Market Entry Case Study Interview: BCG-Style

[Subtitles automatically generated by  YouTube] Welcome again to this uh case interview walkthrough today's case is a bcg case  and i'm going to introduce our special guest   Abby Jin is a junior she is going through the  recruiting process for the first time and she's   done a good number of cases but i'm gonna let her  give a bit of her background what she's studying   what she's done for cases so far and what she's  looking forward to in the case today welcome abby   hi everybody thanks jenny ray for the for  the welcome um this is not a fake background   i'm sitting in a park by my house because my  house is being renovated so sorry if it gets   a little bit windy um as jenny ray mentioned  my name is abby i'm a junior at uc san diego   which is where i am now i'm studying business  and accounting so pretty standard disciplines   um and have done about 33 live cases so  far so if i know any of you on the call hi   hopefully i don't disappoint uh but really  happy to be here and excited to do the space   um would love to see some cool ideas in the chat  too just with anything i miss but hopefully this   is a good learning experience for me and for  everybody here so it's good to be here awesome   abby we're so excited to have you do you have  any questions before we dive into the case today   um no questions okay well let me just tell  you what i've got planned we have today   a bcg case we're going to do it round one focused  so i'm going to give you a maximum of 30 minutes   to complete the case we're going to target a  separate section for creative but the math is   actually kind of hard to time through so i'm  going to time your opening your structuring   the beginning and the end part of the case uh and  any creative questions that we end up diving into   but because of the natural back and forth inside  pcg i'm not going to be able to give you anything   except for a big bulk time for what happens inside  the middle of the case during the case my job is   to guide you to the end of it but i'm not going  to give you feedback after the case i'll give you   some detailed feedback about what should happen in  each one of the sections where you did really well   and where i think there's room for improvement  so if you're ready we'll go ahead and get started   yeah um i know some people have been  having trouble hearing me so is this better but you can hold up yeah hold it up i think  a little bit further that would be awesome   like this yes yes there we go that's amazing  perfect okay if my papers fly away it's because   i'm holding this but okay do you want to grab a  rock or something else to hold your papers down   oh my my phone is here so it'll be perfect great so as we're about to get started if  everyone could just mute um at the beginning   of the session so that we have no background  noise or anything else that's happening   it will just be abby and i on voice and then at  the end of the case we will have plenty of time   for y'all to ask questions both live and through  the chat bar okay abby i'm ready to get started   if you are yep ready when you are amazing so  our client today is a german luxury car maker   the luxury car maker wants to grow its business  and is looking into selling cars in pakistan the   gdp growth in pakistan is six percent per  year there are over 200 million people in   pakistan but the luxury goods market is quite  limited in fact currently there is only one   luxury car sold in pakistan which is the bmw the  cars are sold direct there are no dealerships that   carry bmws so each one is special ordered from  germany and brought into the country individually   for the purposes of this case the luxury car  market does not include resold cars only new   cars our ceo wants to find out if the company can  break even in two years if it enters the market   what would you look at to help the ceo make a  decision on this question great so this is very   interesting um i'm not a car person so we'll have  to be asking a lot of questions here uh but the   first thing i want to do is just really quickly  recap the case make sure i have all the facts   and then from there i can clarify some gaps in my  understanding so our client is a german luxury car   maker they currently sell cars all over the world  but they're looking to enter the pakistan market   a little bit about pakistan they are their gdp is  growing at about six percent they have a little   over 200 million people and they have a limited  luxury goods market with only one luxury car   the bmw that's currently designing there  interesting fact about the pakistan car market   the cars are sold directly so no dealerships they  just purchased directly from the original car   manufacturer so you know my intuition tells me  that that could be something that we need to   explore if we were to look into entering this  market um we're looking specifically to break   even in two years if we enter uh and that's the  objective that i have written down here is there   anything that i missed or did that pretty much  summarize the facts i think you got everything   that i needed you to have at this point and um  i'm really excited to dive into the case now   sounds good um and just one quick clarifying  question is the only objective to break even   within two years uh or is there anything else  we should consider what do you what else do you   think that we should be thinking about here yeah  i think uh one of the biggest things that stands   out to me is just the distribution channels so i'm  looking at maybe we need to explore alternatives   uh or not not alternatives or options  to establish maybe some dealerships   or look at ways in which uh we currently sell  cars to the end consumer i know dealerships   are pretty popular everywhere in the world  especially in the u.s but i'm not too familiar   with uh how a car manufacturer would be able  to sell directly to the consumer in a pakistan   country us who would love to learn a little bit  more about that once i lay out my thoughts that   seems to make sense um question at what point do  you think it would make sense to have a dealership   established or what metrics would you look for in  order to include a dealership yeah so i know that   for a dealership we can consider that like an  investment so we need to look at the cash flows   from that investment the revenue we expect to get  as well as any costs of establishing a dealership   there if we have no previous experience in the  pakistan market we don't have that cultural   kind of ability to navigate that business  environment so we need to do a lot more due   diligence into what kind of pakistan customers  would want our cars um given that the given the   limited size of the luxury market and then on the  cost side we need to figure out uh what some fixed   cost of investment would be and then from there  kind of establish whether or not it would look   good from a financial standpoint from a financial  standpoint uh i think hold on to that thought   when we um and make sure that you include it  in your structure because it would be something   worth exploring what what you think um the kind  of you know metrics and details around that would   be not the primary question but but i think  including it would be worthwhile okay sounds   great uh did you have any other questions i think  that covers everything that i need to ask right   now um so what i'm gonna do is take a few minute  moments and lay out my structure okay sounds good for those of you that are listening in  please build your own structure here   it'll be a good test to see how you can do jenny quick question i want to answer questions  