The QVARTZ

case interview
handbook
Introduction

How should i use this handbook?
The purpose of this handbook is to serve as a source
of inspiration during your interview preparation. We
recommend browsing through all sections of the
handbook to ensure that you are familiar with the
various topics covered in it. At QVARTZ, case inter-
views are a part of the recruitment process for full-
time Consultants, Junior Consultants and Interns.
The contents of this handbook will, however, not be
explicitly tested during the recruitment process.
When you are invited for an interview, you can safe-
ly assume that your CV is good enough. What is
left to do is for you to show your personality and to
demonstrate your ability to work in a group – as well
as your analytical and problem-solving skills. One of
our consultants who recently joined QVARTZ shares
her top three preparation tips here:
1. Practice problem solving in a structured way,
but preferably without clinging too much to
specific learnt-by-heart frameworks. Make sure
you are familiar with the most common types
of cases

Is this handbook relevant for me? 2. Practice calculations without a calculator

If you are new to case interviews and you are pre-
paring for upcoming interviews, this is the hand-
book for you. If you are already a seasoned case
solver or have read other literature on the topic, the
handbook may be of less relevance for you. See the
section “Additional resources for case preparation”
for other recommended sources of information.
Should I prepare before the interview
process?
(it is usually fine to use pen and paper, however)
3. Reflect on who you are and how to best convey
yourself. Consider how you want to interact with
the rest of the group – both in group interviews
and under less formal circumstances
If you want to know more about our recruitment
process, go to www.qvartz.com/career. Here, you
can also find information about open positions and
upcoming recruitment deadlines.

Very few make it successfully through manage-

ment consulting interviews without preparation,
and we therefore strongly recommend that you take
the time to prepare, as this greatly improves your
chances of securing a job offer. The vast majority of
successful applicants across all management con-
sulting companies have prepared by reading up on
cases, practicing with friends and brushing up on
their arithmetical skills.

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4
Table of contents

QVARTZ: Nordic heritage, global reach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

The case interview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Types of case questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

How to open and close a case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Frameworks for business cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Profitability framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Industry analysis framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Mergers & acquisitions framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Product strategy framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Additional resources for case preparation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Quantitative preparation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Example cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

