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case interview
handbook
INTRODUCTION
HOW SHOULD I USE THIS HANDBOOK?
The purpose of this handbook is to serve as a source
of inspiration during your interview preparation. We
recommend browsing through all sections of the
handbook to ensure that you are familiar with the
various topics covered in it. The content will, however, not be explicitly tested in any way during the
recruitment process at Quartz+Co.
TABLE OF CONTENTS
Quartz+Co: a Nordic original. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Quartz+Cos recruitment process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The case interview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Types of case questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
How to open and close a case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Frameworks for business cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Profitability framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Industry analysis framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mergers & acquisitions framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Product strategy framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Additional resources for case preparation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Quantitative preparation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Example cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Quartz+Co:
a Nordic original
QUARTZ+COS
RECRUITMENT PROCESS
FULL-TIME CONSULTANTs
JUNIOR CONSULTAnts
Quartz+Cos recruitment process for full-time consultants is centred around a comprehensive twoday recruitment camp.
Even though firmly rooted in the traditional, professional values of high-end management consulting,
Quartz+Co was founded with the clear intention of
changing the industry from within. Our ambition
is to become the leading consulting company in the
Nordic region by presenting an alternative to the
standard consulting model. A Nordic model with
less dependence on standard methodologies and
more emphasis on listening and giving advice based
on the clients specific challenges and opportunities
as well as our specific insight and experience.
While strategy development has always been the
cornerstone of our offering, Quartz+Co today works
extensively within transactions, commercial and operational excellence programmes and organisational
transformations. Our client base covers a range of
industries, including private equity, energy, pharma
& medtech, retail, transportation and many more.
Although most of our clients are large Nordic companies, approximately 40% of our projects are carried out outside the Nordics.
At Quartz+Co, we see consulting as a true career
path, not just a stepping stone. We offer our consultants the opportunity to influence their own career
progression and work life to the highest possible
extent. We strive to provide individualised matchmaking between personal wishes and project opportunities to ensure that our consultants develop
and succeed. For the same reason, we attempt to
nurture and develop our consultants as much as
possible through mentoring and internal academies
so that we can grow together as a company.
Over two days you will get the chance to learn more
about what it is like to be a consultant at Quartz+Co
and show us who you are through a combination
of interviews and group exercises on business dilemmas. You will also meet many of your potential
colleagues at Quartz+Co, and the different sessions
will offer you an opportunity to learn more about
yourself and moreover provide you with concrete
input to be further applied in your career, whether
at Quartz+Co or elsewhere. Among other things the
programme includes
An introduction to Quartz+Co
A timed quantitative test
A series of case interviews
A group case session
A personal style and preference session
An introduction to Quartz+Co
A timed quantitative test
A series of case interviews
TYPES OF CASE
QUESTIONS
Interview cases generally fall into two categories,
(1) Estimation or market-sizing cases, and (2) Business cases. At times, the interviewer may also ask
you to include a market-sizing question as part of a
larger business case.
1. ESTIMATION Or
MARKET-SIZING CASES
In estimation or market-sizing cases, you are asked
to estimate a quantity that you will not likely know
in advance. Examples of estimation case questions
are: How many gas stations are there in Sweden?;
How many trains are in motion in the Stockholm
subway system right now?; or What is the value of
all coal produced in Sweden?.
Typically, there is no one correct answer, yet the purpose of these cases is to understand how you work
logically through a mathematical problem, make
reasonable assumptions and interpret mathematical results. While you cannot prepare for the exact
problems, there are a few things to think about and
possible approaches you could consider.
12
Approaches
A) Extrapolation
One approach is to extrapolate a metric from one element against an entire population. As an illustrative
example, you could answer the question How many
gas stations are there in Sweden? by extrapolating
your knowledge about the number of gas stations in
your local region against the whole country.
(E.g. three gas stations per 50,000 inhabitants in
a given city would bring you to 600 gas stations
across Sweden, assuming a population of 10 million
people).
B) Segment-by-segment breakdown
An alternative approach is to isolate the estimation per segment. Visually, you could do your calculations in a table format, which makes your work
well-structured and easy-to-follow. As an illustrative
example, you could answer the question How many
deodorants are sold in Sweden each year? by segmenting Swedens population by logical age groups
and then making sound assumptions of the average
amount purchased per capita for each group.
C) Driver breakdown
A third approach that works well for many estimation or market-sizing cases, especially more unconventional ones, is the driver breakdown approach.
Here, you begin with the key metric and systematically decompose it into its corresponding drivers.
Keep attempting different decompositions until you
find that the subcomponents are manageable to
make assumptions around. As an illustrative example, you could answer the question How many golf
balls are in the air in the US at 11 am on a Saturday
morning? by breaking it down into its subcomponents number of golf balls in the air per course
times number of courses in the United States, and
subsequently breaking those down further.
2. BUSINESS CASES
The business case interview is by far the most common type of case interview. A business case interview begins with the interviewer presenting you
with a challenge or opportunity faced by a company
and asks you to analyse and resolve the situation
through a discussion with the interviewer.
Business cases are designed to simulate real life
consulting projects, and sometimes the interviewer
may even role play one or several characters involved in the case to get as close to a real project as
possible. He or she could provide you with relevant
data upon request - or - after a given section of a
case, ask you to analyse or investigate certain topics. The types of topics vary; you may for example
investigate how to make a companys distribution
chain more effective, how to best enter the Brazilian
soda market or how to make use of overcapacity in
a car manufacturing facility.
