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Case

TV Chef Cookbook


Case prompt

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.


Comments

Note that this case will require a profitability analysis as well as market sizing.


Detailed solution

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?


Share EXHIBIT 1 with the candidate

The following information can be shared with the candidate upon request:


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


The following information can be shared with the candidate upon request:


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.

On request, inform the candidate that Albatross’s target profit is $6m

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.



Exhibits
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