Dear experts!
I am struggling to find a good way of analyzing profitability cases deeply. So I normally start with the usual question to see if it is a company-specific problem, or a market-wide problem. But then, I am not sure how I can continue properly. If it is a market problem - do I then run a market analysis? If I do this, I tend to get lost and after a couple of minutes, the interviewer needs to help me out. So how can I approach such analyses in a better and more secure way?
Hi Sidi, thank you for this detailed answer! One question - prior to identifying the different income streams, should the candidate first establish whether to focus on costs or revenues? Or when is the right point to clarify this?
No! Segmentation ALWAYS needs to come first! You first disaggregate your tree into the different segemnts, so that you can verify whether profit of segement 1 through segment n has changed. Then you drill deeper into the "problem segments", so you can then understand revenue and cost within this respective segment. NEVER segment deeper down in the tree (e.g., first drill down to volume, and then try to segment - this will lead to a complete mess, as you will then have to map volumes of each segment to the respective prices, and also the respective costs, which will result in a very complex matrix. Never do this please! ;))
That makes sense, thank you so much!
While doing these steps, should you tell the interviewer what you are doing? Like: "I would like to identify the different income streams to drill deeper into the problem segments?"
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Do you have any visual example to take a look at for the "driver tree to find and isolate the core of the problem"? Thank you for your help!