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Expert Case by Joe

Baby clothing market entry

Solved 400+ times
Baby clothing market entry Our client is a consumer packaged goods company looking for top-line growth opportunities. They are considering extending its pre-existing baby products brand (e.g., Huggies) into a new product category – baby clothing. They are looking for this business to generate +$300M revenue per year, beginning in Year 1. Should our client enter the baby clothing market?
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Problem Definition

Our client is a consumer packaged goods company looking for top-line growth opportunities. They are considering extending its pre-existing baby products brand (e.g., Huggies) into a new product category – baby clothing.

They are looking for this business to generate +$300M revenue per year, beginning in Year 1.

Should our client enter the baby clothing market?


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

Question 1 – Potential Framework

How would you help the client decide whether they should enter the baby clothing market?
  • Potential demand: How large is the market? Would consumers welcome our existing brand in this market?
  • Competitive landscape: Who would our primary competitors be and how big are they? Do they sell direct to consumers?
  • Pricing: Has our client determined what prices they would charge?
  • Sales: What would be the primary sales channels if our client does not want to sell direct to consumers? Do they have access to those channels today?

Data provided on request prior to driving the case (prior to framework or after):
  1. The baby clothes market is about $4B in the United States.
  2. The client has conducted extensive consumer research, and consumers would be very willing to purchase baby clothes made by them
  3. Their baby care products are sold through grocery stores, drug stores, and mass merchants (e.g., Target/Walmart). They would want to remain a wholesaler (selling products to these retailers to then sell to consumers) in the baby clothes market as well.

Question 2 – Exhibit 1: Competitor Product Pricing

One driver of revenue is pricing. Does our client have estimates on price points they can charge for their baby clothes?

Exhibit 1 can be shared with the candidate.
  • Candidate asks if we have volume info for different categories to calculate weighted average price (interviewer will provide $10 weighted average price for candidate to use) or reasonably assumes a $10 price point per item based on variation in sale frequency
  • Candidate adjusts the average price to what a wholesaler gets based on the retailer margin – $6/item – which means our client would have to sell a lot more units to hit the same revenue target as a retailer.
  • Candidate calculates $300M / $6 = 50M units to establish volume needed to reach goal
  • Candidate asks how many units the top competitors sell on average

Question 3 – Exhibit 2: Volume of Baby Clothes Sold by Competitor

How many units would our client need to sell to reach their revenue target? Is this a feasible goal?

Exhibit 2 can be shared with the candidate.
  • Candidate identifies that largest player sells direct-to-consumer and is private label
  • Candidate accurately identifies that the wholesale portion of the market is fragmented
  • Candidate immediately puts 50M units needed in context of volume sold by top competitor – brand A only sells 45M units today
  • Exceptional candidates will identify what market share is needed to acheive their revenue goal (50M/382M = 13% or 50M/400M = 12.5% with rounding)

Question 4 – Brainstorming

If your client is still interested in entering the baby clothes market, what other options might they explore?
  • Client could reconsider retail/direct-to-consumer sales, as this would allow them to capture the retail price per unit instead of the wholesale price
  • Client could look at licensing their brand name, however I think licensing fees are unlikely to generate sufficient revenue to meet their requirements
  • Client could look at partnering with a clothing brand/retailer

Question 5 – Synthesis

If the client asks for your initial recommendation, what would you say?
  • Our client should not enter the baby clothes market, as the number of units required to meet their revenue target at wholesale prices would make them as large as the largest branded competitor, which seems unrealistic, especially in Year 1

  • If they still want to enter baby clothes, they will need to either revisit the revenue target size or willingness to sell direct-to-consumer to capture retail pricing

    • At retail prices, they would need to sell 30M units to meet their goal

    • Given their strong brand recognition and position, maybe it is possible to be a large player in the long-term

  • Potential risks: (1) strong brand doesn't translate to baby clothing, (2) high, exhobinant upfront or recurring costs to build and maintain share,(3) negative impact to brand equity if product isn't high-quality

  • Potential next steps: (1) conduct additional diligence on brand impact to launching baby clothing line across the various entry methodologies, and (2) conduct cost analysis to understand "what's needed to win"

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Case exhibits