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

Hi there,

We need some clarifying questions answered here!

1. What market? (World? Specific country?)
2. Annualized?
3. Short haul is defined as what? Domestic flights? Flights less than 3 hours? Plans size less than xx passengers?
4. Short haul passengers only or also cargo?

Just like a case, you can't just jump into a market sizing without defining the box in which you're operating!

Hi there,

First, there's almost never an "always" in casing! Things are very much case-dependent and you have to use your business judgement!

That being said, yes, in general, when entering a market, you do need to understand the market! So, at a baseline, you do need to understand if it's big/growing (i.e. if you should even be there). Furthermore, within the market, you need to understand how different sub-markets, demographics, etc. are working in order to make a better decision!

Hi Jack,

It's all about being "smart" here. Consultants both cost a lot of money and don't have much time. As such, you need to approach problems tactfully.

Think about: what is the easiest, most impactful thing to look at first? What, if the answer is "no" will tell us we don't need to move forward with any analysis (i.e. stop wasting time/money).

In this case, if you're entering a market, what's that question? Market attractiveness! It's very easy to check if the market is:

1) Large

2) Growing

3) Has good margins/easy competition.

So, market attractiveness should really be first.

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 Abed,

When answering complicated questions (i.e. strategy consulting) you can't boil the ocean and do everything at once! Therefore, you have todetermine:

First - Is the market as whole attractive?

Is it big? Growing? Do companies have healthy margins? Are there no price wars going on?

Second - Can we win in the market?

Is our product, in the eyes of the customer, better than that of the competition? If we enter, we better than the competition?

Third - Operationally/Executionally, what actually happens?

How to we enter (your question)? Which strategy will meet our objectives the best? Can we actually pull it off (do we have the money, prior expertise, environment knowledge/understanding, etc.)?

^The Third point is your point. You're right, you're just too early!

As you describe it, this is the longest version of this case format; normally too long for an oral interview, so it's super important to listen whether the question is about if (the client should enter the market) or how (to enter).

Let me answer your direct question 2) first, the how. This is the general "market entry strategy" case. For this strategy, you need the following:

1. Product strategy -- what are you going to sell? Your existing product as is, a high-spec or low spec version of it, or something else? (Hint: It needs to be at least adjacent, either new product for same customers or same product for new customers, otherwise it makes no sense; steel mills are rarely becoming tech cos. Compare the Ansoff-Matrix)
2. Geographical region -- where are you going to sell? Needs to be defined, often already part of the case question itself
3. Distribution strategy -- how are you going to sell or who is selling your product? Which channel? Own shops, specialty shops, big box retail, online, partnerships, etc. Depends on the product/service, for services or B2B it's Sales (inside sales, field sales, sales partners) instead of channel.
4. Promotion strategy -- how will customers know about your product? Often forgotten even by consultants :), but highly important. Marketing.
5. Pricing strategy -- what will you charge? In essence, you figure out steps 1-4, and then figure out max price point "allowed by" competition given quality of the client's offering.

Few comments:

• Customer (segment) strategy is missing. I tend not to include it, as to me it's above the framework, you need to figure it out before doing all 5 steps. Take into consideration if necessary.
• Competition - to me it's not a separate step as it's nothing you do or decide. I would bring it up as part of pricing. As consultants, you advise the client, and case result is rarely "competition is too strong, let's pack our bags and go home". One can get into any market with an attractive offer, and in 90% of cases it depends on the client's capabilities more than competition. Should be evaluated when testing market attractiveness.
• Some of these steps may be a given, i.e., part of the case question (e.g., "client wants to expand to the UK", or "Chinese solar company wants to expand to U.S."). Don't question the question, solve for the remaining variables.
• Do not overestimate clients' capabilities, clients are typically multi-billion-$ companies with lots of bureaucracy. Changing all 5 points from above won't work in practice. (New product in new region with new ...)
• The power of the status quo. One trick for you is to ask how the client is selling their current products right now in their home market. Chances are, approach in the new market will be kind of similar - if they sell detergent in supermarkets now, it's highly unlikely that selling online will be the solution in another market.
• If this sounds awfully similar to the 4P - it's because it's EXACTLY the same. Compare my answer here https://www.preplounge.com/de/consulting-fragen/mece-ways-to-grow-market-share-205 (Over time I found there are only 6 major case approaches that kill 95% of all case questions, so would be strange if this would be completely different :)

Basically memorize the 5 steps, and you're good!

