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7

How should we look at revenue decline

Hi,

I have been solving this McK Style Case.

Simply, our client who sells only one product line has faced a serious decline in Revenue, this company CEO wants us to find the cause and solve the issue.

Now comes the first case question.

Tell us, at a high-level, how you would initially determine the cause of the revenue issue.

So my throughs were since the questions only wanted to determine the cause, for now, I should investigate the following two:

Market: To find out if this is a market-wide problem and so on,

Company: and here I said I wanted to find out if it is driven by price change or volume. The price will take us to mostly look at the competition, while volume would make us look at Customer behavior, the product itself, competition as well.

But the case itself suggests a very wide answer to this first question, from the beginning it wanted to look at:

Industry

Competition

Product

Company

Customers

There answer suggest a wider look over the cause of revenue without root-cause the issue first. What are your thoughts?

Hi,

I have been solving this McK Style Case.

Simply, our client who sells only one product line has faced a serious decline in Revenue, this company CEO wants us to find the cause and solve the issue.

Now comes the first case question.

Tell us, at a high-level, how you would initially determine the cause of the revenue issue.

So my throughs were since the questions only wanted to determine the cause, for now, I should investigate the following two:

Market: To find out if this is a market-wide problem and so on,

Company: and here I said I wanted to find out if it is driven by price change or volume. The price will take us to mostly look at the competition, while volume would make us look at Customer behavior, the product itself, competition as well.

But the case itself suggests a very wide answer to this first question, from the beginning it wanted to look at:

Industry

Competition

Product

Company

Customers

There answer suggest a wider look over the cause of revenue without root-cause the issue first. What are your thoughts?

7 answers

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Best Answer

Hi Rami!

Both approaches are not very good. What is extremely important to understand in order to craft super strong structures: the purpose of a structure is not to provide a list of things you want to look at.

The purpose of a structrue is to clearly explain how you will answer the precise question that has been asked by the client.

None of the two approaches which you outlined above caters for this! The client's question is

"How to initially determine the cause of the revenue issue?"

Telling the client what you want to look at does not address this question. Frankly, you may look at whatever you want, but this does not help the client understand, HOW you will answer his concrete question. In order to address this question, you have to outline the LOGIC according to which it can be answered. And this is fundamentally different from just defining buckets and topics. (And to anticipate your next question: yes, the solutions provided in popular case books and even on the MBB websites are oftentimes very very weak.)

Instead of falling for such weak thinking, you should outline a clear logic that will ultimately and invariably lead to the root cause of the revenue problem.

  • For this, you first need to isolate what (sub-)driver causes the decline. Revenue is too high level, you need to find out whether it is an issue with pricing, or the product mix, or the quantities. If, e.g., lower quantity is the problem, then you drill deeper to understand the concrete numerical driver (e.g., the average number of items per purchase has not changed, but the number of purchases has gone down --> then you drill deeper to understand what is driving this (the "sub-driver") --> e.g., the number of customers has not changed, but their average frequency of purchasing has gone down --> this is the numerical problem driver! You isolated it just by means of a driver tree).
  • Once you have isolated the problem driver (WHAT is the problem?), then you check on the qualitative reasons that might have caused this very problem driver to develop negatively (WHY does the problem exist?). You exclude all other areas of the tree because they are not relevant! This is how you run effective and efficient diagnostics. This second step of qualitative analysis might indeed require some extra structuring once you reach it!

What aspect that is very important (and usually violated in Case Coaching books) is the principle of first isolating the numerical problem driver, before asking qualitative question. Never start your analysis with asking qualitative questions ("First I would like to get a general understanding of the market development" and such phrases)! This is practically the very definition of "boiling the ocean", i.e., working in an extremely inefficient way. First, you should seek to narrow down the area that you need to qualitatively understand - and this can be done very quickly by doing a numerical analysis as described above. Once you know where the problem comes from, THEN you can start to understand the qualitative reasons that underlie the negative development of this driver, and this analysis will be far more focused and concrete than if you would have tried to do it at the start.

Cheers, Sidi

P.S.: Whetehr the case is conducted in an interviewee-led or interviewer-led manner is absolutely irrelevant for the initial structuring of the case! It just comes into play once you enter the analysis.

