A start-up company has been having issues with turning profits for 6 consecutive quarters.
After the company analyzed their performance, they found out the following:
- Prices might be too high for the average user
- Lack of user engagement on a regular bases
- Slow subscriber growth
- Some products are not visible to the subscribers
- Platform design contributes to the lack of visibility of the products.
Once these findings were verified, the company began to implement some interesting strategies that helped change the performance dramatically.
Here is what the company did during Q7:
- Changes to the platform were introduced based on the analysis to give better visibility to the products
- The company began various campaigns to gain new subscribers with offers and discounts
- The company began engaging the existing subscribers via different channels and offered Discounts and Promos to get the Subscribers to use the products more
After these solutions were implemented, Q7 growth was significantly higher than the previous periods. Q8 turned a profit.
Here are the outcomes:
- Subscriber's base grew by 119% by the end of Q8
- Revenue was positive by the end of Q8 for the first time in 8 quarters
- Products visibility has improved massively. This is reflected by the sales and revenue of the different products. And by the end of Q8, the products that weren't visible began to sell at the same rate as the other products.
However, this is my assessment of the situation:
This is unsustainable for the long term. Eventually, users will be very fixated on offers and will be waiting for the next offer to buy.
This was proved to be true when Data was presented which showed that Organic sales began to flatline or at the very best began to reach the same volume of sales as the offers and discounts.
Discounts began to cannibalize organic sales.
By Q9, the company began to lose profits. It is not negative, but it is getting closer and closer to breakeven.
Now, My prediction is that the company will need to device a completely new approach: The company will lose money again by Q10. Why? I am not sure. This is done without analysis, whatsoever.
- How do we approach the profitability analysis for this case?
- How would an experienced consultant break this down into pieces to begin the analysis?
I must say that I am looking at this case: https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/intermediate/madflixcom-49
I like the way it was broken down. But, I feel like the Madflix case doesn't show the full picture of the analysis.
I appreciate your feedback and input.
Thank you in advance.