Regarding your 1), you're completely correct, but I would prioritize it way more. Key points for me would be:

• (Long term) growth -- trumps everything. Power of compounding interest; even if current market size is small or (current) profitability is low
• Client capabilities - what does the client bring to the table? Should be either product capability (they can do X already so not hard to do Y, or, major R&D invention or something), or customer access (weaker, but still good -> cross-selling). Here I would compare it to the competition, as cababilities only make sense on a relative basis anyways.
• Your other points are all important, but if it's a really fast growing market and the client can play in it, you can directly go to step 2) and figure out the details.

I should shorten this answer, but rather get some sleep instead... Hope it still helps, good luck with your interviews!! :)

Hi there,

It's a great question and something that too many candidates mix up!

Neither a fragmented nor a concentrated market is necessarily good nor bad to enter.

Fragmented

Pros:

• Easy to enter (presumably)
• No one player can dominate you or force you out (Amazon/Facebook/Amazon for example)
• No one player has unfair advantage in the form of buyer/supplier power
• You can product differentiate to win
• You can possibly merge/acquire/grow to gain market share and eventually dominate

Cons:

• Likely highly competitive
• New (and possibly better) entrants may come in all the time
• Margins will likely be tight
• Price competition likely
• You are not a market maker (i.e. you are bound by the laws of supply meeting demand)

Concentrated Market

​Pros:

• Once you're in, risk of new entrants/competition is low (high barriers to entry)
• Once you win, you have monopoly power (high margins, market control, etc.)
• The existing player(s) is/are likely very weak (high marginal cost structure, inefficiencies, slow to move)

Cons:

• Will be extremely hard to enter
• Will be extremely costly to enter
• Once you're in, you will likely get bullied by the existing power
• The existing power will have more buyer/seller power and a natural advantage over you

What information do I need to decide whether to enter? Well, not to be cheap/use a generic framework, but I need to know the three Cs (Company, Customer, Competition).

Fundamentally, if I enter, will I win?

• Company - Who am I
• Customer - Do I offer something people want
• Competition - Can I do this better than everyone else?

So, to decide this, you need to solve a whole case ;)

Hi PK,

Very interesting question. Somewhat classic market entry :)

Clarifying questions

Where internationally?

What is coinbase's objective here?

How would they grow (organic or acquire)?

Benefits

• Economies of scale - in IT/tech scale is everything
• The larger the platform the more power...self-fulfilling cycle with usebase in an online marketplace
• Reduced fixed/SG&A costs per customer/unit sold
• Larger platform, better offering to customers
• Move first, before other platforms (need to scale or will lose in the long-run)

Costs

• Regulation - incredibly complicated patchwork regulation across countries
• Scaled IT infrastructure
• Tax laws
• Much higher risk (hacks, etc.)

Execution

(Really dependent on clarifying questions here)

• If we do want to do this, how will we?
• Acquire vs grow organic changes the entire decision
• Where do we enter (target similar countries/cultures/languages first)
• How to handle currency exchanges
• How will competition respond? Will this become an arms race?

Hi!

You are very right to doubt this statement. In fact, the provided information is NOT justifying the statement! "More valuable" has to be defined - otherwise it is impossible to come to a verdict. If "valuable" is defined in terms of profits that a market entrant can expect, then the per capita consumption is just one of multiple driving factors. Others include competing suppliers of the same good, price level, country-specific cost positions, etc.

So either you have just provided a small snippet of the relevant information, or the solution of this case is (as it happens very oftne in case books) flawed and derived from weak thinking. I would almost bet that the latter is the case - this is why I always warn my mentees to not waste their time with the solutions provided in case books. They are almost never good, let alone great. Thinking rigorously will allow to spot such flaws more or less instantly.

Bust of success with the further preparation.

Cheers, Sidi

Hi!

"Customer Needs" can be seen as fundamental requirements that people have (for example, mobility is such a need)

"Customer Preferences" then refer to how these fundamental requirements are fulfilled, and the relative preference order amongst the options (e.g., bike, own car, shared car, public transport, rented scooter, etc.)

Cheers, Sidi

Hi Abhilash, in addition to the solutions proposed by the other coaches in the discussion, I would like to suggest similar cases in the platform to practice with:

• https://www.preplounge.com/en/consulting-forum/how-much-would-you-charge-to-clean-all-the-windows-in-seattle-4965
• https://www.preplounge.com/en/consulting-forum/market-sizing-milk-consumption-5087
• https://www.preplounge.com/en/consulting-forum/how-would-you-calculate-the-value-of-a-cow-4982
• https://www.preplounge.com/en/consulting-forum/estimate-number-of-traffic-lights-in-a-london-5692

Hope it helps,
Antonello

Hi,

I think I would start with customer segments (broad buckets) and then make some assumptions about basket size and store traffic.

