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MBB Case - Sierra Springs

Case information

Difficulty: Intermediate

Interviewer-led

< 100 Ratings

Times solved: 2.7k

New product

Case Prompt:

Our client is Sierra Springs, a top 3 spring water producer in the U.S. The company owns the entire bottled-water production supply chain, including water sourcing, production of water-based products, bottling and packaging and distribution to retail outlets. Sierra Springs also leads its own brand design, marketing and sales efforts.

Sierra Springs has several brands across still and sparkling water drinks, 3 large bottling plants throughout the country and distribution agreements with most major retailers.

Sierra Springs is evaluating the launch of a new product, a flavored sparkling bottled water called Berry Fizz. The company’s Chief Marketing Office has asked us to help analyze the major factors surrounding the launch of Berry Fizz and its own internal capabilities to support the effort.

Overview of All Exhibits

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Part 1 - Case Framing

Q1: What key factors should Sierra Springs consider to decide whether or not to launch Berry Fizz?

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Market factors

Consumers
- Who drinks flavored water?
- Are there specific market segments to address?
Competitors
- Which products is Berry Fizz going to compete with?
- Which companies are key players and how will they react?
Channels
- What is the ideal distribution channel for this product?
- Are current retail outlets willing to add Berry Fizz to their product catalogue?

Financial factors

Profitability
- Is the flavored bottled water market more profitable than those markets for Sierra Springs’s current products?
- Is it possible to profitably sell (price set by the market, internal production costs) Berry Fizz?
- Given fixed costs involved, what would be the break-even point for Berry Fizz?
- What is the opportunity cost to launch Berry Fizz?
Budget
- What is the required budget for this product?
- Has Sierra Springs the financial capacity to launch and market the new product?

Capabilities / Capacity factors

Operations
- Does the product require specialized production, packaging, or distribution?
- Is it possible to accommodate Berry Fizz in the current production and distribution facilities?
- What impact does geography have on the plant selection?
Marketing and Sales
- Are the required marketing and sales capabilities available within Sierra Springs?
- Has Sierra Springs the appropriate brand equity to position this new product within the portfolio?

Risk factors

Operational
- What are the risks to produce a new product (e.g., sourcing of materials / ingredients, accommodation production lines in existing plants, etc.)?
Cannibalization
- What would be the potential revenue cannibalization of other Sierra Springs’s products?

Note for Interviewer

The interviewer should look for the following features in the candidate's answer:

The answer is deep, broad and insightful. It covers all areas of the problem, they are explained well and in detail, and they show a good understanding of the client situation
The candidate takes time to think about the problem, then gets back with a structured approach. Ideally, the candidate presents the structure top-down using the pyramid principle, counting first through the buckets and then going into detail into each of them
The candidate speaks at a pace that is easy to understand, is keeping the interviewer engaged, and is approaching the interview as a conversation (instead of a presentation).

Part 2 - Market Share Math

Sierra Springs has gathered the following information (show exhibit) on the U.S. bottled water market, showing an estimate for the share of flavored water, as well as the current share for the two main products: lemon and berry.

The client has also made the following estimations:

Berry Fizz would launch in a 16 oz. presentation (1/8 of a gallon) with a price of $2.00 to retailers
In order to launch Berry Fizz, Sierra Springs would need to incur $40 million as total fixed costs, including marketing expenses as well as increased costs across the production and distribution network
The VP of Operations estimates that each bottle would cost $1.90 to produce and deliver in the newly established process.

Q2: Based on the target price and upfront fixed costs, what share of the flavored non-sparkling bottled water would Berry Fizz need to capture in order to break even?

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After taking some time, the candidate should get back to the interviewer with a proposed structure for solving the questions, for example:

Step 1 - Calculate number of units to break even

Step 2 - Calculate number of gallons to break even

Step 3 - Calculate market share to break even

Once the interviewer validates the approach, the candidate could take a few seconds to do the calculations or choose to do them live.

Step 1 - Calculate number of units to break even

Berry Fizz would need to sell 400 million units in order to break even:

Variable profit per unit = $2.00 – $1.90 = $0.10
Break even units = Total fixed costs / variable profit per unit = $40 million / $0.10 per unit = 400 million units

Step 2 - Calculate number of gallons to break even

Berry Fizz sales in millions of gallons = 400 million units / 8 units per gallon = 50 million gallons

Step 3 - Calculate market share to break even

Berry Fizz would need to capture a 12.5% market share:

Non-sparkling flavored bottled water market = 5% x 8,000 million gallons = 400 million gallons
Marketshare = 50 million gallons / 400 million gallons = 12.5%

The candidate should next proactively interpret the result. For instance, they could say that Berry Fizz would need to be number 2 product and name several implications to validate this result (e.g., competitive position against leading brands, competitors' resources, etc.)

Part 3 - How to Capture Market Share

Q3: What would Sierra Springs need to ensure to gain the required market share for Berry Fizz ?

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Part 4 - Understanding Consumer Preferences

Within the key drivers for market share, Sierra Springs wants to know which to tackle first and what the strategy should be. The following information shows results from a study run by the client, based on a sample of target consumers.

Q4: What can you conclude from the study in regards to the preferred marketing image and strategy of Berry Fizz?

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Part 5 - Production capacity

Sierra Springs has decided to produce Berry Fizz from an existing dedicated production line in a single facility. In order to be on the safe side in case of increased demand they plan for an annual capacity of 420 million bottles (units) of Berry Fizz. The production line they have in mind currently operates for 20 hours per day, 7 days a week and 50 weeks per year. The speed for the current bottling process is 750 units per minute.

Q5: Is the current production capacity sufficient to fulfill the desired annual production plan of 420 million bottles of Berry Fizz?

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After taking some time, the candidate should get back to the interviewer with a proposed structure for solving the questions, for example:

Step 1 - Calculate daily production capacity

Step 2 - Calculate weekly production capacity

Step 3 - Calculate annual production capacity

Once the interviewer validates the approach, the candidate could take a few seconds to do the calculations or choose to do them live.

Step 1 - Calculate daily production capacity

Daily production = 750 bottles per minute x 60 minutes per hour x 20 hours per day = 0.9 million bottles

Step 2 - Calculate weekly production capacity

Weekly production = 0.9 million bottles per day x 7 days per week = 6.3 million bottles

Step 3 - Calculate annual production capacity

Annual production = 6.3 million bottles per week x 50 weeks per year = 315 million bottles

The candidate should next proactively interpret the result. For instance, they could say Sierra Springs Would need to increase its capacity because it would currently only allow to produce 315 million bottles of Berry Fizz. The client can study with other production lines can produce Berry Fizz and check if they have available capacity. Sierra Spring can also evaluate the required factors to increase production capacity within current production lines and the impact on profitability.

Part 6 - Factors to Increase Production Capacity

Given the need for a specialized production process for Berry Fizz, the company has decided to add a new production line to only one of their 3 facilities.

Q6: What factors should they consider in selecting the adequate plant?

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Part 7 - Next Steps to Launch New Product

The Sierra Springs CEO confirms the decision to launch Berry Fizz. The product will be marketed as a sports drink, produced in the U.S., and distributed through supermarkets, convenience stores, and sport outlets.

Q7: What next steps should Sierra Spring take to launch Berry Fizz?

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Question on This Case

Consulting

Question about

Unclarity on some parts

on Dec 12, 2023

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