Bain-Chicago Practice Casebook

Consultant / Summer Associate

Fall 2004

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Practice casebook - Consultant / SA

Table of Contents

Introduction 3

Practice Case: Office Products 6

Practice Case: Utility Marketing Strategy 17

Practice Case: Office Vending Services 24

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Introduction

The Case Interview

The case interview is only one dimension of the recruiting process, but it is
typically the part that raises the most anxiety. This casebook is designed
to help you prepare for doing well in your case interviews, and therefore
relieve some of that anxiety.
Bain uses the case interview to test a candidate's analytical skills and
business judgment. The case is generally a real business problem, based
on disguised Bain work.
To do well, you will need to provide a clear structure to your analysis and
drive to an answer for the client. Initially you will be given limited case
facts, and it is up to you to identify and ask for the most leveraged new
information you need to develop your recommendation. There is never a
clear cut solution to the problem presented to you. What is important is not
your answer, but how you get to it and the logical arguments you use to
support it.

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Practice casebook - Consultant / SA

Practice makes perfect.

-- Teachers everywhere

This Casebook
This book presents sample case problems and walks you through the
process of developing an answer. The goal for these materials is not to
present every possible type of case you may encounter. Rather, each
case is thoroughly dissected to illustrate a solid analytic approach and the
level of detailed analysis which a candidate is expected to bring to the
discussion.

Each case is structured in 3 sections:

1. An overview that lays out the keys to success on the case
2. Background data slides to set up the problem
3. A 5-part analysis that drives to recommendations for the client

At each step in the analysis, good answers to the case questions are
provided, along with pitfalls candidates commonly encounter. The
suggested approach (and the pitfalls) should generalize to most of the
cases you will encounter, so this casebook should help provide a good
introduction for your case practice efforts.

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Practice casebook - Consultant / SA

Case Interview Tips

Dont get thrown by the interviewers questions. The
interviewer is your ally and uses questions to get a better
understanding of your thought process -- not to stump you.

Be concise. If asked for the two top issues, confine your

response to two items.

Provide logical backup for your answers. Be sure to explain

what case facts led you to a conclusion, and how you
reasoned from those facts to your conclusion.

Dont be afraid to ask clarifying questions. If you dont

understand the case facts, it will be tough to ace the
interview.

Relax and have fun. Try to approach the case as an

interesting problem to be solved and an opportunity to
create value for the client.

Good luck!

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Case overview: office products

Keys to the Case

There are 5 background slides in this case. A large amount of data

is presented up front, but the problem itself is not clearly stated.
Thus, an important aspect of this case is for the candidate to quickly
identify the critical issue(s) to be analyzed.

There is more than one framework that can be applied successfully

in this case. The traditional revenue/cost breakdown approach will
work, as will a 3Cs-oriented structure.

Recognizing which factors the client can influence or control is key to

developing a good hypothesis in this case.

The ultimate goal is to drive to specific, actionable recommendations

for the client to improve profitability.

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Background Slide 1
Client profile

Acme Office Supplies is one of the largest diversified manufacturers

of office products, with sales of $300M in 1991 Note: In a case
- strong brands interview, this
information may
- significant advertising and marketing expense to support these brands
be presented
- historical growth generated by product line extensions and 4 key acquisitions
verbally

Company is organized into 5 autonomous operating divisions, but

with shared manufacturing and marketing functions
- shared costs (45% of total) are allocated to products on a percent of sales
method (e.g. if product X is 1% of total Acme sales, it is allocated 1% of
indirect manufacturing costs, distribution expenses, marketing costs, and
corporate overhead)
- current manufacturing capacity utilization is ~50%

Stock is publicly traded

- current P/E is 8
- low long-term debt
- industry analysts are predicting that Acme will become an acquisition target
in the near future given a strong balance sheet but weakening earnings

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 Background Slide 2
Acme financials
Acme experienced consistent revenue and profit growth during the
1980s.

