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Hi, thanks for the great problem!
24
Global
"Additional Revenues" don't add up...?
Hi, thanks for the great problem!
2
1,7k
Schreibe die erste Antwort!
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Hi there,
I would be happy to provide the solution:
- Given that BabyformulaCo will be provided more shelf space, their market share increases from 30% to 33%. However, out of those 5.16m additional cans of baby formula, they sell 3.00m cans via the WIC.
- As such, in order to avoid double counting, you need to subtract the WIC cans from the total additional cans sold to arrive at the additional cans through market share increase.
Best,
Hagen
Great case indeed! Hagen explained it well, but let me just add one thing to help you for all future cases: Structure
Always make sure you write out the overall concept/layout of the math before you jump in.
Get everything written down and take it step by step. This allows you to have the right logic and not miss things (like the double-counting Hagen pointed out)
I think I found where I was confused.
In this model we assuming that the volume of products remains constant. In doing this, the total market value will actually decrease. That was confusing for me, because I would have assumed the opposite.
•The BFC market share *could* have increased by 3% as a result of putting another 3M cans on the market, OR it *could* have grown 3% as a result of taking over competitors production. In this case, we are assuming it takes over production...although I am not sure the problem explicitly said this.
•The difference between my answers and the ones presented indicates that a 3% increase in market share would result in $129M rather than $114M. The difference between these is $15M. Divide this by 3M cans, and you get $5, which is the difference in price between the market average and what we recommend they bid. Voila.
Thank you very much for this question. I would be happy to share the solution to it:
Since you want to understand the additional revenues generated, simply multiplying the new market share and market size will not get you to the desired results. Moreover, you also need to consider the 3m cans sold through the WIC program.
If you would like a more detailed discussion on the question at hand, please don't hesitate to contact me directly.
Best,
Hagen