CASE LEVEL:
INTERMEDIATE
Case 1: [ Unicloth]
SOURCE: Illinois Consulting Academy 2015-2016 Case Book,
2015
Prompt
Our client, Unicloth, is an Asian clothing retailer attempting to establish a profitable presence in
the United States. However, since they arrived five years ago, they have struggled to achieve
that goal and have engaged our firm to find out why and to recommend next steps. How can
we help?
Framework and Clarifying Questions
Sample of Strong Framework:
● Product
o What do they sell?
o Where is it made?
o Competitive product?
● Market
o Who are the competitors?
o What are the economic conditions?
o Have there been new entrants?
● Revenue
o Average price per unit
o Number of units sold in the US per day
● Cost
o COGS
o Rent
o Store maintenance
o Labor
o Cost of lost sales
Clarifying Questions
● Product
o This company sells casual clothing, think jeans, t-shirts, knit sweaters, dresses,
etc.
o They follow the designs of the company’s home market in Asia
o They are manufactured in China and Bangladesh
● Market
o The retail market has bee nstable, no economic downturns, etc
● Revenue:
o Price: average product prices is ~$40. This is in line with mid-tier competitors
such as American retailer Bap and a bit below European retailer Mara
Revenue
● Revenue
o Price: average product price is ~$40. This is in line with mid-tier competitors such
as American retailer Bap and a bit below European retailer Mara
o Sales:
▪ Market sizing: The retailer has a US presence comprised of three mall
stores plus one flagship store on 5th Avenue. Have candidate attempt to
calculate annual sales based on intuition.
● Three mall stores:
o Sell on average 1,375 items per day
o Have candidate calculate: 1375 items * $40 = $55,000 per
day
o $165,000 per day all mall stores put together
● $60,225,000 annual revenue from mall stores
● Flagship store on 5th Avenue
o Sell 4,500 items per day
o Have candidate calculate 4,500 items *$40 = $180,000 per
day
o $65,700,000 per year
● Move forward with $125 M revenue per year
Costs
● Costs - have candidate brainstorm what costs might be. If they don’t come up with all of
them, give them the below
o COGS
▪ Profit margin on clothing sales is 30%
▪ Cost of items per year is $125 M * .7= $87.5M
▪ Round to $90M/year
o Rent:
▪ Flagship store rent: $1.5 M per month = $18 M per year
▪ Mall store: $200K per month * 3 stores = $600K per month, $7.2 M per
year
▪ Round to $25M per year
o Maintenance of stores, utilities, etc.
▪ $5 M per year
o Labor:
▪ Flagship store:
● 500 associates, average 20 hours per week, $8.5 per hour =
$85,000/week, $4.42 M per year
● 5 managers, $100K salary = $.5M per year
▪ Mall stores:
● 20 associates per store * 3, 20 hours per week, $8.5/hour
o $10,200/week, $530,400 per year
● 1 manager, $100K salary
o $.12 M per year
▪ Total labor cost:
● Round to $6M per year
o Storage, sending unsold clothes back to warehouse, markdowns, etc.
▪ $12M per year
● Total costs
o $138 M- not breaking even!! (Under by $13M vs. $125 M revenue)
Improving Profitability
Now that we have all of the revenue and costs, let’s work on making the company more
profitable. Have the candidate brainstorm and then guide them through the below:
● Costs
o Manufacturing- We are already producing our clothing in the cheapest manner
possible.
o Shipping- We could cut 5% of our COGS by shipping the clothing by boat instead
of air
Savings: $4.5M annual (90M * 5%)
o Labor- We have what we need, cannot reduce
o Rent- Have candidate brainstorm how you could potentially reduce the rent
burden.
Some options:
▪ Move location of flagship- No, we need it for marketing
▪ Close mall stores- We are not ready to make that move as we are hoping
to continue expanding in the suburbs in the future
▪ Share the rent with another business- YES! Opening a coffee shop within
the store would cut 25% of our debt burden at the flagship store.
