no prior expertise in web-related business services.
 Encyclopedia Britannica is the best brand name in the world for encyclopedia.
 Current product line of Encyclopedia Britannica include print edition of encyclopedia and CD
ROM version.
 Capital is not a constraint for the wealthy Swiss trader.
In this case, it turns out the Swiss trader has no idea what the final “web” product looks like. The
candidate should first narrow down the possibilities, for example:

 Search engine – (free/pay for use)

 Web-site that peddles information (free/pay for use).
In this case, the Swiss trader wants a new search engine/site.

Possible Answers:

First, the candidate should try to determine the Swiss trader’s purpose of entering the new business of
web-services.  – To design a product that is much better than existing products, and to capitalize on the
brand name at the same time.
What is the value proposition? – To provide a search engine that provides accurate information without
hassles, quickly and efficiently.

Other key areas for discussion:

A. Competition There are two dimensions to choose from:
1. Compete on quality

 Big 3 search engines: Google, Yahoo, Bing and Wikipedia are the main competitors.
 Requirements: human input to rate quality of content on websites.
2. Compete on powerful search engines, with no human intervention

 Alta Vista, Excite, HotBot are the main competitors

 Technology is the key competence.
Choose the following metric to measure performance against competition, and to measure progress.

 Number of hits, page views, visits, etc.

 Page rank, authority ranking, authority index.
 Ratings by internet magazines, and other reviewers/raters on the Web, online reputation.
 Number of websites accessed or “listed”, number of backlinks.
B. Revenue Sources Possible sources of revenue include:
1. Advertisers:

 Advantage: Revenue stream more certain, need a smaller number of payers to support
operations
 Disadvantage: Hassle of loading pages with ads to users
2. Customers: ( Pay per use / periodic subscription)

 Advantages: Users can be assured of ad-free operation, greater credibility.

 Disadvantage: Need a much higher customer base quickly to support operations. Also future
revenue stream is uncertain as it depends on future usage.
C. Customers
1. Who are the new business’ potential customers?

 Advertisers
 Visitors to web-site
a. Current audience– based on current usage data and current profiles, e.g., age, income groups,
types of sites visited, and main purpose of using the Internet.
b. Future audience – will depend on trends in the industry, and emerging major uses of the Internet.
(Note: The resolution of this issue needs to be done simultaneously with the issue of Revenue
Sources outlined above. Since client is still only exploring options, lay down the issues anyway)
2. What does your target market want? – Client doesn’t have any data. Need to find out. Methods: Online
surveys, etc. Be prepared to discuss what exact questions you will put on this survey, what information
you are trying to elicit, and how you will use that information.

3. How best to give customers what they want? – This will revolve around web design, and selection of
most appropriate technologies to implement the site.

D. Core Competencies:
1.What core competencies are required to succeed in the business?

 Depends on whether client wants to compete on “quality” or “quantity”

 Competing on quality makes more sense given their known expertise in information, and their
respected brand name.
 If competing on quality, key competencies required are:
 Access to current, accurate information.
 Brand name.
 Ability to constantly update information and new websites. This is especially important if
customers are paying for service.
2. What core competencies does the client currently possess?

 Brand name
 Expertise in the information business.
 Key take away from this analysis is that client lacks the technological capability to maintain
current information at the speed required in an Internet-based business.
3. How is the gap between the two going to be bridged?

 Acquire the technology.

 Acquire skilled programmers.
 Issues to consider here are the cost of such acquisition versus the benefit, and the time it will take
to execute.
Note: This case has no real “solution” as it is open ended. The client is just looking to you to lay down the
issues in entering a new business. An exceptional answer will summarize the key points in a visual
manner via a chart or table.
Genentech Invents Preventative Drug for Heart Attack
Case Type: new product; pricing & valuation; industry analysis.
Consulting Firm: IMS Health Consulting Group second round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences; insurance: life & health.
Case Interview Question #00193: The client Genentech, Inc. (Genetic Engineering Technology, Inc.) is
a biotechnology and pharmaceutical corporation headquartered in San Francisco, California, USA.
Genentech has hired your consulting team because its research department has just invented a
preventative medicine for heart attacks that took two years to develop and that will be ready to market in
six months. The drug is a tablet with no side effects and it significantly reduces the chances of a heart
attack.

The marketing department of Genentech has decided to price the new drug at $300 per year. What is
likely to happen to the healthcare industry if the new drug is sold at this price?
Additional Information:
Product
 The tablet must be taken every day.
 The drug has already been approved by FDA.
 Assume that Genentech has unlimited manufacturing capacity for this product.
 The drug will be prescribed through cardiologists.
Customers
 Potential customers are Americans aged 50+ that are high risk for heart attacks.
 Of Americans aged 50+, 40 percent are considered high-risk.
 Of high-risk Americans, 25 percent will have a heart attack by age 70.
 40 million Americans are over 50. (Ask candidate to estimate this figure)
 It costs a health insurance company $50,000 to cover every heart attack.
 There are no viable substitutes for this new drug product.
Possible Answer:

First, calculate potential market for the product:

 40 million x 40% = 16 million Americans are at high risk for heart attack.
 16 million x 25% = 4 million Americans will have a heart attack by age 70.
If the interviewee does not calculate the market size, interviewer should ask how health insurance
companies will decide whether or not they will cover this new drug product. The candidate may attempt to
determine if it is cheaper for health insurance companies to cover the product or simply let people have
heart attacks.

As we calculate above, there are 16 million Americans age 50 or older who are considered high-risk for
heart attacks. One quarter of these (4 million) will have a heart attack by age 70.

1. If a health insurance company were to cover their prescriptions for this medication for 20 years, the
costs would be:
16 million x $300/yr x 20 years = $96 billion. Assuming a 10% discount rate, the net present value (NPV)
of this amount is about $40 billion.
2. If the health insurance company were to let people have heart attacks and then treat them afterwards,
the costs would be:
4 million x $50,000 = $200 billion. The present value of this amount is about $200 billion / (1.10^20) = $30
billion.

Conclusion: Given this price, health insurance companies might not be willing to provide coverage for
this medication. They might just choose to let people have heart attacks and then treat them afterwards.
What Would Southwest Do If Oil Price Dropped to Zero?
Case Type: industry analysis; operations strategy.
Consulting Firm: Gallup Consulting final round job interview.
Industry Coverage: Airlines; Oil, Gas & Petroleum Industry.
Case Interview Question #00185: Imagine you are the CEO of Southwest Airlines (NYSE: LUV), the
world’s largest low-cost carrier. Headquartered in Dallas, Texas, Southwest is the largest airline in the
world by number of passengers carried per year as of 2009. It maintains the fourth-largest passenger fleet
of aircraft among all of the world’s commercial airlines. As of December 31, 2009, Southwest operates
more than 3,200 flights daily.

As the CEO, you have just learned that starting from tomorrow the price of oil will drop to zero. Obviously,
this has significant ramifications for your business. Now the question to you is: what three people would
you want to talk to regarding this development and why?
Additional Information:
 Price of oil, including transportation and refining costs, is zero.
 Cost of jet fuel is zero.
 Assume that oil companies make oil at zero profits.
 Ignore geo-political issues.
 No other specific information – Candidate must decide on the critical issues.
Possible Answer:

The interviewer should seek to conduct a conversation, where the interviewee creates a structure and
works through questions such as the following:
 How does this change impact the business – revenue drivers?
 What is the cost structure of the airline?
Fuels costs are a significant portion of the operating costs of an airplane. Thus, it is likely that prices
could be reduced. This will result in an increase of primary demand. People who might have taken
the bus, train, or car might now be willing to fly at the lower cost.
 What effects will increased demand have on utilization rates?
 Do you need more planes? Is there going to be a first mover advantage?
 Are Boeing and Airbus going to be able to make enough planes to meet the new demand? Will
the prices of planes go up? Can airports handle more planes?
 Will planes travel farther now since they have no fuel costs?
 How will competitors react to this news?
So, who might you talk to (not an exhaustive list by any means; there are many, many others):

 CFO or Accounting Officer of Southwest who knows about the internal cost structure will be able
to tell you what new items will be driving cost and constraining operations.
 Market Researcher – how does one sell the new airline to the public?
 Labor Unions – labor will be a bigger factor in the cost structure
 Airplane Manufacturer Airbus/Boeing – can you get more planes if demand increases? Can you
get planes that fly longer (more fuel capacity)
 Airport Authority – can you reserve more landing slots before others?
 Competitors like United, American, Delta, etc – without discussing prices and avoiding collusion,
are there other things you can learn from your competitors?
Once again, there are no right answers here – the key is did you discuss the strange issue intelligently?
Did you pick three reasonable people and does your logic support the three you picked?

Why are Sinusitis Drug Sales Different Between US & Canada?

Case Type: math problem; industry analysis; market sizing.
Consulting Firm: Campbell Alliance final round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00183: Your client GlaxoSmithKline plc (LSE: GSK, NYSE: GSK) is a global
pharmaceutical and consumer healthcare company headquartered in London, United Kingdom. As of
2009, it is the world’s third largest pharmaceutical company measured by revenues (after Johnson &
Johnson and Pfizer).

