CleanCo Incorporated
Our client, CleanCo Inc. is a fire and water remediation services firm. They operate in the U.K. market and their primary customers are insurance companies who require cleaning services after fire or water damage incidents. While the market is large (approximately £ 5 B), the growth of CleanCo Inc. has stagnated. There are 4 large providers of such services and most insurers have been tied up in long term contracts between these large providers.
CleanCo Inc. is now considering an expansion into the residential cleaning segment in order to boost growth. They have hired us to help them evaluate this expansion decision.
Suggested case structure
- Context: The candidate should attempt to understand to calculate the market size
- Competitor analysis: The candidate should look at the competitive dynamics, growth outlook and the potential competitive reaction on market entry
- Customers: The candidate should try to understand the target customers, their buying behaviour, preferences etc.
- Profitability: The candidate should analyse the profit margins in this market segment
- Synergies: The candidate should evaluate whether there are any synergies between the current segment and the new segment
- Recommendation: The candidate must give a concrete recommendation on the basis of the above analysis
1. Market Size
The interviewee should at the outset try to estimate the market size for residential cleaning services.
Below is one of the potential approaches to the market size estimation:
- The population of U.K. is approximately 65 M
- The average number of people per household is 2.5
- Therefore, the number of households would be 26 million (65/2.5)
- Household income can be used as a key driver to segregate the target market. It can be assumed that 50% of the households earn more than £ 50,000 and 50% of the households earn less than £ 50,000.
- 30% of the households that earn more than £ 50K are willing to pay for housecleaning services. However, only 10% of the households who earn less than £ 50K are willing to pay for these services.
- The market at approximately £ 12.5 B is a large market. It is roughly 2.5 times the current category that the client operates in.
2. Competitor Analysis
Share the following information with the interviewee if enquired:
- National players control about 15% of the market. These services are priced at a premium.
- Regional players control about 25% of the market.
- The rest of the market is extremely fragmented with local individual providers servicing about 60% of the market. These services are usually the most cost effective.
CleaningCo Inc. is a national player in its current segment and plays in the medium to high price range currently.
3. Customers
Share the following information with the interviewee if enquired:
- The customers of the national service providers are quality conscious. They are willing to pay a premium for high quality branded service.
- The customers of the local players are typically extremely cost conscious.
- The customers of the regional players typically go for branded service providers with an established presence. However, they are not willing to pay a significant premium.
- Given the current positioning of the client, it would be easier to target the medium and the premium segments which account for about 40% of the market.
- CleanCo. would have to think about the pricing and positioning when it decides to develop a service proposition.
- Price conscious customers form the largest segment (~60%). However, providing quality services at a low cost would require a different business model which would require a deeper analysis.
4. Profitability
The client is comfortable going in with a premium positioning. Share the following information with the interviewee if they enquire about the cost structure:
- The average price charged by the national players is £150
- The two major cost components are labour charges and the cost of cleaning materials.
- Labour costs are approximately £20 an hour and an average cleaning session lasts about 4 hours.
- £ 20 worth of cleaning materials are used during an average cleaning session.
- The market seems attractive with a high profit
5. Synergies
Share the following information with the interviewee if enquired:
- The core competencies required in the residential cleaning market are very similar to those required in the current market segment.
- The company already has trained manpower and nation-wide delivery capabilities that can be leveraged.
- There are likely to be procurement synergies as well as the material required is largely similar in both these market segments.
6. Recommendation
- The client should enter the residential cleaning market because of three reasons:
- The residential cleaning market is a large market at about £ 12.5 B
- The profit margins are attractive, especially in the likely target market - the premium segment
- There are significant potential synergies between the existing segment and the residential cleaning services market - delivery capabilities, procurement etc
- However, the client must consider the investment required for building a consumer brand
- Profit margins are attractive
