Channel Profitability of Outlets & Recommendations

Question

1. In Table-3: Reduction from 50$ to 20$ despite # of av customer interactions being constant (5).
Shouldn't the profitability of Outlets (driving the max amount of deals closed and the core engine of sales) be addressed first for an immediate win? Digital transformations can take time, and client would expect an immediate fix in the boat first.

2. Surprisingly, the recommendation is to reduce fees to customer, further increasing cost pressures to client.
Why is there no recommendation on increased marketing spend to improve bank's USP (face to face personalized interactions for their highest profitability product 'Portfolios'), thus justifying the higher fees?

Thanks

Answer 1

Hi! This is a classic case of the interviewee wanting to see a “multi-layer-deep” logical conclusion come from the candidate. The first layer/conclusion you should reach is that , for some reason, the profit-per-interaction is going down.

At the second layer, there are two options that could follow logically:

“Let's try to increase the unit profitability by increasing prices or reducing costs.”

OR

“Let's try to increase volume to increase overall profits."

The first option is typically very difficult to do since, in theory, companies have made sound decisions on pricing and are doing their best to keep their costs in check. That's why this first option isn't necessarily wrong, but rather shallow.

A candidate who articulates the second option demonstrates that they probably thought of option 1, but see option 2 as something that is more feasible/within control of the client (rather than vendors or customers).

So let's say we've gone with option 2, now what's one of the easiest ways to increase volume passively (that is, with minimal effort from the client-side)? What's the “third layer” conclusion? The answer is to lower prices (typically promotion-driven).

There is a lot of nuance in this case, so what matters most is NOT getting the right answer, but rather the strength of the logical conclusions that a candidate reaches on the way to an answer.

Happy casing!

-Parris