Profitability Case Walkthrough: BCG Style - with ex-Bridgespan Consultant
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- čas přidán 13. 07. 2024
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Profitability cases are some of the most common cases in consulting case interviews. Watch this case walkthrough video where Jenny Rae interviews Matt, an ex-Bridgespan consultant.
They run through a BCG style case, similar to what you would expect in a BCG case interview. Watch to see how the interviewee structures the case, and drives to a solution. Bonus: watch to the end to see Jenny Rae give detailed case feedback to the interviewer!
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Highlight Timestamps:
00:34- Intro to BCG cases
01:24- The case prompt
03:08- Interviewee questions
04:03- Case structure
21:18 - Final recommendation
22:47- Feedback from the interviewer
I would say that the first question should have been whether the price is regulated or not. It would be safe to assume it is because of the duopoly and the sector, but this would determine the course of further analysis... Driving (in this case) all competitors out from the market is very hard. You can do it either on the basis of quality or costs. And once you achieve it, you will probably end up being more regulated to prevent malicious monopoly.
Increasing the price makes the most sense as the company's bargaining power is stronger than the bargaining power of the customers assuming that the only alternative for them is the smaller competitor which usually cannot easily scale up its production quickly enough. However, it is still a dangerous move... The company should still look at some other possibilities to maintain the profitability such as discounts and rebates policies, payment terms to reduce working capital needs (in turn financing costs) and reduce waste in production/returns from customers, among else, before resorting to price increase. This way they might get away with 1-2% price increase, which they can justify to customers using inflation as an excuse, instead of 5%. At the end of the day, customers shouldn't be so sensitive to the price of needles as it is probably immaterial cost component per service provided, as much as to the quality which can directly impair the patients' experience and, in turn, result in loss of patients for the customers.
If the competitor is outsourcing everything, I don't think a similar fixed cost is a reasonable assumption. But thank you for making these videos!
I think it is still relevant mate. Because we may have lower fixed costs than them as we produce the majority of the market, we may have the economies of scale, learning curve, etc.
why not?
In a market that has only 2 players operating at same price, when a competitor only 30% M/S it could be of 2 main reasons; your branding is better vs competitor & supply chain capabilities. If we were to increase the price, i don't believe the competitor will be able to quickly address that specific demand of close to 2x times market share in which there will be both price sensitive (30% MS of needle needer + 30% competitor) & non price sensitive (40% MS of Needle needer). so considering price increase would not be a bad option as the doubling the capacity in a capacity constraint industry is not easy.
Happy to hear other thoughts.
We could always set up a recycling/reusing system for the needles. So when the needles are used, hospitals can put them into a recycling box that would be sent back to NeedleNeeder. NeedleNeeder can sanitize the needles and reuse the material, lowering costs--while also helping the environment.
I was thinking about an environmental aspect to it, but thought it would steer away from the main focus of profitability
@@Dakid015reusing material could support profitability, depending on the fixed costs associated
I think that one key question was missed- are the products identical? Doctors and healthcare workers may notice even a slight difference- could support the switching cost argument
1. Frist analyze business character....this is not market size that will expand like consumer goods. The market size should be quite stable, if not expand to new region
2. What is that mean?....we have to take customers from the other one company
3. Analyze competitor product....
3.1 how variety of needle they supply
3.2 who is occupy the majority volume under this needle category
3.3 Find the type of needle that they do not have available, but we do
3.4 Penetrate the market by trying to sell needle type that they do not have, then introduce the particular blood testing needle that we want to sell. We could do bundle deal.
4. It also could be trying to expand business to other region.
5. Analyze and compare product quality and price
Your number 1) is an interesting point
Key to look into the relationship established between the two needle companies and the consumers. Assuming that the majority of the market is consumed by hospitals, clinics, rehabs, etc it’d be plausible to say that many of their equipment revolves around their predominantly used needles from the trusted company. Thus, a minor and even a mildly major shift in price would not significantly steer the consumer’s preference. Since costs were already being outsourced, it’d be extremely difficult to further decrease the variable cost. Therefore, incorporating creative practices such as recycling or exploring newer tactics with R&D to produce the needles should be looked into. A key question that should have been asked was understanding the market geographically. Intuitively a market with a demand of 200m needles sounds like a national market, thus after understating the market, the consultant could have proposed ideas to perhaps expand the market to newer areas.
The prompt did not include these many details it seems to me. Also, changing a needle provider if the costs are different but the quality is the same is not a big deal, especially considering that there are only 2 competitors and they must be well known by the customers.
By saying We want competitor out in the market that is shrinking while price structure remains same you might consider changing buying frequency or entirely changing business model. To get a second player out you either create an iphone like in Nokia case or go below competitor cost without a hope to breakeven or you impose regulatory act that limits market access for a competitor
What about serving research facilities that don't involve blood draws (chemicals, food, etc)?
Since NN is outsourcing their manufacturing, and assuming the competitor is not doing the same/dealing with the same companies, there could be interesting to know the relation NN have with their suppliers. Are they dependent on NN, or is NN dependent on them? If the case isn't the latter, I'd look into negotiating with the suppliers, if NN is in a position of power. This problem should not only land on the front end of the supply chain, that would not be fair, the industry has changed not only for NN, but for their suppliers as well.
Thanks so much! Do you have a pdf of this case?
Hi Bennie - all of our cases are available in our Case Library at managementconsulted.com
@@Managementconsulted are they free of charge? I can't seem to find a link.
if you kick competitor out of the market, it would become a monopoly and then you could raise prices as much as you want
Well, not exactly, raising the prices to the original level or higher would trigger market entry for potential competitors, as marginal profit is now at a level which encourages new entrants. In this scenario the client would have to initiate a price war again, and again.
could they increase price - yes based on supply/demand
Struggle city. Would the interviewer really help this much?
