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Case in Point Flashcards

1
Q

U.S. Population

A

320 Million

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2
Q

Avg. life expectancy

A

80 years

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3
Q

What are the “generations”?

A

0-20 years old 21-40 41-60 61-80

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4
Q

How many people per generation?

A

80 million (80 x 4 = 320 U.S. population)

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5
Q

How many people per birth year?

A

4 million

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6
Q

How many people are in their 20s?

A

40mm (4mm / year x 10 years)

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7
Q

Breakeven Point in Units

A

Fixed Cost / (Price - Variable Costs)

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8
Q

Breakeven Point in Price

A

(Total fixed cost / Production unit volume) + Variable cost per unit

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9
Q

Contribution Margin (definition + formula)

A

(selling price per unit) - (variable cost per unit)

Represents the incremental profit generated for each unit sold. A key characteristic of the contribution margin is that it remains fixed on a per unit basis irrespective of the number of units manufactured or sold. On the other hand, the net profit per unit may increase/decrease non-linearly with the number of units sold as it includes the fixed costs. Beyond the fixed cost(s), the contribution margin helps determine the selling price range of a product. Contribution margin constitutes the basic block for break-even analysis for overall costing of a product. The contribution margin measure also helps to select from among the several products that may compete to use the same set of manufacturing resources. The concept of contribution margin is applicable at various levels of manufacturing, business segments and products. The figure can be computed for an entire corporate, for a particular subsidiary, for a particular business division or unit, for a particular center or facility, for distribution or sales channel, for product line, or for individual product(s).

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10
Q

Five steps of the Ivy Case System

A
  1. Summarize the question
  2. Verify the objective(s); ask if there are other objectives
  3. Ask clarifying questions
  4. Label the case and lay out your structure
  5. State your hypothesis
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11
Q

MECE

A

Mutually Exclusive, Collectively Exhaustive This means that there should not be any overlap in your structure. For example, in a “entering a new market” question, your structure could have three buckets: 1. The client 2. The new market 3. Ways to enter the market

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12
Q

Core Qs on company

A

+ Metrics used to judge success

+ Brand

+ Distribution channels

+ Revenues and margins for the last three years

+ Customer segnemntation (characteristics, changing needs, profibility by segment)

+ Product mix (revenues and margins; product differentiation; market share)

+ Production (capabilities and capacity)

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13
Q

Core Qs on the market

A

+ Market size and growth rate for the last three years

+ Where is the industry in its life cycle (emerging, mature, or declining)

+ Industry drivers (brand? price? bargaining power over suppliers? etc.)

+ Industry margins

+ Customer segmentation

+ Industry changes (e.g., new entrants, technoligical changes, regulations)

+ Distribution channels?

+ Major players and respective market share

+ Barriers to entry

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14
Q

Examples of barriers to exit

A

+ Nontransferable fixed assets

+ Contract requirements

+ Goverment requirements (e.g., in exchange for a subsidy)

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15
Q

Th Four Key Case Scenarios

A
  1. Profit and loss 2. Entering a new market 3. Pricing 4. Growth and increasing sales
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16
Q

2018 unemployment rate

A

U-3 RATE

Now ~3.7%. 2018 was 3.9% and 2017 was 4.4%.

Lower than pre-recession trough of 4.4%; avg. was 5.3%

HOWEVER COMPARED TO U-6 RATE

The difference between the U-3 and U-6 rate is just in 2018 back to the average for the six years preceding the 2009 recession of 3.9pp. Today it is 3.8pp. In 2017, it was 4.2pp.

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17
Q

2018 disposable income

A

Currently $14.4bn

Steadily rising since recession $11.6b

Flat during recession – expect same in 2021

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18
Q

2018 consumer confidence

A

University of Michigan Consumer Confidence

Currently: ~95

Steady climb from ~75 in Q4 2013

2009 - 2013: Mostly high 60s to mid 70s

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19
Q

2018 interest rates

A

Effective Federal Funds Rate (i.e., the reference rate)

Now = 2%

Dec ‘08 - Nov ‘12 = Effectively zero

20
Q

U.S. Dollar vs. Fed dollar trade weighted basket of currency index

A

U.S. Fed dollar trade weighted basket of currency index End of 2018: ~92

Feb-Apr ‘18: ~85

Dec ‘16: ~96 (recent peak)

2010-2014: ~70-75

21
Q

2018 gas prices

A

~$.2.70 in 2018 vs.

~$ 2.30 in 2017 vs.

~$2.10 in 2016 vs.

Mid- $3.00s after the recession

22
Q

Profit and Loss Case

BASIC CONSIDERATIONS

A

+ Have competitors profits also fallen?

+ Do economic factors have a role? (Unemployment, disposable income, consumer confidence, interest rates, the dollar, gas prices, etc.)?

+ What are major costs – both fixed and variable – and how have they changed over time?

+ USE HEADINGS: Revenue-based vs. Cost-based strategies (divide cost into production, labor, and finance)

23
Q

Entering a New Market Case

A

Not “Do we enter” but “How do we enter and what are the pros/cons of each strategy”

1st Question: Why does the company want to enter the market? (Sales? Market share? Competitor?)

