All questions tagged market entry - Consulting Q&A - PrepLounge.com

Hi,

Both of your approaches are correct since you can calculate the things from the supply and demand sides. For example for the hospitals, you can calculate the number of hospitals per certain area (You can use your town as a proxy. E.g. I have 3 hospitals per 500k people in my hometown) and then assume a certain number of beds, turnover, and utilization.

There are certain tools that you need to understand:

1) First of all, there are two ways to calculate market size:

• From supply side (e.g. vending machines spots)
• From demand side (e.g. vending products consumption)

2) There are 2 ways to structure market sizing:

• Formula - basically a math formula to come up with a solution. The problem with the formula is that it is easy to forget something or get lost.
• Tree - same as with regular cases you build a tree. A very simple example: you need to calculate the number of dogs on manhattan. A number of dogs = share of households having a dog * # of households. # of households = population / average household size. In the end, you'll have a pyramid where you have to fill the numbers on the base of the pyramid. This approach is much easier and helpyou track all the numbers

3) You should learn the key market sizing techniques:

• Making assumptions based on personal experiences (Use the example of your house where out of 100 apt-s 10 have dogs)
• Adjusting numbers (NY is a busy city thus fewer people have dogs)
• Sanity check - try to apply your calculations to realenvironment
• etc.

4) You should learn the key tools:

• Using age even age split (suppose life expectancy is 80 years. Assuming even age split we have 4 mln people in USof each age group)
• Using 80/20 split (suppose 20%people earn 80% wealth and the average salary is xx...)
• Using approximations (Length of NY-SF flight and plane speed to calculate US length)
• etc.

5) Learn key numbers: populations, gas price, gas consumption, Boeing speed and nmber of seats, average salary, # of gates in the airport, GDP growth rate, inflation, etc.

6) Practice 10-15 cases and you'll be fine

Good Luck!

Hi Carl,

I would go with the latter. As you mentioned cannibalization results in lower revenues, but also lower variable costs (thus you can calculate as per contribution margin).

Best,

Deniz

There are two important concerns other than the profitability analysis as suggested:

1) Does the service have a material cost attached?

For the communication tool development, if the tool needs to be customized for each sales of consulting service, a pay-per-sale pricing model is justified. If the tool is a general model and needs minimum tweaking after the initial R&D and implementation, it may be more sensible to have a bulk one-time initial charge or a subscription model in order to minimize the impact of potential sales fluctuations.

Similarly, for the maintenance service, if the cost of service is primarily attached to the sale of communication tool (i.e. maintenance service is only provided as part of the consulting service project), a pay-per-sale pricing model is more suitable. If the maintenance service is spread out such that it is carried out regularly during the year (e.g. once a month), a monthly/annual fee is more justified.

2) Shifting to subscription model in the long run

In the short term, pay-per-sale model is a flexible option that provides feedback on the client's business performance.

If the client consistently has a low sales number, it may not be profitable for the company to continue providing the communication tool service. Potentially, the company may consider ending this engagement, making a few adjustments to the communication tool and selling it to other interested third-party clients.

If the client has a steady sales number that generates reasonable profit for the company, the company can switch to a subscription model in the long run to secure consistent revenue streams and better capture customer lifetime value by maintaining customer relationships.

The pay-per-sale model is a 'testing ground' to probe into whether the engagement is potentially a profitable one. The conversion to subscription model can maximize the future revenue potential based on the testing results.

Hope this gives you another perspective of the case.

Hi,

It's hard to answer your question without knowing the following information:

• The measurable objective of the case
• The context of the case
• Any other questions that will remove ambiguity (e.g. entry mode)

In other words - a lot in your structure will depend on the clarifying questions.

For example, you need to understand at the beginning of the case what are the entry options. E.g. if you have money to acquire someone, very early you should be looking for concentrated markets and big players to acquire. If the company plans to enter organically - you should be looking at fragmented markets.

Best!

Hi,

The first step is to make sure you're clear on why the company is looking to enter the market. Is it for topline growth, bottom-line growth, diversification, to gain economies of scale, to gain market share, build new skills/competencies, pre-emptively strike a foreign competitor, ahieve a long-term vision (applies well to an NGO) etc.?

Once you have this, you can get a feel for which of your 3-4 classic market entry buckets (company, market, competitor) you want to tackle first.

For example, if it's topline growth, the market size probably matters most. If it's economies of scale or building skills/competencies it's company first. If it's strike a foregin competitor or even bottom-line growth (for a comparison) it's competition first. I think you get the gist :)

Hi,

It depends on the way you enter:

1. If you are entering organically (from a scratch) - you should look for fragmented markets (Comps have less buyer power, less supplier power, less economies of scale and thus it's easier to compete on price)
2. If you are entering non-organically (acquisition) - you should be looking for concentrated markets, since you want to buy an established player

Best!

