Wharton Cases

Wharton Consulting Club
Case Interview Study

Guide
Fall 1995
INTRODUCTION TO CASE INTERVIEWS
Consulting firms use case interviews primarily to assess two qualities that are important in the
consulting field:
1. Logical Reasoning
2. Business Acumen
In addition to these two qualities, there are, of course, many other qualities consulting firms look
for in a candidate such as creativity, maturity, leadership, and communication skills. All of these
are evaluated during the resume review as well as the case interviews, and you should keep all of
them in mind in presenting yourself.
There are three major types of cases:
1. Estimation Cases
2. Business Cases
3. Mini Cases
The estimation cases and some mini cases are used to test your logical reasoning skills, while
some mini cases and most business cases are used to test both your reasoning skills and your
business acumen.
ESTIMATION CASES
In estimation cases you are asked to come up with an “educated guess” of some number, such as
the all-time classic: “How much does a Boeing 747 weigh?” While the questions may
sometimes seem “off the wall,” this is an important skill to possess in consulting work. As a
consultant, you will often have to make decisions based on incomplete or unavailable data, in
which case it becomes important to generate reasonable estimates. For example, there may be no
direct data available on the number of gas stations in the state of Pennsylvania, but this may be of
great importance to your client in the oil and gas industry. You will have to make an estimate
based on data that you can get (number of cars sold, population, average gas mileage, just to
name a few) and use logical inference to estimate the number you are looking for.
Making Assumptions
In these types of exercises it is not important whether your assumptions are right or wrong (in the
real world you have a research department to find that out for you), but make sure that your
estimates are at least reasonable based on common sense. For example, if one of the assumptions
you make is about the US population, do not say that you assume it is 10 million. It is important
that you use easy numbers for your assumptions because you will have to do some arithmetic off
the top of your head. If you start out with an estimate of the US population of 237 million, you
Case Interview Study Guide Page 1

will probably start sweating profusely when you have to divide or multiply this number. Use 250
million, it is a lot easier to work with.
Logical Reasoning
Estimation problems are based on logical reasoning applied to a number of known data points
(your assumptions) to arrive at the desired answer. Since your logic is what is tested, lay it out
clearly for the interviewer. Before you start making assumptions, tell the interviewer what your
logic is going to be to figure out the answer. Once you have done that, make the assumptions
and do the math.
To come up with a logical approach to answer an estimation problem, start with the answer and
reason backwards about causal relationships. Think of this as a tree diagram. For example, if
you are asked to estimate the number of basketballs purchased by the NBA and its teams each
year, start out by thinking what basketballs are used for (the cause for purchasing basketballs).
Most likely, they are used for games and practice. These are then the first two branches of your
tree diagram. To continue to solve this problem, attack one branch at a time. Do not try to move
down different paths at the same time, it will only lead to confusion.
To continue with the basketball example, let’s take the “games branch” of our tree diagram. We
know that the number of balls is a function of the number of games and the number of balls per
game (the causal relationship). What does the number of games depend upon? It depends on the
number of teams and the length of the season (See, it doesn’t take a rocket scientist or basketball
coach to figure this out, common sense is sufficient). You can make an assumption about the
number of teams and length of the season or you can continue to go down the tree to find the root
causes for those numbers. Make sure, however, that you do not make the problem too
complicated. If you have a reasonable idea of the numbers, go with the assumption and start
filling in the equations. Examples of digging deeper into the drivers of the number of games are
estimating the number of teams by the number of major cities in the US, or estimating the
number of games by the length of the season in weeks and an estimate of the average number of
games per week per team.
Once you have figured out the first branch, do not forget to do the second one. It is easy to get
wrapped up in a long chain of reasoning and completely forget about the “practice branch” in this
case. Write the number you came up with for the game balls on a piece of paper so you do not
have to use valuable brain space to remember it. Most interviewers won’t mind if you take
simple notes. A similar reasoning approach as above for the practice balls would try to estimate
the number of teams, the number of players who practice on each team, the number of practice
sessions, and the average life of a ball.
Doing the Math
Once you have come up with the logical approach, you have to fill in the numbers. Again,
choose easy numbers for your assumptions. Even though the length of the NBA season might be
82 games, choose 80 because it is easier to use. It is important that you use the right equations to
Page 2 Case Interview Study Guide

calculate your answers. The number of games, for example, was determined to be a function of
the number of teams and the length of the season. Say that there are 25 teams (easy number)
times 80 games in a season, that makes 25 x 80 = 2,000 games played per year, correct? Wrong!
Since one game takes two teams to play, you have double counted the number of games. The
correct answer is 1,000.
Since most of us are used to calculators and don’t often add up large strings of numbers in our
heads, it is useful to practice your arithmetic. Calculators are generally not allowed, and it can be
quite embarrassing to stumble on a simple calculation in an interview. This danger is especially
prevalent since you will probably be a bit nervous, and thus less able to think clearly. The only
way to get better at it is by practice; lots of it.
Sanity Check
When you have come up with a final answer, do a quick check to see if it is reasonable. You
don’t want to say with a big smile on your face that you have calculated the number of
basketballs in the NBA to be 10 million. Think first whether it sounds reasonable, and possibly
do a quick check. For example, you could multiply the number of balls by an estimate of the
average price for a basketball, and see if the resulting figure is reasonable in relation to what you
would estimate the total NBA budget to be. If it turns out to be around 50%, you have probably
made a logical or calculation error somewhere along the way.
BUSINESS CASES
Business cases are generally longer than mini cases (20 to 30 minutes typically), and test your
business skills in addition to your logical reasoning skills. Much of your core course work is
applicable in these cases. Consulting firms rely heavily on general business knowledge and
expect you to be able to integrate the concepts from your different core courses in analyzing a
business situation.
Gathering Information
A case interview is typically an interactive process, and most likely the interviewer will volunteer
additional information as the interview progresses or when you ask questions. It is important to
gather as much information as you need. The amount of information you receive up front can
differ greatly depending on the style of the interviewer and the type of case you get. Some
interviewers will give a lot of detailed information up front and will volunteer relatively little
additional information later. In such cases, it may make sense to write down some quick notes to
help you remember the pertinent facts. Other interviewers start out with a simple two sentence
summary, and expect you to probe for more information by asking thoughtful questions.
Remember, it is OK to ask questions; one of the most valuable skills of a successful consultant is
the ability to ask the right questions. On the other hand, be careful not to spend too much time

