Consulting Case

Pricing and Evaluati on

Contents
Microsoft Buys Social Network Yammer for $1.2 Billion.....................................................................1
Thomson Scientific to Change into License-based Pricing.................................................................2
Scientist Invents Magic Eye Drops That Cure Eye Problems.............................................................6
Moldovan Coffin Maker to Exit Coffin Manufacturing Business..........................................................9
Explosives Manufacturer Dyno Nobel to Bid for Mining Contract....................................................13
Former GE Scientist Builds a Perpetual Motion Machine.................................................................16
Ski Resort Coffee Shop for Sale in Vail, Colorado.............................................................................18
Valeant’s New Asthma Drug Approved by Canada FDA..................................................................20
Cordis to Launch New Drug Eluting Stent Device..............................................................................23
Biotech Startup Invents New Sugar Beets Technology.....................................................................26
Hotel Chain Hilton to Develop Pricing Strategy..................................................................................29
Russian Satellite For Sale After Soviet Union Dissolved..................................................................31
Becton Dickinson to Launch Sleep Enhancing Device......................................................................33
Sanofi New Drug Lowers Both Blood Pressure & Cholesterol.........................................................35
Nordic Paper Develops New Grease-proof Technology....................................................................38
Nissan to Launch Altima Hybrid Sedan in Australia...........................................................................40
Motor Coach Industries to Debut New Luxury Coach Bus................................................................44
Sprint to Estimate the Lifetime Value of Customer Network.............................................................47
Airbus Builds A380 Super Jumbo to Challenge Boeing....................................................................49
Express to Reject Catalog Printing & Postage Cost Increase..........................................................52
How Much to Ask for a 5 Year Oil Field Lease?.................................................................................54
Whole Foods Grocery Store to Cut Tomato Price by Half................................................................55
NBC to Bid for Broadcasting Rights to Olympic Games....................................................................58
AK Steel to Lower Price and Add Capacity by 5%.............................................................................63
How Much is a Medium-sized Oil Tanker Worth?..............................................................................64
What Should The Price of an Indestructible Golf Ball Be?................................................................66
Blackstone Evaluates Asiana Club Frequent Flyer Program............................................................69
MGM Grand Hotel & Casino to Unveil New Dice Game....................................................................71
Bayer Healthcare to Launch New Asthma Drug in Canada..............................................................73
UPC Broadband to Launch Wireless Service in Austria....................................................................74
Enterprise Software Autonomy Changes Its Pricing Strategy..........................................................76
Why Skadden Pays First-Year Associates $160,000 a Year?.........................................................77
How Much is Real Teleportation Machine Worth?.............................................................................78
Dean Foods to Buy Formula That Extends Milk Shelf Life................................................................81
EasyJet Airline to Start New Route Between Paris & London..........................................................82
Genentech Invents Preventative Drug for Heart Attack.....................................................................85
Medical Startup Xagenic Develops Blood Filtering Device...............................................................86
Xerox Develops New Laminate for Glass Bottle Labeling.................................................................88
Disney Bids on Controlling & Operating NYC Central Park..............................................................89
Research In Motion to Launch BlackBerry Torch 9800 Smartphone...............................................91
AMC Theatres to Try New Pricing Strategy for Movies.....................................................................93
Delta Evaluates SkyMiles Frequent Flyer Program...........................................................................94
How Would You Start a New Business at Kellogg?...........................................................................95
GE Defines Pricing Strategy for Eternal Light Bulb............................................................................96
Eli Lilly Develop New Eyedrops That Cure Myopia..........................................................................100
EU Assess Damages of Computer Chip Price-fixing.......................................................................101
Law Firm Baker & McKenzie to Buy 800 Phone Number................................................................102
Fidelity to Invest in Hartford Group Common Stock.........................................................................104
The Costs of Email, Voice Mail and Fax Messages.........................................................................105
New York Times Retail Advertising Revenue Jump.........................................................................105
Are Small Oil Tankers Really Worth Nothing?..................................................................................106
How Much to Pay for GE’s New Wind Turbine Generator?............................................................107
Ann Taylor’s Catalog Printing and Postage Costs Increase...........................................................108
How Much is Chicago’s Cigar Bar Worth?........................................................................................109

Microsoft Buys Social Network Yammer for $1.2 Billion

Case Type: merger & acquisition (M&A); pricing & valuation; finance & economics.
Consulting Firm: Capital One first round full time job interview.
Industry Coverage: software, information technology (IT).
Case Interview Question #00782: Yammer is a freemium enterprise social networking service that was
launched in 2008. Yammer is used for private communication within organizations and is an example of
enterprise social software. The tool was originally developed as an internal 
communication system for the genealogy website Geni. Access to a Yammer network is determined by a
user’s Internet domain so that only individuals with appropriate email addresses may join their respective
networks.
The year is 2012. Technology giant Microsoft Corporation (NASDAQ: MSFT) is looking to buy out
Yammer. At this time, Yammer is already profitable and is expected to have steady, continued growth for
the foreseeable future. The CEO of Yammer has offered to sell for $1.2 Billion. Is this a reasonable price
for Microsoft?
Possible Answer:
Question 1: What are some of the methods for valuing the acquisition target Yammer?
Suggested Solution:
 Discounted Cash Flow (DCF)
 Comparables / multiples from similar companies.
 Multiples such as price to earnings ratio, price to sales, assuming that information is available.
Question 2: Using a simple DCF valuation method, is an acquisition price of $1.2 Billion a good deal?
Additional Information: (to be provided to the candidate if aksed)

 Discount Rate (WACC, weighted average cost of capital): 11%

 Growth Rate: 3%
 Yearly Cash Flow (for foreseeable future): $50 million
Suggested Solution:
1. Basic DCF

Simplified Discounted Cash Flow = Perpetuity = Cash Flow / (Discount Rate – Growth) = $50 / (0.11-0.03)
= $625 million

Therefore, the asking price of $1.2 Billion is not a good deal.

2. Advanced

Use this version of solution if the interviewee should know how to calculate the Weighted Average Cost of
Capital (WACC). Note: The interviewer could add a couple of years of differing cash flows if he/she wants
the question to be more complex.

Additional Information: (to be provided to the candidate if aksed)

 Market Risk Premium: 8%
 Yammer’s Beta: 1
 Percentage of Debt: 20%
 Percentage of Equity: 80%
 Risk Free Rate: 5%
 Tax Rate: 30%
 Cost of Debt: 5%
Cost of Equity = Risk Free Rate + Beta * Risk Premium = 5% + 1 * 8% = 13%

WACC = Percentage of Debt * Cost of Debt * (1 – Tax Rate) + % of Equity * Cost of Equity = 20% * 5% *
(1 – 30%) + 80% * 13% = 11%

The DCF valuation is the same as the basic DCF from this point, resulting in a lower valuation than the
asking price.

Question 3: Can you think of risk factors or other considerations that could be taken into account when
making the buyout decision?
Suggested Solution:
The Discount Rate 11% is quite high, is it possible that Yammer is less risky and deserves a lower
discount rate?

Can Microsoft add any value to Yammer that will increase its future cash flow, lower costs at Microsoft, or
add other synergies that might increase the value of the acquisition? (In fact, Microsoft later announced
that the Yammer team would be incorporated into the Microsoft Office division).

Thomson Scientific to Change into License-based Pricing

Case Type: increase sales/revenues; pricing.
Consulting Firm: McKinsey & Company final round full time job interview.
Industry Coverage: software, information technology (IT); mass media.
Case Interview Question #00765: Our client Thomson Reuters Corporation (NYSE: TRI, TSX: TRI) is a
major multinational mass media and information firm founded in Toronto and based in New York City. It
was created by the Thomson Corporation’s purchase of British-based Reuters Group in April 2008. The

company  has four divisions: Financial and Risk Operation, Legal, Tax &
Accounting, and Thomson Scientific. For this case, we will focus on the Thomson Scientific division only.
Thomson Scientific is a research content aggregator and distributer to academic institutions, local
libraries, government institutions. Their 2010 revenues are USD $1 billion dollars. However, the CEO of
Thomson Reuters thinks that the Thomson Scientific division has not tapped into potential opportunities
that are out there and wants your help in understanding how to go about these opportunities.
How would you approach the situation?

Additional Information: (to be provided to candidate upon request)

Industry: although the 2008 economic recession had a negative impact on some local libraries, the
industry is pretty stable.

Competition: low – medium in research content space.

Products: the Thomson Scientific division has three products – one for each segment. These products are
Academic Research (ACA_RES), Linrary Research (LIB_RES), Government Research (GOV_RES).
These products are web solutions that can operate independently or in integrated fashion with other
database tools clients typically have.

Individual revenue streams: ACA_RES, GOV_RES revenues went up, but LIB_RES revenues went down.

If asked, mention that the revenues of LIB_RES went down by 3% compared to previous year.

Possible Answer:
Question #1: Ask why the LIB_RES revenues may have gone down.
Possible Solution:
Economy: many local libraries depend on funds from local city government and state/federal grants. The
2008 recession had an impact on the people’s livelihoods because of which the tax dollars went down
constraining grants to local libraries.

Also due to poor economy, libraries were not able to raise funds from private institutions as they were
able to pre-recession period.

Note:
The candidate should go back to the original question of how to tap into some of the market opportunities.

The candidate should pick up that it is a revenue related question and put out his/her approach on how to
increase the revenues.

A good candidate will prioritize the issues related to revenues and would say he/she will take a look at the
LIB_RES product and its revenues and see what caused the decline besides economic issues and if
something can be done about that.

Question #2: Directly ask the candidate “What do you think about the LIB_RES product?” if candidate
does not point it out.
Possible Solution:
The candidate should ask about all the aspects of revenues and costs. Provide the following additional
information if asked.

 # of clients: 2,000 libraries in the U.S.

 Average sale price: $45,000 per annum
 Contract period: 1 year
 Sales channels: direct sales force
 Cost to sell and manage each contract: $20,000 including sales overhead and salaries
Candidate should get product and its pricing.

Candidate should identify that the number of clients may have changed due to economic pressures.

Candidate must calculate the profitability of this segment. He/she should identify that it is a profitable
segment (profit of $45,000 – $20,000 = $25,000 per client) and price could be the most likely reason for
declining revenues.

Additional questions the candidate may have:

 How is the product sold? — Sold as a package whether the client uses the features or not.
 Does the client have options from competitors? — Yes, but our product is best in the industry for
ease of use especially for children and elderly that frequent the public libraries.
At this point, the candidate should pick up on given information and point out that there are some features
that our clients do not want in our product. Maybe there is an opportunity to examine some of the key
feature offerings and unbundle and offer them as a configurable, customizable product for a lower price.
For example:

 Offer the product based on number of users – license based.

 Charge clients based on usage of our information.
Question #3: Our client Thomson Scientific wants to go with license-based pricing. Ask the candidate to
calculate the price per user license. Ask also for the breakeven volume of seats.
Possible Solution:
A good candidate will ask one or more of the following questions to gather information.

Table 1. Average number of users per public library (per month):

Segments within Public

Libraries Small, Medium, Large

# of users of these libraries small – 2000, medium – 5000, large – 8000

# of libraries small – 800, medium – 750, large – 450

# of users of our product 60% on average

Calculations of Average number of users per public library (per month)

 Small 2000 * 0.6 = 1200

 Medium 5000 * 0.6 = 3000
 Large 8000 * 0.6 = 4800
Candidate should mention that to keep up with our revenues and possibly increase them, we should price
each license at a minimum price of (Current Revenue for the product / Total users).

Total users per month: 1200 * 800 + 3000 * 750 + 4800 * 450 = 5,370,000 per month.
Current Revenue = $45,000 * 2,000 = $90,000,000.
Price = $90,000,000 / 5,370,000 = approximately $17 dollars. (If they rounded 5,370,000 to 5,000,000
they would get $18 dollars which can also work)

A good candidate will also look at profits for each segment within LIB_RES and calculate breakeven
licenses for all segments.

Break Even = Costs/Margin per seat = $20,000/$17 = 1180 licenses per library, assuming the variable
cost of each license is $0 because it is a software product.

4. Conclusion
A. Recommendation

 Given the license price we just arrived at, our client Thomson Scientific should sell each seat at a
minimum of $17.
 A good candidate will say that because of our product quality, larger clients may pay more for
each seat, e.g. $20 a seat. In that case, the revenues can be greater than the current revenues.
B. Next Steps

 Our client Thomson Scientific should conduct a survey to see if their clients are interested to pay
per seat/license including the price point per seat.
 This would also help our client understand other issues public libraries may face in terms of
customer visitation patterns and how that can impact the per license sale of our clients product.
 Other ways to increase revenue is to sell to consortiums (e.g. group of libraries in a State/City).
Scientist Invents Magic Eye Drops That Cure Eye Problems
Case Type: new product; pricing & valuation; market sizing.
Consulting Firm: Bain & Company first round full time job interview.
Industry Coverage: Healthcare: Pharmaceutical, Biotech & Life Sciences.
Case Interview Questions #00756: For this case, our client is Dr. Rothman. Dr. Rothman works as a
research scientist at the National Institutes of Health (NIH), a major biomedical research facility located in
Bethesda, Maryland, USA. Recently, Dr. Rothman has invented an amazing new product for eye

conditions.
Long story short, the other day Dr. Rothman just accidentally discovered the chemical formula for Magic
Eye Drops in his research lab. One drop in each eye will cure short- or long-sightedness in any patient
with eye problems. But Dr. Rothman is a research scientist, not a businessman, and he has come to our
consulting firm because he wants to sell the intellectual property rights to his Magic Eye Drops to a large
pharmaceutical company that will have the resources to commercialize his invention. So, what should his
asking price be?
Additional Information: (provided upon request)
Dr. Rothman has secured an exclusive, worldwide patent for the next 20 years. After the patent expires,
generic versions will quickly be developed.
Obstacles to regulatory approval are not foreseen.

The Magic Eye Drops have no known side effects or risks.

Give the candidate bonus points for identifying laser surgery as the closest competitor, but tell him/her to
focus only on corrective lenses (glasses and contacts) as competitors for the purposes of this case.

Direct the candidate to focus only on the U.S. market.

Possible Answer:
1. Suggested Framework

The interviewer or case giver should allow the candidate to build a framework. Help the candidate
understand that this is a pricing & valuation case.

The candidate will develop a structure to estimate the Net Present Value (NPV) of future expected
revenues and costs.

To develop revenue projections, the candidate will have to estimate the market size and the optimal price.
An illustrative example of market sizing is given in the next section 2 “Market Sizing” and an estimate of
revenue, including pricing, is given in section 3 “Pricing & Revenue”.

Make the candidate brainstorm cost drivers. Once the candidate has listed all cost drivers, provide
him/her with the figures listed on slide 4.
2. Market Sizing

Age
Group Population Rate of Sight Problems Rate of Adoption Market Size

0-15 50M 20% 10% 1M

16-30 50M 30% 50% 7.5M

31-40 50M 40% 50% 10M

41-60 50M 50% 50% 12.5M

61-75 50M 60% 40% 12M

75+ 50M 75% 20% 7.5M

Total ~50M

Give the candidate bonus points for thoughtful and creative explanations of the assumed rate of sight
problems and assumed rate of adoption within each segment (e.g., adoption among young and old
patients will be lower because parents will be unwilling to test out a new technology on young children
whose eyes are still changing and elderly patients with fewer years to live will realize fewer years of
savings from not having to purchase new corrective lenses).

Give the candidate bonus points for recognizing that the market will grow over the course of the 20 year
patent. If the candidate raises this point, provide a projected annual growth rate of 3.5%. By the rule of 70,
this means that the market will double before the patent expires, resulting in a true market estimate of
100M consumers.

3. Pricing & Revenue

The candidate should weigh different pricing strategies: competitive, cost based and value based.

One pricing strategy is to use competitive pricing, using corrective lenses as the relevant competition.
Based on personal experience, general knowledge or interviewer-provided information, the candidate
should assume an annual cost of corrective lenses at about $200.

Revenue over the life of the patent (20 years) can be calculated as shown below:

 Market Size * Annual Value of Magic Eye Drops * Patent Life = Total Revenue
 ~100M * $200 * 20 years = $400B
The candidate may suggest factors that alter the price point – such as convenience (suggesting a higher
price point) and riskiness (suggesting a lower price point). The interviewer should accept reasonable
alterations.

The solution’s assumption of 20 years of revenue assumes that all customers will purchase as soon as
the product comes on the market. The candidate may reasonably adjust the years of revenue downward
to account for some customers waiting several years before purchasing.

Make sure that the candidate understands that we will disregard discount rates for the purposes of this
case. In other words, assume a discount rate of 0%.

4. Costs

Exhibit 1: List of Cost Driver

Costs Driver Cost

Management/Overhea
d 33% of operating costs

Operating Costs

Marketing $150M per year for first 10 years, $50M per year for last 10 years

Production $20 per drop

Distribution $100M per year

Costs Calculations

Costs Driver Cost Total

Marketing $150M * 10 years + $50M * 10 years $2B

Production $20 per drop * 2 eyes * 50M customers $2B

Distribution $100M * 20 years $2B

Operating Costs $6B

Management/Overhea
d 33% * $6B $2B

Total $8B
5. Conclusion

A. Recommendation

Dr. Rothman should put his invention up for sale at ~ $392B ($400B in Revenues – $8B in Costs). Sales
could however continue even after expiry of the patent.

This solution has been simplified by assuming a discount rate of zero, because calculating the NPV for
this case by hand would be overly complicated.

B. Next Steps

 Solicit buyers: Focus on strategic acquirers

 Attempt to start a bidding war
 Speak at conferences extolling the value
Moldovan Coffin Maker to Exit Coffin Manufacturing Business
Case Type: new product, new technology; pricing & valuation.
Consulting Firm: McKinsey & Company first round full time job interview.
Industry Coverage: manufacturing.
Case Interview Question #00689: Our client Moldovan Coffins is a high-end coffin maker in the country
of Moldova. Moldova, officially the Republic of Moldova, is a landlocked country in Eastern Europe
located between Romania to the west and Ukraine to the north, east, and south. Moldova declared itself

an independent  state with the same boundaries as the Moldavian Soviet

Socialist Republic in 1991 as part of the dissolution of the Soviet Union. The total population of the
country amounted to 4 million (2004 Moldovan census).
The owner of Moldovan Coffins business has seen substantial change in his market in recent years and is
contemplating the future of his business. Up until now, he has been in the business of building high-
quality, handcrafted coffins largely by hand with a skilled labor force. Recently, however, he has become
aware of a new technology that would allow him to build machine-made coffins with much less labor.
Should he invest in this new technology? And should he even remain in the coffin-making business in the
first place? Why or why not?
Possible Solution:
Note that this case requires the interviewer to drive key points in the discussion. Allow the candidate to
formulate a plan and then prompt him/her to consider each of the topics listed below.
Question #1: What strategic alternatives should the owner of the coffin business consider?
Possible Answer:
If the candidate doesn’t get all of this, help them along since we need to lay this foundation for the rest of
the case – We need to decide firstly whether to stay in the coffin business at all and if so, whether he
uses the new technology:

Option 1: Sell the business to a third party

Option 2: Sell the assets of the company and shut it down
Option 3: Keep operating as is
Option 4: Keep operating and invest in the new technology

Question #2: How would you figure out the current value of the coffin business? Provide the following
additional information if the candidate asks for it clearly and directly.
Market Size – If the candidate asks for the size of the market, first make him/her brainstorm about
different ways to determine market size. A good candidate should come up with at least 4 different ways,
such as:

 Calculate from the market’s total population, population growth, and birth rate.
 Review of death records for a period of time.
 Take sample of the number of obituaries in paper serving given population base.
 Calculate from total population, average life expectancy.
Question #3: Now make the candidate calculate the market size, giving them the following data:
 Population of Moldova: 4 million
 Population Growth: 0%
 Average Life Expectancy: 75 years
 Age Distribution: assume a flat age distribution, i.e. same number of people at every age.
 Burial Customs: 75% of deaths are buried in coffins.
Possible Answer:
(4 million) x (1/75) * (75%) = 40,000 coffins purchased per year.

Note that the candidate needs to quickly realize that every year, 1/75th of the total population will turn 76
and therefore (on average) will die.

Question #4: Now make the candidate calculate the value of Moldovan Coffins’ business, giving them the
following data:
Price – Coffins are priced at $5,000 for a hand-made high-end coffin.

Costs – Material accounts for 10% of the direct cost, while labor accounts for the other 90%. COGS is
$4,800 per coffin. Fixed costs for the business are $700,000 per year. Assume all assets are fully
depreciated and ignore taxes.
Competition – The client Moldovan Coffins has a 10% market share and a relative market share of about
1 (if asked, you may explain that relative market share is the ratio of the company’s market share to that
of its nearest competitor.)

Market Trends, Regulation, etc. – If asked about any exogenous factors, simply tell the candidate to
assume that the market is expected to continue as it currently is.

Possible Answer:
The candidate needs to calculate the value of the business now. This is a pure mathematical exercise.

 Margin per coffin = $5,000 – $4,800 = $200

 Contribution Margin = $200 per coffin x 40,000 coffins x 10% market share = $800,000
 Profit = Contribution Margin – Fixed Costs = $800,000 – $700,000 = $100,000
Assuming a discount rate of 10% (candidate can assume anything reasonable here as long as they are
consistent later), a perpetuity with cash flows of $100,000 per year has a present value of $100,000 / 0.1
= $1 Million. So the current business is worth $1M whether they keep it or sell it.

Question #5: So now what is the value of the company if it were shut down and the assets were sold?
Additional Information to give if asked:
Assets – Since the firm has been building coffins by hand, the fixed assets are essentially only the land
and improvements. These are owned outright by the company.

When the candidate asks for the value of the land, have them brainstorm ways that they might determine
this. They should come up with at least 3 good ways, such as:

 Look for comparable real estate and determine recent selling price.
 Find comparable commercial real estate and determine the rent per square foot, then discount
the cash flows generated by renting the property.
 Determine rate of appreciation for property in the area and then apply to book value of current
land and improvements.
Give the candidate the following information and have them calculate the value of the property:

 Book Value of Land: $20,000

 Book Value of Improvements: $80,000
 Years Owned: 48
 Average Real Estate Appreciation: 6% / year
Possible Answer:
Using the “rule of 72″, a 6% growth rate will double the investment every 72/6 = 12 years. Since the
property was held for 48 years, the current value will be $100K * (2 x 2 x 2 x 2) = $1.6M.

Since the assets ($1.6M) are higher than the value of the discounted cash flows ($1M), then it would
make more sense to liquidate the business and sell the assets.
Question #6: What would the value of the company be if the owner invests in the new technology?
Provide the following information if asked:
Investment – Investing in the new technology will cost the firm $1M.

Cost Savings – Material costs remain the same, but labor costs are reduced by 50%.

Proprietary Nature of Technology – The new coffin-making technology is being offered for sale by a
machine tool company, who holds the patent. They are not offering exclusivity to any customers (i.e. they
will sell to Moldovan Coffin’s competitors if possible).

Competitive Threat – It is not known whether the competitors have acquired or are planning to acquire
this new coffin-making technology.

Customer Preferences – While the machine-made coffins are not “hand made”, the quality perceived by
the customer is the same or better. It is believed that the customer will be indifferent between the quality
and appearance of a hand-made and a machine-made coffin.

Brand Impact – The candidate may argue that a machine-made coffin might negatively impact Moldovan
Coffin’s brand. If so, ask them how they would test this (e.g. consumer research), but tell them to assume
that it would have negligible impact.

Possible Answer:
Since Moldovan Coffins has no proprietary control over the technology, it is likely that competitors will
also acquire it, resulting in an overall lowering of the industry cost structure. If this is the case, price will
also fall as competition cuts price in an attempt to gain share. If we assume that gross margins remain the
same, since the industry competitive structure has not changed we can calculate the new margin
contribution as follows:

 Gross Margin = $200 / $5,000 = 4%

 Labor Cost = (4800 x 90%) x 50% = $2,160
 Material Cost = 4800 x 10% = $480
 COGS = $2,160 + $480 = $2,640
 Price = $2,640 / (1 – 4%) = $2,718
 Contribution Margin = $2,718 – $2,640 = $78 per coffin
 Profit/Loss = $78 * 4,000 – $700,000 = -$388,000
So the introduction of the new technology to the market might be expected to reduce industry profits,
making this business completely unprofitable.

Candidates could argue other scenarios, by assuming that the industry would be able to maintain higher
margins than we have assumed here, so the answer may be different. They should recognize, however,
that the introduction of this non-proprietary technology will significantly reduce industry pricing in the
absence of some other form of price support (such as branding, collusion between players, etc.)
7. Conclusion
A star candidate will see that his/her time is nearly up and will present a recommendation for the client
without prompting. If the interview is within 3 minutes of the end, ask: “The owner just called and said he
has an offer to buy his business. He needs to know whether he should take it right now.”

Possible Answer:
Given the credible threat of the industry becoming unprofitable due to the introduction of this new
technology, the owner should look to sell the company as soon as possible. Taking into account the
assets of the firm and the present value of the expected cash flows of the business itself, he should
attempt to liquidate the business and to sell the assets for around $1.6M.

If the owner is unable to sell the business now, he can continue to operate the business as a cash cow,
but should not invest in the business above what is necessary to keep it operating at its present level. He
should expect the business to become less profitable as the industry moves to mechanization, and should
eventually look to sell the assets of the company and close the firm.

Comments:
This case was given by McKinsey in one of their first-round interviews and is a typical “command and
control” style McKinsey case. In this style of case, the interviewer allows the candidate to drive the case
initially to explore possible routes to a solution. However, once the candidate has laid out a plan, the
interviewer takes control and asks the candidate to solve a few specific problems before coming to the
final conclusion.

