Electro-Light drinks (M)
This is the sample case from McKinsey website: http://www.mckinsey.com/careers/interviewing/electrolight
Client goal
Our client is SuperSoda. SuperSoda is a top-three beverage producer in the United States and has approached McKinsey for help in designing a product-launch strategy.
When you are given a case, a first sentence like the above will contain a lot of key information. Listening and notes-taking skills are tested here. In your mind, you should catch the key words: top three (major player), beverage producer (what the client does), United States (where the client operates), product-launch strategy (what this case is about). It's not always the case that what the case is about is given to you directly like here, but you should proactively figure that out in your mind as you listen to a case prompt. On your notes, you should have scratch down these key words to. You can list them vertically, leaving blank space following each key word because you will probably fill in more information from the remaining case prompt and your clarifying questions that follow the prompt.
What should also cross your mind is a few key questions: 1. what the products are like? (there are man types of beverages); 2. how does our client sell? (there can be many channels). A skill called visualization is handy here. I talked about visualization the first thing when I started this WeChat Group because it's a very important skill and here is one of its applications. When you listen to a case prompt, try to visualize what's going on, and don't only stay on the literal level. When you try to visualize, a lot of natural questions will come up because you CANNOT visualize beverages, you CAN ONLY visualize specific types of beverages, let it be sports drinks or sodas.
Description of situation
As an integrated beverage company, SuperSoda leads its own brand design, marketing, and sales efforts. In addition, the company owns the entire beverage supply chain, including production of concentrates, bottling and packaging, and distribution to retail outlets. SuperSoda has a considerable number of brands across carbonated and non-carbonated drinks, five large bottling plants throughout the country, and distribution agreements with most major retailers.
SuperSoda is evaluating the launch of a new product, a flavored sports drink called Electro-Light. Sports drinks are usually designed to replenish both energy (sugars) and electrolytes (salts) in the body. However, Electro-Light has been formulated to focus more on the replenishment of electrolytes and has a reduced sugar content compared to most other sports drinks. The company expects this new beverage to capitalize on the recent trend away from sugar-rich products.
There is considerable amount of information in the further description of this case. Based on my own experience, when a case prompt gives you more than 3 or 4 categories of things, and the interviewer proceed quickly through the information, they are not meant to be written down, but rather meant for you to establish a basic idea. For example, the beginning of the section gives you a list of things: brand design, marketing, sales, supply chain elements (production, bottling, packaging, and distribution). You probably won't have time to write all of them down, especially when interviewer reads quickly. However, when it proceeds to the SEGMENTATION of products, that's where you should be on 200% alert because this case is a PRODUCT LAUNCH case. If you were to choose what type of information you should give absolute priority to, it should be product. Here, you were told that there are carbonated and non-carbonated products. Please note that I am not saying that the information in the beginning sentences in this section is not important. You should be visualizing a highly integrated company that doesn't almost every step on the value chain by its own. That should be enough for you to proceed.
It really goes without saying that the last paragraph of the above section is important. The most basic information you should walk away with is (1) product segmentation for sports drinks: segmented by the content of the products, and more specifically by salts and sugar content (2) the new product the client has in mind has a salt focus (3) there is a current healthy trend. I don't know if anyone has said this before, but to crack a case, there are three words: segmentation, segmentation, segmentation. I hope that overtime you will grow very sensitive to information pertaining to segmentations. It could be product segmentation, customer segmentation, or channel segmentation. The above three segmentations are very integrated with each other: you want to sell the most suitable product throughout the most suitable channel to the most suitable customers. A company cannot succeed if it does the same thing in the same way to different tyes of customers.
McKinsey study
SuperSoda’s vice president of marketing has asked McKinsey to help analyze the major factors surrounding the launch of Electro-Light and its own internal capabilities to support the effort.
