Case

TKMC Case: Elevators

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Problem Definition

Your customer is the market leader in the North American elevator service business. This is divided into the areas of elevator construction, elevator modernization and service.

The customer has a particularly strong branch network in medium-sized cities and would now like to expand its business in bigger city centers. His next target is Manhattan and he wonders how big the potential is.


Comments

Due to the limited availability of market data, we now want you to support the customer in success estimation, starting with your assessment of the idea of expanding the maintenance business in Manhattan.


Short Solution (Expand)


Detailed Solution

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case.

The candidate could proceed as follows:

I. Background

In the beginning the candidate should ask some general questions about the customer positioning in North America and about the business model of the elevator business.

Information that can be provided upon request:
  • The customer is the market leader in North America; in general around 80% of the market is accounted for 4 similarly sized competitors.
  • The most important pillar is the "Service" area, which is relatively personnel-intensive.
  • Maintenance work is carried out on the basis of a maintenance contract; this regulates e.g. the maintenance intensity, service level and price. The current market price for this is approx. 1,700 USD / year.
  • In general, it is also possible to service the lifts of the competitors.

II. Potential

In order to assess the chances of success of a market entry, an estimation of the potential market that can be captured might be useful. At least one sales figure should be determined; a cost estimate would also be ideal to check the profitability of the project.

Sales potential

The number of buildings can be estimated by the number of inhabitants or the area of Manhattan. Due to the large number of commuters (inhabitants vs. office commuters), an estimate of the area​ seems to be easier.

Share figure I with an assessment of the market when the interviewee asks for it.

Manhattan has around 220 streets (north-south) and eight Avenues (west-east), every block has an area around 100 * 300 m.

This results in 1,533 blocks:

= (220-1) * (8-1) = 1,533 blocks

The Central Park (around 150 blocks) has yet to be subtracted from this figure:

= 1,533 - 150 blocks = 1,383 blocks

To simplify the case, we assume that each block has an average of 6 buildings (example: The Empire State Building has a floor area of approx. 130 x 60m)

Depending on the building, the number of elevators varies; taking into account the high number of high-rise buildings and hotels, we assume 12 elevators per building (example: Empire State Building already with around 70 elevators).

This results in approx. 100,000 elevators:

Based on volume and price, the market potential is calculated as USD 169.3 million:

The previous distribution in the USA can be used to determine the possible market share: Your customer currently has around 30% market share.

This results in a sales potential of around USD 50.8 million for your customer in Manhattan:

= USD 169.3 million * 30% = USD 50.8 million

A very good candidate will also carry out an independent profitability estimation based on personnel costs, transport/logistics, administration, etc.

III. Risk

Before entering the market, an opportunity/risk estimation should be done. The following aspects are particularly important.

Information that can be provided upon request:
  • It is presumed that all major competitors are already present with a similar already installed base – this leads to a high intensity of competition with corresponding effects on the price level.
  • High number of highly professional, institutional clients - this is likely to lead to additional price pressure.
  • Significant network effect in the service network due to high elevator density - this should be taken into account when acquiring new customers.
  • Personnel costs for maintenance technicians presumably higher than in medium-sized cities.

IV. Conclusion

Manhattan has a market potential of around 100,000 elevators to maintain.

When entering the market the following factors should be considered critically:

  • It is presumed that all major competitors are already present with a similar already installed base – this leads to a high intensity of competition with corresponding effects on the price level.
  • High number of highly professional, institutional clients - this is likely to lead to additional price pressure.
  • Significant network effect in the service network due to high elevator density - this should be taken into account when acquiring new customers.
  • Personnel costs for maintenance technicians presumably higher than in medium-sized cities

Difficult Questions

  1. How should the customer segment the market? Which segments would you address first?

  2. The calculated profitability does not appear to be sufficient so far. What actions can the management take to further increase returns?

Further questions can be added by you, interviewer!

At the end of the case, you have the opportunity to suggest challenging questions about the case (these can be used for further meetings in which the interviewee solves the case very quickly).

Questions on this case

Because if you consider the perimeter streets then the blocks inside are (# streets-1). It is the same if you draw a square with 4 vertical lines and 3 horizontal lines; the sectors in the square are... (more)

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