Coffee pads

i

Information that can be provided to the candidate upon request:

• The goal is to maximize profit over 2 years.
• A patent cannot be obtained for the type of pads used in our machine.
• Third-party providers are very aggressive and proactive in adapting.
• Machines typically last for 5 years on average and are rarely replaced before then.
• Expertise for both products is available.
• There is an ample supply of third-party pads; scarcity is not an issue for customers.
• Geographically, the focus is on the German market.
• Sales are conducted both through retail stores and our own online shop.
• In both cases, it's essentially the same machine; the difference lies only in the pad holder.
• It can be assumed that we only sell pads to customers who use our machine.

By this point, the interviewee should inquire about the client's objective (maximizing profit over 2 years).

The structure should be clear and non-redundant. Customers, the product, and competition (for coffee machines and pads) are relevant factors, all considered against the backdrop of profit, for which revenue and costs must be calculated.

Regarding the number of new customers, it can be observed that the compatible variant sells twice as much during the considered period. Since the machines do not differ except for compatibility, this aspect seems to be important to customers.

Regarding the forecasted share of pad sales, it is noted that in the first scenario, it halves from 100% to 50%. This can only be explained by the fact that in the second year, pads are also offered by other providers. In the compatible scenario, a constant share of 20% can probably be achieved over both years.

It would be highly desirable if the candidate recognizes and emphasizes that the majority of the profit is generated through the sale of the pads, not the sale of the machines.

Over a period of 2 years, "Scenario 1: Starting only with Wiehle coffee pads" forecasts a profit of €1.7 million, thus €0.9 million more than the compatible variant. The lower number of machine sales is offset by the high revenues from pad sales.
 

• The adaptation of external pad providers could happen faster than anticipated.
• Sales figures might be lower than planned, as compatibility may be more important to customers than estimated. This would impact both machine and pad sales.
• Reduced market power due to fewer customers.
• Less potential for economies of scale in machine manufacturing.
• …

The sales of the pads will gain weight over time as the number of existing customers increases with each year, at least in the first 5 years. Of these, the compatible variant already has twice as many in the 3rd year.

The percentage share of pad sales in Scenario 1 will most likely converge towards 20%, at least there is no indication to think otherwise.

Also, concerning new customers, the compatible variant is ahead. Both the growth rate and the absolute numbers suggest that the number of new customers in the 3rd year will be larger again in Scenario 2. If market saturation were foreseeable, this forecast could change.

In summary, it can be said that in the medium term, the compatible variant (Scenario 2) will economically dominate.

The client's objective is to maximize profit over 2 years. In this context, the candidate should recommend the non-compatible variant and justify it. Additionally, it can be pointed out that there are risks and/or the presumed dominance of the compatible variant from the 3rd year onwards.