The purpose of these types of cases is to understand several of your competences: the depth of
your business acumen; how you structure and prioritise issues; how you handle different types of
Organisation
Operation
Incentive systems
Cost-out
Organisational design
Strategic sourcing
M&A transactions
Post-merger integration
Competitive response
Pricing strategies
13
HOW TO OPEN
AND CLOSE A CASE
14
Ask for time to collect your thoughts and structure your analysis. Often the interviewer leaves
the room to give you some time, while at other
times the interviewer may stay in the room in
either case, do not feel stressed and take the
time you need
Lastly, back up your conclusion with supporting arguments. Try to not include too many but
rather spend time on the ones that you find
most important to your overall conclusion
FRAMEWORKS FOR
BUSINESS CASES
You will quickly find frameworks if you start looking around for material on management consulting
interviews. Basically, frameworks are tools for you
to use when structuring your problem solving in a
case interview. Sometimes they could also just be a
checklist to avoid missing the most important steps
in the process. You should keep in mind that a case
question rarely turns out to fit perfectly into a predefined framework instead you will have to adapt
your approach and use the framework more as a
backbone in your analysis. In the following pages,
you will find four useful frameworks.
16
PROFITABILITY
FRAMEWORK
In many cases you will be expected to analyse the
profitability of a company at a more granular level.
The profitability framework helps you to systematically break down the profitability drivers. Your goal
is often to isolate significant historic developments
(e.g. the cost of raw material has been surging);
benchmark profitability drivers with competitors
(e.g. our prices are lower than our peers); and evaluate opportunities (e.g. is it possible for us to increase
profits by boosting sales of product A?). The key to
solving these cases is often to understand the underlying mechanics that produce the eventual anomalies in the numbers (e.g. our prices are lower than
profit components
revenue
CostS
(price * volume)
(fixed + variable)
Business units
Customer types
Geographies
Product types
Sales representatives
Etc.
1.
Raw materials
2. Inbound logistics
3. Production costs
4. Sales and distribution costs
hints
18
Identify increases or decreases in components (e.g. have units sold gone up, down or stayed consistent)
INDUSTRY ANALYSIS
FRAMEWORK
The industry analysis framework is designed to help you gather information on a companys external environment. At first glance, it may appear overwhelming but many of the elements are likely already familiar to you.
Industry facts
Industry growth
CompetETive Landscape
Client
Competitor A
Competitor B
...
Market share
Financials
Product
(differentiation, packaging, prices, etc.)
Other drivers
(brands, loyalty, etc.)
Production
Suppliers
Economies of scale
Bargaining power?
Is outsourcing a possibility?
Raw materials
End user
B2B or B2C?
Distributors
Preferences
Product
Bargaining power?
Distribution
Price
Sales personel
Marketing
Other factors
Change factors
20
Logistics
Substitute products?
Diversification
Pre-empt competition
Tax reasons
Exit strategy
Due Diligence
23
PRODUCT STRATEGY
FRAMEWORK
This framework is similar to the industry analysis framework but with some important differences and additional issues.
Competitive position
How does the product and its features compare to competing alternatives?
Cost-based pricing
(Applying a margin on top of costs)
Market pricing
(Based on prices of competing products)
Do we have the capabilities necessary to introduce the product? (e.g. technical knowhow,
financing, operational set-up, suppliers)
Value-based pricing
(What are customers willing to pay?)
24
Economics
ADDITIONAL RESOURCES
FOR CASE PREPARATION
Source
www.caseinterviews.com
Comments
A recent and popular case site developed by a
former consultant.
The site includes a range of material containing
useful and concentrated frameworks and case tips.
The materials come in the form of videos and PDFs
and are typically free of charge. However, beware
that the site is designed to encourage you to make
large add-on purchases not necessary for interview
preparation.
Case in Point
27
QUANTITATIVE
PREPARATION
Most management consulting companies put emphasis on a candidates numerical capabilities, and
strive to test these in one way or another as part of
the recruitment process. Numerical skills are easy to
improve with practice and we strongly recommend
that you put some time aside for practicing numerical accuracy and speed by repeating basic arithmetic operations.
28
EXAMPLE CASES
Interviewer
Sounds good!
Candidate
Lets start with the behavioural parameters. Since we are only focusing on the wholesale
market, I will look at the consumption of pre-bottled juice. This is more or less the same as
breakfast consumption, according to my experience. Lets create three types of breakfast
juice drinkers; a) everyday drinkers, b) occasional drinkers and c) non-drinkers. I assume
that the weekly consumption within the three groups is: a) 7 glasses (1.5 litres), b) 2-3
glasses (0.5 litres) and c) nothing.
Interviewer
Great, then you mentioned that you were going to analyse age groups. How?
Candidate
In addition to the behavioural aspects, I believe that age is relevant due to different lifestyles. I think that the share of people who belongs to the different behavioural groups (a,
b and c) varies with age. I would like to start off by defining the age groups: 0-20 years,
20-40 years, 40-60 years and 60-plus.
Interviewer
Candidate
Hmm, I get your point; I need to explain the rationale for defining different age groups
which has to be connected to the different lifestyles I was talking about.
Candidate
Interviewer
Candidate
Interviewer
Interviewer
Thats right!
