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?'
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) (Collapse)
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:
- Loyalty Program
- 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.
- Estelle Real Estates is a high-end real estate company targeting industries that are planning to set up offices.
- 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.
- 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
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.
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
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.
From the information provided to the interviewee, he/she must be able to develop a case as follows:
- The expected recovery of costs for the ad campaign is the highest, but requires a 50% of no benefit (with $100MM advance cost)
- The key accounts do not have a chance for loss, and this is the safest option.
- 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).
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.