The last sentence of the case prompt is your TASK, and it's worth written every word down on your note if you can. (1) your client is the VP of marketing (it's not the CEO and don't always assume that your client is the CEO. The client being the VP of marketing signals a marketing focus in this case) (2) there are two goals: analyze major factors AND own internal capabilities (you need to keep these goals in mind throughout the case, and we will come back to this point multiple times down the road) (3) it's PRODUCT LAUNCH (this goal was given to you upfront and by the end of the case prompt you should have already have a rough idea of key factors that influence a successful product launch)
A useful trick is to always write the goal of the case down on the top of a blank paper which you will write your structure and refer to them throughout the interview. Writing the goal down is useful because you want to remind yourself of the goal throughout the case. It's very easy to get lost in the middle of the case when a lot more information comes pouring in, but it's very dangerous to forget what the goal is. The paper with the goal and top and your structure listed below should be kept in your eyesight the whole time. It's your goal and you are forming a story to reach that goal during the case interview.
Question 1:
What key factors should SuperSoda consider in deciding whether or not to launch Electro-Light?
Helpful hints
Take time to organize your thoughts before answering. This tells the interviewer that you think about the problem in a logical way.
Develop overall approach before diving into details.
The first question of a McK is often "key factors" question. This is essentially the question that asks you to structure a case. However, Bain and BCG cases, the candidate-led cases don't open their case with this type of question, even their first question is also to ask you to structure. Why does McK asks its structuring quesiton this way? This is because McK's approach to solving a case begins with identifying the most important factors that impact the goal/results.
What I am trying to get at is that the way you structure a McK case is different than the way you would structure a Bain or BCG case. McK looks for MECEness a lot more than BB (Bain or BCG), and it wants you to, again, IDENTIFY KEY FACTORS. What are key factors? A rookie mistake is to say that revenue and cost are key factors, and that's wrong. Key factors are what drives revenue and cost, not revenue and cost themselves.
What McK wants you to do is to give a list of key factors in a VERY STRUCTURED WAY.
Let's take a look at the recommend answer key for the first question:
A good answer would include the following:
Consumers. Who drinks sports drinks? Are there specific market segments to address?
Cost/price. Is the sports drinks market more profitable than those markets for SuperSoda’s current products? Is it possible to profitably sell (at a price set by the market and internal production costs) Electro-Light? Given the fixed costs involved, what would be the break-even point for Electro-Light?
Competitors. Which products will Electro-Light compete with? Which companies are key players and how will they react?
A very good answer might also include multiple additional key factors SuperSoda should consider. For example:
Capabilities and capacity. Are the required marketing and sales capabilities available within SuperSoda? Does the product require specialized production, packaging, or distribution? Is it possible to accommodate Electro-Light in the current production and distribution facilities? What impact does geography have on the plant selection?
Channels. What is the ideal distribution channel for this product? Are current retail outlets willing to add Electro-Light to their product catalog?
I hope you can take note of a few key things from this suggested response: (1) this suggested response didn't begin with a hypothesis, however, a hypothesis is highly recommended, and I will give a sample response to this case with a hypothesis later (2) it's a list of KEY FACTORS and that's what the question is looking for (3) it's relatively MECE but not completely MECE, and that's something I mentioned once before: there is never complete MECEness, it's always relatively MECE, or good-enough MECE (4) the structure incorporates a lot of unique information about this case, or in other words, it's not generic (5) the way the factors are listed tell a story
Let me explain the above five points in detail. (1) the suggested response doesn't have a hypothesis although it's telling a very nice story, which means it has a nice underlying hypothesis going on. In the actual interview, you always want to begin with a hypothesis before presenting your structure. The hypothesis can be viewed as the basis of why you structured your case the way you structred it. The hypothesis can be 1-3 sentences long. For this case, the suggested hypothesis from me goes like "Our goal here is to determine whether we should lunch Electro Light, I think I would tend to give it a go if we have favorable market outlook regarding consumer demand, we can carve out a unique competitive position in the market, and we have strong internal capability to support the manufacturing, marketing and distribution of this product. Therefore, the key factors I'd consider include the followings"
My hypothesis explains to the interviewer why I listed certain key factors. The way I stated my hypothesis also tell the interviewer that (1) I know what I am doing: I remember the goal is to decide whether we should lunch a new product, and (2) I also know what the first quesiton is asking about: the key factors. It's important that you always stay on top of what you are doing. Don't lose the control of a casing process even McK cases are interviewer led.