The interviewer walks out of the room and returns a couple of minutes later
Candidate
OK, so 0-7 is the first group and I assume they do not drink juice at all. The next group is
720 as they typically live at home with their parents and are not buying juice themselves.
Based on my experience, half of these people do not drink juice at all, in fact many of them
dont even eat breakfast. I assume 1 out of 4 drinks every day and the rest drinks a couple
of times per week. The next group is 20-65, which is basically the working population. If
I look at my friends and family, there are about 50% who do not drink juice at all. Then I
think there is a slightly higher share of everyday drinkers than in the 7-20 age group. Based
on my experience, I assume 30%, leaving us with 20% drinking occasionally. Finally, in the
group 65-plus I think the share of everyday drinkers goes down a bit due to lower income,
I assume 20% and I think the non-drinkers are still about 50%, leaving us with 30% occasional drinkers.
Candidate
Interviewer
Okay, that sounds appropriate. Why dont you start with the size and growth of the market? How would you estimate the size of the Swedish juice market?
Candidate
Candidate
Interviewer
Candidate
32
In order to estimate the market size in terms of value, I need to look into the drivers of
market value, which are (a) yearly juice consumption in litres and (b) price per litre. Ill start
with the consumption.
Okay, good. It sounds like you have a good overall approach but I would like you to refine
your structure a bit; what do you think is an appropriate customer segmentation to find
out how much juice is consumed every year?
Hmm, we could segment the consumers into different categories both in terms of behaviour and in terms of age groups.
Behavioural distribution
Ages
Number of
people
Everyday
Occassionally
Never
Everyday
Occassionally
Never
Total week
Total yearly
consumption
0-7
700,000
0%
0%
100%
1.5
0.5
7-20
1,300,000
25%
25%
50%
1.5
0.5
650,000
33,800,000
20-65
4,500,000
30%
20%
50%
1.5
0.5
2,475,000
128,700,000
65-plus
3,500,000
20%
30%
50%
1.5
0.5
1,575,000
81,900,000
Total
10,000,000
4,700,000
244,400,000
33
Interviewer
Interviewer
Okay, it sounds like you have thought this through. Assume for the rest of the case that
your estimate of SEK 3 billion is correct. So whats next?
Candidate
Lets continue with (b), price per litre. Based on my experience from ICA, a package of
juice is about SEK 18 per litre
Candidate
Next I would like to look at the market growth and if we have any information on whether
it is set to grow in the next years.
Okay, but before you do the calculation I would like to ask you there is an element, which
youre missing, can you think of what it is?
Interviewer
Okay, you can assume that the market has been declining by 4% per year over the past five
years and is set to continue do so over the next five years.
Ah! Yes, since we are talking about a wholeseller, my price includes a retailer mark-up
which should not be considered in the wholeseller market.
Candidate
Interviewer
Yes, thats it. There is also another consideration. What do you think that is?
Interviewer
Candidate
We are only talking about one juice type here. Maybe we should consider different types
of juices?
Candidate
Okay, so is it fair to assume that we can expect even more than 4% real decline in the next
five years?
Interviewer
Interviewer
Candidate
That we get different prices for different juices; I would say that there are three basic types
with different price levels; high end, low end and private label.
Candidate
Next I would like to analyse (2) the competitive landscape and the target companys competitiveness to see if it might have some kind of unique position in a particularly attractive
subsegment because overall, the market does not seem very attractive.
Interviewer
Exactly, Ill help you out and give you some numbers.
Interviewer
Candidate
The candidate runs the numbers based on an assumed retail price and calculates
backwards to find out the wholesale price
34
Share of sale
Volume in
litres
Retail price
VAT
Retail mark-up
Price/litre to
retailer
Total value
Brand
high end
10%
24,440,000
30
25%
20%
20.0
488,800,000
Brand
low end
65%
158,860,000
18
25%
20%
12.0
1,906,320,000
Private label
25%
61,100,000
20
25%
60%
10.0
611,000,000
Total
100%
244,400,000
We will wrap up the case example at this stage. We do, however, encourage you to try and think what your
approach would have been in mapping the competitive landscape and how you would have proceeded in
analysing whether we should recommend the private equity fund to acquire the company or not.
3,006,120,000
Candidate
Okay, so given these price levels, I arrive at approximately SEK 3 billion in wholesale value.
In terms of weaknesses of the estimation I would say that the consumption assumptions
are the ones that Im least comfortable with. If I had more time I would dig deeper into that.
Interviewer
Candidate
Well, a simple sanity check is to find out how much that would be per person per week,
and it is about SEK 6 plus retail mark-up across the entire population. To me, that sounds
reasonable, which would make 3 billion a realistic estimate.
35
Interviewer
Candidate
Candidate
Yes, of course you are right. I would like to explore the dynamics of the market
by understanding:
After years of engineering work, you finally have the worlds first commercially viable
spacecraft. It costs you EUR 50 million to build. From its launch pad outside Paris, it can
take a load of up to 12 passengers into space, orbit earth and then return safely eight hours
later. There are no safety concerns whatsoever. The spacecraft can do three trips per week
and the operational costs related to the trips (salaries, fuel, maintenance) are EUR 75,000.
There are no competing products, and the design is effectively protected by patent rights
for the next 25 years. It will take you three years to build an additional spacecraft.
(1.1) Who are our potential customers? What are the segments? What are their
considerations when buying a ticket?
My question to you is: how would you take the product to the market in the next three
years, before you could have another spacecraft?