When giving this case, allow for some initial planning and brainstorming by the candidate, but then firmly
take control of each of the “modules” described in the case. Try to move the candidate along through
each of them, since in the actual interview only those candidates that complete all of the sections will be
considered to have done well. This case tests mental horsepower and the ability to move to conclusions
quickly.

Explosives Manufacturer Dyno Nobel to Bid for Mining Contract

Case Type: pricing & valuation.
Consulting Firm: Hay Group first round full time job interview.
Industry Coverage: chemical industry; mining & metals production.
Case Interview Question #00684: Our client Dyno Nobel is a large manufacturer of explosive products.
It is a wholly owned subsidiary of Australian multinational corporation Incitec Pivot Limited (ASX: IPL),
and has customers in the mining, quarry, construction, pipeline and geophysical exploration industries.
Headquartered in  Cottonwood Heights, Utah, USA, the company operates in
Australia, Canada, the United States, Africa, Indonesia, Mexico, South America, Papua New Guinea and
Turkey.
Recently, Dyno Nobel’s largest customer, an American mining company, has called for a competitive bid
for their next 3 year contract. Previously, Dyno Nobel has been their preferred provider and have run
uncontested for nearly 10 years. Our client Dyno Nobel wants to know how we should price the bid. What
would you tell them?
Additional Information: (to be provided after relevant questions)
1. Our client Dyno Nobel provides three products:

 Ammonium nitrate (AN) which is used to create the explosion

 Ignition systems (IS) used to start the explosion
 Slot services which are contracting services designed to help clients understand where to place
explosives.
2. When asked why the bid was put out for RFP (request for proposal), the answer was that we are not
sure but suspect it could be internal cost pressures.

Possible Solution:
Candidate: I’d like to take a look at this by first analyzing the external factors currently impacting our client
(what the needs of the mining firm have been in the past and are now, what the competitive landscape
looks like, and how the industry’s product mix breaks down). Then I’d like to do an internal analysis of the
various options available to our client focusing largely on drivers of profitability. To start, what do we know
about this mining firm and their current contract?

Interviewer: The mining firm owns two mines, one in Kentucky and one in Wyoming. Previously, 80% of
the revenue of their contract has been derived from AN and 20% from IS. They don’t purchase any slot
services as they have their own people.

Candidate: You mentioned the contract from a revenue perspective but do we know what they purchased
from a volume perspective and at what cost?

Interviewer: They purchased 40,000 tons of AN at $1000 per ton and IS at $250 per ton of AN (there is a
predetermined ratio of how much IS you need per ton of AN).

Candidate: Great. Next I’d like to understand a little bit more about the competitive landscape. Do we
know anything about new competitors that have entered the market and how we compare to those firms?
Interviewer: Nothing has changed from a competitive standpoint as we have the same competitors as
always. We are generally seen as the market and price leader.

Candidate: From a product standpoint, how do we compare to those competitors?

Interviewer: AN is pretty much a commodity although we do charge about a $10 premium over our
competitors. From an IS standpoint, we are the clear leader and have a quality product for which people
will pay for.

Candidate: Do all competitors provide both products?

Interviewer: Our largest competitor does although they have bad ignition systems. There are other
competitors for ignition system abroad that are closer in quality to ours and AN can be purchased from
many places as it is a commodity.

Candidate: Great. Now that I know more about the industry landscape, I’d like to look at the current and
future profitability of this contract. We know that the client purchased 40,000 tons of AN at $1,000 per ton
so that is $40 million in revenue. They also purchased IS at $250 per ton of AN so that is $10 million in
revenue for a total of $50 million. Do we know the margins on these products?

Interviewer: Yes, AN gets a 20% margin and IS get an 80% margin.

Candidate: That means that we are making $40 * 20% = $8 million, $10 * 80% = $8 million of profit off of
each component of the contract currently. What are the specifics of the future contract?

Interviewer: It will be for the same components in the same volumes as this contract.

Candidate: Since, the contract is the same as last time, we need to think about who we are really
competing against to determine price. In this case, it seems that no competitor offers as robust an offering
as we do. However, the customer still has the option to purchase the products separately on their own.
Do we know how much they could save by doing so? Also, what would it cost them in internal costs to
manage the process?

Interviewer: They could get the next closest IS system to ours for $100 per ton cheaper by purchasing
overseas. Additionally, let’s assume that they need 1 person at $100,000 salary per year to manage the
process.

Candidate: That means they will save $4 million per year on their own although they probably won’t want
to do it.

Interviewer: If you think they don’t want to do it, should we charge them more for our integrated service.
Candidate: I wouldn’t advertise that to the customer even if we do decide to do it because it is poor
positioning. Also, when looking at the number, we could make $16 million in profit so by looking at the
scope, I’m not sure another $100k matters.

Interviewer: Agreed. So what should we do?

Candidate: Well, since AN is a commodity and since we make a much smaller margin on it, I’m not
attracted to trying to reduce price there. However, as we make a much higher margin on IS, and it would
be much harder for them to get these products from abroad, that may be a good place to reduce price if
that is the mine’s number 1 concern.

Interviewer: That makes sense. So what should we price it at?

Candidate: Working backwards, I’m not sure that we necessarily need to give an entire $4 million price
concession to our client as they do know that we have a premium product. Instead, let’s reduce our price
by half that so that the maximum they will pay is $8 million for IS systems. That makes the price $200 per
ton. Does that seem reasonable?

Interviewer: It does. Now, make a final recommendation to the client Dyno Nobel.

Former GE Scientist Builds a Perpetual Motion Machine

Case Type: new product; pricing & valuation.
Consulting Firm: Bain & Company first round full time job interview.
Industry Coverage: energy industry.
Case Interview Question #00681: I joined Bain & Company’s Boston office as an associate right after
business school. I was flying back from my client the other night, and working away on my laptop. Beside
me was seated a mad physicist who used to work for energy giant General Electric (NYSE: GE). The GE

physicist  first engaged me in a short conversation, and then he was very excited
to find out I was a consultant working at Bain. It seems that he has created the first perpetual motion
machine in the world. His machine requires no energy input, and keeps on going. The GE scientist wants
to know how to make money with it. How would you go about it?
Note: In general, a perpetual motion machine is a device which, once activated, would continue to
function and produce work indefinitely with no input of energy.
Possible Solution:
We started with a general framework on the things I would cover.
Question #1: The interviewer pushed me into the category of what the perpetual motion machine might
be used for and we stuck on cars.
Question #2: The interviewer then asked me what the size of the opportunity could be.
I did a quick market sizing, based on the total number of cars in the U.S., and what percentage I would
guess are traditional fuel vs. alternative fuel (a small %), and then assumed a % of those bought new cars
yearly and ended up with a large #. (40 Billion, I think)

Question #3: What would convince these people to buy our perpetual motion technology in their cars?
I talked about value proposition, pricing, awareness, proof of technology.

Question #4: How would we convince the traditional fuel customers to buy this?
Question #5: How would you price this? And how would this change over time?
I talked about making sure we covered our COGS, and then looked at EVC especially in terms of actual
fuel costs and time spent refueling, environmental feel good factor etc. I thought that initially we’d price at
a premium and later in the life cycle when it was more mature, I figured we’d potentially be competing on
price since other alternatives may creep in.

Question #6: What would GM think of this if we were to approach them with it?
I talked about how they would probably be thinking about the fact that their bread and butter business
(traditional fuel) would be threatened, but ultimately they would need to decide whether they thought the
competitors would come out with this before them, or whether they would want to be the first to market
with it. I also talked about how it may take a while to implement because of operational difficulties, design
etc.

Question #7: Would you invest with the mad GE scientist, if he asked you to? Why or why not?
Question #8: What is your 30 second elevator speech to billionaire investor Warren Buffet, who is known
to have an appetite for clean energy?
This is a source of limitless energy. As energy demand continues to grow it becomes a more and more
precious resource. Who would not want to invest in a limitless source of a precious resource?

Commentary:
Looking at the potential to use this perpetual motion machine technology in cars is clearly a great option
and the case approach that the interviewee went through looks pretty good.

Starting from a more generic level however I would probably tackle the question as follows:

If we look at the benefits of a perpetual motion machine, it is basically a source of energy. In assessing
potential applications of the technology then I would ask the question “Where is there the greatest
demand for energy?” or “Where is the best market for a new source of energy?”

This could lead to a reasonable discussion of a number of different options: energy at home, energy in
industry, energy in transport. Transport makes sense as a market to drill down on this product because it
is clearly such a large source of energy consumption.
From a pricing perspective you may need to think about the price of the technology as against the savings
that it generates. You would need to ensure there was still sufficient savings to justify consumers wishing
to try a new technology. Equally it would be important that the mad scientist prices the product so that car
manufacturers can implement the technology profitably.

Ski Resort Coffee Shop for Sale in Vail, Colorado

Case Type: pricing & valuation.
Consulting Firm: Gallup Consulting first round full time job interview.
Industry Coverage: food & beverages; restaurant & food service.
Case Interview Question #00653: The Town of Vail is a small town in Eagle County, Colorado, United
States. The population of the town was approximately 5,300 in 2010. The town was established and built
as the base village to Vail Ski Resort (a popular mountain ski resort in Eagle County, Colorado), with

which it was originally conceived.

A friend of mine owns a coffee shop in the Town of Vail. Recently, he asked me if I wanted to buy his
coffee shop for $100,000. Do you think I should do it? Why or why not?

Additional Information: (to be given to candidate upon request)

The interviewer or case giver should read this information well before he/she gives the case. Share this
information in each bullet only if the candidate specifically asks for it in a clear and deliberate way.
Customers:

 The Vail, Colorado coffee shop serves mostly locals, not tourists, so the demand is consistent
throughout the year.
 The coffee shop is open 12 hours a day (7am to 7pm), six days a week (from Monday to
Saturday), 50 weeks a year.
Products/Prices:
 Cup of coffee $4.00
 Bottled Water $2.00
 Pastries $3.00
Variable Cost:

 All products sold in the coffee shop have a 50% margin

Other Costs:

 Rent was $500 per month

 Wages (for 2 employees) were $8.00 per hour.
The interviewer should inform the candidate that he/she can assume that the coffee shop will bring in
consistent profits.

Possible Answer:
This is a pricing & valuation case question. So, to get the value of the coffee shop we need first to get its
profitability.

Profits = Revenues – Costs

1. Revenues: Estimate the market size

Assume that the coffee shop gets 10 customers per hour in slow hours and 20 customers per hour in a
busy hour.

 on any regular week day, the first and the last 2 hours of the day are busy hours. So the coffee
shop gets 20 * 4 + 10 * 8 = 160 customers per day.
 on Saturday all the hours are busy hours, then we have 20 * 12 = 240 customers on Saturday.
 Number of customers / week = 160 * 5 + 240 * 1 = 1040
 Number of customers / year = 1040 * 50 = 50,200 ~= 50,000
Assume 60% of customers order coffee, 30% order pastry, and 10% buy a bottle of water, then the
annual revenue is:

 50,000 * 60% * $4 + 50,000 * 30% * $3 + 50,000 * 10% * $2 = $175,000

2. Fixed Costs

 Rent = $500/month * 12 months = $6,000 a year

 Wages = $8/hour * 12 hours * 6 days * 50 weeks = $28,800 ~= $30,000
 Total fixed costs: $30,000 + $6,000 = $36,000
We can also make assumptions about utilities and insurance.

3. Profits

Profits = Revenues – Costs = $175,000 * 50% profit margin – $36,000 = $52,500

Assume a 30% tax rate:

 Profits after tax = $52,500 * (1 – 30%) = $36,750 ~= $36,000

4. Valuation

If we assume that the coffee shop will be in operation for 5 more years and we use a 10% WACC
(weighted average cost of capital), then its net present value (NPV) would be:
NPV = $36,000 + $36,000/1.1 + $36,000/1.1^2 + $36,000/1.1^3 + $36,000/1.1^4 = $150,000
Conclusion
As long as the sales would be consistent for the rest of the 5 years, it would be profitable to buy the coffee
shop. However, further analysis should be done on the management experience and the competition to
ensure that sales would be consistent.

Valeant’s New Asthma Drug Approved by Canada FDA

Case Type: pricing & valuation; new product.
Consulting Firm: FTI Consulting first round summer internship job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00626: Our client Valeant Pharmaceuticals International, Inc. (NYSE: VRX,
TSX: VRX) is a Canadian pharmaceutical company with activities spanning the drug discovery pipeline
from target identification through clinical trials and commercialization. Headquartered in Laval,

Quebec,  the company’s focus is on neurology, dermatology and infectious

disease with several drugs in late stage clinical trials.
Valeant’s first drug has just been approved by Health Canada, the equivalent to the United States Food
and Drug Administration (FDA). It is a new treatment for asthma. The client Valeant Pharmaceuticals has
hired FTI Consulting to help them assess what is the right price for this new treatment and they will also
need FTI Consulting’s help with completing an application to the Canadian government for price
approval. The second step is necessary because, as you may know, Canada’s government subsidizes
healthcare costs and we will discuss this in greater detail later in the case.
How would you go about this case?

Additional Information: (to be given to candidate if requested)

The candidate should consider what additional information will be necessary to address this case and ask
for the data as they see fit.

 Research and Development (R&D) costs for this new asthma drug are estimated to be $5 billion.
 Beyond R&D, marketing is the largest cost for a new pharmaceutical. The interviewer, however,
will ask the interviewee to assume that marketing costs are $0 at this stage and there are no variable
costs.
 There are three segments to the asthma market:
 Basic – 2% of the population – have a periodic asthma attack, use 1 inhaler per month
 Serious – 2% of the population – use 1 inhaler per week
 Acute – 1% of the population – use 1 inhaler per week, but attack sometimes results in
hospitalization or even death.
 The client Valeant Pharmaceuticals’ new treatment is classified as preventative. It is a pill that
must be taken every day.
 Regular inhalers cost $10 each. This is the common treatment for asthma.
 Acute patients that result in hospitalization spend on average 1 night/year in the hospital at
$1,000 and the rate of death is 1%.
Possible Solution:
Interviewer: First, let’s discuss the possible ways of framing the client’s first question – how should it price
this new asthma drug?

Candidate: Well, for pricing there are three different methods I can think of:

Cost based pricing – set the drug price at cost and add a percentage markup
Value based pricing – set it at what customers are willing to pay
Determine Minimum and Maximum prices

Interviewer: Great, now, can you go through the steps to solve this problem and provide a price to the
client?

Candidate: OK, so let’s try cost based pricing first. I would assume that the company has both fixed costs
and variable costs. Have we gathered any information from the client about its cost structure?

Interviewer: Well, what do you think would be its largest costs?

Candidate: Given what I know about the pharmaceutical industry and the extensive R&D for drugs, I
would guess Research and Development.

Interviewer: Good, R&D costs are $5 billion. What would you guess are some other key categories of
costs?

Candidate: Marketing is usually a big cost.

Interviewer: Right. For this case, let’s assume marketing is $0 and there are no variable costs. (Where
possible, the candidate could have tried to anticipate this chain of questions and suggested, without being
asked, the key categories of costs that might be relevant)

Candidate: Next, I would want to size the Canadian market for this new asthma drug, assuming that we
will only sell it in Canada. To do this, let’s say the population of Canada is approximately 30 million
people. We would now need to estimate the percentage of the population that is asthmatics?

Interviewer: You’re right. There are 3 segments to this market:

 Basic – 2% of the population – have a periodic asthma attack, use 1 inhaler/month.

 Serious – 2% of the population – use 1 inhaler/week.
 Acute – 1% of the population – use 1 inhaler/week, but attack sometimes results in hospitalization
or even death.
Also, the client’s new treatment is preventative. It is a pill that must be taken every day.

Candidate: OK, so let’s assume every segment will use this new drug. 30 million * 5% = 1.5 million
people. However, I would expect that there would be some barriers to switching and not all potential users
will switch from inhalers.

Interviewer: OK, so now how do you set the price?

Candidate: I want to determine the price to break-even. For a pharmaceutical company, I think 5 years is
acceptable.

 To break even in 5 years: 1.5 million * Total Revenue = $5 billion (R&D)

 Total Revenue = $5 billion / 1.5 million = $3,300
 Use 350 days per year for simplicity, one pill every day over 5 years = 350 * 5 = 1,750 pills
 $3,300 / 1,750 pills = approximately $2/pill
Interviewer: So, do you think this price should be the minimum or the maximum?

Candidate: This is the minimum because it is the break-even price.

Interviewer: OK, now let’s consider the second half of the case. As I mentioned, the Canadian
government subsidized medical costs, let’s for the sake of this case say that it pays back its citizens for
medical treatments. How do you determine how to set the price so that the government will agree to pay
it?

Candidate: Assuming that the Canadian government is paying for the current treatment, I would want to
know their current spend and determine what the difference is between that and the new drug. Do you
know how much the government is currently paying asthma patients for their inhalers?

Interviewer: The cost of inhalers is $10 each. Also, acute patients that result in hospitalization spend on
average 1 night/year in the hospital at $1,000 and the rate of death is 1%.

Candidate: So I want to determine how much the government is currently spending on inhalers.

 Basic: 30 million * 2% = 600,000 people, 1 inhaler per month, 600,000 * $10 * 12 = $72 million
total
 Serious: 30 million * 2% = 600,000 people, 1 inhaler per week, 600,000 * $10 * 52 = $312 million
total
 Acute: 30 million * 1% = 300,000 people, 1 inhaler per week, 300,000 * $10 * 52 = $156 million
total
Total government is spending on inhalers: $72 + $312 + $156 = $540 million a year.
Now I want to determine how much the government is spending on hospitalizations.

$1,000 per night * 1 night/year * 300,000 people = $300 million/year

Total government spend = $540 million + $300 million = $840 million

Over five years: $840 million * 5 = $4.2 billion

So with the new drug, we calculated the break-even at five years to cover $5 billion in R&D. With inhalers,
in five years, the government is spending $4.2 billion.

Interviewer: Good, so with this information, summarize for me the minimum and maximum price.

The candidate should now summarize results to the interviewer and state what you think the minimum
and maximum prices should be. Make sure to note that the new pill is a preventative measure, as
opposed to the current method of using inhalers as treatment. A good summary will be structured and go
back through the steps used in solving the case. At this point you can also bring in other parameters that
may not have been discussed in the case such as the price on-patent versus off-patent, or the potential
larger international market for this drug.

Cordis to Launch New Drug Eluting Stent Device

Case Type: new product; pricing, valuation.
Consulting Firm: Trinity Partners first round job interview.
Industry Coverage: healthcare: hospital & medical.
Case Interview Question #00592: The client Cordis Corporation is a medical device company owned by
Johnson & Johnson (NYSE: JNJ), a large multinational medical devices, pharmaceutical and consumer
packaged goods manufacturer. Cordis is currently headquartered in Bridgewater Township, New Jersey,

United States. Their product lines include stents, distal protection devices,
catheters, and guidewires. In the technical vocabulary of medicine, a stent is a mesh “tube” inserted into a
natural passage/conduit in the body to prevent, or counteract, a disease-induced, localized flow
constriction.
Best known for their cardiovascular stents, Cordis recently developed a revolutionary new product that is
positioned to replace the current products in the market. The product, called Drug-Eluting Stent or DES, is
the first of its kind. DES is a peripheral or coronary stent (a scaffold) placed into narrowed, diseased
peripheral or coronary arteries that slowly releases a drug to block cell proliferation. This prevents fibrosis
that, together with clots (thrombus), could otherwise block the stented artery.
Cordis Corporation wants to launch the new DES device in Europe in the near future and then bring it to
the U.S. in 6 months. They are one year ahead of its competition with regard to R&D of the product. As
part of a consulting team retained by the company to help introduce the new product into the market, you
have been tasked with the following questions.

Question #1: How do you determine what price to charge for DES device? What are the issues that need
to be considered?
Possible Answer:
Three areas should be explored to determine the price of the new DES product:

 Current price of existing products and rationale for current price (value-based or cost-based)
 Benefits of new product vs. old product in terms of decreased side effects or repeat procedures
 Buyer’s willingness to pay
Additional items that could be considered include:

 The cost of the new DES device

 Total R&D costs (if not considered sunk costs)
 Any customer acquisition cost
 The cost of overhead and sales force
Question #2: What is the “Cost Neutral Point” – the point at which the cost of the new DES product
equals that of the old product, given the following data:
 Hospital cost of an operation = $5,000 per patient
 Old product cost = $1,000/unit
 Number of units needed per operation = 2
 Frequency of repeat procedure (using existing product) = 50%
 Frequency of severe complication resulting in open heart surgery = 30%
Is there any more information that you would need to calculate the Cost Neutral Point?

Possible Answer:
I would need more information:

 What is the cost of open heart surgery operation? $30,000

 What is the frequency of repeat procedure using DES device? 0%
 What is the frequency of severe complication using DES device? 5%
 How many units of DES device will be necessary per operation? 2
To determine how much the new DES device is worth, we can set up a calculation table:

Item Old New

Hospital cost $5,000 $5,000

Product cost per operation $1,000 * 2 = $2,000 X * 2 = 2X

Subtotal $7,000 $5,000 + 2X

Repeat procedures 50% * $7,000 = $3,500 $0

30% * $30,000 =
Severe complication $9,000 5% * $30,000 = $1,500

Total $19,500 $6,500 + 2X

To calculate the value of DES device at Cost Neutral Point: $19,500 = $6,500 + 2X
X = ($19,500 – $6,500) / 2 = $6,500

Question #3: What factors might allow Cordis Corp to price the new product above the cost neutral
point? What needs to be considered?
Possible Answer:
 Risk / Malpractice Insurance costs
 Value of reduction in pain (to patients)
 Higher success ratio (without repeat procedure and/or severe complication)
 Cost savings of keeping fewer DES device’s in inventory, etc.
These and other factors might allow us to price DES device above the Cost Neutral Point.

Question #4: The client Cordis Corp has decided that it wants to sell DES device at a premium above the
cost neutral point, but a survey of potential customers (Hospital Purchasing Departments) showed that
they are only willing to pay $4,000 per unit. Now what would you recommend?
Possible Answer:
Is the $4,000 per unit figure a single data point or an average? – An average across many customers
surveyed

Then, there are two things we can do:

 Manage Cordis Corp’s expectations that they should really expect something close to $4,000/unit
 Increase potential customers’ “willingness to pay”
Question #5: How can we increase customers’ “willingness to pay”?
Possible Answer:
Two thoughts:

Communicate the benefits, both “soft” benefits (e.g., decreased pain or frequency of re-operation) and
“hard” benefits (financial) to the additional stakeholders (i.e., patient advocate groups and insurance
payers) in the decision. Work with them to “pressure” the potential buyers of DES device to spend the
additional money to realize the added benefits of the new device.
Publish research articles about the efficacy of the new device in reputable medical journals, e.g., Journal
of the American Medical Association (JAMA), New England Journal of Medicine, The Lancet, etc. and use
those to convince doctors to pressure hospital administration to increase “willingness to pay” for the new
DES device.

Note:
This is largely a “launching a new product” case with a focus on pricing the new product. The case giver
should actively walk the candidate through a set of qualitative and quantitative questions. The case giver
should stick to the script of the case questions. To the effect that the candidate struggles, the case giver
can assist the candidate to get back on track.

The candidate should be structured in answering qualitative questions and crunch through any numbers
thrown his or her way, always keeping in mind how they tie back to the larger issues.

Biotech Startup Invents New Sugar Beets Technology

Case Type: pricing & valuation.
Consulting Firm: KPMG Advisory second round job interview.
Industry Coverage: healthcare: biotech, life sciences; startups; agriculture.
Case Interview Question #00578: Sugar beet is a plant whose tuber (modified plant structures that are
enlarged to store nutrients, used by plants to survive the winter or dry months and provide energy and
nutrients for regrowth during the next growing season) contains a high concentration of sucrose. It is

grown  commercially for sugar production. The United States harvested more
than 1,004,000 acres (4,065 km²) of sugar beets in 2008. In 2009, sugar beet accounted for 20% of the
world’s sugar production.
Recently, a small biotech startup company located in San Francisco bay area has come up with a
revolutionary new seed for sugar beets. Their new sugar beets are exactly the same as regular beets but
yield twice as much sugar. The two inventors of the new seed, also the co-founders the startup company,
wish to sell the patent (which is valid for 20 years) to Monsanto (NYSE: MON), a large multinational
agricultural biotechnology corporation, so that the inventors can pay off their venture capitalist and retire
to an island with lots of sunshine, beach and palm trees. You have been hired to help them set the price
for their new sugar beets technology. So, how would you determine the value of the patent?
Possible Answer:
Interviewer: First of all, can you tell me what determines the price of a new technology or new product?

Candidate: The price of a new product is usually determined by the market.

Interviewer: OK, let’s assume that there are no inputs for the new seed technology (as it’s already
produced and can simply be cloned), and that agricultural goods are commodities sold to a dispersed
market of buyers who individually can exercise little power over the price.

Candidate: Well, in that case the price will be based on the value of the product to the buyer, and by
competition from similar and substitute goods.

Interviewer: Good, why don’t we start out with the competition from similar goods first. Can you think of
any similar products that pose as competition to the client’s new seed technology?

Candidate: Since this is a patent, I would say there are no similar goods, and therefore no competition.

Interviewer: OK, how about substitute goods then?

Candidate: Substitute goods are regular sugar beet seeds and possibly seeds for sugar cane.

Interviewer: Actually, sugar cane is grown in entirely different climates and is not considered to be a
competing product in this market.