Hi Rami!

Both approaches are not very good. What is extremely important to understand in order to craft super strong structures: the purpose of a structure is not to provide a list of things you want to look at.

The purpose of a structrue is to clearly explain how you will answer the precise question that has been asked by the client.

None of the two approaches which you outlined above caters for this! The client's question is

"How to initially determine the cause of the revenue issue?"

Telling the client what you want to look at does not address this question. Frankly, you may look at whatever you want, but this does not help the client understand, HOW you will answer his concrete question. In order to address this question, you have to outline the LOGIC according to which it can be answered. And this is fundamentally different from just defining buckets and topics. (And to anticipate your next question: yes, the solutions provided in popular case books and even on the MBB websites are oftentimes very very weak.)

Instead of falling for such weak thinking, you should outline a clear logic that will ultimately and invariably lead to the root cause of the revenue problem.

  • For this, you first need to isolate what (sub-)driver causes the decline. Revenue is too high level, you need to find out whether it is an issue with pricing, or the product mix, or the quantities. If, e.g., lower quantity is the problem, then you drill deeper to understand the concrete numerical driver (e.g., the average number of items per purchase has not changed, but the number of purchases has gone down --> then you drill deeper to understand what is driving this (the "sub-driver") --> e.g., the number of customers has not changed, but their average frequency of purchasing has gone down --> this is the numerical problem driver! You isolated it just by means of a driver tree).
  • Once you have isolated the problem driver (WHAT is the problem?), then you check on the qualitative reasons that might have caused this very problem driver to develop negatively (WHY does the problem exist?). You exclude all other areas of the tree because they are not relevant! This is how you run effective and efficient diagnostics. This second step of qualitative analysis might indeed require some extra structuring once you reach it!

What aspect that is very important (and usually violated in Case Coaching books) is the principle of first isolating the numerical problem driver, before asking qualitative question. Never start your analysis with asking qualitative questions ("First I would like to get a general understanding of the market development" and such phrases)! This is practically the very definition of "boiling the ocean", i.e., working in an extremely inefficient way. First, you should seek to narrow down the area that you need to qualitatively understand - and this can be done very quickly by doing a numerical analysis as described above. Once you know where the problem comes from, THEN you can start to understand the qualitative reasons that underlie the negative development of this driver, and this analysis will be far more focused and concrete than if you would have tried to do it at the start.

Cheers, Sidi

P.S.: Whetehr the case is conducted in an interviewee-led or interviewer-led manner is absolutely irrelevant for the initial structuring of the case! It just comes into play once you enter the analysis.

(edited)

Great detailed answer, just figuring out something. your answer is relatively the same but your starts with Internal side of the problem and wants to understand the numerical driver than moves to more qualitative side, is that right? just make sure that I have gotten right. — Rami on Jun 17, 2020

Yes! You first need to use top-down logic to isolate the conceptual (mostly numerical) source of the observable problem. Only THEN you start the qualitative assessment, because now you already know very concretely WHAT you are looking for. — Anonymous on Jun 17, 2020

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Hi,

I would like to refer to a particular example here.

A local Supermarket has seen its revenue decrease from its Fresh Fruit business over the past 12 months. They have helped you to determine the cause of this trend.

I would suggest the following structure to the breakdown revenue.
Let’s draw the table:

  • Columns: Client Journey stage, Impact on number of clients, Impact on average bill
  • Lines (Client Journey stages): Planning to buy fruit, Being aware of your shop, Considering to visit your shop, Visiting your shop, Visiting fresh food section, Buying fresh food

The next step is to fill this table:

  • Planning to buy fruit (total number of potential customers 2nd column, average budget for buying fruit for each potential customer 3rd column)
  • Being aware of your shop (% of total number of potential customers who are aware of your shop 2nd column, average budget for buying fruit for each potential customers who are aware of your shop 3rd column)
  • Considering to visit your shop (% of total number of potential customers who want to visit your shop 2nd column, average budget for buying fruit for each potential customer who wants your shop 3rd column)
  • Visiting your shop (% of total number of potential customers who visit your shop 2nd column, average budget for buying fruit for each potential customer who visits your shop 3rd column)
  • Visiting fresh food section (% of total number of potential customers who visit fresh food section 2nd column, average budget for buying fruit for each potential customer who visits fresh food section 3rd column)
  • Buying fresh food (% of total number of potential customers who buy fresh food 2nd column, average bill for buying fruit 3rd column)