You could think about customer segments linked to the time of day (i.e. 'use-case'):

• There are probably a few peak times in the day where we might have commuters shopping on their way to and from work. Perhaps in the morning buying coffee, snacks etc and in the evening buying bread milk etc, on their way home.
• There is probably another segment purchasing around lunchtime, buying soft drinks, sandwiches etc.
• There is probably a steady flow of 'convenience' customers through the day buying miscellaneous items

With this type of problem, it’s always best to keep it as simple as possible. Here I would allocate a % of population to each segment (i.e. penetration), multiply by frequency to get traffic and then assume a basket size for each purchase occasion.

Hope this is helpful!

Kind Regards,

Adam

Edited to remove typos!

Many great answers here already.

If I was stepping back from the immediate question, I would suggest examining Facebook's rationale for any new product it launches.

What is the purpose? Why does it continue launching and acquiring?

Fundamentally, you can reframe Facebook's strategy to be around maintenance vs. growth, given its position on the s-curve of mass adoption. It is clear from Facebook's history of recent acquisitions, Zuckerberg is very well aware of the innovator's dilemma, and attempting to disrupt the core business and diversify at the same time.

For example, with WhatsApp (a closed P2P network), or Instagram (a separate photo sharing platform i.e. usurping what was Facebook's original raison d'etre).

Why?

What is the greatest existential threat to Facebook maintaining its scale and dominance? Losing relevance.

Any network can only remain relevant so long as it delivers value to all members on an ongoing basis. A loss of relevance occurs through 1000 cuts, not 1.

This I would imagine would be a core concern in the minds of FB's board, major shareholders and the ExecCo.

One form of relevance is maintaining a moat from network effects, but Facebook's biggest issue at present is churn and the distribution of its network skewing away from the early adoptors and cultural influencers.

Will the launch of a dating product (albeit a generic one, just on Facebook), mean it increases engagement with a highly valuable demographic for advertisers and reduces churn due to lock-up on the network? Possibly.

Are there likely to be strong data crossovers from a richer social graph if combined with dating patterns? Highly likely.

Will 18-34yo adopt Facebook dating when they've been slowly transitioning off the platform as its been unbundled over the past 3-5 years? Time will tell.

Whilst there is certainly nothing wrong in applying the factors from Porter's 5 to this case, like the other commentators have said, I would highly discourage force-fitting a framework to any case and that too stating you will be using this framework in the interview.

WHAT IS THE ASK?

Try to think through as a very basic level, what the question is asking?

It is clear the company is looking for a new growth opportunity. In addition, "reimbursement" and "incurred medical costs" are mentioned, so it would seem important to think about profitability (and not just the "premium")

STRUCTURING THE CASE

Given you know it is a profitability question, you know the component parts are:

1. Revenue - i.e. Premiums Paid
2. Costs i.e. Incurred Medical Costs + Operating Expenses

For each of these you can break them down to get the data from the interviewer in order to make a recommendation, like below:

1. Premiums Paid = # Customers * $ Avg. Annual Premium Paid
   • # Customers = $ Market Size * % Assumed Market Share in Y1 (you'll want to make an assumption of what is reasonable here e.g. <10%)
   • $ Avg. Premium Paid = Single Price (guaranteed issue requirement)
2. Costs = $ Medical Costs + $ OPEX
   • $ Medical Costs = % Claim Ratio in Y1 * $ Avg. value of claim
     • Both of these should factor the government regulation of guaranteed issue requirement
     • e.g. You can make an assumption of the distribution of customers by health status
   • $ OPEX = % of revenue (make an assumption for this)
     • e.g. "I assume an average operating cost base for a services business of 20-40%"

EXTRA POINTS

​To stand out even further, you can take the opportunity to demonstrate your business acumen by talking about "capabilities", and how easy/straightforward it will be for Liberty to enter the new market. This is a very important question when it comes to speaking to clients about a market entry strategy for real, and was a dedicated workstream on every market entry case I led.

Questions you can raise or mention you would like to think more about:

• How close is the new market to the existing market in which they operate?
• Does the company have most of the capabilities (people, processes, technology, licenses, culture) to easily enter the market as-is?
• If there is a large capability gap, will the company need to buy/build to fill the gap?
• Will this affect the likelihood of success at all?

Hez A,

I agree that both terms are used interchangeably.

When you analize market / industry you need to have a look at the following:

• Market size and dynamics (growth rate)
• Structure, segments and market shares of key players
• Industry trends
• Past deals

I hope it helps - I wish you best of luck!

André

Hi,

If the life expectancy is 70 years, then the number of people dying each year is 1/70 * population

Best

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!

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 :)