Candidate: OK, that rules out one possibility and makes the solution easier. So, the only possible
competition, then, is from regular sugar beet seeds. The value of that product should be compared to the
value of our new seeds. Seeds need to be grown into beets which requires land and labor. The farmers
using our new seeds has two possibilities: they can eith grow twice as much sugar with the same amount
of land and labor or they can grow the same amount of sugar with only half the land and labor. (Let’s look
just at land for simplicity here.)

Interviewer: That’s a good point. But, do you believe the farmers can sell twice as much sugar?

Candidate: Let’s see, one individual farmer in a commodities market should be able to sell all his
increased output at the market price, but if every farmer uses the new technology and doubles his output,
the price of sugar will have to fall. The question then becomes whether the demand for sugar is elastic.

Interviewer: OK, ssing common sense, would you expect anyone to consume more sugar when the price
of sugar drops? For example, bake more cookies or make more lemonade?

Candidate: Probably not, because sugar is already a pretty cheap staple product and rarely the most
expensive ingredient in something. We may have to think about other uses for sugar such as making
alcohol to use as a substitute for gasoline. This market’s demand would probably be elastic.

Interviewer: That is an interesting idea, but let’s assume demand for sugar is fixed for now. (Note: this is
an example of a clue where the interviewer does not want you to pursue this any further)
Candidate: OK, having established these facts, let’s get back to the original line of the argument. If
demand for sugar is fixed, then the only possibility for the farmer is to use only half the land to grow the
same amount of sugar. Then we can determine the value of the land saved. This could be determined by
the market price of agricultural land times the area saved.

Interviewer: that’s a bit of a problem. There is a glut of land available, and it is unlikely that the farmers will
be able to sell their land at all within a period of a few years.

Candidate: Oops!

Interviewer: Now what?

Candidate: Well, another possibility is to see if the farmer may have other uses for the land. Maybe they
can use the land saved to grow a different crop?

Interviewer: It is possible to grow other crops on that type of soil. For instance, cabbage grows well in
those types of climates. The problem is that the profit margins on cabbage are only 20% of those on
sugar beets. The beach and palm trees are seemingly starting to slip away from our inventors.

Candidate: It seems that the farmers will not derive a whole lot of benefit from the new seeds.

Interviewer: OK, so far we have looked at the end consumers of refined sugar and at the producers of the
beets now. What other players could possibly gain from the new invention?

Candidate: A good way to approach this is to use a value chain or process flow. Do we have any
information regarding how sugar finally reaches the end consumer?

Interviewer: Sugar beets are produced by the farmer, then shipped to the sugar refinery by truck. The
sugar refinery makes sugar crystals from the beets and packages them. The packaged sugar is then
shipped to retailers where it is distributed to the end consumer.

Candidate: I see. The sugar that reaches the end consumer is the same sugar and the same amount that
would be shipped if old seeds were used. Therefore, there are no cost savings there. From the farmer to
the refinery, however, the amount of beets shipped would be only half the traditional amount. Trucking
expenses should drop by 50%. The question is whether the refinery also realizes any production benefits
from the reduced number of beets.

Interviewer: Good. As it turns out, the processing cost of the new beets will be 25% higher per beet than
the old ones.

Candidate: OK, if the number of sugar beets is reduced by 50% and the cost per beet is only 25% higher,
then there will be a 37.5% production cost savings (1 – 50% * 125% = 37.5%) to the refinery. The refinery
should be willing to pay the farmer a higher price for the new beets. The total savings from the new seeds
can be summed up as follows: farmers gain 10% on their profit margins from the opportunity to grow
cabbage on half their land (100% is original profit. profit margins on cabbage are only 20% of those on
sugar beets, so 20% of this 100% on 50% of the land equals 10%: 50% * 20% = 10%); trucking expenses
from the farmer to the refinery are cut by 50%; and production costs are reduced by 37.5%. Next, we
need to find out how much each step contributes to the final price of sugar.

Interviewer: Good, I do have the information for that. Growing the sugar is 40% of the cost, trucking 10%,
refining 30%, and distribution 20%.

Candidate: Then the savings are 10% * 40% = 4% in growing; 50% * 10% = 5% in trucking; and 37.5% *
30% = 11% in refining. This adds up to a total savings of 20%. Multiply this percentage saving by the
annual sugar demand and we get a dollar value of annual savings.

Interviewer: Excellent! Now the question is: how would you estimate the annual demand for sugar in the
United States?

Note: At this point, this pricing and valuation case becomes an estimation and market sizing case. See
some of the other market sizing or estimation case examples on how to do this. If we assume that the
resulting figure is $2 billion, then take the net present value (NPV) of 20 years (the length of the patent) of
$2 billion * 20%. Don’t worry, the interviewer won’t expect you to actually calculate this off the top of your
head, as long as you tell the interviewer that this is the approach you would take.
Hotel Chain Hilton to Develop Pricing Strategy
Case Type: pricing & valuation.
Consulting Firm: Ernst & Young (EY) Advisory second round job interview.
Industry Coverage: tourism, hospitality, lodging.
Case Interview Question #00577: Hilton Hotels & Resorts (formerly known as Hilton Hotels) is an
international hotel chain which includes many luxury hotels and resorts as well as select service hotels.
Hilton hotels are either owned by, managed by, or franchised to independent operators by global

hospitality company  Hilton Worldwide (formerly, Hilton Hotels Corporation).

Hilton Hotels became the first coast-to-coast hotel chain of the United States in 1943. As of 2010, there
are now over 530 Hilton branded hotels across the world in 78 countries across six continents.
The President and CEO of Hilton Hotels is concerned that after nearly a decade of rapid growth, his hotel
chain is showing some sign of over-expansion. One issue that particularly troubles him is that the prices
charged by some of the hotels are not well aligned with the Hilton brand. You have been hired to address
his concern. How would you help develop a pricing strategy for Hilton Hotels & Resorts?
Possible Answer:
Pricing is one key element of the marketing mix. It is an attribute of the product or service that the client
company sells, so we will first need to find out what the client sells and to who.

Candidate: First of all, I’d like to know a bit more about our client company, its customer base, and its
market positioning. Does the Hilton hotel chain cater to vacationers or business travelers? Is its
product/service consistent with a low budget, medium, or up-market positioning?
Interviewer: The Hilton hotel chain caters to both vacationers and business travelers, depending on the
location. And its service and amenities are considered to be in the middle of the spectrum.

Candidate: OK, since the hotel caters to different clients at different locations, we may have to consider a
differentiated pricing policy.

Interviewer: Good point. Go on please.

Candidate: Usually business travelers and vacation travelers have very different consumer behavior. I
would assume that business travelers are likely to be a little less price sensitive than vacationers. Is that a
fair assumption?

Interviewer: Yes, we can think so.

Candidate: Then we will have to segment the travelers into the business and vacation categories, and
check what each group of travelers value the most in their choice of hotels, and how they make purchase
decisions.

Interviewer: Good. Actually we conducted a survey of business and vacation travelers and found out that
business travelers value service and convenience above other things within a given price range, while
vacation travelers are mainly concerned with price.

Candidate: That’s very valuable information. Based on that traveler preference, we can create a
differentiated pricing scheme by giving discounts to guests who stay over a Saturday night or who stay
longer than 4 days or so, since these are likely to be vacation travelers.

Once we have learned in which markets the hotel competes, we have to identify what its competitors are.
The range of possible prices the hotel can charge will be limited by the pricing policies of our direct
competitors, and by the pricing of substitutes such as up-market or budget hotels.

Interviewer: OK. Every location of Hilton hotels has a number of competitors within close proximity. These
hotels serve the same market segment. Our client’s amenities are a bit better than those of its
competitors, (i.e. HDTV, high speed internet, fridge and coffee makers in the room) while service levels
and location are similar or slightly less than those of its competitors. The competitors’ prices for a week-
day stay range from $100 to $150 per night and from $120 to $200 per night on the weekends.
Candidate: Let’s assume that the prices currently charged by our client and its competitors result in a
supply and demand equilibrium at a certain occupancy rate that is less than 100%. In other words, there
is sufficient capacity to meet customer demand. Our client Hilton has a choice of charging more than the
market clearing price, charging the same, or charging less. The choice depends on the price elasticity of
the market and the likely reaction by competitors.

Since hotels will likely have high fixed cost associated with the operation of the real estate, there will be
an incentive to lower prices to increase demand because marginal costs for a hotel room are minimal.
This is much like the airline industry.

Much like in the airline industry, however, price competition may erode industry profits because
competitors will likely match any decreases in price by one hotel. A price war, therefore is not a good
idea. Lowering prices only makes sense if demand is elastic, and a new lower equilibrium price could be
established which leads to sufficiently increased demand to offset the margin losses. Think about whether
business travelers demand would be very elastic; probably not. Vacation travelers demand would be
somewhat elastic, but it is not known whether it is elastic enough.

Charging higher prices would probably lead to decreased demand because our service level (which is
important to business travelers) does not justify the premium over competitors’ prices.

The remaining choice, then, is to charge market prices. One possible way to improve yields is to utilize a
more sophisticated market segmentation, and rather than having two price classes (business travelers
and vacation travelers), establish more segments with different price points. Through yield management
techniques, the Hilton hotel chain may be able to better manage its fixed capacity and increase average
yield.

Interviewer: Great! Let’s wrap up here and come up with a recommendation for the client.

Russian Satellite For Sale After Soviet Union Dissolved

Case Type: pricing & valuation.
Consulting Firm: Ernst & Young (EY) Advisory first round job interview.
Industry Coverage: telecommunications & network.
Case Interview Question #00576: The Union of Soviet Socialist Republics (USSR, or the Soviet Union),
was a constitutionally socialist state that existed between 1922 and 1991, ruled as a single-party state by
the Communist Party with its capital as Moscow, Russia. On 25 December
1991,  the USSR was dissolved into 15 post-Soviet states. The Russian
Federation, successor of the Russian SFSR, assumed the Soviet Union’s rights and obligations and is
recognized as its continued legal personality.
Your client George Soros is a wealthy Hungarian-American business magnate, investor and philanthropist
living in New York City. Currently he is the chairman of Soros Fund Management, with a net worth
estimated at $20 billion. Soros bought a Russian satellite after the break up of the Soviet Union in the
early 1990s. Later on a large Russian telecommunication company has offered Soros $100 million for the
satellite. Your client wants to know whether he should accept the offer and sell the satellite. How would
you advise your client on this deal?
Possible Answer:
This pricing and valuation case is an example of one where you are asked to use your creativity to
generate some ideas. The purchase price of the satellite is not important. Taking this into account would
be an instance of the sunk cost fallacy.

Candidate: Very interesting case. May I take a moment to structure my thought?

Interviewer: Sure go ahead.

Candidate: So, to determine the value of the satellite, it is necessary to assess the cash flows it can
generate at its most productive use, and discount these cash flows at an appropriate discount rate to
calculate the net present value (NPV). Therefore, we first need to find out what the most productive use of
the satellite is.

As far as I know, satellites can be used for transmission of data such as telephone, TV, or computer data.
They may also be used for taking pictures of the earth (including spying activities) or to do research by
observing events on earth and in space.

Interviewer: Good point! Let’s assume that this particular satellite is of the data transmission variety.

Candidate: OK, knowing that we can assess the use of the satellite for different data transmission
purposes. Take for example telephone services, we could evaluate the demand for telephone services
and compare the costs of alternative transmission technologies such as wire and land-based radio
transmission. Another alternative is to evaluate the cost of launching a new satellite.

Interviewer: Good idea. There is only one problem. Due to the orbit of the satellite, it can only send and
receive signals during twelve hours of the day: from 3:00 pm until about 3:00 am.
Candidate: That is a problem, because it will eliminate a lot of possible uses unless this limitation is
somehow offset. We might want to investigate the possibility of launching a second satellite with an
opposite pattern to cover the full twenty-four hours. This cost would need to be compared to that of
launching a satellite in an orbit that would allow twenty-four hour a day transmission.

Interviewer: The cost of launching a 24 hour satellite is $50 million more than launching a 12 hour one.

Candidate: Well, that means that the value-added of our satellite would only be $50 million. Looking at
alternatives, one possible opportunity which may not be unduly limited by the time frame is television
broadcasting. Most television shows are watched during the late afternoon and evening hours. We can
evaluate the demand for television in the former Soviet Union and determine what the costs of alternative
transmission technologies such as cable or non-satellite transmission would be.

Another possible use of the satellite is for transmitting computer data. Given the time frame that the
satellite is available, it may be possible to transmit data during the evening and night. This way, it is
possible to update computer systems on a daily basis. This may be useful for companies like banks who
update their records daily.

Interviewer: We’re running out of time soon. Can you summarize your analysis and give the client a final
recommendation?

Becton Dickinson to Launch Sleep Enhancing Device

Case Type: pricing & valuation; market sizing.
Consulting Firm: IMS Health Consulting Group first round job interview.
Industry Coverage: healthcare: hospital & medical.
Case Interview Question #00554: Our client Becton, Dickinson and Company (BD) (NYSE: BDX) is an
American medical equipment company that manufactures and sells medical devices, instrument systems
and reagents. Headquartered in Franklin Lakes, New Jersey, BD does business in nearly

50  countries and has 28,803 employees worldwide. Revenue in fiscal year 2010
was about USD $7.37 billion.
The client Becton Dickinson & Company’s research & development (R&D) department have recently
invented a small device that can improve the quality of sleep by 400%. Your consulting company has just
been retained to help bring this new product onto market. Specifically, the client wants to know how they
should price it and what the estimated market for this product is. How would you go about the case?
Additional Information: (to be given to candidate if asked)
 The client company had operating income of $1.68 billion on revenue of $7.37 billion in 2010.
 This new sleep enhancing device will become the company’s flagship product, as there are no
other similar products currently on the market. Users strap the device around their head and breathe
through a mask on the front.
 The new device costs $20 per unit to produce.
 A normal person needs on average 8 hours of sleep per night. This new product reduces the
number of required sleep hours by 6.
 The client Becton Dickinson & Co. wants to focus on U.S. market first.
Possible Answer:

This “pricing a new product” and “estimating market size” case involves estimating the value of time and
value of feeling well-rested. Pricing involves price-based costing, cost-based pricing, and comparable
pricing. The market size comes from people who have poor sleep quality and time-related needs.
1. Pricing

3 methods to gauge price:

Price-based costing. What is someone willing to pay? Assume average wage rate of $10 per hour. Sleep
hours per night goes from 8 to 2: 6 hour reduction. 6 hours / night * $10 / hour * 365 nights per year =
$21,900 per year. This probably represents an upper bound of the price.

Cost-based pricing. The production cost of $20 per unit can be used as a lowerbound for pricing. One can
add a few costs for marketing and distribution, say $10. This will give a price of $30 per unit.

Comparable pricing. $30 to $21,900 is an enormous range, so the candidate must find something more
specific. People will pay several hundred dollars for a relaxing massage, or acupuncture many times a
year. Or, they spend money every day on energy boosting foods and energy drinks. These provide
comparable benefits and suggest a safe price estimate falls between $500 and $2,000.

Other issues to consider:

 Maybe the client can rent the sleep enhancing device per night / week / month or sell the
technology license/patent entirely.
 The new device itself is unappealing: big, intrusive apparatus on people’s face.
 Different pricing strategy: Start by pricing high and gradually decrease, or price low and gradually
increase?
2. Market Sizing

Assume that we have decided to price the new device at $1,000 per unit. People who buy the device are
those having both sleep-quality AND time-related needs.
U.S. population: 300 million
Assume that 80 million people have high enough income to purchase the device
Assume uniform distribution of ages 0 – 80. People with sleep-quality issues who would be interested:

 Ages 0 – 20: 20 million; 5% purchase: 1 million

 Ages 21 – 40: 20 million; 10% purchase: 2 million
 Ages 41 – 60: 20 million, 20% purchase: 4 million
 Ages 61 – 80: 20 million, 25% purchase: 5 million
 Total: 12 million
Of the 12 million people, say 50% have time-related issues, or 6 million. Deduct 1 million who aren’t
comfortable wearing a mask at night. Thus, 5 million person will be the target market in the United States.

Total market size = $1,000 per unit * 5 million = $5 billion.

Sanofi New Drug Lowers Both Blood Pressure & Cholesterol

Case Type: new product; pricing & valuation.
Consulting Firm: Putnam Associates second round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00547: The client Sanofi S.A. (previously Sanofi Aventis, Euronext: SAN,
NYSE: SNY, FWB: SNW) is a multinational pharmaceutical company headquartered in Paris, France. It
mainly engages in the research and development (R&D), manufacturing and marketing of pharmaceutical

products  for sale principally in the prescription market, but the company also
develops over-the-counter (OTC) medication. As of 2010, Sanofi is the world’s fourth largest
pharmaceutical company by prescription sales and it covers 7 major therapeutic areas: cardiovascular,
central nervous system, diabetes, internal medicine, oncology, thrombosis and vaccines.
Recently, Sanofi has come up with a new idea for selling its two blockbuster drugs. One of them is for
lowering blood pressure (BP) and the other is for lowering cholesterol. The client’s R&D department is
experimenting a new drug that is a combination of these two drugs. They think this will generate more
revenues in the near term.
The client Sanofi would like you to help them with the following three questions:

 Is this a good idea?

 If so, how should they price the new combo drug?
 What is its impact on the client’s revenue?
Additional Information:
1. Client and Product Background (Good candidates will start this discussion before the interviewer has to
lay it out for them)

 The client Sanofi is an established player in the U.S market (focus of this case).
 Both the drugs under consideration are prescription drugs and the new drug they are thinking of
will also be a prescription drug.
 No additional cost was incurred in this combination drug and it has already received FDA
approval.
2. Other Relevant Data (Wait to see if the candidate asks for this relevant information before giving it to
them)
 Market: The client has 50% market share for both the cholesterol and BP drug
 Substitutes: There are no other products like the combination drug in the market
 Competition: One other competitor (50% share for both the cholesterol and BP drug)
 Patent: Available for ~10 years (for both the individual and combination drug)
3. Following is the summary of survey of several doctors and HMOs (health maintenance organizations
that provide or arrange managed care for health insurance or self-funded health care benefit plans), on a
scale of 1 to 5 with 5 being the best.

Client’s New Combo Client current Competition current

Drug portfolio portfolio

BP BP
Cholesterol drug drug Cholesterol drug drug

Efficacy 5 4 4 3.5 3.5

User
Convenience 5 3 3 3 3

Drug Interaction None Small Small Small Small

Side
Effect/Safety None Small Small Small Small

# of Customers ? 40,000 50,000 40,000 50,000

Price to HMOs ? $40 $30 $40 $30

Consumers currently pay a co-pay of $10 per prescription for 1 month worth of medicines.

Also, currently 30,000 of the total 90,000 customers for both the client and competitor use both the
cholesterol and BP drug.
Note: User convenience is a measure of compliance or how often patients consume the drugs properly on
time. This is higher for the combo drug as it is only one pill compared to the current two pills. This is
expected to cause the patients to take the proper dosage of both the pills more frequently.

Suggested Approach:
The candidates should identify the key entities in the industry value chain like doctors, HMOs, hospitals,
and the end consumer (bringing in the government and state agencies is a bonus though this is outside
the scope of this case).

The next step will be to identify the feasibility of the idea which should include the key aspects of drug
efficacy, side effects, interactions etc.

Finally, the candidates should try to estimate a price that the market will bear for this product. Here, the
co-pay for end customers should be used properly. Also, the candidates should address the
cannibalization effect of introducing this new combination drug (very important) and its impact on overall
revenues.

Bonus points: If the candidate mentions the benefits of increased compliance to the HMOs (because of
reduced long-term costs to them) and consequently makes an assumption that they may be willing to pay
more than the current $50 for the two drugs together to the client.

Possible Answers:
1. Pricing for the new combination drug

Current Scenario:

 Consumers currently pay 2 * $10 = $20 co-pay for a month’s prescription of both the drugs
 HMOs currently pay $40 + $30 – $20 = $50 to the client for a month’s prescription of both the
drugs
 Client receives a total revenue of $70 * 30,000 = $2.1 million/month from customers who buy both
drugs
Combo Scenario:

 Since the new combo drug is more effective and convenient than the current two drugs,
customers can be charged and are able and willing to pay $15 co-pay for a month’s prescription of
both the drugs. Note that $15 is still less than the current $20 co-pay customers pay for the two
separate drugs.
 Good candidates will ask if there are any changes to pricing for the new drug or even speculate
on it. If the candidate does not raise the issue then let them swim around for a while to see if they
come back to it. Eventually, if they don’t ask then give it to them.
 HMOs pay for combo drug = $50 for a month’s prescription of both the drugs (assuming HMOs do
not pay more than before)
 Cannibalization Effect: Assume all 30,000 customers who buy both the drugs will start buying the
new combo drug. Lost revenue = ($70 – ($50 + $15) ) * 30,000 = $150,000/month
2. New customers from competition

The client could potentially get a reasonable share of the competition’s 30,000 customers who use both
the drugs (because of benefits of the combo drug and the reduction in monthly co-pay).

Let’s say that they get 50% of competitor’s customers: This translates to a revenue of ($50 + $15) *
15,000 = $975,000/month

3. Net impact on client’s revenue (Short-term)

Net direct impact is a revenue growth of $975,000 – $150,000 = $825,000 per month. In the long-term,
there is potential to woo more competitor customers.

The above are strong positives but good candidates will point out that competition may make their own
combo drug and ask about if they have such a drug in the pipeline (they did, but it failed). In any event,
the competition is expected to eventually create a competitor drug. This will cause the advantage to
shrink a little bit in the long-term.

4. Potential Synergies in launching the new combo drug

 Distribution (Sales force, Doctors, Pharmacies, Hospitals, HMOs): Well established and the same
distribution network which can be used for the combo drug.
 Marketing and advertising: Current marketing programs can be used to push the new combo drug
to consumers. Currently, client has a very effective Direct-to-Consumer marketing.
Nordic Paper Develops New Grease-proof Technology
Case Type: new product, new technology; pricing & valuation.
Consulting Firm: Siemens Management Consulting 2nd round job interview.
Industry Coverage: paper products; food & beverages.
Case Interview Question #00539: Your client Nordic Paper AS is a Norwegian industrial company
operating in Norway and Sweden. The company is one of the leading producers of Grease-proof Paper
and Kraft Paper in the world, with worldwide sales network. It has four paper mills and two pulp

mills,  located all within 250 kilometers of one another.

The production of Grease-proof Paper is unique in that there are many mechanical differences in the
production process compared to other paper production lines. In particular, these machines require a
larger upfront capital expenditure. Nordic Paper sells this grease-proof paper to bag converters. The bag
converters add glue and produce the actual bag of packaged food such as popcorn, then turn around
and sell it to major packaged food companies for resale.
Recently, the R&D department at Nordic Paper discovered a new technology to reduce paper bag’s
grease soakage by 10 fold. This is achievable by a relatively simple modification to the current paper
production equipment at a negligible cost. Should Nordic Paper adopt the new technology to make their
grease-proof paper? Why or why not?

Instructions to the Interviewer:

The objective of this new technology/new product case is

 To understand the market impact of a new technology / product

 To conduct quantitative analysis in order to understand industry economies
 To form a pricing strategy
Suggested Approach:
 Identify profitability drivers for the client and client’s customer
 New opportunity identification
Question #1: Where might the value be in this new technology or new product?
Possible Answers:
 For end users (e.g. popcorn consumers)
 “cleaner” experience
 For bag converters
 Reduced costs
 Stronger pricing power vs. non-adopting competitors
 Novel applications (other markets – to be explored later)
Question #2: Where would there be more value, end users or bag converters?
Possible Answer:
End users probably don’t care much, they usually dump paper bag into a bowl, not really concerned about
grease drip on outside.

Bag converters may care more – if they can reduce costs or raise prices somehow with superior
packaging.

Additional Information: to be given to candidate

Bag converters like the new technolgy/product. They currently create double-ply popcorn bags and now
would be able to create single-ply.

Bag converters’ current cost breakdown:

 $0.30 / 2 sheets
 $0.10 / receptor (film applied to bag)
 $0.05 / popcorn
 $0.05 / other manufacturing costs
 $0.50 total cost
Client Nordic Paper’s cost breakdown: $0.10 / sheet (1/2 fixed cost, 1/2 variable cost)

Question #3: How much does grease soakage decrease using single-ply of new paper?
Possible Answer:
If the new paper can reduce paper bag’s grease soakage by 10 fold (using double-ply), using single-ply of
new paper would decrease soakage by 5 fold.

Question #4: What is driving bag converters’ desire for this new technology/product?
Possible Answer:
We need to explore current economics and what changes by going from 2-ply to 1-ply. First of all, bag
converters’ costs will decrease $0.15 (1 sheet instead of 2 sheets). New total cost would be $0.50 – $0.15
= $0.35.

More importantly, bag converters adopting the new technology can potentially squeeze out competition by
lowering prices and still maintaining strong profit margin.

Question #5: What is client Nordic Paper’s profit margin without adopting the new technology?
Possible Answer:
Without the new technolgy, Nordic Paper’s cost is $0.10 per sheet and sale price to bag converter is
$0.15 per sheet, therefore profit is $0.05 per sheet, or $0.10 per bag. Profit margin is $0.05 / $0.15 =
33%.