● Savings: $1.75M annual
● Revenue
o Have candidate brainstorm how we can improve revenue
▪ Train the sales staff better to sell- No, they’re pretty well trained
▪ Lower prices- No, it wouldn’t solve our margin issue
▪ Online store- We are not ready to make that investment at this time
▪ Turns out that American customers don’t love the styles and have some
trouble with Asian sizes (the styles tend to be too conservative, the colors are
too muted, our clothing tends to run small for the US market)
▪ Adjusting design and sizes and continuing to manufacture separately for the
American market will cost us $12M annually, but it will provide $23M
additional revenue per year
● Incremental revenue: $11M annual
● Total incremental income
o $1.75M + $4.5M savings
o $11M incremental revenue
o Total $17.25M→ makes up for $13M deficit
Recommendation
The CEO is about to walk in and she would like to hear the candidate’s recommendations- have
him/her make some. *Make sure you say she and give the candidate feedback if he/she falls prey
to bias and calls the CEO a “he”*
Currently we are seeing revenues of $125M annually, but costs of $138M, meaning we are $13M
in the red. However, we have studied the cost and revenue structure of your retail operation and
found that there are a few actions you can take at this time. On the cost side, we recommend
changing your means of shipping from air to boat, a change we have found will bring $4.5M in
annual savings. Additionally, we recommend seeking a partner to share your rent/space at the
flagship store. We believe, for example, that placing a coffee shop within the store would save
you 25% in rent, for a savings of $1.75M annually and perhaps encourage your customers to shop
more. Finally, we recommend revamping your inventory for the American market by adjusting
designs and sizes to better meet demand. We estimate this will drive $11M in additional annual
revenue. Together, these measures will more than make you profitable, breaking even and
making $4.25M in profit. Potential risks of this plan include having an unreliable retail partner at
the flagship store, making products that the American market still doesn’t like, and delaying
inventory stocking through the new shipping method. For this, we recommend a study into whom
the retail partner should be, engaging in extensive market research to produce the correct SKUs
for the market, and adjusting US warehouse operations and lead times to ensure that stocking is
not delayed
Case 2: [ Snack Food
Acquisition]
SOURCE: Illinois Consulting Academy 2015-2016 Case Book,
2015
Prompt
A US snack foods company specializing in snacking peanuts, Peanut Co., is planning to acquire
another company specializing in snacking almonds, Almond Co. Peanut Co. is currently the
market leader in snacking peanuts, but the overall segment is growing slowly compared to the
market and they want to diversify. They have hired you to tell them whether this is a good idea.
Framework and Clarifying Questions
Sizing the US market for snacking almonds
• Total number of packets: 0.75B + 1.8B + 1.8B = 4.5B (round to 5B)
• Cost of 1 packet: $2
• Total market size: 5B * $2 = $10B
TOTAL market size is $8-10B (*Pressure test if this is too large)
Breakeven for Peanut Co. on this investment
Given Peanut Co.’s existing snack nuts business, what else
would you consider
Potential Benefits
- Cross sell almond products to existing peanut customers
- Leverage current distribution network to expand reach of Almond Co. and drive sales
- Can extend innovation from peanuts to almonds (e.g., flavor, packaging, etc)
Potential Risks
- Potential for cannibalization of existing sales
- Potential of brand dilution
Recommendations to the CEO of the Peanut Co.
• Good summary will include the following:
o Answer – acquire or not? Either can be justified. See below
o Strong justification on why? (Include 2-3 key numbers from the case)
o Outline key risks with recommendation
o Outline 2-3 key next steps
• If recommendation to acquire Almond Co.:
o Large and growing market
o Quick payback period of 3 years
o High overlap with customers
o Risks: could cannibalize current peanut sales, could dilute/confuse brand
o Next steps: can we get a more favorable deal price; determine what exact
innovation can be carried over from peanut business
• If recommendation is to not acquire Almond Co:
o Cannibalize current sales
o Could impact our current margin structure
o Could dilute brand
o Risks: if competitor acquires Almond Co and succeeds, Peanut Co’s competitive
position would be weaker
o Next steps: determine if there are other players that we could acquire
Case 3: [ Chinese Cars]
SOURCE: Columbia Business School – Management Consulting
Assocation, 2006
Background
Firm: Roland Berger
Content: Market sizing, qualitative and quantitative
Prompt
Our client is a large Chinese conglomerate with a lot of cash on its hands. They decided to
invest this money in a plant that, by the end of this year, will have a full production capacity of
8
million aluminum wheels annually. Management assumes that it will be able to sell 20% of its
production in the domestic Chinese market.
