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

Hi,

If you are thrown this kind of one liner question, I think first you need to ask a bunch of clarifying questions to understand more of the context and the objectives. Don't just jump in to structure without knowing more of the problem to be solved.

- Which firm, which region/country

- What are the markets and industries applicable in the region/country, what does the firm already have

- What is the objective of firm by 2021, key priorities e.g. market share vs profitability

Afterwards you can start structuring.

Best,

Emily

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 :)

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!