GSK makes and sells a prescription drug brand-named Augmentin for nasal infections (or Sinus Infection,
Sinusitis). You’re brought in as an external consultant because GSK’s sales department has seen some
strange sales numbers showing per capita sales of Augmentin in the US are much higher than sales in
Canada. Their question to you: Why are per capita sales different between the two countries?
Additional Information:
 A nasal infection is an ailment with symptoms much like a cold. People cannot self diagnose a
nasal infection.
 The competitors are the same in the US as they are in Canada.
 This is a prescription drug – it is not sold over the counter (OTC). Given a prescription, patients in
both countries will have it filled. Insurance will pay for it.
 Americans are no more or less likely to contract a nasal infection, or show symptoms than
Canadians.
 Canadians with nasal infection symptoms are will visit the doctor 60% of the time, while
Americans will visit the doctor 30% of the time.
 Canadian doctors are twice as likely to misdiagnose a nasal infection. In other words, Canadian
doctors diagnose a cold or flu, when the patent indeed has a nasal infection (the candidate should
ask for the magnitude of misdiagnosis – 10% in the US and 20% in Canada).
 For a diagnosis of nasal infection, American doctors prescribe the client’s drug 70% of the time
versus 33% of the time in Canada.
 The price of the drug in the US is 25% higher than the price in Canada.
 Canadian patients receive no refills for their prescription on average, while Americans receive 1
refill on their prescription.
Possible Answer:

The key to this case is to identify the process by which a person receives the drug. Since all comparisons
are made in per capita terms, the candidate should not focus on market or population size differences
between the two countries.
There are several steps in the process. The good approach should identify the relevant steps in the
process, in order, and compare US and Canadian revenues at each step. A good answer will identify four
of the five steps in the process, a very good answer will identify all 5 steps, and an excellent answer will
identify all five steps and be able to calculate the relative difference in sales between the two markets.

A good way to approach this case is to start with certain number of patients, say 100, and compare
revenues through each step in the process. The five steps in the process are:

 Of 100 people with undiagnosed nasal infections 60 Canadians will go to the doctor versus 30
Americans.
 Of the 60 (Canadian) / 30 (U.S.) people that visit the doctor 80% (Canadian) / 90% (US) will be
correctly diagnosed 48 (Canadian) / 27 (U.S.).
 Of the 48 (Canadian) / 27 (US) people that are diagnosed, 33% (Canadian) / 70% (US) receive a
prescription for our drug: 16 (Canadian) / 19 (US).
 Of the 16 (Canadian) / 19 (US) people that are prescribed the drug, price of the drug in the US is
25% higher than the price in Canada, this is equivalent to having 25% more people in the US receive
the drug. The 19 US people are 19*(1+0.25) = 24 revenue equivalent Canadian patients.
 Of the 16 (Canadian) / 24 (US) equivalent patients, Canadians, on average, receive no refill,
while Americans, on average, receive 1 refill. Again, each US patient is 2 revenue equivalent
Canadian patients. The 24 American patients are actually 48 revenue equivalent Canadians.
Conclusion: Overall, US revenues are three times higher than Canadian revenues – 48 revenue
equivalent US patients versus 16 revenue equivalent Canadian patients.
DeVere Group Assesses Health Club Industry Trend
Case Type: industry analysis; operations strategy.
Consulting Firm: OC&C Strategy Consultants final round job interview.
Industry Coverage: sports, leisure & recreation; tourism, hospitality & lodging.
Case Interview Question #00177: Our client DeVere Group runs a major chain of health clubs in the UK
(Greens Health & Fitness), alongside hotels, resorts, venues, and casinos (which are not the focus of this
case). The Greens Health & Fitness clubs are large out-of-town sports centers offering state-of-the-art
gym, fitness classes, Jacuzzi, swimming pool, etc. They are relatively expensive, about £30-40 per month
for an individual membership.

As part of a broader strategy review, the client DeVere Group wants to know what they should do with
their leisure clubs division – should they sell it, rapidly build more clubs (if so, what sort), or maybe
acquire another player? Your specific task on this case is to look at the market trends and assess
competition in the leisure clubs industry.
Demand for leisure clubs
Question #1: What factors might you analyse to determine what is going to happen to demand for leisure
clubs? (In consulting terminology, the job candidate should look at the ‘drivers’ of demand in the industry)
Possible Answers:

The Good Answer will name some of the following factors, with some (prompted) discussion of the
associated issues:
 Trends in society towards more or less participation in sport – Whilst more participation in sport
generally may be positive for demand, increases in popularity of sports not offered at health clubs
may have a negative effect (e.g. people may play football instead of going to the gym).
 Trends in obesity – if the population is getting more obese, there are two possible implications of
this. One is that people are getting more obese because they are not exercising (i.e. declining
demand for leisure clubs). The alternative interpretation is that an increasingly obese population will
create demand for facilities to exercise more.
 Trends in available leisure time and money. If people have more spare time, they are likely to use
health clubs more. National income / state of the economy – leisure clubs are likely to be a luxury
good, for which demand will decline if there is a recession.
 Demographics – Younger people are more likely to be members of gyms. Therefore, if the
population as a whole is getting older, demand for leisure clubs is likely to decline.
The Excellent Answer will name most of the above factors, with more explanation of why they are
important, and may include other sensible suggestions e.g. sales of Slim Fast (a brand of dietary
supplement food products promoting diets and weight loss plans) would be a good indicator of what has
been happening to demand for leisure clubs, because people who buy “Slim Fast” are the type of people
who would use leisure clubs. An excellent candidate will also be able to defend sensible answers when
questioned or pushed on why a particular factor is important; often it is at this point in the case study
where excellent candidates differentiate themselves.

Interpretation of data – demand factors

The interviewer would then present five charts (including the two charts below; the other three charts
would not provide useful information but serve as ‘distraction’) for interpretation by the interviewee, who
would be asked to explain what the data showed, and what that meant for the demand for leisure clubs.

Question #2: What is likely to happen to demand for leisure clubs?

Possible Answers:
The good answer–the charts clearly show that obesity has increased rapidly over the past two decades,
and this trend is forecast to continue into the future. This means that demand for leisure clubs will
increase, as people will have an increasing need to exercise.

The excellent answer–the first chart shows that obesity has increased historically, and this trend is
forecast to continue. However, from the first chart it is not clear whether people are becoming more obese
because they are not exercising enough (which would indicate declining demand for leisure clubs), or
whether an increasingly obese population will exercise more and hence create increased demand. If I
combine the two charts, however, you can see that most people are likely to exercise more if they wished
to lose weight, and this is particularly true of wealthy people (who are likely to be our target customer
anyway). On the assumption that most obese people want to lose weight, we can say that an increasingly
obese population will create increased demand for leisure clubs.
 Interpretation of data – market outlook
Having seen the data, the candidate should come to the conclusion that demand for leisure clubs is likely
to be strong for the next few years. He/she will then be shown a chart showing the competitors’ plans for
building clubs, demonstrating that the number of leisure clubs is forecasted to rise from 150 in 2007 to
500 in 2010.

Question #3: What is the critical issue for our client DeVere Group?
Possible Answers:
The good candidate would indicate that their market may become saturated, as supply grows faster than
demand.

The excellent candidate would say: “The important question is whether supply in 2010 is greater than
demand (i.e. there are more spaces available in leisure clubs than can be filled by people wanting to visit
clubs). In this situation, there is likely to be price competition, which may make the business unprofitable.
However, not all of the 500 clubs will compete with our client – we need to differentiate between different
club types.”

Market Segmentation
Question #4: In order to better understand the competition, we need to understand what differentiates
leisure clubs? (This may be phrased in consulting jargon as “How might we think about segmenting the
leisure club market?”)
Possible Answers:
The good candidate will point to some of the following:

 Price – the type of customer who uses a premium club (£50 per month) is unlikely to switch to a
budget club (e.g. Council-run gyms costing £2 per visit).
 Location
 Geographic – customers will only travel a limited distance to go to a club, so clubs in
London do not compete with clubs in Sheffield, for example
 In town / out of town – out of town clubs may be ‘destinations’ (primarily aimed at
families, for example), whereas in town clubs are likely to appeal because they are ‘convenient’
(e.g. to office workers).
 Customer Group – different clubs are designed to attract different types of customer e.g.
prefamily (~20-30 year olds), fitness fanatics, female-only, family-oriented, etc.
The excellent candidate will name all the above factors, with maybe some others (e.g. sports offered),
and will elaborate more on each.
Conclusion: This phase will probably only be reached by a few excellent candidates. So we know that
demand for leisure clubs is growing, but so is supply. We know that not all of the 350 new clubs will
compete with our clients’ business, since clubs differ based upon price, target customer and location.
Applying our segmentation to the 350 clubs, we found that most of them do fall broadly into our segment
(i.e. premium price, similar target customers). So we started to think about the geographical dimension,
and considered where we should build our new clubs. The competition was planning to build in the large
cities; however, we recommended that our client build its clubs in smaller towns, which only had
populations large enough to sustain one leisure club. Why do you think this was?
The excellent candidate: “By placing your club in the smaller towns, you will insulate yourself from
competition. Because you have built your club first, you will attract members who will then be loyal to your
club. When the competition considers where to build their next club, they will not build in that town,
because they will see that there are not enough ‘available’ customers for their club to be profitable, and
they know it would be difficult to attract customers away from your club. Hence, even though in later years
there may be excess supply at a national level, you will have local monopolies, and thus be protected
from potential pressure to lower prices.”

Note: This case interview question is based on a real case study that OC&C Strategy Consultants worked
on in 2007, assessing the market for Leisure Clubs as part of a strategy review for a major UK hotel
chain. This is typical of a ‘data interpretation’ case study that you may be asked to attempt – requiring
analysis of data presented to you, alongside some creative and logical thinking.
Impact of 9/11 Attacks on NYC Healthcare Industry
Case Type: industry analysis.
Consulting Firm: Trinity Partners final round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences; healthcare: hospital,
medical; government & public sector; insurance: life & health.
Case Interview Question #00173: The year is 2004. You have been hired by the New York City
Government because they want to analyze how the September 11th, 2001 terrorist attacks affected the
healthcare industry in New York City and what losses resulted from the 9/11 attacks?

