Baby formula

Solved 6.1k times
4.2 5 905

Problem Definition

Our client is a producer & distributor of baby formula. They sell worldwide and have around 30% market share. Currently, they're looking at ways to boost their market share whilst maintaining profitability. Recently, a welfare program for poor children was started to give poor people vouchers to purchase baby formula. Each state is opening up for bidding. The producer is thinking about bidding in the program to be sole supplier, but they're not sure how much to bid for these contracts.

They hired you to help them come up with an approach on how to determine the amount they should bid for those supply contracts.


This is a market-sizing case, but also a brain-teaser since the case is left very open.

However, remember that the company wants to know how they should determine the amount to bid. Candidate is not required to calculate the actual number, but they will be evaluated more on their ability to lay out a structure and to explore aspects more in-depth.

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.

The following framework/structure provides an overview of the case:

I. Background

The candidate should start by asking clarifying questions on how the program & bidding works, especially if candidate never had any experience with tender contracts.

Information that can be shared if inquired by the candidate:
  • The tender contract allows our client to bid to become the sole supplier of baby formula for a single state.
  • Each program participant receives a voucher that gives them a certain discount at the check-out which is around 15% of the retail price.
  • The tender contract lasts for 12 months, so suppliers need to participate for a full year, but the supply contracts can be extended up to several years.
  • Whilst the revenue from these tenders is lower, the volume associated with it makes it interesting to participate.
  • Most bids are determined based on profitability.

Candidate should now come up with early ideas on how to approach this and basically every logical structure is deemed right as long as it is centered around profitability. The client needs to issue a bid that gets him the contract while still remaining profitable.

II. Analysis

Candidate should be looking into ways to determine profitability when dealing with these tenders.

Information that can be shared if inquired by the candidate:
  • Typically, the client calculates profitability by deducting COGS & Overhead from the retail price.
  • In such a scenario of bidding, the supplier needs to find out how much profit he can forfeit in order for the deal to remain attractive.

III. Solution

Candidate should come up with a simple formula of determining the bid to send out which is the following:

(Revenue from welfare program-15% rebate-COGS-Overhead)=potential contract bid.

Ask the candidate if the producer could expect another profit-stream from this tender besides the actual contract value.

Share this information if asked by candidate:
  • If a supplier wins the contract, it also means they get to increase the amount of shelf-space in stores since they need to supply more products.
  • All WIC participants buy these products in regular stores along with other consumer products.

Possible answers:

  • By increasing shelf-space in stores with products of supplier it could mean that more regular consumers could buy the products and pay full price and thus help the supplier increase its overall revenues and market share.
  • Since the WIC contracts could last for several years, we could look into benefiting from this customer loyalty and develop a cheap by-product that WIC customers could purchase at full price along with the rebate-product and engage in cross-selling.

Difficult Questions

  • Are there other factors that the client should take into account when determining a bid?
  • Do you think that there is a way to keep those welfare customers after the program ended despite the higher price? What kind of information would you need to determine this?
Related consulting question(s)
Business situation framework
Francesco updated the best answer on Mar 27, 2018 - 1 answer
#1 Expert for Coaching Sessions (2.100+) | 1.000+ Reviews with 100% Recommendation Rate | Ex BCG | 6 Years Coaching Experience
Book a coaching with Francesco

100% Recommendation Rate

2,173 Meetings

2,277 Q&A Upvotes

USD 319 / Coaching

Hi Elisey, I would personally not recommend to use a single framework for all the so-called business situations (M&A, Entry, New product, Operations etc). Although this would help to more easil... (more)

The number of hairdressers depends on three main factors: # of haircuts done per year, time spent per haircut and capacity of each hairdresser. Number of haircuts: Number of haircuts depends on US... (more)

What are the most appropriate frameworks for pricing cases?
Vlad gave the best answer on Jul 21, 2017 - 1 answer
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School
Book a coaching with Vlad

97% Recommendation Rate

340 Meetings

4,314 Q&A Upvotes

USD 319 / Coaching

Hi, The general framework for pricing is: Cost base - Value based - Competitor based - pricing strategy 1. Cost based - you actually check what are the costs and apply standard industry / target... (more)

Hi - How to appraoch this case?
Anonymous updated the best answer on Apr 17, 2017 - 1 answer

Hi there, I would start by asking some general questions to have a better feeling on the case: 1) Does our client provides this new service elsewhere? If not, does our client already has the cap... (more)

Hey Philip, There are for sure several ways of estimating that number, but a quick top down approach can be resumed in 3 steps 1. Estimate the total population of the US: ~300M (I guess it's alrea... (more)

Related BootCamp article(s)

Market Sizing

Market Sizing Cases are used to test your quantitative and reasoning skills. The interviewer evaluates your structure, numbers-handling and business sense.

20 Comment(s)

Important Facts

It's essential to know some key figures regarding geographies, population, economies for your case interviews. We summarized them for you here.

9 Comment(s)


Pricing case studies can either stand alone or be a part of another case study. You can crack pricing Case Interview in three steps: Investigate the company; Investigate the product; Choose a pricing strategy

4 Comment(s)
4.2 (905 ratings)
4.2 5 905
Case exhibits