5
QVARTZ: Nordic heritage,
global reach
QVARTZ is a management consulting company with
a Nordic heritage and a global reach. Our civilisa-
tion counts 331 unique individuals working together
across our offices in Copenhagen, Hamburg, New
York, Oslo and Stockholm. Our biggest belief is in
people; great people who want to make a difference
and never stop moving forward. And we believe that
amazing things can be achieved by a unified, talent-
ed and prepared team.
Even though QVARTZ is firmly rooted in the tradi-
tional, professional values of high-end management
consulting, we founded the company in 2002 with
the clear intention of changing the industry “from
within”. We utilise a unique alternative to the stan-
dard consulting model, with less dependence on
standard methodologies and more emphasis on
listening and giving advice based on the client’s
specific challenges and opportunities as well as our
specific insight and experience.
While strategy development has always been the
cornerstone of our offering, QVARTZ today works
extensively within transactions, commercial and
6
operational excellence programmes and organi-
sational transformations. Our client base covers a
range of industries, including private equity, energy,
pharma & medtech, retail, transportation and many
more. Although many of our clients are large Nordic
companies, we have project engagements in +50
countries around the globe each year.
At QVARTZ, we see consulting as a true career path,
not just a stepping stone. We offer our consultants
the opportunity to influence their own career pro-
gression and work life to the highest possible extent.
We strive to provide individualised matchmaking
between personal wishes and project opportunities
to ensure that our consultants develop and succeed.
For the same reason, we attempt to nurture and de-
velop our consultants as much as possible through
mentoring and internal academies so that we can
grow together as a company.
7
The case interview
What is a case interview?
In a case interview, the interviewer will present you
with a situation or a challenge faced by a fictious
company might be facing. You are asked to analyse
and solve the problem through a discussion with
the interviewer. The majority of case interviews are
based on real client projects, and the interviewer
may therefore have additional knowledge or infor-
mation to draw upon during your discussions than
was initially presented.
Why case interviews?
Consultants solve problems. Case interviews are an
effective way of simulating the kind of problems we
encounter on a daily basis. They provide a fast and
concrete way for us to understand how you frame
and solve ambiguous business problems. In addi-
tion, they also give you an opportunity to gain a bet-
ter understanding of the work we do and consider if
a consulting career is what you want to pursue.
What do we look for in the case
interview?
The case interview is designed to test skills that are
common to almost all consulting companies, though
they may be described and weighted a little differ-
ently in different places. During case interviews, the
interviewer is looking to answer at least two questions:
1. Would you thrive when solving
our clients’ problems?
The interviewer will assess your ability to combine
skills such as logical reasoning, creativity, quantita-
tive skills and business acumen as well as your ability
to put it all together and structure the problem-
solving process. The interviewer checks whether you
8
can insightfully think through the scenario and then
tailor your approach to the problem at hand, rather
than try to fit something into a predefined frame-
work. The interviewer also seeks to understand if
you base your conclusions on evidence rather than
beliefs, and if you “sanity check” your answers to
ensure they make sense in the context of the case.
2. Would you work well with us and our clients?
Management consulting is based on teamwork. Your
ability to interact with others and your communi-
cation and presentation skills are therefore of great
importance. The interviewer wants to learn whether
if you are tactful and approachable, and how you
handle constructive input. Additionally, he or she
wants to evaluate if you present your arguments in
a clear and concise manner that would be easy for
a client to follow. Do not be afraid to show that you
are human; a welcoming and attentive attitude goes
a long way.
The group case session
The group case session is designed to give you an
opportunity to show how you work with peers on
challenging problems. In addition to the problem-
solving approach, teamwork along with effective
communication and the ability to show respect and
empathy will be evaluated. Throughout the group
case-solving process, an interviewer will listen in on
the group’s communication to observe how its mem-
bers interact and continuously provide feedback.
9
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Types of case questions
Interview cases generally fall into two categories,
(1) Estimation or market-sizing cases, and (2) Busi-
ness cases. At times, the interviewer may also ask
you to include a market-sizing question as part of a
larger business case.
1. Estimation or market-sizing cases
In estimation or market-sizing cases, you are asked
to estimate a quantity that you will not likely know
in advance. Examples of estimation case questions
are: “How many gas stations are there in Sweden?”;
“How many trains are in motion in the Stockholm
subway system right now?”; or “What is the value of
all coal produced in Sweden?”.
Typically, there is no one correct answer, yet the pur-
pose of these cases is to understand how you work
logically through a mathematical problem, make
reasonable assumptions and interpret mathemati-
cal results. While you cannot prepare for the exact
problems, there are a few things to think about and
possible approaches you could consider.
Communicate your approach
Before you dig into the details, it is a good idea to
think through your mathematical approach on a
high level and then briefly communicate it to the in-
terviewer. If the interviewer understands your mod-
el and its subcomponents, he or she can be certain
that you are on the right track from the start, or po-
tentially intervene and help you before you spend
time on an approach that may not work out within
the given time frame.
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Approaches
A) Extrapolation
One approach is to extrapolate a metric from one
element against an entire population. As an illustra-
tive example, you could answer the question “How
many gas stations are there in Sweden?” by extra-
polating your knowledge about the number of gas
stations in your local region against the whole coun-
try. (E.g. three gas stations per 50,000 inhabitants
in a given city would bring you to 600 gas stations
across Sweden, assuming a population of 10 million
people).
B) Segment-by-segment breakdown
An alternative approach is to isolate the estima-
tion per segment. Visually, you could do your cal-
culations in a table format, which makes your work
well-structured and easy-to-follow. As an illustrative
example, you could answer the question “How many
deodorants are sold in Sweden each year?” by seg-
menting Sweden’s population by logical age groups
and then making sound assumptions of the average
amount purchased per capita for each group.
C) Driver breakdown
A third approach that works well for many estima-
tion or market-sizing cases, especially more uncon-
ventional ones, is the driver breakdown approach.
Here, you begin with the key metric and systemati-
cally decompose it into its corresponding drivers.
Keep attempting different decompositions until you
find that the subcomponents are manageable to
make assumptions around. As an illustrative exam-
ple, you could answer the question “How many golf
balls are in the air in the US at 11 am on a Saturday
morning?” by breaking it down into its subcompo-
nents “number of golf balls in the air per course”
times “number of courses in the United States”, and
subsequently breaking those down further.
2. Business cases
The business case interview is by far the most com-
mon type of case interview. A business case inter-
view begins with the interviewer presenting you
with a challenge or opportunity faced by a company
and asks you to analyse and resolve the situation
through a discussion with the interviewer.
Business cases are designed to simulate real life
consulting projects, and sometimes the interviewer
may even role play one or several “characters” in-
volved in the case to get as close to a real project as
possible. He or she could provide you with relevant
data upon request — or — after a given section of a
case, ask you to analyse or investigate certain top-
ics. The types of topics vary; you may for example
investigate how to make a company’s distribution
chain more effective, how to best enter the Brazilian
soda market or how to make use of overcapacity in
a car manufacturing facility.
The purpose of these types of cases is to under-
stand several of your competences: the depth of
your business acumen; how you structure and pri-
oritise issues; how you handle different types of
Typical business cases you could be presented with
Strategy Organisation
• Increasing market share • Incentive systems
• Market entry strategies • Organisational design
• M&A transactions • Roles and responsibilities
• Starting a new business • Post-merger integration
• Competitive response
• Pricing strategies
• New product strategy
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information; and your overall fit with the type of
work that we do.
You can significantly increase your chances of be-
ing successful in a business case interview by prac-
ticing. The opening and closing of the case is fairly
generic, practicing how to open will get you off to
a good start and practicing how to close will make
your wrap-up more concrete and concise. The mid-
dle part is more difficult and requires more natu-
ral talent, yet there are a number of methods and
frameworks which can help you along the way when
practicing case interviews.
The following pages contain a selection of approach-
es and frameworks which might inspire you in your
case solving. But keep in mind always to adapt your
thinking. Interviewers look for candidates with busi-
ness acumen, who are able to develop high-quali-
ty frameworks on their own, in contrast to merely
repeating rehearsed frameworks. The key takeaway
is to use frameworks as a source of inspiration, but
not to force-fit a case into one just because you are
familiar with it.
Operation
• Cost-out
• Strategic sourcing
• Supply chain optimisation
• Production capacity change
How to open and
close a case
Receiving and gathering
information
• Listen carefully to the question and confirm
that you have fully understood the assignment
or problem the client is facing. A good way to
check is to paraphrase the question back to the
interviewer. Take notes, especially if you are pre-
sented with data
• Ask clarifying questions if necessary. Even the
most obvious questions are sometimes appro-
priate to ask and it provides you with more time
to think
Process information and present
your approach
• Ask for time to collect your thoughts and struc-
ture your analysis. Often the interviewer leaves
the room to give you some time, while at other
times the interviewer may stay in the room – in
either case, do not feel stressed and take the
time you need
• Present to the interviewer how you are going to
approach your analysis. This is very important
and often forgotten. Be a good listener, the in-
terviewer might give you hints on where to go
first or if you should rethink your approach alto-
gether. If this is the case, ask for another minute
to collect your thoughts
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Summarise the process
and synthesise
Either the interview comes to a natural close when
you feel that you have solved the problem or when
the interviewer steers you in that direction as time
is running out. Regardless, a good close is one of
the most crucial parts of the interview. At this point
you have hopefully asked all the questions you want
and performed your analysis. So where do you go
from there?
• If you feel you need to, take a moment to collect
your thoughts
• Try to quickly take your interviewer through the
analysis as well as your most important findings
• Answer the question! If there is a clear question
at the beginning of the interview, do not forget
to answer it. If the question is whether or not to
enter a specific market, your conclusion should
be just that, whether to enter it or not. Not all
cases are the same but focus on making your
conclusion as action-oriented as possible
• Lastly, back up your conclusion with support-
ing arguments. Try not to include too many,
but rather spend time on the ones that you find
most important to your overall conclusion
15
Frameworks for
business cases
You will quickly find frameworks if you start look-
ing around for materials on management consulting
interviews. Basically, frameworks are tools for you
to use when structuring your problem solving in a
case interview. Sometimes they could also just be a
checklist to avoid missing the most important steps
in the process. You should keep in mind that a case
question rarely turns out to fit perfectly into a pre-
defined framework – instead you will have to adapt
your approach and use the framework more as the
backbone of your analysis. In the following pages,
you will find four useful frameworks.