until at the end of the case oh i was just going   to ask if you could post the problem by any  chance no i won't be posting it oh okay okay   yep you're welcome great so i think sorry i dropped the mic i think  i have here a pretty basic three-part structure   that i'd like to use to tackle this problem and  we're looking specifically as you mentioned to   break even in two years if we're looking at entry  so what i've done is i've divided my analysis into   three major buckets the first bucket is looking  at whether or not this market is standalone   attractive looking at the pakistani luxury car  market the second bucket i'd like to look into   is whether or not our company is a good fit  for this market and then the third bucket is   looking at the how so that's uh where i would  look into either organic or inorganic growth   as the best strategy to penetrate this market if  we jump into that first bucket that i mentioned   is the market attractive on its own i'd like  to take a look at three things in that bucket   first the industry second the products in  the industry and then third customers so   if we jump into industry i want to take a look at  the size and growth of the industry as a whole so   we're looking at the luxury car market in pakistan  and i'd also like to understand the profitability   of this industry where it's expected to go within  the next three to five years specifically i guess   within the context of our clients within that  two-year time period and from there we can kind   of begin to gauge how much market share we could  capture and then uh maybe potentially whether or   not a break-even point would be feasible uh if  we look into the products uh the second branch   of that first bucket um i'd like to understand  what types of cars that are typically sold in   pakistan i know different cars have different  functionality um so in the luxury market uh do   car makers typically sell the cars themselves or  do they sell other products as well that we could   profit from and then finally i'd like to take  a look at the typical customers i'm assuming   they're very high income but i want to take a  look more at what specifically that looks like   and how those segments of customers are expected  to grow so we can properly tailor any market entry   strategy to that profile of customers if we jump  into the second bucket whether or not we're a good   fit for this market i'd like to take a look at  three things within this bucket as well uh first   the company capabilities uh second the customers  and finally our sales and marketing capabilities   so uh i guess first in company capabilities we're  looking at distribution channels um any cash we   have available for investment and the strength of  our brand uh and actually on second thought i'm   gonna group the sales and marketing capabilities  within that first branch and then the second   branch is looking at our specific customers um  and what type of customer we typically cater our   products to to see if there's a match with that uh  this pakistan luxury car market and then finally   in that third bucket i'd like to take a look at  alternatives and risks of those alternatives uh or   specifically a market entry strategy so i'm  thinking whether we sell directly to the   consumer or uh set up a medium to sell you know  either that whether that's a dealership or joint   venture to sell through uh with a partnership  with another entity already existing there   uh and then any return on investment and costs  and profit that we need to take into consideration   within that specific branch with that being said i  would like to start off by understanding a little   bit more about the standalone attractiveness of  the the pakistan luxury car market do we have   any information on the size of this industry and  how fast it's growing i know you mentioned that   we have a gdp growth of six percent so my  assumption is that we're going to be growing   at a little bit faster than that um this is a  higher potential market yeah what when you're   thinking about the size of the market how are  you thinking about actually measuring that abby   yeah so if we're looking at the size of the  market in terms of number of luxury cars uh   purchased per year um i would probably start off  with a population and then i'd split that up into   segments of population by income typically only  the top maybe ten five to ten percent of the   population are going to be able to afford luxury  cars i don't know what specifically this car   maker is as far as our client goes but that's  what i would assume about five to ten percent   and then from there kind of taking a  look at what cars they currently drive   um who would be most likely to purchase them  uh given what customers prioritize whether   that's functionality image of the car uh any other  attributes of the car and then from there kind of   assuming a percentage of that specific uh  willing to willing to buy this type of car   able to purchase this type of car market uh and  then divide that by the average lifetime of a car   is how i would go about sizing that market i  love that so i've got some data that's actually   a little simpler but the way that you thought  through it activated me to kind of give this   to you um it's it's data about bmw which is the  closest data that we've got um and it segmented it   into two types you mentioned that there are people  who replace the cars um but we actually do have   some new entrants into the luxury car market as  well so we actually segmented those two pieces out   um one of them is one of the pieces of data is  that bmw imported and sold about 20 000 cars in   this market over the past 10 years the second  is that the existing owners replace their car   what would you think a good replacement rate to  use would be here i think once every 10 years is   about standard yeah that's actually exactly  what i've got so i think that's about right   and then of course there will be some that will do  a lease or you know something that's every three   years leasing isn't an option in this market so it  makes sense that it would be a little bit longer   and then finally there are new buyers every  year that are entering the market and so after   going through the exercise that you just walked  through we identified that there would be 600   new buyers each year in the luxury car market okay great uh so i think you gave me three  major data points there and i want to run   through them to make sure that i got everything  so okay you mentioned uh if we're looking at   bmw as a competitive benchmark here i'm  assuming that we can use bmw's numbers   um to calculate our market size or potentially  the whole market size uh since they're the   only player so they imported and sold 20  000 cars in the last 10 years in pakistan   uh the average car is replaced once every  10 years and there are approximately 600   new buyers every year is that correct that is  correct and we're looking at the market size   for cars at the specific moment or in general  uh maybe how many cars were expected to to have   in the in the country every year what's the  specific time frame um tell me what you think yeah so i think um since we can look at a  yearly basis so um if we're looking at 20 000   cars already in the industry we can take that and  just estimate how many of those buyers assuming   that it's one owner per car will replace their  car every 10 years so what the first thing i'm   going to do is i'm going to take that 20 000 and  divide that by 10 to get the total number of car   owners that will be replacing it every given year  we have that 20 000 cars provided by a 10-year   lifespan and that's going