Hi, I’m Jenny Rae Le Roux, the Managing
Director of Management Consulted, and I have the great privilege of interviewing the wondrous
Lisa Bright today, one of our ex-McKinsey coaches. Lisa, we’re going to walk through
a market sizing case. I know that you love these.
Exactly. I know McKinsey doesn’t use market sizing
cases, unless they are a component of a larger case.
Occasionally there’s some that they’ll give in the Middle East. I’ve had some people
get some market sizing cases in their interviews, but generally speaking they stick with the
more business situation-type cases. Absolutely. But what I want to just do today
is – one of the things that we claim is that a McKinsey, Bain, or BCG consultant could
always do a market sizing case. We are really testing that theory today.
Will see. And so what I’m going to do, the situation
that I’m playing with here is kind of in a situation where I’ll be a partner in a
McKinsey interview who either didn’t have a lot of time, or just wanted to kind of run
through something super quickly so we could check off the we did a case box, but actually
have more of a conversation. So I’m going to give you a pretty open-ended question.
It’s not going to have a lot of data behind it, and I just want to see what you do.
All right. All right. So show us what you got, girl.
Okay, all right. So the market that were going to size today
is the market for disposable diapers in China. Okay, all right. Is that it?
That is what I got for you. How about that. All right, okay. So we want to look at estimating
the disposable diaper market in China. Yep.
Okay. So before I get started, I just of the couple quick questions. When we are looking
at the size of the market, are we referring to sort of the currency value, like in U.S.
dollars, or Chinese yen, or kind of the volume of disposable diapers?
Do you want to do it in Chinese yen? Not as familiar with that one. U.S. dollars
I’m a little more familiar with, so we could do U.S. dollars.
Let’s do currency in U.S. dollars just because if we were going to build off of this, what
we probably want would be the actual monetary value of the market, not just volumes.
Okay, great. And let’s focus on a one-year period.
Okay, U.S. dollars, so one year disposable diaper market.
Yep. And then I just want to clarify, when we talk
about disposable diapers, there is different segments within the diaper market, so I’m
thinking of non-disposable. So back in the day I’m thinking cloth diapers and things
like that. In China, would that be what we are describing, this is more your typical
Huggies type product? Exactly. So these are something that would
go in a trashcan, whereas the cloth diapers would be reusable. And basically it would
just be those two types of markets. As far as I know, there aren’t really any other
types. Okay, great. So do you mind if I just take
a moment to kind of structure out my thoughts in terms of how I would want to approach this?
That’s fine. Okay, great. Thank you. Okay. I think I have
a general approach that I’d like to take to estimate this. So basically we are looking
at the disposable diaper market in U.S. dollars in China. So what I would like to do is look
at the average spend for one particular child in a year, and then we can roll that out.
On what in particular? When you say average spend, do you mean on –
On diapers. On disposable diapers. So if we have a baby who’s in disposable diapers,
how much would the typical baby cost per year, and how much would a family spend per child.
Gotcha. But just for disposable diapers. Just for disposable, exactly. And then once
we can figure that out on a per child basis, we could roll that out to the market, and
really look at the number of babies in disposable diapers in China specifically. All right.
So those are the two areas that I think I need to estimate. So to look at the average
spend per baby, per year. The one thing that I wanted to check is can we kind of look at
the typical baby, the average baby, or do we want to break this down and then look at
the different types. What would cause different diaper usage. So, for example, a baby who’s
six months old, and a child who is four years old probably using a different amount of diapers.
Totally. It’s really up to you how you want to approach it. So if you feel like it’s
appropriate to break it down further, you are more than welcome to, if we think it’s
okay to be – to kind of pick the average, then I’m fine with that.
Okay. I’m going to try to do an average based on both the younger child and sort of
building in the older child. And what are you saying in general? Are you
saying that in general that you would find that a younger child would use more diapers?
Yes. Okay.
So if you have a child who is four years old, they might not need a diaper every day. Maybe
at night, or something like that. Versus a six-month-old, you’re going to be needed
a diaper on a regular basis. Okay. So I’m just going to look at the average child, so
let’s say the two – maybe about the two-year range, if that works. And so what I’d like
to do is look at how many diapers that child would use in a year, and then how much it
is on a per diaper basis. Great.
Okay. So let’s start with the price, that one is kind of a quick estimate. So I need
to figure out how much one diaper would cost if you were to purchase that. So I don’t
have any kids, so I’m let me take a guess here and say it’s around $.20, I would say.
Okay. Where are you basing that off of? I’m just thinking I have seen diaper packs
at the store, and I think they usually come in packs of around 48 diapers or something
like that. So let’s say 48 diapers per pack, and that pack might be around – that’s
around like $5.00, I would say for 48 diapers. Yeah, totally. It’s up to you, basically.