The company hired Roland Berger to determine if it can sell the remaining 80% of its
production to the US market, which is the largest vehicle market in the world. What do you
think?
Interviewer Briefing
Recommended approach:
This case is essentially asking you to do two things:
1) Determine the size of the US car market so that you can understand the relative
impact of the Chinese company’s goals.
2) Assess the feasibility of entering the US market and provide suggestions on how this
company might go about doing so.
Market Sizing: Determine how many wheels your client could supply to the US market – both in
number of wheels and number of cars (1/4 of the wheel number). Then ask about the size of
the
US new car market and the secondary market to determine what share the company would
need
to capture to sell 80% of its production in the US.
Feasibility and Possible Actions: This is where you need to drill down to uncover automobile
industry dynamics:
• How do OEMs get the wheels for the cars they produce?
• How would a Chinese company distribute its wheels to the US market? Directly or
through intermediaries?
• How entrenched are supplier relationships? Do OEMs buy based on price only, or do the
relationships matter too?
• What regulations are involved in supplying an OEM?
Once you understand how the supplier-OEM relationships work, you can provide some
suggestions on how this company might feasibly enter the US market.
Key Facts:
• 17 million vehicles produced in the US each year. 70% equipped with aluminum wheels.
• 10% of used car owners whose cars are less than 5 years old buy aluminum wheels
• 85 million cars in the “after market,” 24 million of which are less than 5 years old
• Most companies will select one supplier who will supply the aluminum wheels for the
entire life-time of a car model. Suppliers are usually selected 24 months before a new
model goes into production and have stringent quality controls.
Example Dialogue
Interviewee: Okay. I’d like to first determine the production figures of the Chinese
manufacturer and compare them to the size of the total US automobile market. This will help
me understand the relative size of the Chinese company’s production numbers and whether
their plan is realistic. Once I know how much market share the Chinese company wants to
capture, I’d like to discuss the US automobile industry dynamics to determine if/how the
Chinese company should enter the market.
Let’s start with their production numbers. Let’s assume that cars require only 4 aluminum
wheels and that spare tires are made out of some less expensive material. This means that your
client produces wheels for 2 million cars per year. 80% of 2 million gives us wheels for 1.6 millio
cars, which we are trying to sell in the US. So how big is the US new car market and how large
is the secondary market (people who buy aluminum wheels for an older car)?
Interviewer: About 17 million vehicles are produced in the US each year. About 70% are
equipped with aluminum wheels. About 10% of used car owners whose cars are less than 5
years old buy aluminum wheels.
Interviewee: That means that roughly 12 million new cars each year are sold with aluminum
wheels. Can we assume that there are about 280 million cars in the after-market, about 1 car
per person, considering that people in New Jersey own on average 2 cars?
Interviewer: No, that number is much lower. There are about 85 million cars in the after
market, but only about 24 million are less than 5 years old.
Interviewee: I see. That means the after-market is about 2.4 million sets of aluminum wheels
per year. Considering that your client needs to sell 1.6 million sets, they’d have to capture a
66% market share, which seems very unlikely in such a fragmented market. That means we
should probably focus on the new car market. How do the major car companies procure the
aluminum wheels they put on their cars?
Interviewer: That’s a good question. Most companies will select one supplier who will supply
the aluminum wheels for the entire life-time of a car model. Suppliers are usually selected 24
months before a new model goes into production and have stringent quality controls.
Interviewee: We probably would have to add another 12 months to even get on a company’s
preferred supplier list, which increases the lead time to about 3 years before we can hope to
supply aluminum wheels to a major US car manufacturer. Since you mentioned earlier that you
client’s plant will be ready for production by the end of this year, this does not look like a viable
option either. What about trying to expand distribution on a broader basis than just the US?
Interviewer: They thought about that as another option, but they would really like to work with
just the US.
Interviewee: Assuming that your client can produce quite a bit cheaper in China than most
competitors can in the US, it might make sense to sub-contract some of this production
capacity
to suppliers of the major US car manufacturers. This is probably less lucrative than selling
directly to end-customers or car manufacturers because the client would have to share its
profit
margin with the supplier. That said, it would probably be the most efficient way to enter the US
market on a large scale.
Interviewer: Yes, this is exactly what they did.
