growth

Question

hi few questions about the case

1)

Volume growth = Incidence patients - wheelchair patient deaths / wheelchair patient population base x changes in wheelchair lifetime / penetration

Volume growth = 55,275 - 26,000 / 875,000 = 3.3%

could you explain the formula and where 875000 is coming from

2) Growth = Volume growth + Price Growth

i think it should be growth= volume growth*price growth ?

3) it is said inthe case:" customer preferences in the US are similar to Europe and initial customer research indicates that there is demand for a more premium and technologically advanced product. Initial research indicates that this segment is about 25% of the total market"

"wheelchairs are paid for by the insurance company depending on the type of medical insurance that the patient has. Around 25% of insurance companies would cover up to the full cost of Comfort Chair's pricing"

i do not understand the information about the 25% given and then why 5% is used in the further market share calculation?

thanks a lot

Answer 1

1) 875,000 is the installed base of wheelchairs. 490,000 + 320,000 + 65,000

2) No price x volume would be incorrect. The mathematically correct calculation would be 1+ volume growth rate % * 1 + price growth rate % -> 1.033*1.02 = 1.05366 = 5.366%. I suggest that the candidate simply adds the two growth rates because this gives you an accurate enough answer for the case setting in a much faster time and then adds ranges as is typical anyways -> 3.3% + 2% = 5.3% -> 5 - 5.5%

3) 5% is just an assumption that is deemed reasonable. If 25% of the market is addressable and 25% of insurance would cover the full costs it would seem reasonable that comfort chairs could achieve 5% with a strong product, especially of some customers would still be paying out of pocket and assuming there is overlap between customers that demand a premium product and customers that have good insurance coverage. The candidate will have to use their business judgment here.

Answer 2

Hello John!

The author is in PrepL so I would suggest you to send a message directly :)

Cheers,

Clara