asking a lot of factual questions. It may become difficult for the interviewer to follow your logic,
and you may seem to be taking a shotgun approach to solving the problem, which is exactly what
you don’t want to do. Keeping that in mind, always make sure that you think out loud so the
interviewer understands where your questions are coming from.
Analyzing the Problem
When you have gathered your initial information, think clearly about what the problem is you are
being asked to solve. When the case is about reversing a trend of declining sales, do not start to
evaluate the company’s debt to equity ratio. In consulting, as well as in the interview, focus and
time are of the essence.
The critical skill being evaluated in the business case interview is whether you can solve a
business problem in a logical and coherent fashion. It is important not to ramble and jump from
one hypothesis to the next, but rather to use a logical framework to attack the problem. One term
consultants love is “MECE,” which stands for Mutually Exclusive and Collectively Exhaustive.
This means that your framework should provide you with a number of different options that do
not overlap (the ME of MECE) and together account for all possible causes (the CE of MECE).
For example, if you are being asked to solve a problem about declining profitability, do not just
look at the expense side of the income statement. Profitability is a function of revenues and
expenses, and these two factors are separate while together they make up the entire formula for
profitability.
An important fact to remember is that your framework does not have to be some cook book chart
you learned in one of your core classes. While these are sometimes useful, they do not always fit
the problem, and blindly applying Porter’s five forces to any problem may make you seem like a
robot in an interview. Just keep in mind that creativity is also a skill highly valued by consulting
firms. Think logically about what a good way to approach the problem would be. You can take
some time on this. It is no problem to be silent for a moment while you are thinking about your
approach. This makes you look thoughtful and is much better than starting to ramble and run
around in circles.
Some examples of frameworks and possible problems to which they apply are given below.
Income Statement
Used for analyzing changes in profitability.
A simple income statement is often a very valuable framework to use. By analyzing profitability
through its component factors such as revenues, cost of goods sold, and operating expenses, you
can quickly pinpoint in which direction you should focus your analysis. For example, if the
reason for declining profitability is a decline in revenues, you will look closer at the marketing
side of the company, and if the reason for the decline is an increase in expenses, you look at the
operations and financing side.

A company can potentially increase profits three different ways:
• Increase unit price
• Increase the sales volume
• Decrease total costs
In analyzing these three drivers, you may want to look at the following:
Price
• Demand elasticity
• Market power
• Product differentiation
• Is a premium justified?
Sales Volume
• Increase sales to current customers with current products
• Increase sales to current customers with new products
• Increase sales to new customers with existing products
• Increase sales to new customers with new products
Cost
• What costs are fixed and what costs are variable
• To what extent and in what time frame are costs avoidable
• How are costs allocated
Fixed vs. Variable Cost
Used to analyze cost structures and changes in profitability. Also important to assess economies
of scale and scope.
The distinction between fixed and variable cost is extremely important, and you are bound to
encounter at least one case centering around this issue during your consulting interviews. Make
sure you understand the cost structure of a company in analyzing its profitability. Capital
intensive industries such as manufacturers typically have high fixed cost which makes capacity
utilization a crucial part of their business. When fixed costs are high, there are often
opportunities for economies of scale or scope. Use your common sense to understand what the
important input factors are for a company, and whether these are likely to be fixed or variable.
Carefully analyze the allocation of overhead expenses in this framework.

Four C’s
A general tool for analyzing a company and its environment.
To analyze a company’s strategy in terms of its chosen market position, you have to evaluate the
different factors that will determine its success. Customers’ needs have to be known and the
firm’s capacity and cost structure need to be able to satisfy those needs at an acceptable level of
profitability. This capacity and cost structure should be difficult to imitate by the firm’s
competitors in order to sustain the profitability.
Customers
• What do the customers want and need?
• How will we satisfy those needs?
• What is most important to them?
• How much will they pay for it?
Competitors
• What are your competitors doing?
• What are their strengths and weaknesses?
• How are they meeting the customers’ demands?
• What is their cost structure?
Capacity
• What is your company’s capacity in terms of:
° financial?
° organizational?
° production?
° marketing?
• What are your strengths and weaknesses?
Costs
• What is your cost structure?
• How is overhead applied?

SWOT
Another general tool for analyzing a company in its business environment.
This tool is similar to the Four C’s above. It is important not only to analyze what the firm can
and cannot do, but also how these capabilities can help the firm take advantage of any
opportunities, or ward off any threats that occur in the environment.
• Strengths Used to analyze the capabilities of the company

• Weaknesses
• Opportunities Used to evaluate the company’s environment
• Threats
Four P’s
Useful for marketing related cases such as:

• New product introductions
• New market developments
• Market share increases
Everyone should be familiar with the four P’s of marketing. They are used as a framework for
putting together a marketing plan. Remember that the four P’s are the implementation of a
strategy that first depends on the selection of a target customer segment and a product
positioning.
• Product
• Price
• Place
• Promotion

Porter’s Five Forces Framework
Used to evaluate the attractiveness of an industry in terms of the ability to earn high returns.
The ability to earn above market returns depends on the degree of efficiency of the market. In a
perfectly competitive market, no producer will be able to earn super natural returns. Porter’s
framework is a way to assess the competitiveness of a market, and thus the ability to earn super
natural returns.
POTENTIAL ENTRANTS
Threat of new
entrants
INDUSTRY
COMPETITORS
SUPPLIERS BUYERS
Bargaining power of Bargaining power of

Rivalry among existing
suppliers buyers
firms
Threat of substitute products
or services
SUBSTITUTES

Value Chain Analysis
Useful to analyze how value is created for the customer and which parties are involved. Often
used to determine which party extracts the highest returns in creating the goods or services for
the end customer.
Another one of Porter’s contributions, the value chain analysis is helpful in trying to understand
how an industry is structured. A prime example is the personal computer industry. The good
that the end customer receives is a combination of hardware, software, and support services.
Intel supplies components, IBM builds the case and provides the services, and Microsoft supplies
the operating software. Since the component supplier Intel and the software supplier Microsoft
both operates in more or less of a monopoly position, they are able to extract most of the value
added which goes into the final product. IBM has to compete in a market place with many
competitors and low barriers to entry, and will thus receive a much smaller portion of the
cumulative value added.
MARGIN = TOTAL VALUE TO BUYERS - COST OF PRODUCING VALUE
Firm infrastructure
Human resource management m
Technology development a
Procurement r
g
Inbound Operations Outbound Marketing Service i
logistics logistics & sales n