Additional Information:
Healthcare sector economic conditions prior to 9/11
New York City’s healthcare sector, which comprises hospitals, health insurers, pharmaceutical and
biotechnology companies, and a range of smaller businesses, such as home nursing care providers and
private physicians, represents approximately 20% of Gross City Product (GCP) and is the source of
approximately 345,000 jobs. The city boasts the nation’s largest concentration of world class research
institutions and teaching hospitals that attract top researchers, physicians and students, capturing a
significant share of available research funding. It is also home to several leading health care insurers and
global pharmaceutical leaders, such as Pfizer and Bristol-Myers Squibb. New York City also has a small
but growing presence in commercial biotechnology.
Prior to September 11th, the economic outlook for the city’s health care sector was mixed.
Pharmaceutical and biotechnology companies appeared to have generally strong prospects. These
prospects were driven by steadily rising demand, the relatively recession-proof nature of their products
and favorable demographics and keen investor interest, particularly over the possibilities for genomics.

Prospects for hospitals and insurers were less rosy. New York City’s hospitals had long been in poor
financial shape, falling below the 90th percentile nationwide, according to several traditional hospital
operating metrics, such as total margins and current ratios. This fact had left little room for capital
improvements and investments in information technology and other efficiency-enhancing measures.
Though their financial position had improved, somewhat, in the past several years, most city hospitals had
seen a deterioration in 2001. Deterioration had been driven by significant cuts in Medicaid and Medicare
funding and increasing competitiveness in the market. The city’s teaching hospitals were also vulnerable
to cuts in grants for medical education. The public hospitals, which had been in better financial shape
than the teaching hospitals in recent years, continued to struggle under the burden of providing free care
to patients admitted without medical insurance.

New York City’s health insurance firms were in better shape than its hospitals, but still faced challenges.
The biggest were posed by the slowing economy. A recessionary environment typically translated into
falling revenues from premiums, as workers lost jobs and health care coverage. Revenues were also
being pressured as employers shift to cheaper, more restrictive plans in order to save money. At the
same time, a slowing economy tended to prompt increased utilization of health care, as employees
anticipated the loss of coverage, leading to higher medical loss ratios for insurers.

Question #1: What segments is the healthcare industry comprised of?

Possible Answer:

The interviewer expects the candidate to outline 5 major different segments of the healthcare industry:
 Hospitals
 Private Health Insurers
 Private Health Care providers – such as physicians
 Pharmaceutical companies
 Biotechnology companies
If the candidate does not come up with all five, give him/her the rest.

Question #2: In what way was each segment affected? Which segment was affected the most? In
answering the question, state your assumptions and justify these assumptions.
Possible Answer:
1. Hospitals: Affected the most.
 All of them had non-reimbursed standby costs (e.g., discharged patients, cancelled elective
surgeries and fewer admissions) as they readied themselves to receive potentially thousands of
patients injured in the attack.
 Drop in the number of visitors. Revenues will continue to fall in the fourth quarter because of a
drop in the patient census. The result is in part, derived from a decline in visits from foreigners and
U.S. residents living outside the city.
 Revenue losses have been exacerbated by ongoing access problems in Lower Manhattan.
 Job losses for hospital employees have been minimal thus far, but are expected to rise to more
than 300 in the first quarter of 2002.
2. Health insurance and managed care companies: Limited direct impact.

 Main challenge: slowing economy.

 Number of injuries was relatively small.
 Slight drop in revenues due to the loss of employment of 2,000 people, although mitigated by the
extension of insurance coverage through COBRA(Consolidated Omnibus Budget Reconciliation Act)
and other programs from 2002 through 2003.
3. Private Health Care providers – such as physicians: Small impact.

 “Wellness effect” – limited the number of physician visits, hospitalizations, and total claims that
happens after a disaster.
 Limited number of injuries.
4. Pharmaceutical: Minimal impact.

 stockpiling of pharmaceuticals for emergency preparedness by individuals and health providers.

Yet this is likely a short-term effect.
 Sales of anti-depressants, sleeping aids and other medications to address mental health
concerns have also increased somewhat.
 Demand for antibiotics that could be used to counter anthrax or other bio-terrorist threats have
soared, though this is primarily a result of the current anthrax scare, not September 11th.
 Employment at pharmaceutical companies remains unchanged.
5. Biotech: Small effect.

 Due to the economic downturn, private equity valuations have dropped from 15% to 20%, though
the share of private equity invested in biotechnology is growing.
 The recent bioterrorism threat has also fueled speculative interest in selected biotechnology
stock.
Question #3: What percent of total industry revenue did the healthcare industry lose from year 2001 to
2003 due to September 11th attacks? The following table will be given to the candidate if asked.
Year
$ Million 3rd Quarter 2001 4th Quarter 2001 2002 Year 2003 Total

Hospitals ($85) ($140) ($200) ($55)

Private Health Insurers $0 ($20) ($60) ($15)

Private Health Care

Providers ($5) ($20) ($60) ($15)

Pharmaceutical Companies ($5) ($10) $10 $0

Biotechnology Companies ($5) ($10) ($40) ($15)

Total

Also given to the candidate if asked: New York Gross City Product (GCP) = $50 Billion; Healthcare
Industry as a % of GCP = 20%

Possible Answer:
First, do the calculations based on the given table. Show the interviewer your fast math.

4th Quarter Year

$ Million 3rd Quarter 2001 2001 2002 Year 2003 Total

Hospitals ($85) ($140) ($200) ($55) ($480)

Private Health Insurers $0 ($20) ($60) ($15) ($95)

Private Health Care

Providers ($5) ($20) ($60) ($15) ($100)

Pharmaceutical Companies ($5) ($10) $10 $0 ($5)

Biotechnology Companies ($5) ($10) ($40) ($15) ($70)

Total ($100) ($200) ($350) ($100) ($750)

Thus, the % of (lost revenue in the healthcare industry from year 2001 to 2003) / (total industry revenue)
= ($750 Million) / ($50,000 Million * 20%) = 7.5%

Question #4: What recommendations do you have for the NYC city government officials to improve the
economic conditions in the healthcare industry?
Possible Answers:
1. Public Health Recommendations

 Support efforts to rebuild New York City’s image as an attractive place to live, work and visit. To
educate the public on the security matters that trouble them, start by articulating the city’s public
health and safety plan, as well as its preparedness for crisis.
 Push for federal funding for public health preparedness (bioterrorism and other public health
issues). As a leader in public health and emergency preparedness, New York City is in a perfect
position to help determine the kinds of training, equipment and services cities and metropolitan areas
need to handle bioterrorism and other threats.
 Pursue health care reform. Work to ensure adequate funding for local public health agencies,
commensurate with their responsibilities for preparedness; continued economic viability of the
hospital system; provision of health care for the uninsured; and lower system health care costs.
 Evaluate the mental health issues that may develop over the months ahead. Address the mental
needs of those affected (survivors, rescue workers, those who lost family members, co-workers or
friends, and those who have existing mental health concerns). Determine how best to treat those who
lack access to mental health coverage, volunteer counseling or other programs. Determine whether
the situation warrants a move toward mental health parity, in which mental health is covered in the
same manner as other diseases and medical problems. And, if so, how to fund it (given the
implications for government tax receipts).
 Monitor air quality to gauge the impact on long-term health and determine any required remedial
actions. Many who live or work near the World Trade Center complain of various symptoms, though
experts believe those symptoms are the body’s response to airborne irritants rather than toxins.
Persons at increased risk (for example, asthmatics and those with cardiovascular disease) should be
aware of health advisories. To date, no risks have been identified for those near the World Trade
Center, with the potential exception of recovery workers, who are continuously exposed to the air at
Ground Zero.
 Support the hospitals’ efforts to obtain financial assistance for the costs incurred from the attack.
The hospitals acted in good faith and for the benefit of the public by canceling revenue-generating
activities and moving patients to create capacity for the anticipated thousands of injured; they should
be made whole.
 The logic for reimbursement is similar to the case successfully made by the airlines, which
canceled all flights and kept all of their aircraft grounded after the Federal Aviation Administration
ordered the shutdown of civilian air traffic. Compared to the multi-billion dollar federal relief package
secured by the airline industry, the amount in question for the hospitals is insignificant. The hospitals
have requested $340 million for lost revenues and incurred costs.
 The pharmaceutical, biotechnology, as well as the health insurance and managed care
businesses do not require specific assistance. Any economic damage to these companies from the
attack was limited.
 Health care service companies will not require tax breaks or other government incentives are
necessary to stay in New York City following the attacks. The hospitals are, by definition, local and
will not leave. To the extent that hospitals undergo further restructuring or merger activity, the cause
is not the attack New York City Partnership and Chamber of Commerce 117 but longstanding
financial problems. Health insurers and pharmaceutical companies based in the city remain
committed to it.
2. Recommended Private Sector Actions

 Partner to improve public health. Work with public health agencies, hospitals and other
government and emergency organizations to ensure preparedness for bioterrorism. Consider
 contributing private sector capabilities, such as data management and I/T capabilities to track
outbreaks and surveillance of prescription data to identify trends. Monitor and support efforts of New
York City’s hospitals to ensure financial viability. Work with public health agencies to address health
care reform in the city and state.
 Support biotechnology as an economic development opportunity and priority. Advocate the
reduction of regulatory obstacles and increased public support of infrastructure projects (e.g., biotech
laboratories and other facilities). Publicize reported improvement in technology transfer capabilities of
the academic medical centers. Determine whether any space in Lower Manhattan is appropriate for
biotechnology companies.
 Monitor the mental health consequences of the attack on September 11th. Expand short-term
mental health benefits for employees. For example, private sector businesses could offer psychiatric
evaluations to their employees to determine who could benefit from therapy.
 Enhance New York’s appeal as a destination for health care professionals. Maintain the strength
of academic medical centers and other research institutions. Grow the long-term talent pool by
encouraging increased emphasis on basic science and math education in the public, charter, private
and parochial schools of New York City.
Interviewer’s Note: Many components for this case came from BCG’s “Economic Impact Analysis of the
September 11th, Attack on New York City”. This case tests the interviewee’s ability to do an in depth
industry analysis and serves as a good overview of the healthcare industry. It should be conversational
and more of a brainstorming discussion than a Q&A. The “Additional Information” Section is not a
required read before giving the case, however, it will improve the quality of the interview if it is read
ahead.
How to Evaluate the Future of Consulting Business?
Case Type: industry analysis.
Consulting Firm: Stern Stewart & Co second round job interview.
Industry Coverage: Consulting, HR, Business Services.
Case Interview Question #00166: You have been hired by Stern Stewart & Co, a global management
consulting firm headquartered in New York, United States to evaluate the future of the management
consulting business in general, and the prospects of Stern Stewart & Co in particular. How would you

approach this case?