Question #6: How should the client Nordic Paper price a sheet of the new grease-resistant paper?
Possible Answer:
Variable cost remains $0.05 / sheet still.
Assuming the same level of production, fixed cost now becomes $0.10 / sheet.
Total cost now is $0.15 / sheet.
Sale price to bag converter can logically fall in a range from $0.15 to $0.30 per sheet:

 $0.15 sale price produces no client profit

 $0.15 – $0.25 sale price produces less profit / bag than current product (current profit is $0.10 per
bag), no advantage to the client
 A price greater than $0.30 costs more to bag converter than current product, no advantage to bag
converter
 $0.25 – $0.30 price range produces advantage for both the client and bag converter
Therefore, the client should price the new grease-proof paper $0.25 – $0.30 per sheet.

Question #7: What are some other applications or markets for this new technology?
Possible Answers:
 Grease-resistant food storage (anything from Tupperware to restaurant to-go boxes)
 Other packaging materials
 Auto mechanics industry (bolts, rings, etc)
 Restaurant industry (floor mats for instance)
Nissan to Launch Altima Hybrid Sedan in Australia
Case Type: pricing & valuation.
Consulting Firm: Monitor Group second round job interview.
Industry Coverage: automotive, motor vehicles.
Case Interview Question #00527: Nissan Motor Company Ltd is a multinational automaker
headquartered in Nishi-ku, Yokohama, Japan. As of 2011, Nissan is one of the largest car manufacturers
in the world, and one of the “Big Three” in Japan, along with Honda and Toyota. The company has

produced several car and SUV lines, including the Versa, Altima, Maxima, GT-R,
Leaf, Murano, Rogue and Pathfinder, etc.
Recently, Nissan wants to launch a hybrid electric vehicle (HEV) in Australia, the Nissan Altima Hybrid
sedan. Hybrid electric car combines a conventional internal combustion engine (ICE) propulsion system
with an electric propulsion system. The presence of the electric powertrain is intended to achieve either
better fuel economy than a conventional vehicle, or better performance. Nissan wants to know how to
price its Altima Hybrid mid-size sedan. Your consulting team has been hired to help them formulate a
pricing strategy. How would you go about it?
Suggested Approach:
In general a product can be priced in 4 different ways:

 Value based pricing

 Cost plus pricing
 Competitive pricing
 Pricing based on supply and demand
Each pricing method has its own merits and de-merits. One has to use all the methods to triangulate and
arrive at a price range. Later on, bundling with features, skimming and discrimination techniques can be
used to realize healthy prices and profits.

Additional Information: to be provided when asked

 The size of the Australian car market is about 700,000 cars per year of which 80% is sedans.
 The consumers are shifting more and more towards fuel efficient cars as the fuel price in
Australia is very high compared to many other countries.
 There are currently no hybrid vehicles in the mainstream in Australia. However, Toyota and
Honda are planning to launch hybrids in Australia in about 3 years.
 Hybrid cars were introduced about 7 years back in the U.S. Toyota sells Prius at about $35,000
and Honda sells Civic Hybrid at about $31,000.
 Nissan’s Altima Hybrids drive 40 miles per gallon (mpg) in the city and 33 miles per gallon on the
highway (Hybrids are actually more efficient in city driving than highway driving).
 Non-hybrid sedans average 20 mpg in city and 25 mpg on highways and they sell for about
$20,000 to $23,000.
 An average Australian car owner drives 20,000 miles a year with about 50% in city driving and
50% highway driving.
 Hybrid cars have a higher maintenance cost – about $125 per year more than non-hybrid cars.
 Cost to manufacture a hybrid car is about $20,000. The additional distribution expenses are about
10% of manufacturing cost. Sales and Marketing expenses are an additional 15% of manufacturing
cost.
 Average car owners in Australia keep their cars for 5 years. Cost per gallon on gasoline in
Australia is $3.50 currently.
 Apart from waiving taxes, the government is willing to give a $1,000 subsidy per hybrid car sold in
Australia.
Possible Answers:
1. Value Based Pricing
The candidate has to identify the incremental value that the hybrid car will provide over the conventional
sedans on a per car basis.

Calculations as done in Table 1 show that theoretically a customer will be willing to pay up to $5,500 more
per hybrid car when compared to a non-hybrid car.

Calculations:
Table 1. Incremental savings per car from using a hybrid

Hybrid Non-hybrid

Total miles driven by a owner per year 20,000 20,000

Total city miles (50%) 10,000 10,000

Total highway miles (50%) 10,000 10,000

MPG in city 40 20

MPG on highways 33 25

Total gallons of gasoline in city 10,000 / 40 = 250 10,000 / 20 = 500

Total gallons of gasoline on highway 10,000 / 33 = 300 10,000 / 25 = 400

Cost per gallon of gasoline $3.50 $3.50

Total cost of gasoline per year 550 * $3.50 = $1,925 900 * $3.50 = $3,150

Incremental maintenance costs for a hybrid $125

Incremental saving from a hybrid $3,150 – $1,925 – $125 = $1,100

Total life of a car 5 years

Total incremental savings per car over 5 years $1,100 * 5 = $5,500

The comparable non-hybrid cars are sold for anything between $20,000 and $23,000. The customer will
be willing to pay anywhere between $25,500 and $28,500 for the Nissan Altima Hybrid. But the candidate
needs to do a quick check if this range is higher than the cost of making and selling the hybrid car.

2. Cost Based Pricing

Cost based pricing simply means that your costs play into the final price you set for your product or
service. It is a pricing method in which a fixed sum or a percentage of the total cost is added (as income
or profit) to the cost of the product to arrive at its selling price.

Cost of a Hybrid

Manufacturing cost $20,000

Distribution cost (10% of mfg cost) $20,000 * 10% = $2,000

Sales and marketing cost (15% of mfg cost) $20,000 * 15% = $3,000

Government subsidy or credit (to be

subtracted) $1,000

Taxes 0

Total cost per car $20,000 + $2,000 + $3,000 – $1,000 = $24,000

From the above calculations, the total costs of making and selling the hybrid car are about $24,000.
Therefore, it appears that $25,500 to $28,500 is a reasonable price range.

3. Pricing based on supply and demand

Notes to the interviewer:

Once a candidate reaches this stage, you may push the candidate to the next level. There is an
opportunity to deploy “Skimming” strategy and price the Nissan Altima Hybrid higher than $28,500. There
may be some customers who are willing to pay more than $28,500. People like car collectors,
environmentally conscious corporate companies, people who consider a hybrid as a status symbol and so
on. And given that no other competitor is planning to launch hybrids in the next 3 years suits this strategy
well. The candidate gets extra points for thinking in these lines without prompting from interviewer.
Provide the following additional information to the candidate and ask him/her to perform the required
calculations.

Additional Information:
In a recent consumer survey, about 20,000 consumers say they are willing to pay $35,000 for a hybrid car
within the next 3 years. 10,000 consumers say they are willing to pay $30,000. And 25,000 consumers
say they are willing to pay $27,500 for a hybrid in the next 3 years. Now, how should the client go about
pricing it?

Candidate is expected to calculate the profit from hybrids in the next 3 years and then decide the price.

Price per car $35,000 $30,000 $27,500

Cost per car $24,000 $24,000 $24,000

Number of customers (equal to No. of cars sold) 20,000 30,000 55,000

$900
Total revenue $700 MM MM $1,512 MM

$720
Total cost $480 MM MM $1,320 MM

$180
Total profits $220 MM MM $192 MM

From this it is very clear that the client should employ skimming strategy. Price it at $35,000 first and sell
20,000 cars in the first 3 years. Then, when competition is about to enter the client can slash prices and
attract the consumers who are willing to pay less for a hybrid car.

Motor Coach Industries to Debut New Luxury Coach Bus

Case Type: new product; pricing & valuation.
Consulting Firm: Deloitte Consulting 2nd round job interview.
Industry Coverage: transportation; automotive, motor vehicles.
Case Interview Question #00522: The client Motor Coach Industries International Inc. (MCII) is a bus
manufacturing company based in Schaumburg, Illinois, United States. The company is a leading
participant in the North American coach bus industry and the current market leader in semi-luxury bus
segment. Their customers  are typically passenger transport companies who
carry passengers over long distances.
Currently MCII has a luxury coach bus product called “Speed” in the market and is their best selling
product line. They have another product being developed called “Velocity” that they plan to launch very
soon. However, they are not sure if there will be acceptance for the new product from the customers. You
are a consultant hired by the CEO of MCII, and your task is to help them understand how to convince
the customer to buy the new “Velocity” bus. How will you go about this case?
Notes to the Interviewer:
There are three main objectives to this “launching a new product” case:

1. The candidate has to consider those attributes that will be important to the customer – Guide the
candidate to this
2. Try to understand the benefits of “Velocity” over “Speed” and do a bunch of math
3. Provide creative recommendation to avoid product cannibalization

Suggested Structure:
Given the objective of marketing this new product to the customers, the key elements here are:

 Find out what aspects of a bus the customer values

 The benefits of “Velocity” over “Speed” and quantify the benefits
 Risks of launching “Velocity” bus
 Final recommendation
Assume there is no direct competition for the product now and for the next 2 years.

Question #1: What do you think are the key attributes that the client’s customers value?
Possible Answers:
 Price
 Fuel economy
 Reliability of the vehicle
 Appearance, design and styling
 Features and comfort for passengers
 Maintenance cost
 Warranty period
 Enough service support and network
 Availability of spare parts
 Ergonomics for the drivers
 Safety features
 Financing options
 Life of vehicle
 Delivery lead time
Question #2: How would you evaluate the benefits of the new “Velocity” bus over “Speed”?
Additional Information:
The interviewer can provide the following details to the candidate. Here we focus only on benefits from
reduced maintenance cost, reduced fuel cost and increased load factor due to comfort. Don’t provide the
candidate with any data unless specifically asked for. The question to be asked is: how would you
calculate the total annual benefits?

Table 1. Data to be provided to calculate cost benefits – All data on a per vehicle basis

Speed Velocity

Average miles traveled per

day 600 600

No. of days in a year 250 250

Miles per gallon 10 12

Cost per gallon $2 $2

Maintenance cost per mile $0.3 $0.25

Table 2. Data to be provided to calculate revenue benefits – All data on a per vehicle basis

5% increase in load factor* due to added luxury and

Annual revenue increase comfort

Current load factor 80%

New load factor 85%

Available No. of seats 40

Seats occupied on average – Speed 32

Annual profit in dollars per occupied seat per

bus $1,750

*Load factor is the actual number of passengers in a bus divided by the total number of seats in a bus

Table 3. Final Calculations – To be performed by the candidate

 Speed Velocity

600 miles per day * 250 days * $2 per 600 miles per day * 250 days * $2 per
Fuel cost per year gallon / 10 mils per gallon = $30,000 gallon / 12 mils per gallon = $25,000

Annual 600 miles per day * 250 days * $0.3 per 600 miles per day * 250 days * $0.25 per
maintenance cost mile = $45,000 mile = $37,500

Annual Reduction in fuel cost for ‘Velocity’ over ‘Speed’ $30,000 – $25,000 = $5,000

Annual Reduction in maintenance cost $45,000 – $37,500 = $7,500

Seats expected to be occupied – Velocity 40 * 85% = 34

Increased annual profit because of improved load factor $1,750 * 2 = $3,500

Total incremental annual benefits per year per vehicle $5,000 + $7,500 + $3,500 = $16,000

Question #3: If you have to price this new “Velocity” bus, how would you do that? Assume that the life of
the vehicle is 3 years and the customers retire all vehicles after 3 years. Assume that the current price of
the “Speed” bus is $107,000.
Possible Answer:
The maximum price = current price of 1 “Speed” bus + 3 years * total annual incremental benefits =
$107,000 + 3 * $16,000 = $155,000

Question #4: What are the potential risks of launching “Velocity” bus?

Possible Answer:
Product cannibalization

Question #5: How would you manage this conflict? Expect some creative answers from the candidate.
Question #6: At the end of the case, ask the candidate for a 30 second summary of his/her finding.
Sprint to Estimate the Lifetime Value of Customer Network
Case Type: pricing & valuation.
Consulting Firm: Booz Allen & Hamilton (BAH) second round job interview.
Industry Coverage: telecommunications & network.
Case Interview Question #00499: Our client Sprint Nextel Corporation (NYSE: S) is a large
telecommunication company based in Overland Park, Kansas, United States. The company owns and
operates Sprint, the third largest wireless telecommunications network in the U.S., with 55 million
customers as of 2011, behind Verizon Wireless and AT&T Mobility (NYSE: T).
Sprint Nextel also owns a separate wireless division, Sprint Prepaid Group which offers prepaid wireless
services as Boost Mobile and Virgin Mobile USA.
For this case, suppose that you have been hired by the senior management of Sprint Nextel because they
would like to know how they should estimate the value of their customers’ network. How would you go
about advising the client?
Suggested Approach:
Immediate thoughts: This valuation case includes both marketing and financial aspects. The candidate
needs to find a model that links marketing concepts to financial calculations.

Also, the candidate should prioritize issues and filter out additional information:

 First step: recognize the existence of different segments in our client Sprint Nextel’s portfolio.
 Second step: for each segment, determine the revenues/costs. Unless exceptional costs are
incurred for a particular segment, costs should roughly be the same for every segment.
Possible Answers:
Candidate: Does the client Sprint have their own call center or do they use third party services?

Interviewer: They use third party services for accounting and sales services.

Candidate: What is the average retention period for Sprint’s customers?

Interviewer: The average retention period of a customer is 3 years. This means that most of the
customers in client’s portfolio are either in their first, their second, or their third year of contract with the
company.
 Visual representation of data: revenue/cost per
customer segment (see Figure 1)
Verbalization of data
Marketing taste: the customers can be divided into several segments. Each segment can be
characterized by a particular offer (i.e. only local calls, only long distance calls, international plan, etc). We
will have to look at the lifetime value of customers in each segment.

Financial taste: value of portfolio = NPV (net present value, sum of discounted cash flows per segment).
In order to obtain the cash flows, we must determine which are the costs and revenue streams in this
industry.

Revenue streams = fixed revenue (connection fee = fixed amount, if there is any) and variable revenue
(cost/minute). Thanks to the average retention rate, we can determine the lifetime value of a customer
(how much total revenue shall I get from her/him over the average 3 years).

Costs = mainly fixed costs (network and network maintenance, headquarters, marketing). However, many
traditional fixed costs can be transformed into variable costs by externalizing the tasks to a third party:

 Accounting services (variable = cost/invoice issued or processed)

 Sales (call center services: variable = number of calls)
Moreover, some costs are one shot (sales and marketing costs faced to acquire a client) while the other
costs are recurrent and will repeat themselves every year.

Finally, I’ll take the total cost over 3 years (same reference as for the revenue).

For each segment, lifetime value = number of customers in the segment * (3 years revenue – 3 years
costs). Note that I have to discount revenues/costs in years 2 and 3.

Question #2: One of the segments is not profitable, what should the client Sprint do?
Possible Answer:
As it turns out, the unprofitable segment is composed of pre-paid calling cards that are typically bought by
younger customers. This group of customers will usually transform the segment into a more profitable
segment as they grow older. Therefore, this offer (pre-paid calling cards) must at least partly be
considered as a marketing effort to acquire and win the loyalty of customers.
Question #3: In which other industries does the concept of lifetime value of customers typically apply?
Possible Answer:
There are a lot of other industries where the concept applies (e.g. car manufacturing, anything that
implies loyalty games), but the most striking one is the financial services industry, i.e. banks and credit
card companies.

Comments:
For each segment, I can calculate the lifetime value of my customers. The value of my portfolio is the sum
of the values of each of these segments. The lifetime value concept is central in this case.

Airbus Builds A380 Super Jumbo to Challenge Boeing

Case Type: new product; pricing & valuation.
Consulting Firm: Bain & Company final round job interview.
Industry Coverage: aerospace & defense; airlines.
Case Interview Question #00485: The Airbus A380 is a double-deck, wide-body, four-engine jet airliner
manufactured by the European aircraft corporation Airbus, a subsidiary of European aerospace company
EADS (European Aeronautic Defence and Space Company, Euronext: EAD). Currently, it is the world’s

largest passenger  airliner. Originally designed to challenge Boeing (NYSE:

BA)’s monopoly in the large-aircraft market, the Airbus A380 (Dubbed the “Super Jumbo” by the media)
made its maiden flight in April 2005 and entered initial commercial service in October 2007 with
Singapore Airlines.
Back in the 1990s, Airbus was trying to decide whether to produce the super jumbo or not. Bain &
Company was hired to advise them. As a consultant working on this case, you have been tasked with
evaluating the feasibility of Airbus A380 superjumbo project. Specifically, should Airbus enter the market
of large-aircraft or not? How much can they sell them for?
Suggested Approach:
What immediate thoughts came to your mind (or should have) when you heard the problem statement
(based on the type of case, for example, market entry versus cost reduction, pricing versus profitability)?
— Must first understand market. Do not attack the case immediately.

How did you prioritize the issues and what information did you filter out? — Top down thinking:
 Understand the market dynamics
 Study competitors, i.e. Boeing
 Look into financial implications for Airbus
What additional information did you ask for and what information did you get? — I was given an initial
information sheet with: sunk costs, airliner costs, number of seats on airplane. Later on I asked for
information on the demand, market shares, and capacity utilization.

Your approach or framework? — Market, competitors, financial implications

Visual representation — Financial calculations on a sheet to calculate the break even quantity.

Verbal — Presentation was mostly verbal.

How did you summarize your analysis/case? – I gave summary of the whole case. Recommendation was
to enter into the super jumbo market based on financial calculations. These calculations showed that
Airbus would have to maintain 40% (their current market share) of the market for super jumbo over the
next 10 years to break even. Clearly, this is a feasible goal given that competitor Boeing does not have
anything similar lined up.

Additional Information: (to be given to you on a info sheet)

 Airbus A380 sunk costs (research & development) are $50 Billions
 A380 super jumbo average life is 25 years.
 Number of seats on Airbus A380: 500 – 600
 Number of seats on Boeing 747: 400 – 500
 Cost of a traditional jet = $150 Million
 Plus some extra information on competitors and assets needed to produce Airbus A380.
Possible Answer:
Candidate: I want to figure out overall market, competitor response, and then get into the financials.

Interviewer: That sounds fine, go ahead.

Candidate: How many jumbo aircrafts are bought per year currently?

Interviewer: About 50 per year.

Candidate: Is this demand constant or does it fluctuate year by year?

Interviewer: For simplicity assume constant.

Candidate: Who are the major players in this market?

Interviewer: Boeing and Airbus only.

Candidate: What is the market share?

Interviewer: 30 for Boeing, 20 for Airbus.

Candidate: How close are they running to capacity (what might response be) to understand the
competitive response?

Interviewer: They are both at 75% capacity.

Candidate: Are these planes only used on long haul flight? (to figure out pricing).

Interviewer: Yes.

Candidate: Is the demand expected to grow?

Interviewer: Assume constant.

Candidate: OK, I think I got the major things out of the market. Now I want to talk about competitors. Does
Boeing have a similar cost structure?

Interviewer: Yes.

Candidate: Are there long term contracts in place?

Interviewer: Generally yes, but these are somewhat like options.

Candidate: Does Boeing have anything similar lined up?

Interviewer: No, but they are thinking about stretching their current 747 model.

Candidate: Can current production assets be used for something else? Are they fixed or sunk?

Interviewer: Not relevant, so assume no. Costs are sunk.

Candidate: Now with a better idea about market and competitor, I would like to look at financial side. What
are the Variable Costs of producing a super jumbo airplane?

Interviewer: Fixed costs are $50 Billion, variable costs are $150 million per airplane.

Candidate: (At this point I want to estimate the incremental revenue for these airlines from the super
Jumbo and based on this figure out how much they would pay)

Assumptions: Airbus A380 has 150 more seats than Boeing 747, seat occupancy rate (passenger load
factor) is 80%, so 150 * 80% = 120 extra people per flight, assume two flights per day for the super
jumbo, average ticket price: $800 for international flight. Therefore, 120 * $800 * 2 = $200K, an extra
$200K per day per plane.
Assume the airplane is in place 300 days per year, thus $200K * 300 days = $60M per year of
incremental revenue. Incremental costs: $20 million costs because of extra fuel + a few more staff
needed but not much more.

Hence, over a lifetime of 25 years an additional ($60M – $20M) * 25 years = $1B profits. Since these
profits are uncertain and discounting over lifetime, let’s assume we can charge $400M for each Airbus
A380 super jumbo.

We will make $400M – $150M = $250M per airplane. To account for the $50B sunk cost in research &
development, at least 200 A380 need to be sold. This means that for the next 10 years they would need
to sell at least 20 super jumbo airplanes every year. This is in line with their current market share.

Interviewer: OK, so what should they do? Summarize your findingse for me.

Candidate: Based on financial calculations, the client Airbus should enter into this market of large jumbo
jets. (Takes interviewer through calculations and market data found) Their A380 super jumbo aircraft can
be sold for around $400M per plane. The client should be able to break even in 10 years if they can keep
up or even slightly grow their current market share of 20 jumbo jets per year.

Interviewer: Excellent! Now let’s move on to the next case.

Express to Reject Catalog Printing & Postage Cost Increase

Case Type: math problem; pricing & valuation.
Consulting Firm: Capital One Business Analyst first round job interview.
Industry Coverage: retail; apparel, clothing & textiles.
Case Interview Questions #00481: Your client Express, Inc. (NYSE: EXPR) is an American fashion
retailer headquartered in Columbus, Ohio and New York City, New York. Express operates over 590
stores in the United States as of April 2011 and generates $1.8 billion in annual sales in fiscal year 2010.

Although primarily associated with women’s clothes, Express is a dual-gender brand. One of their primary
selling tool for the business is the product catalog. Recently, the printing and postage costs of your
client’s catalog have just been increased from 35 cents to 40 cents per catalog by their catalog publishing
company. How can Express decide whether this new cost is feasible for their current direct mail business
model? What is the break-even point for the client’s catalog printing and postage costs?
Possible Answer:
This is a quantitative case where candidate is required to evaluate the feasibility of a change in the cost
structure of the client’s catalog business. The candidate should use a framework and walk the interviewer
through it. A profitability analysis should follow.
1. Revenue and cost structure – The Interviewee should ask for revenue and cost information in order
to infer profit margin.
Additional Information: (to be given if asked)
 Client’s profit margin on catalog orders: 15%, excluding catalog printing and mailing costs.
 Catalog printing and postage costs: $40 for each 100-catalog bundle mailed (100 * 40 cents =
$40).
Exhibit 1: Mail Retailer Revenue Data (2006-2010)

Number of Catalogs Number of Orders Number of Re-orders (within 6

Year Mailed Received Sales months)

2006 50,000 1,000 $150,000 200

2007 100,000 2,000 $150,000 600

2008 200,000 3,000 $300,000 1,000

2009 150,000 3,000 $300,000 600

2010 200,000 6,000 $400,000 1,500

The candidate should be able to deduce the following information from Exhibit 1.

 Average response rate: 1,000/50,000 = 2%, i.e., two orders placed for every 100 catalogs mailed
in 2006. This number has increased slightly over time to 3% in 2010 (6,000/200,000 = 3%).
 Average order size: Decreased over time from $150 to $66.67 ($150,000/1,000 = $150,
$400,000/6,000 = $66.67)
 Percentage of customers who re-order within six months: Hovering over time between 20% and
33%, on average 25%.
Revenue calculations for year 2010

 Total orders generated per 100 catalogs = orders received + re-orders within 6 months, i.e. each
100 catalogs will result in 100 * 3% = 3 orders, plus 3 * 25% = 0.75 additional re-orders within 6
months, for a total of 3.75 orders placed per 100 catalogs mailed.
 Revenue per 100 catalogs = orders per 100 catalogs * average sales order = 3.75 * $66.67 or
$250.00 in revenues.
Cost calculations

 Given profit margin of 15% means approximately $250 in sales will return a profit before printing
and postage cost of $250 * 15% = $37.50.
 This is insufficient to cover the catalog printing and mailing cost of $40 per 100-catalog.
2. Revenue per catalog – Ask the candidate how the client might improve the revenue per catalog
metric. This is an open-ended question where the candidate is expected to brainstorm possibilities given
the above analysis.
Possible Answer:
The best answer might have the candidate take some time to come up with a structured response.
Examine the various aspects that affect the catalog revenue; think of a MECE (mutually exclusive and
collectively exhaustive) solution.

One example might be modifying the product, i.e. the catalog itself (bigger pictures, layout, more product
selection, print in color, etc). Client could also consider tweaking the marketing strategy through better-
targeted advertising or by offering a pre-holiday sales to spur sale volume.

3. Conclusion
Given the present profit margin of $37.50 per 100 catalogs, it is not feasible for the client to accept the
cost increase to 40 cents. The minimum break-even point for client’s catalog printing and postage costs is
37.5 cents.

How Much to Ask for a 5 Year Oil Field Lease?

Case Type: pricing & valuation; finance & economics.
Consulting Firm: Cognizant Business Consulting (CBC) first round job interview.
Industry Coverage: Oil, Gas & Petroleum Industry.
Case Interview Question #00463: You, a strategy consultant working at Cognizant Business Consulting
(CBC), have been hired by a wealthy client who owns a big oil field in Texas, and he does not know what

to do with it. The price of the oil is at present $100 per barrel, and it has been
that way for quite a while. Currently it costs $110 per barrel to lift the oil. Recently a major oil company
has just bid on his plot of land for a 5 year oil lease. What should he do? How much should he ask for the
5 year oilfield lease?
Possible Answer:
This is a mini business case that tests the candidate’s understanding of basic financial theory and simple
option pricing model. Since MBA candidates are expected to have taken a fundamental corporate finance
course, this case question is a fair game.
The interviewer should feel free to let the candidates wander all over the map, but he or she must arrive
at the following conclusion: one does not price the oil reserve purely based on the existing price to lift and
refine the oil. Rather, the oil company is bidding to have the option to lift the oil in the future. This then
gets into option pricing theory, Black-Scholes, etc. The underlying asset in this case is the oil itself, and
the volatility component of the Black-Scholes model comes from the volatility of the oil prices. The strike
price of the option is the cost of lifting the oil from the ground.