Once you identify bottlenecks (e.g. by comparing your current client journey with the one that your shop had 12 month ago) you can develop a hypothesis structure for each stage of client journey.
Note that this structure accounts for all possible reasons for a revenue decrease. For example a decreasing % of total number of potential customers who want to visit your shop could be a signal that a new competitor has entered the market. In this case you will have to identify why your client prefers this competitor). Another example: % of total number of potential customers who are aware of your shop has decreased - it could have happened because you stopped your marketing campaign).
Have a look at my post about brainstorming - it can help you to brainstorm recommendations for this case. Here is the link:
https://www.preplounge.com/en/consulting-forum/hello-how-should-i-approach-brainstorming-questions-during-mck-interviewer-led-cases-6745
Also you may find useful my post on how to evaluate an impact on revenue/market share coming from a new market entrant. Here is the link:
https://www.preplounge.com/en/consulting-forum/i-am-preparing-for-an-interview-at-mckinsey-6736
Let me know your thoughts!
Best,
Anton

Hi,

I would like to refer to a particular example here.

A local Supermarket has seen its revenue decrease from its Fresh Fruit business over the past 12 months. They have helped you to determine the cause of this trend.

I would suggest the following structure to the breakdown revenue.
Let’s draw the table:

  • Columns: Client Journey stage, Impact on number of clients, Impact on average bill
  • Lines (Client Journey stages): Planning to buy fruit, Being aware of your shop, Considering to visit your shop, Visiting your shop, Visiting fresh food section, Buying fresh food

The next step is to fill this table:

  • Planning to buy fruit (total number of potential customers 2nd column, average budget for buying fruit for each potential customer 3rd column)
  • Being aware of your shop (% of total number of potential customers who are aware of your shop 2nd column, average budget for buying fruit for each potential customers who are aware of your shop 3rd column)
  • Considering to visit your shop (% of total number of potential customers who want to visit your shop 2nd column, average budget for buying fruit for each potential customer who wants your shop 3rd column)
  • Visiting your shop (% of total number of potential customers who visit your shop 2nd column, average budget for buying fruit for each potential customer who visits your shop 3rd column)
  • Visiting fresh food section (% of total number of potential customers who visit fresh food section 2nd column, average budget for buying fruit for each potential customer who visits fresh food section 3rd column)
  • Buying fresh food (% of total number of potential customers who buy fresh food 2nd column, average bill for buying fruit 3rd column)

Once you identify bottlenecks (e.g. by comparing your current client journey with the one that your shop had 12 month ago) you can develop a hypothesis structure for each stage of client journey.
Note that this structure accounts for all possible reasons for a revenue decrease. For example a decreasing % of total number of potential customers who want to visit your shop could be a signal that a new competitor has entered the market. In this case you will have to identify why your client prefers this competitor). Another example: % of total number of potential customers who are aware of your shop has decreased - it could have happened because you stopped your marketing campaign).
Have a look at my post about brainstorming - it can help you to brainstorm recommendations for this case. Here is the link:
https://www.preplounge.com/en/consulting-forum/hello-how-should-i-approach-brainstorming-questions-during-mck-interviewer-led-cases-6745
Also you may find useful my post on how to evaluate an impact on revenue/market share coming from a new market entrant. Here is the link:
https://www.preplounge.com/en/consulting-forum/i-am-preparing-for-an-interview-at-mckinsey-6736
Let me know your thoughts!
Best,
Anton

(edited)

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Hi there,

There is no single right answer - Both answers are valid and to be fair I like yours more.

Your approach covers the same aspects under "Market" because in that section you will have questions such as:

  • Are our competitors facing the same problem? If no, why not? (Competition)
  • How do we compare in terms of price and USP vs our competition? (Product/price)

Those questions would help you better frame your recommendation once you dig into "Revenue = Price x volume" structure that you also laid out.