to give us a number and  then the second thing i'm going to do after that   is i'm going to take that number and add it to  the number of new buyers that we have per year   and that should get us to the annual number  of cars that bmw sells or expects to sell   every year from there we can kind of be able  to gauge where uh how much of that market size   we can capture but i'm getting ahead of myself  so i want to jump back to the first step that i   had wanted to calculate so we  have that 20 000 20 000 cars   market size that are currently being owned  so we have twenty thousand divided by ten   uh for the ten years so that's going to be uh  two thousand bars that are replaced every year   and then we're going to add that to the 600  new cars that are purchased every year and   that's going to get us to a total of  3 600 cars purchased per year of bmw   uh uh this this number's a little small um 3600 is  not a lot of cars but we're just taking a look at   the stagnant market as is right now uh so is this  the number of new buyers every year projected to   grow as the years go on um and maybe alternatively  uh if the market's gonna stay stagnant what are   the differences between bmw's car offering and our  car offering and how those compared with customer   preferences just to get an idea of how we'd be  able to compete with them as far as i want you   to look at the data that we already have and see  if you can extrapolate it to answer that question   yeah so you mentioned that the gdp of  pakistan is growing at six percent so   i'm going to assume that the the luxury car  market is going to grow at least that fast   i think you should double check that  with the numbers that we already have the six percent the um with the number that we've  already sold or not we sorry that bmw has already   sold uh i'm not trying to understand any questions  yeah so so instead of looking at the high level   market we can really just dial down into whether  we think the market is growing based on whether   we think that new buyers entering the market are  entering at the same rate that they have entered   over the last 10 years and we have the data to  do that got it got it okay so we know that 20 000   cars have been imported and sold in the last 10  years so i'm going to take an average of that to   see how many cars have been sold every year so if  we do an average here that's just going to be the   20 000 cars divided by the 10 years so we have  the 2000 cars per year on average that are sold   every year um by bmw now if we add that to the the  or if we compare that to the new buyers of 1600   uh that's a 400 400 card deficit but i just  want to clarify so this new buyers is that um are we that's the only um so in any given year the  car sales will be a total of the the existing car   owners that will be replacing their cars as well  as the new buyers correct that's right right okay   so um if we're adding that 1600 to the 20 000  um we have 20 000 owners right now if we grow   by 1600 owners every year we can get that growth  rate um is that okay with you seems reasonable   okay sounds good so calculating a growth rate  that's going to be that 20 000 existing owners   plus the 1600 new owners every year divided by  the 20 000 that should give us a yearly growth   assuming that it's not going to change from  year to year given and it would change obviously   because we're going to have this baseline growing  but i'm just curious as to whether you know you   kind of said is it growing or not i think you can  answer your own question here okay sounds good so   we'll do the the 2 the 20 000 plus the 1600 so  that's going to be 21 600 divided by 20 000. now   if we run the numbers here it's going to be about  216 divided by 200 let me just write it out here i mean if i divide that in two that's going to be  108 over 100 which is going to be about 1.08 so   the market's growing at about 8 in this next year  it's growing at eight percent on the total mm-hmm   and then we thought about it another way so  how many cars were sold would you estimate   you know around 10 years ago per year i'm sorry i  couldn't hear you that well you said how many cars   yeah do you think we're sold about 10 years ago yeah so if we're assuming maybe that every year there's 1600 new buyers what i  could do is take that 20 000 cars and subtract   10 x 1600 and that should get us to the market  size 10 years ago is that what you're looking   for kind of yeah and i'm just saying just just  just ballpark it for me do you think that the so   so here's what we've identified right it's growing  we have new buyers entering the market and we have   the old buyers that are likely to replace this is  good um but what i'm curious about is if we think   the rate of growth is going to continue to grow  if we think that's going to be declining over time um in the next 10 years you're saying yeah  let's we can call it in the next 10 years or   even just the next couple years yeah i mean  very qualitatively i think this market will   definitely grow of course we just calculated that  it's going to grow eight percent in the next year   um i guess if we if we look retroactively if  we look at the growth rate the change in the   growth rate from the last 10 years maybe  looking forward if i were to ballpark that let's see let's say it's maybe around the same  uh hasn't grown that much i don't think that   the market is really accelerating upward is that  kind of aligning with the numbers that you have or   do you want me to run any specific calculations  well we're not going to need to calculate this in   i was really just asking for your interpretation  but what i'm noticing is that you know maybe on   average if if we sold 2 000 cars per year  over the last 10 years incrementally new   to kind of get up to that 20 000 it wouldn't  have been straight line we probably sold more   in year five and maybe even more in year seven or  eight but it does seem like the number of new car   buyers entering the market might be declining a  bit and then as we have that balance of luxury   car replacements versus new cars it seems like  the importance is going to be on the replacements   um yeah so i don't know that i don't know that  this will necessarily change our numbers but i do   think that it's important to note that it doesn't  seem like we're selling more new cars a year than   we used to do i mean if we're looking at the last  10 years 20 000 cars that's approximately 2 000   cars per year that we sold even if it fluctuated  within those those years as a general trend line   the market's still growing we still have new  buyers but the marginal rate of growth is slowing   there we go okay good so again i i don't need you  to factor that into the rest of the calculation   but i just wanted to kind of get a quick read  on what you thought about what's going on there what should we do next yeah sorry i was fiddling  with mike um now that we've kind of looked at the   market and we know that the market is growing a  little bit slower than it was before i think i   want to take a look at our biggest competitor bmw  and i like to understand what their capabilities   are what their competitive advantage is how  they're tailing tailoring to customers to see   if there's a potential entry point available for  us here okay go ahead and ask me for data yep uh   so what's their i mean their current market share  is 100 um what kinds of products do they sell or   what kinds of cars just sedans just to dance and  just to clarify that's the the five passenger   standard cars so that sounds like uh it's  appealing to customers a desire for functionality   so it's very interesting have we done any  customer