Does that lead us to $.20 also? It’s around $.20 per diaper. So let’s
do that. Let’s say 50 diapers, let’s do that. Let’s say 50 diapers per pack at five
dollars. Okay. So is that’s still $.20 a diaper?
I think that might be a little bit low. Let me estimate that and say about $10. Let’s
say $10 for 50 diapers. Okay. And that gives us $.20 per diaper.
That gives us about $.20. I think that from what I’ve seen, I haven’t been purchasing
diapers anytime recently, but I think that seems – that seems reasonable.
Okay, that sounds good to me. All right. So I’m going to use a figure
of $.20 per diaper, and then I need to look at the average number of diapers a baby would
use in a year. So let me break this down and say on a per day basis, then we can roll that
out to 365 days. So per day, how many diapers would a child use. So like we said maybe a
two-year-old. So let’s say, 24 hours in a day, maybe every let’s say six hours they’d
be using a different diaper. Sure, that sounds pretty reasonable.
That would be four diapers per day. So we have four diapers per day, and they’re doing
that for 365 days, I’m just going to round that to 350.
Yep, no weekends off. Yeah, no weekends off. But I’m just going
to round that to 350 for ease of calculation. So that would be 700×2, so it would be 1400
diapers used in a year. All right. Does 700 x2 follow – just explain that calculation.
Oh, so four times the 350, so 2×350 is 700, times two again you get 1400.
Thanks. All right. So we’ve got 1400 diapers used
for the average child per year. And then it’s $.20 per diaper.
Yep. All right. So if I take 1400 divided by let’s
say $.10, so let’s see here. Let me just make sure I’ve got – I want to make sure
I didn’t miss anything as I look at this. Okay. All right. So I need to take 1400 diapers
at $.20 apiece. So dividing that – so 1400÷.1 would be $1400. Instead we’re looking at
$140 divided by two. So we’re looking at $70 per year in diapers.
When you said it’s divided by one over divided by two, so if it was $.10, how much would
it be? If it was $.10, it would be $140.
So isn’t it going to be more than $140 if it’s $.20?
So if we take $140 divided by $.20 per diaper – ah, sorry. So it would be $280 per year.
That makes more sense to me. All right. So we have $280 for diapers per
year, per child. I’m just looking at that number to see if that kind of makes sense.
So on a per week basis, so dividing that by about 50, that would be about four dollars
a week. A little over four dollars. That seems a little bit low to me in diapers. So I wonder
if one of those estimates is a little bit off. We may need to adjust some of those.
So I think – I feel pretty comfortable about the $.20 per diaper. The average per year.
I guess there’s – you know, if you have a younger child you be spending more per year.
Like you were saying, I think it might feel off because of thinking of all the different
versions of it. But I think that seems pretty reasonable to me.
I think that’s okay. All right. So let’s say $280 is what we would spend for a child,
average child per year. All right. So now we need to figure out the number of babies
in disposable diapers in China. Yeah.
So what I’d like to do, I think, is start with the overall population, and then figure
out how many children are in that age range that would be using diapers, in general, whether
disposable, non-disposable, and then we could take out the amount that would be using disposable
diapers. So population in China, I believe right now is about 1.2 billion people in China,
and so we’re looking at children in the zero to maybe four on the high-end, because
we used two as an average, so I think that makes sense. So we want to look at children
in the zero to four range. Are you counting that as four years, or five
years? Yeah, I was just about to look at that. So
I think I’m going to look at that as five. Let’s say five years. And we could say the
average life expectancy let’s say in China, let’s say it’s about 80. Assume a normal
distribution. So I want to figure out – this will help me figure out the number of children
in that age range. All right. So I’ve got 1.2 billion people, and we need to take five
out of 80, in terms of a percentage of the population. Okay. So five out of 80 would
be the same as one over – let’s see. So 40 – let’s see. I’m trying to think.
Five goes into 80, we’ve got 5×10 would give us 50, and 30 left would be six. That’s
16. So we’ve got 1/16 of a population is in this age range. So I need to take 1/16,
which I know is a 1/8, 1/8 is 12 ½%, so 1/16 would be half of that, so okay, I’ll say
about 6% of the population is zero – in that five year age span. So 5% of 1.2 billion,
well 10% would be 120 million, and so 5% would be half of that, where there is 60 million
children in the 0 to 5 range. Or 0 to 4. Which uses the five, and that would be 5%.
So how do we get 6%? Yes. So we can add on one more percent, which
would be 12 million, so let’s say that 72. That’s correct. So 72 million children in
this age range. Okay. So now if I look at – so now I did figure out how many children
are in diapers in total. Now some of those children are going to be in disposable diapers,
and some are going to be in non-disposable. So we need to figure out how many would be
in those two segments. So I think the major factor that would cause a child to be in disposable
diapers or not would you be income, or kind of where they live. I’m thinking rural populations
of China may not have access to grocery store where they could buy Huggies-type diapers,
so they’d be more in cloth diapers. So I think – but I think that where they live
is also going to impact their income, so I think those are kind of similar.