Seven S Framework
Useful in determining sources of competitive advantage for a company.
Peters and Waterman’s Seven S framework helps you understand the factors internal to a
company that can create a source of competitive advantage. It emphasizes that all these attributes
need to form a network in order to reinforce and sustain each other. While it may be possible to
duplicate any one of these attributes, it will be very hard to copy the entire network.
“Hardware” “Software”
• Strategy • Style
• Structure • Staff
• System • Skills
• Shared Values
Structure
Strategy Systems
Shared
Values
Skills Style
Staff
Applying the Framework
Enough about frameworks. Once you have selected one, you need to apply it. The same rules as
in the mini case apply: lay out the framework for the interviewer, and start analyzing it branch by
branch. Listen carefully to any clues the interviewer may give you. When you go down the

wrong path (or a different path from what the interviewer had in mind), you will often be
redirected by comments from the interviewer. For example, when the interviewer says: “Are you
sure about that?” or “Is that the only possible solution?” you should probably reevaluate your
analysis. If you learn from the comments that the type of framework you have chosen does not
fit the problem, do not be afraid to discard it and use another one. For example, if you
interpreted the problem to be a marketing problem from the initial information you received, but
you realize from subsequent information the interviewer has provided you that it is really an
operations problem, just say that you will use a different approach to probe deeper into that
aspect of the case.
As in any interview, it is important to just be yourself and be relaxed when analyzing the
problem. When you get stuck, you can summarize what you have found out up to that point.
That helps the interviewer trace your line of thought and buys you some time to think about
where to go next. Consulting firms value intellectual curiosity. You should appear to be
interested and excited about the challenge of solving a business problem. (If you’re not, you
should reconsider whether consulting is the right field for you.) Always think out loud so the
interviewer understands your train of thought, and state your assumptions. When you need a
piece of factual information to help you along with your analysis just ask. The interviewer will
realize its relevance if she is able to follow your logic, and should be willing to volunteer the
information.
Summarizing your Findings
When your analysis has yielded a number of different possible causes for the problem at hand,
list the alternatives and suggest empirical research that may be helpful in practice to test which
causes are indeed to blame. For example, if you find out that machine failure accounted for a
shortage of supplies which led to decreased sales and loss of profitability, suggest that the
company research the maintenance procedures, raw material supplies, and physical condition of
the machines. Then make a suggestion about what could be done to alleviate any of these
problems. While finding the cause for a problem may be very important, it is equally important
to find a solution.
Because of the complexity of some of the cases you will be presented with, it may not be possible
to get to the point where you start making suggestions for improvements in the time frame
allotted. This does not matter, as long as you demonstrated your ability to think clearly and to
apply the correct business tools to get to the causes of the problem. The firm probably took
weeks rather than just thirty minutes to get to the point where you stopped in the interview. Just
summarize what you have found out up to that point, and how you would proceed with your
analysis if you’d had the time.

MINI CASES
Mini cases fall somewhere in between estimation cases and business cases. They are typically
short and focus on a single problem. While not true for all mini cases, many focus on solutions
to a problem rather than on finding out the underlying causes of a problem such as in business
cases. To find a solution to such a case, it is useful to think in terms of a decision tree which
covers all the possible courses of action.
Define the Decision Criteria
First establish what the qualities of the desired outcome would be. For example, if the problem
you are presented with is: “How can DeBeers respond to fake diamond manufacturers,” the
desired outcome could be that DeBeers maintains its market position and does not experience
heavy price pressures while avoiding high expenditures.
Formulate the Different Choices
The next step is to formulate the first level of your decision tree. In the DeBeers example, some
possibilities could be to (a) purchase the fake diamond manufacturers, (b) try to establish legal or
trade group certification criteria for diamonds, (c) pressure distributors not to sell fake diamonds,
(d) start a public relations campaign to convince consumers not to buy fake diamonds, (e) lower
the price of diamonds to force the fake diamond manufacturers out of business, and (f) close the
business and retire. This type of case is an opportunity to show your creativity; try to think of
novel approaches to a problem.
Evaluate Outcomes of Choices Against Decision Criteria
Once you have formulated the choices, go down each branch, making assumptions, and evaluate
the merits of the decision in light of your decision criteria. For example, choice (a) would allow
DeBeers to either use the fake diamond technology itself to profit from the technology or would
allow it to shut it down and continue business as usual. The cost of this option may be
prohibitive, however, and if there are numerous companies who possess this technology it may
be altogether unfeasible. Therefore it will probably fail under the “Avoid high expenditures”
criterion. Option (b) may allow DeBeers to pursue a successful differentiation strategy,
especially when coupled with a public relations campaign decrying “all those cheap men who
buy their loved ones an el cheapo fake diamond, which of course means that their love for them
is fake as well.” This option satisfies the first two decision criteria, and probably is not unduly
expensive given the sales volume retained.
Choose an Option
Select which decisions meet all the criteria, and make a choice from those based on which one
satisfies them best.

HOW TO PREPARE FOR THE INTERVIEW
There is only one good way to prepare for a case interview, and that is PRACTICE! Use the
resources available to you such as mock interviews offered by CD&P, helpful second years,
interview workshops organized by the Consulting Club, and most of all your class mates. Get
together with some of your friends interested in consulting and give each other cases. You may
even want to tape your interviews on a camcorder so you can watch your body language and your
reactions to the interviewer’s comments and questions. There are a number of practice cases
provided in this guide, but it is also easy to make up some of your own. Almost everyone can
use the company they have worked for, or maybe a company that a friend of theirs has worked
for, as the basis for a business case. Another great source of practice material is the Wall Street
Journal. Just read an article about a company and use it as a case. You can simply make up
some of the facts to fill in the picture.
Several consulting firms organize case interviewing work shops on campus. You can attend
these or watch the video tapes at CD&P. When interviewing with a firm, try to keep in mind the
type of work that they do. Most likely, the interview cases will reflect the particular company’s
area of expertise. Talk to second years who have interviewed with the firm before, and ask what
type of questions they were asked.
PRACTICE CASES
Below, we have compiled a number of cases that were used in the 1995 recruiting season as well
as some cases from last year’s study guide. They are divided in estimation cases, business cases,
and mini cases. Five estimation cases are worked out for you as examples, and ten more cases
are given for you to practice with. We have also worked out five business cases and supplied you
with a list of additional cases you can use for practice with your class mates. Possible scenarios
are given for the person playing the interviewer in the exercise to help guide the discussion. You
can make up additional facts as the case goes along. Finally, two mini cases are worked out and
a few more are given as examples. As in any case interview, no one solution is the right one.
These are merely examples of applying frameworks to problems and following through on the
logic.