I hope this helps

Khaled

Hi there,

There is no single right answer - Both answers are valid and to be fair I like yours more.

Your approach covers the same aspects under "Market" because in that section you will have questions such as:

  • Are our competitors facing the same problem? If no, why not? (Competition)
  • How do we compare in terms of price and USP vs our competition? (Product/price)

Those questions would help you better frame your recommendation once you dig into "Revenue = Price x volume" structure that you also laid out.

I hope this helps

Khaled

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Hi Rami,

Unfortunately, this highlights the problem with many of the cases that you can find online. The structuring answers provided fall significantly below the bar where you need to be in order to pass case interviews at MBB these days. The structure suggested in the answer could literally be applied to any type of question and does a very poor job of isolating the potential drivers of the revenue decline in one product line.

My recommendation would be to focus more directly on the question posed by the client and then break down the drivers of revenue decline:

- Falling volume

- Lower prices

Under each you could try to qualitatively try to understand the reason why it as happened:

- Has the competition also seen a volume decline in the same product?

- Has there been a shift toward lower price products in the market?

First understanding the exact driver will allow you to more accurately to pinpoint the qualitative reasons behind the development.

-A

Hi Rami,

Unfortunately, this highlights the problem with many of the cases that you can find online. The structuring answers provided fall significantly below the bar where you need to be in order to pass case interviews at MBB these days. The structure suggested in the answer could literally be applied to any type of question and does a very poor job of isolating the potential drivers of the revenue decline in one product line.

My recommendation would be to focus more directly on the question posed by the client and then break down the drivers of revenue decline:

- Falling volume

- Lower prices

Under each you could try to qualitatively try to understand the reason why it as happened:

- Has the competition also seen a volume decline in the same product?

- Has there been a shift toward lower price products in the market?

First understanding the exact driver will allow you to more accurately to pinpoint the qualitative reasons behind the development.

-A

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Hi there,

Their approach is indeed more comprehensive and I prefer it.

While thiers is perfectly MECE, yours does not meet the collectively exhaustive part!

All that being said, just remember that just because a case framework differs from yours, doesn't mean that yours is wrong....there are multiple ways to approach a case prompt!

Hi there,

Their approach is indeed more comprehensive and I prefer it.

While thiers is perfectly MECE, yours does not meet the collectively exhaustive part!

All that being said, just remember that just because a case framework differs from yours, doesn't mean that yours is wrong....there are multiple ways to approach a case prompt!

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Hello,

I like your approach and I think it's not really different from the other once that you start developing your blocks.
Once that you talk examine the market, you will ask information regarding the general industry trends and latest events (e.g. competition).
Then, looking at your company, I would split revenues between price and volume like you, but you have to segment the revenues and you can do it in different ways according to the case (geographies, client products portfolio ecc.). Customers behaviour is part of this analysis, influencing both volume and sell price.
Why do you think that your approach is so different from the other?

Best,
Luca

Hello,

I like your approach and I think it's not really different from the other once that you start developing your blocks.
Once that you talk examine the market, you will ask information regarding the general industry trends and latest events (e.g. competition).
Then, looking at your company, I would split revenues between price and volume like you, but you have to segment the revenues and you can do it in different ways according to the case (geographies, client products portfolio ecc.). Customers behaviour is part of this analysis, influencing both volume and sell price.
Why do you think that your approach is so different from the other?

Best,
Luca

Well, I won't if this is a Interviewee-led case, I will get to show them the whole thought process. But since this is a Interviewer-led case, I though that their approach is more comperinsive from the start — Rami on Jun 17, 2020

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Hello!

To add on top of the other answers, with which I agree.

This kind of pre-manufactured structures are okay, but nothing more, and the structure part is precisely one of the moments in the interview when you need to impress the interviewer.

Hence, it´s okay to start with, but you need to add on top from your own harvest or it will never be different enaugh.

Hope it helps!

Cheers,

Clar

Hello!

To add on top of the other answers, with which I agree.

This kind of pre-manufactured structures are okay, but nothing more, and the structure part is precisely one of the moments in the interview when you need to impress the interviewer.

Hence, it´s okay to start with, but you need to add on top from your own harvest or it will never be different enaugh.

Hope it helps!

Cheers,

Clar

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