Possible Answer:
This is a typical industry analysis case, Porter’s Five Forces model seems like the best framework to
solve this kind of cases. In general, any questions that ask for a broad industry analysis can usually be
structured around the Five Forces: Supplier’s Power, Buyer/Customer’s Power, Competitive Rivalry,
Threat of Substitute, Threat of New Entry.
Customer’s Power: For example, who are the customers? Possibly any company could use consulting
services. Are thereany market segments? Are some firms using consulting more often than others?
Identify any changes or current trends in consumer’s behavior. What is most important to your potential
customers (e.g., cost, quality, service, reputation, etc.)?
Threat of Substitute: What are the possible substitute of consulting business? Companies may choose
to solve problems in-house (internal strategy group) or use individual experts in particular areas (e.g.
lawyers or university professors providing consulting services) as opposed to hiring external consulting
teams. What are your competitors’ strengths and weaknesses?
Threat of New Entry: What is the overall industry like? Analyze the threat of new consulting companies
(minimal) and industry trends. What are the drivers of success in this industry?
Supplier’s Power: What are your client Stern Stewart & Co’s particular core competencies and how can
they leverage these to achieve a sustainable competitive advantage? What different types of consulting
does the firm engage in? What external factors would affect your client’s business (e.g., the economy,
regulatory actions, international business growth, etc.)?
Competition: Who are the major competitors of your client? Large full-services consulting firms like
McKinsey, BCG, Bain & Co, or small boutique firms focusing on specific industries, certain functional
areas or technologies?
Random House Explores Strategic Opportunity & Risk
Case Type: industry analysis.
Consulting Firm: Cambridge Consultants second round job interview.
Industry Coverage: Mass Media & Communications.
Case Interview Question #00144: Suppose you are a new associate at Cambridge Consultants and get
a call from a partner that is forming a team to help Random House Publishing Group, a major book
publisher explore strategic opportunities and risks. She asks if you are available for lunch

today.  If so, she would like to discuss the industry over lunch. You explain to her
that you do not have experience in the book publishing industry but would enjoy having lunch with her
today.
Of course you do not want to disappoint the partner, but she has set high expectations for your lunch
conversation. How would you structure your thought process for thinking through the strategy of the book
publisher? What are your experiences with books which will help you think through the current issues in
book publishing industry? What types of strategies might help Random House?
Possible Answers:

The first framework that come to mind for thinking through a strategy case is the “Forces at Work”
(Porter’s Five Forces) framework. The students should be able to think through the elements of the
framework based on their own experiences.
1. The bargaining power of customers (buyers): Buyer power has been increasing due to the movement
away from the corner bookstore toward the large book retail chains (e.g. Barnes and Noble, Borders,
Powell’s Books, Half Price Books) that give discounts to readers off the publishers price.

2. The bargaining power of suppliers: Increasing competition leading to higher advances to well known
book authors (millions of dollars in many cases).

3. The threat of substitute products or services: Increasing Substitutes caused by the internet, ebooks,
video games, music CDs, movie DVDs, cable systems, books on tape, and video on demand.

4. The intensity of competitive rivalry: Increasing competition between book publishers caused by reduced
margins (buyer power) and saturated market (increasing substitutes) and proliferation of titles. Also no
real branding among publishers (who published the last book that you read?).

Advanced answers from students might discuss what can be done to help the client to gain advantages in
the book publishing industry. For example:

 Become a market leader by announcing new terms and conditions for the large book retailers. If
the other major players in the industry follow the lead, the industry may become more profitable as a
whole. If not, the client may need to move back to the old terms in the industry.
 Focus on the books or types of books that have an expected positive NPV, e.g. textbooks. The
proliferation of books probably has caused many unprofitable titles.
 Forward integrate into bookstores, especially online bookstores
Private Equity Firm TPG to Invest in Baby Food Industry
Case Type: industry analysis; private equity, investment.
Consulting Firm: Strategic Decisions Group (SDG) 2nd round job interview.
Industry Coverage: Food & Beverages; Airlines; Financial Services.
Case Interview Questions #00098: Your client Texas Pacific Group (TPG) is one of the largest private
equity investment firms in the US, focused on leveraged buyout, growth capital and leveraged

recapitalization investments. TPG also manages investment funds specializing 

in growth capital, venture capital, public equity, and debt investments. The firm invests in a broad range of
industries including consumer/retail, media and telecommunications, industrials, technology, travel/leisure
and health care.
Recently, TPG got interested in airline and baby food industry, but limited amount of available cash allows
investment in only one industry. The CEO of TPG has hired your consulting team. He wants you to
compare the airline industry with the baby food industry. In which would you advise TPG to invest their
money?
Possible Answers:
This is a classic industry attractiveness analysis case question. Use Porter’s Five Forces framework, or
even better, create your own framework for analyzing the suitability of each of the two target industries for
investment.
1. It turns out that competition in the airline industry is very intense. Fixed costs are high and competitors
keep cutting costs till they shave margins to the very bone. Customers are price sensitive. Brand equity is
virtually non-existent.

Using a microeconomics argument, you see that airlines will keep cutting prices as long as they are
covering variable costs. Since fixed costs are high and probably financed with debt, these companies may
end up defaulting on interest payments.

Notes: Unable to secure additional capital, United Airlines (UAUA) filed for chapter 11 bankruptcy
protection in December 2002. US Airways (LCC) entered Chapter 11 bankruptcy in August 2002. Fuel
costs and deadlocked negotiations with organized labor (chiefly the Air Line Pilots Association) forced US
Airways into a second round of Chapter 11 bankruptcy protection proceedings in September, 2004.
Northwest (NWA) and Delta (DAL) entered bankruptcy in September 2005, and both emerged from
bankruptcy in the Spring of 2007.

2. On the other hand, the baby food industry is less competitive. There are two or three large players
(Nestle, H.J. Heinz Company, Groupe Danone) who do not indulge in cutthroat pricing. Products are well
differentiated. Customers are quality conscious: they will pay a premium for quality. To invest TPG’s own
money, baby food is better than airlines due to higher profit potential.

Why There is No Light Beer in the U.K.?

Case Type: market entry/new market; industry analysis.
Consulting Firm: Cornerstone Research 1st round job interview.
Industry Coverage: Tobacco & Alcohol.
Case Interview Questions #00097: Your client Miller Brewing Company is an American beer brewing
company with its regional headquarters located in Milwaukee, Wisconsin. Recently, the president of Miller
Brewing Company has hired you as a consultant because he is trying to expand his company into the

European market.
Specifically, the president wants to promote its popular light beer (beer that is reduced in alcohol content
or in calories) brand “Miller Lite” in the United Kingdom, but is surprised to find that people don’t even
drink light beer there. Your first job is to find out why there is no light beer in the UK. How would you
proceed?

Possible Answers:
This case does not fit a common framework, but can be approached by simply dissecting the alternative
reasons for each component of the issue. Outlined below is one of many possible approaches:
The reason there is no light beer in the UK could be that:

1. consumers do not demand it;

2. producers are not producing it, despite consumer demand;

3. some outside influence, such as government or anti-alcohol organizations, will not permit light beer in
the country.

Following the producer option, one can further subdivide the problem as nobody wants to sell light beer in
the UK or somehow, light beer producers are blocked out of the UK.

How Many Mazda Dealers Are There in the U.S.?

Case Type: market sizing; industry analysis.
Consulting Firm: Boston Consulting Group (BCG) 2nd round job interview.
Industry Coverage: automotive, motor vehicles.
Case Interview Questions #00088: Q1. Estimate how many Mazda dealers there are in the United
States.
Possible Answers:
1. Let’s assume 10 million new cars/light trucks are sold in the US every year.

2. Assume Japanese car makers have 25% market share in the US.
3. The “big three” Toyota, Honda, and Nissan each has 25% of that; five secondary manufacturers (Isuzu,
Mazda, Mitsubishi, Subaru, Daihatsu) have 5% each.
4. So Mazda sells about 10 million * 25% * 5% = 125,000 cars in the US per year.
5. Assume profit for each car is $400 for the dealer, so total dealer profit is $400 * 125,000 = $50 million.
6. Assume normal profit margin is about 10% for car dealers, i.e., total dealer operating cost is about $50
million/10% = $500 million.
7. Assume operating cost for each dealership is $2.5 million/year.
8. Then there should be around $500 million/$2.5 million = 200 dealers.
So, there are about 200 Mazda dealers in the United States.

Q2. Next, the interviewer stated that Mazda North America wants to know why certain dealers have a
much higher profit than other dealers do.
Possible Answer:

I used Porter’s Five-Forces model to analyze the market. Issues covered included:
 Difference in consumer taste in different regions
 Difference in household income in different regions
 Different levels of competition
 Consumer buying habits
 Different dealer size (scale of economies)
Q3. Then the interviewer asked what if there are two dealers located close to each other and everything
else is very similar, except one dealer is a lot more profitable than another.
The solution is that the one with high inventory turnover would be much more profitable.