Estimation Cases
How many gallons of ice cream are sold in the US each year?
Ice cream can be sold through retailers and restaurants. First, let’s analyze the retail sales.
Assume that of 250 million people in the US, 80% like to eat ice cream. That makes 200 million
possible consumers. Ice cream sales are likely to be somewhat seasonal, especially in Northern
States, so assume an average selling season of eight months in the North and ten months in the
South, for an average of nine months for the whole country. During the season, assume that
people eat ice cream twice a month, and assume that the average serving is one pint. Since there
are eight pints in a gallon, retail sales will be: 200 million people x 9 months x 2 servings per
month x 1 pint / 8 pints per gallon = 450 million gallons.
Assume that 80% of the US population frequents restaurants, and that they do so at a pace of
twice per month on average. That makes 250 million people x 80% x 12 months per year x 2
visits per month = 4,800 million restaurant visits per month. Assume that 50% of these
restaurants offer ice cream. That makes 4,800 million x 50% = 2,400 million possible purchases.
Now assume that one out of ten times, the customer will order ice cream. That adds up to 2,400
million x 10% = 240 million purchases. Now assume that the average serving is half a pint.
Since there are 16 half pints in a gallon, the total restaurant purchases come out to be 240 million
purchases / 16 servings per gallon = 15 million gallons.
Total purchases of ice cream are 465 million gallons per year. Do a quick sanity check by
dividing this number by 250 million people, which means that the average annual ice cream
consumption is 465/250 or a little less than 2 gallons per head of the population. That seems to
be reasonable.

How big is the US market for Band-Aids? (the brand)
Band-Aids are used to cover up minor cuts. Assume that Band-Aid holds 75% of the US market
for bandages. The market can be segmented into two main categories of users: kids 16 and under
who tend to get cuts more often, and adults over 16 who are a little more careful. Assume that
the average life of a person is 80 years, and the population is evenly distributed. That means that
kids 16 and under represent 16/80 = 20% of the population. Assume that they get a cut once
every two months on average. If the US population is 250 million, 20% equals 50 million kids.
Once every two months equals six times per year, for a total of 50 million x 6 cuts = 300 million
bandages. Assume that it takes on average three days to cure a cut and bandages are replaced
once a day. That makes for 900 million bandages.
The adults represent 80% of the 250 million people in the country, or 200 million. Assume that
they get a cut once every six months which lasts three days, with bandages being replaced every
day. That is 2 cuts per year x 3 days per cut x 200 million people = 1,200 million bandages. The
total number of bandages, then, is 900 + 1,200 = 2,100 million bandages.
Assume there are approximately 20 bandages in a package, and a package sells for $2. The total
size of the market expressed in Dollars is therefore 2,100 million / 20 x $2 which is
approximately $200 million. Band-Aid holds 75% of this market which is equal to $150 million.
How many pairs of skis do you expect to sell in the US market as an up-market new entrant?
Assume 250 million people in the US. 10% of those people ski, which equals 25 million people.
Assume a pair of skis lasts five years on average. This means that every year 1/5th of the skiing
population buys a new pair of skis. That is 5 million pairs of skis per year. Now assume that
10% of the skiing population belongs to the “up-market” segment. Also assume that given the
fanaticism and riches of this market segment, they replace their skis twice as often as the average
person. That means that the market segment is 5 million x 10% x 2 = 1 million skis. Assume
there are five major manufacturers in this segment at this time. That means that each sells
200,000 pairs of skis each year. Assume that as a new entrant, you will be able to attain 10% of
the average sales volume in the first year. That is 10% x 200,000 pairs of skis = 20,000 pairs of
skis.

How many horses are there in the US?
Assume horses are used for the following purposes: (1) riding schools, (2) personal pets, (3)
racing, (4) carriages, and (5) police. Assume 80% of the population of 250 million is physically
able to ride a horse. Assume that of this 80%, one out of 100 rides horses at a riding school.
That makes for 2 million riding school customers. If each person rides a horse once a week for
an hour, and a horse normally rides two hours a day, five days a week, then one horse is
sufficient for 10 riders. That means that there are 200,000 horses for 2 million riders at riding
schools.
Now assume that for every five people taking riding lessons, there is one person that owns her
own horse. That is 2 million riders / 5 = 200,000 horses.
Assume that there is one race track for every 2.5 million people in the population. That means
that there are 100 race tracks in the country. Assume that there are races on six days per week,
and that each day has 8 races. That is approximately 50 races per week. If there are six horses
per race, and every horse races once per week, there are 50 x 6 = 300 different horses per race
track. 300 horses x 100 race tracks = 30,000 race horses in the country.
Assume that the city of Philadelphia has 1.5 million people, and that it has approximately 100
carriages to move people around. That is approximately 15,000 people per carriage. If this holds
for the US as a whole, there must be approximately 15,000 carriages in the US. Assume each
carriage is drawn by one horse. That makes for 15,000 horses.
Assume that the Philadelphia police has 100 horses. That is the same ratio as the carriages.
Repeat the math for the population as a whole, and you get another 15,000 horses on the police
force.
The total number of horses in the country is 200,000 + 200,000 + 30,000 + 15,000 + 15,000 =
460,000. A quick sanity check: 250 million people for 460,000 horses is approximately one
horse for every 500 humans. That is plausible.

Estimate the annual demand for golf balls in the US.
There are 250 million people in the US. Let’s assume that of those, 80% is physically fit enough
to play golf. Of those 200 million people, let’s assume that one out of ten plays golf. That is 20
million golfers. Let’s assume that the average golfer plays ten times per year. That is 200
million games per year. Assume that during every game, the golfer loses three balls. That is 3 x
200 million = 600 million balls per year that need to be replaced.
Additional Estimation Cases
1. How large is the market for Cool Whip brand dessert topping in Mexico?
2. How many tennis balls were sold in the US last year?
3. How many hospitals are there in the US?
4. How much wine is consumed each year in the US?
5. Estimate the number of Louisville Slugger baseball bats produced for the Major Leagues each
year.
6. Estimate the number of Porsches that will be sold in the US this year.
7. How much does a Boeing 747 weigh?
8. I own a shopping mall. How many pennies are in it at any time?
9. How would you estimate the number of gas stations in the US?
10. Estimate the number of practicing medical doctors in Philadelphia.

Business Cases
Text after the symbol ! represents additional information supplied by the interviewer.
A computer manufacturer was gaining market share but experienced declining profits. Why?
What should it do?
This is an example of a case where you can apply the general income statement model. Since we
already know that volume is increasing, prices must be declining or costs must be going up, or a
combination of the two.
! Prices are falling and expenses are edging up.
First analyze the decline in prices since that appears to be the major factor contributing to the
declining profits. There are two possibilities. Either the company has decreased its prices
unilaterally to gain market share or it is following the market.
! The company’s pricing policy is to match the lowest price in the market.
If competitors are lowering prices, there must be an over-supply of computers or they must have
lower cost structures which enable them to lower prices. It is necessary to compare the cost
structure of our client with that of its competitors.
! New low cost producers have entered the market and are trying to under-cut existing
manufacturers.
The company has two choices. It has to either lower its cost structure to be competitive with the
new entrants or it has to focus its attention on different customer segments in order to avoid the
head-on competition. These strategies are equivalent to Porter’s generic strategies of low cost
production or differentiation or focus. Try to find out more about the type of product and the
customers.
! The company manufactures personal computers and currently sells most of its products
through a direct sales force to large corporations.
A possible segmentation of the personal computer market could be (1) large corporate buyers, (2)
small and medium sized corporations, and (3) consumers. These segments are likely to have
different needs and different price points. You hypothesize that large corporate buyers are likely
to value strong after-sales support, have a need for advanced machines, and are somewhat less
price sensitive than the other two segments. You need to find out how your client’s
product/service bundle matches these needs, and what the new competitors are offering.
! It turns out that your client has a very strong service department and its products are
consistently at the cutting edge of technology. The new competitors are also at the forefront
of technology but distribute their products through retail outlets and offer little support.

