Problem Definition
Our client is a Chinese publisher called AnimeCo who is looking to publish a new book based on the popular Anime series Little Panda. This series has been highly popular in China with millions of viewers every day and the publisher is looking to capitalize on this potentially.
They have asked us to provide advice on whether this will be a good investment and if they should move forward with it. They want to know the total market size, potential revenue & potential profit.
Comments
This is a profitability case as much as it is a market sizing case. The candidate should lead the case from the start breaking down the problem and providing a structure to work with.
Additional information & data can be shared with the candidate if he asks for it. Chinese currency CNY is used during the case.
Short Solution (Expand)
Detailed Solution
I. Market size
Interviewee should outline his approach to calculate market size and then ask for the data. Interviewee should not start assuming the data, but specifically ask for it.
The interviewee should ask for the following information:
- Which target market is the client after?
- How many segments are we dealing with and what is the proper breakdown?
- What is the expected conversion rate that will purchase the book for each target segment?
Calculating total market size
The interviewee should now calculate total market size:
- Segment A: 10%*40 m = 4 m.
- Segment B: 8%*50 m = 4 m.
- Segment C: 12%*50 m = 6 m.
- Total market size is 14 m of which 5% will be purchasing the book so our commercial market size is 5%*14 m=700.000 people.
II. Profit
Interviewee should now calculate profit by outlining that profit=revenue-cost.
Calculating revenue
Interviewee should calculate revenue first:
- Segment A: ((4 m*5%)*50%*CNY180) + ((4 m*5%)*50%*CNY150)=33 m.
- Segment B: ((4 m*5%)*50%*CNY180) + ((4 m*5%)*50%*CNY150)=33 m.
- Segment C: ((6 m*5%)*50%*CNY180) + ((6 m*5%)*50%*CNY150))=49.5 m.
- Total revenue is 115.5 m.
Calculating cost
Interviewee should then calculate cost:
- Segment A: ((4 m*5%)*50%*CNY25) + ((4 m*5%)*50%*CNY19)=4.4 m.
- Segment B: ((4 m*5%)*50%*CNY25) + ((4 m*5%)*50%*CNY19)=4.4 m.
- Segment C: ((6 m*5%)*50%*CNY25) + ((6 m*5%)*50%*CNY19)=6.6 m.
- Total cost is 15.4 m.
Calculating profit:
Interviewee should now calculate profit:
Potential profit is: CNY115.5 m– CNY15.4 m = CNY100.1 m.
III. Go/No-Go on investment
Interviewee should ask for client's profit target to determine final decision.
Profit of CNY100.1 m > target of CNY75 m, so client should go ahead & invest.
Difficult Questions
What would your next step look like after finding out the economics stimulate a Go-decision?
What more information would you need to further strengthen your Go-decision?
