We are a global toothbrush producing company. Our portfolio consists of two kinds of toothbrushes - 'manual' that sells for $5 and an electric 'rechargeable' that sells for $60. Last year, a competitor introduced a battery-powered electric “spinbrush” that sells for $8.5 and now has 2% of the toothbrush market. We don't have a similar offering and would like you to tell us whether we should develop a similar product or not.
This is a candidate-led case; therefore the candidate should lead the case from start to finish.
Short Solution (Expand) (Collapse)
Provide the following information to the interviewee if requested:
Till last year, the toothbrush market was of 75% manual and 25% rechargeable toothbrushes. The 2% market share gain of battery spinbrush has come mostly at the expense of rechargeable toothbrush sales.
- Net profit margin on sales of manual toothbrushes is 70%
- On an average, a manual toothbrush consumer buys 2 toothbrushes per year
- Rechargeable toothbrushes are sold as two separate parts- 'base' that sells for $60 (with a 65% net profit margin) and 'head' that sells for $5 (with a 90% net profit margin) - Both are needed for the device to work
- Life of an average base is 10 years
- Life of an average head is 6 months
- We believe that we can produce it at a cost of $5 per brush
Key Question: Should the client develop a product similar to the spinbrush?
To answer this quesiton, we should calculate the profit per customer per year for all three segments.
Assumption - The life of a spinbrush is 6 months.
We can see that the manual and spinbrush are similar in terms of profitability. But the manual is unlikely to lose share to spinbrush as it is cheaper.
Rechargeable is the most profitable segment out of the three and is losing share to spinbrush. If the client starts producing a similar spinbrush it will further threaten the rechargeable segment.
Therefore, the client should consider alternative means (and not knockoff) to respond to the spinbrush product.
The client should consider alternative means to respond to spinbrush as producing a similar product will further threaten its most profitable rechargeable segment.
If the interviewee solves the case very quickly, you can come up with more challenging questions.