It appears that the company may be pricing its products the wrong way. It is not directly
competing with the new entrants, yet is matching their aggressive prices. The increase in market
share is probably the result of the fact that its price point is lower than that of its traditional
competitors in its market segment. Given the declining profitability, it appears that the demand
is fairly inelastic, because the increase in sales is not making up for the decreased margins. The
company may want to raise its prices.
The second part of the equation is the expense side. You need to find out where expenses are
increasing.
! The major increases in expenses are on the sales side. The company has aggressively added
new sales and support people to keep pace with its growth.
While the sales and support staff give the company an advantage in servicing its market segment,
it has to be careful that this service does not become too expensive relative to the price premium
it allows the company to charge its clients. The company may want to do a time study to find out
what the staff is doing, and what services are valued most by the customer. Some functions may
add little value while costing a lot of money. Also, there may be opportunities for automating
sales support functions in order to make sales and service personnel more productive.

How would you develop a pricing strategy for a large hotel chain?
Pricing is one element of the marketing mix. It is an attribute of the product or service that you
sell, so you will first need to find out what you sell and to who. Does the hotel chain cater to
vacationers or business travelers? Is its product/service consistent with a low budget, medium, or
up-market positioning?
! The hotel 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.
Since the hotel caters to different clients at different locations, you may want to consider a
differentiated pricing policy. You hypothesize that business travelers are likely to be a little less
price sensitive than vacationers. You have to check what travelers value in their choice of hotels,
and how they make purchase decisions.
! 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.
To start with, you 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.
Now that you have learned in which markets the hotel competes, you have to identify what its
competitors are. The range of possible prices you can charge will be limited by the pricing
policies of your direct competitors, and by the pricing of substitutes such as up-market or budget
type of hotels.
! Every location 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. modem data lines 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 $90 to $120 per night and from $75 to $95 per night on the weekends.
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 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 travel 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 and vacation), establish more segments with different price points. Through yield
management techniques, the chain may be able to better manage its fixed capacity and increase
average yields.

A small biotech company has come up with a revolutionary new seed for sugar beets which are
exactly the same as regular beets but yield twice as much sugar. The company wishes to sell the
patent (which is valid for twenty years) so that the inventors can pay off their venture capitalist
and retire to an island with lots of sun and palm trees. What is the value of the patent?
The price of a product is determined by the market. Let’s assume that there are no inputs for the
new seed technology (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. The price, then, will be based on the value of the product to the buyer, and
by competition from similar and substitute goods. To start out with the competition from similar
goods: since this is a patent, there are no similar goods, and therefore no competition. Substitute
goods are regular seeds and possibly seeds for sugar cane.
! Sugar cane is grown in entirely different climates and is not considered to be a competing
product in this market.
That rules out one possibility and makes the solution easier. 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 farmer
using our new seeds has two possibilities: he can grow twice as much sugar with the same
amount of land and labor or he can grow the same amount of sugar with half the land and labor.
(Let’s look just at land for simplicity here.)
! Do you believe the farmer can sell twice as much sugar?
Remember that MGEC course? 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 will have to fall. The question then becomes whether the
demand for sugar is elastic. Using common sense, would you expect anyone to consume more
sugar (bake more cookies or make more lemonade) when the price of sugar drops? Probably
not, because sugar is already a pretty cheap staple product and rarely the most expensive
ingredient in something. You might want 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.
! That is a good point, but let’s assume demand for sugar is fixed for now.
This is an example of a clue where the interviewer does not want you to pursue this any further.
Having established these facts, get back to the original line of the argument and continue. If
demand for sugar is fixes, then the only possibility for the farmer is to use only half the land to
grow the same amount of sugar. You need to determine the value of the land saved. This could
be determined by the market price of agricultural land times the area saved.
! 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.

Oops! Now what? Another possibility is to see if the farmer may have other uses for the land.
Maybe he can grow a different crop?
! 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. It seems that
the farmers will not derive a whole lot of benefit from the new seeds. You 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. A good way to approach this is to use a value chain or
process flow. How does the sugar finally reach the consumer?
! 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.
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.
! As it turns out, the processing cost of the new beets will be 25% higher per beet than the old
ones.
If the number of beets is reduced by 50% and the cost per beet is only 25% higher, there will be a
25% production cost savings 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. 20% of this 100% on 50% of the land equals 10%.); trucking
expenses from the farmer to the refinery are cut by 50%; and production costs are reduced by
25%. Next you need to find out how much each step contributes to the final price of sugar.
! Growing the sugar is 40% of the cost, trucking 10%, refining 30%, and distribution 20%.
The savings are 10% x 40% = 4% in growing; 50% x 10% = 5% in trucking; and 25% x 30% =
7.5% in refining. This adds up to a total savings of 16.5%. Multiply this number by the annual
sugar demand and you get a dollar value of annual savings.
! How would you estimate the annual demand for sugar?
At this point you drop your head in exhaustion for you will have to do an estimation case within
a business case. See some of the examples above on how to do this. Assume that the resulting
figure is $2 billion. Next you have to take the net present value of twenty years (the length of the

patent) of 16.5% x $2 billion. Don’t worry, they 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.