For points (2)-(4), I will group them together. The way I would give the list of key factors following my above hypothesis would be like this: 1. Consumer Demand: how big is the trend towards healthy and low calories sports drink and what's the implied short-term and long-term revenue potential? 2. Competitive landscape: what are the other players in the sports drink market and what's their planned approach to low-sugar drinks? Do they have products in pipeline and do they have capacity expansion plans? 3. Internal capacity and cost analysis: do we have the capability and capacity to manufacturer the intended Electro-light, for example, do we have the right suppliers of flavors and do we have formulas that would be liked by the market? Are we currently operating at or under capacity because over-capacity may mean heighted fixed cost for us. What's the cost esitmates would be and how does it compare to our revenue forcast? 4. Marketing: what's the message we plan to send to the consumers and how do we plan to position our products. What are the suitable channels and do we already have presence in those channels? For example, vending machines and local retial stores?
I would like you to note that the way I structured my case follows the hypothesis that I gave in the beginning, and I incorporate non-generic considerations of the case into my structure. I didn't structure the case using revenue and cost because it doesn't work very well in a non-profitability case situation, and it's harder for you to tell a nice story using revenue versus cost.
My suggested response as well as McK's suggested response are no way strictly MECE. I remember that when I first start practicing cases, I was very confused by just how MECE I need to be. I struggled a lot. In the end, when I came out from the other side of the tunnel, what I realize was what McK looks for is STRUCTURED KEY FACTORS
MECEness is a soft guiding principle, and if you are structured, and you list the most important factors, you are good.
I also would like you to note that whenever I showcase a sample response from myself, I never over or under write unless specifically noted. The show cased reponse would be the exact way I would repond to a case in a real interview setting. I also like to talk about the thought process that would take place in my head, and I don't over or under write them either: they are the things that would go through my head in a real interivew.
The suggested structuring response I gave today for McK's sample case Super Soda can well be constructed in one and a half minute and then be presented within two minutes. If you feel it's difficult to accomplish that in one and a half minute, you can stretch the structuring phase to two minutes and even a bit more. But generally speaking, one and a half minute should be your goal when you practice.
It's ok that you take a lot longer than the above suggested time when you practice but you need to be at the one and a half minute level before you do your actual interview
Everything will come with practicing so don't worry about it now. You will be amazed how far you can go in three months' time
Question 2:
After reviewing the key factors SuperSoda should consider in deciding whether to launch Electro-Light, your team wants to understand the beverage market and consumer preferences to gauge potential success of Electro-Light.
Your team has gathered the following information on the US sports-drink market. The information shows an estimate for the share of electrolyte drinks, as well as the current share for the two main electrolyte products: CoolSweat and RecoverPlus.
Question 2 is a quantitative question. According to Victor Cheng, which I agree, that you'd rather be slower in solving a quant question than solving it wrong. Quantitative questions are never super hard. Therefore, if you feel that the question is super hard, the chance is high that you need to ask for more information. A huge pitfall of Chinese candidate is that we are very used to solving problems treating everything has been given already. It's not true in case interviews. A lot of times, some information is missing and you need to ask them from the interviewers. This mocks the real client scenarios: consultants need to ask for relevant information from clients instead of hoping that the clients will give you everything you need.
When approaching a quantitative question, there are general steps you should follow: (1) make sure you understand the question and get all the numbers corretly (2) ask clarifying questions and missing information (3) tell the interviewer what your planned approach is (4) proceed to do any calculations (make sure that the interviewer follows your steps so that if you make any mistakes they can correct you in the middle instead of in the end) (5) after the result is out, proactively interpret the results
Electro-Light would launch in a 16-ounce presentation (one-eighth of a gallon) with a price of $2 to retailers.