$Millions

$400M 1980-1989 1989-1991

CAGR CAGR

300 Sales 15% (8%)

200

100

15% (40%)
Pre-Tax Profit
0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Source: Acme Financials

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Background Slide 3
Competitive product lines
Acme offers a broader product line than its competitors

Number of Different Products Manufactured (SKUs)

15,000

12,500

10,000

5,000
5,000
3,400

0
Acme Competitor A Competitor B

Source: Competitor Research; Acme Marketing Department

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Background Slide 4
Distribution channels

Acme

75% 15% 10%

Wholesalers

50% 25%

Dealers /
Superstores
Small Retailers

End Customers

Source: Acme Sales Database; Wholesaler interviews (n = 19)

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Background Slide 5
Market trends

The US office supplies market grew at a 5% CAGR during the 1980s.

In 1990 and 1991, however, the market declined 5% per year

Superstore channel is becoming increasingly critical

- superstores have gained 10 share points in the last 2 years
- superstores typically offer products at 30% discount to small retailers /
dealers

Superstores are aggressively substituting private label products for

traditional brand names
- For example, Staples, Inc. is currently negotiating with private label stapler
manufacturers in China
- Acmes most profitable product is a high-end branded stapler
- Staples, Inc. is now Acmes largest single customer

Source: Acme Product Marketing; Analyst Reports; Market Research

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Step 1: Identify the critical issues
Interviewer: What do you think are the critical issues facing this client?
(or) Where would you focus your efforts at this client?

Reasonable answers Better answer Potential pitfalls

There are a lot of issues From a strategic Not taking the general
here, but Id like to focus perspective, there are some manager or investors
first on the near-term worrisome trends: perspective
profitability problem. - channels shifting toward mass Focusing on a relevant
retailers issue but missing the big
- emergence of private label picture
Given that the client has
seen such a dramatic These trends are both - I think this private label
decrease in profits, I want to negative from Acmes problem is really a threat, so
perspective: Id like to focus my efforts
examine whats been driving
- increasing price pressures from here.
the erosion here.
superstores Picking an area which you
- threat to Acmes core branded know a lot about, but which
business isnt central to the case
But, decreasing profitability - Lets talk about Acmes
is making Acme highly capital structure.
vulnerable in the short run, Not using background facts
so profitability must be to support your arguments
directly addressed, and Failing to ask clarifying
quickly. This is where I questions to ensure
would focus initially. understanding of
background data (as
appropriate)
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Step 2: Specify an analytic framework
Interviewer: How would you approach this problem?
(or) Specifically, what would be the key elements of your analysis?

Useful frameworks Potential pitfalls

Id like to break this out in terms of Not specifying a framework (scattershot

revenues and costs approach)
- revenues: price and volume Digging deep into one area (e.g. share
8price: pressure from discounters, likely loss) before laying out the overall
eroding premium with emergence of structure
private label
Applying a framework that will not help
8volume: market decline, share loss to
private label you decompose the problem (e.g. SWOT
- costs: variable and fixed analysis is not particularly useful for
8variable / fixed: product line complexity profitability problems)
8fixed: capacity utilization Applying a framework that causes you to
spend a lot of time on issues that arent
highly leveraged (e.g. with Porters 5
Id approach the profit erosion issue by
Forces, you could end up wasting a lot of
grouping the key issues around customers,
time on entry barriers in this case)
competitors, and costs
- customers: recession driving lower market
volumes, switching to low-price / lower-margin
channels, shift away from branded to private
label products
- competitors: emergence of low-cost offshore
players
- costs: product line complexity, excess
capacity
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Step 3: Prioritize/develop hypothesis
Interviewer: So, what issue would you pursue first?
(or) Which do you think is the most leveraged area for analysis?

