Incos Pens

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Possible answers:

• Increase sales to existing customers by adding accessories or bundling products.
• Initiate sales to new customers by entering new distribution channels or investing more in marketing.
• Increase prices.
• Launch new products for existing segments or new segments.
• Shut down unprofitable product segments.

Give candidate some time and challenge him to elaborate on the data he might need and ask candidate to estimate the size based on his own assumptions. Once complete, interviewer can share information below to estimate the size for our case.

Possible answers:

• Access to distribution channels: Incos sells its pens through different channels than the premium segment uses. Incos will have to invest in gaining access to these channels.
• Market consolidation: The premium segment might be dominated by existing brands such as Cartier & Mont Blanc who have a strong brand position and a long history in the segment.
• Brand position/reputation: Incos might find it difficult to get consumers to perceive their brand as a premium brand. Heavy investments into Marketing will be required to build up a brand position.

Share information below with the candidate:

• Mainstream brands have about 85% of the market.
• Incos is expected to gain a 3% market share.
• Average selling price for premium pens is $20.
• Gross profit margins are on average 30%.
• Margins after marketing expenses are on average 10%.

Possible answer:

• With 3% of the market of 14 m pens and a selling price of $20, Incos would earn (3%*14 m*$20)=$8.4 m.
• With 10% margins, Incos would generate $840.000 in profits.
• This is fairly small in comparison with the company's global margin of 50% and $30 m in profits.
• Along with the difficult entry barriers, it would be unwise for Incos to enter the segment.

Possible answers:

• Reducing material cost.
  • ​Sourcing of materials in low-wage country like China.
  • Use economies of scale.
  • Simplify the product.
• Reduce wages.
  • Move production to low-wage country.
  • Hire more temporary staff.
  • Automate more processes.

Possible answer:

• Wages will decrease by (25%*0.85)=21% to about 4% of total costs when moving production to China.
• We would have to look at the additional distribution/transportation costs when shipping from China to customers.

Possible answers:

• So far, we have analyzed the impact of increasing sales by entering the premium segment. It's not a good fit due to limited profitability and high barriers to entry.
• We have also analyzed the option of moving production to China to decrease costs. This is a viable option that reduces wages from 25% to 4%, but we still have to analyze the effects of a possible increase in distribution costs.
• Additional options to increase include bundling & intensifying marketing, but these still have to be quantified.