Sorry, what means "A new country"? Was there a revolution or smth?

By the time anyone gets through the obscene amount of security at BEY, they will most likely be sprinting to their gate to make last call. No time for Starbucks!

But seriously, what's the question here? At least lay out your proposed structure for this question to get some feedback...

Also, I believe it's impossible to give you good help without knowing what's the objective of Dunkin Donuts. Is it profitability? NPV? ROI? Revenues? You should ask the clarifying questions first before making a structure

Best

Hi! To perform above average in this step, you need first to understand the principles of scoring and why this is different from a regular case study interview.

1. First difference guidance vs data availability. While you still have to match information to develop sensible recommendation, in this exercise you have no guidance in the process, including the filtering of the relevant information. Plus you will be likely to receive even more information vs normal interview (usually tables and charts). This means in the final presentation an outstanding candidate don’t just explains why he/she selected what is IN, but ideally you also have to explain the why and what is OUT. To fine tune this skills ,while you practise presenting conclusions, make sure you do include in/out rational for your solutions.
2. Second key difference is the number and depth of assumption you are allowed to build your conclusion on. While in a regular case interview the focus is normally to ‘validating’ your assumptions ‘as you go’ and then build recommendation on the refined info accordingly, here the focus is on the opposite process. You are entitled to more hypothesis and a broader scenario building – which you have to lock down to 1 in your final discussion. To make this practical in your training, use the ‘BA - Binary Approach’ to hyphotesis building a set of solutions (2+) on each.
3. Client-facing communication. Heavier focus is put here on that. Make sure you are ready to defend challenge / manage fictious ‘harsh beaviors’ of the interviews.
4. On-sell. Make sure you concude the interview with an agreement (on next steps or on the solution)

Feel free to reach for more tips on how to crack this step or to set your peformance apart from others in the process,

Best
Riccardo

Hi Anonymous,

there are no fixed rules regarding which size or growth rate makes a market "attractive". However, there are rigorous criteria that need to be met. This is what I call "thinking from first principles"!

Here is what I mean: "large enough" or "fast enough" are attributes that can only be defined against the prevalent objective. The actual question is:

• "Is the market size or growth rate sufficient to reach the objective?"

This objective can either be defined as a clear target value (e.g., "break even within 3 years", or "reach EUR 100 millions in sales by 2022"), or in terms of exceeding opportunity costs (e.g., "we have expanded our production capacity and will expand to a new market if the expected additional profits there exceed the additional profits we would expect if we just pump additional volumes into our existing market").

So in summary, you always need to start your thinking from the objective, and then assess whether the market preferences will allow you to meet this objective in a better way than any other available strategic alternative.

Cheers, Sidi

Hi Anonymous,

you are right. However, one of the main points tested during case interviews is the candidate's ability to be efficient in his/her approach. Of course the entry mode influences the financials. Nevertheless, it is much more efficient to get a quick understanding of whether entering the market harbors enough value potential to outweigh the corresponding investments or not. If it is the case, then we already know that it makes snese in principle and, hence, have already answered part 1 of the questions in a much more time efficient manner than if we would boil the ocean and repeat the analysis for every possible mode of entry. This ability to identify the most important bits of analysis quickly and getting a high level undertanding of what the answer will be is a core quality that MBB are looking for.

Cheers, Sidi

Hi! What you are asking is whether there is a difference in approach between new product launch or new market entry. Well - the fundamental decision logic remains the same of course! And let me tell you a secret: the principle logic is identical across basically any kind of decision option that a client wants the consultant to assess!

A market entry/product launch/company purchase/capacity expansion/company acquisition/ etc. etc. makes sense if (i) it is economically viable, (ii) the client has/can acquire the required capabilities, and (iii) the risks are manageable. Economic viability is the central analysis to conduct and should be centered around value creation. You disaggregate value into its quantitative components and sub-components with a rigorous logic tree, and then you map qualitative drivers to each quantitative sub-component.

THIS is how you approach cases in a rigorous and bullet-proof way! Structuring a case means you outline the logic according to which you will answer the precise question of the client. Structuring does NOT mean to provide a structured list of the areas ("buckets") that you want to look into! Once you understand this, and once you have learned how to properly build your case solving roadmap aroung this insight, you don't need all these nonsense frameworks anymore which are floating around these days. NONE of them.