Good response (based on 3Cs framework) Potential pitfalls

It is unlikely Acme can do much about customer and Reluctance to develop a hypothesis in the absence of
market trends: perfect information
- macro economic factors are obviously out of Acmes control Neglecting to explain to the interviewer why you are
- given the superior value-proposition of the superstores, I focusing on a given area
dont think Acme will be able to stop channel migration
Not using the facts from the case to support your
- if the superstores are aggressively moving to private label,
and the customer base is becoming increasingly price- arguments
sensitive, additional advertising / marketing efforts will Losing sight of the big picture / most critical issue
probably not prevent the shift away from traditional brands
to private label -- especially given spending levels here that
Not differentiating between internal and external
are already high factors: what can the client actually influence and
The competitive development of low-cost offshore what is out of their control?
producers would seem to be driven by these
customer and market trends, and also isnt under
Acmes control.
Therefore, Acme should focus on cost reduction to
improve profitability:
- most actionable by the client (e.g. complexity reduction)
- much faster payback than brand-building or a major
strategic shift (e.g. vertical integration)
- cost cutting will become increasingly critical as our margins
are squeezed by superstores and price premium falls against
private label

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Step 4: Structure/execute analysis
Interviewer: What analysis would you need to perform to address the issue?
(or) How would you develop your hypothesis on reducing costs?

Good response (complexity reduction) Potential pitfalls

The most important analysis necessary to reduce Being unable to explain why an analysis you suggest
complexity in the various product lines is to develop is important or how it could be executed
an accurate picture of product profitability from a Not following your framework / jumping around in
managerial perspective. your structure without a clear plan of attack
Product-specific revenues and direct costs (e.g. Getting caught up in academic theory and losing
direct labor) are relatively easy to obtain. Therefore, sight of the practical application (e.g. accounting
product cost allocation for indirect costs (45% of conventions)
total) becomes critical in this case. Failing to adjust your answer based on additional
One good way to allocate indirect costs is to first data provided by the interviewer
identify the key cost drivers in each cost area, and Not doing the math (as appropriate to the case)
then allocate costs to specific products based on their
usage of those drivers.
- for example, the key cost driver in the area of warehousing
rent and utilities is square footage. Therefore, I would
allocate these costs to products based on the amount of
space they require for storage in the warehouse.
Of course, it is also important to consider market-
oriented factors. So, I would want to do a customer
impact analysis to identify any loss leaders and
determine where carrying a full product line is
necessary to compete. We also need to develop a
transition plan to minimize unmet customer
expectations as we cancel specific products. These
analyses need to be done for each major channel,
and on end-user impact as well.
Finally, I would want to understand the impact of
complexity reduction in the factories (production
scheduling, capacity utilization issues, etc.) CHI 15
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Step 5: Drive to recommendations
Interviewer: What actions would you recommend to the client?
(or) Based on your analysis, what should the client do?

Good response (capacity utilization) Potential pitfalls

Specific and action-oriented: Reluctance to make recommendations in the absence
- Given the situation with capacity utilization and the cost of perfect information
advantages in Mexico, Acme should close the New Jersey - Id prefer to do more analysis first.
and Michigan plants and consolidate production in
Chihuahua. Providing a generic answer that doesnt drive to
specific client actions
Realistic and pragmatic:
- The client should increase capacity utilization.
- The implementation timeframe for the plant closure is
probably 8 to 12 months. Unrealistic / too optimistic:
Acknowledge difficulties in implementing change: - I dont see how the union could be an obstacle.
- This will be a major change for the organization. We will Ignoring the client as relevant to solving the problem
need a carefully developed transition plan that considers the - This is clearly the right answer, so I dont think the COOs
problem comprehensively: relationships with the union, objections are all that important.
customer impacts, changes in distribution and warehousing,
public relations, and impact on the supplier base.
Sensitive to client capabilities, biases, politics:
- Right now there isnt a strong central purchasing
department. If we are going to shift from local to corporate-
wide sourcing with the plant consolidations, the client will
have to invest in this capability.
- Given what youve told me about the culture at this firm,
this is likely to be highly controversial. We need to be
careful how and when this is communicated to the
organization.

