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What is the best approach to build a framework for uncommon cases?

Anonymous A asked on Mar 07, 2018

What is the best approach to build a framework for uncommon cases?

For example I was given the following case: A Government in one of the state in India wants all people to change from using standard bulbs lights to LED bulbs. They decided to subsidize the LED bulbs. They ask Mckinsey to help them finding the right subsidizing amount.

The moving to LED the government's objectives is to achieve budget savings and ecology friendly state.

Looking forward to seeing your suggestions.

(edited)

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Vlad updated his answer on Mar 07, 2018
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Hi,

Basically, you need to understand how much the government is saving (and can potentially redirect on subsidizing), how much the customers are willing to pay now and how you can minimize the gap. I would approach this particular case in the following way:

1) Product comparison

  • Prices of the standard / LED Bulb
  • Value proposition of the standard / LED Bulb (replacement rate, energy efficiency, etc)
  • Costs per unit

2) Government potential savings (sources of subsidies)

  • Waste utilization savings / costs
  • Energy consumption savings (If energy subsidized)
  • Health savings (If better ecology)
  • Other savings

3) Customer willingness to pay

  • Cost savings for the household (replacement rate, energy efficiency, etc)
  • Additional value (More light, etc)
  • Ability to pay (Maximum payment they can afford, share in spending)
  • Adoption measures and scalability

4) Options to reduce the gap / increase the value of the pie

  • Other funding sources (Available budget, funds, etc)
  • Cheaper production (Localized production with benefits / tax-breaks from the government, state-owned production, Public-private partnerships, Centralized purchasing, etc)
  • Cheaper distribution (Same as with production)
  • Payment options / deals (Microloans, promo-pricing, etc)

Best!

(edited)

Vlad, thanks for your answer. Would you agree this is case looks like a New Product Promotion for the sake of Cost Reduction ? — Stephane on Mar 07, 2018

Unfortunately I don't know this case — Vlad on Mar 08, 2018

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