Profitability case problem - finding root cause of volume drop

Office Vending Machine
New answer on Mar 23, 2020
1 Answer
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Anonymous A asked on Feb 29, 2020

Hi all, I have recently been stuck in profitability case (specifically, the "root cause" part). Would really appreciate hearing some feedback and advice.

I'll use this case to illustrate the problems I encountered: Office Vending Machine (p.6)

https://www.taodocs.com/p-60809693.html

After initial analysis, I know it is the volume drop which resulted in a probability decrease, and other competitor's volume is not dropping.

My question here is how should I structure the process of finding the root cause of a volume drop?

Should I ask time to structure the problem "why has volume dropped", and structure this problem like a full case?

Here's how I did it:

1.Company

Expertise and advantage? Is the current capacity meeting demand? Organization (such as sales force)?

2.Product

Manufacture process? Logistic? Weakness point of the product?

3.Client

Who is the end user? What is the purchase criteria and preference? What is their need?

4.Competition

Who are the competitors? Market share? What have they been doing that our client is not? What are the competitors strength?

I was really stuck at this process because without much information, I don't know what specific direction to explore.

For instance, it might be an operational issue / competition issue / clients willingness to pay dropped, etc.

What would be a good way to structure and what would be some good questions to ask?

Overview of answers

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Anonymous replied on Mar 23, 2020

Hello,

Hope all is good in spite of the difficult Covid-19 situation.

So, concerning your question, my first consideration is: absolutely take your time to structure the case as a full case (it is a full case! Just not a market sizing type of case, but it is a case that might even require more thinking than a “traditional” market sizing).

The structure you have laid out in your question is a good starting point and all the questions you mentioned are relevant, however, despite being a good guideline, I think they are too broad to actually be able to go fairly quickly to the heart of the problem.

Let’s take the Office Vending Machine case you mentioned. In this case you already know, after initial analysis, that competitors are not losing volumes while your client is. At this point I would right away asking questions about the product/service the client is offering, because it is very likely that that our client’s product is worse versus the competitors’.

I would ask the following questions:

Product questions:

- How is our product/service different from the ones offered by our competitors?

- What are the product/service features that our customers value the most?

- How does our product perform vs. competitors in terms of these key features? (à maybe a competitor came out with a better product or have a lower price for exactly the same product)

In this way you should already have an idea of whether the problem is in the product/service you are offering. Maybe the interviewer will not tell you directly where the problem with the product/service is, but you could be able to deduct it from other information you have or you might need to come out with some assumptions that the interviewer would then confirm or not (in the vending machine case you know that the client has cut costs, so you might assume that they have worsen their services).

If the product/service is not the problem than you can dig into other topics for example

Sales channels and approach (some things you might want to understand)

- Has the company decreased considerably the salesforce?

- Has the company closed any of its sales channels for any reason?

- Is there a new sales channel used by other competitors, but not by our client that has been stealing sales from traditional sales channels? (e.g. online)

- Has the market shifted from one region/country to another, without our client shifting the salesforce accordingly?

- Were the revenues of our client mainly generated by few big costumers and has it lost one of these customers?

- …

Marketing (some things you might want to understand)

- Has the company decreased considerably their marketing expenses or have other competitors increased them?

- Which are the main marketing channels used by our client vs. competitors and has anything changed there? (e.g. younger customers require more marketing from social media)

- …

Production (some things you might want to understand)

- Has the company decreased production capacity of any reason? (voluntary scale down, broken machines, problems with suppliers, problems with increased product faults, etc.)

- Has the company substituted production of one product with another?

- If the company is not producing, but buy and selling, does it have problem with suppliers?

- …

So, to sum up, I would tend to look at product first and then dig into these other topics. I would keep it simple at the beginning, i.e. test the most obvious reasons and then move into more detailed/complex analysis. If competitors are also losing volumes, than you would also need to look for things such as general market slowdown, substitution, new entrants, etc.

Hope this helps!

Best,

Jessica

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