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Case overview: utility marketing strategy

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.
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Background Slide 1

In 1993, a combination gas and electric utility (regulated monopoly)

was preparing for a change in the regulatory environment when
electric power generation would become a competitive business

A new VP of Marketing and Sales was put in place to prepare that

organization for the competitive marketplace

Composition of the customer base:

Major Industrial
Residential Remaining I&C
and Commercial
Customers Customers
(I&C) Customers

Number of customers: 1.8M 1000 199K

Share of 1992 Revenues: 50% 30% 20%

(1992 Revenues = $1.0B)

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Step 1: Identify the critical issues
Interviewer: Given this information, where do you think the case team should
focus?

Good Initial Questions Good Answer Potential Pitfalls

Are the gas and electric Given the size and the dynamics Getting caught up in trying to
businesses inter-related? of the electric power market I understand dynamics of gas
- Do they serve the same will focus on that part of the and electric businesses
customers? (some overlap) business - a few simple questions can
- Will the de-regulation of electric With the emerging de- make it clear that the electric
power generation impact the gas business is what matters
regulation, the key marketing
business? (no) Digging into detailed
issue is customer retention
- What is the relative size of the regulatory issues
businesses? (electric = 80% of Since the utility will lose some
revenues and 85% of profits) customers with deregulation Not identifying retention as
(starting with a monopoly they the critical issue
Is it therefore safe to assume
that the composition of the only have one direction to move) Trying to develop strategies
overall customer base reflects the key question is which to retain all customers rather
the electric business as well? segments of customers the than focusing on segments
(yes) utility 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 CHI 19
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Step 2: Specify an analytic framework
Interviewer: How would you determine on which segments the
utility should focus?

Useful frameworks Potential pitfalls

Customer segments should be ranked Trying to apply a standard framework to
based on two criteria: this fairly focused question--Keep it simple
- Value: profitability of power generation to the Not considering all components of lifetime
utility value (e.g., acquisition costs and lifetime)
- Vulnerability: risk of losing the customers as that ranking can vary considerably from
(segments) to competitors
a ranking based on current margin
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
Vulnerability would capture the likelihood
of different segments of customers
switching to competitive offerings once
deregulation occurs
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

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Step 3: Prioritize/develop hypothesis

Interviewer: What is your hypothesis of which segments are highest priority?

Good hypothesis Potential pitfalls

The first step would be to further segment the Failing to further segment customers misses a lot
customer base. Specifically, I am most of the potential richness of the case
interested in understanding any sub-segments Digging into residential customer issues because
within major I&C customers (avg. revenue of that is what you understand best
$300K) where needs probably vary dramatically Forgetting to consider the acquisition costs and
by industry (i.e., government, retail, process customer life issues
industries, etc.) There are probably not major
distinctions in the needs of residential customers Not clearly explaining any assumptions you are
by segment making
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.
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Step 4: Structure/execute analysis

Interviewer: What analysis would you have the team perform to test your hypothesis?

Good response Potential pitfalls

Conduct customer research to further segment Not being creative in places and ways to gather
customers by needs and to assess the data and conduct analysis
vulnerability of segments based on propensity to Not attempting to get actual data or at least
switch/loyalty behavior samples of actual data wherever possible and
To prioritize segments the team must first instead relying on assumptions for critical
estimate each of the major elements of the value drivers of value
equation: Not articulating framework for visually capturing
- Acquisition cost based on sales and marketing costs output of analysis to articulate/demonstrate the
devoted to that segment (either tracked directly or answer
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
To assess vulnerability utilize output of research
and supplement with an assessment of the
attractiveness of segments to likely new
competitors (qualitative assessment)
Create 2X2 matrix plotting segments based on
value and vulnerability

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Step 5: Drive to recommendations

Interviewer: Based on your analysis, what should the client do?