24
Q

Entering a New Market Case

NEW PRODUCT QUESTIONS

A
  • Will it cannabalize an existing product?
  • Is the customer segmentation the same?
  • Can we use the same distribution channels?
  • Can we use the same sales people?
  • How and where will this new product be produced?
  • Will we have to hire new workers or can we retrain?
25
Q

Define:

“Customer Segmentation”

A

Customer segmentation is the practice of dividing acustomer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests and spending habits.May 15, 2015

26
Q

Entering a New Market Case

MARKET LANDSCAPE QUESTIONS

A
  • Who are the competitors and what is their market share?
  • How do their products differ from ours?
  • How will we price our products?
  • Are substitutions available?
  • Are there barriers to entry? (lack of brand, capital requirements, access to raw materials, access to distribution channels, lack of human capital, regulations, oligopolistic market?)
  • Are there barriers to exit? How would we exit?
  • Will technology or regulations change present risks?
27
Q

Entering a New Market Case

REASONS TO PURCHASE A COMPANY

A
  • Gain access to a new market (e.g., new country)
  • Boost the brand
  • Increase market share
  • Diversify the company
  • Pre-empt a competitor from buying company
  • Target company is a threat
  • Target company has good human capital
  • Obtain patents, licenses, or products
  • Synergies/cost savings
  • Opportunity to learn from company culture
  • Gain new distribution channels and/or customer base
  • Gain tax advantage
28
Q

Pricing Case

THREE PRICING OBJECTIVES

A
  1. Profits
  2. Market share
  3. Brand positioning
29
Q

Pricing Case

COST-BASED PRICING vs. PRICE-BASED COSTING

A

Cost-Based Price

You start with cost

Cost + Assume Profit Margin = Price

Price-Based Costing

You start with price that market will bear, and design a product that will give you the margins you want

30
Q

Pricing Case

PARTITION PRICING

A

Charge seperately for things like delivery, shipping, installation, and warranties (instead of bundiling everything into one price)

31
Q

Growth Case

OPTIONS TO INCREASE VOLUME

A
  • Expand the number of distribution channels
  • Diversify products
  • Focus on high-growth / high-margin segments
  • Invest in marketing
  • Buy a competitor (also helps mkt share + prices)
  • Lower prices
  • Create “seasonal balance” (offset weak season)
32
Q

Consumer Adoption Rates for a New Product

A

Assume 3-5% market share in first year

33
Q

Responses to a New Competitor

A
  • Redesign, repackage, or move upmarket
  • Introduce a new product
  • Increase profile via marketing
  • Lock-in customer loyalty
  • Lock up needed raw materials and talent
  • Buy a competitor (i.e., increase mkt share / prices)
  • Mimic the competitor
  • Cut prices
34
Q

Ways to cut LABOR costs

A
  1. Cross-train workers
  2. Cut overtime
  3. Reduce 401(k) matches
  4. Raise employee contribution to health-care premiums
  5. Institute four 10-hour days vs. five 8-hour days
  6. Give workers equity
  7. Layoffs
  8. Across the board pay cut
35
Q

Ways to cut PRODUCTION costs

A
  1. Improve technology
  2. Reduce real estate
  3. Make production lines multi-purpose
  4. Better manage inventories
  5. Outsource
  6. Renegociate with suppliers
  7. Consolidate suppliers
  8. Import parts
36
Q

Ways to cut FINANCE costs

A
  1. Have customers pay sooner
  2. Refinance your debt
  3. Sell nonessential assets
  4. Hedge currency rates
  5. Redesign health insurance
37
Q

If a product is in its EMERGING GROWTH stage, concentrate on…

A

… R&D, competition, and pricing

38
Q

If a product is in its GROWTH stage, concentrate on…

A

… marketing and competition

39
Q

If a product is in its MATURE stage, concentrate on…

A

… manufacturing, costs, and competition

40
Q

If a product is in its DECLINING stage, concentrate on…

A

… define a niche to focus on, see how you can overtake competition, or plan an exit strategy

41
Q

Profit and Loss Case

FRAMEWORK

A
42
Q

2018 consumer access to credit

A

xxx

43
Q

Causes of 2001/2002 Argentine Crisis

A

Paul Blustein: “And the money kept rolling in (and out)”

“The main cause of Argentina’s crisis was the disjunction between convertibility and the policies required to nurture and ensure its viability—in particular fiscal policy… Argentina almost surely would have spared itself much grief if it had run substantially more stringent budget and tax policies in the 1990s, and an excellent chance for doing so was missed during the 1996-1998 boom.”

IMF has “poster-child syndrome” b/c it had adopted its reforms and was unwilling to push back on the country; IMF’s forecasts were absurdly rosey. IMF really did not want to get blamed, so it delayed the day of reckoning.

Wall Street: very eager for high yields; also the way bond investors invest against the index meant they were all heavily exposed, even if they were underweight the index; also, classic sell-side conflict of interest w/ research

Capital inflows were like steroids

Argentina and the IMF should have come to terms of the need to bail-in bond holders much earlier

44
Q

U.S. Dollar vs. Euro

A

$1 = $0.88

vs. $0.80 in Feb 2018

45
Q

U.S. Dollar vs. Chinese Yuan

A

$ 1 = 6.9 Chinese Yuan

vs. 6.3 Yuan in April 2018

46
Q

Dollar vs. Japanese Yen

A

$ 1 = 109 Japanese Yen

vs. $114 in October
vs. $105 in March

47
Q

Why is the dollar strong?

A

Tax cuts, spending increases, and deregulation helped lift US economic growth to an annualized rate of more than 4% in the second quarter, at a time when many other countries are losing economic momentum. Even if it’s just a temporary boost, it’s been enough to make the dollar a more appealing place to park funds than the alternatives. There is a net long position in the US dollar at the moment, meaning the balance of traders think the currency is going to appreciate rather than decline.

Case in Point (1 decks)

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