surveys or do we know anything   about what customers prefer in their cars in  the pakistan market what are you trying to   get to what do you what will that lead you to  what would be the next question after that one   after that one uh then i want to know  how do our cars differ from bmw's cars   uh can we tailor to a different customer segment  can we tailor to different customer preferences   and within the customer base in pakistan  what's the breakdown as far as preferences go   in terms of percentages of customers that want  either more we don't know what the market share   will be for sure in pakistan until we enter but  we have entered other markets vietnam is a simpler   is a similar use case for us on average in  these other markets including vietnam we gained   25 market share within the  first year of those markets that's pretty significant i like that  number okay so we can use i guess our past   experience entering different geographical  markets as a proxy for maybe how much we   expect to grow in pakistan or how much share we  expect to get so if we know that uh year of entry   that we have 20 000 or 2000 replace or yeah  replacement cars purchase per year plus that   additional 1600 of new buyers that means the total  market size for the year is going to be 3 600   cars per year um and if we take 25 of that that  should get us to approximately what we estimate to   be able to sell uh in that first year of entry is  that does that sound good with you sure so for 3   600 cars multiplied by 25 is just 3 600 divided by  4 so that's going to be 900 cars we expect to sell   and to really get an idea of how much this uh this  means for our business i'd like to take a look   at either the price that we can sell at and  then a factoring in any variable costs and   investment costs um tying that back to the  original point of being able to break even   so what's the price that we'd be able to  sell awesome we don't know exactly but we   do know what bmw charges they charge  80 000 us dollars per car on average   80 000 per car okay great so now i'm going to be  able to calculate total revenue in the first year   and i'm going to also be able to calculate total  revenue in the second year since we're looking at   a two-year time period so if we calculate revenue  in year one that's 900 cars multiplied by 80   thousand dollars of revenue per car that's  going to be 72 million dollars of revenue   in year one i'm actually going to draw the table  here just so all my numbers are organized move   your 1 year 2 revenue or all this is forecasted  we're just using bmw's numbers so the revenue in   year one is going to be 72 million and if we look  at year two we're still going to sell at that bmw   price that eighty thousand dollars per car but  we're going to build on the market size from year   one because we're we have an additional  uh 1600 buyers per year so in year two   year one year two we're gonna have uh 20 i  think we can i think we can make a simplifying   assumption abby that it's the same like probably  none of those new buyers yet will be buying   additionally so i think it's fair to assume  that there will be just another 1600.   right so it'll be uh instead of 3 600 cars in the  market it'll be 3 600 1600 right um no because it   would be the because that that what i'm saying is  that that 1600 now is incrementally added to the   2000 the 20 000 that um but but there's probably  no cars that are new that new 1600 haven't come up   for a replacement yet so we can just assume  that it will be another 3600 in the second   year okay sounds good that makes it easier then  so our revenue from year one to your two will   stay the same and now i'd like to understand  either what our profit margins are or what   our cost breakdown looks like do you have that  information what cost would you like specifically   yeah i'd like to know fixed and variable costs  um and if we tie this back to the breakeven point   i'd like to know on the cost  side both the investment cost   and any fixed and variable operational costs and  then on the revenue side we already have that so   i'd like to take a look at costs great so i've  thankfully got this a little bit simplified i do   have our initial investment cost it's gonna be  nine million dollars to open this market for us   in addition i have the per car costs three of  them are actually variable and one is fixed   can you tell me just really quickly what you  think the key variable costs would be here yeah   variable costs of course include any shipping so  if we're not going to manufacture within pakistan   we need to ship the cars we also need to take into  consideration any any products manufacturing raw   materials any commission that we're paying to  any uh sales and marketing teams uh and then any   uh direct labor that we're hiring to uh kind of  sell these cars to the end consumer in pakistan   okay so um we got we got two of those i'll give  you those first the manufacturing costs per   car are 20 000 these are all in us dollars the  transportation is 80 of the manufacturing costs okay we also have a third cost which is customs  and taxes um and so when we're importing directly   we're going to have the challenge of  doing that and that's going to be 95   of the manufacturing plus the transportation costs and i mentioned that there  was one fixed cost as well   and we just prorated this based on the number of  cars that we already expected it's about 10 of   all of the above costs so of the manufacturing  plus transportation plus customs and um taxes okay let's run some numbers okay great so you  mentioned that manufacturing costs per car   these are all per car cost so manufacturing  is 20 000 transportation is going to be 80   of 20 000 so that's going to be 16 000  customs and taxes are going to be 95   of the 16 000 plus the 20 000 so that's going  to be 95 percent of 36 000 so 95 of 36 000 i'm   actually gonna take five percent of 36 000 and  subtract it out from 36 000 make it make our lives   easier so sounds good five percent of 36 000 uh is  going to be half of 10 so 10 of 36 000 is um 3600 i'm 10 of 36 36 000 is going to be 3 600 if  we have that that's going to be 1800 so that's   going to give us the 5 and then if we subtract the  1800 from the 36 000 that should get us to 34 200.   so that'll be our customs and taxes uh costs  per car and then you said the fixed cost   the fixed cost per car is going to be  10 of all three of these costs combined   so if we combined the if we combine the 20  000 16 000 and the 34 200 that's going to   get us to thirty six thousand plus thirty four  thousand two hundred which is seventy thousand   two hundred and if we take ten percent of that  that's going to be seven thousand and twenty car fixed cost um we're going to add  up all of these costs to get the total   per car cost and then from there we can solve a  break-even point sounds good we have the 20 000   20 thousand sixteen thousand we have  thirty four thousand two hundred   uh which we already had calculated to  be uh seventy thousand two hundred total   then we're going to add that to the seven zero  two zero of that 10 so that's going to get us   total cost per car of 77 220. you can round  that to 77 000. oh perfect 77 000 dollars   um and then just to clarify the prompt again so  you're looking at breakeven point in two years   um are we looking at feasibility or are  we looking at how many units we need to   sell in order to break even we're looking at  feasibility right can we break even into yours   okay sounds good let's see  here so if we run a calculation um in year one we make 72 million dollars  of revenue in year two we make 72 million   dollars again so total