Whole Foods Grocery Store to Cut Tomato Price by Half

Case Type: operations strategy; pricing.
Consulting Firm: Cornerstone Research final round job interview.
Industry Coverage: food & beverage; retail.
Case Interview Question #00455: Whole Foods Market (NASDAQ: WFM) is a grocery and health food
supermarket chain based in Austin, Texas, United States which emphasizes organic products. Whole
Foods Market only sells food products that meet its self-created quality standards for being “natural”,

which  the store defines as: minimally processed foods that are free of
hydrogenated fats as well as artificial flavors, colors, sweeteners, preservatives. The chain has 304 store
locations as of May 2011.
Our client is the manager of a Whole Foods grocery store located in a Boston neighborhood. Recently,
their supplier of tomatoes has made them an offer: the Whole Foods grocery store will get their tomatoes
for half the price if they agree to sell the tomatoes to the consumers for half the current retail price. The
store manager wants advice on whether to take the offer and reduce the price of tomatoes or not. If so,
then how? If not, why not?
Possible Answers:
This business strategy case can be solved with several different structures (profit = revenue – cost, 3C’s,
etc) or with no framework at all. This should be up to the interviewee.

1. Customers

The first issue to probe should be whether customers are price sensitive. If not, there will be little change
in the market. To judge whether customers are price sensitive, the candidate should mention points like
socio-demographics of the neighborhood, past price promotions on tomatoes or similar products.
Once the candidate brings it up, the interviewer should mention that there is information on past
promotions and ask the candidate what information he/she needs.

It turns out that in past promotion on tomatoes with a significant price reduction, the same store sold 3
times more tomatoes.

Additional Information:
 Current retail price of 1 pound of tomatoes is $4, it will go down to $2/pound.
 Current costs are $3 per pound, will go down to $1.5 /pound.
 Current sales are 300 pounds/day, are expected to go up to 900 pounds.
Calculation: Therefore, current profit is 300 * ($4 – $3) = $300; post-promotion profit will be 900 * ($2 –
$1.5) = $450.
However, it is important to look at total customer profitability with the possibility of Cannibalization of
other products. We need to differentiate between new customers that might be attracted to the store due
to the promotion and current customers who will switch or increase their purchases.
It is not illogical to assume that customers have a fixed budget for grocery shopping. Therefore, current
customers will just switch from buying other products to tomatoes. The question is then, which products
have the higher margins. The Whole Foods grocery store is expected to sell more complementary
products and less substitute products.

What are the some of those products? (The interviewer should push the candidate to see how he/she
thinks under pressure). — Pasta, ketchup, olive oil, garlic bread, cucumbers, peppers, onions, tomato
sauce, curry, etc (assume whatever cost/benefit on complementary/substitute products).

Based on the past promotion, we have the following information on the existing sales and gross profits as
well as the effect of the promotion on tomatoes sales on some other products: (data table to be handed
out to candidate)

Product Sales ($) Costs ($) Gross Profits ($) Change in profit due to promotion (%)

Pasta 500 425 75 100

Olive Oil 300 240 60 80

Ketchup 750 525 225 -60

Tomato
Sauce 400 300 100 -80

Curry 250 175 75 -75

Garlic Bread 200 140 60 75

Calculations: Therefore, due to cannibalization gross profits will be reduced by $100 ($75 * 100% + $60
* 80% – $225 * 60% – $100 * 80% – $75 * 75% + $60 * 75% = -$103.25).
So the change in profit after factoring in cannibalization is still $450 – $300 – $100 = $50. In addition, the
promotion may also act as a customer acquisition strategy by attracting new customers to the store.
Therefore, it makes economic sense.

2. Competition:
Analysis of competitor is required here in this case. Assume there is only one carbon copy competitor in
the neighborhood. No influence from outside the region (would someone drive 30 minutes to save $3?
probably not!)

 What will the competitor do?

 Does it buy from the same supplier?
 Will the supplier offer the same deal to the competitor? (Assume only one regional supplier that
gave the offer to our client first; need to sign exclusivity. Any sound and logical analysis can be
accepted)
3. Company/Store
 Stocking – at the end of the promotion customers may be stocking up 1 week supply of tomatoes.
 Shelf space – if candidate has done too well so far, and you have extra time, you might want to
discuss store shelf space. For simplicity’s sake, assume that the Whole Foods grocery store only
sells fresh fruit and vegetables that arrive in the morning and sell until the end of the business day.
The tomatoes are then displayed on shelves (assume no warehouse).
Calculation:
 Currently:
 Shelf space for tomatoes: 20 sq ft.
 Sales: $60/sq ft, Profit: $15/sq ft
 Post-promotion:
 Shelf-space: 40 sq ft have to be added (as sales become threefold)
 Sales: $30/sq ft, Profit: $7.5/sq ft
There are obviously no free shelves, so some space has to be created. Therefore other products will be
taken off the shelves. If on average profits of store are $20/sq ft, what does it mean? Does average mean
anything? Why not take the lowest profitability items – e.g. shoe polish items which only make $2.5/sq ft.

What will be the profitability in this case?

 Used to be: 20 sq ft * $15/sq ft = $300

 Now post-promotion: 60 sq ft * $7.5/sq ft – 40 sq ft * $2.5/sq ft = $350
Recommendation to client:
Based on our analysis, the Whole Foods grocery store should take the offer and reduce the price of
tomatoes (Note: The candidate should summarize the three sources of increase or decrease in profit
discussed before, and make a final go/no-go recommendation; if he/she does not, the interviewer should
ask him/her to do so).

In the recommendation a good candidate should also talk about the following:

 When answering “how to go about doing it”, it is important that the candidate recognize the
importance of advertising to ensure that customers will be aware of the promotion (low awareness =>
no change in sales).
 Advertising is also necessary to attract new customers. Again, it is necessary to check the
capabilities of the Whole Foods store to take on more customers in terms of space, labor etc.
NBC to Bid for Broadcasting Rights to Olympic Games
Case Type: pricing & valuation.
Consulting Firm: A.T. Kearney 2nd round job interview.
Industry Coverage: mass media & communications; sports, leisure & recreation.
Case Interview Question #00425: Your client for this case is NBC, a major TV network in the U.S. NBC
(National Broadcasting Company) is an American commercial broadcasting television network
headquartered in New York City’s Rockefeller Center with additional major offices near Los Angeles and

in Chicago.
The year is 2009. NBC is trying to put together a bid for the exclusive broadcasting rights in the U.S. to
the 2010 Winter Olympic Games in Vancouver, British Columbia, Canada. Your consulting team has been
retained by NBC to advise them on the bidding proposal. How much money should they bid?

Additional Information: (to be provided to you if asked)

Our client NBC is a national broadcasting network that receives no subscription revenue. It will, however,
be able to keep 100% of its advertising revenue, without sharing any with its affiliates.

Advertising rates are estimated to be $400,000 per ad slot for prime-time programming and $200,000 per
ad slot for non-prime-time programming:

 An ad “slot” = 30 seconds of advertising time

 Prime Time = Monday-Friday from 7 PM – 10 PM and Saturday-Sunday all day
 Non Prime Time = Monday-Friday all other times
Market research has shown that consumers (TV watchers) can take no more than 10 minutes of
advertising time per hour of television; they will stop watching if there is more advertising than that.

Possible Answer:

Candidate: 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 NBC is a major U.S. TV network, and they
are trying to determine the optimal bid amount for the U.S. broadcasting rights to the 2010 Winter
Olympics?
Interviewer: That’s correct.

Candidate: 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.

Candidate: Do they have a particular numerical goal?

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

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

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

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

Interviewer: Of course.

Candidate: (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.) 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?

Candidate: 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.

Candidate: OK. 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.

 Prime time Rates: $400,000/30 seconds

 Non-prime time Rate: $200,000/30 seconds
 Usually 10 minutes out of every hour is available for advertisements.
Candidate: When does prime time occur?
Interviewer: 7-10 pm on weekdays, and all day on weekends.

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

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

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

Interviewer: The event go from noon to 10 pm everyday.

Candidate: (Note: At this point, feel free to crunch the numbers in your head and see if you can get the
same answer) So every weekday consists of three hours of primetime and seven hours of non-primetime.
This means that during Olympic Games, there will be:

 Prime time: 3 hours/weekday * 5 weekdays/week * 2 weeks + 2 weekends * 2 days/weekend * 10

hour/day = 30 hours + 40 hours = 70 hours during the event. Since both the opening and closing
ceremony are prime time as well, the total is 76 hours.
 Non-Prime time: 7 hours/weekday * 5 weekdays/week * 2 weeks = 70 hours
So if we assume that exactly 10-minutes is allocated for advertising in every hour of TV program, the ad
revenues we have:

 Prime time: $400,000/30 seconds * 60 seconds/min * 10 min/hour * 76 hours = 608 Million

 Non-Prime time: $200,000/30 seconds * 60seconds/min * 10 min/hour * 70 hours = 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.

Candidate: 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?

Candidate: 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 Games 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.

Candidate: Great, are there any other costs?

Interviewer: What do you think?

Candidate: 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?

Candidate: I do not.

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

Candidate: 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 350 million / (1 + 20%) = 290 million.

Interviewer: Do you see any other costs?

Candidate: 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.

Candidate: 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.

Candidate: 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 client company NBC 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?
Candidate: Yes, there are several benefits that I can see:

Increased prestige and brand recognition for the TV network

Taking potential revenues away from competitors
Merchandizing opportunities

Interviewer: What about increased viewership of the network’s original programming?

Candidate: 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.

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

 From our profitability analysis, this bid will yield the desired return on investment of 20%
 The company can afford it
 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 Olympic Games 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. I think we’re running out of time here. Do you have any
questions for me?

AK Steel to Lower Price and Add Capacity by 5%

Case Type: pricing & valuation; add capacity, growth.
Consulting Firm: Towers Watson 2nd round job interview.
Industry Coverage: mining & metals production.
Case Interview Question #00416: Your client AK Steel Corporation (NYSE: AKS, formerly Armco) is a
steel company headquartered in the Cincinnati suburb of West Chester, Ohio, United State. AK Steel’s
main products are carbon, stainless and electrical steels, cold rolled and aluminum coated stainless steel

for automakers.  Total revenue is USD $4.08 Billion in fiscal year 2009.
Recently the client is considering adding capacity for their steel mills. Your consulting team has been
retained to advise them on the proposed capacity expansion. Should AK Steel add capacity or not? If so,
develop a strategy for the client to expand.

Additional information: (to be given to candidate if asked)

 Client’s customers consist of wholesalers for large manufacturing firms such as auto plants, etc.
 Product line offerings include slab, pig, and I-beams, which are commodity products.
 No further economies of scale are possible.
 Current Market Price is $35.00 per ton.
 New capacity cost for client: Average Total Cost is $25.00 per ton.
 Market demand is 100 million tons per year.
 Market Share and Cost for the 5 major players:
Name Market Share Cost per ton

Company A 40% $20.00

Company B 25% $22.50

Client AK
Steel 20% $25.00

Company D 10% $30.00

Company E 5% $35.00

 Everyone is at capacity, but no one other than the client can expand.
Possible Answer:

The candidate should determine industry capacity first, then determine cost. The key is to explore what
the demand curve looks like. It turns out that:
The demand curve is not continuous, but stepped. Since our client is the only seller who can expand
capacity, the client can effectively act like a monopolist on the residual demand (i.e. they can set the
market price!). However, as the client lowers price, it will both expand market share and reduce the
margin on all of its product.
Client’s current market: 100 million * 20% = 20M
Current profit = 20M * $35.00 – 20M * $25.00 = $200M

Determine what price the client would charge:

If client prices at $34.99, it will take the 5% market share from Company E. Total profits will be: Revenue
– Costs = (20M + 5M) * $34.99 – (20M + 5M) * $25.00 = $250M. This is an increase from the current
profit of $200 million, so adding 5% capacity would be a profitable move.

If client prices at $29.99, it will take the 15% market share from companies D and E. Total profits will be:
(20M + 15M) * $29.99 – (20M +15M) * $25.00 = $175M. This is a decrease from the current profit of
$200M, so adding 15% capacity would be an unprofitable move.

Conclusion:
Yes, the client should add capacity.

Expansion Strategy: Add capacity by 5%, in the mean time lower the price from $35.00 to $34.99, thus
effectively push Company E out of business and take the 5% market share from Company E. Such a
move will increase client’s profit from $200M to $250M.

How Much is a Medium-sized Oil Tanker Worth?

Case Type: pricing & valuation; economics & finance.
Consulting Firm: Schlumberger Business Consulting (SBC) 1st round job interview.
Industry Coverage: containers; freight delivery, shipping services; oil, gas & petroleum industry.
Case Interview Questions #00410: Your client is the wealthy investor Warren Buffett, Chairman and
CEO of Omaha, Nebraska-based multinational conglomerate holding company Berkshire Hathaway
(NYSE: BRK.A, BRK.B). Buffett has inherited an oil tanker from a distant relative. He would like to sell the

oil tanker,  but knowing nothing of the oil transportation business, he needs a
better understanding of what it is worth. How would you help him value the oil tanker?
Additional Information: (to be provided to candidate if asked)
There are 3 sizes of oil tankers in the market: Large, Medium, and Small. Ships are otherwise identical.
The number of ships in the 3 categories as well as their capacity and cost are listed in the table below.
Size Small Medium Large

Capacity 50,000 bbl 100,000 200,000 bbl

 bbl

Cost (of one

trip) $50,000 $75,000 $100,000

Number 35 15 10

Your client Warren Buffett’s ship is medium-sized.

Demand in the oil tanker industry is flat, at 3,000,000 Barrel (bbl) per year.

Assume that ships last forever (no depreciation). A used ship costs exactly the same as a new one.

Each ship is independently owned and operated. Each ship is capable of exactly one trip per year.

Possible Solution:

The interviewer told me (the interviewee) that discounted cash flow (DCF) tends to be the only method
MBAs use in valuation cases. Therefore, it is important to first point out that you have thought broadly
about the question before launching into the numbers: “There are 3 or 4 different ways to value the ship.
One would be to discount the expected future cash flows. Another would be to attach an established
industry multiple to sales or earnings. Another would be to use comparable deals, e.g. cargo ships in
another industry, to establish such a multiple. Another would be to take the price of a new tanker and
depreciate it to the proper degree. Depending on what we find, one method may be more useful than the
others.”
The key is to recognize that this is an industry with excess capacity. An annual demand of 3,000,000 bbl
supports all 10 large ships, 10 of the 15 medium ships, and none of the 35 small ships. Market clearing
price will be set at $0.75 per barrel, the marginal cost of the medium ship. That makes yearly profits for
the client’s medium ship = $75,000 – $75,000 = 0. In that case, the client’s oil tanker is worth nothing.

How can the client fix this? If a medium ship is truly worth $0 (or at least close to $0), the best move
would be to buy out the excess capacity: i.e. buy 5 more medium ships. In this scenario, the client could
scrap the extra five ships, and having removed excess capacity could raise prices to ~ $0.99 per barrel,
or any amount less than the $1.00 per barrel offered by the small ships.

So, what’s the client’s ship worth now? It would make yearly profits of $99,000 – $75,000 = $24,000.
Assuming stable demand (which is the case here), this cash flow could be discounted as a perpetuity,
assuming a reasonable interest rate (say 5%). In that case the value could be estimated at $24,000 / 5%
= $480,000.

Interviewee’s Comments:
This pricing & valuation case is less about deriving a numerical answer than it is about showing that you
can think broadly about the interplay between market conditions and value.
The candidate should recognize the cyclical nature of the oil & gas industry. CAPACITY is the central
issue to consider. The client’s purchase of excess capacity is essentially a call option on the industry, a
bet that demand will remain constant or perhaps increase. Also, the candidate should know the risks and
rewards of this strategy.

In a commodity market where there is excess capacity and where competitors have varying marginal cost
(MC), the market clearing price will likely be set at MC of the middle cost competitor, such that capacity
matches demand as closely as possible. Removing excess capacity raises the market clearing price
(assuming demand is constant).

What Should The Price of an Indestructible Golf Ball Be?

Case Type: pricing & valuation; new product.
Consulting Firm: Bain & Company second round full-time job interview.
Industry Coverage: sports, leisure & recreation.
Case Interview Question #00408: You are an engineer working for Callaway Golf Company (NYSE:
ELY). Based in Carlsbad, California, United States, Callaway is a global sporting goods company that
designs, manufactures, markets and sells golf equipment, golf balls, golf accessories and

golf  lifestyle-related products in more than 70 countries worldwide.

Recently, you invented a new type of golf ball. The magic golf ball is indestructible and is not possible to
lose. Very eager to release the new golf ball to market, you are not so sure how much to charge for it.
What should the price of the golf ball be?

Additional Information:
None, the candidate will have to generate all assumptions on his/her own.

At some point the interviewer may want to provide the following information:

 No need to take into account the time value of money.

 The new type of golf ball costs $200 to produce with no R&D or fixed costs.
Possible Answers:
Interviewer: How would you approach this case question?

Candidate: I think that in thinking about how to price this golf ball we need to consider two things, the cost
to produce the golf ball and how much the average customer would save over his lifetime by using it.
Interviewer: Why are those two items relevant?

Candidate: Well, we need to price the golf ball above cost (fixed, variable, and R&D costs) so that we
make money on the ball. But we can’t price the ball above the amount that a customer is going to save on
other types of golf balls if he uses ours.
Interviewer: OK, I agree with that.

Candidate: Am I correct to assume that I am to build up assumptions?

Interviewer: That is correct.

Candidate: OK, lets start with the market size in terms of people. I’m going to assume that there are 300
million people in the United States.

Interviewer: That’s a reasonable assumption.

Candidate: When I was growing up, half of my family played golf. But that’s a bit more than average, so
let’s say that one-fifth of the US population plays golf. That means that 60 million people in the US play
golf.

Interviewer: I’m having trouble seeing how that relates to how we price the ball.

Candidate: You’re right, I wanted to generate a market size just to get a sense of how much money we
could one day make. Let me get back to the price of the ball.

I’m going to assume each golfer plays golf 2 times a month and uses 3 ball every time he plays. That
means that each golfer uses 72 balls a year. Let’s just round down to 70.

Let’s also assume that a golfer plays golf his whole life but on average picks it up when he is 35. And let’s
assume that the average life span is 70 years old. That means the average golfer plays for 35 years. If he
uses 70 balls a year, he uses 2,450 balls over the course of his life. Let’s just round that to 2,500.

Now we need to come up with how much an average golf ball costs. I want to say that a pack of 3 costs
$5.

Interviewer: Let’s just call it $2 a ball.

Candidate: OK, at $2 a ball that means the average golfer spends $5,000 over the course of his life. But
we have to discount that to account for the time value of money.

Interviewer: Let’s not worry about that for the moment.

Candidate: Great. So $5,000 would be the most you could charge. The least you could charge would be
the cost of the ball. How much does it cost to produce the ball?

Interviewer: $200 a ball.

Candidate: OK. Are there any fixed costs? Also, how much have we invested in R&D to develop that?

Interviewer: I think those are excellent points, but let’s not worry about that right now.

Candidate: OK, then I would say we should price the ball between $200 and $5,000.

Interviewer: I want you to tell me exactly where we should price the ball.

Candidate: Well, if the customer is perfectly rational, then anyone less than 35 is willing to pay up to
$5,000. But there will be some golfers older than 35, which means they will have fewer years of play and
be willing to pay less. Plus, $5,000 is an awful lot for a ball and some people don’t know for sure that they
will play golf for their whole life. We’d have to do some market research to come up with the correct price,
but I think somewhere around $2,000 would be appropriate.

Interviewer: That seems like a lot.

Candidate: It is a lot, but the price of the ball is well below how much the average golfer would spend on
balls.

Interviewer: What would you do for older golfers?

Candidate: I think that maybe you could offer the ball at a discount, something like movie discounts for
seniors, etc.

Interviewer: But what about a 15-year-old who doesn’t have enough money to buy a ball?

Candidate: Well, I suppose you could discount it for him, too.

Interviewer: But by how much? You’re selling a cheap ball to a kid who’s going to play for more than 50
years!

Candidate: You’re right. Well, what if you arrange for financing for the ball.

Interviewer: This is intriguing, tell me more.

Candidate: Well, it’s a bit like a student loan, where you would arrange financing so that the 15-year-old
only has to pay a small amount up front and then pays for the rest over time, with principle and interest
payments.
Interviewer: I like that idea. What’s the problem in terms of the market for this ball?

Candidate: Well, the funny thing about this ball is, let’s suppose you sell one to every golfer in the world.
Because the ball never wears out, you have no new market except for the population growth rate. And
that’s only for incremental growth, because when someone dies they can pass it on to someone else.

Interviewer: You’re right. And when we told this to the potential investors, they didn’t like that at all. They
didn’t like that they’d put in money now for a business that won’t have a market after a year or so. What
would you say to them?

Candidate: I’d say, look, you have the opportunity to invest in a company that is going to sell $2,000 golf
balls to 60 million people overnight, and the balls only cost $200 to make. That’s a huge revenue
generation opportunity. You could get your return out after a year and go invest in something else.

Interviewer: Totally correct. They’d be crazy to pass that opportunity up. Nice job!

Blackstone Evaluates Asiana Club Frequent Flyer Program

Case Type: investment, private equity; valuation; merger & acquisition.
Consulting Firm: Cambridge Associates first round job interview.
Industry Coverage: airlines; financial services.
Case Interview Question #00394: Your consulting team has been retained by New York-based global
private equity firm The Blackstone Group L.P. (NYSE: BX) to advise them on the purchase of Asiana

Airlines. Asiana Airlines is one of the major airlines in South Korea.  With its
headquarters in Asiana Town in Seoul, the airline has its domestic hub at Gimpo International Airport and
its international hub at Incheon International Airport 43 miles from central Seoul.
Right now there is some controversy on the frequent flyer program (Asiana Club) of the airline being
acquired. Asiana Airlines claims that their frequent flyer program is an asset, while people in Blackstone
Group making the purchase believe the program will be a liability and want to get rid of it. How would you
assess the asset or liability value of the frequent flyer program of Asiana Airlines?
Additional Information:
Nowadays every major airlines have introduced a frequent flyer program, so the program itself is no
longer a competitive advantage.

The majority of miles given by Asiana Airlines have been accumulated by business class customers flying
on popular routes between South Korea and the USA.
Possible Approach:

This is an investment and valuation case that needs to be split into the asset side and the liability side.
Asset value of an airline frequent flyer program mainly lies in locking in business class customers who
have accumulated a high switching cost because they have built up so many miles. As a result, they have
access to additional perks such as free upgrades, access to lounges, etc. that they do not want to give
up. The candidate should make a decision on how much value business customers attach to these
privileges.
Liability of the program depends on cost of redemption of miles and the lost opportunity cost.
Redemption cost depends on incremental cost of fuel, handling, and checking, as well as the cost of
running the program and the opportunity cost of the seats.

Opportunity cost can be minimized by managing the lock-out dates and the number of seats available for
frequent flyers.

Costs of running the program (which the candidate should identify as the most costly part of program)
include IT infrastructure, marketing costs, and the cost of operating a telephone line. These costs can be
lowered by using the service for other tasks of the acquiring firm Blackstone Group (credit card,
insurance, financial services, etc).

An exceptional candidate will use a chart to summarize the above points.

MGM Grand Hotel & Casino to Unveil New Dice Game

Case Type: pricing & valuation; math problem.
Consulting Firm: Accenture first round job interview.
Industry Coverage: entertainment; tourism, hospitality, lodging.
Case Interview Question #00382: The client MGM Resorts International (NYSE: MGM) is a Paradise,
Nevada based corporation that brands itself as a global hospitality company. It is the second largest

gaming company in the world by revenue – about USD $6 billion in fiscal  year
2009. It owns and operates 15 properties in Nevada, Mississippi and Michigan, and has 50% investments
in four other properties in Nevada, Illinois and Macau, China.
Recently, the CEO of MGM Resorts is considering unveiling a new game in his MGM Grand Las Vegas
Hotel & Casino. The rules of the game are as follows:

 The player pays an amount of X to play the game

 The player then rolls a single standard 6-sided die
 After the 1st roll, the player is awarded the amount on the die times $1000 (i.e., if you roll a 4, you
win $4000)
 The player then has the option to give up that prize and roll a 2nd time
 The player can again accept the amount on the die in thousands or choose to roll a 3rd time
 The maximum number of rolls is 3, and the player only gets the amount of money in thousands
shown on the die on the last roll.
The CEO would like you to help him set a price for the new game. The price should not be too high that
nobody wants to play. Also, it must not be too low that the Casino would run into a loss. The goal is to
determine the minimum amount of money X that the Casino should charge players to play the game. How
would you go about the case?

Possible Answers:
This pricing and valuation case has no additional information; it is simply a look at the interviewee’s
approach to a real options/statistical analysis problem. Do not let the interviewee veer off into tangents
about other miscellaneous concepts.
Assume that all parties act rationally, and although it is obvious the Casino will charge some amount of
margin above the expected value of the game, the goal is to simply find the minimum amount they would
be willing to charge in order to break even, which is the expected value. It is helpful to understand the
concept of “Real Options”, but it is not necessary to solve the case.