In order to launch Electro-Light, SuperSoda would need to incur $40 million as total fixed costs, including marketing expenses as well as increased costs across the production and distribution network.
The vice president of operations estimates that each bottle would cost $1.90 to produce and deliver in the newly established process.
In this sample case, the additional information is given directly to you. But any of the information like the price of each bottle, the variable cost of each bottle, and the upfront fixed cost, can be hidden and you may need to ask for them yourself.
Breakeven quantity is a very important business concept. For any high fixed cost production, we always want to know what's the minimal level of quantities we need to sell in order to cover all the fixed cost. For each unit of product, we can calculate a gross profit, which is (unit price - unit variable cost), then we want to divide the fixed cost with the unit gross profit to understand how many units we need to sell to break even (revenue = cost)
When solving for breakeven quantities, I do not recommend writing down a equation with a unknown variable denoting the breakeven quantity like the followings: Fixed_Cost + X*Variable_Cost=X*Price, and then solve for X. This is mathmatically correct but has two shortomings: (1) Whenever you give an equation with unknown variables to solve, even it's first order, it's not client friendly and it takes you more time to explain what the equation is (2) it's not business intuition smart (it may be math smart), because the intuition behind break even is best written as Fixed_Cost/Unit_Gross_Profit
I'm not saying that you should never use equations with unknowns because there may be cases you have to do that. But the guiding principle of solving a case is to be client friendly and be super easy to communicate with. Complex mathmatcial approaches don't help here. The smartness here is to make everything you do as easy to understand as possible.
Now circling back to the steps of solving a quantitate question, a sample response regarding step (3) telling the interviewer what your planned approach is would be "I'd like to first calcuate the gross profit per bottle using price minus variable cost, and then divide the total fixed cost with the gross profit to know how many bottles we need to break even, after which I will convert bottles to gallons in order to calcualte the market shares we need to break even"
The result for this question is 12.5%. One thing casing rookies loves to do is to be very proud of themselves after they have come up with this number and look up to the interviewer in his or her eyes, waiting for praises [Grin]. It's the wrong thing to do. The right thing is to proactively interpret this number: what does 12.5% of market share imply? Will it be possible to achieve this market share? If yes, how? These questions should be the implict questions in your head when you interpret the result.
A sample response regarding interpretation would be:"We need 12.5% of the Electrolyte-drinks market to break even. I think it's good news that the market share requirement is not very high for two reasons: (1) The current market is very fragmented with only two major brands taking only 30% of the share so we have room to cut a piece from this market (2) 12.5% is not much higher than the current market share of the 2nd largest player and a lot lower than the first player, which is another reason why it may not be super hard to achieve especially considering that out client is a major player in the beverage industry. To further understand whether this market share is achievable, I think we will benefit from looking at potential marketing strategies and channel selections"
Please note that I did two things. First, I interpret the result in terms of its implication to our goal (whether we should launch), and I give two reasons supporting my interpretation. Secondly, I suggested what we should do to further understand whether we should launch. What I suggested follows my initial structure. It's also the natural story because after knowing the required market share, we do want to know how exactly we can achieve that market share.
Question 3:
SuperSoda executives believe that the company's position as a top three beverage company gives them strategic strengths toward achieving the desired market share. However, they ask the team to outline what would be needed to achieve the target of 12.5 percent share of the electrolyte-drinks market. What would SuperSoda need to do to gain the required market share for Electro-Light following its launch?
I believe this question shouldn't be a hard question for any business school students because it's basically asking how to market Electro-Light. However, it might be a bit difficult for non-MBA students. Whenever a question seems hard, I use visualization. I imagine what to do to sell the product at question. Given we are to gain market share for a salt-focused sports drink, I imagine the first step is to understand whom to sell to and what their tastes and willingness to pay are, and then I imagine how our product's characteristics can be differentiated from other similar products in the market, then we need the right pricing and promotion strategies, then the next is through which channels we are going to sell, and lastly, we need to make sure that operational-wise we have enough capacity and capability to achive what we desire.
