How can you structure a case if you want to see the difference in 2 operations

Case Case Interview
Recent activity on Jun 14, 2018
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Anonymous A asked on Jun 14, 2018

assume that your store A has more profits than your store B, and the market is similar and they are selling exactly the same things. How can you increase the profits for store B?

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Sidi
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replied on Jun 14, 2018
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 300+ candidates secure MBB offers

Hi Anonymous,

  1. Firstly you need to identify the numerical driver of the lower profits of store B (the WHAT? question). --> Draw a driver tree to isolate the core of the problem (less customers? less revenue per customer? lower margin products sold? lower pricing? operational costs? etc.)
  2. Once the numerical problem driver is isolated, you need to understand the WHY? question. For this, the analysis depends on what the actual problem is. If it is a cost problem, you may want to go through the entire value chain to diagnose where the difference/disadvantage lies. If it is a revenue or sales mix problem, you may want to scrutinize strategic measures to adapt the offer 8or way of offering) of store B.

Cheers, Sidi

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Michael on Jun 14, 2018

How can you isolate solution if the problem is a sales mix problem?

Sidi on Jun 14, 2018

If the sales mix is geared towards lower margin products (supplier negotiations, use alternative suppliers, potential substitutes, etc.) , you can potentially address each profit driver: you can increase prices of the low-margin product(s), you can try to bring down the cost of the low-margin products, and you can stimulate demand of high margin products

(edited)

Francesco
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replied on Jun 14, 2018
#1 Expert for Coaching Sessions (3.700+) | 1.300+ Reviews with 100% Recommendation Rate | Ex BCG | 8+ Years of Coaching

Hi Anonymous,

you can structure the process as follows:

  1. Understand what is creating the problem for store B:
    1. Identify how profits are segmented (eg product or customer)
    2. Identify which segment has the profitability issue compared to A
    3. Identify if for that segment you have a revenues or cost issue
    4. If it’s a revenues issue: understand if it’s a price or volume issue. If it is a cost issue: understand if it’s a fix or variable cost issue.
    5. Understand why you are having the problem in that bucket. You can analyse this dividing in internal and external reasons that could create the problem.
  2. Understand what could be the solution to increase profits. In general you could work on
    1. Revenue side
      1. Work on current product
      2. Work on new products
    2. Cost side
      1. Decrease cost per units of input
      2. Decrease number of units of input
  3. Consider potential risks and next steps in the implementation

Best,
Francesco

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Vlad
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updated an answer on Jun 14, 2018
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

I would look at the following:

Revenues

1) Average check

  • Length of the check
  • Product mix in the check

Key check drivers:store format (space and assortment / price / product quality), promo & discounts, personal sales (fashion, electronics), loyalty programs, merchandising, stock availability, etc.

2) Number of customers

  • Traffic
  • Conversion - important in fashion and consumer electronics. less relevant for grocery

Key customer drivers: Location, Time opened, brand awareness, store format (space and assortment / price / product quality), external factors (parking, signage, etc), in-store experience (queues, look and feel, etc)

Costs

1) Fixed

  • Labour
  • Rent
  • Utilities
  • Marketing

2) Variable

  • COGS

Best!

(edited)

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Sidi gave the best answer

Sidi

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