Or the spot taxis like Black and Yellows? Calculate the spot taxis, only, mainly the Black and Yellows. There is an overlap of demand between call cabs and spot taxis. Fair enough. Overall Strategy We can use a Demand based approach.
However we should choose the hour on the basis of ease of computation of Total Taxi fares and Avg. For this let us choose the morning time, since we know most people need to leave home to go to work or college at that time. We can compute the Total Taxi fares in the morning time 7ampm and divide by number of morning hours to arrive at Total Taxi fares per hour in the morning. Later we can compute, how many of them prefer taxis. This step may be counter-intuitive. You would find as we did the need to do the income-split analysis, below, separately for South Bombay and Rest of Mumbai.
The lesson here is that in the middle of a case you can pull back, tweak your approach for simplification purpose, and then resume forward. We need to now apply a factor, for people only using taxis out of these. In South Bombay, autos are legally not allowed, so people there will only use taxis.
In the rest of Mumbai, most people use auto-rickshaws since their more easily available and cheaper. This differs by income-segment. In the middle-class segment on an average two people would use a taxi at a time. Since this is the largest segment of demand, we will consider the average carpooling number to be 2. This will roughly equal to 5MN households. This will give us about 1MN passenger cars. Note the above computation of passenger cars is not how you would do it if you were asked an entire guesstimate on it.
They have been reporting too high profits and want you to figure out why is that so. Preliminary Questions How high are our profits? What are we comparing it to? Our profits are significantly higher than our competitors. It is important to benchmark numbers with respect to something like competitors or timeline to put the number in perspective. Why is it even a concern? The client is concerned if the high profits are sustainable. Since when have we been having these high profits compared to competitors?
Since we started the business three years ago. So it seems we have an internal advantage company specific ever since we started the business which we are unaware of. Some questions to understand the business better. Both competitors and the client make wooden planks of two types - A and B. They differ in their sturdiness. What geography do we and our competitors operate in? In the Nilgiri forests, the hub of teak wood in South India. Most companies in this industry, the client included, own plots of land in the forest.
Wooden planks are manufactured from the teak trees that grow there. The planks are then sold in a common wholesale market to customers primarily construction companies. Following that, I want to verify whether they are sustainable. Note: The above Information has to be given as and when the candidate asks for each data point. The candidate has to come to his own conclusion of price from the margin data. Based on the above information, there are two reasons why client is earning high profits 1.
That is in fact happening. We are producing 1. That is not particularly true. The planks are a commoditized product.
Same in case of type B. Assume every plank that is produced in this industry gets sold. So, sales are dependent only on production. I want to segment further to identify the driver for higher planks produced by the client.
Cutting cycles is the number of times the trees in a plot are cut Area of land is same since each company has been allocated a 50sqm area by the government for a 99yr lease. Why do we have more cutting cycles in a year? It is possible only if our trees are growing that much faster.
Is that the case? So we know why we are able to produce more planks. The big question is, can we continue doing that? Are the minerals going to last forever? The minerals are depleting and will get exhausted linearly in the next 5 yrs. Hmm so the minerals are the key and they will deplete in 5 yrs. Re-generate the minerals, for example using special fertilizers? Get more of the soil with these minerals?
Get a plot of land where these minerals are present? No This means the profits are not sustainable. We will have to look at other ways to compensate for our eventual depletion of luck. But before that I want to move onto mystery 2- 2. Split of unit production is in favor of high-margin Type B planks as compared for competitors Why do we have a more favorable split of for type B planks? Every company tries to maximize the production of the high margin product.
Our competitors are just not able to produce as much. Why is that? What determines whether a plank is a type A or a type B wood? Every tree gives us wood of the two types. Whether a plank is type A or type B depends on the inherent sturdiness of the wood, which is again because of the minerals in the soil.
Naturally, our trees are able to provide us with much more type B wood compared to our competitors. So essentially minerals in the soil were the reason for our unsustainable high profits.
Since we cannot preserve our advantage of higher unit production and favorable split, we can potentially look to increase our price in the market or reduce costs to maintain our high profits. Would you like me to do that analysis? Prices cannot be increased due to competitive pressures and cost optimization will be difficult. We can close the interview here. Brownie points for mentioning that prices for Type-2 planks can be jacked up since no other company has the soil advantage.
Even if it means reduced annual profits in the short run, in the long run we will have a higher cumulative profit. He has hired you and you have no choice but to figure out why.
How do you work it out? Preliminary questions Think of preliminary questions here How does this business work? What part of the value chain does our client operate in? We manufacture cocaine in large quantities in Mexico. It is then shipped to various countries.
Here, the local drug cartels purchase the cocaine from us and sell it to the end consumers. What are our revenue streams? Which is the loss-making one? We are only present in the cocaine business. Have our competitors seen similar losses? We have men in a few other cartels who inform us that there is no serious hit to their profits.
Is this an issue in a particular geography? The Asian countries have reported lower profits. Overall Strategy: I want to study the profit structure of the client and identify drivers of lower profit.