Cheers, Sidi

Great question. You need to follow the framework, but also try to follow the 80/20 rule. If the next step in your framework doesn't appear likely right now, you are welcome to communicate to the interviewer that you will shifts things around a little bit and explain what the new hypothesis is.

Time permitting, you will eventually want to come back to the initial question you would have had otherwise - but odds are you won't have time. A case is so short, you must always go to what seems most likely - no time to boil the ocean

Hi,

It's definitely not the official point of view and most probably 95% of the consultants have never seen this case. Thus I recommend using this example as many other case examples that help you develop your problem-solving skills.

Best!

Hi Anonymous,

frankly speaking, what you outlined above is NOT a case structure! It does NOT show in any way how you are thinking about the problem and how you are going to answer the question! What you have outlined is simply a structured list of buckets that you want to look into, in the vague hope of finding interesting evidence for the attractiveness of the focal market. This reveals a purely explorative mindset, which is the OPPOSITE of rigorous and hypothesis-driven thinking! Moreover, the four areas you want to explore seem arbitrary - you do not provide any logic why and how exactly looking into these areas will lead to the answer to the case question! So the most important and fundamental element of solving a case is completely missing: making explicit the CRITERION to answer the case question, and outlining the rigorous LOGIC TREE to disaggregate each element of this criterion (or criteria) into its underlying drivers. ONLY THEN the discussion of the four areas above (and you have probably omitted several important areas due to the lack of underlying logic) will make any sense (since now you can attach your elements to sub branches of the logic tree!).

Cheers, Sidi

P.S.: I know that such random list of topic areas is what has been brought forward by Victor Cheng et al. more than 10 years ago. But, with all due respect, this is teaching a fundamentally flwaed way to think about business problems (irrespective of whether we talk about market entry or any other strategic issue). The most important element, the INHERENT LOGIC of your approach towards answering the clients' question, is completely disregarded in such simplistic frameworks. So my advice to any candidate is: learn how to think through a business issue based on first principles! NEVER use a "framework" to structure a case.

Hi Anonymous! As always, just use pure logic to disaggragate the ACTUAL question!

"What are key drivers of market growth?"

1. Market growth is defined as the yearly percentage change in total market size (revenues)

2. Revenues can be disaggragated into Volume and Price

3. Volume growth is driven by changes in market demand (number of customers, average demand per customer) and market supply (production capacity, logistics capacity, etc.)

4. These elements can be further disaggregated into drivers (e.g., expected growth in number of customers can be driven by demographics, macro trends, shifts in preferences, etc.)

You can (and should) outline this logic by means of a logic tree. As any case question, mastering first principles of problem structuring will allow you to come up with the answer to this specific question.

Cheers, Sidi

Hi,

Basically what you are talking about is private label production. I would look exactly at the profits and the risk assessment:

1) Volumes

• What is the share of this chain in our sales?
• Will the volumes decline / increase in case of PL?
• Impact on other chains - would the others behave the same if we agree?
• What will happen if we don't agree?

2) Profit per unit

• How will the price change? (usually, the PL products are cheaper)
• How will our margins change in case of PL production?
• Will the change in volume increase / decrease the economies of scale?

3) Risks

• Operational
• Reputational / brand
• Financial

Best

Hi!

You are right - such a laundry list of buckets to look into feels (and actually is!) completely arbitrary.

A structure to approach a case should be rooted in the actual question that you need to address. From there, you should define the criterion to answer this question, and build a corresponding value driver tree with branches and sub branches. All the elements that you have listed above (market structure, target company operations/capabilities, synergy levers, etc.) should be mapped to the different sub branches of your value driver tree. This is true, regardless of whether you are looking at a PE/M&A scenario, or market entry, or capacity expansion, or new product launch, etc. etc.

The crucial point is that, thereby, you create a rigorous thinking frame which organizes all relevant elements into a structure by which you can link the analysis of every element back to the core question you need to answer by means of logic.

Unfortunately, no case books are revealing this to candidates, creating the illusion to candidates that "learning frameworks" is an acceptable approach towards cases.

Cheers, Sidi

Hi Claudia,

"big enough" or "fast enough" are attributes that can only be defined against the prevalent objective. The actual question is:

• "Is the market size or growth rate sufficient to reach the objective?"

This objective can either be defined as a clear target value (e.g., "break even within 3 years", or "reach EUR 100 millions in sales by 2022"), or in terms of exceeding opportunity costs (e.g., "we have expanded our production capacity and will expand to a new market if the expected additional profits there exceed the additional profits we would expect if we just pump additional volumes into our existing market").

So in summary, you always need to start your thinking from the objective, and then assess whether the market preferences will allow you to meet this objective.

Cheers, Sidi