TV Chef Cookbook
The “Slim Jim” TV cookery show has become very popular across the United States over the past 18 months. The show features TV chef Jim Blake cooking a selection of healthy, low-calorie dishes, and has become popular in part by picking up on wider trends.
The publishing house Albatross is considering launching a “Slim Jim Cookbook”, based on the show, in time for Christmas, when it is hoped the book might be a popular gift item. Albatross has engaged us to find out if they should go ahead with this plan. To inform their decision, they would like information on the total market size, potential revenue and potential profit.
Note that this case will require a profitability analysis as well as market sizing.
Estimating the market
The candidate should ask any clarificatory questions before clearly structuring their approach to estimating the market size, asking for additional information as required.
To begin, the candidate should ask the following questions:
1. What is the target market for the cookbook?
2. How many segments are we operating with and how best should we break down the population of potential customers?
3. What is the expected conversion rate for individuals which will buy the book in each of these segments?
The target market is adults of working age, with a focus on those with a higher income - who are both more likely to be fans of the Slim Jim show and more likely to have the disposable income to purchase the book.
The population has been segmented into four age groups – 20-29, 30-39, 40-49, 50-65.
We expect an overall 2% of higher-income individuals in each segment to purchase the book – either for themselves or as a gift.
Calculation
The candidate should now quantify the market size:
Segment 1 market size = 45 x 0.12 = 5.4m
Segment 2 market size = 44 x 0.15 = 6.6m
Segment 3 market size = 40 x 0.20 = 8m
Segment 4 market size = 64 x 0.20 = 12.8m
Total high income population within age bracket = 32.8m
If 2% buy the cookbook, total buyers = 32.8 x 0.02 = 0.656 = 656k ≈ 650k buyers
Profitability
Recall that Profit = Revenue – Costs
There will be both physical and digital editions of the book
The physical edition will be priced at $30
The digital edition will be priced at $20
It is expected that around 35% of sales will be digital copies in Segment 1 and 2
Only 10% of sales will be digital copies with Segments 3 and 4, as these relatively older consumers tend to be less comfortable with that format
The unit cost of a physical copy is $15
The unit cost of a digital copy is $8
Revenue
Volumes in Segment 1
Total buyers within segment = 5.4m x 0.02 = 0.108m = 108k
Number buying digital copies = 108k x 0.35 = 38k
Number buying physical copies = 108k x 0.65 = 70k
Volumes in Segment 2
Total buyers within segment = 6.6m x 0.02 = 132k
Number buying digital copies = 132k x 0.35 = 46k
Number buying physical copies = 132k x 0.65 = 89k
Volumes in Segment 3
Total buyers within segment = 8m x 0.02 = 160k
Number buying digital copies = 160k x 0.10 = 16k
Revenue from physical = 160k x 0.90 = 144k
Volumes in Segment 4
Total buyers within segment = 12.08m x 0.02 = 242k
Number buying digital copies = 242k x 0.10 = 24k
Revenue from physical = 242k x 0.90 = 217k
Revenue from digital
Revenue from digital = total digital copies x price
Revenue from digital = (38k + 46k + 16k + 24k) x 20 = 124k x 20 = $2.48m
Revenue from physical
Revenue from physical = total physical copies x price
Revenue from physical = (70k + 89k + 144k + 217k) x 30 = 520k x 30 = $15.6m
Total Revenue
Total revenue = revenue from digital + revenue from physical
Total revenue = 2.48m + 15.6m = 18.08m
Costs
Costs for digital = total digital copies x unit cost = 124k x 8 = 992k
Costs for physical = total physical copies x unit cost = 520k x 15 = 7.8m
Total Costs
Total costs = costs for digital + costs for physical
Total costs = 992k + 7.8m = 8.79m
Profit
Expected Profit = Revenue – Costs
Expected Profit = 18.08m – 8.79m = 9.29m ≈ 9m
Should Albatross Proceed with their Plan?
The candidate should ask what Albatross’s target profit is for the project.
The expected profit for the project is just over $9m. This obviously exceeds Albatross’s $6m target. Therefore, Albatross should go ahead with their plan and publish the Slim Jim cookbook.