For (2), the economics, I would like to do a break-even analysis to understand whether it
is a profitable idea, and if yes, how much room do we have left for marketing?
So were talking about a commercial spacecraft here? Our goal is to push this thing to the
market, right? Okay, let me make sure that I caught all the details in the data.
For (3), marketing, I dont have a clear idea yet. But well dig deeper into that later.
(1.2) How big is our market? What I would like to figure out is whether we can fill
our capacity or not.
(1.3) What is the competition like? I.e. are there any substitutes?
Interviewer
Good. I would like to hear your thoughts on topic (1.3), competition, what do you think?
Candidate
Well, I dont know of any other space trips, and I guess it is safe to assume that no one else
will develop such a concept in a three-year period?
We can do three trips per week, so basically 150 trips per year,
and each trip can carry 12 passengers.
Interviewer
You are right, and in addition, I did mention that there are no competing products,
remember?
Candidate
Interviewer
Candidate
Good question, the closest thing I can think of is different types of leisure trips, which
arent really comparable to this, if you ask me. My hypothesis is that there are no real substitutes. I mean, what compares to travelling to space?
The candidate takes around three minutes and then resumes the conversation
Interviewer
I agree. Lets assume there are no substitute products either, so effectively there is no competition of any kind for the remainder of the case.
All right - there are a couple of areas that I would like to explore, which fall into three main
categories
Candidate
Okay, then I would like to continue with the first branch of the analysis: (1.1), customers,
who are they in this situation?
Interviewer
Candidate
Candidate
Yes, thats right. What I want you to start with is deciding on a couple of areas that you
would like to investigate further.
Okay, give me a minute and Ill collect my thoughts a bit.
36
Candidate
This is a bit tricky, because I would assume that the vast majority of the human population
would be interested in travelling to space but, as we concluded, this depends on the ticket price. For example, I would definitely go for EUR 100, but maybe not for EUR 1 million
in my current situation. The key takeaway here is that: the higher the price, the fewer the
people who would be interested in a ticket.
Interviewer
Yes, of course. Can you look at the customer group and price issue from another angle
perhaps? Lets assume we are looking at the market for the next three years.
37
Candidate
Ah, yes, we could look at how many tickets we could possibly sell per year, and divide this
by the number of inhabitants in the world. I think this can give us a clue as to how much
we can charge for the tickets.
Interviewer
Candidate
We have around 150 trips per year, with 12 passengers each, which adds up to 1,800 seats
per year to fill. Considering a world population of 7 billion people, this corresponds to less
than one person in a million. Given that, I think it is safe to assume that we could charge a
lot for these tickets. I mean, one person in a million is quite a small group of people.
Interviewer
That sounds reasonable, with that in consideration I would like you to go into issue (2), the
economics, and run some numbers on the break-even price for the first three years.
Candidate
All right, we have two cost components that I noted down during the introduction of the
case, the initial investment cost and the round trip cost. Im not completely sure of whether
we should consider the initial investment as a sunk cost or use it in the break-even analysis.
My suggestion is that we should include it.
Interviewer
Great! Do that.
Candidate
Well, yes, you might be right but we should still ensure that the word gets out there so we
dont risk not filling the seats during the first weeks before the word spreads.
Interviewer
We will wrap up the case example at this stage of the case. We do, however, encourage you to try and think
what your approach would be for a marketing campaign for the first commercial space trip.
38
Candidate
Okay. I will translate both costs into costs per seat, so given that and assuming that there
are no additional costs, the investment cost of EUR 50 million will be EUR 16.7 million per
year, and a little less than EUR 10,000 per seat, lets assume EUR 9,500. The round trip cost
of EUR 75,000 becomes EUR 6,250 per seat since we have 12 seats. So in total we have a
cost per seat of around EUR 16,000, which would be our price if want to break even after
three years.
Interviewer
Okay, what does that tell you? That we should charge at least EUR 16,000 per ticket?
Candidate
It completely depends on the circumstances. If the useful life of the spacecraft is three
years we would have to charge significantly more to make a good profit but if the useful
life is longer it could be a viable option to charge the 16 thousand.
Interviewer
Good thinking, unfortunately we dont have any information on the useful life right now so
lets leave it at that. But what about EUR 16,000, how do think that ticket price sounds?
Candidate
Well, since we are looking at the one-in-a-million-most-willing-to-pay-person as our customer group, I think that it is safe to assume that we can charge at least that. EUR 16,000
is a lot but I am confident we could sell the tickets to at least that price. As I mentioned
before, however, I think we should make a large marketing campaign to build some momentum around the demand so we might want to add a bit of a margin on top of that EUR
16,000 if we are to break even including that in three years.
Interviewer
That is true. We should probably try to make a splash before the launch, but at the same
time, a big attraction like this might almost sell itself, dont you think?
39
VERTICAL WINDOWS
Interviewer
Our client, the Swedish window manufacturer Vertical Windows, is considering entering the German market. The company has an annual revenue of EUR 600 million and is
currently the market leader in Sweden, and one of the top three in Denmark and Norway
90% of its sales are within the Nordic region. Vertical Windows also has sales and production facilities in the UK.
Residential market
Market size
Non-residential market
Market growth
Attractiveness of the German market
Profitability
What aspects do we need to look into in order to evaluate whether entering the German
market is an attractive opportunity for Vertical Windows?