Possible Solution:
A. 1-Roll Game:
Expected value of a single roll = (1+2+3+4+5+6)/6 = 3.5

Therefore, the expected payout of a single roll game is $3,500.

B. 2-Roll Game:
The price of a 2-roll game will have to be higher than the price of a 1-roll game $3,500.

We will assume a certain price P1 for 1-roll game and will further determine the expected value of a 2-roll
game, P1 is greater than $3,500.

At P1 = $4,000

 1/3 of the players (those who roll a 5 or 6) will quit right after the first roll. The expected payout for
these players is = (5+6)/2 * $1,000 = $5,500.
 2/3 of the players will continue to play the 2nd roll. The expected value of their roll (which is now a
single roll game), as established before is $3,500.
Therefore, the expected payout of a 2-roll game is: 1/3 * $5,500 + 2/3 * $3,500 = $4,166.67

The price of a 2-roll game will have to be greater than $4,166.67

C. 3-Roll Game:
The price of a 3-roll game will be higher than the price of a 2-roll game.

We will assume a certain price P2 for 2-roll game and will further determine the expected value of a 3-roll
game, P2 is greater than $4,166.67

At P2 = $4,500

 1/3 of the players (those who roll a 5 or 6) will quit right after the first roll. The expected payout for
these players is = (5+6)/2 * $1,000 = $5,500.
 2/3 of the players will continue to play the 2nd roll. Again, among those 2/3 players,
 1/3 of them (those who roll a 5 or 6) will quit after the 2nd roll. The expected payout for
these players is = (5+6)/2 * $1,000 = $5,500.
 2/3 of them will continue to play the 3rd roll. The expected value of their roll (which is now
a single roll game), as established before is $3,500.
Therefore, the expected payout of a 3-roll game is: 1/3 * $5,500 + 2/3 * (1/3 * $5,500 + 2/3 * $3,500) =
$4,611.11

Conclusion: The price for the new dice game will have to be greater than $4,611.11
Bayer Healthcare to Launch New Asthma Drug in Canada
Case Type: pricing & valuation; new product.
Consulting Firm: IMS Health Consulting Group second round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences.
Case Interview Question #00349: Your client Bayer Healthcare USA is the Pittsburgh, Pennsylvania
based American arm of global healthcare and pharmaceutical company Bayer AG (FWB: BAYN). The
company is involved in the research, development, manufacture and marketing of products that aim

to  improve the health of people and animals. The Healthcare division of Bayer
comprises a further four subdivisions: Bayer Schering Pharma, Bayer Consumer Care, Bayer Animal
Health and Bayer Medical Care.
Recently, Bayer Healthcare is ready to launch a new drug for the treatment of severe asthma. The drug is
essentially the same as what is in the market today, but it is stronger, faster, and can treat severe cases
that are not properly treated with today’s medicine. The new asthma drug is seen as a breakthrough and
the client is planning to launch this drug in Canada very soon. How should the client price the drug?
Possible Answers:
The first question I asked the interviewer was a general one: Why are they launching this drug in Canada
and not the US?

There was no real answer to this, but in the end I determined that the key issue (the location issue) was
that in Canada the government essentially runs the medical system. The next question I had was driving
at understanding the pricing system for asthma drug that is already in the market, as this would be a
relevant benchmark for pricing our client’s new drug.
Candidate: How much does today’s asthma drug go for?

Interviewer: It is priced at about $5.

Next I inquired about the COST of the new drug compared to the older one.

Candidate: How do the costs of manufacturing and selling the new drug compare to the current one?

Interviewer: They are essentially the same.

Then I hypothesized that I would need to determine the incremental value of this improved drug to
determine how much more than the $5 drug the client could charge, and then to determine the optimal
price of the drug to maximize profits.

I then asked the following questions, to drive at the factors that were important in determining this
incremental value.

Candidate: How price elastic are the Canadian customers?

Interviewer: The Canadian government actually pays for these drugs for the elderly and poor, while health
insurance companies pay for drugs for other citizens.

I conclude that the price elasticity of the consumers themselves is not crucial here; rather, it is essential to
determine how much the Government values this better drug. When I say this, I am asked to estimate
how to calculate this incremental value to the Canadian Government. I propose the following:

 Determining the actual costs of increased hospital and doctor visits of citizens who come back
time after time when the old medicine is not effective. These visits would be eliminated with the new
drug.
 Determining the cost of “pain and suffering” of citizens who feel the affects of severe asthma. This
is difficult to quantify, but I estimate that the Government would put a significant value on this if data
were shown to them about this suffering.
Recommendations for Client:
In the end, the Government is crucial here, because they in effect set the price. Therefore it is up to our
client company to quantify the difference between this new drug and the current one. Obviously the drug
company would need to investigate this and put together a convincing story. Nevertheless, I proposed
that $30 or so would be reasonable, based on the information that we know right now.

Interviewee’s Comments:
Remember the importance of regulation/other external factors and of identifying the decision
maker/purchaser vs. consumer of a product; a new and improved product is not everything!

UPC Broadband to Launch Wireless Service in Austria

Case Type: market entry; business competition/competitive response; pricing
Consulting Firm: PricewaterhouseCoopers (PwC) final round job interview.
Industry Coverage: telecommunications & network.
Case Interview Question #00345: It’s 2:30 a.m. in the morning and you are finalizing some last details to
launch a new wireless telecommunication service in the smallest market of seven in Austria. For the
client, UPC Broadband, it will be their first launch of seven potential launches in Austria

and  they want it to be a flawless and successful in order to raise capital.

Your team has just finalized the pricing strategy and ordered 100,000 pieces of promotional material
when you get a call from the CEO of UPC Broadband. The CEO says he was just at conference in
Singapore with the president of the incumbent wireless provider, Telekom Austria, who says that they will
beat the price of any new entrant in Austria by 10%. The CEO of UPC wants to know how they should
respond to this news. What would you tell the CEO?
Additional Information: (to be given to you only if asked)
1. Company/Competitor

 UPC (originally as United Philips Cable) is a Pan-European Telecommunications company owned

by international broadband providers Liberty Global and is active in several European countries
providing bundled cable television, internet and telephone services.
 Telekom Austria is a provider of a range of fixed line, mobile, data, cable television, and Internet
communications services. The company is currently the largest telecommunications company in
Austria and is successfully positioned on international markets too.
2. Current Industry Structure/Marketshare

 Telekom Austria currently controls 100% of the entire Austrian market for mobile and landlines
and 30% of the cable television market and operates extremely profitably with all these products.
 Two other mobile providers will enter the market 6 months after UPC Broadband.
 The Austria mobile market is growing at 20% per annum.
3. Competitive Information
 Telekom Austria is known to have thorough coverage of Austria, but is known for busy lines,
dropped calls, and haphazard service.
 Telekom Austria’s rates are a flat €10 per month plus €0.40 per minute, or flat €30 per month and
€0.20 per minute, flat €60 per month and €0.10 per minute.
 Your team has spent the last three months developing a highly flexible pricing model. The model
suggests that the optimum rates ex-ante would be 15% less than Telekom Austria and use the same
three-level prices.
 Telekom Austria’s price cut would be for the entire Austria market, not just this region.
4. Costs

 Mobile telecommunications is a high-fixed cost, zero marginal-cost business.

 The cost structure of all wireless providers is essentially the same (start-up costs, operating
costs, licensing, etc). Incumbent providers (such as Telekom Austria) generally have a customer
acquisition costs that are 25% lower than new entrants do (acquisitions cost average €100 in other
launch markets outside Austria).
5. Products

 UPC will launch with the latest 4G broadband technology that transmits data 2x faster than
Telekom Austria’s network.
6. Other Information

 The managing partner on this project is on vacation and can’t be reached for three days.
However, your teammates can be reached immediately.
 The CEO of UPC Broadband is on route from Singapore to Austria and will arrive at his office at 9
a.m.
Possible Solution:
The key thing to recognize is that Telekom Austria (the incumbent) is signaling that they will defend the
market at any cost(they are dropping rates in the entire country, not just this market). This makes price-
based competition less appealing and differentiation is more important.
Most importantly, the interviewee should establish a clear program for communicating to the CEO and
with his/her staff. It is important for the interviewee to address what the CEO must be thinking and keep
the CEO comfortable. One suggestion is to keep the CEO busy addressing the issues most important to
him/her, whilst you and your team address the pricing issue. As the team manager, how do you motivate
your team to re-examine the pricing issue? What do you communicate to the managing partner?

Summary/Recommendation (Paraphrase based on elevator test):

This is startling news and affects a lot of people! I think something that we need to do is divide this up so
that we can have an outline of a solution and communications plan by the time you (the CEO of UPC
Broadband) arrive. What I would suggest is that I will convene my team right now and work out some
alternative pricing strategies and their overall impact. Are there people that you think need to be at the
meeting? Who would you like to have make contact with those people?
Enterprise Software Autonomy Changes Its Pricing Strategy
Case Type: pricing & valuation; merger & acquisition; organizational behavior.
Consulting Firm: Cognizant Business Consulting (CBC) 2nd round job interview.
Industry Coverage: software, information technology (IT).
Case Interview Question #00342: The client Autonomy Corporation PLC (LSE: AU) is an enterprise
software company with joint headquarters in Cambridge, United Kingdom and San Francisco, United
States. The company develops a variety of enterprise search and knowledge management applications

using adaptive  pattern recognition techniques centered on Bayesian inference in

conjunction with traditional methods. Revenue is estimated to be USD $870.4 million in 2010.
Autonomy has a monopoly selling knowledge management applications and enterprise software. A major
client of Autonomy, International Business Machines (IBM, NYSE: IBM), has recently withdrawn their
business. The senior executives at Autonomy think it might be a political move, since Autonomy has just
announced that it agrees to be purchased by one of IBM’s major competitors Hewlett-Packard Company
(HP, NYSE: HPQ) for as much as $10 billion. What would you recommend Autonomy to do?
Possible Solution:
1. Some hypotheses:
 Relationship problem: the client Autonomy might be able to tell us about them.
 Change in activity after the acquisition, access to the same services with another company brand.
 Autonomy’s client IBM might be able to build its own system and pay less (need for an Net
Present Value analysis, and a study about the pricing strategy of Autonomy; maybe the markup is too
high as Autonomy is trying to benefit from its monopolistic situation).
 IBM might be unhappy with the service provided (easy to test, by interviews with IBM). In this
case, it is important to understand if the big clients are offered the same pricing and the same level of
services as the small ones.
2. Some critical information needed to be asked to the interviewer here:

 How did the client Autonomy achieve to have a monopoly? Is it a national monopoly or local
monopoly? (HP, the company that purchased our client may have access to other services).
 How much would it cost for IBM to build its own system (to be able to answer whether it is worth
having its own system. A way to show that you know how to deal with numbers!)?
 Did Autonomy do a good job with selling knowledge management applications and enterprise
software or were some customers unhappy about the service provided?
3. What I found out from my analysis:

 improving technology will move cost frontier inward.

 consolidation in the industry will create more large clients that might develop their own systems.
 Big client like IBM might sell their own system very soon and we would have competition any time
from now on.
Recommendations for Client:
 Our client Autonomy would be better off by changing its pricing strategy; its market power is
decreasing as consolidation in the industry is increasing.
 Try to be more aggressive with small clients with whom the client still has a pricing advantage.

Note: This is case is very similar to another case “The Rise and Fall of Quotron Systems“. You may want
to check out the possible answers to that case too.
Why Skadden Pays First-Year Associates $160,000 a Year?
Case Type: pricing & valuation; HR/organizational behavior.
Consulting Firm: FTI Consulting 2nd round job interview.
Industry Coverage: law & legal services.
Case Interview Question #00215: The client Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates
(often shortened to Skadden Arps, Skadden, or SASM&F), founded in 1948, is a prominent law firm
based in New York City, NY. With over 2,000 attorneys in 23 offices worldwide, it is one of the largest and

highest-grossing law firms in the world.

Although called a sweatshop by some, Skadden is also well known for its generous attorney
compensation. Like other top national law firms, Skadden hires in associate attorneys right out of law
school and pays its first-year associates $160,000 a year (not including the annual discretionary bonus).
Is this a good deal for the law firm?

Possible Answer:
This valuation case can be structured by a basic profitability framework “profits = revenues – costs”.

First, step through marginal revenues associated with adding a new lawyer. Start simple – does the law
firm have work for the new lawyers to do? Assuming the answer is “yes”, then assume an hourly rate for
the new associate’s work, the number of hours billed per day and the number of days worked per year to
get an estimated revenue figure for the year: assuming that the average billing rate for a first-year
associate is $300 per hour, and he/she bills 2,400 hours (consider 8 hours a day, 6 days a week, 50
weeks in a year) in the first year, then revenue brought in by the first-year associate = $300 * 2,400 =
$720K.
Now look at the costs side. In addition to the $160K annual salary, the interviewee should estimate taxes,
overhead, training costs and various benefits and any other non-wage expenses one can think of:
housing (employer-provided or employer-paid), group insurance (health insurance, dental insurance, life
insurance, etc), disability income protection, retirement plan, daycare, tuition reimbursement, sick leave,
vacation (paid and non-paid), social security, profit sharing, funding of education, and other specialized
benefits. Don’t forget recruiting costs (amortize these over the average time a new associate will stay with
the firm).
Once you have this basic framework, it can be expanded with other details (time permitting). Other
possible factors to consider include the quality of lawyers you get for $160K (is this above or below
market price? is this salary able to attract and retain top talents?), the need to give raises in subsequent
years, the option of hiring experienced lawyers or cheaper legal assistants instead, etc.

How Much is Real Teleportation Machine Worth?

Case Type: pricing & valuation.
Consulting Firm: KPMG Consulting final round job interview.
Industry Coverage: Transportation; Airlines.
Case Interview Question #00207: The client Bell Laboratories (also known as Bell Labs and formerly
known as AT&T Bell Laboratories and Bell Telephone Laboratories) is the research and development
organization of Alcatel-Lucent (Euronext: ALU, NYSE: ALU) and previously of the American Telephone &
Telegraph Company (AT&T, NYSE: T).

Recently, Bell Labs has developed a teleportation machine called “teleporter” – two booths connected
with a hardwire over a long distance. Much like the transporter room on Star Trek’s Enterprise spaceship,
people can step into one booth and, when the device is activated, are teleported instantaneously to the
other booth far far away. The client’s question to you: How much is this teleportation machine worth?
Value it.
Additional Information:
 This is a made-up problem with a real answer.
 Remember, a value is a measure that demonstrates what something is worth. Intangible objects
can have great value.
Possible Approach:

The job candidate should realize that what the interviewer is looking for:
 structure the problem,
 demonstrate ability to hypothesize,
 show that you know how to direct the discussion,
 minimal number-crunching proficiency,
 pitch a reasonable conclusion.
Step A: Look at the demand and supply issues in this case.
 Who would use this teleportation machine?
1. Segment the consumers; some will be willing to pay more than others. Who are these and
hypothesize heavily on who the more profitable ones will be (e.g., business travelers are more
profitable than leisure travelers, as evidenced by Boeing 747 vs. Concorde travel between New York
City and London)

2. Show your directional ability by saying “In order to simplify this problem for now, I’d like to look
primarily at NYC-London Concorde travel. Time permitting, we’ll come back to assess other
routes/options.”

3. Demonstrate numeral literacy by extrapolating how much you think “instantaneous” travel would be
worth. For the same NYC-London trip, if the business traveler pays $1,500 for a 7-hour Boeing 747
flight and $3,000 for a 3.5-hour Concorde flight, then linear extrapolation predicts a 1 second
teleportation would be worth $3,000 x (3.5×3600) or $1,500 x (7×3600) = $37.8 million.

4. Demonstrate business sense by recognizing that this number is too large to be credible and
propose a non-linear relationship to derive a lower number (e.g. marginal benefit of going from 2
minutes to 1 second travel < going from 2 hours to 2 minute travel). Provide a hard final number that
both you and the interviewer mutually agree upon to show conclusiveness.

 How much would it cost to implement this technology (very important to demonstrate sensitivity to
fixed vs. variable costs)?
1. Each pair of booths costs $20M and laying the required hardwire line costs $200M from New York
City to London. Operational costs are negligible (i.e. ignore marketing, upkeep, and electrical costs).

2. Numerical literacy question: how quickly will this investment be recouped based on price
assumptions made on the demand side where you assume: a) a “skimming” approach by which you
target only the high-end business users, and b) a “full-entry” approach by which you target all types of
travelers (assume that on average individual traveler pays ~$1000 for a 7-hour Boeing 747 flight and
does not use the Concorde).

3. Show business acumen by recognizing that competitive response will be different with these two
entry approaches, but show directional ability by postponing for later discussion (don’t forget to come
back to this issue!).

4. Demonstrate the good business sense to conclude that “supply costs are not going to be the killer
in this project. High revenues/demand would swamp out all questions about profitability.” The
interviewer may ask to discover under what financial conditions this would not hold true (see Step B
for further discussion).

Step B: Analyze the competitive responses to your entry.

Demonstrate directional ability by remembering to study what kinds of responses might occur under your
two entry approaches. Note that the marginal cost of airline service is still higher than with the
Teleportation Machine, which was assumed to be zero. In the “skimming” approach, we steal a fraction of
the high-profit business customer, which would irritate the airlines. The lower our prices, the larger the
fraction of stolen high-profitability customers. Therefore, we might seriously consider setting our prices
really high only to take away the truly price-insensitive/time-sensitive flyer and irritate the airlines only a
little. On the other hand, a “full-entry” approach might undermine the fundamental purpose of air travel.
The airlines would be really upset!

An alternative solution might be to “sell” the technology to the airlines instead of building the booths and
connections ourselves. There are two reasons why this might be a viable strategy:

(1) if you threaten the life of the airlines, they will definitely fight you back with every resource they
possess (e.g., lobbying for government regulations against teleportation).

(2) the value of getting money today from the airlines is worth more than if you extracted it yourself over
several years, given that the two sums are equivalent.

As with all valuation cases, the candidate ought to be ready to calculate a Net Present Value (NPV). In
this example, the equivalent purchase price could be something like the NPV of $10 billion spread over 10
years evenly.

Dean Foods to Buy Formula That Extends Milk Shelf Life

Case Type: pricing & valuation.
Consulting Firm: Sibson Consulting 2nd round job interview.
Industry Coverage: Food & Beverages
Case Interview Question #00202: Your client Dean Foods (NYSE: DF) is an American food and
beverage company with two operating divisions: Fresh Dairy Direct and WhiteWave-Morningstar. Its
product lines include fluid milk, ice cream, frozen desserts, frozen vegetables, canned vegetables,
processed pickles, relishes, salad dressings, dips, and non-dairy creamers.

Recently, a biochemistry professor at the University of Chicago with a dairy bent has developed a new
serum that can significantly extend the shelf life for milk. Your client is very interested in buying the
formula but is not sure what price to pay for it. Their question to you is: How valuable is the serum?
Additional Information:
 The inventor of the serum has an unlimited supply of the serum (not really important in this case).
 The serum formula is patented.
 Milk costs about $2 per gallon.
 The current shelf life of milk is about a week after purchase; the new serum formula will extend
this shelf life to 6 or 7 weeks.
 When a gallon of milk is purchased, 20% goes bad before it gets used on average.
 The following information can be given, but can also be worked out as assumptions by the job
candidate (the latter is preferred, but if he/she needs help, the interviewer should give the information
in pieces below):
 100 Million households in the US
 Each household uses about 1 gallon of milk per week
Potential Questions to consider:
 Who wins and who loses with this serum formula?
 Does the retail grocer now have to supply more or less shelf space to milk?
Possible Answer:

This case involves quite a bit math. The interviewee should realize that the average household only uses
0.8 gallon; the other 0.2 goes bad before they use it.
The interviewee should also figure out what the total size of the milk market is. We can get this number by
multiplying 50 (number of weeks per year) x 1 gallons used per week x 100 M (number of households) x
$2 per gallon = $10 Billion.

Now to get the value of the new formula, we need to plug for the price. We know that each US household
will now use only 0.8 gallon per week, so we can use that figure in our formula from above. Multiply 50
(number of weeks per year) x 0.8 gallons used per week x 100 M (number of households) x $X per gallon
= $10 Billion. Solving for X we get X = $10 Billion / (50 x 0.8 x 100 million) = $2.5.

The interviewee should realize that total consumption of the market is 0.8 x 50 x 100 M = 4 Billion gallons.
At $0.50 per gallon, the new serum formula would be worth $2 Billion.

Now this answer is partially acceptable. The excellent candidate should also realize that some people in
the supply chain will be affected by the consumption reduction of 1 Billion gallons. The dairy farmers and
the retailers may want some cut of this profit. If we assume that the dairy farmers were receiving $1 for
every gallon sold, then they are out $1 Billion. They will be sorely upset to lose this revenue.

To get around this potential obstacle, Dean Foods should partner with some dairy farmers and share the
benefit, and slowly force all dairy farmers to accept the new formula. The interviewee should make some
assumption about this cost in order to fully crack the case (something like paying them 500 M to 1 B).

The grocers and milk retailers should be handled differently. With the new formula, retailers now sell less
milk, and although their margins are the same, they can now sell other goods in place of milk. Since
customers need 1 billion less gallons, the grocers can use that retail space for selling other goods.
Although Dean Foods may need to share some of the $2 B value of the formula with the retailers,
explaining to them the value of selling other goods will mitigate their loss.
After assumptions for retailers and dairy farmers, the new serum formula should still be worth about $1 B.

EasyJet Airline to Start New Route Between Paris & London

Case Type: pricing & valuation; new business.
Consulting Firm: Hitachi Consulting first round full time job interview.
Industry Coverage: Airlines.
Case Interview Question #00198: Our client EasyJet Airline Company (LSE: EZJ) is a global airline
headquartered at London Luton Airport (IATA: LTN, ICAO: EGGW, previously Luton International Airport),
United Kingdom. It carries more passengers than any other UK-based airline, operating domestic and
international scheduled services on 500 routes between 118 European, North African, and West Asian
airports.

EasyJet Airline has proven successful with their efficient operations, even during the recent financial
crisis. They are now considering starting a new flight service between Paris and London. There is a larger
effort ongoing in making a business case for this flight service and you have been giving the assignment
of setting a price for the new Paris-London flight. How would you go about pricing the tickets?
Possible Answer:
Interviewee: So, our client EasyJet is a global airline considering launching a new flight route between
London and Paris, and they want to know how to price the tickets?

Interviewer: Yes.
Interviewee: Can you give me more information about the flight and service, and how deep pricing
considerations you need? Flight tickets can have very different classes and prices, also depending on the
time of purchase.

Interviewer: That’s a very good point. This flight is supposed to be a discount-only flight, so there is one
discount class on the whole flight. The client will operate with fixed prices when customers order the
tickets at latest 1 week prior to departure. Then the price will increase – but let’s forget about that and find
a baseline price.

Interviewee: Alright. Can I have a minute to structure my thoughts?

Interviewer: Sure, go ahead.

Interviewee: There are three ways to decide a price: value based price, cost-based pricing and
competitor-based pricing. As these are discount tickets in a competitive market, it would not make much
sense to use value-based price as the price levels would be given to us from the current market. So there
are two ways in which we can price discount tickets. I assume that there is a significant competition
already with other airlines, and there are also substituting products. So we need to look at the alternatives
and use competitor pricing as input. Also we need to make sure that we cover our costs.

Interviewer: Sounds like a good approach. Our costs would be 45 euro per passenger. This will include all
variable costs, as well as staff, flight lease and airport fees.

Interviewee: Alright, so we will need to look at the competitors offerings. There are three types of
alternatives: Other airlines, the Eurostar train service or driving by car. Do you have any information about
the prices?

Interviewer: Yes, the other airlines charge between 40 and 60 euro for discount airlines, and the
traditional flag carriers like Air France and British Airways charge 50 – 70 euro for discount tickets. The
Eurostar train service has varying prices between GBP 70 and 100. The price to get a car through the
English tunnel is 50 euro. How will you do the analysis?

Interviewee: First task is to compare the different competitors’ prices v.s. features so that we are
comparing the right things. I would not include the car product as this is simply a different product in terms
of costs, time and convenience. I will assume that almost all competition comes from other flights and the
Eurostar train service. It is important to compare with the relevant alternatives when pricing. I would not
include the car alternative, as the product.

Interviewer: Ok, fair enough.

Interviewee: First we need to calculate the price of the Eurostar in to euro in order to make it comparable.
I know the exchange rate for EUR/GBP is approximately 1.10. Does that seem reasonable?

Interviewer: It is reasonable estimate, but I can give you the actual exchange rate. Currently it is 1.18.

Interviewee: So we say 1.18 times GBP 70. That equals 82.60 euro. GBP 100 times 1.18 equals EUR
118.00.

Interviewer: Right on.

Interviewee: Now we need to adjust the price of the alternatives with the product content. I am assuming
that the alternative flights use the same airports, hence the product is directly comparable in regards to
convenience and time. The Eurostar train travels slower than the planes, but since the train departs and
arrives at the city centers of London and Paris, it is actually faster and more convenient. This means that
all other things being equal, the consumer should be willing to pay a premium for the train ticket. This
means that train price of EUR 82.60 — 118.00 serves as an upper bound in this pricing exercise.

Interviewer: OK.
Interviewee: Next we need to look at complementary products that can be sold with the tickets

Interviewer: Why are you interested in that?

Interviewee: Well, I noticed that our competitors can sell tickets below our cost base and that made me
think that there might be some additional revenue per customers. For example revenue from baggage
handling, car rent, hotels and similar.

Interviewer: True.