Q4. Finally, the interviewer asked me to list all sources of dealership revenue and rank them by
profitability:
 Parts – it is a captive market where dealers can charge high prices. Also, once the dealership is
set up, there is no fixed cost. And dealers buy on credit, so very little working capital is required.
 Accessories, add-on insurance, and others – same reason as above.
 Car sales – high competition and high fixed cost prevent dealers from making economic profit.
 Services – high competition and high fixed cost prevent dealers from making economic profit.
Nintendo Plans to Triple Video Game Division
Case Type: industry analysis; add capacity, growth.
Consulting Firm: McKinsey & Company 2nd round job interview.
Industry Coverage: Electronics; Entertainment.
Case Interview Questions #00067: The CEO of Nintendo Co. Ltd., a large diversified entertainment
corporation has asked a McKinsey team to examine the operations of a subsidiary of his company that
manufactures video games. Specifically, he needs to know if he should approve a $200 million capital

request for tripling  the video game division’s capacity.

You are a member of the McKinsey team assigned to this project. Assume you and I are at the first team
meeting. What are the critical issues we should plan to examine to determine if the video game industry is
an attractive one for continued investment and why?

Additional Information: (to be provided if asked)

The following information may be given if requested by the candidates though you should focus on having
the candidate identify issues, not obtain more information.

Market Share
Nintendo’s video game division is the third largest manufacturer of hardware in the video game industry
with 10 percent market share. Top two producers have 40 and 35 percent market share (think about
Nintendo Wii competing with Microsoft’s Xbox and Sony’s PlayStation). Remainder is divided by small
producers. Division sells to broad range of consumers.
Sales
 Division sales have increased rapidly over last year from a relatively small base. Current estimate
is annual sales of 500,000 units.
 Current estimate of industry hardware sales is 5,000,000 units annually. Industry growth has
been strong though over last few months, sales growth has slowed.
 Divisions current sales price for the basic unit is $45 per unit.
 Division remains less than 20 percent of parent company sales.
 Top two competitors also develop, manufacture and sell software/games though division sells
only licensed, software.
 Industry growth of software continues to increase.
Costs
 Division estimates current cost is $30 fully loaded. Requested expansion should reduce the cost
by 5 to 7 percent and triple production of the hardware units.
 Top two computers are estimated to have a 10 to 15 percent cost advantage currently.
 Main costs are assembly components and labor.
Customers
 Division estimates much of initial target market (young families) has now purchased the video
game hardware Nintendo Wii.
 No large new user segments have been identified.
Distribution
Primarily outlets of distribution are top end electronics stores.
Profitability
Division currently exceeds corporate return requirements; however, margins have recently been falling.
Product
Hardware standards have been established by the industry leaders.
Product features constantly developed (e.g., new remote joy stick), to appeal to market segments.
Note to the Interviewer
The main purpose of the case is to determine whether the candidate is able to structure a basic industry
analysis. The primary issue of the case is to determine if the industry is attractive and, especially, if our
client’s position in that industry is sustainable. The candidate should identify issues which are necessary
for assessing both the industry and our client’s position, but should not be expected to solve the problem.

If the candidate begins to discuss too deeply a specific issue, before having covered the key issues
overall, bring them back to discuss the industry more broadly by asking “what other issues must be
examined?”

If the candidate is discussing issues which seem irrelevant to the attractiveness of the industry, ask “how
will that analysis help to assess the attractiveness of the industry or our client’s position”. Then, ask the
candidate to identify other issues which must be examined.

Possible Solution:
The following issues would need to be covered for the candidate to have done an acceptable job:

1. What is future market potential? Candidate needs to question the continuation of overall industry
growth. She/he might ask about the saturation of markets, competitive products (home computers), and
declining “per capita” usage.
2. What is the competitive outlook? Candidate should at least recognize the need to examine competitive
dynamics. Issue areas might included: concentration of market shares; control of retail channels; and
R&D capabilities (rate of new product introductions, etc.).

3. What will be the price/volume relationship in the future? Issues of prices need to be considered.

Better/Outstanding Answer:
No bounds on creativity, but better answers would address the following:

1. Market Potential
 Recognize that there is a relationship between market penetration and growth in new users
which, when combined, yields an industry volume estimate.
 Address the shifting mix of product purchases, in this case from hardware (video game consoles)
to software (game CDs/DVDs).
 Seek to look at buyer behavior in key buyer segments, i.e., “fad” potential of product.
2. Software
 Recognize technology standards are set by industry leaders. In this situation, the division as a
 secondary player will have to follow these standards.
 Recognize that different distribution needs may exist for different products (In this case, hardware
versus software).
 Discuss the effect capacity additions can have on overall industry price/volume relationships and
on industry price levels.
3. Company’s Ability to Compete
 Should ask what the capacity expansion is designed to do.
 Explore the cost position of the client division relative to that of other competitors.
 Seek to understand reason for poor profit performance of division.
McKinsey Assesses Management Consulting Industry
Case Type: industry analysis.
Consulting Firm: McKinsey & Company 1st round job interview.
Industry Coverage: Consulting, HR & Business Services.
Case Interview Questions #00065: You are the newest member on the management committee of
McKinsey & Company, a well known top tier global management consulting firm. Eager to be accepted by
your more senior peers, you volunteer to study the management and strategy consulting industry and

propose  a firm strategy for the 2010′s, which you will present to the committee
at its next meeting. As you leave the meeting room, you begin to realize the enormous task to which
you’ve committed yourself.
Question #1. How do you evaluate the consulting environment and determine likely future scenarios?

Question #2. What information do you use in this process? How is this information obtained?
Question #3. What do you believe is most likely to happen in the consulting industry given your present
knowledge? How did you arrive at this conclusion?

Question #4. What strategy do you propose to the management committee?

Possible Solutions:
This is one of the most difficult types of cases because the answers are completely unknown and will vary
substantially depending upon the interviewee’s knowledge of the industry. This is also an interesting case
since the salience is likely to be high. As an interviewer you should feel free to add information on an as
needed basis. When information isn’t available, ask the Interviewee to develop his or her own
hypotheses. What matters here is the thinking process, not necessarily the answer.

Answer #1. A good place to begin is to evaluate the industry from a competitive analysis perspective,
such as Porter’s five forces. The following is an abbreviated analysis.
Rivalry (low to moderate): management consulting is fragmented, with many players each holding
relatively small concentration of total market. Firms act as competitive monopolists, and differentiate
themselves by specialty, type of customer (Fortune 100 versus Fortune 1000 companies), reputation
(McKinsey versus accounting firms), and the resources they employ (top MBAs versus all MBAs). Many
companies are relationship driven with their customers, which limits competition and keeps prices high.
Top tier firms in particular are able to have high price points.
Potential Entry (moderate): there are no great barriers to entry into consulting; however, few new
consulting firms truly compete in the top tier. It’s possible new firms would enter if the industry were
earning positive economic profits and if they faced certain imitability (e.g. the ability to recreate what the
top tier firms do).
Substitutes (moderate): companies can move the consulting process in house by hiring ex-consultants
and bright MBAs.
Buyer Bargaining Power (moderate to high): In the last decade the consulting market has boomed, with
supply generally following demand, which lowers buyer power. However, it is appropriate to question the
effect recession might have on consulting industry. It’s possible that demand may decrease as companies
quit expanding, which would reduce demand, give buyers more bargaining power, and push prices lower.
Supplier Bargaining Power (low moderate): Major suppliers are the intellectual capital employed by firm
(e.g. experienced consultants who bring in sales and new consultants who provide analytics). Must pay
market price or risk losing suppliers.
Other interesting points might explore the key success factors in the consulting industry. What sets top
tier firms from middle ones? Do any firms have specific sustainable competitive advantages? How does
the marketing mix differ among firms? Does your firm have any specific core competencies or advantages
that set it apart from other companies?

Determining likely future scenarios is more ambiguous. There are at least several key point: what effect
will a recession have on consulting firms? Will top tier firms suffer differently from others? How will the mix
of products demanded change (e.g. cost cutting studies rather than market expansion studies)? Will the
consulting market continue to expand or suffer a cutback? Or, will certain geographical areas expand
(Pacific Rim, Eastern Europe) faster than others? Again, the thought process is more important here than
actual answers.

Answer #2. Information gathering is a key reason companies use consultants. An interviewee should
have a decent understanding of business information sources and how information is gathered.
Information can be broken into two groups: secondary and primary. Usually one begins with secondary
material, specifically, a complete review of published literature (a “literature search”) pertaining to the
study (e.g. journal and newspaper articles, investment bank research, specialized studies, books, etc.).
This often points towards other good sources (e.g. industry experts, associations, major competitors,
government sources, etc.). Hypotheses are often created from the secondary information. Primary
research is then used to focus in on the key issues. This research includes telephone interviews, in
person interviews, mailed questionnaires, focus groups, laboratory experiments, etc.