revenue over the  two years is going to be that 144 million and then if we look at costs what i'm thinking here is we can  take the profit over the two years   uh cumulatively and then just divide it into  the investment cost i like that process better   to see if we can make that happen so we know that  the revenue over the year one and year two period   is going to be two times 72 so as i said that's  144 million if we have costs of 70 77 000 per car   and we know that we're selling a total of 3 600  multiplied by two cars over the two years that's   going to be 77 000 of cost per car multiplied by  72 100 cars that we're selling over the two year   period so that should get us to our total costs  and if i just run those numbers really quickly you sure that we're selling 7 200  cars is that what you just said   yes you mentioned that we're selling 3 600  cars oh sorry that's the total market size   there we go so we're actually selling 25 of  that so 900 cars and we're selling 1800 over   the two-year period my mistake so we have that  eighteen hundred cars multiplied by seventy   seven thousand dollars per car which should  get us to total costs over the two-year period   so i'm gonna do seventy-seven thousand  multiplied by eighteen hundred i just want to make sure my numbers are  right here so that gets me to 137.6 million   okay that's total costs now if we subtract that  out from revenue we get profit so profit is going   to be let's see if we round that to 138 million  that's going to be a difference of 6 million so   6 plus 0.4 6.4 million dollars of profit and if  we divide that into the upfront investment of   nine million dollars we'll get the break even  yeah which one was higher revenues or costs   so revenues was higher per my calculation what  was revenues it was and 140 four million dollars   are you sure so i guess just cycling back you  mentioned that we're selling um 900 cars at 80   000 a car so i calculated that to be 72 million  of revenue okay and then we had i was doing the   revenue over the two years okay so i added those  together and i got 144 million dollars great   is that okay with you sounds good okay and then  we subtracted out the cost of 137.6 million to   get profit of 6.4 million and now that we have  that break even or i'm sorry that investment of   9 million dollars we can take that 9 million and  divide that by 6.4 is it okay if i round the 6.4   to 6. so what is that going to tell you i just  want to make sure you know what you're doing here   yeah so when we do that number what does that tell  us so let's say that we get a number less than 2   i think that means that we'll be  able to break even in less than   two years are you sure what what is the six  what is the and i think it's actually 5.4 um   right 138.6 and the 144. oh i have 137.6 okay what  is the um what is the number represent what does   that represent that that 5.4 or 6.4 what does that  represent so the 144 million so that's going to be   total revenue over the two years the 138.6 is  going to be total costs incurred for the cars   that we're selling over the two-year period and  then that profit number of i think you said 7.4   5.4 excuse me that's going to be total profit over  the two-year period okay so how do we calculate   if we're breaking even or not when do we break  even so we break even when profit is equal to zero   okay so and so what do we have to have  for profit to be equal to zero how much   how much profit in those two  years would we have to get yeah that's a good question so if we have that  investment of nine million dollars we have uh   if we amortize that over two years it's gonna be  about 4.5 million dollars um of investment costs   and so you're doing it in the aggregate for the  two years so how much do we have to have in profit   nine million right yeah yeah do we have it   uh good point we don't have that so we are  about 3.6 million dollars short uh profit   is still positive but we um we are still short of  our goal so i think we have a couple options here   a little bit of a fork in the road one we can take  this loss and we can say okay we're still making a   profit um these numbers you know are maybe likely  to change we could do some more due diligence but   for now assume that it's it's pro it's a good  decision to enter this market or we could look   at alternatives um such as establishing our own  distribution channels like that dealership we were   mentioning in the beginning uh or we could look at  potentially a different market to enter or a joint   venture uh to make sure that we can accelerate  our sales growth in the specific pakistan market   uh okay let me ask you um specifically if we could  adjust the inputs that we just calculated to get   us to a break even in two years which ones  would you think are the most likely to adjust yeah so cost optimization is a lot  easier than trying to bolster sales so   i'd want to take a look at our cost  breakdown uh we have pretty high costs and   at 77 000 per car so i'd like to better  understand the breakdown uh as and compare   that to competitors uh so we have you know that  uh manufacturing transportation costs per car   i'd like to understand what bmw is  also doing within the cost segment sounds good anything else yeah i think there's  there's other ways we could do this as well uh   we can look at potentially raising prices although  my hypothesis is that that doesn't sound like a   great idea considering that the market's already  so small and we're um we're competing with one   major player already established there we could  also look at increasing our sales and marketing   campaign on the revenue side uh we could look at  selling uh complementary products i know that for   people that may not want to buy new cars when they  replace new cars they could we could potentially   give them spare car parts um or offer some kind of  repair services that would bring in revenue for us   while also enabling customers to form a a  relationship with us down the line in case they   don't want to buy a whole new luxury car later on  um and then like i mentioned before we could also   look into that joint venture strategy maybe even  it doesn't look like acquisition is likely but   it would depend on on the cash we have on hand  and uh anything within that vein as well could   be potentially good things to look at okay awesome  well at this point we're ready for a final answer   what do you think we should do enter don't  enter make changes to our plan what's your   final recommendation abby yeah so this is a very  interesting case so thank you so much for this one   my final recommendation is uh that we should enter  this market and i have a few reasons for that   first of all uh this market is still growing um  even though it's growing a little bit slower than   it was before that doesn't mean that this will be  a permanent growth rate so i think there's still a   lot of upward potential here especially since we  have only one other competitor competing with us   i think the second reason is that we can  capture 25 market share in the first year   which is pretty significant um and without even  taking into consideration how that would grow   we'd be able through that 25 market share  to get profits of about uh 4.5.4 million   um in those two years now i know that this falls  short of our original uh goal and i know that   we're a little bit short of breaking even in  that two-year time period uh but i think that   if we're looking at this from a very  high level qualitative perspective   there's a lot of room for this market to continue  accelerating upward um and i think even if we   break in within three years which is the current  