Case 4: Drug Profitability]
SOURCE: NYU Stern Consulting Casebook, 2012-2013
Prompt
Our client is a pharmaceutical company that has developed a remedy for female balding. The
drug has cleared a lengthy and delayed testing process. The drug will be off patent in five years.
Before initiating drug production, the client wants us to determine whether the drug will be
profitable and whether or not to go ahead with production.
Interviewer Guide
This is a candidate led go/no go case based on profitability. There is a market sizing component
that is central to the case. The interviewer should direct the candidate to spend more time on
revenue than cost. The interviewer should let the candidate know that the $8B spent on testing
is a sunk cost if this item is missed by the candidate. Given that there are many ways to
approach the market sizing portion of the case, the final recommendation may vary and it is
possible to “crack the case” with a recommendation that differs from those highlighted in the
Sample
Conclusions and Recommendation.
A good candidate will approach the market sizing exercise by looking at both the demand for
the product as well as product affordability to arrive at a reasonable market size. Taking the
case the to the “next level” requires bringing in other relevant dimensions of market sizing such
as consumer awareness of the product or questioning if a lower price would result in greater
market share at a profitable level. A superior candidate will immediately catch that the $8B
spent on a testing is a sunk cost.
Background Information
Market
• One comparable substitute currently exists that will divide market share equally with
client once client’s drug is in market
• Post-patent expiry client’s share will shrink to 20% of share pre-patent expiry
• No information on current market size – candidate should be asked to size the overall
market and the client’s market share
• The candidate should assume that the price of the product is comparable to the substitute
of $2,000/unit
Product
• Average woman starts balding at age 40 and between the ages of 30-40 the drug has
some preventative benefits
• Starting at 60, even the most effective drugs cannot remedy female balding
• Assume that our drug and current comparable substitute have no comparative advantage
over the other (both will split market and charge the same price)
• Payment for the product is not covered by most health insurance
Costs
• $ spent on testing: $8B
• Production: $1B/year
• Marketing and sales efforts: $2.5B/year
• Distribution: $800M/year
Sample Analysis
• The U.S. population is somewhere around 300 M, while females make up roughly 50% or
150 M of this population
• Not all women will have the same interest for our product, Assuming a life expectancy of
80 years, let’s say that women aged 40-80 are largely at risk of balding, Let’s start off by
saying that roughly 60% of women in this category are interested in our drug
• Let’s revise that to be 60% of women between 40 and 60 and 0% of women between 60
and 80 years of age are interested in our drug (if candidate doesn’t ask, inform him of the
relevant fact stated in the ‘information’ section of this case)
• Additionally assume that 40% of women between 30 and 40 are also interested in the
drug for prevention
• I am going to assume that each 10 year age bracket is evenly distributed
• I am going to revise my 150 M female population upwards to 160 M for ease of calculation
• 32 M seems a little high, this is likely because the estimate of the % interested should
be revised down
o Let’s say that 20% of women aged 30-40 and 30% of women aged 40-60 are
interested; this would mean that a total of 16 M women are interested in the
product
• With a price tag of $2,000, not all of those that are interested in the drug will be able to
buy it
• I am going to assume that 60% of the population is middle class while the remainder is
evenly distributed at either tail
• In terms of affordability, I will assume that 100% of the upper bracket can buy the drug,
60% of the middle bracket, and 20% of the lower bracket
• Given that we will split this market evenly with the comparable substitute, the target
population is about 5M
• Expected revenue is therefore about $10B pre-patent expiry
• Given that the market share will shrink to 20%, our client will earn roughly $2B/year
after patent expiry given the current price
• Since testing is a sunk cost, total yearly fixed cost is about $4.3B
• The drug is only profitable pre-patent expiry. (depends on market sizing)
Sample Conclusions & Recommendations
Recommendations:
• Client should pursue drug production for next five years if the market size allows it to be
profitable
• Drug will become less profitable after patent expiry and decision on whether drug
production should continue will be determined by the market size and profitability
estimation by candidate
Risks:
• Estimated marketing costs may not be adequate to educate customers regarding the
existence of this product
• Analysis needs to factor in the competitive response of the comparable product that
exists in market today, particularly if the product has a lower cost structure, and can
therefore be sold at a lower price
Other
• The client can continue production after patent expiry if they can lower price to gain
market share profitably
• May be worthwhile to look at international markets where testing in the U.S. would be
readily accepted