Candidate
Ok, let me think about how to approach this issue for a moment.
Interviewer
Product
Candidate
I use the four elements initially mentioned as the base of my issue tree, and I will continue
down the market size branch first. I would like to complete the analysis of residential
property before moving on to non-residential.
Interviewer
That is fine.
Candidate
So, if we have 40 million households, these can be split into flats and houses. Is it fair to say
that the split could be 50/50 between family houses and apartments?
Interviewer
Candidate
Great, obviously houses would have more windows than apartments, so this has an influence on our total number of windows. I would say houses have, on average, twice the
number of windows compared to those of apartments. Perhaps 10 windows per house and
5 windows per apartment are reasonable estimates?
Interviewer
Candidate
The assumptions you have made so far are fairly accurate, but maybe we should slow
down a little bit and try to structure our approach a bit more, so that we do not miss out on
any important details? For example, would private households represent the only potential
market for a company selling windows?
Then that would give us a total residential market size of: (20 million apartments x 5 windows) + (20 million houses x 10 windows) = 300 million windows in the residential market.
I think the residential market is larger than the non-residential market by a decent margin.
Perhaps 2/3 of all windows are residential and 1/3 is non-residential?
Interviewer
Sounds reasonable. Anything else we need to consider here? Would this be the total market size and what does this number actually imply?
Yes, of course. In addition to the residential market, we also have to consider the non-residential market. Maybe I should set up an issue tree to make the analysis more structured?
Candidate
Given that we have estimated the residential market to 300 million windows, the total
market would amount to about 450 million windows. However, windows are normally not
changed every year, so annual sales would not be 450 million windows. I do not know too
much about windows, but is it fair to say they are changed, on average, every 20 years?
Interviewer
Do not worry! This is not a test of your knowledge of the lifetime of windows, but I would
say your number is a bit low and that a better estimate would be 30 years. What else do
you need in order to get an idea of total annual sales?
To assess how attractive it would be to enter the German market, I would start by looking at:
1) The size of the German market
2) Market growth to better understand the dynamics
3) Current profitability in the industry, if information is available
4) Vertical Windows product offering versus current market demand
Interviewer
Good, it sounds like an approach that can provide useful insight to get us started. How
would you estimate the size of the German market for windows?
Candidate
First, I would start by estimating the number of households in Germany, to get an idea of
the total number of windows sold. I know that the population in Germany is roughly 80
million. Assuming that each household counts, on average, two people, this would give us
a total of 40 million households.
Interviewer
Candidate
Interviewer
40
41
Candidate
Thanks! So, this would give a number of 15 million windows sold in Germany every year. To
estimate annual sales, I would need the average price of a window. Does EUR 400 sound
like a fair guess?
Interviewer
Candidate
Great! Then that would give us total annual sales of 15 million windows times EUR 400,
which gives annual sales worth EUR 6 billion.
100%
100%
100%
100%
20%
Interviewer
Candidate
Vertical Windows currently has a revenue of 600 million from sales in the three Nordic
countries. Altogether, the Nordics are about one quarter of Germany in population size;
following the same reasoning as before, this means that the total Nordic market should
be about 1.5 billion. With a market share of 40%, Vertical Windows could be making 600
million in sales. So, given this, I would say the estimate is within the ballpark.
40%
55%
90%
80%
60%
45%
10%
Interviewer
That was a good approach to check your estimate. Let us use 6 billion as the market size
for Germany. What should we look at next?
Candidate
Next, I would like to look at growth: How has the market developed historically and are
there available predictions for the upcoming years?
Interviewer
Candidate
Ok, then I think it is safe to say that there will be no change in market size. Next, I would
like to look into the profitability of the industry do we have any data on this?
Interviewer
Yes, we do. Looking at the largest players in Germany, they are currently operating at a
lower profitability than that of the Nordic countries.
Candidate
Ok, I would need to continue my investigation whether Germany would be a good fit for
our clients company.
Interviewer
Candidate
First, I think it would be interesting to look at the competitive landscape to see if the market is fragmented or consolidated. Secondly, I would ideally like to see if the company has
any kind of competitive advantage it can benefit from.
Interviewer
Sweden
Candidate
Denmark
Norway
Germany
It looks like the German market is much more fragmented than the Nordic markets, indicating that there are no large players dominating the market but rather a lot of smaller
players. This might actually be good for our client, since then there is no player that can
easily start a price war to keep our client out of the market.
Given that the current competitive landscape looks fairly good, I think we should look into
our clients product portfolio to see if there are any pockets in the market that look obvious for it to take advantage of.
Interviewer
Let us do that!
Interviewer provides data.
The European vertical windows market split by market material
European vertical window material
100% total market size
3%
3%
5%
100%
10%
17%
53%
50%
37%
37%
42
7%
4%
80%
42%
Wood/Aluminium
Aluminium
Wood
90%
PVC
41%
8%
4%
4%
Sweden
Denmark
Norway
Germany
53%
Vertical Windows
43
Candidate
My first observation is that Vertical Windows currently does not offer windows in the segment that is the largest in Germany, PVC. This is an immediate concern, as it reduces the
addressable market by 41%, unless Vertical Windows would be able to broaden its portfolio to include also PVC windows.
Interviewer
I agree that it reduces the addressable potential of the German market, but do you perceive it to be a reason not to enter the market?