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Profitability framework
In many cases, you will be expected to analyse the
profitability of a company at a more granular level.
The profitability framework helps you to systemati-
cally break down the profitability drivers. Your goal
is often to isolate significant historic developments
(e.g. the cost of raw material has been surging);
benchmark profitability drivers with competitors
(e.g. our prices are lower than our peers’); and evalu-
ate opportunities (e.g. is it possible for us to increase
profits by boosting sales of product A?). The key to
solving these cases is often to understand the under-
lying mechanics that produce the eventual anom-
alies in the numbers (e.g. our prices are lower than
PROFIT COMPONENTS
REVENUE
(PRICE * VOLUME)
• Decompose by applying appropriate segmen-
tation, e.g.
–– Business units
–– Customer types
–– Large vs. small customers
–– Geographies
–– Product types
–– Sales representatives
–– Etc.
HINTS
• Identify increases or decreases in components (e.g. has “units sold” gone up, down or stayed consistent)
• Understand if trends are company-specific or an industry-wide problem
18
our competitors’ because our brand is the weakest in
the industry, but is it possible to improve it through
investment?).
Segment your analysis
Think of different ways to segment costs and
revenue. During a real project, you will have
time to investigate several different ways of
segmenting, but in case interviews the inter-
viewer often has a preferred segmentation.
COSTS
(FIXED + VARIABLE)
• Decompose by applying appropriate segmen-
tation (e.g. by looking at revenue)
• Decomposing according to the value chain is
another powerful way of analysing costs, e.g.
1. Raw materials
2. Inbound logistics
3. Production costs
4. Sales and distribution costs
• Do not forget overhead costs (e.g. administra-
tive, IT and marketing costs)
19
Industry analysis framework

The industry analysis framework is designed to help you gather information on a company’s external environ-
ment. At first glance, it may appear overwhelming but many of the elements are likely already familiar to you.