A battery manufacturer in the UK is experiencing declining sales. Its product is superior in
lifetime and quality to its competitors. How would you approach this issue as a consultant.
A decline in sales can be caused by two factors: declining market demand or loss of market
share. Loss of market share can be due to competing products or substitute products. First let’s
analyze the market. You want to know who the customers are, what the product is, and who the
competitors are.
! The company sells batteries for fork lifts. Sales are made to OEMs (i.e. fork lift
manufacturers) and for replacement purposes to large manufacturers and distributors who use
fork lifts. The majority of sales are to the latter. Customers are located throughout Europe.
There are five or six other European manufacturers which are of similar size to our client.
What is the trend in market demand?
! Demand tends to be very stable, growing at approximately 3% per year.
If that is the case, our decline in sales must be due to declining market share. Are there any new
substitute products or new competitors?
! There have been no major changes in technology. The only large change in the market place
is the emergence of a new Portuguese competitor. This company has managed to grow to
approximately the same size as our client in a relatively short period of time.
Next, we would like to find out how this company has been able to take market share so quickly
in an otherwise stable industry. It is necessary to evaluate the company’s price/product
proposition to compare it to ours.
! Our client’s product is superior in lifetime and quality to that of the Portuguese competitor.
Our price is higher as well, however, but we feel the additional quality more than makes up
for this differential.
Now that we have established the different value propositions of the two companies, we need to
find out what the customer is looking for when purchasing a fork lift battery. Reliability and
pricing are the most likely factors for an industrial buyer, and while we outperform our
competitor on the former, we are lagging on the latter. The next step would be to evaluate the
trade-offs among these two attributes, and to verify our client’s claim that the increased quality is
worth the price. We know that our client’s product lasts longer; we need to know how much
longer.
! Our battery lasts for a total of five years while our competitor’s only lasts for four years.
Next we need to know what the price differential is.

! Our battery costs £1,500 while that of our competitor’s costs £800.
That means that the cost per year is £1,500/5 = £300 for our product and £800/4 = £200 for the
competitor’s. That is not looking good on the surface. Maybe our client should reduce its prices.
Does their cost base enable them to do so while maintaining an acceptable level of profitability?
! Our client’s cost base is substantially higher due to the higher quality of its products. In
addition, labor expenses are significantly higher in Great Britain than in Portugal. Our client
is not willing to leave his lukewarm Guinness and jellied eel behind, however, so moving is
not an option. Therefore, lowering costs is not an option.
Let’s look a little bit further into the cost/benefit trade-off. So far we have only considered the
purchase price as a cost of the product. It is possible that there are additional costs involved. To
find out, we need to evaluate the use of the batteries. (You don’t need to be an engineer to figure
this out, just use your common sense.) Fork lifts will most likely ride around a plant or
warehouse moving goods around. The battery powers the fork lift, so will need to be recharged
periodically. While the battery is recharging, the fork lift will be out of commission or the
battery will need to be switched which takes time. Is there any difference in charging time or
efficiency between the competing batteries?
! It takes 8 hours to fully charge our battery which will then last for 12 hours. Our
competitor’s battery takes 10 hours to charge and can be used for ten hours. The batteries
draw the same amount of electricity per hour while charging, but due to the better design of
our battery, output efficiency is higher.
This efficiency difference needs to be translated into costs and value for the customer. Value is
derived from lower energy requirements, faster turn-around time, and fewer switching
operations. Given the fact that our clients are large industrial companies, they will probably
work around the clock. Therefore, let’s assume a 24 hour a day need for the fork lifts.
First, evaluate the energy savings. We need to know the price of electricity drawn per hour.
! The hourly rate is £0.10.
If the fork lift will be used 24 hours per day for say 350 days in a year, it will require 24/12 x 350
= 700 charges of 8 hours each for our battery. That is 5,600 hours at £0.10 or £560 per year. For
our competitor, the battery requires 24/10 x 350 charges of 10 hours each per year. This equals
8,400 hours or £840 per year. The difference is £280 per year.
Next, evaluate the switching costs. You need to know how long it takes to switch the battery.
! This only takes a couple of minutes. For simplicity, let’s assume the time is negligible.
That means that we can assume switching costs to be negligible. Since the batteries are out of
commission while charging, however, we will need to evaluate how many batteries we need per

fork lift. Assume that our clients operate fleets with multiple fork lifts which can all share the
same batteries. For our battery, each fork lift requires one battery to move while another is
charging for 8 of the 12 moving hours or 2/3. That means that we need 1 2/3 batteries per fork
lift. For our competitor’s battery, the battery is charging for the entire moving time. That means
that there are two batteries required for each fork lift. The annual purchase cost per fork lift is
therefore £300 x 1 2/3 (£500) for us and £200 x 2 (£400) for the competition. That is a cost
differential of £100 per fork lift.
The purchase cost of our battery is £100 higher per fork lift per year, but the energy savings are
£280 per year. That means that our battery is a better value than that of our competitor’s.
Next we need to find a way to relay this information to the customer, because they apparently do
not know about this benefit given our loss of market share. We may want to consider using a
direct sales force to explain these benefits given the complexity. Printed materials may also be
useful to describe the benefits in detail.

A client has bought a Russian satellite after the break up of the Soviet Union. A large company
has offered your client (an entrepreneur) $10 million for the satellite, and he wants to know
whether he should accept the offer and sell it.
This case is an example of one where you are asked to use your creativity and generate some
ideas. The purchase price of the satellite is unimportant. Taking this into account would be an
instance of the sunk cost fallacy. 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. Therefore, we first need to find out
what the most productive use is. 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.
! This satellite is of the data transmission variety.
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.
! 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.
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.
! The cost of launching a 24 hour satellite is $5 million more than launching a 12 hour one.
That means that the value-added of our satellite would only be $5 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 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.

Additional Business Cases
Your client is a large hardware chain. Develop a growth strategy?
Possible Scenario:
• 50% of the market is in the hands of small independent retailers, some of them in
cooperatives such as True Value, and the other 50% is held by large chain stores. The share
of large chain stores has been growing rapidly.
• The market is expected to grow slowly.
• Customers are primarily consumers, and can be segmented as advise seekers and price
seekers. The former makes up 40% of the market and the latter 60%.
• There are four large national hardware store chains.
• Chain stores compete among themselves based primarily on price and selection.
• Primary costs consist of COGS, rent, and inventory holding costs.
• A community of 50,000 people in a 5 mile radius around the store can sustain one large
hardware store.
Your client operates a steel mill and is concerned about vulnerability to market cycles. What
should it do?
Possible scenario:
• Fixed costs are 50% of total cost.
• Demand for steel is highly cyclical. Demand in the trough of a recession can be as low as
70% of the demand at the peak of the business cycle.
• The market pressures the company to pay out excess cash in the form of dividends during
upturns in the economy.
• Labor unions are inflexible with regard to work rule changes.
• Increased competition from mini-mills and foreign competitors.