The competitor is outsourcing most of the stuff, can we join hands with them and let them use our supply chain and then we can actually rule the market together, distribute the profit accordingly which would definitely be higher than current situation.
Or else we replace their source, that way we open up a new stream of revenue. We can price it below their variable cost say around 1.35$ that way we will still make 0.15 cents extra.
Would request your thoughts please!
The anti-cartel office gonna love this
The outsourcing has led to higher variable costs for the competitor. Not exactly a promising sign that outsourcing is the right approach.
I would love to address competition law but usually that doesn't apply to the big tech and medical sectors so I guess your strategy is legit.
I was a bit surprised when the interviewee realized that there are only 2 players on the market and still did not rule out the price war option. If the CR2 is 100%, cost reduction is really the only reasonable thing to do.
Does not make sense.
First rule of consultation your a journalist, always go with a prepared guided questions
2nd rule - Research the company before you get there, so that you have a broad knowledge of what they actually do
3rd rule - If you don't have an answer be honest and tell them that you will get back to them with more information, rather than just making assumptions based on invalid information, not one size fits all
4th rule - Breakdown the problem, your questions should help you with this, for example if they have multiple issues, tell them to start with the most priority first.
i could go on but then i will have to charge you haha
Thank you for the great content, the only question is: why does everyone speak with such a pronounced vocal fry? It's almost painful to listen to
Can I ask why Matt intuitively felt to focus on costs rather than revenue? Thanks！
reducing the price and therefore revenue would've reduced the profit to 38m. the goal of the client was to maintain profit so this wasn't feasible, so matt had to move to focusing on cost as means of mitigating the decline in the market size.
The calculation (in future time) on preferring lower price,
shouldn't it be 95% x 140M units x $0.20 instead of using 190M units as a whole future units?
yes youre right
no
Yes 133 units
nope, remember that 140M correspond to our 70% of the whole 200M . When we decrease the price, we assume we take up 100% percent of the "new market" (95% of the initial 200M), that's why we calculate $0.20 x 190 M units.
Shoudnt it be 109m × 70% ×0.8 since we assume that no price war in the future.
Then our profitability of 0.8 will be the same cause we do not change the price
Could anyone please explain why the client company is not reducing their price per unit from 2 to a lower price, say 1.80…in order to conquer a larger market share which will solve the problem in my view entirely.
Good question, at the beginning of the introduction, it was mentioned that the client company wants to maintain profitability. Dropping the price would therefore not be a suitable direction for the client, as their margins would reduce by 10%.
@@sebastiansinghbut they might have a higher market share after reducing the price… so it’s still a balance
can someone let me know if this is mathematically sound? If A=BxC. If C decreases by 5%. Would A decrease by 5% correspondingly?
Yes
Is there a possibility to partner with the competitor to raise prices across the industry to make up for that 5%?
That is called price fixing and is illegal in the US.
@@lenexahawks illegal in the whole world and it called monopoly
U haven't been to Australia then mate. Oligopoly everywhere :)
That's illegal
Candidate is getting a lot of criticism in the comments here, but I thought he did fairly well, even though I would prefer a more detailed framework. A lot of why this feels like a very easy case is because of the qualifying and clarifying questions he posed (only question I'd like to have seen was to understand our capacity to produce more needles). I disagree with candidate's view that the market is so price sensitive that we should not even consider a price increase. We control 70% of the market in a duopoly and wherever that competitive advantage is, it might allow some price flexibility. I'd also like to see a little more creativity on possible solutions. Whether that is expanding the market, M&A options, or potentially even serving as a supplier to the competitor. Nevertheless, he did well and this would be good enough to move through a first round.
Rather than focusing on exact math, the interviewer would've done much better to immediately recognize that gaining total market share was a net negative with this price decrease. I know he's rusty, but he took way too much time crunching the numbers instead of recognizing the pattern.
He wasn't too sure what he is suppose to do, and seemingly quite disorientated... It made the entire "interview" kind of draggy.
Same fix cost for all competitors, so the key of beating and assimilate competitor's market share is via variable cost.
Whatever we have now, after squeezing out competitor, we technically owns the whole industry. In a monopolistic situation, will any department step in to regulate the price, or interfere for a break up?
If we do not get any interferences from government, how long thereafter do we need to hold before raising the price and increase the profit? We are the only players, no one else should have that muscle to control or affect any cost anymore.
Why does this case seem so messy.... hard to learn from:(
Because case interviews are oftentimes messy like this :)
@@Managementconsulted Particularly a BCG style case where the candidate has to push the entire thing. I suspect viewers of this channel are more used to McK style where the data provided can rein in a candidate who is a little lost on the key ideas to focus on.
honestly, not very impressed with his case interview responses. He seems to stutter a lot, repeats a lot of unnecessary statements (maybe he's unsure of what to say next), and also stumbles on the math sometimes.
That’s a dissing, no cap
facts
I thought he did great considering all factors.
Stammering is a speech disorder, he had done so well despite having stammering Its commendable, we are supposed to encourage him instead discouraged
You can criticize but be constructive - not destructive. Calling out a stutter issue is not a reflection one’s capacity to solve complex issues and overall intelligence. A little empathy the next time.
cool video thanks but the lady is giving me major stomach aches- she is legit how every interview I ever had- the stern look and demeanour makes me scared lol
Grow up kid
he started with a poor structure and suffered throughout the interview because of that
His math is too bad for such simple calculation