trajectory that we're heading towards uh it could   still be a very profitable investment i'll be just  a little bit delayed on the break-even return of   course some next steps to consider is definitely  a risky market so i would want to do a little bit   more due diligence into the numbers make sure that  we really can assume that we can capture that 25   percent of the market and that our forecasts are  uh are properly verified in order to mitigate any   risks of potential failure or not being able to  capture the market that we had originally hoped   okay great good job ellie you can relax  well done how did that feel for you   um honestly i was a little bit flustered it wasn't  my best performance ever but i think um if i just   maybe taken like two seconds and stepped back it  would have been a little bit better on the numbers   i think that's a really it's a really  great feedback i'm going to go through   and give you some insights as we went through  the case we ended up taking almost 40 minutes   to do it it may have felt harder than you were  initially anticipating because when i got through   the initial piece i felt like you were gonna do a  really good job so i actually decided to modify it   push a little bit deeper into it and make it more  of a second round case because i wanted you to   get a lot out of it as we were going through it  and so um what i did i appreciate that thank you   i added in some bonus stuff um and you know  as the interviewer i was really pushing you   you probably felt this but i was pushing you  to read out the insights before you did the   math i was pushing you to give me a a general  direction before kind of waiting until the end   and that's one of the big differences in a second  round case with bcg that i'm looking for versus   the first round is that i'm looking for you to  call it before you need to call it right you you   call it then you verify you call up and you verify  and so i'm going to go through each section of the   case and give you detailed feedback you can feel  free to ask questions as we're going through this   and then also at the end if you have any questions  i'm happy to to listen to those as well after that   we'll open it up to the floor for people to  ask either you questions or any questions   so first of all let me just go through the timing  and the structure of the case as i mentioned   i didn't split out what was happening inside  the math because that piece was a little bit too   kind of jumbled together right like gathering  data and then doing the calculations   um and so i just did the beginning and the ending  and the creative question so at the beginning of   the case your introduction was about three and  a half minutes it was really good uh the only   thing that i would tweak in the introductory  piece is that you started out with a negative   statement you said i'm not really a car person  which deflated i think what you're trying to   do is set my expectations that you might say  something a little silly at some point inside   the case but you did not demonstrate that you  weren't a car person as we went through it you   were totally with it and i think you really need  to push yourself to say something positive like   like um you know this sounds like a problem that  i have never thought about before but i have   familiarity with cars right something that kind of  is like giving me confidence instead of breaking   my confidence down what i'm imagining when you say  i'm not a car person is that i put you in front of   a client at bmw and you say that and they fall  apart right they're like why did we staff this   kid who knows nothing about cars on a car case  so just beginning with that posturing is a very   important part of the beginning however i thought  your recap was super fluid very story ended   i i felt like overall you did a great job of  demonstrating that you had proficiency with the   business problem at the beginning of the case and  so um that would be really my only key takeaway   when you asked the question which was included  in that time about that three and a half minutes   it was kind of not really a question you  were just like musing out loud i think   right you know there's only there's um you kind of  said you know it's interesting that only bmw was   in the market and it's also interesting that they  have no um like you know local sales and i think   that that would be a really big opportunity and i  loved that you said that but you never asked me a   question so that's kind of why i asked  you a question and then we got off on   almost like mini tangent at the beginning so  just make sure at the beginning that your wording   when you come up with insights like that i love  it just ask me the question afterwards right are   we open to having a different kind of distribution  than bmw has would we be willing to set up local   dealerships or a partner partnership with a local  dealership would we be open to considering local   manufacturing right so just so there's like you  know give me the musing but then add that detail   in okay um i overall though i thought that was  good your structure was a little funky for a   bcg case this felt like a mckinsey issue tree um  i don't know if you've read or watched some of   victor chang's stuff but it felt like straight out  of victor chang and it did not feel like this was   meant to solve this problem it took you um three  and a half minutes to build it oh wow quietly and   then it took you almost um three minutes about  two minutes and 50 seconds to report it back out   and so that was way too long for a case like  this and i actually have a podcast coming up   kind of soon called the issue tree is dead for  virtual interviews in parentheses is for virtual   interviews and i think you did an awesome job  of demonstrating why because um you actually   were like and in that branch there's a baby branch  and i like you should see what i wrote down on my   paper i i could not follow it after a point and i  just gave up um that's obviously not how you want   to engage your interviewer there so you need to  simplify your structure and you need to make it   just data oriented i'm going to need this data i  need to know what the size of the market is how   many german luxury cars there are i need to know  what the percentage is of those luxury cars that   are that would be sold by bmw and by us in order  to figure out the number by us i'm going to go to   the second category customers right what kind of  models of cars do customers want and what is our   breakdown like give me the data only in a bcg  case that you're then going to go collect make   it your data playbook and give me one level of  category and then one level of data you gave me   a nine eight or nine actual category structure  all baked together which is why i think it took   you so long and why we after the first question  never used it again right so um and in bcg one   of the things i'm gonna test for you in a final  round is like was your structure the playbook   that you used inside the case so again in a first  round i would have been like ah she wasn't wrong   like a lot of those things are good ideas you know  she's adorable in the second round i'm like look i   have to choose whether i want her on my project  or not i need somebody who's really linear here   so i really want to make sure that you understand  the difference between those and just go ahead and   incorporate that in your first round performance  okay any questions about that structuring piece   yes so um is that only a bcg thing so how does i  know mckenzie loves the issue tree what about bane   so mckenzie doesn't love the issue tree in virtual  