I am trying to solve a market entry case but the answer framework makes me confuse

Whilst there is certainly nothing wrong in applying the factors from Porter's 5 to this case, like the other commentators have said, I would highly discourage force-fitting a framework to any case and that too stating you will be using this framework in the interview.

WHAT IS THE ASK?

Try to think through as a very basic level, what the question is asking?

It is clear the company is looking for a new growth opportunity. In addition, "reimbursement" and "incurred medical costs" are mentioned, so it would seem important to think about profitability (and not just the "premium")

STRUCTURING THE CASE

Given you know it is a profitability question, you know the component parts are:

1. Revenue - i.e. Premiums Paid
2. Costs i.e. Incurred Medical Costs + Operating Expenses

For each of these you can break them down to get the data from the interviewer in order to make a recommendation, like below:

1. Premiums Paid = # Customers * $ Avg. Annual Premium Paid
   • # Customers = $ Market Size * % Assumed Market Share in Y1 (you'll want to make an assumption of what is reasonable here e.g. <10%)
   • $ Avg. Premium Paid = Single Price (guaranteed issue requirement)
2. Costs = $ Medical Costs + $ OPEX
   • $ Medical Costs = % Claim Ratio in Y1 * $ Avg. value of claim
     • Both of these should factor the government regulation of guaranteed issue requirement
     • e.g. You can make an assumption of the distribution of customers by health status
   • $ OPEX = % of revenue (make an assumption for this)
     • e.g. "I assume an average operating cost base for a services business of 20-40%"

EXTRA POINTS

​To stand out even further, you can take the opportunity to demonstrate your business acumen by talking about "capabilities", and how easy/straightforward it will be for Liberty to enter the new market. This is a very important question when it comes to speaking to clients about a market entry strategy for real, and was a dedicated workstream on every market entry case I led.

Questions you can raise or mention you would like to think more about:

• How close is the new market to the existing market in which they operate?
• Does the company have most of the capabilities (people, processes, technology, licenses, culture) to easily enter the market as-is?
• If there is a large capability gap, will the company need to buy/build to fill the gap?
• Will this affect the likelihood of success at all?

(editiert)

Hello,

The answer is correct.

If you look at the case the client problem are stagnating revenues, which means your target is to increase them.

Decomposing now the target into its key components:

Additional revenue = # new insurance subscriber * # insurance fee

You could now work on these two components asking the interviewer for additional information/ making your own assumptions

Once you are done with that you should recall that typically companies are more interested in profits rather than revenues (See my comment on the end of this post on this). For this reason, you should consider the costs associated with the market entry.

Insurance usually adopt two metrics to describe costs:

- Claim Ratio: medical expenses as a percentage of insurance fee

- Admin Ratio: admin expenses as percentage of insurance fee

- Combined Ratio: Claim Ratio + Admin Ratio

Profits = Revenue * (1 + Combined Ratio)

Your interviewer could provide you this metrics if available in the case, otherwise you may need to come out with that with other information provided in the case. (e.g. average sickness frequency, average cure cost, cost of the new distribution channels, etc...)

Note on profitability: in specific occasions a company may be more interested in having fast growing revenues rather than profits, to the point of accepting negative profits for a limited time. This may happen in business requiring a critical mass to be profitable (insurance is one of these).

Don't hesitate to get in touch with me in case you need any further clarification,

Thanks,

Ale

Hello!

I overall agree with your approch.

However, I would totally disencourage you from ussing frameworks such as the "5 Ps of Porter" -they are too seen, and too shallow, to give a good impression in a real interview.

At this point, it´s just easier to apply common sense. Without further explanation, this seems as a profitbility case, in which we will analyze reveues, costs, and other factors that can influence this equalition (e.g., risks, social and political factors, opportunity costs, legislation, etc.)

Hence, you can start with a simple issue tree with:

• Revenues: simple P x Q = new services * average price of them
• Costs associated
• Other factors that influence this equalition = risks, social and political factors, opportunity costs, legislation... there are plenty of them.

HOpe it helps!

Cheers,

Clara