Sprinker

The following structure provides an overview of the case:

Information that can be shared if inquired by the interviewee: 

• First-graders are 7 years old
• US population this year: 300 m
• Over last 7 years US population grew: 10%
• 25% of students are in private schools
• Life expectancy: 70 years
• Each first-grader has 1 book
• Price of book = $20

To estimate Sprinker’s potential revenue from private schools, the interviewee should come up with the following equation:

Revenue = Volume * Price

The interviewee must now estimate the volume. Since there are several ways to estimate volume, the interviewer can follow the interviewee’s method as long as the interviewee makes reasonable assumptions.

Here is a possible approach based on the replacement concept.

Information that can be shared if inquired by the interviewee: 

• In order to produce the new textbooks, Sprinker must rent a building.
• Rental costs = $3 m / year
• Equipment investments = $4 m
• Manufacturing costs per book = $5
• Sprinker must hire a writer to write the textbooks’ content. When signing contracts with writers, Sprinker usually thinks about long-term relationships with the them. Sprinker pays writers a base payment (one-time payment) and royalties (paid every time a writer’s book is sold).

The interviewee should now ask about costs:

• Investments
• Fixed costs
• Variable costs
• License costs

Sprinker can choose from 3 writers.

Based on the current volume, writer #3 is the cheapest options. However, in the long run, the biggest cost are the writer’s royalty payments.

Thus, if Sprinker wants to have a long-term relationship with the writer as per industry norms, they should choose writer #1, because he has the lowest per-book royalty.

Information that can be shared if inquired by the interviewee: 

• 3 other companies are also interested in signing the contract with private schools.
• Each company (including our client) has an equal chance of winning the contract --> 25% (100%/4).
• If our client invests $2 m in a marketing campaign, our client’s chance of winning the contract increases to 80%.

The interviewee should now ask about:

• Competitors Market shares
• Competitive advantage
• The probability that Sprinker’s competitors will win the contract

Taking the probability of winning the contract into account, the interviewee should now recalculate the project’s expected profit.

Sprinker should offer their services to private schools.

They should sign a contract with writer #1 and invest money in a marketing campaign. This is due to several reasons:

• With the marketing campaign, Sprinker has an 80% chance of winning the contract.
• Estimated first-year profit is $2.7 m
• Writer #1 has the cheapest per-book royalty.
• In the long run, this reduces Sprinker’s costs, thus maximizing their long-term profit.

The interviewee can also state risks and other topics that could be investigated.