Appliance manufacturer - MyConsultingCoach
Case

Appliance manufacturer


Case prompt

Our client is a Colombian kitchen appliance manufacturer. They are the leaders in the Colombian market with more than 45% market share. They also export their products globally; however their international market share is negligible, at 4%. 


They have hired us to help them find ways to increase the company’s revenues and profits.


How would you help them?


Detailed solution

Paragraphs highlighted in orange indicate hints for you on how to guide the interviewee through the case.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.


Suggested case structure

Key question: How can the company increase its sales and profits?

Brainstorm with the interviewee on a possible structure to solve the case.

Share Exhibit 1 with the candidate if required.

Exhibit 1 


 
After understanding the key market trends, revenue and profitability levels by market should be assessed. The above structure can be replicated for the Colombian and international markets. Suggested areas of focus:
  1. Market trends: The candidate should attempt to understand the local and international markets – market size, growth rate, competitors etc.
  2. Profitability by product: The candidate should try to evaluate the company’s profitability by product in the local and international markets to identify growth opportunities
  3. Company: The candidate should try to understand the company’s capabilities in the local market and its capabilities to expand in the international markets, as well as its constraints

The above structure could also have built with the standard profitability framework, but focusing on profit/unit instead of total profit can be helpful in analyzing unit economics and identifying potential price change opportunities.


1. Market Trends

The interviewee should at the outset try to understand the market context both local and international – market size, growth, customer segments, competitors etc.

Allow the interviewee to think aloud and lay out the list of information required in order to understand the market.

Share the following information with the interviewee if enquired:

    • The company segments its sales as Colombian market sales and International sales
    • There are no large local competitors in the Colombian market
    • The company is able to charge a premium because of its brand name and trust in the local market
    • The global appliance market is largely stagnant with barely a 2% year on year growth
    • There are two growth hotspots – China and India; these markets are growing at 20% and 18% respectively
    • However, the developed nations like U.S., U,K, other European markets are shrinking due to the increasing durability of products and limited new sales
    • The Colombian market is growing at 15% p.a.
    • There are several international players vying for market share in the Colombian market. Imported products from India, China and U.S. are becoming a threat to the leadership position of the client

Key insight:
  1. The company has a strong local presence with limited competition. Imports from other countries could threaten it’s local leadership.
  2. India and China are the two growing geographies globally.

The above structure could also have built with the standard profitability framework, but focusing on profit/unit instead of total profit can be helpful in analyzing unit economics and identifying potential price change opportunities. 

If needed share Exhibit 1 with the interviewee


2. Profitability by product

Prompt the candidate if s(he) is unable to move to the product analysis after the market analysis. Allow the interviewee to think aloud and lay out the list of information required in order to understand the product better.

Share Exhibit 2 with the candidate if s(he) enquires about the products sold globally


Exhibit 2 


 

As the global product sales and average prices are shared, it should prompt the candidate to enquire about the split between the international and local sales; pricing in the two segments. If the candidate does not enquire, prompt him/her to evaluate the two segments separately.

Share Exhibit 3 and 4 with the candidate if s(he) enquires about the split of local and international sales

Exhibit 3 


 

Exhibit 4 


 

Now the candidate should calculate the profit margin for each of the products in the local and international markets.

Sample calculation:



The candidate should follow the above steps to calculate the profit margin for each of the products in both the local and international market.

Once the candidate has done all the calculations, share exhibit 5 with profit margins across products and markets.

Exhibit 5 


 
Key insight:
  1. Product A and C are more profitable in the local market.
  2. Product B is more profitable in the international market.

3. Company

The interviewee should now try to understand the company’s strengths and its capability to succeed in the international market.

Allow the interviewee to think aloud and lay out the information required in order to evaluate the company’s capabilities.

Share the following information with the interviewee if enquired:

    • The company’s production facilities are operating at full capacity
    • The production set-up is capital intensive and very technical. Any change in order to alter the products would require significant investment
    • The company sells it’s products through it’s own retail outlets in Colombia.
    • For it’s international sales, it has tie-ups with large importers in significant geographies. It has little control over the retail sales in the global markets and deals only with the import partners
    • 95% of its international sales are in U.S. market

Key insight:
  1. The company’s production units are running at full capacity; therefore for growth in sales the company would need to invest in additional capacity or change the product mix shifting to high margin products
  2. 95% of its international sales are to a geography where the market is shrinking.

4. Final recommendation

Prompt the candidate to summarise and layout a set of options for the client. As this is an open-ended case, the candidate might come up with a different set of options for the client, which is fine as long as the options make sense in the context of the information shared.

The client should focus on strengthening its leadership in the local market and grow top and bottom line by selectively changing market/product mix and/or evaluating a capacity increase
  1. The company has a leadership position in the local market, where it charges a premium on 2 out of three products
  2. The company’s facilities are running at full capacity. Growing revenues and profits with the current capacity would imply:
    1. Changing the product mix towards more profitable products
    2. Expanding in more profitable markets: main export market (US) is shrinking; entry in growing markets (e.g. India, China) or further expansion in Colombia (e.g. through additional distribution networks) should be evaluated
  3. The company should evaluate investing in new production facilities, possibly focusing on the more profitable products (A & C)
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