What key areas/factors to look at if Average Spend per Customer went down (Profitability Case)?

case question Structure
Edited on Jan 28, 2020
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Anonymous A asked on Jan 27, 2020

I encountered this Profitabily Decline case where profit went down because revenues (avg spend per customer x # of customers) went down and this was caused by customers spending less. This happens to be a company-specific problem.

Now I have to investigate WHY they are spending less. What key areas are suggested to be looked at (ie. how should I structure this in a framework)?

(edited)

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Daniel
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replied on Jan 27, 2020
McKinsey / ex-Interviewer at McKinsey / I will coach you to rock those interviews

Hi! Here is an example:

Internal

Quality of product:

  • Did smth change in manufacturing process, which made the product worse?
  • Did raw materials change? Did we change the supplier?
  • Did we have a personnel change in the production facility and they didn’t have enough training, thus compromising the quality of the product?

Product portfolio:

  • Did we introduce some new product, which has been cannibalising our other products?

Pricing:

  • Did we increase prices?

Marketing strategy:

  • Did we change smth in our marketing strategy, which inadvertently caused customers to consume less of our product?

External

Competition:

  • Did competition apply a new aggressive marketing/pricing strategy and is eating at our market share?
  • Did competition introduce new products?

Market Changes:

  • Did new substitute products appear on the market, which customers prefer over our product?

Demographic changes:

  • Did our customers change (age, social norms, cultural trends) and therefore their preferences changed?

P.S. It’s really industry-dependent though (difficult to create a good framework with so little content)

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Vlad
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updated an answer on Jan 28, 2020
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

It would help if you provide the context:

  • Is it a retail store?
  • Is it a service?
  • Is it a restaurant?
  • Is it a producer with direct sales and multiple products he is cross-selling?

As you can guess, each of these cases will have a different structure. You should not approach all cases with the same structure and should always keep in mind:

  • Measurable objective
  • Context
  • Business model and revenue streams

Best

(edited)

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Daniel

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McKinsey / ex-Interviewer at McKinsey / I will coach you to rock those interviews
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