Good response Potential pitfalls

Now that we have prioritized customer General/non-specific recommendations
segments, the issue is how the utility (e.g., improve service without describing
should apply sales, marketing and how)
potentially technical resources differentially Not distinguishing with actions you can
against the highest priority segments definitely recommend now vs. actions that
Definite recommended actions: would require additional research because
- Focus marketing activities against developing of the investment required
programs that meet critical needs identified in Being unrealistic in recommendations
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
8More backup generators/systems where
high priority customers may be clustered
(areas with a lot of process plants, for
example)
8More technical personnel on duty to make
repairs whenever system does go down
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Case overview: Office Vending Services

Keys to the Case

There is only one background slide in this case (Situation /

Complication). It is up to the interviewee to ask the right
questions to uncover the data necessary to formulate a
reasonable hypothesis. The additional data slides are then
provided to the interviewee as data is requested.

There is more than one framework that can be applied

successfully in this case. The traditional revenue/cost
breakdown approach will work, as will a 3Cs-oriented
structure.

Due to the open-ended nature of the problem posed, the

key to this case is to remain focused on addressing the
clients key question.

The ultimate goal is to drive to specific, actionable

recommendations for the client to improve profitability.

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Background Slide 1
Situation/complication

Situation: Office Vending Services, Inc. is the

market leader in office vending
machine services
The business services provided include
sales and delivery of product,
restocking of machines, and repair of
faulty equipment
Complication: Profits are substantially down in the
business

Key Question: The CEO of Office Vending Services

needs Bain to assess the root causes of
the profitability decline

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Office Vending Services revenue
(1996-1998)

Office Vending Services Revnues

$300M

250
250
230

200
200

150

100

50

0
1996 1997 1998

Source: Office Vending Services, Inc. Financial Statements

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Office Vending Services cost
(1996-1998)
Office Vending Services Costs

$300M

250
225
216
200
200

150

100

50

0
1996 1997 1998

Source: Office Vending Services, Inc. Financial Statements

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Office Vending Services volume sold
(1995-1998)
Volume Sold (Millions of Deliveries)

3.0M

2.5

2.0

1.5

1.0

0.5

0.0
1995 1996 1997 1998

Source: Office Vending Services Financial Reports

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Office Vending Services historical pricing
(1995-1998)

Office Vending Services Average

Price (Dollars per Delivery)

$125

100

75

50

25

0
1995 1996 1997 1998

Source: Office Vending Services Pricing Data

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Office Vending Services market trend
(1996-1998)
Total Market Sales
Percentage Change
(1996-1998)
$500M Total: 3%
Others 17%

400 Candy & Pop Co 22%

300 Vend International 44%

200

(20%)
Office Vending Services
100

0
1996 1997 1998

Source: Market Research; Company Annual Reports; Office Vending Services Financials

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Customer satisfaction
Importance/Performance: 1=Low, 10=High

Office Vending Vend Candy & Pop

Attribute Importance
Services International Co.

Price 10 4 8 7

Product 6 10 5 6
Variety/Selection

9 5 10 8
Delivery Reliability

3 9 4 5
Machine Service/Repair

5 7 5 4
Complaint Resolution

Source: Bain Customer/Market Research for Office Vending Services (n=3500)

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Customer satisfaction
Importance/Performance: 1=Low, 10=High

Customer Rating of Importance/Performance

10
10
9

6
6
5

Cand & Pop Co

4
3 Vend
International
2 Office Vending
Services

Importance
0
Price Product Delivery Machine Complaint
Variety/Selection Reliability Service/Repair Resolution

Source: Bain Customer/Market Research for Office Vending Services (n=3500)

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 Competitor comparison (1998)

Cost of SG&A Direct labor Direct labor

Competitor Revenue Other costs
goods sold expense (delivery) (repair)

Office Vending $200M $70M $60M $30M $30M $10M

Services

Vend
International $130M $35M $30M $30M $17M $5M

Candy &
Pop Co. $110M $32M $22M $23M $15M $6M

Source: Financial Statements & Annual Reports

CHI 33
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Office Vending Services cost per delivery
(Versus competitors)
Cost per delivery

