Paragraphs highlighted in blue can be verbally communicated to the interviewee
Question 1: In the introductory meeting with the European director, he asks you how you plan to approach the problem. Give a brief description of the key areas you want to focus on to analyze the problem.
- Size of the market
- Growth rate
- Competition: How many competitors?
- Respective market shares
- Differentiation factors
- Alternative competitors/substitutes
- Type of consumers: business, tourist, local /Segmentation
- Trend in consumer demand
- Capabilities/Core strengths
- Corporate agreements
- Customer Loyalty program
Question 2: Based on the approach presented above, how would you go about conducting the analysis and gathering the information required?
a) Client information: Any internal report or interviews conducted with the management of the company
b) External information: Market reports, internet
c) Consulting firm information: Any internal info from the consulting firm, reports, expert interviews
Question 3: Based on the various data gathering methods suggested above, we have some data to help with the market entry analysis. CarRentalCo is looking at a net profit target of at least €200k after the initial 3 years. So, more specifically, what data would you need to determine the equivalent market share CarRentalCo needs to capture in the Baltic to reach the profit target in 3 years?
Ask for if there is more info on the market, like size, if there is data related to margins, etc. Then you would receive the following:
- Total Size of Car Rental Market in Baltic: €10m
- Annual Market Growth: 10%
- Net Profit Margin: 5% (in lieu of any details on cost structure)
With such info you can calculate what is requested:
Market size after 3 years: €12.1m
Each market share percentile equals €6,050 in net profit for CarRentalCo
To reach a target of €200k in net profit, CarRentalCo would need about 30% market share in 3 years.
Question 4: Analyzing the competition of the market and knowing the targets, what should be the best market entry strategy? How?
i) International Car Rental: 35% market share – serves primarily international business travellers and tourists.
ii) Local player: 45% market share – serves a mix of tourists and local customers.
iii) Other smaller rental companies: 20% market share – primarily local customers
- Organic growth is highly unlikely to get to the market share targets. Therefore, an acquision is the best option.
- International can rental does not look a good option to acquire since they are direct competitors
- The smaller companies do not seem a good option due to high complexity and still lower market share than the target
- Local player seem the best option. We will probably have enough cash for the acquisition and the 40% will be more than enough for the target
Question 5: What are the main challenges of the integration?
- Difference in existing customer base vs CarRentalCo’s targeted customers
- Local customers will move to smaller players as price sensitive and unwilling to pay premium for CarRentalCo
- Business travellers may not be impressed by service quality of local player. This would require investment in staff training to bring service levels up to CarRentalCo standards
- Significant capital investment to bring car fleet up to CarRentalCo’s standards
- Difference in reservation and computer systems requiring IT investment and training
- Effort spent on integration might divert focus away from operations, resulting in potential benefit for competitors. They might gain additional market share and grow an even stronger foothold in the growing segments
Question 6: What is your final recommendation to the client?
Entering the baltic market is recommended and an acquision of a local player is the best strategy.
- The market is growing and its a good opportunity
- The local player acquisition ensures the €200K target in profit for year 2
- This acquisition simplifies the M&A process since it only requires one acquisition with a 40% of market share
There are several challenges that we need to address for the integration related to the existing customers, IT systems or company culture.