Wharton Casebook 2007-2008

Wharton Casebook 2007-2008

(Parte 3 de 5)

Raw material cost has not changed (i.e. the unit cost is the same but total cost could be different depending on product composition. ***This is the key to the case so don’t give the information about the unit cost to the interviewee too early in the interview. Remember to push the interviewee so that she comes to the conclusion herself***)

Product portfolio – 2 types of products: flavored and flavorless gum Both products are sold at the same price point.

Composition products: Flavored gum raw material: gum, sugar, flavor, color dye

Flavorless gum raw material: gum, sugar, color dye Gum, Sugar, and Color Dye raw materials are same in size for each of the two products.

Logical Conclusion:

Profitability has declined because sales of flavored gum have been increasing, which means that raw material consumption is also increasing because flavored gum requires the additional flavor component. This added with the fact that the price of flavored gum is the same as non flavored gum, means that, essentially, costs are now rising while revenues are not. To improve the profits of the company, interviewee should come up with 4-5 suggestions (raising price of flavored gum, sourcing cheaper flavors from other suppliers, negotiate with existing suppliers to reduce the flavor cost, vertical integration of flavor manufacturing company)

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Successful Roadmap:

The key focus of this case is in the product mix. Most interviewees may be really confused when they get the info that sales have been rising and cost is constant. First, don't guide them into the product portion right away b/c this is the topic that they should explore themselves. Logical buckets that interviewees should expore are Sales trend, cost trend, cost composition, product mix. The conclusion should be concise as indicated in the logical conclusion section. For the answers to the second question (how to improve profits), great interviewees would present two type of options (short term (easy to implement, quick wins) would be to negotiate with existing suppliers / look for other suppliers, long term (vertical integration)). When discussing price change, you should ask interviewees risk regarding price increase and how they are planning to cope with it. For example, customers may buy less of flavor gums b/c of price increase. However, you can offer value-added product such as low-cal flavor gum & do promotional/marketing efforts to justify price increase.

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B. Practice Case #2 – Widget Manufacturer in Brazil

Question (posed by interviewer):

A widget manufacturer in Brazil has a 60% national market share and has a leadership position in South America. However, it only has a 5% international market share. The top 20 clients buy 80% of its products and the manufacturer is concerned with increasing margins and exploiting new sources of revenue. Their CEO has asked you to gather data and brainstorm potential ideas for increasing margins and market share.

Interview Guidance (general information to be given if asked): Market Information: Market is growing at 5%

No significant competitors in the region

Greatest threat comes from U.S., Chinese and Indian imports

Premium pricing for national customers

Company Information: Plants are operating at 100% capacity

Plants can’t shift from producing one product to another

Currently company sells products directly to customers

Interviewee should ask to understand the products and profitability of each. Remind them that the company sells its products in local and international markets. ***Please use Exhibit A when asked this question***

Interviewee should ask about the breakdown of international and national markets. ***Please give Exhibit B when asked this question*** Ask them to calculate profit margins (should use the unit costs in Exhibit A).

Assume no freight costs, taxes, etc

Logical Conclusion:

Product A is more profitable nationally while Product B is more profitable internationally. (Please see Exhibit C). For national markets, the client should consider reducing prices to gain market share from India, China, and the U.S. to maintain their leadership position. They should also consider developing new products in partnership with local clients and establishing new distribution channels to better serve smaller clients. Internationally, the client should seek support from the government to aid in the export of products. For example, create commercial partnerships at the government level. They should also consider acquiring a company in the markets they would like to enter as well as setting up distribution channels to reach these customers.

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Successful Roadmap:

The interviewee should understand the market dynamics, which products are more profitable than others and where this happens, and should brainstorm to figure out how to exploit this information.

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Exhibit A:

Units Average Price Profit Margin % Unit Cost Product A 40 9.0 50% 4.50 Product B 200 5.50 40% 3.30 Product C 10 4.0 30% 2.80

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Exhibit B:

Units National Price Profit Margin Product A 200 10 _ Product B 150 5 _ Product C 75 4 _

Units Export Price Profit Margin

Product A 200 8 _ Product B 50 6 _ Product C 25 4 _

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Exhibit C: (for use after case or to help interviewee if they get stuck on calculations)

Units National Price Profit Margin Unit Costs

Product A 200 10 5% 4.50 Product B 150 5 34% 3.30 Product C 75 4 30% 2.8

Units Export Price Profit Margin Unit Costs

Product A 200 8 4% 4.50 Product B 50 6 45% 3.30 Product C 25 4 30% 2.80

Product A is more profitable nationally Product B is more profitable internationally Product C has the same margins for both markets

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C. Practice Case #3 – Market Growth Strategy in Retail Banking

Question (posed by interviewer):

A bank based in a developing country in Southeast Asia has hired us to determine how it can grow in the local market, specifically in retail banking. What are the factors you would look at to assess the situation? What is your recommendation for our client?

Interview Guidance (general information to be given if asked): Competition/Competitive Landscape: Market Share by bank and product

Client is one of the top three market share leader. Show Exhibit 1 & 2.

Observation: Client maintained market share in deposits but lost market share in credit cards. Client lost share in auto loans but is doing very well in home loans. Product and pricing competitiveness

(Parte 3 de 5)