Case interview solution Archives

Max is an aspiring consultant who is looking to secure an analyst role with one of the top firms for the upcoming recruitment cycle in September 2011. His interest in management consulting was sparked by a failed McKinsey interview last year. In this series of blogs, he will be sharing his background, case preparation process, useful resources, and any breakthroughs or setbacks that he experiences.

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Practice makes perfect – at least that’s what I keep telling myself during this period where I’m trying to rip through as many quality cases as I can. Today, I would like to take you through a case that I did last week over Skype – I was in the role of the candidate. In order for you to get the most out of this, I suggest that you actually go through the setup of the case to see if your structure would have revealed the insights.

Interviewer:

The year is 2009, and your client is a major U.S. TV station. They are trying to put together a bid for the broadcasting rights to the 2010 Winter Olympics. What amount should they bid?

****STOP. Before you read the case solution, please take some time and think about what you would do next****

My Response:

That’s an interesting problem, and I just want to make sure that I understand the situation correctly before I dive in and structure my analysis. Our client is a major U.S. TV station, and they are trying to determine the optimal bid amount for the broadcasting rights to the 2010 Winter Olympics?

Interviewer:

That’s correct.

My Response:

Great. What is their goal in obtaining these broadcasting rights? Is it profits, national exposure, or something else?

Interviewer:

Their goal is to make money.

My response:

Do they have a particular numerical goal?

Interviewer:

Let’s say that they would like a 20% return on their investment.

My response:

One final question before I structure my analysis. What does possession of the broadcasting rights mean?

Interviewer:

The station with the broadcasting rights will be able to broadcast every event of the 2010 Winter Olympics. At their discretion, they can also sell certain events to other TV stations.

My Response:

Great, may I please have a moment to structure my thoughts?

Interviewer:

Of course.

****If you would like, take a few moments and sketch out the branches of analysis that you would like to use for this case, and then compare them with what I did.****

My response:

Ok I think I’m ready to begin. Since the goal of the client is to make a 20% return on the bid amount, I think it makes sense to analyze this problem from a profitability perspective. Since profitability is composed of revenues and costs, I would like to analyze both of these areas in order to understand how much profit can be generated. If you don’t mind, I would like to start off by looking at the revenues.

Interviewer:

Sure. What would you like to know?

My response:

The first thing that I would like to understand is how revenue will be generated from these broadcasting rights. Intuitively, I imagine that the revenues will come from both advertisements as well as licensing certain events to other TV stations. Is this correct?

Interviewer:

You are correct. However, for the purposes of this case, let’s assume that most of the revenue will be generated from the advertisements, and the licensing of events is a negligible amount.

My response:

Great. In order to determined the potential revenue that will be generated from advertisements, we’re going to need several pieces of data such as average price per advertisement, length of advertisement, and advertisement time available. Do we have any information on that?

Interviewer:

Yes we do.

-Primetime Rates: $400,000/30seconds

-Non-primetime Rate: $200,000/30seconds

-Usually 10 min out of every hour is available for advertisements.

My response:

When does primetime occur?

Interviewer:

7-10pm on weekdays, and all day on weekends.

My response:

I see. I think the next step here is to determine how many hours of primetime and non-primetime the 2010 Winter Olympics cover. Do we have any information on that?

Interviewer:

Yes we do. The opening ceremony is 7-10pm on a Friday. The events run for two weeks, and the closing ceremony is three hours long on a Saturday.

My response:

Ok, and do these events go on 24 hours a day, or is there a specific timeframe.

Interviewer:

The event go from noon to 10pm everyday.

****At this point, feel free to crunch the numbers in your head and see if you can get the same answer****

My response:

So every weekday consists of three hours of primetime and seven hours of non-primetime. This means that during Olympics, there will be:

Primetime: 3 hours/weekday X 5 weekdays/week X 2 weeks + 2 weekends x 2 days/weekend x 10 hour/day = 30 hours + 40 hours = 70 hours during the event

Since both the opening and closing ceremony are primetime as well, the total is 76 hours

Non-Primetime: 7 hours/weekday X 5 weekdays/week x 2 weeks = 70 hours

So if the for each hour we have:

Primetime: $400,000/30seconds X 60seconds/min X 10min/hour X 76 hours = 608 Million

Non-Primetime: $200,000/30seconds X 60seconds/min X 10min/hour X 70 = 280 Million

The total revenue generated if we sold all advertisement time is 888 Million

Before I go any further, is it safe to assume that all advertisement time will indeed be sold?

Interviewer:

Yes.