Interviewee: I would estimate this additional revenue to be EUR 5 per passenger on average.

Interviewer: That is a rough estimate, but okay.

Interviewee: This means that from a cost perspective, the lower bound is not EUR 45 but EUR 40. Based
on the analysis we can now make a comparison:

 Alternative discount flights: EUR 40 — 60

 Traditional flag carriers: EUR 50 — 70
 Eurostar train: EUR 82.60 — 118.00
Based on my analysis, I would recommend the client to price its ticket between EUR 40 — 60, i.e. similar
pricing as the direct competition.

Interviewer: I came to a similar conclusion, but I still have one question: Why do you think the price is
given as a range and not as single data point?

Interviewee: Well, there can be multiple explanations for that. The price range can represent differences
in service levels, timing of the flight, brand equity and the carriers choice of distribution channel.

Interviewer: Okay, I think we covered most elements of the case, so let us stop here. Thank you very
much for your time. We will get back to you with some feedback soon.

Genentech Invents Preventative Drug for Heart Attack

Case Type: new product; pricing & valuation; industry analysis.
Consulting Firm: IMS Health Consulting Group second round job interview.
Industry Coverage: healthcare: pharmaceutical, biotech, life sciences; insurance: life & health.
Case Interview Question #00193: The client Genentech, Inc. (Genetic Engineering Technology, Inc.) is
a biotechnology and pharmaceutical corporation headquartered in San Francisco, California, USA.
Genentech has hired your consulting team because its research department has just invented a
preventative medicine for heart attacks that took two years to develop and that will be ready to market in
six months. The drug is a tablet with no side effects and it significantly reduces the chances of a heart
attack.
The marketing department of Genentech has decided to price the new drug at $300 per year. What is
likely to happen to the healthcare industry if the new drug is sold at this price?
Additional Information:
Product
 The tablet must be taken every day.
 The drug has already been approved by FDA.
 Assume that Genentech has unlimited manufacturing capacity for this product.
 The drug will be prescribed through cardiologists.
Customers
 Potential customers are Americans aged 50+ that are high risk for heart attacks.
 Of Americans aged 50+, 40 percent are considered high-risk.
 Of high-risk Americans, 25 percent will have a heart attack by age 70.
 40 million Americans are over 50. (Ask candidate to estimate this figure)
 It costs a health insurance company $50,000 to cover every heart attack.
 There are no viable substitutes for this new drug product.
Possible Answer:

First, calculate potential market for the product:

 40 million x 40% = 16 million Americans are at high risk for heart attack.
 16 million x 25% = 4 million Americans will have a heart attack by age 70.
If the interviewee does not calculate the market size, interviewer should ask how health insurance
companies will decide whether or not they will cover this new drug product. The candidate may attempt to
determine if it is cheaper for health insurance companies to cover the product or simply let people have
heart attacks.

As we calculate above, there are 16 million Americans age 50 or older who are considered high-risk for
heart attacks. One quarter of these (4 million) will have a heart attack by age 70.

1. If a health insurance company were to cover their prescriptions for this medication for 20 years, the
costs would be:
16 million x $300/yr x 20 years = $96 billion. Assuming a 10% discount rate, the net present value (NPV)
of this amount is about $40 billion.

2. If the health insurance company were to let people have heart attacks and then treat them afterwards,
the costs would be:
4 million x $50,000 = $200 billion. The present value of this amount is about $200 billion / (1.10^20) = $30
billion.

Conclusion: Given this price, health insurance companies might not be willing to provide coverage for
this medication. They might just choose to let people have heart attacks and then treat them afterwards.
Medical Startup Xagenic Develops Blood Filtering Device
Case Type: new business; pricing & valuation
Consulting Firm: Cornerstone Research 2nd round job interview.
Industry Coverage: Healthcare: Hospital & Medical; Small Business & Startups.
Case Interview Question #00188: The client Xagenic is a Boston-based medical start-up company. It
was founded by a professor at Boston College with past commercialization experience, whose research
lab recently developed a new device that can efficiently filter blood. The client has hired you as a
consultant because she wants to know the market potential and optimal price for this medical device. How
would you approach the case?

Additional Information:
 The only substitute for this new blood filtering device is bagged blood.
 Approximately 30 million pints of bagged blood in the U.S. was used last year.
 The filtration system is superior to bagged blood, for the increased assurance that the blood has
been appropriately filtered.
 The price of using bagged blood in an operation is $2 per pint (equivalent to 1 bag), plus the cost
for the attendant – $10.
 The cost of the new filtration system is the fixed cost for the machine, the cost for each filter (one
used per operation), and $10 for an attendant.
 Operations can be segmented into 3 categories: Type 1 using 1-2 bags per operation (50%),
Type 2 using 3-5 bags per operation (25%), and Type 3 using more than 5 bags per operation (25%).
Type 2 and 3 operations use 90% of total bagged blood consumed.
Possible Answer:

To identify the market potential, the candidate should inquire what substitute products are on the market
(only bagged blood), and what the sales of that substitute product are each year (30 million pints).
To determine what should be the price charged for the new filtering device, the candidate should inquire
about the price for bagged blood:

 For Type 1 operations, the average cost is $13 (1.5 bags of blood at $2 per bag plus $10 for the
attendant),
 For Type 2 operations, the average cost is $18 (4 bags of blood at $2 per bag plus $10 for the
attendant)
 For Type 3 operations, the average cost is $20 (5 bags of blood at $2 per bag plus $10 for the
attendant)
The candidate should explore what the costs of the new filtration system are:

 The cost of the new device

 The cost for filters (1 used per operation)
 The cost for the attendant (same as for bagged blood – $10)
Conclusion: The conclusion should be that the client should charge a minimal price for the cost of the
device so that hospitals will be willing to switch, and then charge a price for filters that is comparable to
the cost of bagged blood. Since 90% of the blood is used in operations of 3 bags or more, which would
cost a minimum of $6 for bagged blood, the client could charge $7 or more for each filter. The use of a
chart or table, summarizing the above information would make for an excellent answer.
Xerox Develops New Laminate for Glass Bottle Labeling
Case Type: pricing & valuation.
Consulting Firm: Accenture final round job interview.
Industry Coverage: Office Equipment; Manufacturing; Food & Beverages.
Case Interview Question #00180: The client Xerox Corporation (NYSE: XRX) has come to you with an
exciting news that their R&D Division has developed a new laminating technology which will label glass
bottles in a way that makes them look like they have been painted. Xerox wants to know how valuable the
technology is before they start marketing it. How would you go about pricing the new laminating
technology?

Additional Information: (to be given to you if asked)

 There is a limited set of companies which make glass bottles and apply labels. When a bottle is to
be painted, a different company will generally do the painting, but will not necessarily create the
bottle: only 10% of the painting is done at the glass bottle manufacturer. (There are actually only 4
major players in the market and it is mature; the job candidate should realize that margins are low
and glass bottles are a commodity).
 The market size of the painting and labeling business today is $50 billion. 10% of all glass bottles
get painted.
 Current painting technology provides crude images. The new laminating technology would create
sharp bright images.
 Each color painting today adds additional expense; the new laminating technology would not
necessarily be so.
 The laminate used in the new technology is more expensive than paper, but cannot be scratched
off.
 The cost per bottle is $0.20 for paint, $0.15 for the laminate, $0.05 for paper labels. An un-labeled
bottle costs $0.05.
Potential Questions to consider: Who wins and who loses with this new technology? Who really needs
it?
Possible Answers:

This pricing/valuation case involves a little math and some reasonable assumptions on the part of the
interviewee. The candidate could move down the path right away of who might need this technology.
Then, the candidate should instead focus on the numbers, and finally come back to that discussion at the
end.
Realizing that the market is $5 billion a year and the cost is still high for your product, you could really
only charge no higher than $0.19 per bottle for the laminate since the cost per bottle is $0.20 for paint. In
fact, you may only be able to realize a couple cents per bottle, since the bottle manufacturers need some
incentive to move to your product. $0.185 seems like a reasonable number. Thus the actual value of the
new technology would be something like $0.185 – $0.15 = $0.035 per bottle. Assuming that each glass
bottle costs a nickel by itself, then the number of bottles with paint would be 5 Billion/(0.20+0.05) = 20
Billion bottles. So the new laminating technology would be worth about 20 Billion x 0.035 = $700 Million.

The candidate should then discuss who might use this technology and discuss why they might switch.
Companies dependent on marketing may be best suited for this technology, such as Coca-Cola and
Pepsi. The candidate should feel free to suggest other ways to expand the business. However, the
candidate should realize that most bottled products are as much a commodity as the bottle themselves. If
a drink producer makes $0.25 for every bottle drink sold using paper labels which cost only $0.05, then
raising costs by $0.135 per bottle for laminated labels would seriously erode profits. They would have to
sell twice as many bottles of soda than they do before switching. In an industry like the soft drink industry
such increases are unlikely.

Finally, the candidate should realize that not all painted labels will convert to laminate; the technology is
therefore worth somewhat less than the $700 million figure estimated above.

Disney Bids on Controlling & Operating NYC Central Park

Case Type: pricing & valuation; estimate/guesstimate.
Consulting Firm: Bain & Company final round job interview.
Industry Coverage: entertainment; leisure & recreation; government & public sector.
Case Interview Question #00178: Suppose the city government of New York wants to lease Central
Park to raise some revenue. The lease is for 99 years. The client has retained your consulting team to
advise them on controlling and operating Central Park. New York City Government will accept sealed bids
– the highest bidder will win, as long as the use of Central Park meets expectations. Now the client’s
questions are: what should our bid be and what should we do with Central Park once we win the bid?
Additional Information: (to be given to you if asked)
 New York City Government’s expectations are that the buyer can build on no more than 20% of
the park. Building sites can be roughly 2-5 stories in height, though no high rises. The buyer can put
these facilities to any purpose.
 The client has other assets/facilities in New York City.
 The client is the Walt Disney Company (NYSE: DIS), owner of Walt Disney Parks and Resorts
(this information should only be given out if requested).
 NYC Government will take the highest bid no matter what the highest bid is.
 If the interviewee comes up with a figure, tell him/her the client is the only bidder. What should
they bid?
Possible Answers:

First, the job interviewee should determine who the client is. This information is vital to how to structure
what to do with the park. Regardless, the interviewee should come up with a rough format of how to value
the park. Setting up this format will drive out potential uses, the value of each use to a particular person or
persons, the amount the client can charge for such a use, and some assumptions about the aggregate
fees per day and per year for each use.
The interviewee should also consider multiple uses for different parts of the park. Sample uses include
leave as a regular park but charge for usage, make a theme park or amusement park, create a
permanent concert venue and charge admission, install housing, put up other commercial or retail space.
Although the interviewee need not explore each one, he/she should choose one and get an idea of how
much the value would be.

After the interviewee puts some assumptions around value and what to charge, the daily and yearly
usage figures should be estimated. These estimates are back of the envelope; the interviewer is simply
trying to see if the interviewee can think on his/her feet and come up with reasonable assumptions for the
value of the park.

For instance, as a regular park, the client could charge admission. If the users currently get $8 of utility
from a free park, it might be reasonable to assume that the client could charge each user $4 a visit. If we
assume that 5000 people visit the park daily after the admission fee is instituted, then the park generates
$20,000 a day. Multiply $20,000 per day by 360 days to get that the park is making 7.2 million per year.
Since the lease (99 years) is essentially forever, pick an acceptable discount rate, say 10%, and the park
is worth 7.2 million/10% = $72 million.
Obviously the interviewee should use simple numbers to help out the math. Also, he/she should mention
that no costs are factored in, and that the utility would need to be measured for feasibility. Other uses of
the park would clearly bring in other cash flows, including up front capital expenditures.

Finally, if the interviewee suggests a figure, mention that NYC government will take the highest bid no
matter what – and that your client is the only bidder. Then the bid should be as low as possible,
something like $1.

Comments: If done correctly, the case can be cracked in less than 10 minutes. This pricing/valuation
case mixes concepts from marketing and finance, forcing the interviewee to make assumptions about
uses and discount potential cash flows.
Research In Motion to Launch BlackBerry Torch 9800 Smartphone
Case Type: pricing & valuation; new product.
Consulting Firm: Simon-Kucher & Partners (SKP) final round job interview.
Industry Coverage: electronics; telecommunications, network.
Case Interview Question #00176: Your client is Research In Motion Limited (RIM) (TSX: RIM, NASDAQ:
RIMM), the Canada-based telecommunication and wireless device company best known as the developer
and manufacturer of the BlackBerry smartphones. The Vice-President of Marketing at RIM enlists your
help with a tricky problem.

The time is in early August, 2010. RIM is preparing to launch the BlackBerry
Torch 9800, a new, innovative smartphone that combines a physical QWERTY keyboard with a sliding
multi-touch screen display and runs on the latest BlackBerry OS 6. The phone contains many new
features that other smart phones do not have, and considerable hype surrounds the expected launch on
August 12, 2010. Given this situation, how would you go about advising RIM in determining the right price
for the BlackBerry Torch 9800 smart phone? (Just to price the hardware, not the contract or other
components) What information would you want to have?

The VP of Marketing has only 15 minutes to listen to your analysis. Walk her through the issues as you
see fit. Please ask for any information that you need.
Question #1: What information would you want to have?
Possible Answer:

In the first part of the case (qualitative analysis), the interviewer is testing your business sense, creativity
and knowledge of pricing strategy. Potential lines of discussion include:
 Goals of pricing strategy
 Product lifecycle
 Penetration strategy
 Price structures (upfront, rebates, recurring charges)
 Value vs. competition (products & services)
 Costs
 Other potential revenue streams (downloads, data plan revenue sharing, accessories)
 Cannibalization
 Capturing differences in customer willingness to pay, and ways to do so
Question #2: Assume for now that the marketing department, in conjunction with SKP, has done a
market research to determine customer willingness to pay and has found the following data:
 20% of potential buyers are willing to pay up to $800.
 40% of potential buyers are willing to pay up to $600.
 The remaining 40% of potential buyers are willing to pay up to $400.
At what price would you suggest RIM launch the new BlackBerry Torch 9800 smart phone, and why?

Possible Answer:
The second part of the case is for testing candidate’s analytical and quantitative skills. Again, be creative!
An excellent idea would be to suggest strategies (segmentation, product differentiation, etc.) to extract the
maximum willingness to pay out of all customers. Then the interviewer would explain that for the purposes
of this case, the product must have a single price.

Common Traps: Not realizing that a lower price capture the customers with a higher willingness-to-pay;
Not asking for cost; Not knowing what to do with the volume. Calculating revenue instead of profit.

The goal is to set a price that is profit optimal (should know from previous line of questioning). Price and
profits are related by this function: Profits = Revenues – Costs = Volume x Price – Costs

Costs = Fixed + Variable. In this case, interviewer gives variable cost of $300, no fixed costs.

Doing the Calculations

Since any market size will yield the same answer, choose an easy number to simplify calculation, e.g. 1,
10, 100. Remember, this part of the case is for the interviewer to test your ability to ask for the right
information, handling basic math, answering the right question, knowledge of the profit function, and
problem solving skills.

Pricing Strategy Option Price Cost Profit per Phone Volume Profit

#1 $800 $300 $500 20% x 1 $100

#2 $600 $300 $300 60% x 1 $180

#3 $400 $300 $100 100% x 1 $100

Making a Recommendation
In making a recommendation, the interviewer is testing your confidence in your work, your ability to speak
clearly and concisely, and again your creativity and business sense. The following are some of the points
you would need to address when making the final recommendation:

 What information have you been asked to provide?

 What objective(s) are you trying to achieve?
 Can you think of a concise, creative scenario in which a different solution might apply?
Sample Recommendation: “I would recommend charging $600, since it is the profit-optimal price for this
smartphone. If, however, we have the flexibility to change the price over time, I would launch at $800 and
later reduce to $600.”

Common Traps: Disregarding the initial question and objectives (pricing); Getting bogged down by the
details.

Question #3: Suppose RIM launched the BlackBerry Torch 9800 smartphone at $600 retail price and
later confirmed the volume forecasts at this price point. A few months after the launch, the VP of
Marketing comes back to you and she says that they would like to drop the price on the phone. The
company’s plan is to lower the price to $450, but they want your advice first. How would the volume you
would need at $450 compare to the volume achieved at $600 if the goal is to not sacrifice any profits?
(Assume customers remain at all price points)
Possible Answer:
The goal here is to maintain profits. The interviewer is testing candidate’s ability of calculating break-even
point, logic, math skills and quantitative analysis.

In Part #2 of the case, it has already been shown that at retail price $600, volume is 60%, and profit =
($600 – $300) x 60% = $180.

If the retail price is to be dropped to $450, in order to for RIM to keep the same amount of profit, sales
volume will have to be boosted to $180/($450 – $300) = 120%, twice as much as 60%. Therefore, the
marketing department would have to double the sales volume after the price drop.

Sanity Check: Is doubling volume possible given current percent of market? What other things would you
recommend?
AMC Theatres to Try New Pricing Strategy for Movies
Case Type: pricing & valuation.
Consulting Firm: Analysis Group second round job interview.
Industry Coverage: Entertainment.
Case Interview Question #00159: Your client AMC Theatres (American Multi-Cinema), officially known
as AMC Entertainment, Inc., is the second largest movie theater chain in North America with 5,325
screens as of 2010. Headquartered in Kansas City, Missouri, AMC Theatres is one of the United States’s
four national cinema chains  (together with Regal Entertainment Group, National
Amusements, Inc. and Cinemark Theaters).
Currently, AMC prices all movies in its theatres at a flat price of $8. Now, the senior management is
considering dividing their movies and customers into 2 segments: recent movies and recent movies seen
later. AMC would like to price these two segments at $12 and $6. How would you help AMC assess the
success of this new pricing strategy?

Possible Answer:

Key things to consider in answer: price elasticity of each segment. The fact is, for first run theaters, you
would pretty much have perfect competition. Movie is a commodity, so you would lose your entire
audience to competitors (other national cinema chains, e.g. Regal Entertainment Group, National
Amusements, Cinemark Theaters, Cineplex Entertainment, etc). For the second run people, the price
would actually be inelastic.
Note, since movies are commodities too, most of the money is in the concession. Think about total
volumes of people in the theater.

Another idea: if you do charge 12 dollars you must differentiate your products: large screens, HD
resolution, 3D movies, or something else.

Some more ideas:

(1) Question whether a third segment should be added (independent films).

(2) Analyze existing outlets that appeal to these segments.
(3) Run regressions on results.

Delta Evaluates SkyMiles Frequent Flyer Program

Case Type: pricing & valuation.
Consulting Firm: Roland Berger Strategy Consultants second round job interview.
Industry Coverage: Airlines.
Case Interview Question #00143: Your client Delta Air Lines (NYSE: DAL) is a large commercial airline
headquartered in Atlanta, Georgia, United States. It is the world’s largest airline in terms of passenger
traffic, fleet size and destinations served after merging with Northwest Airlines in 2008. The airline
operates an extensive domestic and international network serving all continents
except Antarctica, flying over 4,000 flights every day.
Delta has hired you as an outside consultant because it is in the process of evaluating the merits of its
frequent flyer program SkyMiles. How would you determine the value of this program?

Possible Answers:
The value of Delta’s SkyMiles frequent flyer program is the additional revenue minus the costs: Profit =
Revenue – Cost.

1. Revenue = Price per unit x Quantity.

Revenue can be determined by finding out (a) how many customers switch to Delta due to the SkyMiles
frequent flyer incentives and (b) how much do these customers pay for a ticket when they do so.

Ways to determine this additional revenue include marketing research, customer questionnaires, or
comparing flight booking trends before the program was offered to the number of bookings during the
flyer program.

2. Costs = fixed costs + variable costs.

Fixed Cost is driven by incremental administrative, logistical, in-flight, advertising and promotion costs of
the program.

Variable Cost is mostly determined by supply side drivers such as the number of frequent flyer miles
given away or the number of miles customers actually redeem. This information should be readily
available to Delta through the ticket coding on the CRS (Computer Reservations System) that books
airline flights.

Variable Cost is also determined by demand side factors such as most traveled seasons or days of the
week, most traveled destinations, demographic characteristics of those who redeem miles, and
segmenting the customer base into business and leisure given their different price elasticities.

A good way to calculate the variable cost would be (unit variable cost x amount):
cost per frequent flyer mile x number of miles given away or redeemed.

You may also need to suggest ways to reduce or limit these costs by improving operations and
administration of the program (cut fixed cost) or limiting the window of opportunities during which
passengers can redeem miles (reduce variable cost). For instance, currently Delta SkyMiles expire after
24 months of account inactivity, while competitor American Airlines AAdvantage Miles expire after 18
months of account inactivity, AirTran’s A+ Rewards Credits expire 1 year after they are earned. To
shorten the miles expiration time will significantly reduce the number of miles redeemed.

How Would You Start a New Business at Kellogg?

Case Type: new business; pricing & valuation.
Consulting Firm: Pearl Meyer & Partners first round job interview.
Industry Coverage: Education & Training Services.
Case Interview Question #00138: Think of a business that you could start at the Northwestern
University Kellogg School of Management (i.e., catering to students and faculty at Kellogg). Walk me
through the analysis of starting that new business and provide a brief pricing strategy for your new

business.
Possible Answer:
This is a rather open case question that can have many different answers. The key is to have a well-
defined business idea (it doesn’t even have to be a creative idea), estimate the market size for your
proposed product/service, and come up with an effective pricing strategy for your product/service.
My idea was to start a company that provided online videos of Kellogg MBA student interviews for
recruiters on the web.
The interviews would be conducted by a licensed, regulated third-party like an ETS (Educational Testing
Service) type organization. The interview could consist of resume, fit and case questions which would be
video-recorded by the company. The company would then put the videos on the web, and charge
consulting (and other) firms a fixed fee to access the site. The key benefit is that it would eliminate the
need for first round interviews.

I tried to calculate how much value would accrue to the consulting firms (e.g., 4 interviews at an average
billing rate of $250/hour times 8 hours) to drive my pricing. I also tried to gauge acceptance from the key
stakeholders (Kellogg, students, the Career Management Center, recruiters).

GE Defines Pricing Strategy for Eternal Light Bulb

Case Type: pricing & valuation; new product.
Consulting Firm: McKinsey & Company first round job interview.
Industry Coverage: Utilities; Energy Industry.
Case Interview Questions #00131: Your client is General Electric Company (NYSE: GE), a multinational
conglomerate corporation headquartered in Fairfield, Connecticut, US. The company operates through
four segments: Energy, Technology Infrastructure, Capital Finance and Consumer & Industrial. In 2011,

Fortune magazine ranked  GE the 6th largest firm in the U.S.

Recently, researchers in GE’s Energy Division have just developed a new product: a new light bulb that
can last eternally. Your job is to help them go to market by defining their pricing strategy. The new light
bulb cost $1 billion in total to develop.

Possible Answers:
Me: Are the new light bulbs different from conventional light bulbs in any other way? Are the light bulbs
intended to replace regular incandescent light bulbs or fluorescent light bulbs?
Interviewer: You can assume that the new light bulbs can be used to replace both incandescent and
fluorescent light bulbs. You can further assume that the new bulbs are perfect replacements for these
types of bulbs (i.e., they are available in two different forms, one that is exactly like any other
incandescent bulb, and one that is like any other fluorescent bulb).

Me: In order to determine the optimal pricing strategy, we’ll need to look at both microeconomic and
marketing theory. First, it may be useful to determine the upper and lower limits on the price GE can
charge for its new light bulbs. In general, price is bounded by two things: the product’s economic value to
the customer (EVC) and the company’s average cost in producing the product. The EVC sets the upper
bound in price since a person will not pay more than the product is worth to her, and the average
production cost sets the lower bound since the company can not earn economic profits if the price is
below this point (in the short run, however, the company will want to produce as long as price is above
average variable costs since this yields a positive contribution to fixed costs). The optimal price must fall
somewhere within this range.

Interviewer: How would you determine the lower and upper limits in price?

Me: The average total cost of production can be obtained by considering fixed costs for the product (e.g.,
overhead and administrative costs), plus manufacturing costs, plus distribution costs, plus selling costs,
and so on. Of course, the average cost will vary with the level of production. Generally, the average cost
function is U-shaped (where the x-axis measures quantity and the y-axis measures average cost).

Note that the average total cost of production is independent of the $1 billion development costs. This
makes sense since this is a sunk cost. The sunk cost does affect the overall return on investment (ROI)
and the internal rate of return (IRR) for the project, however.
The EVC can be computed as follows: First, we assume for simplicity that the resale value of the new
light bulb is negligible after it has been used for many years (this is akin to any other old household item).
We further assume that the average person will be able to use one of the new light bulbs for 50 years
before it is discarded (either because it is accidentally broken or because the person dies and his
belongings are disposed of). Finally, we assume that a normal light bulb lasts an average of 6 months and
costs $.50.

Now, to compute the EVC we need to determine how much one of the new light bulbs will save a person.
Since we assume that the new light bulb has an effective life of 50 years, it will save a person $1 a year
from having to buy two old light bulbs for 50 years. Thus, the EVC is approximately the net present value
of a $1 annuity for 50 years (to be more accurate, we would have to consider the economic value of the
time savings from having to buy and replace normal light bulbs, the reduced risk of being electrocuted
from not having to frequently changing normal bulbs anymore, and so on. We assume that this is
negligible.

At the same time, however, we must also realize that the new, significantly more expensive light bulb may
be accidentally broken prematurely (e.g., while moving to a new house), resulting in an economic loss for
the customer. The probability of this should be considered in the EVC.).

Interviewer: Good. Now how would you determine the optimal price?

