Case
Helio Lite
Case prompt
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
Comments
In this interviewer-led case the interviewee should be guided through the case by the interviewer.
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
Question 1: What areas would you suggest Helio investigate to determine where revenue growth opportunities exist? How would you prioritize the various levers Helio can pull?
Exhibit 1
Suggested steps ranked by priority:
- 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.
Make sure the interviewee builds a solid structure that is oriented around driving volume and changing price. Ensure the interviewee differentiates between the existing customer and new customers as well as existing vs. new products. If the interviewee misses any of these points, help push them along by asking leading questions that bring them to those missed points.
If needed, share Exhibit 1 with the interviewee
1. Volume opportunity
Question 2: How would you determine which market has the most opportunity to grow volume?
Share Exhibit 2 with the interviewee to outline market segments and sizes.
Exhibit 2
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.
If asked for, share that the price of a liter of Liquilium is ~$20. This price is consistent across all 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.
The interviewee should also give some sense of the magnitude of opportunity in the consumer light market (e.g., ~4x the size of light industrial market)
Question 3: Which market would you recommend Helio enter? In addition to size of the market, what else would you consider in recommending a market?
Acceptable market analyses (not all inclusive)
The interviewee can recommend any of the available markets to Helio. It is not critical that they pick one of the ones above. What is critical is that they present a balanced view of that market, that addresses both the merits of targeting that market as well as the risks. The interviewee should leverage the case facts that have been supplied and where they don’t have information, they should make logical assumptions.
Question 4: There is one other competitor in the consumer light industry, Poseidon Chemicals. Poseidon is a low-cost, high-volume player who is price at $18 per liter. Given this, how would you think about entering the consumer light market? What questions would you ask?
Go-to-market, suggested issue tree
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
The interviewee may not use this structure exactly, but it is important they touch on the issues encompassed by these two areas as they think about go-to-market strategy. The interviewee should also touch upon the risks associated with the light market.
2. Pricing opportunity
Question 5: Let’s move onto pricing opportunity. Assume pricing is most relevant for the segment we are already in (Heavy Industrial) and that we have a current price of $20/L with 95% market penetration. What types of approaches could you take to determining the ideal price for the market?
Exhibit 3
If needed, share Exhibit 3 with the interviewee
The interviewee may not land on this exact structure. It is important that the interviewee share concepts that touch on these pricing approaches. If the interviewee uses a different structure with similar components, that’s fine, so long as it is logical and the pricing approaches make business sense. You can provide these terms if the interviewee discusses the pricing concept but doesn’t have a term for it.
Question 6: The client has asked us to take a demand-based approach to pricing, examining market demand and determining the ideal price point. What is this ideal price point? Exhibit 2 outlines the results of a conjoint analysis that Helio conducted to estimate demand for their product in the Industrial Heavy segment at various price points.
Share Exhibit 4 with the interviewee to outline market segments and sizes. Note that demand is for Helio’s product only in the Industrial Heavy segment and assumes all else remains equal (e.g., does not account for any competitive reactions).
Exhibit 4
With this information, the interviewee should recognize the need to calculate total revenue at the various points. Ideally, the interviewee will start at the current price point ($20). If the interviewee moves down from there, they should recognize the revenue curve is moving downward whereas it is moving upward at prices higher. The interviewee should find that revenue is maximized at $23 and declines after that point.
The interviewee may struggle with the math here and may need a few minutes to work through the multiplication as it is a bit more difficult. If the interviewee is starting in the wrong place, suggest that they start at the current price point. If the interviewee fails to recognize an upward or downward trend, point it out and via questioning, ask the interviewee if it is worth doing further calculations on that part of the curve (it won’t be worth it when the revenue curve is trending downward).
Question 7: What are the risks/ drawbacks with this approach to pricing? How would you mitigate these risks?
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.
The interviewee may not hit all of these points and may have others. It is important that the interviewee think critically about the risks associated with this approach and acknowledges a few logical ways to mitigate those risks.
3. Exploring new products
Question 8: The client also wants to explore new avenues for growth – either new products or new services. How would you think about structuring this issue?
Exhibit 5
If needed, share Exhibit 5 with the interviewee
The interviewee should have some structure to determining what new products the company could potentially release. The interviewee should show that they are thinking beyond just helium and looking at other areas or other businesses that the company could go to. If the interviewee is unable to think of one of these areas, push them there by asking leading questions.
4. Final recommendation
Question 9: You bump into the CEO of Helio at the water cooler. She asks for an update on the project and how the team’s work is going. What do you tell her?
The interviewee should use this as an opportunity to sum up the findings from the questions we’ve touched upon.
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.