Answer #3. This answer will depend upon the material covered in the first two. Ask the questions: What
trends are likely? What is a positive scenario? A negative one? If you had any information at your
disposal, how could you get a better handle on this issue?
Answer #4. Again, there is no right answer here, so the interviewee may balk. However, you can provide
some structure. What are the key success factors to succeeding in the industry? Is there any way to
achieve sustainable advantage which cannot he duplicated by your competitors? Can you use non
traditional methods to achieve competitive advantage, such as leveraging through technology. Given your
firm’s competitive strengths and core competencies, what is the best strategic route?
Alcoa Assess Cost Curve to Gain Competitive Advantage
Case Type: business competition; industry analysis.
Consulting Firm: Katzenbach Partners (now Booz & Company) 1st round job interview.
Industry Coverage: Mining & Metals Production.
Case Interview Questions #00060: You were hired by Alcoa Inc. (NYSE: AA, name from ALuminum
Company Of America). Alcoa is the world’s third largest producer of aluminum, behind Rio Tinto Alcan
and Rusal. From its operational headquarters in Pittsburgh, Pennsylvania, Alcoa conducts operations in

31 countries. Alcoa is a world leader in the production  and management of

primary aluminum, fabricated aluminum, and alumina combined, through its active and growing
participation in all major aspects of the industry: technology, mining, refining, smelting, fabricating, and
recycling.
Because Aluminum is a commodity, relative cost position is the primary source of competitive advantage.
As part of a strategic review, you have been asked by Alcoa to construct an industry cost curve (cost per
kg of aluminum produced vs. industry supply), for various plant-to-market combinations. There are five
major players in the industry, supplying six major geographic market segments. Your model should be
flexible enough to enable various future scenarios to be run.
Possible Approach:
1. How to estimate competitors cost management?
 financial accounts
 direct estimates by client management
 indirect estimates by client management
2. How to simulate the market mechanism?

 determine what kind of market structure exists

 oligopoly
 perfect competition
3. Given perfect competition, how to simulate?

 back of the envelope approach (there are lots of combinations!)

 linear programming approach
4. The use of linear programming approach allows considerable flexibility as well as provides insight into
questions such as:

 is the industry currently efficiently configured?

 if a new plant is added to the industry, which market segment is most likely to be affected?
 what will the equilibrium price be in the future?
Intel Clamoring for Protection from Washington
Case Type: industry analysis.
Consulting Firm: IBM Global Business Services 2nd round job interview.
Industry Coverage: Electronics, Semiconductors.
Case Interview Questions #00054: The domestic semiconductor industry in U.S. is beleaguered: brutal
price competition from the Japanese and Korean (Sony, Samsung, Toshibo, Panasonic, NEC Electronics,
Hynix, etc), accusations of “dumping” against the Japanese etc. Major U.S. semiconductor manufacturers

like Intel, AMD, Qualcomm, Texas Instruments, Broadcom  and Micron

Technology etc, are clamoring for protection from Washington, and some of the public policy solutions
being proposed are things like research consortia sponsored by the government, trade restraints etc.
You are a consultant working at a major management & IT consulting firm. You are concerned that the
public policy debate ignores basic issues regarding industry economics and whether the solutions being
proposed will solve any real problems for your clients. You know that each generation of memory chips
lasts only 4 to 5 years. What are some of the factors you will consider while looking at the economics and
how might they impact the idea of shared research by U.S. semiconductor manufacturers?
Possible Answers:
These are some of the basic issues to be flushed out:

What are the cost drivers in the semiconductor industry? (e.g. the split between fixed and variable costs
involved)
The basic issue to be arrived at is that it costs huge amounts of money to be a player in semiconductor
industry – roughly 250M in research and 600M in plants. And this increases exponentially for each
succeeding generation of memory chip.

Cost structure of the semiconductor & microchip industry:

 High fixed costs.

 Negligible variable costs. Marginal cost of an additional chip is minimal.
 Need to cut rate and use volume oriented pricing.
 Players need access to huge amounts of capital on a continuous basis to survive for the long
term.
Raise pros/cons/issues of government participation in this. Is it feasible? What are the priorities for scarce
government resources? Will relaxation of anti-trust laws help? Foreigner’s access to cheaper capital?
Research costs are smaller component. What will shared research accomplish?

The Rise and Fall of PeopleExpress Airlines

Case Type: industry analysis; business competition.
Consulting Firm: A.T. Kearney 2nd round job interview.
Industry Coverage: Airlines.
Case Interview Questions #00053: The airline industry is characterized by low returns and stiff
competition. In the early years after deregulation, discount carriers like PeopleExpress Airlines sprang up.
Years later the discounters have gone out of business. In a price competitive industry, why is it that the

higher cost carriers  were able to survive and the low cost ones like
PeopleExpress Airlines were not?
Additional Background Information:
PeopleExpress Airlines (PEx) was launched in early 1981 with service from Newark to Buffalo, Columbus,
and Norfolk of Virginia. People Express grew rapidly, adding flights to Florida by the end of the year.
In May 1983, PeopleExpress began non-stop service from Newark to London’s Gatwick Airport with a
leased Boeing 747. Flights were initially priced at $149 each way. The airline became an instant success
with all flights sold-out for several months within 24 hours of being offered. Later, the airline added
Montreal-Mirabel and Brussels to its international network.

PeopleExpress airlines used a simplified fare structure whereby all seats on a given route were offered at
the same price, with slight differences between “Peak” and “Off-Peak” fares. All seats were in economy
class, with the exception of “Premium Class” seating on overseas flights. Fares were paid in cash aboard
the aircraft early in the flight. Passengers were permitted to bring one carry-on bag for free, while each
checked bag was charged a fee of $3.00. People Express was the first United States airline to charge a
fee for each checked bag. People Express also charged modest amounts for customers wishing food or
beverages.

In 1985, PeopleExpress bought out Denver-based Frontier Airlines. The combined company became the
United States’ fifth largest airline, with flights to most major U.S. cities, as well as an additional
transatlantic route to Brussels. During this period, People Express also purchased midwest commuter
carrier Britt Airways and Provincetown-Boston Airlines (PBA), a regional airline with route networks in
New England and Florida.

The aggressive purchasing spree placed an enormous debt burden on the carrier at the same time major
legacy carriers’ improved yield management schemes enabled them to compete better with
PeopleExpress on fares. Furthermore, integrating Frontier’s operations caused labor struggles with the
newly absorbed airline, and the change to a low-fare, no-frills mentality alienated Frontier’s passengers.

Debt pressure on the carrier forced a change in philosophy, as PeopleExpress sought to lure business
travellers who were willing to pay higher fares. Aircraft cabins were redesigned to include a first-class
cabin, a frequent flyer plan was initiated, and the simplified fare structure was abandoned in favor of a
more traditional airline industry “revenue management” pricing scheme.

The failed integration and enormous debt stretched People Express too far. In June 1986, the company
announced it was working with an investment bank to seek buyers for part, or all, of the airline. A deal to
sell Frontier off to United Airlines fell through due to the inability of United to agree to terms with its unions
on how to incorporate Frontier’s staff, leading PeopleExpress management to cease Frontier’s operations
and file the subsidiary for bankruptcy protection.

In the end, PeopleExpress was forced to sell itself entirely to Texas Air Corporation for roughly $125
million in cash, notes, and assumed debt. Due to concerns about regulatory approval for the purchase,
Texas Air purchased the assets of Frontier from People Express in a separate transaction worth $176
million. People Express ceased to exist as a carrier on February 1, 1987, when its operations were
merged into the operations of Continental Airlines, another Texas Air subsidiary, under a joint marketing
agreement.

Possible Solution:
The following are some of the basic issues to be flushed out:

Characteristics of discounters: Low fares, limited service.

Characteristics of major carriers: Higher fares but better coverage and service. Hub systems channeling
traffic.
Competitive moves by major carriers: Innovative use of information technology for yield management and
differential pricing. Basically they priced every seat individually based on continuously monitoring
demand/supply. They wooed leisure customers with fares lower than discounts and charged more from
business travelers (indifferent to price but sensitive to service and frequency). They stole the discounters’
market and forced them out.

GM Seeks Opportunity to Expand After-market Part Business

Case Type: business expansion & growth; industry analysis.
Consulting Firm: Bain & Company 2nd round job interview.
Industry Coverage: Automotive, Motor Vehicles.
Case Interview Questions #00044: Your consulting team is retained by General Motors Company
(NYSE: GM), a “big three” U.S. automobile manufacturer headquartered in Detroit, Michigan. They are
interested in your evaluation of their $10B after-market auto parts business. This business can

be  segmented into two major sets of buyers: dealers authorized to sell GM parts
($8B) and non-dealer merchandisers ($2B).
This second group, non-dealer merchandisers, can be further sub-divided into mass merchandisers and
“service” providers. Mass merchandisers are of two types: those which specialize in auto parts (e.g. Auto
Zone), and those which sell diverse products including auto parts (e.g. Sears). “Service” providers include
Goodyear or Western Auto. GM would like you to help them answer two questions:
1. Is there an opportunity to expand their after-market auto parts business?
2. How would they go about doing it if they chose to expand?

Additional Information: (to be given to you if asked)

Company Economics: There are tremendous fixed costs in the auto parts business (including labor). All
of GM’s parts manufacturing facilities are fully depreciated and they currently have excess capacity.
Competitors: While Ford and Chrysler, the other two of the “Big Three”, make parts for their own cars,
they are not nearly as integrated as GM and tend to focus in specific parts categories. There are
hundreds of small auto parts manufacturers which tend to focus on commodity-like auto parts (e.g. oil
filters).
Products: GM produces a full spectrum of auto parts classified as either platform-specific or universal.
Platform-specific Parts Universal Parts

Body panels, brakes,

Types of Parts transmissions, engines Spark plugs, filters, hoses, batteries

Sold through dealers under Sold through many outlets; high turnover;
Market warranty; high margins/low strong competition; slim margins/very high
Characteristics volume volume
GM Sales $8B $2B

Growth Rates: The table below provides the basic facts about each market segment’s growth rate.
Market Segment Overall Market Growth Rate Total Market Size

Dealer-authorized -35% per annum $40B

Non-dealer

– Mass
merchandisers +65% per annum $70B

– Service providers +15% per annum $30B

Possible Solution:
Apply Porter’s Five Forces analysis.