The CEO of a large international manufacturer of aircraft engines wants long-term strategic
recommendations. What do you tell him?
Possible scenario:
• The market is an oligopoly with four major producers of airline engines.
• The market consists of civilian passenger and cargo airlines and governments who purchase
planes for their military.
• Aircraft engines are typically purchased separately from aircraft. The buyer of the aircraft
specifies the engine, purchases it, and has it delivered to the aircraft manufacturer for
installation.
• The civilian airline industry has approximately 30% over-capacity at this time. 10% of this
capacity is not fuel efficient enough to operate at current average load factors.
• Demand for flights in the civilian airline industry is expected to grow by 8% per year for the
next 15 to 20 years as more and more third world countries grow their economies.
• Demand for military use is expected to decline by 2% per year for the next 5 years as the
result of the end of the cold war, and then grow by 3% per year thereafter.
• The economic life of an engine is approximately 15 years while the physical life is 25 years.
• Engines represent 20% of the cost of a new aircraft.
You are the head of a large car manufacturer in Europe. All cars are produced in one major plant
and are distributed all over Europe. You have the choice to transport the cars by train or truck.
Which mode of transportation do you choose? Why?
Possible scenario:
• Cars are currently shipped by train to central distribution points in the different European
countries. From there they are shipped by truck to the various car dealerships.
• The distribution points are owned by the manufacturer.
• Trains require a minimum load of 100 cars.
• The cost of shipping one car by train to a distribution point is $100.
• Trucks have no minimum load and can transport up to 10 cars at a time.
• The cost of transporting one truck load to any point is $1,500.
• Trucking cost from the distribution point to the dealerships are $200 per load of up to ten
cars.
• Average truck load shipped to a dealer is 6 cars.
• There are ten European countries including the one where the factory is located. The factory
also serves as a distribution point for that country.
• Operating expenses of a distribution point are $1 million per year.
• Total demand for the manufacturer’s cars is 1 million vehicles per year.
• 50% of car buyers do not take delivery from dealer stock, but wait for factory delivery.

A US auto-part manufacturer plans a market entry in Europe. How would you go about it?
Possible scenario:
• A typical car manufacturer uses 5,000 different suppliers. The trend is to reduce this number,
and work closer with the suppliers.
• Purchase decisions are based on price, ability to adhere to quality standards, and speed and
reliability of delivery.
• Car makers are dispersed over Europe, with most of the plants being located in Germany and
France.
• Your company has a reputation for high quality. Your pricing is competitive, but at the high
end.
• Governments offer tax incentives to locate manufacturing plants in their countries. All your
manufacturing capacity is currently located in the US.
• Exporting products would be 50% cheaper than setting up new manufacturing sites as a result
of avoiding fixed costs and increasing economies of scale and learning curve opportunities.
• Car sales are expected to grow modestly over the next ten years, while being subject to
fluctuations in the economy.
You are the head of a large steel group. You notice that one of your five product lines is losing
market share. What are the possible sources? What would you do?
Possible scenario:
• All of your five product lines are sold to car manufacturers. The products are: thin plate steel
for body panels, beams used for structural support in doors, bumper attachments, steering
column parts, and engine attachments. The decline in demand is for the structural beams.
• Low cost mini-mills are taking over market share.
• It would be extremely difficult for our client to match the cost structure of the mini-mills.
• Mini-mills are only able to manufacture lower grade steel. They would be able to
manufacture any of the five products mentioned above with the exception of the thin plate
body panels.
• Car manufacturers are trying to reduce the number of parts suppliers and forge closer ties
with suppliers.
• In addition to price, quality and speed and reliability of delivery are important purchasing
decision factors.

A California electric utility is contemplating entry into the electric car market. California law
mandates that by the year 2000, 10% of all cars sold have to be powered by electric engines.
Should the utility enter this market, and if yes, how?
Possible scenario:
• Utilities are in a heavily regulated market with very stable demand. This market is expected
to be deregulated by the year 2000, which means that utilities will have to compete in an open
market.
• The standards for electric cars being developed by the Big Three are not dependent on any
particular energy supply. Therefore, any utility will be able to supply electricity needed to
recharge car batteries.
• The core competencies of the utility are in building and operating large scale generators of
both fossil fuel and nuclear varieties.
• Market demand for the electric cars is expected to fall far short of the mandated 10%.
A paper producer is contemplating adding capacity. Should it?
Possible scenario:
• The manufacturer is currently operating at 90% of capacity.
• The industry is operating at 80% capacity.
• Demand for paper is expected to grow by 4% per year and is very inelastic.
• The total paper market is 100 million tons per year.
• The minimum scale for a new plant is 1 million tons of productive capacity.
• The company currently sells 9 million tons of paper per year.
• A new plant comes on-line, two years after the decision to build it is made.
• Competitors are contemplating adding 10 million tons of capacity in two years. 5 million of
this has been committed to already.
• The break-even operating level of a new plant is at 70% of capacity.

You are the Number 2 aluminum manufacturer in the country. Although your unit costs are
competitive with the market, your profit margins are declining every year. What should you do?
Possible scenario:
• Demand for aluminum is growing slowly and prices have been stable.
• Demand is elastic in the short-run as users will take advantage of low prices to make forward
purchases, but is inelastic over the medium to long run.
• The supply of bauxite, the ore for aluminum, has been declining which has driven up world
prices.
• The industry is very capital intensive and currently operates at 75% capacity.
• Aluminum is sold on world markets at world prices stated in dollars.
• The dollar’s value has been declining relative to other currencies.
• 70% of your output is currently sold in the US.
A group of doctors has just discovered a new medical diagnostic technology for diagnosing
cancer. The doctors want to maintain proprietary ownership of this technology, yet offer it to
physicians across the country. In order to perform the new test, blood samples have to be given
to the enterprising doctors, who can then do the diagnosis and return the results to the referring
physician. How should the doctors promote their technology? Think about payments and devise
an operational plan?
Possible scenario:
• 90% of payments are made by insurance companies which tend to pay slowly.
• Physicians are widely dispersed throughout the country.
• The transport of blood samples is heavily regulated and needs to be done by special couriers.
The hospital industry is experiencing a large over-capacity of beds. Your client is a hospital bed
manufacturer and is experiencing declining demand as the result of the government’s new health
care policy. What would you recommend? (Overthrowing the government is not an option.)
Possible scenario:
• The company’s steel bending technology is highly fungible and can be used to manufacture
many types of steel products.
• Fixed costs are a high percentage of total costs.

A customer has a problem with lots of incoming customer calls. How should they handle this?
Possible scenario:
• Calls can be segmented into four main types: sales inquiries and requests for catalogs,
customer support for product failures, inquiries on shipping dates for ordered products, and
customer support for operating instructions.
• The division of calls among these types is: 50% sales, 10% failures, 20% shipping, and 20%
instructions.
• The average length of each call is: 60 seconds, 300 seconds, 45 seconds, and 90 seconds.
A waste management company is considering whether it should invest in new land fills. What do
you think?
Possible scenario:
• An alternative waste disposal option is an incinerator, which has high up-front costs to build
but has a longer useful life than a land fill. Total book costs are roughly equal.
• It takes five years to fill up a landfill.
• Both land fills and incinerators are heavily regulated.
• Communities do not want land fills near their homes, but don’t mind incinerators due to the
employment opportunities offered.
• Most waste is generated by households.
• Trucking costs are 30% of the cost of waste disposal.
• Environmental pressures have led to liability suits against waste management companies.
• The reserves set aside by waste management companies for future landfill clean-ups are 10%
of disposal costs. Actual future costs are unknown.