Me: From microeconomics theory we know that the optimal, profit-maximizing price is given by the
equation: P = ( Ep / (1 + Ep) ) x MC, where Ep = price elasticity of demand for the new light bulb, MC =
marginal cost of producing the new light bulb

Interviewer: How would you get the elasticity and MC data that you need to use the optimal price formula?

Me: The marginal cost of manufacturing, packaging, distributing and selling the new light bulb can be
obtained by performing a cost study of these processes. For instance, the marginal costs associated with
manufacturing will include the costs of raw materials, direct labor, and energy. Of course, the marginal
cost will vary with the level of production. In general, the marginal cost curve is roughly U-shaped.

The elasticity function is more difficult to obtain. Generally, this is hard to derive in real life, especially for a
new product that lacks past sales data. However, GE may be able to estimate the demand and elasticity
function for the new light bulb based on its historical sales data of normal light bulbs. Using this data in a
regression analysis, it can determine what the key drivers of demand are. For instance, it can perform a
regression analysis with sales quantity as the dependent variable and price and bulb lifespan as the
independent variables (the exact type of regression model will need to be determined – i.e., logarithmic,
linear, exponential, etc.).

The elasticity function may also be estimated by conducting a survey of potential customers of the new
light bulb. In this survey, customers can be asked what quantities they would purchase the new light bulb
at different price points. This data can then be used to derive the elasticity function.
Interviewer: This sounds like a lot of work. Do you really need to do all of this to determine the optimal
price?

Me: No, you’re right. The optimal price can be accurately estimated. We know that at the industry level,
demand for light bulbs is highly inelastic since light bulbs have become a necessity and there are few
substitutes for them (cross-elasticities are low).

At the same time, however, light bulbs are a commodity. Thus, at the firm level, there is nearly perfect
competition for light bulbs, and demand is perfectly elastic for any single firm.

As a result, the optimal pricing strategy for GE is to price its new bulbs slightly below the EVC for the new
bulb (which is equivalent to pricing is slightly below the market price for conventional bulbs) since this will
provide consumers a savings in using the new bulb (this assumes that the average production cost for the
new bulb is below this price level. If it is not, it is not economical for GE to produce and sell the new bulb).
If GE were to price its bulbs above its EVC, consumers would have no incentive to purchase it. If it were
to price the new bulb at the EVC, the new bulb would offer no advantages to a conventional bulb, and it
would just be another commodity bulb. As a result, it would not allow GE to significantly increase sales
and profits.

GE needs to consider a few other issues in its pricing strategy. First, it should price its new product low
initially to induce trial. Second, severe cannibalization of its conventional bulbs is likely to result. Thus, GE
needs to ensure that the sale of its new bulb will offer a higher contribution margin than that from the sale
of its conventional bulb. Lastly, GE needs to consider the industry’s competitive reaction. Since the
industry is a commodity market, P = MC, and thus, it is unlikely that competitors can afford to compete by
lowering the price of their products. They may, however, attempt to build their brands to make their
product less of a commodity.

Interviewer: How would your analysis be different for GE’s business customer segment (i.e., for
businesses that use the new bulb to replace fluorescent lights)?

Me: In our consumer analysis, we assumed that the economic value due to the time savings from not
having to buy and replace new bulbs is negligible (primarily because the opportunity cost is negligible –
what is the opportunity cost of saving 2 minutes to pick up light bulbs while at the grocery store or from
saving 2 minutes at home installing the bulb?) With business customers, however, this is not the case.
The elimination of the need to replace bulbs periodically will save businesses money from having to hire
maintenance personnel to do this. Thus, the EVC for businesses will be higher than that for consumers,
and GE can charge businesses a higher price.

In addition, we also assumed that the resale value of a new bulb that has been used for many years is
negligible for the consumer since, aside from garage sales, it may be difficult for the individual seller to
locate a buyer (this is currently changing as a result of the Internet, though. But, then again, how many
people would be willing to pay a non-negligible amount of money for an old household item, such a
hammer or an old mirror, both of which can theoretically last a long time like the new GE light bulb?). This
is not the case with business customers, however, since the resale market for old business furniture is
relatively strong. In addition, it is likely that the expected lifetime of a bulb used in a business environment
will be longer than that used in a consumer’s home. The reason for this is that bulbs are generally fixtures
in the office building even as the occupants in the building change. Thus, the expected lifetime of the new
bulb in a corporate office is likely to be about the same as that of the building. These factors will allow GE
to charge an even higher price to its business customers.

Interviewer: Good. I think that’s all I wanted to cover with this case. Do you have any question for me
about the firm?

Note: This case is different from the GE Develops Eternal Light Bulb That Lasts Forever case because it
deals with developing a pricing strategy for a new product as opposed to analyzing the effect of new
product on the industry.
Eli Lilly Develop New Eyedrops That Cure Myopia
Case Type: new product; pricing & valuation; market sizing.
Consulting Firm: Campbell Alliance 2nd round job interview.
Industry Coverage: Healthcare: Pharmaceutical, Biotech & Life Sciences.
Case Interview Questions #00119: The client is a marketing vice-president of Eli Lilly and Company
(NYSE: LLY), a major global pharmaceutical company headquartered in Indianapolis, Indiana. Currently,
he is working on a business plan for a new revolutionary product. Researchers in the Research and

Development (R&D) division of Eli Lilly have recently developed  new eyedrops
which completely eliminate Myopia (nearsightedness) in 60% of the cases (the cases caused by eye
strain rather than irregularly shaped eye lenses) if the drops are used twice a day.
Question Part 1: The marketing vice-president has been working on a business plan but is having a
difficult time with one piece of information. The client needs a directional estimate of the retail price they
should set for the new drops so that he can complete the business plan. How would you help the client
structure his thinking on the price and what is your back-of-the-envelope estimate on the price that he
should use in the business plan?
Possible Answer:

One rough cut pricing analysis would determine the market price for the product that is being replaced…in
this case, eyeglasses or contact lenses. For example, if eyeglasses cost $120 and last on average 2
years, then a two-year supply of drops could be sold for $120.
A more advanced analysis might determine that eyedrops are simple to use and completely trouble-free
so that they should replace the most expensive option including all the costs associated with that option.
For example, this may include $100 per year in optometrist fees, $180 in contact lenses ($120 per pair
plus on average each user loses on lens in a year), and $25 in contact lens cleaning solutions and other
supplies, for a grand total of $305. Using this example, the retail price of the one year supply of drops
should sell for $305.

The most advanced issue trees will include the fact that this new product is actually much better than the
alternatives, issues of dynamic pricing strategies (e.g. start high and reduce over time to best understand
elasticities), and pricing so that marginal revenue equals marginal cost.

Question Part 2: After talking through the pricing issue, you agree with the client that the price of the
drops should be roughly $200 per year. Because you have been so helpful, the client wants to discuss
one more issue. You look at your watch and determine that you have precisely 10 more minutes before
you absolutely must leave for the airport. The client explains that he needs to complete his baseline
business plan within an hour so that he can share it with the Eli Lilly management committee later that
afternoon. He would like you to help him produce a ballpark estimate of the market for the eyedrops
product. Specifically, what dollar level of sales might he be able to expect per year in the long run in the
US market?
Possible Answer:
Because you have already estimated a reasonable price, you must now estimate the number of yearly
supplies that the client can expect to sell in the US. One possible organizing structure (with estimates) is:

1. Estimate the number of people in the US: 300 million

2. Estimate the percentage of (1) using corrective eyewear: 20%
3. Estimate the percentage of (2) that are nearsighted: 70%
4. Use the client’s figure for the percentage of (3) that can be helped: 60%
5. Estimate the percentage of people that will adopt the new product: 50%
6. Put it all together: (300 million)(0.2)(0.7)(0.6)(0.5) = 12.6 million people
7. Multiply the number of people by the price per unit (12.6 million)($200 per unit) = $2.5 billion

NOTE: this market sizing approach assumes a proprietary product with no competition. If a competitor is
assumed, market share must also be considered.
EU Assess Damages of Computer Chip Price-fixing
Case Type: pricing & valuation.
Consulting Firm: FTI Consulting final round job interview.
Industry Coverage: Semiconductors; Software, Information Technology; Manufacturing; Law, Legal
Services.
Case Interview Questions #00116: A group of computer memory chip manufacturers (Samsung
Electronics, Hynix Semiconductor of South Korea; Infineon of Germany; Japanese companies Elpida
Memory, NEC Electronics, Mitsubishi Electric, Hitachi and Toshiba; and Nanya Technology of Taiwan) is
believed to have been abusing a dominant  market position in Europe by keeping
prices high. The group of chip makers is then sued by the companies it has been supplying.
The European Commission (EC) investigated the cartel case and decided that the group of chip
manufacturing companies had been guilty of controlling a cartel in a set of memory chip products for
about 10 years. The EC levied significant fines on the firms since these chip products had widespread
industrial uses. Samsung, the market leader, received the highest fine, 145.7 million euros, or $185
million; Infineon was second at 56.7 million euros. Also, many customers of the cartel case initiated
private litigation relating to the specific amounts they had overpaid. As part of a law and economics
consulting group, you’re hired to quantify the damages applicable to these customers on behalf of
Samsung, the largest company involved in the cartel. How would you go about it?
Possible Answers:

During the actual case interview, the interviewer would present you with basic information about a
hypothetical case that would have similarities to a real-life case such as this one. You might be provided
with background on the relevant parties, claims and counter-claims made or anticipated by the parties,
key laws that might be cited, quantitative data, etc.
As an interviewee, you might be asked to do the following:

 Among the laws outlined, describe the most salient laws for determining the level of damages that
must be paid (if any) beyond the fines levied.
 Describe how you would determine the appropriate damages.
 Provide a financial estimate of the damages.
 Explain how you would determine the date on which damages began.
In this pricing & valuation case, you’re supposed to first determine how prices would have evolved in the
industry “but for” the manufacturing price-fixing activity. Possible starting point: work with the client directly
and with public sources, gather sufficient data to conduct an econometric analysis. The key thrusts of the
econometric analysis are to determine supply and demand factors, and to quantify the overcharges
arising from the cartelization of the memory chip market. The real case requires the consultants to deploy
a wide range of tools in economic theory and quantitative econometric techniques, and to calculate the
degree of price overcharge relating to European economic area markets.

Interviewer’s Note: There is no one perfect answer for a case. How you go about exploring a case often
is more meaningful than your specific conclusions. Usually the interviewer wants to begin learning about
how you organize and prioritize information, how you apply structured problem-solving and decision-
making techniques, and how you translate quantitative and qualitative data into unbiased, independent
assessments. Just as there is no perfect answer, there also is no one best problem-solving methodology.
Your life experience, creativity, quantitative skill, abstract-reasoning skill, and inquisitiveness are among
the qualities you may bring to bear on a case interview.
Law Firm Baker & McKenzie to Buy 800 Phone Number
Case Type: market sizing; pricing & valuation.
Consulting Firm: Novantas 2nd round job interview.
Industry Coverage: law, legal services; telecommunications & network.
Case Interview Questions #00111: You are a partner in Baker & McKenzie, a small Chicago-based law

firm specializing in divorce. Your firm decides to use  1-800-DIVORCE FREE as your primary contact

phone number. You call the number and you find that its owner, a  shoemaker
facing an extreme liquidity crisis, is willing to sell you the number right now for $100K in cash. Should your
law firm purchase this 1-800 telephone number at a price of $100K? Yes or no, and why?
Possible Answers:
This is a traditional market-sizing case question. The key here is to be systematic, gradually growing from
the case level and taking a bottom-up approach to determining the total value of having the designer
telephone number. Unless the case question is fairly unambiguous, you probably should ask some
clarifying questions. Examples of discrete elements you’ll need to answer include:
 How many potential new divorce cases will a designated phone number generate?
 For what proportion is the phone number itself likely to influence the selection of their attorney?
 What other factors might affect your estimate on the potential?
 How much new revenue and income will this increased demand generate?
 How many cases can the firm handle now?
 How will this new number affect costs and resource requirements at the firm?
 How many lawyers are there in the firm right now?
For example, you know this is a small law firm. Does that mean 3 lawyers? 20? 100? Obviously, the
answer will affect the economic viability of buying the phone number. When you have blanks like this to
fill, you have a choice about whether you want to ask your interviewer for additional information or just
make assumptions. If you’re going to ask for more information, be careful that your questions are
germane to clarifying the major ambiguities, and that you do not spend the first half of the interview asking
for data.

Once you have built up the total yearly increase in profit from the number, it is easy to calculate what the
number should be worth to you. But remember what was asked: “would you pay $100k for the number?” If
you’ve made reasonable assumptions, you should have more than enough fodder to say “yes” or “no.”
Part 2 of the case: What would be your highest offer for the  1-800-DIVORCE FREE number?
Since you jump too quickly at the $100K offer, the shoemaker says, “Oh, did I say $100k? What I MEANT
to say is that I’m going to call 3 divorce law firms and take bids from each of them. Since you called me
first, I’ll let you make the first bid. What’s the number WORTH to you?” (Ignore game theory and bidding
strategies here–we just want a straight answer as to the number’s worth to your firm.)

This should be easy to tackle based on the thought process for Part I. In this case, you also need to
remember that the phone number doesn’t magically disappear at the end of the year. It will be around for
the life of the firm, and you will therefore derive benefit from it for years to come. This also means you can
amortize your purchase cost over several years.

Your interviewer will be looking for creative thinking as well as how well you use analytical techniques to
solve the problem. For example, knowing that the number will continue to provide benefits to the firm is
creative. Knowing how to estimate the long-term value of a stream of benefits through a Net Present
Value (NPV) analysis is both creative and analytical. Try to demonstrate both whenever possible.

Final Answer: Most answers for a 20-lawyer firm turn out to be between $500k and $1.5mm, largely
driven by assumptions about the effect of the number on case demand.
Fidelity to Invest in Hartford Group Common Stock
Case Type: finance & economics; pricing & valuation.
Consulting Firm: Oliver Wyman 1st round job interview.
Industry Coverage: Financial Services; Insurance: Life & Health; Insurance: Property & Casualty.
Case Interview Questions #00109: Your client is the treasurer in Fidelity Investments, one of the largest
mutual fund groups in the world. She is in charge of managing a portfolio of investments in addition to her
treasury responsibilities. Recently, she has asked for your advice about the purchase of a large

position  in the Hartford Financial Services Group (HIG, a large insurance and
financial services company), whose stock is listed on NYSE.
HIG is currently selling for $22.97 per share (as of September 15, 2010). The treasurer’s investment
analyst predicts that the stock will pay a dividend of $0.25 for the foreseeable future. Current quarter
earning per share (EPS) for HIG is 15 cents. Short-term treasury bills are yielding 2.5 percent, and
long-term T-bills are yielding 4.5 percent right now. The treasurer is contemplating the purchase of 15000
shares of HIG common stock and wants your help in determining a fair market price.
How would you go about determining a fair price for HIG?
Possible Answers:

$22.97 per share.

According to Efficient-market hypothesis (EMH), prices on traded assets (e.g., stocks, bonds, or property)
already reflect all past publicly available information (interest rate, dividend payout, earning potential, etc).
Thus, the currently traded price is the fair price. At first sight, this case is a pricing problem. What the
interviewer really wants to test on is your basic knowledge of finance & economics.

The Costs of Email, Voice Mail and Fax Messages

Case Type: estimate/guesstimate; pricing & valuation.
Consulting Firm: Mars & Co 1st round job interview.
Industry Coverage: Telecommunications & Network.
Case Interview Questions #00094: How would you determine the costs of messages (email, voice mail,
faxes)?
Possible Answers:
This is an estimation/guesstimate type of case that involves determining the costs of email, voice mail, fax

messages. No easy frameworks can be directly applied here because this  case
does not fit into any common framework.

On a first thought, one possible approach to solve this case is to use “cost-based pricing” model (A pricing
method in which a fixed sum or a percentage of the total cost is added as income or profit to the cost of
the product to arrive at its selling price). Since we use email, voice mail, fax almost on a daily basis, one
can easily figure out the price we pay for each. Next, once we make some assumptions to estimate the
profit margin for each, the actual cost can be calculated from price and margin.

During the interview, I spoke about investment in infrastructure; ongoing maintenance, which is primarily
labor (e.g., email requires a lot of maintenance and voice mail does not); and marginal costs (e.g., paper
for fax machine, minimal for digital transmission). I discussed how all these costs must then be divided by
the number of messages sent via each medium to determine the cost per message.
We then went on to discuss whether it is possible to influence messaging behavior so that a greater
proportion of messages are sent digitally, which would reduce costs per message.

Interviewee’s Note:
I was doing some work on a related telecommunication topic and the interviewer chose to use my
experience for the case portion of the interview. She approached the case in a discussion-like manner.
The entire case interview part was very casual and interactive.

New York Times Retail Advertising Revenue Jump

Case Type: improve profit; pricing & valuation.
Consulting Firm: Towers Perrin (now Towers Watson) 2nd round job interview.
Industry Coverage: Mass Media & Communications.
Case Interview Questions #00058: You are the new retail advertising manager of New York Times, a
large daily newspaper. Although it remains both the largest local metropolitan newspaper in the United
States as well as being third largest overall, behind the Wall Street Journal and USA Today, the weekday

circulation of New York Times has fallen precipitously in recent years  to fewer
than one million copies daily for the first time since the 1980s.
This morning you received a call from the advertising director Mr. Bill Keller (your boss!). He sounded
extremely worried about the retail advertising division’s performance. (Naturally he doesn’t explain why,
assuming that a hot-shot like you would by now be totally familiar with the status quo!). He has to attend a
meeting of senior executive convened by the publisher where he will have to defend the advertising
department’s performance. He also wants to make a big splash by presenting a new “strategic pricing
methodology” aimed at achieving “value-based differentiated pricing”. What should you do right now?
Possible Solution:
Find out corporate profitability objectives first. Assess gap between annual departmental performance and
original targets.Examine both revenue and cost issues. (You discover that revenues have gone up
steadily over the past few years. Further, costs have not risen significantly. So why worry?)
Apparently, corporate pressure to improve bottom-line results has led to steep advertising price
increases. A classic demand-curve scenario has led to greatly decreased cumulative ad volume, with
potentially serious long-term consequences.

Examine competitor pricing and customer price sensitivity. Discuss heterogeneity in advertising
customers based on business size, breadth or product line, price-point etc. Understand advertising
attributes of importance to different segments (e.g. color, size, frequency, discounting etc.). Use
difference in needs of customers to implement prices based on appropriate advertising service provided.
Are Small Oil Tankers Really Worth Nothing?
Case Type: pricing & valuation; economics & finance.
Consulting Firm: Ernst & Young (EY) 1st round job interview.
Industry Coverage: containers; freight delivery, shipping services; oil, gas & petroleum industry.
Case Interview Questions #00052: Your rich uncle has just passed away and left you with 3 small oil
tankers in the Persian Gulf. How do you determine how much these small oil tankers are worth?

Possible Answer:
This problem involves the interplay of Supply and Demand forces to determine the value of the oil
tankers.
1. Supply:
The nature of tanker supply will be revealed by defining the different tanker types (in layman’s terms:
small, medium, and large) in the industry and the cost related prices associated with employing each
type. In effect, a step function supply curve results for the industry with each step a different tanker type.

2. Demand:

Demand for the services of tankers is assumed fairly inelastic due to refinery economics dominating the
purchase decision.
Conclusion:
It will turn out (by carefully creating the supply/demand curves) that at the given level of demand, only
large and medium tankers are put into supply. This renders your late uncle’s small oil tankers suitable
only for scrap at the present time.

How Much to Pay for GE’s New Wind Turbine Generator?

Case Type: pricing & valuation.
Consulting Firm: Mercer Consulting 2nd round job interview.
Industry Coverage: Energy Industry.
Case Interview Questions #00047: Your client General Electric Company (NYSE: GE) is a multinational
conglomerate corporation headquartered in Fairfield, Connecticut, United States. The company operates
through four separate divisions: Energy, Technology Infrastructure, Capital Finance, and Consumer &
Industrial. In 2011, Fortune magazine ranked GE the 6th largest company in the U.S.

GE’s Energy Division produces a new windmill with an accompanying electric generator that harnesses
the power produced by the windmill (a.k.a wind turbine generator WTG, wind power unit WPU, wind
energy converter WEC, or aerogenerator). This new wind turbine generator may cost $150,000 each to
manufacture. You are hired by GE Energy to find out how much their customers are willing to pay for the
new windmill. How would you go about it?
Possible Solution:
Porter’s five forces dictate that industry rivalry, potential substitutes, and supplier/buyer power need to be
assessed. This framework could be an appropriate start.
To narrow it down, let’s assume competition, and a demand/supply level far beyond your capacity. We
must also examine other components: The $150,000 cost is irrelevant here in this case because so far
you have no idea what this product is worth to anyone.

Assessing the value of the product’s benefits is perhaps the next step. The closest substitute to the
windmill is probably utility produced electricity. Therefore, inquire how the electrical utilities measure and
charge for the electricity they provide, convert the Windmill’s output along these terms and assert a
cost/benefit estimation of how much potential customers would be willing to pay for it. Other
considerations upon which to discount the value might be reliability, maintenance, etc.

Ann Taylor’s Catalog Printing and Postage Costs Increase

Case Type: math problem; pricing & valuation.
Consulting Firm: Fujitsu Consulting 1st round job interview.
Industry Coverage: Retail; Apparel, Clothing & Textiles.
Case Interview Questions #00020: You are consulting for clothing retailer Ann Taylor (NYSE: ANN), an
American group of specialty apparel retail chain stores for women headquartered in New York City, New

York, United States. The brand is marketed under four divisions:  Ann Taylor,
LOFT (formerly Ann Taylor LOFT), Ann Taylor Factory and LOFT Outlet, with a total revenue of $2.4
billion in fiscal year 2008.
One of Ann Taylor’s early businesses is direct mail retailing that sells ladies apparel and clothing by mail
order (buying of goods or services by mail delivery). Your client’s mail order catalog (A mail order catalog
is a publication containing a list of general merchandise from a company) printing and postage costs have
just been increased from 28 cents to 32 cents per catalog by the catalog publishing company. How can
you help your client decide if the new price offered by catalog publishing company is acceptable?
Additional Information: (to be given to you if asked)
 The average response rate for Ann Taylor’s catalogs mailed is 2%. In other words, each 100
catalogs mailed results in 2 orders placed.
 The average order size is $80.
 In addition, 25% of customers who order product can be expected to reorder within six months.
 The fully allocated profit margin (excluding mailing costs) on catalog orders is 15%.
Possible Solution:
This is a pure quantitative math problem. The candidate just has to figure out whether the profits
from catalog mailing are more than enough to cover the total printing and postage costs. A detailed
calculation is outlined below:
1. For each 100 catalogs mailed, total printing and postage costs are $32. (100 x 32 cents).

2. Each 100 catalogs will result in 2 orders, plus 2 x 25%, or 0.5 additional reorders within 6 months, for a
total of 2.5 orders placed per 100 catalogs mailed.

3. Every 2.5 orders will result in 2.5 x $80 = $200 in sales. At a fully allocated profit margin of 15%, these
sales will return a total profit of $200 * 15% = $30.

Conclusion: The $30 profit is not sufficient to cover the printing and mailing costs of $32. Therefore, the
client Ann Taylor should reject the new printing & mailing arrangement at 32 cents per copy.
How Much is Chicago’s Cigar Bar Worth?
Case Type: pricing & valuation.
Consulting Firm: Bain & Company summer internship interview.
Industry Coverage: Tourism, Hospitality & Lodging; Tobacco & Alcohol; Entertainment.
Case Interview Questions #00007: I (the interviewer) was sitting in one of Chicago’s new specialty
“Cigar Bars” around the end of August with a friend. It was a Saturday night and the weather was
fair. While enjoying one of the bar’s finest stogies and sipping a cognac, I asked my

friend  how much he thought the bar was worth. On the back of an envelope,
how would you go about determining the value of this cigar bar?
Additional Information: (to be given to you if asked)
We arrived at the bar around 8:30 pm in the evening. There appeared to be about 30 customers already
there. By 11 pm the place had at least 70 customers. I would estimate the bar’s maximum capacity to be
close to 100 people.
The bar sells two things: liquor and cigars. The average cost of a cigar is $8 and the average cost of a
drink is $7.

There was one bar tender, a waiter and a waitresses. All three were there the entire evening.

The bar is located on one of Chicago’s trendier streets with a lot of foot traffic.

The bar is open Tuesday through Sunday from 5 pm until 2 am.

Possible Solution:
This is a straight forward valuation type of cases. To perform a valuation, you must estimate the cash
flows (CF) from the business and discount them back using an appropriate weighted average cost of
capital (WACC) model.
1. Revenues:
One way to project revenues is to estimate the number of customers per day or per week and multiply
that by the average expenditure of each customer. Keep in mind that Friday’s and Saturday’s are typically
busier than other days and that people tend to be out more during the Summer than in the Winter.

2. Costs:
There are two components to costs: fixed costs and variable costs. Under fixed costs you might consider:
rent, general maintenance, management, insurance, liquor license, and possibly employees. The only
real variable cost is the cost of goods sold: liquor and cigars.

3. Valuation:
Subtract the costs from the revenues and adjust for taxes. You now have the annual cash flows
generated from the bar. How long do you anticipate this bar being around? Cigar bars are a trend. In any
case pick some number for the expected life (4-5 years). The discount rate should be a rate
representative of WACC’s of similar businesses with the same risk. Perhaps 20%. This gives you a value
of:

Value = CF1/1.2 + CF2/(1.2)2 + … + CFn/(1.2)n