Candidate
Interviewer
No, I would not dismiss the German market based on this information, since Vertical Windows strongholds are wood and aluminium, which still account for 54% of the German
market. Furthermore, Vertical Windows has a somewhat similar situation in Denmark and
Sweden, where woods/aluminium represents roughly 50% of the market but constitutes
only 10% of Vertical Windows total sales.
I think you are right in that we should not dismiss the German market simply because Vertical Windows cannot address the entire market. To help you in the continuation of your
analysis, we have also been provided with some data on the price levels of the different
window types. Does this new data give you any additional reflections regarding the attractiveness of the market?
Candidate
Based on the provided information and the conducted analysis, I would say that entering
the German market is a potential next step for Vertical Windows. This conclusion is based
on the attractiveness of the market in terms of its size and competitive situation. Furthermore, Vertical Windows main segments constitute 54% of the German market, which
represent a significant pocket to tap into.
Interviewer
Vertical Windows has actually reached the same conclusion as you did in your analysis. It
has started to develop a market entry strategy for Germany and it has also started talking
to a German window manufacturer, which it thinks may represent an interesting acquisition target
We will wrap up the case example here. We do, however, encourage you to try to reflect over what your approach would be in order to analyse the potential acquisition as a means for supporting Vertical Windows
market entry.
300
100
PVC
44
Aluminium
Wood
Wood / Alu
Candidate
Well, Vertical Windows sells mainly the slightly more expensive windows, which indicates
that its value proposition is that of a premium brand rather than an economy brand. As
a premium brand, you will typically have greater margins and be less dependent on high
volumes, making the fact that Vertical Windows currently can address only 59% of the
German market less troubling. In fact, this convinces me that the German market does
have an attractive pocket that Vertical Windows should address by trying to enter the
market as a premium brand.
Interviewer
45
Candidate
To calculate the total car population I would like to use number of households as a starting
point.
Interviewer
Interviewer
Sorry for interrupting, but before you proceed I would like to know if this approach will
capture the entire passenger car fleet?
Candidate
I think it will cover the majority since this approach will account for the B2C market, and
it will also account for business fleets used by employees since these are often used privately as well. One part of the B2B segment which is not covered is the taxi segment, but
I would presume that the taxi market is quite small. I could of course add an additional
analysis of the taxi segment, if you consider it to be relevant?
Interviewer
You do not need to do the additional analysis for the taxi market, I agree that it is most
likely fairly small. So for now, let us assume that Toyota Prius is only sold B2C and B2B for
business fleets. With that sorted, you can now continue your analysis of the market for
passenger cars.
Candidate
Great! I will start the analysis by assuming that the average size of a household is two
people and that the population size in Denmark is roughly 6 million, giving us a total of 3
million households in Denmark. The households can then be divided into three main types,
depending on their access to a car:
We are on our way to the Danish affiliate of Toyota Motors to attend a meeting with the VP
of sales. The VP is currently in the process of setting the budget for 2014, when he calls us
to resolve a growing concern of his. For the year 2015, he has set the total sales budget of
the new Toyota Prius to 5,000 units. However, he is a bit concerned whether this target is
realistic or not.
As a consequence, he has asked us to provide an initial assessment of the feasibility of
his budget target. Furthermore, he would like some pointers for initiatives that could help
increase the sales of the vehicle.
Candidate
Interviewer
Candidate
Great! Let me make sure I have understood the task correctly. The VP of sales for the Danish affiliate of Toyota Motors wants to know if it is realistic to sell 5,000 Toyota Prius cars in
the Danish market in 2015. Furthermore, he is interested in possible initiatives to increase
sales of this particular car.
Interviewer
That is right!
Candidate
I do not have any further questions right now, but I would like to have a minute to gather
my thoughts.
Interviewer
Candidate
I want to start by looking into the feasibility of selling 5,000 units. In order to do this my
suggested approach is:
Candidate
46
Number of cars
Households with
two cars or more
20%
600,000
1,200,000
Households
with one car
60%
1,800,000
1,800,000
Households
with no car
20%
600,000
Total
100%
3,000,000
3,000,000
Given that 20% of the households own two cars, and 60% of the households own one car,
the total number of private passenger cars in Denmark is 3,000,000. To calculate how
many new cars are sold each year, I will assume that the average lifetime of a car is 15
years. The total number of new cars sold each year is then 200,000 cars (3,000,000/15),
depending on one additional assumption, notably that the total population of cars remains
constant.
Interviewer
Good. I agree, but could you elaborate on how you found the percentage split for the number of cars per household?
Candidate
Absolutely! Based on my experience from the Nordics, I believe that the majority of households in Denmark have at least one car, which is why I have set the share of households
without a car to 20%. Out of the households with a car, I am quite certain that most of
them only have one car, explaining why I have set that share to represent 60% of all households or 75% of all households with a car.
Number of
households
Candidate
1) Define the total number of passenger cars in Denmark and then estimate the
number of new cars sold each year
Interviewer
Per cent of
households
47
Interviewer
That makes sense. Do you want to continue the analysis of the 200,000 cars or is that the
addressable market for Toyota Prius?
Interviewer
I agree with your reasoning. Would you please also elaborate on your reasoning for the
split of the mid-sized market based on pricing?
Candidate
The 200,000 cars do not reflect the addressable market for the Toyota Prius. There are
different needs in relation to size and usage. Hence, I will break down the market further by
looking into four main types of cars: SUVs, family cars, mid-sized cars and compact cars.