Mini Cases
You have a hot dog stand in front of your office. It serves the workers in your building and two
neighboring office towers. You want to buy it. How much is it worth?
Valuing a company is done by calculating the net present value of the cash flows at an
appropriate discount rate. Therefore, you will first need to estimate the cash flows. The cash
flow depends on revenues and cash costs. To estimate the revenues, you need to multiply
volume by price. The estimation of volume is identical to the method used in estimation cases
described above.
Assume there are 500 workers in each building; that is 1,500 potential customers in total. If 80%
of these workers likes hot dogs, there are 1,200 potential customers. Assume that on average
each of these potential customers eats a hot dog once every two weeks. If there are 50 working
weeks in a year, each customer eats 25 hot dogs per year. In total, the hot dog stand will sell
30,000 hot dogs per year.
Now assume that one hot dog costs $1.50 and each customer also purchases a soft drink at a price
of $1.00. Total revenues for the cart will be 30,000 x ($1.00 + $1.50) = $75,000 per year. Now
we need to estimate the costs.
Total costs will include cost of goods sold: hot dogs, buns, condiments, soft drinks, and napkins
and straws. Additional costs are wages for the operator of the stand, electricity for the heater and
refrigerator, depreciation expenses for the hardware, and insurance. Assume hot dogs cost $0.25
a piece and buns cost $0.10. Add $0.10 for condiments, straws and napkins. Cans of soft drink
will cost $0.30 wholesale. That means that the total cost of goods sold is $0.75 per order, or
30,000 x $0.75 = $22,500. Assume wages of $5.00 per hour. If the stand is open eight hours a
day, one year will have 50 weeks of 40 hours, or 2,000 total hours. Wages, then, are $10,000 per
year. Add 10% employment taxes to that for a total of $11,000.
Assume electricity is $100 per month for a total of $1,200 per year. Assume the hardware of the
hot dog stand costs $10,000 and will last for 5 years. That is $2,000 depreciation per year.
Finally, assume insurance is $800 per year. Total cost is
$22,500+$11,000+$1,200+$2,000+$800 = $37,500. That means that profits are $75,000 -
$37,500 = $37,500 per year. If we assume that annual capital expenditures are equal to
depreciation, this figure is equal to the annual cash flow.
The final step is to estimate an appropriate discount rate and to discount the cash flows. Assume
that there will be no growth in the company, and it will continue operations indefinitely. That
means you can use a perpetuity to estimate the value. Take a risk free rate of 7% (long
government bonds) and add a business risk premium. In this case, say that is 6%. That means
that the appropriate discount rate is 13% per year. Divide the annual cash flows by this discount
rate and you get the value of the perpetuity. In this case, that would be approximately $300,000
($288,000 to be precise). This is the maximum price you should be willing to pay.

You are a manager of a residential high rise building? Tenants have complained about the
slowness of the elevators. How would you solve the building’s problem?
To solve this problem, you can take two approaches: you can change the reality by speeding up
the existing elevators or adding more elevators, or you can change the perception by making the
wait less aggravating. First explore opportunities for the first approach.
If adding elevators in unfeasible due to space limitations, you can try to decrease the waiting time
by changing the moving speed of the elevators or by changing the algorithm used to move them.
Possible options are: setting the default wait state to the middle floor in the morning (when most
people will be leaving their homes to go to work) and to the first floor in the evening (when most
people return from work). Another option would be to always have one elevator waiting on the
first floor while another is waiting in the middle. A few of the elevators could also be turned into
express elevators which serve only the bottom half or the top half of the building. One elevators
could be programmed to stop on only every third floor, so that tenants could walk up or down the
last floor. Elevators could be programmed to “learn” what patterns prevail at what time of the
day, and could optimize their wait states based on that knowledge.
Examples of the second type of remedy are to place mirrors in the lobbies so that people can look
at themselves while waiting which may make the waiting time seem shorter. Other options are to
place television sets in the lobbies (the Wharton Reprographics CNN approach), play music,
install lights that show where the elevators are at, put coaches and magazines in the elevator
lobbies, etc.
The best solution is likely to be a combination of both types of approaches.

Additional Mini Cases
1. The subsidies of the Springfield Opera House have been discontinued by the City of
Springfield. How will you make sure the opera house survives?
2. Your client has developed a new material for bathing suits and wishes to launch it. It is
priced presently about twice as high as a regular suit. What do you tell him?
3. A cube composed of 8 x 8 x 8 small cubes is put in a bucket full of paint. How many cubes
are painted?
4. How would you forecast the appropriate number of branches for a local bank after
deregulation, which removes all restrictions on inter-state and intra-state branching for
banks?
5. How do you determine the optimal allocation of your next advertising dollar?
6. Estimate the annual demand for golf clubs in the US? If you were a metal fabricator with
excess capacity, would you enter the market? How?
7. What would happen if the price of oil went to $zero?

Wharton Cases

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Case Interview Study

There are three major types of cases:

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Doing the Math

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Analyzing the Problem

Used for analyzing changes in profitability.

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Fixed vs. Variable Cost

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A general tool for analyzing a company and its environment.

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Another general tool for analyzing a company in its business environment.

• Strengths Used to analyze the capabilities of the company

Useful for marketing related cases such as:

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Bargaining power of Bargaining power of

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MARGIN = TOTAL VALUE TO BUYERS - COST OF PRODUCING VALUE

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Useful in determining sources of competitive advantage for a company.

Applying the Framework

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Summarizing your Findings

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Define the Decision Criteria

Formulate the Different Choices

Evaluate Outcomes of Choices Against Decision Criteria

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Additional Estimation Cases

2. How many tennis balls were sold in the US last year?

3. How many hospitals are there in the US?

4. How much wine is consumed each year in the US?

7. How much does a Boeing 747 weigh?

8. I own a shopping mall. How many pennies are in it at any time?

10. Estimate the number of practicing medical doctors in Philadelphia.

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! Prices are falling and expenses are edging up.

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! Do you believe the farmer can sell twice as much sugar?

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! How would you estimate the annual demand for sugar?

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What is the trend in market demand?

! Demand tends to be very stable, growing at approximately 3% per year.

Next we need to know what the price differential is.

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! The hourly rate is £0.10.

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! This satellite is of the data transmission variety.

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Your client is a large hardware chain. Develop a growth strategy?