$125

105.3
Other
100 94.7 93.8
Repair

75 Delivery

SG&A
50

25
COGS

0
Office Vending Services Vend International Cand & Pop Co

Source: Financial Statements & Annual Reports

CHI 34
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Office Vending Services cost structure
(Historical trend, 1996-1998)
Costs

$300M
Percentage Change
(1996-1998)
250 Total:
225 (11%)
Other 216
200
200 Repair 0%
(14%)
Delivery
150 (25%)

SG&A
100 (8%)

50
COGS (7%)

0
1996 1997 1998

Source: Office Vending Services Financial Statements

CHI 35
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Step 1: Identify the critical issues

Interviewer: What do you think are the critical issues facing this client?
(or) Where would you focus your efforts at this client?

Reasonable Answers Better Answer Potential Pitfalls

The client has identified The client has identified Ignoring or missing key
the decline in profitability the decline in profitability information presented up
as the most important as the most important front
issue issue. - I think the most critical
- Id like to investigate how - Id like to investigate how issue is determining how
revenues and costs have revenues and costs have the client can grow their
changed to answer this changed over time to business.
question. answer this question Jumping to a conclusion
- After we understand what without supporting data.
has changed from a financial - A decline in profitability
perspective, Id like to look must be due to their
at how the customer failure to control costs.
base/preferences have
changed in addition to Failing to summarize the
competitive forces in the situation and diving into
industry to understand the a detailed data request
root cause of the clients - Id like to look at the
decline in profitability. income statements for the
past 8 quarters.

CHI 36
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Step 2: Specify an analytic framework
Interviewer: How would you approach this problem?
(or) Specifically, what would be the key elements of your analysis?

Useful frameworks Potential pitfalls

After identifying profitability as the key issue Picking an inappropriate framework
under consideration, the interviewee should be - Using Porters Five forces would indicate that the
very explicit about how they would like to interviewee likely does not grasp the key issues in the
proceed to answer the question. There are two case
frameworks which an interviewee may find useful Not fully exploring one portion of the framework
in this case : before moving on / jumping around in your
Profitability Framework framework
- Interviewees which use this framework will quickly - For instance, asking about price, moving to COGS, then
uncover that a decline in unit sales has caused a returning to sales volume and finishing with SGA
decline in revenue and will likely hypothesize that a
failure to cover fixed costs is causing costs (as a
percentage of sales) to increase
- Interviewees which use this framework will be less
likely to fully investigate the change in customer
preferences or competitive landscape to which the
client must respond
3 Cs
- Users of this framework may have a more difficult time
driving towards the sales decline and fixed cost
leverage issues than those which use the profitability
framework
- However, the 3Cs framework is a great way to explore
the customer and competitor issues here

CHI 37
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Step 3: Prioritize/develop hypothesis
Interviewer: So, what issue would you pursue first?
(or) Which do you think is the most leveraged area for analysis?

Good response (based on the profitability framework) Potential pitfalls

When this question is asked, it is a sign that the Touching on issues rather than driving to the
interviewee has uncovered what has changed essence of the case
with respect to revenue and costs and is being - Id like to know how much the company spent on
prompted to suggest a line of analysis which will advertising over the last year compared to other
help them drive toward a recommendation industry players
- I think the most important issue facing the client is Failing to directly answer the interviewers
the decline in unit sales which are responsible for the question
decrease in revenue. My hypothesis is that this - How many other players are there in this industry?
decline in demand is responsible for a decrease in
capacity utilization and/or leverage of other fixed
costs which is ultimately responsible for the decline in
profitability.
- If nothing can be done to address the decline in unit
sales (for instance, market-wide demand change), it
will be necessary to aggressively manage costs to
improve profitability. For this reason, I would next
like to investigate the clients major cost
components.

CHI 38
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Step 4: Structure/execute analysis

Interviewer: What analysis would you need to perform to address the issue?
(or) How would you develop your hypothesis on reducing costs?