My response:

Based on the analysis we just did, we will likely generate 888 million dollars from advertisements if we have the broadcasting rights to the Winter Olympics. While there are other revenue streams that are associated with having the rights (such as licensing out events), we have captured the bulk of the revenue. Since we are looking to get a 20% return on our bid amount, I would like to take a look at the cost side so that I can make a good recommendation.

Interviewer:

Sure, what would you like to know?

My response:

I would like to take a look at the costs, and break them down into their components. Do we have any information on that?

Interviewer:

In terms of the Olympics themselves, it will cost 488 million dollars to set up the necessary equipment, broadcasting stations, hire staff etc. You can assume that all costs associated with the actual running of the broadcasts are captured in the 488 million.

My response:

Great, are there any other costs?

Interviewer:

What do you think?

My response:

The only thing I can think of is that during the broadcasting of the Olympics, the station will not be able to play its regular programming so there may be some cost there.

Interviewer:

Do you know what this type of cost is called?

My response:

I do not.

Interviewer:

It is called the opportunity cost, and let’s say that this is roughly 50 million.

My response:

At this point, we know that we can generate revenues of 888 million, while incurring costs of 538 million. This means that we will have a profit of 350 million. Since we want a return of 20%, the bid amount, as it stands now, is at roughly 290 million.

Interviewer:

Do you see any other costs?

My response:

No, not really.

Interviewer:

What about the time value of money? We are placing the bid now, but will not generate any revenue until the Olympics start in about a year.

My response:

Yes that makes sense, and I failed to consider that during my initial analysis. Do we have information on how much depreciation we will have?

Interviewer:

Let’s say 10%. This includes inflation as well as interest for the amount that we will have to borrow to make the bid.

My response:

Excellent. With this new information, we know that 350 million dollars in a year is worth roughly 320 million in today’s dollars. Therefore, if we want to make 20% return, we will have to place a bid of roughly 270 million. Before I go on, does the company have the ability to either raise or borrow this kind of money?

Interviewer:

Yes, the company has good relations with a few banks, and money will not be a problem. As we mentioned before, the interest rate is already taken into account. We are running out of time, and there is one question I would like to ask you before I get you to conclude. Do you see any other potential benefits to owning the broadcasting rights?

My response:

Yes, there are several benefits that I can see:

1) Increased prestige and brand recognition for the station

2) Taking potential revenues away from competitors

3) Merchandizing opportunities

Interviewer:

What about increased viewership of the station’s original programming?

My response:

That would likely be the case for the programs directly before and after the Olympics come on the air.

Interviewer:

Why don’t you give me your recommendation.

My response:

After preliminary analysis, the station should put forth a bid 270 million dollars for the following reasons:

1) From our profitability analysis, this bid will yield the desired return on investment of 20%

2) The company can afford it

3) There will be intangible benefits such as increased brand recognition, as well as tangible benefits such as increased viewership of its original programming before and after the Olympics come on the air

Going forward we should look into several other factors such as the state of the competition to see if they are even capable of putting up a bid close to 270 million. If they are not, then we should lower our bid since that will result in even more profits generated. In addition, we should verify that we will indeed be able to sell all of the advertisement time. With your permission, I would like to get the team to go forward with analyzing these issues.

Interviewer:

Thank you for your analysis.

My response:

My pleasure.

***

This is an example case which I did by myself, and I wanted to post this to show people how they can practice solo with my case solution. Of course, this is not as useful as practicing with a partner, but it’s better than nothing!

Case Question:

Our client is a provider of coupons, and currently makes “welcome packages” for people who just moved to a new location. The client has had no luck reaching the college market and would like our help. In particular, they want to:

1) Segment the college market

2) Drive college traffic to their website

3) Retain their information online for future use

[I actually think that this is a pretty good question for solo practice because you can layout your entire structure, and then go through to see if it indeed captures everything. There are some cases where this is harder to do because the question doesn’t include clear objectives – but that’s not the situation here. Furthermore, I tend to layout my structure and then say it aloud afterward as if I’m talking to an interviewer. It seems a bit weird, but I find it useful.]

For this case I wanted to look at three key areas:

1) Customer

2) Products

3) Company

For customers, I want to understand the following items:

1) How many there are (market sizing)

2) Different needs among college students

Since there is no interviewer to interact with, I just started thinking out loud about the two items. Even if there was an interviewer, you would probably still need to figure out these two items since part of the case is to segment the college market – which means you can’t really ask for the segmentation pattern. To size the market (assuming it’s the U.S), I did the following back-of-the-envelope calculation.