Threat of Entry is minimal for a broad category because the fixed costs are very high. However, a
manufacturer could go after a niche play if it were to develop an advantaged cost structure or superior
product. Switching costs among consumers is very low.
Industry Rivalry is important for the mass merchandiser category because margins are slim (meaning
price wars are more prevalent). Brand names (e.g. Fram, AC Delco, AutoLite) are important to many
consumers.
Substitute Products are relevant only in the sense that there are many competing products and future
technologies such as electric cars could eliminate the need for many types of parts.
Power of Suppliers is not a significant factor because inputs are commodity raw metal and rubber.
Power of Buyers is important since there are few mass merchandisers such as Sears or K-mart and they
demand full range of products and tremendous volume discounts.
GM’s Position: GM may have a cost advantage due to its fully depreciated plants and excess capacity in
a fixed-cost environment. Thus its variable costs must be below sales revenue. Also, its brand names are
respected and are valuable to merchandisers in maintaining margins. GM’s ability to produce a full-range
of products is also an advantage. These advantages combined with the high growth rates for the non-
dealer merchandisers should motivate GM to expand it business in this segment. GM should use its cost
advantage, brand names, and full range of products to go after the most lucrative market: the mass
merchandisers.
Shell Pipeline Company Evaluates Potential of Pipeline Industry
Case Type: industry analysis.
Consulting Firm: Schlumberger Business Consulting (SBC) 2nd round job interview.
Industry Coverage: Oil, Gas & Petroleum Industry; Transportation.
Case Interview Questions #00043: Your client Shell Pipeline Company LP is a subsidiary of Shell Oil
(LSE: RDSA)’s Shell Oil Products US unit. Shell Pipeline Company is one of the largest petroleum
products pipeline transportation (transportation of oil & gas through a pipe) companies in the US. The
company has partial ownership of 10,000 miles  of pipeline and annually moves
more than 2 billion gallons of oil and petroleum products across 21 states in the US.
You are hired by Shell Pipeline’s CEO to evaluate the current and future potential of the pipeline industry.
The pipeline industry sprang up as transportation costs for mineral extraction and oil exploration
companies began to escalate. There is currently more than 25,000 miles of pipeline throughout the U.S.
What information would you want to know about the pipeline industry that could help you develop a
strategy for Shell Pipeline Company?
Additional Information: (to be given to you if asked)
Industry Structure: There are many pipeline competitors. Pipeline can be characterized as either
common carrier pipelines (~70% of all pipeline miles) which are regulated by the government and
proprietary pipelines (~30% of all pipeline miles) which are wholly located on the private property of a firm
(e.g. a pipeline from a port station to a near-shore refinery). There are many suppliers of common carrier
pipelines. The second group (proprietary) is not regulated by the government.
Products: The pipelines carry liquid and gaseous materials — crude oil, natural gas, methane gas, liquid
nitrogen, refined oil products (gasoline), and chemicals.
Cost Structure: There are exceptionally high fixed costs involved in a pipeline. The variable costs are
primarily the electricity to power pumping stations along the pipeline. There are different cost structures
depending on the type of product being moved. Pumping crude oil along the pipeline can cost as much as
$2M/month in electricity for a station. Gaseous products require considerably less energy to move.
Market Conditions: U.S. proven oil & gas reserves are diminishing and foreign imports are increasing. It
is expected that for the next 5-10 years demand will be steady.
Possible Solution:
Classic Porter’s Five Forces analysis could be directly applied here — This is rarely the case!

1. Threat of New Entry is low in the pipeline industry because:

 there are exceptionally high fixed costs (high initial investment).
 pipeline services are essentially a commodity product (commodity markets are slow growth and
unattractive).
2. Industry Rivalry is strong because
 there are many competitors and switching costs are low.
 industry growth is expected to be slow (i.e. market share is important).
 many competitors use pipeline for in-house uses and only carry other products if capacity is
underutilized.
 there are very high exit barriers (i.e. there is a strategic relationship between petroleum products
refining and piping).
3. Substitute Products are many as witnessed by proliferation of tanker cars and tractor trailer rigs for
liquid and gaseous materials.
4. Power of Suppliers is not a significant factor because many pipelines are regulated and there are
many buyers.
Other Considerations:
 Product Mix: The margins on gaseous products is higher than heavy unrefined products.
 Government Regulation: Margins are greatly affected by common carrier status. Any future
environmental regulations will cut even deeper into margins.
 Pipeline as a storage medium: For many firms the product in a pipeline can be a significant
portion of its inventory and the volume in line must be considered in production. The classic question:
Is it better to make product and sell it now at low prices or wait for prices to increase (e.g. crude oil
prices)? A large pipeline could be a temporary storage facility.
 Operations: Maximizing profit means understanding the parameters of pumping — costs of
pumping at less than full capacity; layout of pipeline and pumping stations; products which can share
the same pipeline; construction of parallel pipelines.
 Market Differences: The market for crude oil is very different than the market for specialty
chemicals or natural gas. The pipeline manager must be aware of these rapidly changing commodity
markets to maximize his profit.
Why International Forest Products Makes So Much Money?
Case Type: industry analysis.
Consulting Firm: IBM Global Business Services 2nd round job interview.
Industry Coverage: Forestry, Paper Products.
Case Interview Questions #00039: You are hired by International Forest Products Limited (Interfor for
short, TSX: IFP.A), a Canadian logging company based in Vancouver, British Columbia. The company is
one of the Pacific Northwest’s largest producers of wood products. Its sawmilling operations have a

combined manufacturing capacity of 1.6 billion  board feet of lumber with sales to
North America, Asia-Pacific and Europe.
The client wants you to analyze its current operations and provide advice on future operations. The
logging industry in Canada is regulated by the government. Land is leased to individual companies by the
government. The company is making a lot of money and is unsure why. You have been asked to
determine:
(1) Why are they making so much money? 
(2) Is it sustainable?
(3) Is it replicable?
Additional Information: (to be given to you if asked)
Products: The client company produces lumber boards of two sizes 2”x4” and 2”x8”. Lumber is a
commodity product and as such the company is a price-taker in the market.
Leases: The government leases tracts of land at a annual price that is set to allow for a 12% profit margin
for the entire logging industry. Thus, all tracts of land have the same lease price per acre. The leases last
for 99 years and the original lessee has the right of first renewal on the lease.
Profit Structure: The profit equation for the lumber industry can be written as: Profit per cubic feet =
Revenue per cubic feet – Non-land cost per cubic feet – Lease Cost per cubic feet.
Revenues: There is a revenue advantage for the company due to its product mix. Margins are higher on
2”x8” boards than on 2”x4” boards. The company’s product mix is made up of a greater percentage of
2”x8” boards than the “typical” logging company percentage.
Non-land Costs: The company has a 5% cost advantage in its ”tree-to-dock” production process. There
is no significant difference between the distribution costs among the industry firms.
Production Process: The cost advantage is not generated by a better logging process (i.e. better
equipment, more skilled laborers) but instead exists because of the exceptional quality of the trees on the
particular piece of land that the company leases. The mineral content of the land leads to faster growth of
healthier trees which improves both yield and turnover. Healthier trees are straighter and easier to cut,
thus reducing costs in each phase of the logging process. These healthier, taller, straighter trees yield
more 2”x8” board-feet than is typical and leads to the advantaged product mix. There are no significant
economies of scale to the process.
Possible Solution:
1. The company leases land with a significantly higher quality of trees. This leads to a revenue advantage
because more 2”x8” board-feet can be produced per acre of land. Additionally, there is a cost advantage
because the higher quality inputs make the logging process easier and increase yields and turnover.
2. Since the leases are for 99 years and renewable, the current situation seems sustainable.

3. Since it is unlikely that another piece of land similar to this one exists or that another firm will give up
advantaged land, the situation is not replicable.

Note: This case is very similar to the “AbitibiBowater Seeking Sustainable Competitive Advantage” case.
So, you may also want to check out possible answers to that case too.
Office Depot’s Castor Revenues Flat and Profits Decline
Case Type: industry analysis; improve profit/bottom line.
Consulting Firm: Roland Berger Strategy Consultants 2nd round job interview.
Industry Coverage: Manufacturing; Office Equipment.
Case Interview Questions #00038: Your client Office Depot (NYSE: ODP) is a manufacturer and
supplier of office furniture, office equipment, office supplies and office products headquartered in Boca
Raton, Florida, United States. A subsidiary company of Office Depot manufactures castors (the wheels
found on the bottom of office chairs) out of a plant in West Germany and another
one in East Germany. Over the past two years the company’s profits have declined by 20% while
revenues have been relatively flat. You have been asked to find out what is happening and suggest a
course of action to reverse these trends. How would you go about the case?
Additional Information: (to be given to you if asked)
The company operates in three divisions: 50% of sales are to hospital bed manufacturers, 25% are to
mop bucket manufacturers, and 25% are to chair manufacturers. The hospital bed and mop bucket
divisions are located in the West German manufacturing operation, the hospital bed division is located in
the East German manufacturing operation.

Breaking out each division as a separate profit center shows that revenues are up 10% for both mop
bucket and chair divisions but down 10% for the hospital bed division. Similarly, profits are down 10% for
both the mop bucket and chair divisions but are down 30% for the hospital bed division.

Further investigation shows that labor is the major component of cost in manufacturing castors. In the
past two years, wages in the formerly state regulated East Germany have skyrocketed. This is what is
driving most of the increased costs. Similarly, the demand for hospital beds (and thus castors) in East
Germany has declined as they have become more efficient at managing their health care system.

Possible Solution:
This is a typical revenue/cost case. We have already been told that revenues are flat which should be a
clue to explore the cost side of the income statement. In this case, it helps to work logically through both
the fixed and variable costs to see if there are any major items. Sometimes the interviewer will provide
you with an income statement that will break out the major cost components by percentage.
GE Develops Eternal Light Bulb That Lasts Forever
Case Type: new product; industry analysis.
Consulting Firm: Marakon Associates 2nd round job interview.
Industry Coverage: Energy Industry; Utilities.
Case Interview Questions #00036: Your client is General Electric Company (NYSE: GE), a multinational
conglomerate corporation headquartered in Fairfield, Connecticut, US. The company operates through
four segments: Energy, Technology Infrastructure, Capital Finance and Consumer & Industrial. In 2011,

Fortune magazine ranked GE the 6th  largest company in the U.S.