Good response Potential pitfalls

Here, the interviewer is looking for specific Failure to suggest an actionable course of
analytics which would enable the case team to analysis
make an actionable, data-driven - Id like to understand why sales have declined
recommendation - Interviewer - Ok, so what data do you want/how would
On the revenue side, Id like to investigate why you actually go about this?
unit sales have fallen and on the cost side, Id Suggesting a course of analysis which will not
like to understand how our costs compare to directly lead to an answer for the key question in
those of competitors the case
- It is clear that falling unit sales are driving the decline - First we need to estimate customer price elasticities
in revenue. Id like to understand whether a customer for each service provided.
or competitor shift is driving this trend, or the market is
simply contracting
8 Id like to see how our market share has changed
relative to other industry players. If everyones
sales have declined, that implies a need to
aggressively manage costs in the face of a
shrinking market.
8 On the other hand, if other competitors have
gained share at our expense, Id like to know why.
Id like to see what features or characteristics
customers value most (especially price) and how
our client stacks up with other industry players
- Id like to compare the clients major cost elements
with those of the other two competitors.

CHI 39
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Step 5: Drive to recommendations
Interviewer: What actions would you recommend to the client?
(or) Based on your analysis, what should the client do?

Good response Potential pitfalls

At this point, the interview is either running short Making a recommendation which is not specific
or you have reached a point where you have all - The client should cut costs
the information you need to present a - Interviewer : How?
recommendation to the client. Making a recommendation which does not
The root cause of the decline in profitability is address the key issue facing the client
that our client is offering the wrong set of - I think they should consider using a pay-for-
products to customers. Specifically, customers performance scheme to better motivate employees
now buy on price and reliability, not on product Making a recommendation with no factual
variety and repair capabilities. For our client to support
effectively reverse the trend in profitability, they - I think our client should invest more in advertising
should immediately do the following three things - Interviewer : Why?
:
- Reduce the number of products offered. Do this by
looking at products with the lowest sales volumes and
total gross margin contribution. The client should
seriously consider keeping only those products which
account for 80% of its sales or gross margin dollars.
This will reduce manufacturing costs (COGS) and the
overhead associated with managing such a large
product line (SG&A)
- Id look next at the repair department to determine if
costs could be removed from this area. OVS apparently
has very strong capabilities in this area but customers
do not appear to be willing to pay more for this
- The cost savings should be used to reduce price and
improve delivery reliability in order to preserve their
market share.

CHI 40
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Question tree
The following tree illustrates how a candidate might use the profitability framework
to work through the case.

Office Vending Services,Inc.

Is this decline
Office Vending Services Volume Sold Office Vending Services,Inc.
(1995-1998)
the result of a Office Vending Services Market Trend
(1996-1998)
Percentage Change

market trend
3.0MM (1996-1998)
$500MM Total: 3%

Volume Sold (Millions of Deliveries)

2.5MM Others 17%

Total Market Sales (Millions of Dollars)

How has $400MM Candy & Pop Co 22%
2.0MM

1.5MM
or has a $300MM
Vend International 44%

Office Vending Services,Inc.

sales volume 1.0MM
$200MM
(Next
Office Vending Services Revenue
(1996-1998)
0.5MM
competitor $100MM
Office Vending Services (20%)

Page)
changed?
0.0MM
1995 1996 1997 1998

been stealing $0MM

1996 1997 1998
$300MM
bc
Source: Office Vending Services Financial Reports CHI 60ASVM003 1
$250MM bc
$250MM
Office Vending Services Revnues

Source: Market Research; Company Annual Reports; Office Vending Services Financials C H I 60ASVM003 6

share?
$230MM

$200MM
$200MM

$150MM

$100MM
Office Vending Services,Inc.
Office Vending Services Historical Pricing
$50MM (1995-1998)

$0MM
1996 1997 1998 How has unit $125
bc

price
Source: Office Vending Services,
Inc. Financial Statements CHI 60ASVM003 2

Office Vending Services Average

$100

Price (Dollars per Delivery)

