Duke APD Consulting Club Case Practicing Duke APD Consulting Club 11/14/2018

Meeting Agenda Skills for today Review of the frameworks: Porter’s five forces 4P’s framework More tools and concepts Review of the frameworks: Profitability Business situation (4C’s or CPCC) BCG Matrix (product protfolio matrix) Case practice 11/14/2018

Meeting Agenda Skills for today Review of the frameworks: Porter’s five forces 4P’s framework More tools and concepts Review of the frameworks: Profitability Business situation (4C’s or CPCC) BCG Matrix (product protfolio matrix) Case practice 11/14/2018

Four types of questions Profit or loss Growth and increasing sales Entering a new market Pricing 11/14/2018 CASE IN POINT: Complete Case Interview Preparation, 8th Edition

The competitive advantage in an industry depends on five forces: Porter’s five forces The competitive advantage in an industry depends on five forces: The threat of new entrants The bargaining power of buyer/customers The bargaining power of suppliers The threat of substitute products Rivalry with competitors 11/14/2018 CASE IN POINT: Complete Case Interview Preparation, 8th Edition Harvard Business School Management Consulting Club, Case Interview Guide

Porter’s five forces The intensity of the competition determines the attractiveness of the market: Intense competition allows minimal profit margins Mild competition allows wider profit margins. 11/14/2018 Harvard Business School Management Consulting Club, Case Interview Guide

Porter’s five forces Barriers to entry: Economies of scale, product differentiation, government subsides, government policy (external analysis of a company) Capital requirements and switching costs (internal analysis of a company) Access to distribution channels (value chain) Proprietary product technology, cost advantages independent of scale (product) Favorable access to raw materials, locations (collaborators) 11/14/2018 Harvard Business School Management Consulting Club, Case Interview Guide

Relationship with buyers: Porter’s five forces Relationship with buyers: Powerful buyer: Concentrated or purchases large volumes relative to seller’s sales Purchases standard products or undifferentiated products Faces few switching costs Poses a credible threat of backward integration Has full information 11/14/2018 Harvard Business School Management Consulting Club, Case Interview Guide

Relationship with suppliers: Porter’s five forces Relationship with suppliers: Powerful supplier group: Not obliged to contend with other substitute products This industry is not an important customer of them Is an important input to the buyer’s business Has differentiated products or high switching costs Posses a credible threat of forward integration 11/14/2018 Harvard Business School Management Consulting Club, Case Interview Guide

Porter’s five forces Substitute products: Substitute products deserve the most attention: Compete in price with the industry’s product Produced by industries earning high profits Insurance 11/14/2018 CASE IN POINT: Complete Case Interview Preparation, 8th Edition Harvard Business School Management Consulting Club, Case Interview Guide

Porter’s five forces Rivalry: Rivalry among existing competitors increases if: Numerous or equally balanced competitors exist; Industry growth is slow; Fixed costs are high or high exist barriers; Lack of differentiation or switching costs; Capacity is augmented in large increments. 11/14/2018 CASE IN POINT: Complete Case Interview Preparation, 8th Edition Harvard Business School Management Consulting Club, Case Interview Guide

Meeting Agenda Skills for today Review of the frameworks: Porter’s five forces 4P’s framework More tools and concepts Review of the frameworks: Profitability Business situation (4C’s or CPCC) BCG Matrix (product protfolio matrix) Case practice 11/14/2018

Four types of questions Profit or loss Growth and increasing sales Entering a new market Pricing 11/14/2018 CASE IN POINT: Complete Case Interview Preparation, 8th Edition

4P’s framework More product focused, can be used when analyzing the price of a product 4P’s: Product Price Place/Distribution Promotion 11/14/2018 Harvard Business School Management Consulting Club, Case Interview Guide

4P’s framework Product: Marketplace position: Brand equity: Strategy: Particular segment of the market? Mass market or niche product? Differentiated enough to stand out? Brand equity: Issues or risks associated with the image or perception of the brand? Some features that can be added to the product to add the perception of value to the consumer? Strategy: How does the product fit in the overall strategy of the company/relate to other products? What kind of a financial role this product is playing (cash cow, question mark?) 11/14/2018 Harvard Business School Management Consulting Club, Case Interview Guide