GE Energy’s Global Research Lab has developed a super-durable filament for light bulbs; with this
filament, the light bulb will never burn out The lab is ready to license this new product and technology to a
light bulb manufacturer. What will be the effect on the light bulb industry?

Additional Information: (to be given to you if asked)

The light bulb industry is dominated by two multinational producers. The two companies sell their
products side by side for essentially the same price in similar outlets internationally. There are a several
small local players in various regions of the world who produce local brands and some private store brand
light bulbs. There have been no technological innovations in light bulbs for many years.

Possible Solution:
One outcome is that one of the two major players purchases the technology. If the technology is patented
and exclusively licensed, this player may enjoy an advantage for a limited time. If the producer makes
enough bulbs at a low enough cost, all customers will eventually switch over to the permanent light bulb,
thereby drying up the industry, putting the competitor out of business and greatly reducing their own
business.
Another solution is that all of the players obtain some version of this technology. If that were to happen,
the price for this product would decline to the normal industry profit level, and customers would shift to the
permanent light bulb. Over time, all bulbs would be permanent and the industry volume would greatly
decrease, making the industry more competitive and wiping out industry profits.

Note: This case is different from the “GE Defines Pricing Strategy for Eternal Light Bulb” case because
one deals with developing a pricing strategy for a new product while the other analyzing the effect of new
product on the industry. You may also want to check out the solution to that case.
Battle of the Brands: Coca-Cola versus Pepsi
Case Type: business competition; industry analysis.
Consulting Firm: Brattle Group 1st round job interview.
Industry Coverage: Food & Beverages.
Case Interview Questions #00035: Coca Cola is a carbonated soft drink produced by The Coca Cola
Company (NYSE: KO), an American multinational beverage corporation of manufacturer, retailer and
marketer of non-alcoholic beverage headquartered in Atlanta, Georgia. The Coca Cola Company’s
marketing tactics led Coca Cola (often referred to simply as Coke) to its
dominance of the world soft-drink market throughout the 20th century.
Pepsi is another carbonated soft drink produced by PepsiCo (NYSE: PEP), an American multinational
corporation headquartered in Purchase, Harrison, New York, with interests in the manufacturing,
marketing and distribution of grain-based snack foods, beverages, and other food products.
Pepsi-Cola and Coca-Cola both compete in the same carbonated soft drink industry. Their cost structures
are vastly different, however. Using Coca-Cola as a benchmark, can you estimate the likely cost structure
for Pepsi? In other words, for which costs would Pepsi be higher, for which would they be lower, and
why?

Possible Solution:
This is a twist on the standard price/cost case that also questions the job candidate’s understanding of the
cost items. There is no standard framework that can be directly applied to this case. A possible Value
Chain analysis, line item by line item is given here:
 Cost of goods sold: Pepsi would be higher due to their lesser power in negotiating price breaks
from suppliers.
 Distribution Costs: would be higher for Pepsi for two reasons. Pepsi is not distributed in as many
outlets as Coca Cola. Therefore, the average truck driver will be driving more miles and spending
more time to deliver a truckload of Pepsi that the Coca Cola driver, who will have several stops within
an immediate area. Also, the typical order size for Pepsi Cola would be smaller, meaning that more
stops would have to be made. In the case of Coca Cola, it is conceivable that one truckload may be
deliver to just one customer.
 Sales Costs: could be lower for Pepsi, as there are fewer, but more loyal customers.
 Marketing Costs: is lower for Pepsi Cola as they are not a frequent advertiser like Coca Cola.
 Administration / Overhead: should be lower for Pepsi Cola as they are more of a “one-product”
company than is Coca Cola.
American President Lines Assess Business Strategy
Case Type: industry analysis.
Consulting Firm: Censeo Consulting Group first round job interview.
Industry Coverage: Containers & Packaging; Freight Delivery, Shipping Services.
Case Interview Questions #00028: Your client American President Lines Ltd. (APL) is a wholly owned
subsidiary of Singapore based Neptune Orient Lines (NOL), a global transportation and logistics company
engaged in shipping and related businesses. The APL U.S. regional headquarters is in Scottsdale,

Arizona.
APL manufactures a special type of large steel shipping containers that are designed to hold up to several
tons of material for shipping on ocean liners. The container consists of a steel frame, a steel shell and an
insulation and waterproofing material that uses a hazardous chemical. The containers are leased by the
company to worldwide shipping companies. Shippers can lease the containers one-way or round-trip. The
client has asked you to do an assessment of their operations strategy. What issues would you examine?
Possible Answer:
1. Sales and Cost issues:
The growth of the shipping container market; your client’s share in that market; trends in the leasing terms
in the industry; customer power; steel prices; manufacturing costs.

2. Market issues:
Changes in the worldwide shipping market (e.g. does the growth of an area like Southeast Asia imply
many more one-way contracts than round-trip?); growth of the largest customer industries; new
technology in shipping containers; customs and trade agreement trends.

3. Environmental Issues:
Production and disposal of the insulation chemicals; costs of handling the chemicals.

Dow Chemical’s Sweetener Come Off Patent Soon

Case Type: industry analysis.
Consulting Firm: Cognizant Business Consulting (CBC) 1st round job interview.
Industry Coverage: Chemical Industry.
Case Interview Questions #00021: Your client Dow Chemical Company (NYSE: DOW) is a large
multinational corporation headquartered in Midland, Michigan, United States. Dow Chemical is a leading
manufacturer of plastics, chemicals, and agricultural products with a presence in more than 175 countries.

As of 2009, it  is the second largest chemical manufacturer in the world by

revenue (after BASF) and the third largest by market capitalization (after BASF and DuPont).
Dow Chemical manufactures an artificial chemical sweetener used in beverages and other food products.
The sweetener will soon come off patent in one year. You have been asked by the CEO of Dow Chemical
to predict what might happen to the profitability of this product when the product comes off patent. How
would you go about analyzing the case?
Additional Information: (to be given to you if asked)
1. Product: This is the only product of its kind, in terms of taste and safety (lack of harmful health effects)
as proven in lab tests. The brand name of the product has slowly become a common household word.
2. Customers: The largest two customers (75% of client’s sales) are two worldwide beverage companies
Coca-Cola and Pepsi. The companies feature the brand name of your client’s chemical on their product,
and consider it a sign of quality. In addition, the cost of the chemical sweetener represents 1.5% of their
total costs.
3. Costs: The costs to manufacture the product are extremely low (about 20% of the price of the product).
Currently, the margins on this chemical are almost 40%.
Possible Solution:
This is a classic customer and product analysis type of case problems.
While most products that come off patent quickly drop in price (e.g. pharmaceuticals, brand name drugs),
this product will be able to retain some of its premium due to the strong brand name. Because the major
two customers Coca-Cola and Pepsi feature the chemical name on their product, and because the
chemical represents such a small portion (1.5%) of their total costs, they can be expected to be willing to
continue to pay the premium into the future.

Conclusion: Therefore, the outlook for the product is good even after the patent expires.
wPanasonic VCR Sales Driven Down by the Rising of DVD
Case Type: industry analysis; business competition.
Consulting Firm: KPMG Consulting 1st round job interview.
Industry Coverage: Electronics; Entertainment.
Case Interview Questions #00003: Your client Panasonic VCR is a subsidiary company of Japanese
multinational consumer electronics corporation Panasonic Corporation (NYSE: PC). Panasonic VCR is a
major manufacturer of video cassette recorders (VCRs). The company offers a full range of VCR options

using the most sophisticated and  quality-driven manufacturing techniques.

There are several issues Panasonic VCR is currently facing that they would like our help to address.
Although the firm’s sales representative turnover rate has been increasing, the remaining representatives
claim that sales are at record high levels this year. In the past, Panasonic targeted two consumer groups
– older, middle income and middle-aged, middle income individuals. Recently, your client has been losing
middle-aged target market customers. Panasonic has traditionally managed its relationship with retailers
very well. However, the firm has recently lost several major accounts due to retailers’ inability to move
Panasonic’s VCR products. The CEO has hired you to figure out why they have been experiencing an
alarmingly poor sales year. What would you do investigate the cause?
Additional Information: (to be given to you if asked)
 Currently there are only 2-5 other major players in the industry, a steep decline from several
years ago. This has directly contributed to Panasonic’s growth in market share from a steady 32%,
the second largest in the industry, to a present day 44% market share.
 The VCR industry is a mature market, having existed for quite some time now. Associates
understand that they have limited opportunities for career progression and commissions in a market
stunted from further growth. So its sales force attrition is not necessarily a cause for diminishing
sales, but more of a signal of a declining industry due to other factors such as diminishing consumer
interest.
 As DVDs (Digital Video Disc) and DVD players are becoming more prevalent with technology
improvements, VCRs are becoming obsolete. Declining interest is more of an issue with the middle-
aged target market than with the older target market, because the middle-aged baby-boomers have
historically been more interested in purchasing more technologically advanced, “trendy” electronic
equipment than the older generation, which generally has more traditionalist preferences.
Possible Answer:
Suggested Frameworks:
1. Look at the implications of the increasing sales representative turnover rate and retailers’ inability to
sell Panasonic’s VCR products.
2. Once you explore the implications of these issues, you can begin to develop solutions that aim to
correct the company’s poor sales.

Possible Solutions:
Because of this growing inclination toward DVD players in the middle-aged market, Panasonic has two
main options:

1. Focus on its older, loyal customer base, which is less likely to switch to the new technology.

2. In the long run, expand its technology capabilities to become a provider of DVD players and dual
DVD/VCR players.