environments because they can't see anything   that's happening so i would say that you still  would have been well served to do that same kind   of structure for being and for mckinsey because  i would know in each one of those situations the   analysis that you would do would answer my  question um and so you're welcome to make it   a two-minute version of it if you come up with  that linear structure in a minute yeah add some   other contextual detail right add me a category  of local distribution like set that up and tell   me exactly what you would need but i'm just really  pointing out that you had like concept concept and   in some situations concept at the third layer  and all of those three we're never gonna get   to no matter what kind of any case it is um we're  going to get to data inside categories those are   the only two places that we're going to get to  inside the case so i think that that structure   would work well in all of those situations it's  one of those big changes that we have to make in   a virtual environment and um the second thing uh i  don't know that you could have done this with the   complexity restructure in the first place but you  have to number everything out number one category   is and you did that well and then when you went  into the first one you said number one is the   industry number two is the product number three  is the customer and then it went haywire you were   like and then here's like seven things inside  here or maybe they were only three and you were   just explaining them i actually don't know when  you were moving on from point one to point two   to point three and so you want to keep that like  incredible numbering going you might even want to   number them inside your structure to cue you to do  that when you're in this verbal environment okay   um good so everything was there you needed about  half of it and it needed to be all numerical those   are my key takeaways from the structural phase  then when you went into the math i thought you   did an excellent job of gathering i thought your  speed and your fluency with math was incredibly   proficient i loved that you stated assumptions as  you went through when you caught them right i'm   gonna assume that this reflects one owner per year  not multiple drivers right there were things that   you did um when you went through it uh there were  a couple of times when you tried to do math before   you needed to and that's really where i just  wanted to reorient that math for second round to   be like okay what am i looking at here right let  me make sure that i'm setting this up correctly   i felt like there was a lack of structure inside  your mouth that you could have wowed me with it i   knew it was there because i watched you deliver  on it but i wasn't hearing it beforehand so you   weren't kind of building my confidence and then  i think you would have gone through a more linear   um process i actually think you would have maybe  caught a shortcut which in this case is to just do   the margin per car and then divide that into the  breakeven and figure that figure out the number of   years um and so you were doing actually like more  complex calculations because you were trying to   just calculate calculate calculate  and so in a second round performance   uh i i actually still really thought you  did a good job but i it wasn't great and i   i would hate for you to walk away and be  just right on the border right you have to   you're so close you have to  get this offer when it comes up   so so the way that you do that is just tell me  like okay what i'm gonna need is the market size   and what you did there is you told me here's the  data that i would need before you asked for it   what you did for all the other ones you were  like well what about the price instead of   saying okay now we need to figure out the margin  per car and right and that's where putting that   into your structure is going to help you it'll  give that exact playbook that you can just go   back and follow again um but that's where we were  losing it and that's why the math in total took us   30 minutes oh wow okay um actually 20 sorry 28  and a half minutes 28 and a half total minutes   and that probably could have taken us 12 i  think by the time i was asking some of the   sideline questions um it was it was really three  parts of math which i would give 15 minutes for   but i think you could have taken about 12 um to do  it and so anyhow i think that that could have been   about half the time and then we could have spent  a lot more of our time talking about for me what   are the ways that i really test my top candidates  which is the next piece okay um overall um i i   just again i just really want to compliment you on  the speed and the fluency of the math i felt like   you understood it i felt like you did a really  great job across the board there but i i did feel   like there was them for improvement the way that  you practice it is just go back through it again   now that you have all the data and then go back  after you do the math and rewrite your structure   right what are the things inside my structure  that i should have thought about gathering   um and that will going backwards inside a case  like that helps bring clarity for the next   time you do a market entry great and then the  final thing was your creative question that i   asked right what what numbers would be flex that  came across like just a verbal download right just   a waterfall of verbalness i don't want that so i  need it i think you were feeling like there was   time pressure but i still want to see some control  from you there and so um what you would do instead   you what what i wrote down was um um expect to  break even what the alternatives are different   markets to enter your jv and actually i think  that was new for your um closing i didn't even   write down what you said in the creative because  i couldn't really follow it super clearly and so   that's again in a virtual environment you might  have been writing things down but it just came   across as like well we could do this we could do  that or we could do this and instead of being like   okay let me look at the volume at the data that we  have again right what we have is the price point   we also have the transportation costs we  have the import costs and then we have the   taxes finally we have this you know overall  sg a look we could bring the sg a down but   that's not going to make a major difference  we need to look at the big cost categories   so could we lower price sure do we want to  maybe not and then maybe talk with me more   detailed about what we would do there maybe we  should sell suvs right um differentiate ourselves   through a different product maybe we're going  to have similar other numbers maybe they won't   be percentages but we're going to get a higher  price point in the first place and so like right   and so you kind of could probe into those once  you've laid out the structure again is that clear   yes so what i would have wanted for  you is to basically rambling there   so so control yourself by writing down the  categories of creative first so let me just   and just say it out loud i'm gonna write  down my categories so category one is price   category two is um transportation costs category  three is customs category four is manufacturing   and i'm gonna think about ways that we could  adjust each one of them and then prioritize   which one makes the most sense and then go back  through for pricing we could change the product   mix maybe it's selling suvs or higher luxury uh  price items yeah so then you kind of go through   each one of them and you anchor those like that  but