4P’s framework Price: Most important factor is the customer’s perceived “value” of the product. Other facts: Cost to produce COGS (cost of the good sold) Price paid previously Price of substitutes (insurance) 11/14/2018 Harvard Business School Management Consulting Club, Case Interview Guide

4P’s framework Place/distribution Distribution channel must align with the position of the product: Most closely aligned with the company’s strategy Economics of the channel Delivery: give up the control of delivery? 11/14/2018 Harvard Business School Management Consulting Club, Case Interview Guide

To develop a specific brand for the product to capture the most value. 4P’s framework Promotion/branding: To develop a specific brand for the product to capture the most value. Brand message, what are we trying to communicate? How different from competitors? Does the promotion focus on long-term view of the relationship? (encouraging retention of the customers?) Which vehicles will be used to influence the decision making process? Pull strategy: use of advertising, direct mail, telemarketing… Push strategy: use of trade promotions, sales aids/ sales training programs Budget for the marketing? 11/14/2018 Harvard Business School Management Consulting Club, Case Interview Guide

Meeting Agenda Skills for today Review of the frameworks: Porter’s five forces 4P’s framework More tools and concepts Review of the frameworks: Profitability Business situation (4C’s or CPCC) BCG Matrix (product protfolio matrix) Case practice 11/14/2018

Other tools and concepts Contribution Analysis (with an example) Unit contribution= unit selling price ($50) – variable cost ($21.25) = $28.75 Break-even volume = fixed costs ($30,000) / unit contribution ($28.75/unit) = 1,043 units Break-even Market share = break-even volume (1,043 units) / total market share (14,300 units) = 7% Market share Total contribution = unit contribution ($28.75/unit) * number of units sold for the year (1,700 units) = $48,875 Net profit = total contribution ($48,875) – total overhead costs (fixed costs, $30,000) = $ 18,875 11/14/2018 Harvard Business School Management Consulting Club, Case Interview Guide

Other tools and concepts Market sizing: (Market size: The number of individuals in a certain market who are potential buyers and/or sellers of a product or service.) Total revenue in market = # of customers targeted x # purchases made per period x # units per purchase x Price per unit How to enlarge each number? 11/14/2018 http://www.businessdictionary.com/definition/market-size.html#ixzz42wMhgHCJ Harvard Business School Management Consulting Club, Case Interview Guide

Meeting Agenda Skills for today Review of the frameworks: Porter’s five forces 4P’s framework More tools and concepts Review of the frameworks: Profitability Business situation (4C’s or CPCC) BCG Matrix (product protfolio matrix) Case practice 11/14/2018

profitability Cost Revenue Fixed cost (value chain) Variable cost (suppliers) Revenue Price per unit (4P’s) The # of unit sold (4P’s or buyers) 11/14/2018

Business situation (4C’s) Consumers/customers Identify the consumers and customers Define the market: decision making unit, process, situations Company Internal analysis: key success factors (KSFs), value chain, financial analysis External analysis: general trend, industrial analysis Competitor Competitive analysis: what drives the competitor; what are they doing Market signals: announcements, industry analysis Competitive move: risks, retaliation Collaborator Buyers: identify good buyers; create good buyers and eliminate unqualified buyers Suppliers: identify good suppliers, supplier strategy (avoid switching cost)

Bcg matrix Four sections in the Matrix Low growth, high market share: Cash Cows, generate excess cash Low growth, low market share: Cash Pets, may show some accounting profit, but the profit must be reinvested to maintain the share, worthless. High growth, low market share: Question mark. Require far more cash than they can generate. It’s a liability of a company unless it becomes a leader. High growth, high market share: The star. It’s the leader of the industry, and if it can stay as a leader, when the growth slows down it will eventually become the Cash cow. 11/14/2018 case in point 8th edition, 5: ADDITIONAL TOOLS AND FRAMEWORKS

Introduction to Case Practice series Items to cover: Mental math, Market size estimation, Case interview frameworks, Basic case interview skills, Case practice with peers 11/14/2018

Meeting Agenda Skills for today Review of the frameworks: Porter’s five forces 4P’s framework More tools and concepts Review of the frameworks: Profitability Business situation (4C’s or CPCC) BCG Matrix (product protfolio matrix) Case practice 11/14/2018

Case Practicing 11/14/2018