$75

How has revenue changed? $50

$25

changed? $0
1995 1996 1997

bc
1998

Why Source: Office Vending Services Pricing Data CHI 60ASVM003 5

Cost Insights
have Office Vending Services,Inc.

profits
Office Vending Services Cost Structure
(Historical Trend, 1996-1998)
Our client is at a cost
declined?
$300MM

$250MM
Percentage Change
(1996-1998) disadvantage relative to other
How has total $225MM
$216MM
Total: (11%)

industry players
Costs (Millions of Dollars)

Other

What are the

$200MM
$200MM Repair 0%
(14%)
Delivery
$150MM (25%)

cost changed? key

$100MM
SG&A
(8%)

Office Vending Services,Inc.

$50MM

$0MM
COGS (7%) Our client does not have much
components of
1996 1997 1998

Office Vending Services Cost

(1996-1998)
Source: Office Vending Services Financial Statements
bc
CHI 60ASVM003 1 1
flexibility to adjust price because
$300MM

$250MM
cost? of their high relative cost position
Office Vending Services Costs

$225MM
$216MM
$200MM
$200MM

The cost disadvantage comes

Office Vending Services,Inc.
$150MM Competitor Comparison
(1998)
$100MM

$50MM

$0MM
1996 1997 1998
How does each Competitor Revenue
Cost of
Goods Sold
SG&A
Expense
Direct
Labor
(Delivery)
Direct
Labor
(Repair)
Other
Costs primarily from SG&A and COGS
implying inefficient manufacturing
Office Vending Services $200MM $70MM $60MM $30MM $30MM $10MM

Source: Office Vending Services,

Inc. Financial Statements
bc
CHI 60ASVM003 3
compare to Vend International

Candy & Pop Co.

$130MM

$110MM
$35MM

$32MM
$30MM

$22MM
$30MM

$23MM
$17MM

$15MM
$5MM

$6MM

competitor practices and high overhead

costs? bc
relative to competitors
Source: Financial Statements & Annual Reports CHI 60ASVM003 9

OVS appears to be investing less

in its delivery capabilities than
competitors
CHI 41
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Question tree (cont)

Office Vending Services,Inc.

Customer Satisfaction
Importance/Performance: 1=Low, 10=High

Office Vending Vend Candy &

Attribute Importance Services International Pop Co.

Price 10 4 8 7

Product Variety/Selection 6 10 5 6

Delivery Reliability 9 5 10 8

Machine Service/Repair 3 9 4 5

Complaint Resolution 5 7 5 4

Source: Bain Customer/Market Research for Office Vending Services (n=3500)

bc
C H I 60ASVM003 7

Revenue Insights

What attributes are Our client has the wrong

Is this decline most important to cost/quality configuration
Office Vending Services,Inc.

the result of a Office Vending Services Market Trend

(1996-1998)
Percentage Change
Have competitors end customers? They are perceived as dead
market trend taken share by
(1996-1998)

last in the two categories

$500MM Total: 3%
Others 17%
Total Market Sales (Millions of Dollars)

$400MM Candy & Pop Co 22%

or has a $300MM
Vend International 44% offering a superior listed as most important to
$200MM

competitor $100MM
Office Vending Services (20%)
value proposition or end customers (price and
been stealing by cutting price?
$0MM
1996 1997 1998

Source: Market Research; Company Annual Reports; Office Vending Services Financials
bc
C H I 60ASVM003 6

How does our delivery reliability)

share?
client deliver on Our clients perceived
these attributes? strengths (large product
selection and repair
Office Vending Services,Inc.

Importance/Performance: 1=Low, 10=High

Customer Satisfaction
services) are not
10
10

9
Cand & Pop Co
particularly important to
Customer Rating of Importance/Performance

Vend
International
Office Vending
8
Services

end customers
Importance

6
6
5

4
3

0
Price Product Delivery Machine Complaint
Variety/Selection Reliability Service/Repair Resolution

bc
Source: Bain Customer/Market Research for Office Vending Services (n=3500) C H I 60ASVM003 8

CHI 42
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