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

Information that should be shared with the candidate:

Market share

• Division is 3rd largest manufacturer of hardware in the industry with a 10% market share.
• The top two competitors A & B have a 42% and 38% market share respectively.
• Division sells to a broad range of consumers.
• Division makes up for 20% of the company's total sales.

Sales

• Division sells 500,000 units per year.
• Total industry sales are 5 m units per year.
• Total industry growth has been strong but slowed down in the last few months.
• The price per unit is $45, while the two competitors A & B sell for $44 & $47 respectively.

Cost

• Current unit cost is $30 while competitor A & B's unit cost is $27 & $24.
• Division wants to achieve a 5-7% cost reduction through the expansion.
• The main cost components are assembly & labor.
• Main competitors have a 10-20% cost advantage.

Customers

• The main user segment is young families with at least one child.

Distribution

• Primary distribution channels are electronics stores.

Profitability

• The division has so far exceeded corporate return targets, but margins have recently started falling.

Product

• Hardware standards are determined by the market.
• New product features are developed on a constant basis to appeal to the user segment.

The candidate should ask for more background information on the division. The interviewer should provide all available information & data to the candidate and it is up to the candidate to define the issues that should be looked into based on the data/info provided.

The candidate should take clear notes during the interview. In case the candidate got lost with the quantitative data, the interviewer can share Table 1.

• Candidate should note that the future market potential isn't very clear with the industry slowing down.
• The competitive outlook is also not clear as there could be a concentration of market shares to control retail channels & control pricing.
• Profitability is also an issue since margins have been falling.
• Proposed cost reduction of 5-7% isn't enough given the cost advantage of competitors and their pricing strategy.

The candidate should note that so far it is very unclear if the capital expansion will help the division grow and stay profitable. The candidate should recommend to the client that there is a need to address these critical issues:

• What is the cause of the decline in profitability?
• How will the cost reduction improve the division's position in comparison with its competitors?
• How will the increase in capacity affect the industry's volume/pricing and overall profitability?