Our client is a Helio Lite (Helio), a major North American chemicals producer that specializes in the extraction and commercialization of helium gas through a process called fractional distillation. Helio's star product is a liquid helium extract called Liquilium that enables them to ship more helium to their customers than the typical gas form. Liquilium helps customers save space when storing helium and is easier to apply in industrial processes than helium gas.
In the past couple of years, Helio has seen sales flatten and is looking to reinvigorate their total sales volume to drive the business forward. They have retained our firm to help them devise a growth strategy for the business.
Helio Lite believes that:
- There is some value to be unlocked by expanding their current market. Currently, Helio Lite targets the industrial market (manufacturers, labs, etc.)
- It is operating on a price inelastic portion of it's demand curve
In this interviewer-led case the interviewee should be guided through the case by the interviewer.
Suggested case structure
- Volume (existing products): the first step should be to examine the markets for existing products. This should be top priority, as it is likely the most feasible to act on (lowest hanging fruit) vs. introducing new products or changing price. Given the client believes there is opportunity in targeting new segments of the market, that’s where we should initially focus.
- Price (increasing price): given the case brief and the client’s belief that they are operating on an inelastic portion of the demand curve, it is most logical to examine the feasibility of increasing price.
- New products: Once changes to existing products have been explored, the interviewee should move to the discussion of new products that Helio can introduce to capture a new market.
1. Volume opportunity
Interviewee should recognize that the consumer market is significantly underpenetrated by Helios and that they have clearly targeted the “Heavy Industrial” segment. The interviewee may ask for an assumption on the price of a liter of Liquilium across different markets.
The interviewee should recognize that price is not important for identifying the largest opportunity as it is the same across all markets. If the interviewee spends time calculating the revenue opportunity in all markets, that is fine but they are taking an unnecessary step.
Either way, the interviewee should recognize that the largest opportunity is in the consumer light market.
Acceptable market analyses (not all inclusive)
Interviewee should recognize that there are two paths:
- A low-price play that competes with Poseidon at an $18/L (or lower) price point.
- Differentiation on superior product and/or service in order to compete with Poseidon at a higher price point.
Risks associated with this market entry: costly to reach a fragmented consumer base, competitive retaliation/ price war, volatile market with many customers vs. heavy industrial
2. Pricing opportunity
There are a few different risks associated with this approach that the interviewee should touch upon:
- Stated preference: the results of the conjoint analysis represent stated or estimated preferences of consumers. They do not represent actual dollars spent and, thus, may not be fully representative of what we can expect in reality.
- Sampling bias: the conjoint analysis is based on a sample of consumers. Was the sample sufficiently large? Was the sample sufficiently random? Was the sample representative of Helio’s customer base in Industrial Heavy? If not, the result may not mirror what will actually happen.
- Competitive reaction: competitors may react to a price increase by dropping their price or advertising themselves as the “best value” in the industry. This is not accounted for in the demand figures and so actual demand at higher prices may be lower than expected.
- Spillover effects: if Helio is trying to enter a new segment, this pricing may influence the price they are able to charge in that segment (e.g., if there is transparency across industries, Industrial Heavy customers may be upset to see Liquilium selling for less in the Consumer Light segment).
In terms of mitigating these risks, there are a couple of things that the interviewee can point to:
- Additional price analysis: the first thing Helio can do is take other approaches to pricing (like those the interviewee laid out in Q5) to validate these findings triangulate in on an appropriate price.
- Testing price changes: Helio can test price changes with a subset of customers. Since pricing within the Industrial Heavy segment is opaque, Helio can raise the price for a subset of RFPs and see how demand is impacted.
- Phased roll-out: Similar to running a test, Helio can have a phased roll-out of price increases, rolling it out first to geographies that are least critical to the business for instance. If the client sees a large drop in demand, they can roll back prices.
3. Exploring new products
4. Final recommendation
Sample points that should be included in the interviewee’s summary:
- Start with recommendation: In order to grow the business, we recommend Helio focus on the Liquilium product and look to expand to the [Consumer Light] segment (or whichever segment the interviewee recommended) as well as raise price to $23 per liter (or whichever price the interviewee recommended).
- Volume: Interviewee should include a quick point on why they selected the market segment to expand to, as well as the risks associated with that segment.
- Price: Interviewee should include a quick point on the approach used to determine the price increase amount and the risk associated with that approach as well as the mitigation plan.
- Additional products: The interviewee can talk through additional analyses he or she would like to conduct or additional avenues they would explore.