Okay. So I think maybe I’ll do this based on where
they live. So I want to split this into the percentage of the population that in rural
areas versus urban areas. And we’re basically saying rural areas,
cloth diapers, urban – or are you saying so all urban are all disposable?
I’d say a very high percentage, so maybe we can leave some leeway for that. So let’s
kinda break it down and say what percentage is in the rural versus urban, and that we
could come up with a percentage of those that would be in disposable diapers versus not.
Great. Okay, so in terms of rural – let me start
another paper here. So in terms of, so we have 72 million children, and I want to break
this down in percentage in rural versus urban. So if I look at what percentage would be in
the rural versus urban, I don’t have a really good sense of the population between the two,
but I know they’ve got some really big cities in China. I’m going to say it might be around
50/50. That would be my assumption. So let’s say 50% are in rural areas, and 50% in urban.
So that would give us half of the 72, which would be 36. So 36 million in each category,
rural versus urban. And then what I’d like to do here is break down for each of these
the percentage that would be in cloth diapers versus disposable diapers. So of the 36 million,
let’s say rural first, I would say most would be in disposable diapers, I would think.
Or sorry, in that the opposite. Non-disposable diapers and cloth diapers because they don’t
have access to that. So let’s say maybe 90% of the 36 million. Versus in urban areas,
I would say most would be in – maybe in 90% in each. So 90% are in – I’m sorry.
Let me write this down as the percentage in disposable diapers for each. So of the 36
million, let’s say 10% are in disposable diapers in the rural areas, and let’s say
in a 90% in the urban areas. I think that seems – that seems reasonable. So to do
this calculation, since we did a 50/50 split, I can kind of just do it off the two 72 million
in total. So let’s do 10% of the 72 million children are in disposable. Let’s see. 10%
and 90%, let me just see. I want to make sure that the math is coming out right on this
one. Yep.
So of the 72 million, we’ve got 50/50 split. Let me just – all do this off the 36 million.
So 10% of the 36 million would be 3.6 million. 90% of the 36 million would just be 36 minus
the 3.6, which would give us 22.4. So adding those up, we get 25 – 26 million. So we
have 26 million children in disposable diapers. Just check that number quickly.
Okay. So I’ve got 10% of the 36, which is 3.6, and then 90%, which is just 36 minus
the 3.6, oh. I missed – instead of 20, it’s a 30. There we go. 32.4. All right, sorry
about that. So we get 35 – so it’s 36. Yeah, that looks right. Okay. So we’ve got
36 million children in disposable diapers. Now coming back to my initial structure here,
we have the number of children in disposable diapers at 36 million, and we’ve got the
average spend per child of $280 per year. That sounds like fun now.
All right. So if you don’t mind, let me just do – I’ll round this at $300 per
child per year. Okay, sounds good.
Okay. So if we have $300 per child per year, and we have 36 million children, so 36 million×10,
well let’s say times 100, that would give me 36 million, that would be 3.6 billion,
that would be times 100, and then times three would be 9+1.8, so that would give me $10.8
billion as the disposable diaper market in China. Now one other thing is I was going
through this, I noticed – I should’ve asked this up front. When we talk about disposable
diapers, there could be potential other markets besides babies. I think that would be the
primary market that most people think of, but there’s also elderly people, or people
in medical situations that will require that. So that something that we could add on to
this, but I think this would be a majority of the market, so depending on what type of
disposable diapers were looking at, either adults or just for children, but they should
be the majority of the market at U.S. $10.8 billion as the disposable diaper market in
China. Tell me – tell me what that means to you.
What does $10.8 billion mean. Is that big? Is that small?
I think I’d like to get a better sense of is this a category within medical care products,
or what exactly our client – who is our client, what kind of products do they sell,
what their revenues are so we can kind of put this in some context. I mean, it’s a
pretty sizable market, obviously there’s a lot of children in China. I think it might
actually be higher just because I think if we looked at a normal distribution, I think
it would be a little bit higher than that, and I want to understand maybe if that $.20
might be different in China versus here. From what I’ve heard though, a lot of the prices
are kind of similar, so I think it’s representative of that. But determine if this is a sizable
market, I think we need to get some or data on the client, and the different markets that
they might be getting into, and kind of do the comparison.
That’s awesome. You can totally relax, Lisa. Let’s just talk about the case.