We shall then address them in the latter half of the case. Are we able to transport the required amount of cocaine to the Asian countries? We are. Are our distributors able to push the product to the cartels?
Is there enough demand for cocaine? They are not. This is despite there being a demand for cocaine by the local cartels. So, either the cocaine is not being sold and is lying in the stock or the cocaine probably went missing in transit while shipping.
The demand for the cocaine is the same. The cocaine is going missing while shipping it. Why do you think that might be happening? It is possible that our product is being stolen. Good, but that is not the case. What is likely to happen to an illegal product like cocaine?
It could get confiscated by the police. It so happens that our cocaine is being confiscated in market places by the police. Why is this happening? This could be because either the enforcement against drugs has become stricter in Asia OR the security around our sale with the cartel has slackened OR both.
In light of stricter enforcement, the local cartels have been receiving the drugs through alternate, less risky routes and our competitors have moved to them. Interesting, so it seems we have not adapted to this development.
We can a Look to increase security of our consignments around this route b Shift to the alternate route or c Ramp up production to the extent that losses due to security lapses are made up for d Do nothing much if previous three actions will lead only to more losses.
Can we bring in our own security? Is it possible to pay off the cops to let go of our product? We will be unable to do either of these. Then it looks like we are going to have to settle with shifting our trade route as well to get back the business we have lost to our competitors. I want to understand how badly this affects our profits. It might not make sense if we go into greater losses. That makes sense. Shifting trade routes will increase our cost, but would be more than offset through the restoration of our sales volume, leading to better profits.
Now we need to know which option between shifting routes and ramping production on existing route is more cost effective. That fine, we can close the case here. Preliminary Questions Any particular reason why we have chosen price increasing strategy over other options to push profits?
Sometimes, this question is useful to uncover what is the rationale of the client to prefer one option over the other. You can use the information then as a focal point in your analysis. Uniform rate across all our rooms. They are similar. What is the location of this hotel? Located in a business area in Mumbai. Overall strategy I would like to begin by understanding the profit structure of the company and how room rentals fits into it. I would then like to calculate the additional new revenue and costs to check if we are more profitable than status quo.
Costs will go up only if we find during the analysis that we need to make additional expenditure to justify higher room rental. It does not have to be directly given by the interviewer. To understand how this affects our overall profits, I would like to understand how this decision will impact the following: 1. Occupancy rate: Customers might choose not to come to our hotel 2.
Spending on Extras: Customers may scale back on this expenditure 3. Profits from Value-added services: This may be related to the Customers coming to our hotel. This analysis can be taken care of in the potential decrease in Customers for point 1. Costs of Room: Any additional expenditure required to justify higher room rate This looks fine, you can proceed. We basically need to understand the price elasticity of our customers. Mainly business and tourists. What is the split amongst these two type of customers?
Business customers often don't pay from their own pocket but they can bill their company for the stay. Is that true? Yes, that is in fact the case for all our business customers. Does the company also cover for the extras?
Hmm, that means the cost is borne by the company. We really need to look if the company would be okay with the added expense of the room. So, the companies whose employees typically stay in our hotel have a cap for room rentals. Alright, this means that we can expect similar occupancy and spending on extras, since the employees are unaffected and their spending is in line with company policies.
Good suggestion, we will look into that later. We can simply increase room rates and expect more revenue. In the location that we cater to, there is one other hotel. However we have a better business center.
I want to get a sense if our customers are likely to stay with us because of our business center. Can you tell me what the use of the business center is and how important is it for business customers? Notice that the candidate is not only asking a specific question but also telling the interviewer why he is asking this.
This allows the candidate and the interviewer to be on the same page throughout the case. The business center provide facilities for holding corporate meetings. This means we have an edge over our competitor which will make our business customers stick with us and anyways they are unaffected by us increasing room rates. However we also need to consider how it affects the other type of customers — Tourists.
I imagine that tourists would be a lot more price elastic than business customers since they pay from their own pocket. That is true. In that case we have two options, a Uniform price increase for business customers and tourists: In this case we will have to see if the additional revenue from business customers outweighs potential decrease in revenue from tourist customers.
The facility was established 4 years ago. The client sells to big retailers as well as small and medium retailers. The client sells its product in two bottle sizes-1L and ml. The profits have been negative since inception. You have been called to turnaround the profits.
Preliminary Questions We know the client is a UK based manufacturer. Is the geography of its current market also in the UK? Like I mentioned, we are manufacturers. We use third-party distributors to sell our product to small, medium and big retailers.
What exactly is our product, like Tropicana? Yes, you can assume Tropicana. Are our competitors facing the problem of negative profits as well? No all our competitors are profitable. Hmm, so this seems to be a company specific problem. Overall Strategy I would like to understand the profit structure of our company.