The above thought process will bring me to right down five buckets: customers, competition, pricing and promotions, channels and capabilities. However, this is just the first step answering Question 3 because such a structure, although comes from my visualization based on this unique case, will seem very generic to the interviewer. I need to further explain what I think are critical to each of the bucket in this case' unique setting.
For example, under customer section, I would discuss who are the customers that would prefer a low-calorie sports drink and make sure we design our products to their tastes. For example, they are be female dominated becaue female customers may be more calorie concious than male customers. This means that we need to research female's tastes and volumne preference better.
Under competition, I would refer back to the previous question, and ask what are the unique selling points of Cool-Sweat and Recovery-Plus and investigate how we can differentiate Electro-Light from these two products. I probably would suggest that we make a comparison among the three products in terms of sugar content, tastes options as well as volumne and pricing.
Under pricing and promotions, I would discuss how to penetrate the market as quickly as possible to take advantage of the fact that the current market is quite fragmented, and the leading players haven't fully established themselves yet. But then we should be aware of potential cannibalization of other product lines we own. Please do note that whenever we have a new product launch, there is risk of cannibalization. It's not a unique point to this case, but it should absolutely be mentioned.
Under channels, I would be more creative and suggest a few more channels that I think suit this products the most. For a sports drink, it's natural to think that channels are very critical. I would mention vending machines, local retail stores, and partnership with sports teams.
Under capability, I would say that we should plan in advance across the entire value chain to make sure that we will have enough inventory for the initial market launch given we may want to have a huge promotion up front. Note that it's always nice that your story connects with each other here and there. Since I mentioned under "Price and Promotion" bucket that it may be beneficial to have a bigger promotion upfront, I would naturally mention under "capability" bucket that I want to make sure there is enough inventory for the big promotion.
Note that the structue I gave, and the structure given in the answer key by McK, aren't complete MECE, but like I repeated a few times, you do not need to be complete MECE, you only need to be VERY STRUCTURED and cover the KEY FACTORS.
The last question is about product differentiation and channel selection. You should be very aware of this after glancing over the two figures. To answer this question, there are four general steps you could follow. (1) Give a summary of what each figure is about; (2) Interpret the figure; (3) given an explanation of why it is the case; (4) discuss the implication of the figures. Taking the first figure as an example, it could go like this "The first figure showed us the customer perception of the existing leading brands. CoolSweat is majorly perceived as a leisure drink, and ReoverPlus as a energy replenishing drink. This could be due to the variation in sugar versus salt content: I'm guessing CoolSweat's salt and sugar content is probably lower than RecoverPlus. It seems that neither brand is perceived as healthy natural drink probably because their sugar contents are high. This gives us a unique opportunity to become the leading brand in the healthy natural drink segment especially given that our product positioning is salt-focused. I think we should aggressively position our product to meet the customer needs to healthy and natural drink, taking actions in creating formulas that use less sugar and use natural flavoring and high quality water."
For figure 2, the key insight is that the channel mix for sports drink is different than the channel mix of other beverages. This could be a challenge for our client. This is how I would respond to Figure 2: "Figure 2 is a comparison of the channel mix for sports drinks versus the that of the average beverages. What stands out the most to me is that the channel mix for sports drink is very different than other beverages in that it's less super market heavy but rely a lot more on other channels. This means that we need to look into what these other channels are and make sure that we have a plan to utilize them if we haven't already. What I am guessing is that the other channels could be very sport-drink specific like vending machines in university gyms, cafes in sports clubs, and partnership channels with games and stadiums. To achieve the goal of market share of no less than 12.5%, it's critical that we look into these channels."
There are many ways to answer any one question. The sample response I gave is just a show case of what I would say in actual interviews.
For a conclusion of the Super Soda case, I want to point out that the actual cases in case interviews are all well designed and they usually have a cohesive stories going on behind each case. McK interviews are interviewer-led but it doesn't mean that you shouldn't proactively think about where a case is going. For Super Soda, it has a very clear story line and if you can get on top of the story and casing process and lead the case, I think you are at an advantage rather than dis-advantage.