Candidate
Interviewer
Can you think of another dimension that is relevant when choosing a car?
Candidate
I suppose that price is also an important differentiator. Other consumer typology, such as
age, could also be relevant, but given the limited information, consumer typologies would
be complicated to analyse with reasonable certainty unless it is possible to obtain this
information from the client?
I have only considered the mid-sized market for the market share split based on pricing
due to the assumption that Toyota Prius only competes in the premium-priced segment
for mid-sized cars, and I believe that the split based on pricing will vary with the car size.
My view is that within the mid-sized car segment most cars are found within the mainstream pricing segment, why I have assumed these to stand for 60% of the market. For
the remaining 40%, I believe the split to be 50/50 between price fighter and premium,
which is why both segments make up 20%. Do you agree with the assumptions and the
underlying reasoning?
Interviewer
It sounds fair.
Candidate
Ok. Given this, the market in which Toyota Prius operates accounts for 8% of the total annual sales of new cars. This gives us a market of 16,000 new cars each year, which implies
that Toyota Prius would have to take roughly one third of the market in this segment to
meet the sales budget.
Interviewer
We do not have any more information regarding consumer typologies and it can also
be difficult to operationalise such segmentations so price sounds like a good additional
segmentation parameter.
Candidate
Ok, let me organise the different parameters into a matrix to get a clear overview of the
different car segments.
Based on this, I would say that selling 5,000 Toyota Prius cars in Denmark in 2015 is very
ambitious and probably unrealistic. Especially given the fact that Toyota Prius uses hybrid
technology and is therefore only relevant for parts of the premium segment for mid-sized
cars.
Size
Price fighter
Mainstream
Premium
segment
SUV
10%
Family
30%
Mid-sized
8%
24%
8%
Compact
Share of
mid-sized market
Candidate
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Share of total
market
Interviewer
Candidate
Now that this is clarified, I would like to move on to the second part of the VPs request and
identify possible measures to increase sales.
I would like to divide initiatives to boost sales into three main types of growth levers:
40%
20%
20%
60%
20%
I have added percentages of the estimated market split for the two dimensions by first
estimating the split based on car size, and then estimating the distribution across price
levels within the mid-sized market.
Interviewer
Excellent, but before you continue with your analysis, could you explain the reasoning behind your percentage splits?
Candidate
Yes, of course. The first split of the market, by size, is based on my own observations of
the cars people drive in the Nordics. I perceive that most cars are either family or midsized cars, but that compact cars are still fairly common. SUVs, on the other hand, are less
common. With that in mind, I have assumed that SUVs make up 10% of the market, and
that the more common compact cars have a market share twice as large of 20%. Thus, the
remaining 70% are family and mid-sized cars, between which I consider mid-sized to be a
bit more common, and has therefore set its market share to 40%.
Interviewer
I think those are three relevant levers. What are the possible segments for the first lever?
Candidate
This brings us back to our initial discussion about the market, from which I would consider
the possibility of increasing sales in the B2B market. The attractiveness of this initiative
depends partly on how active Toyota already is in the B2B segment. This initiative covers
both taxi fleets and business car fleets. One approach to attract large companies would be
to convince them to update their business car fleet to include more green cars. This is also
an approach that could be used towards the largest taxi companies.
Interviewer
49
Candidate
The second measure for increasing sales is to make the car more affordable. The segmentation matrix tells us that making the car more affordable and hereby gaining access to
the mainstream segment could increase the potential market by 300% or 48,000 cars.
In order to avoid reducing the actual price of the car, another approach for tapping into
the market could be to offer attractive leasing solutions, seemingly making the car more
affordable.
Interviewer
The third initiative involves increasing awareness about the car and its qualities as a greener alternative to conventional passenger cars.
Wood pellets are used as heating fuel. They are manufactured by compressing sawdust
into pellets. Pellets are extremely dense and can be produced with a low moisture content,
which allows them to be burned with a very high combustion efficiency.
Interviewer
Could you please elaborate on how you would proceed the process of increasing awareness?
In this case, only the heating of buildings with wood pellets is in scope.
Candidate
I would suggest two main approaches to increase overall awareness, hereby also increasing the chance of getting people to consider a hybrid car over a conventional car hopefully the Toyota Prius in particular:
The first question our client asked was to assess whether there will be a future demand for
wood pellets. What do you think would be a good structure to analyse future demand for
wood pellets?
Candidate
Interviewer
Candidate
I would just like to sum up the case by saying that the budgeted sales target of 5,000
cars in 2015 is very ambitious due to the size of the addressable market. However, there
are measures that could be made to increase sales and, hopefully, reduce the gap. These
include entering new segments, make the car more affordable and increase awareness.
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A Nordic private equity fund is considering the acquisition of a Swedish wood pellets manufacturer. The company is currently owned by an industrial conglomerate.
In order to assess the future demand for wood pellets, I would like to divide the issue into
two main parts:
1) Who are the main users of wood pellets?
2) What is the substitute for using wood pellets?
Interviewer
Interesting, let us start with looking at the first one. Who are the primary users of wood
pellets?
Candidate
Since pellets are used for heating, owners of any kind of building in need of heating is a potential customer. There are different set-ups for heating a building. In my view, multi-family
houses and commercial buildings in cities are primarily connected to central heating systems, and would therefore not be direct users of pellets. The primary customers of pellets
would be A) small family houses and B) commercial buildings in rural areas.