I would then like to compare it with our competitors to see why we are making losses while the industry is profitable. The below profit structure is to be discovered by the candidate by asking multiple questions. Note that it is important for the candidate to discover the ends of each branch in an issue tree because they help diagnose the problem. It makes more sense to segregate it out as Fixed Cost since now we have all mathematically independent variables in the formula.
We know that our competitors sell 1L and ml bottles at the same price as us. The ratio of sales in terms of litres is also equal to like us. Hence Avg price per litre is the same. However each of our competitors are selling 3X volume compared to us. I would like to do the analysis in the following order 1.
Increasing Volume 2. Reducing Fixed Costs 4. Increasing Volume Can you give me an idea of our market share vis-a-vis competitors? So it seems to be a volume issue for us. Our competitors are producing 90mn litres whereas we are producing only 30mn. Anything upwards of 40mn production and our company would be back to profitability. I would now like to see if that is possible and why we have less market share compared to competitors. What is our current capacity utilization?
We never thought of increasing production. We can easily sell 10mn litres more if we produce that much more. Great, this will allow us to break-even. We can further see why our competitors have an edge over us. It is important to ask the capacity utilization question. What is our split of volume across these three segments and what is it for competitors?
The splits are the same for client and competitors. This can be either because of monetary reasons such as better margins being provided by competitors or non- monetary reasons like our bottles having poor shelf life, etc.
No reason to believe that competitors favored because of a better push. So we know that we don't have any competitive disadvantage with respect to our competitors, however we can look to gain an edge over them. This can be done by -expanding distribution network to new geographies -increasing types of distribution channels in each geography-small, medium, big retail, online -increasing the no. It is hard to miss out on important issues if the analysis is well structured in a case. Great, but we don't need to go in that detail, you can move onto the next issue.
Here we will have to benchmark our product on a range of parameters to understand why our competitors have an edge in market share. On all parameters we match competitors, except one. We have not tapped into this market. Do we have the capability to manufacture and supply pulpy drinks? Would it require any additional cost considerations? Yes, we can manufacture and supply pulpy drinks at negligible cost increment. After checking with interviewer of what can be our approx.
When we saw we could increase production by 10mn litres and sell, which segment was that for-pulpy or regular?
Yes, assume that those 10mn litre worth sales will come from regular juices only. So increasing 10mn liters of regular juices allowed us to breakeven. This is still within our production limit of 75mn liters. Is the price for pulpy drinks and the variable cost the same as regular juices? Yes, assume that. Great, would you like to analyze anything else? We have seen how we can improve our market share in the existing market. We can now see if we can increase volume by exploring new markets.
We can then go back to seeing if we can increase price, reduce variable cost per unit or reduce fixed costs. Of late, they have experienced a decline in profits.
What recommendations can you give to turn this around? Preliminary questions Is selling Vodka the only business of the spirits company? Yes, it is the only business. I see. So there could be more than one reason for this decline. Where does the client primarily operate? The client operates in the metropolitan cities of India. Do we manufacture it and sell it to distributors?
That is correct. What exactly is the product? It is simply a standard bottle of vodka. Since when have we experiencing this decline in profits? How much is this drop? There has been a constant decline for the past 10 years and a rather sharp one last year.
Which is the geography giving us trouble then? All over India sales have uniformly declined. Sure, how is the rest of the industry doing? They are also facing reduced profits but their case is not as bad as that of our client.
This includes: Video Program — My Case Interview Secrets video program — 6 hours of training videos on how to pass the case interview; Downloads — PDF downloads of frameworks and slides from my Case Interview Secrets video program; E-Newsletter — My Case Interview Secrets e-newsletter — Tips and advice from me on how to best practice and prepare for the case interview; Math Practice Tool — Brush up on your case interview math with my interactive case interview math practice tool Partner Matching Service — Find other candidates around the world to practice case interviews with live for free.
Also included is a library of cases to use in case interview practice. No, Thanks! I do not want free resources. For problem branch e. Find the problem component. Determine product's lifecycle new vs. Razor vs.
Capabilities and expertise Company Distribution channels used Cost structure mainly fixed vs. If you're not familiar with five forces, it's worth reading up on it. This framework determines if there's a good fit. It assumes you already know that it IS a good idea and the question is whether or not this particular target company is good fit. Potential sources of synergy: customers, products, distribution, resources, expertise, access to markets, physical assets, unique capabilities, overlapping cost structures Hint: Every time there's a synergy, that's one vote in the "good fit" column c Victor Cheng, www.
Home Subscribe. By Victor Cheng, Founder of. This includes: Video Program — My Case Interview Secrets video program — 6 hours of training videos on how to pass the case interview; Downloads — PDF downloads of frameworks and slides from my Case Interview Secrets video program; E-Newsletter — My Case Interview Secrets e-newsletter — Tips and advice from me on how to best practice and prepare for the case interview; Math Practice Tool — Brush up on your case interview math with my interactive case interview math practice tool Partner Matching Service — Find other candidates around the world to practice case interviews with live for free.
Also included is a library of cases to use in case interview practice.
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