Market Size = (Population x fraction of people between 18-23 x fraction that attend college) + (population x fraction of people between 24-29 x fraction that attend college)

Assumptions:

-Population of the U.S. = 300 Million

-Average lifespan of 80 years assuming people attend college for 5 years then 5/80 = 1/16

-30% of the eligible kids attend college to get an undergrad degree (18-23 group)

-2% of the eligible kids attend grad school for an additional 5 years (24-29 group)

Market Size = 300Million x 1/16 x 0.3 + 300Million x 1/16 x .3 x 0.02 = 19Million x 0.3 + 19Million x .3 x 0.02 = 5.7 million = ~6 million

[Based on the assumptions/rounding made above, the market size is roughly 6 Million. I did some research on the internet after the case, and in 2004 2.5 million kids entered college in the states. So that would mean 12.5 million undergrads exist at any one time if the failure/dropout rate is zero – but unfortunately it is not. I think overall the 6 million estimate is not all that bad, but I would’ve been happier with 8-10 million. Again, not sure how accurate the interviewers want this stuff to be.]

Now we know the overall size of the market, it’s time to think of some logical segments. Here are some that I thought of:

1) First years (probably moving to the area for the first time)

2) Students that are on co-op/internship (likely to move to a new area every 4-8 months)

3) 2nd year – 5th year students (already familiar with the area)

4) Graduate students (more mature than your typical undergrad)

5) Location of college

There are thousands of ways one can segment a market, and what I find difficult about cases that don’t give you a segmentation pattern is that you’re never really sure if your method is the most insightful. My feeling is that the interviewer (if he or she asks you for the segmentation) probably just wants to see how you think and whether you can come up with something within reason. I feel that this segmentation makes some sense because our client offers coupons. These coupons will probably have both local as well as national offerings so the following factors have some impact:

1) How often they move (maybe moving coupons would help co-op students)

2) If it’s the student’s first time in that particular city

3) What types of offerings they prefer (21 year old undergrads may prefer free jagerbombs more than a 29 year old graduate student)

4) What city they will be in strongly affects the local coupons offered

From products, I want to understand the following items:

1) What is our current lineup of products, and does this fit the college segments we’ve identified?

2) Are there any new products we can put in our lineup?

3) How can we distribute this product to the various segments

I know that the client currently makes coupons packages for people who’ve recently moved. To me, this means that our products probably includes coupons for things like common household items, local restaurants, phone/internet connection, furniture, landscaping, newspaper – basically things you would need when you move to a new location. Comparing this with the needs of college students, I feel that the client will most likely need to extend their coupon offerings to include things like fast food, moving/storage, drinks at local bars, stationary, clothing stores etc. This will mean that the client must build more relationships with businesses.

In order to get our product to the various segments of the college market, the client will likely have to form partnerships with colleges, various societies on campus (for example the engineering society), and also the entities responsible for organizing orientation week for first years. By forming partnerships with colleges, we can perhaps have the campus life coordinator use their e-mail list to let the students know about the great coupons we have. This will also help achieve the second goal of the case which is to drive college traffic to the website. By aligning ourselves with various societies, we can have our coupons distributed at some of their events. Finally, by getting access to the first years, we can include some coupons in their welcome packages. Of course, these partnerships will most likely cost the client money, and the outstanding question will be if the amount paid to these various bodies will be offset by the additional business.

The last thing I would like to understand is the company itself, and how it currently operates. As I understand it, the company basically distributes physical coupons to people who’ve recently moved. We can infer that the company does have an online presence since they want traffic to their website, but we are unsure of what the website actually does. Is it just information, or can you print coupons off it? In order to drive even more traffic to the website, I would think that they should put their website on all of their coupons so the users who like them know where to find more. In addition, the company should make users “sign up” on their website in order to access the online coupons (and make coupons available online if they aren’t already). This way, the company can get their information, and also preemptively e-mail coupons to the customers who frequent their site. Depending on how badly we want to customer’s information, we can also offer a special deal/coupon the first time they sign up.

I would now like to summarize the case.

[I like to say the summaries out loud just for practice, and you should too when you do your cases!]

After preliminary analysis, we have found a reasonable segmentation of the college market to be:

1) First years

2) Students that are on co-op/internship

3) 2nd year – 5th year students

4) Graduate students

5) Location of college

In order to drive traffic to the website, we should take the following actions:

1) Put our website on all physical coupons we distribute

2) Build relationships with colleges, campus societies, and orientation week committees in order to increase awareness of our company

Finally, in order to retain customer information online we should offer coupons on our website, and restrict access to them until the customer completes a quick sign up procedure. Furthermore, we can also offer a special one-time deal the first time a customer signs up. This will allow us to get their information for further segmentation analysis, as well as e-mail them coupons.