write it down and write down your categories   first then uh in your final oh go ahead did you  have a question i was gonna say like i i usually   end up like writing it out like just writing  four buckets like i think would take i would   take a look at but if i'm crunching on time is it  worth my time to say okay category one is it is   category two is this or should i always to write  the categories to then go into detail underneath   the categories isn't as necessary but yeah if i  would have just known what the categories were   i could have followed everything else you  said more clearly and i would have thought   oh she's structured right which is really in a  bcg case i'm just gonna rate you at the end are   you structured are you proficient at solving  the problem um are you a good communicator   and i'll do that in just a second for you the  final step was the closing and um i actually find   it kind of odd that you were like enter the market  um because we i told you the mission was that   we were supposed to break even in two years and  then like enter the market and so um your closing   delivery was really good i just found the actual  choice of what you recommended to be a little bit   unclear um so i liked the recap piece i liked the  recommendation piece but that part i would have   tweaked i loved your next steps um and so i just  felt like the whole thing flowed out of actually   a different recommendation so it felt like it was  almost doubling back on each other a little bit   um so i think the delivery was fine i think the  structure of it was there again i would just   really reflect on going back to the mission of the  case and making sure that you've responded to it   um that about 80 of the cases the answer is gonna  be yes but that twenty percent that are no i don't   want you to just force it into a yes um i mean  i think where my argument was gonna go there was   even though we don't break even in two years we'll  break even in three and there's still profit to   be made here so i think maybe we could um still  enter even though it doesn't meet our criteria   it just we just have to wait maybe six months yeah  yeah yeah and i i wouldn't have dinged you for it   and i still liked you so um but but all that i was  saying is that um i think you would have wanted to   have some more verification that we we could have  gotten that and maybe a better creative structure   beforehand like i think that the way that we're  gonna do this is by um you know batch transporting   them so we're gonna do like one transport a month  gosh if we just get those costs down by like   five thousand dollars per car then we break  even easily in the two years right so like i was   looking for something tying the actual performance  to the metrics that we were looking for um   and so um good yeah so then my final score  so basically bcg scores you on the three   core categories right where you structured um  was it um how was the problem solving and then   what was the communication like and so i would  have given you like um out of if we called it a   four-point score with one being the highest and um  for being the lowest i would have given you twos   on the structure and on the um problem solving  which is really good that would have gotten you   already into the final round but it's not it's  not perfect right it's not like what what somebody   at bcg would do currently so that's just where i  think your biggest opportunity is is really like   making the structure super clear and making sure  that you do that insight before data piece and   then um the communication you were a one it  was fantastic across the board and so um so   again congratulations i thought that was a really  good case and i hope that you found that feedback   valuable thank you i appreciate that i also  appreciate that you made it a little bit more   difficult um so that i could get some some good  pressure some fire under myself to be better   um so the structure and problem solving you'd give  me a two it wouldn't be enough to pass me on the   final but it would be enough to get me it would  it would just it would just leave you in the in   the yellow zone right there's a green a yellow  and a red zone you wouldn't have been in the red   zone you would have been in the definite nose but  you wouldn't have been in the green zone and so   you might have gotten an offer and you might not  have gotten an offer and that is just the worst   place to be in my opinion yeah i mean you don't  want to be in the definite nose either but but   if you're going to be so close i just think you  have a couple of very fixable things um that that   are uh going to be you know that you just need one  or two good practice partners to really push you   on those to say like i actually couldn't follow  your structure just go back and do it again   or i or like in the math like let's just  go back and do it a second time and see if   i you know i timed you the first time it  was 11 minutes like let's see if we can   make it faster a second time right and just  kind of like run through so you can kind of   rejigger that process a little bit got it okay  and that last point where i didn't i wasn't   able to conceptualize the dividing the like  just comparing the profit to the break even   now that i'm looking at it i'm like how did i end  up doing that but if i made that mistake in like   if i was just so bogged down in the math and i was  looking at it and like it was just crazy that that   was why you got like a two instead of a one or a  you know like the kind of second highest number   um for that for the um for for that number for  bcg because that i wanted to see that the insight   piece was really strong and so i felt like you  were so fluid with the numbers but i wouldn't   want you to bring me a number and be like here  you go i would want you to be like break even or   not breaking it right i really wanted you to go  all the way to to think about how to answer that   um and so so you can pause a little bit when  you get that moment like on insights it's not   like mckinsey where you can say like can i take  20 seconds to plan the whole thing but you can   certainly say let me just look at it for a second  like you had moments to do that inside the case   and that might help as well okay okay okay good to  know awesome okay i think that's everything i have   right now okay awesome i know that a couple  people had questions so um i just wanted to   answer a few of the ones that have come through in  the chat bar and um i also just want to make sure   that um everybody's questions about the insights  and the feedback were answered so um um idiot i   think you said um did anyone calculate how long  it would take to break even it's about 3.3 years   with current revenues and costs so like abby said  that's not crazy um it's aggressive to say that we   want to break even in two years but it is risky  um the main risk which we didn't identify in our   discussion is that um like it would be super easy  for bmw to just drop their prices by four percent   right we're at really small margins right now um  in the case that like that you know three percent   or three three thousand dollars out  of the 70 um out of the like 80 000   is a really small percentage of the margin  so they could just wipe us out by dropping   the price to like 74 000 or 77 thousand dollars  even you know um then we don't have any profit   whatsoever so there there are some challenges  i'm thinking even about the competitive reaction yeah run it you

Channel: Management Consulted

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Id: klY4u1c_IRU

Length: 64min 2sec (3842 seconds)

Published: Thu Oct 01 2020