All right. Cool. Okay. So what do you – what did you like
about your approach, what do you wish you would’ve done differently as you’re going
through it? I should’ve asked some of the clarifying
questions up front, in terms of the market, what’s included. My immediately thought
was kind of going to the baby market. I thought you did a great job though of bringing
that back in at the end. That was great insight, and so yeah, maybe I would’ve been super
concerned at the beginning if you are going to miss that whole thing, but you didn’t
miss it overall, so that was huge. So I think that’s something I could’ve
done up front. I think I had a pretty clear structure in terms of math.
And it held up, right? It held up the whole way through the case. You didn’t have to
deviate from it or cross off big sections. Maybe just the like following through the
one side of it to the rural and urban a little bit further.
Yeah, I needed a little bit more space with my sharpie here.
Exactly. So yeah, I think that held up well. So the
overall structure I liked on this one. Some of the math got a little bit different, so
I rounded it at places. Yeah, how would you – how would you have
made that less hairy, just looking back in retrospect?
I could have kind of estimated the population around 1 billion or so.
Instead of the 1.2. Yeah.
Yeah, that would have made it easier. No, but I think I rounded in a few places
where I could that kind of cleaned up the math for me.
The one that I was thinking was the 48 diapers. Yes.
When you picked 48, I was like oh no. Why not 50, or 60.
Well I was thinking they are usually in packs of like dozens, I think.
You are being super authentic there, which is totally fine. But I think in that case
you could’ve probably started with 50 and that would’ve made that number a lot easier.
It was different because I had never purchased diapers before.
Totally. I don’t babysit that much. I don’t have
any kids in my family that are younger. Yeah.
So in this case, like trying to figure out how much does a diaper cost, it’s a little
bit different. Exactly. But I think you – I think you had
great rationale. I mean I can talk through just my overall feedback. Overall, I thought
it was great. I would’ve had a really good sense of what was going on. There are ways
that I would’ve a be tweaked it, so I just wanted to talk about that, but you, at the
beginning, ask fantastic clarifying questions. From the beginning, I had the confidence that
you are going to be able to do this. And that carried the whole way through your structure.
I felt like your structure was really clearly broken down, very, very linear in the way
that you thought about it, and so you did a great job just in general of building trust
at the beginning. How are we valuing the market, disposable versus cloth, really identifying
what was inside the market there. And the best thing that I thought you did there was
lay out your own assumptions. I was teasing you about the Chinese yen because I was like
is she offering to do it in yen because you know, some partners, you know them, they would’ve
been like sure, let’s do it in yen. Right? And then you would’ve been like oh, crap.
I need to know the conversion. And so obviously like my only recommendation
there would just be don’t offer something that you’re not willing to do. So when you’re
clarifying, try to clarify in the direction that you want to go. But other than that,
I just thought your opening of the case was absolutely fantastic. In your structure, I
thought it was incredibly clear. And your assumptions, I felt like you were so authentic,
but you could’ve made it easier on yourself. That was like my main point of feedback there.
And then there were the two times that math, I could tell the wheels were turning, and
the one was the 1400 a year and the 0.2, because if you’re dividing it than that would totally
make sense. But you’re actually multiplying it.
Yeah, I’m multiplying that, and not dividing. I don’t know why I did that.
And so when you are doing it, you were – well, I think it was because you were thinking you’re
dividing it by the $.20 because it’s not a dollar. But anyhow, that piece – and obviously
we caught that. I could tell that you weren’t sure about the number, which is why I jumped
in. Obviously, some partners would be quite as nice, but that was – that was really
helpful to get there. And then on this one, this is really funny. I mean, basically, when
you’re picking 90 and 10 and 90 and 10, you can just pick 100%. Each one of them give
you the 50%. And so when you kind of went through that, I was like I knew that you knew
that there was a shortcut, it was like – Yeah, but I was like I don’t make – like
pick the wrong assumption. I want to make sure that the number is right.
Exactly. And then the hilariously, you calculated the number, but you are like it seems like
it’s all right, but was kind like in the ballpark. But anyhow, so that, I think that
was ultimately – like ultimately the way that you picked the numbers there, you didn’t
have to do that whole piece. You could’ve just said I would estimate that 50% are in
cloth and 50% of the people are in it. So that whole piece did feel like a little bit
of like a circuitous route to get to that point. And that would be like one of my key
points of feedback just at the end in terms of insights would be, you know, that percentage
is going to have a huge impact on this overall market, right? If it’s 60% of the overall
market that’s in disposable diapers, that gives you a huge bump on your revenues. A
multibillion-dollar bump, actually. So when, depending on who our client is, is probably
someone like a brand manager out of a Huggies, or something like that. That would be insights
that they would probably be really interested in.
That’s something we could maybe research in terms of I’m to go pull some data on
that, but yeah. My confidence in your ability to be a consultant,
to go find the data, to rationalize the data, to break it down into the structure, totally
there. So how did it feel to be back in the hot seat?
A little different. Well, thanks so much for running through that
case. Awesome, thank you.
Great.
