Case

Estelle Real Estates

Problem Definition

In order to cope with the recent shift in management due to the company Estelle Real Estates going public, the managing director (MD) is expected to increase sales to meet the expansion goals. This case is expected to answer the question 'What strategy can Estelle Real Estates adopt to boost income whilst maintaining profits?'


Comments

This is a candidate-led case. The candidate should be able to come up with various options for the client. Creativity in the first part of the solution is essential.


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.

I. Background

The structure of this case is fairly free, and the interviewee is expected to come up with several opposing options which lead to growth. The candidate should identify the sources that could generate new revenue. These involve amongst others the following:

  • The market penetration with the installed base of customers needs to be expanded. Interviewee must recommend raising the interest and attraction of the existing customers by:
  1. Loyalty Program
  2. Comprehensive Advertising
  • The installed base of customers can also be extended by the acquisition of new customers.

A few questions are structured, but there are many questions which test the creativity of the interviewee. Hence, the creativity of the candidate is instrumental in this case study.

When interviewee asks, provide this information:

Industry Definitions:

  • Estelle Real Estates is a high-end real estate company targeting industries that are planning to set up offices.

Client Characteristics:

  • Estelle owns a lot of their rental objects, but they also rent other vacant spots. It can be assumed that to raise the capacity for growth, the company can rent vacant spots without significant investment.
  • Estelle is based in Canada and has locations in every major city.
  • "Area rented" is a common term used to calculate revenue in the firm.

Competitive Dynamics:

  • The major competitors are hotels/apartment buildings that also provide temporary office spaces. However, for simplicity we ignore other firms that provide corporate spaces.


II. Guide to case and handouts for the interviewer

Provide Exhibit 1, after analyzing the possible customers and industries.

1. Current revenues

The first part of the case does not have a specific solution. The interviewee should be able to come up with various creative ideas that can be discussed with the interviewer. Exhibits must be provided as the discussion progresses. The candidate should be creative in coming up with solutions concerning customers and industries for the company.

The interviewer must point the candidate in the direction to ponder why only some industries have seen a decline in the area rented/revenue while others have a constant revenue.

A few answers that could be right:
1. Professional segment: Due to economic slowdown, some firms have had fewer projects from 1998 to 1999, however the year 2000 has seen these firms recovering.
2. Energy generating industry: remains constant, possibly because of longer term projects client needs does not vary significantly.
3. Tourism: has reduced with expendable income
4. Relocation: is rising consistently, Multinational Companies possibly are expanding to new cities to increase local employment.

The interviewee should be able to determine the share of the Professional segment according to Exhibit 1. The answer is: 40%. Moreover, they need to discuss the trends Estelle's clientele signifies.
Follow-up question could be: which industries are not included in this chart, where is the potential?

2. Penetration with existing customers

Provide Exhibit 2 to solve the second half of the problem.

In the second part of the problem, it is possible to go in several directions. Providing the limitations of the business, the candidate must choose the appropriate method to increase the internal growth. However, the growth opportunities with new customers is not to be considered here.


Note: The candidate must realize that he/she must know the company's current earnings and added costs per area rented.

The candidate can assume that $100MM Area rented in the year 2000.

From the information provided to the interviewee, he/she must be able to develop a case as follows:

  1. The expected recovery of costs for the ad campaign is the highest, but requires a 50% of no benefit (with $100MM advance cost)
  2. The key accounts do not have a chance for loss, and this is the safest option.
  3. The special incentives are a risky option. It has the same payoff as the rewards option and is not a safe method.

If the client can be considered neutral to risk, the ad campaign option could be ideally employed, but it can be qualitatively argued to consider other options.

III. Solutions & Recommendation

The first part of the solutions involves the interviewee brainstorming with the interviewer for creative solutions.

Exhibit 1 tests the candidate's creative ability and can be treated as a math warm up.

Based on the risk profile of the business (presumed by the candidate/provided by the interviewer), the following possible cases can be proposed:

  • Considering the company is neutral to risk taking and opts for obtaining the most return, the ad campaign is the favorable choice, although this involves more upfront costs in comparison to the sales incentives option.
  • If the company wants to avoid risks, key accounts will be a favorable option as this involves low costs and no disadvantages.
  • If the company cannot afford to increase the capital costs required for the higher cost options, the rewards program can generate an adequate return (though not as high as the ad campaign).


Difficult Questions

1. What other industries could our client consider moving into that were not discussed in this case?

  • These might involve Entertainment, Healthcare, Government and others.

2. What kind of beneficial side effect might the advertising campaign and loyalty program have?

  • A welcomed side effect could be the attraction of new customers, and hence the generation of profit.

Related consulting question(s)
Vlad gave the best answer on Feb 16, 2018 - 4 answers
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School

Hi! It depends very much on the industry. In some cases (Growth strategy) I will use a broad structure, in others (e.g. “how to increase the excessive luggage revenues for an Airline”) I will use P... (more)

Francesco updated the best answer on Mar 27, 2018 - 1 answer
#1 Expert for coaching sessions (2.100+) | Ex BCG | 1.000+ reviews with 100% recommendation rate

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)

Vlad gave the best answer on Apr 03, 2017 - 2 answers
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School

Hi, 1) You proactively ask in the beginning, even before drawing the structure (something like "What kind of products / revenue sources do we have) and then split the structure into price, qty,... (more)

Sidi gave the best answer on Aug 13, 2018 - 1 answer
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 60+ candidates secure MBB offers

Hi Kay, this is indeed one of the fundamental things that you need to learn in order to rigorously disaggregate the value drivers of a business. The driver tree allows you to identify the numerical d... (more)

Vlad gave the best answer on Feb 26, 2018 - 4 answers
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School

Hi, I would start with either market sizing or with profitability cases since they are much easier: 1) In market sizing cases I would try to understand the basic approach: How to structure... (more)

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Case exhibits



Calculations:

1. If the economy has a 50% probability to be strong, then:
● Rewards= $100MM anticipated profit (250*50% + 50*50% - 50 cost)
● Advertisement= $150MM anticipated profit (500*50% +0*50% - 100 cost)
● Key Account Rep= $49MM anticipated profit (50*50% +50*50% - 1 Cost)
● Special Incentives= $100MM anticipated profit (500*50% +(-250)*50% - 10 cost)