Interviewer
You mention central heating systems, what kind of fuel do they use?
Candidate
I see your point. Central heaters can probably also run on pellets.
Interviewer
Good! So, you have now identified three main types of customers. What would the alternative for wood pellets be in each category?
Candidate
I believe that there is a different dynamic to each segment. There are central heating systems running on garbage, wood well, anything that burns basically. They buy fuel in great
quantities and probably shift it depending on price.
51
Candidate
For small houses, demand is more static. They can use electricity, oil or geothermal for
heating, but they do not shift fuel. Shifting fuel would be connected to an investment in a
new boiler. So, the installed base would perhaps be slightly more stable over the investment horizon.
Candidate
Well, the company already has a strong brand and good relations with its customers. But,
wood pellets is a really basic product, a commodity I mean, I would not pay extra for a
branded bag charcoal for the barbeque. I wonder if the companys price premium is sustainable over time
Interviewer
Yes, there is a different dynamic in play for each segment. Could you describe in an overall
way how you would investigate future development in each segment?
Interviewer
Candidate
Candidate
One could look at the historical development and growth rates, and of course get hold of
an industry expert to provide additional market insight.
Well, the market is not really growing, so to increase revenue they either need to gain market share or raise product prices.
Interviewer
Interviewer
That sounds like a good approach. Let us say that after looking at historical data and
conducting expert interviews, we found that the demand from small houses is declining,
commercial is increasing and central heating is flat lining.
Is raising prices a possible strategy? What do you believe is the most important criterion
for the customer when shopping for wood pellets?
Candidate
Assuming that the quality is equal across suppliers, the most important thing would be
the price.
So there will be a demand for wood pellets over the investment horizon, but no spectacular growth.
Interviewer
That is right, so how would you go about determining the target companys market
position?
Candidate
I will provide you with some additional information about the target company, so you can
evaluate the attractiveness of the potential investment.
Since wood pellets are a commodity, the price is determined by the market and the suppliers competitiveness is about being the most cost-efficient. The way forward would be to
make a cost comparison across the value chain for the target company and its competitors.
Candidate
Interviewer
Interviewer
Good question, there are three main categories of competitors in the market. A) medium-sized suppliers with a similar set-up as the target company, B) large forest companies
and C) international importers.
Candidate
Do the largest forest companies operate their own sawmills, and can, thus, produce the
pellets out of sawdust from their own wood production?
Interviewer
Would you say that the pellets company is an attractive target for the private equity fund?
Candidate
Hmm, the attractiveness of the investment is determined by the private equity funds ability to increase the value of the firm and ensure that it becomes an attractive target when
selling again. Buy low and sell high, right?
Candidate
52
Interviewer
Thats right. And how would they try to increase the value of the company?
Candidate
There should be a case for how to increase the companys profits, either by increasing
revenue or lowering the cost base or both.
Interviewer
Ok, if we start by looking on the revenue side, what could be done there?
We have three types of competitors, and a value chain for producing and distributing
pellets consisting of four main steps: A) acquiring raw material B) transportation to production, C) production and D) distribution. By evaluating each step per competitor, we can
identify advantages and potential disadvantages to base our assessment on.
53
Value chain
A) Raw material
Candidate
B) Transportation
C) Production
Candidate
Do you have any information on the recent market development such as sales or market
share per competitor?
Interviewer
The forest companies and the importers have only been on the market for a couple of
years, but have quickly gained significant market share from the traditional players (like
our target company). This proves that we are facing a price game, and that customer relations is not a sustainable competitive advantage but rather a reflection of the management teams wishful thinking.
Candidate
D) Distribution
We concluded that the large forest companies have a minor advantage compared to the
target company with regards to raw material. Also, the large forest companies have an advantage when it comes to transportation, by having the production of pellets in immediate
connection to the sawmills.
Interviewer
Good. As you mentioned, the forest companies have back-integrated their operations and
co-located the pellets production with the sawmill. How could you assess the advantage
of having the production next to the sawmill?
Candidate
Well, that depends on how much sawdust you need to produce one unit of pellets?
Interviewer
The density of sawdust is six times less than in pellets, which is the whole idea of the
product.
Candidate
So, in order to produce one truckload of pellets, they would need to transport six loads of
sawdust between the sawmill and the production site. That is a pretty big disadvantage
for the target company.
The large forest companies have integrated the pellets production directly with their sawmills, hence, they have a structural advantage that the target company cannot mitigate.
Interviewer
Candidate
The structural disadvantage compared to competitors will make it hard for the target company to compete on price. We already see signs of this disadvantage in the current market,
with the companys decreasing market share.
In my view, the wood pellets company would not be a good investment for the private
equity fund.
If we look at production, are there any significant economies of scale when producing
wood pellets?
Interviewer
Production costs are almost equal across competitors. There is no economy of scale that
is relevant in this case.
Candidate
Looking at the final step of the value chain, distribution, importers would have a disadvantage, as they need to ship the pellets in by boat. Shipping costs are still low, so perhaps it
is just a minor disadvantage.
So, summing up the cost advantages and disadvantages and plugging them into a matrix
organised according to value chain and competitors, we see that the target company
holds a poor competitive position compared to their competitors.
Candidate explains the rationale behind his matrix.
Value chain
54
Raw material
Transportation
Production
Distribution
-/+
-/+
B) Forest companies
-/+
-/+
C) Importers
-/+
55
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