INDUSTRY FACTS

• Industry growth
• Business life cycle
• Is the industry cyclical, stable or counter cyclical?

COMPETETIVE LANDSCAPE

Client Competitor A Competitor B ...

Market share

Financials

Product
(differentiation, packaging, prices, etc.)

Other drivers
(brands, loyalty, etc.)

VALUE CHAIN ANALYSIS

UPSTREAM PRODUCTION

• Suppliers • Economies of scale

–– Have their costs shifted? • Is there a better technology?
–– Bargaining power? • Can we change our staff?
• Raw materials • Is outsourcing a possibility?
–– Has the price changed?
–– Is the economy affecting prices?

DISTRIBUTION, SALES AND MARKETING END USER

• What is the channel mix? • B2B or B2C?

• Distributors • Preferences
–– Have their costs shifted? –– Product
–– Bargaining power? –– Distribution
• Sales personel –– Price
–– Are there large differences in competences? • Has the bargaining power shifted?
–– Is the right incentive system in place?
• Marketing

OTHER FACTORS

CHANGE FACTORS LOGISTICS

• New players in the market or new players entering? • Can we change the mode of transportation to be more effective?
• Substitute products? • Can we manage inventory more effectively?
• Is the market getting consolidated?

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Mergers & acquisitions
framework
This framework is seemingly quite narrow in scope and perhaps not as important as the other frameworks.
It is, however, not uncommon for transactions to come up in business case interviews, and it is a good idea to
have thought them through in advance, especially if you have no previous experience from transaction work
or studies.

CLIENT AND PURPOSE PRICE AND FINANCING

• What does the client do? • Can we afford the company?

• How do your finances look? • Is the price fair?
• Potential reasons for M&A • Are there any benchmark transactions?
–– Increase market share or access • How do we finance the transaction?
–– Economies of scale or scope • What is our expected return?
–– Learning-curve advantages
–– Diversification
–– Pre-empting competition
–– Tax reasons

DUE DILIGENCE EXIT STRATEGY

• Use a light version of the industry analysis • Do we expect to make an exit?

framework • For how long are we going to hold the
company?
• How are we planning to sell the company?

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Product strategy
framework
This framework is similar to the industry analysis framework, but with some important differences and
additional issues.

COMPETITIVE POSITION STRATEGIC FIT WITH PRODUCT

• How does the product and its features com- • Do we sell similar or competing products
pare to competing alternatives? today?
• Is there an intended price level for the product? • Do we benefit from economies of scale or
If no, consider scope?
–– Cost-based pricing • Is there a risk of cannibalisation?
(Applying a margin on top of costs) • Do we have the capabilities necessary to in-
–– Market pricing troduce the product? (e.g. technical knowhow,
(Based on prices of competing products) financing, operational set-up, suppliers)
–– Value-based pricing
(What are customers willing to pay?)
• Is our technology protected by patents?

REACHING THE CUSTOMERS FINANCES

• Who are the target customers? • What is the revenue potential?

• Are there different customer segments? • What are the corresponding costs?
(e.g. businesses vs. consumers?) • Are there any capital expenditure requirements
• Is there an overlap with our existing customer to consider?
base? • What is the break-even volume?
• What are the customers’ key purchasing • What would be the expected payback period?
criteria?
• Do we have an appropriate distribution set-up?
(e.g. retail sales, internet sales, direct salesreps
or distributors)

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Additional resources for
case preparation
SOURCE COMMENTS

www.caseinterviews.com A recent and popular case site developed by a

former consultant.
The site includes a range of materials containing
useful and concentrated frameworks and case tips.
The materials come in the form of videos and PDFs
and are typically free of charge. However, beware
that the site is designed to encourage you to make
large add-on purchases not necessary for interview
preparation.

Case Interview Secrets Same as above, in book format.

Author: Victor Cheng

How to Get Into the Top Consulting Firms:
A Surefire Case Interview Method
Author: Tim Darling
A book written by a VP of a large American
consulting firm.
The book offers a condensed overview of how
to create problem-solving structures and communi-
cate like consultants. It also provides ten well-
written practice cases.

Case in Point One of the most frequently used case preparation

Author: Marc Cosentino books.
The book contains detailed descriptions of case
interviews and samples of how a case interview
may play out.

The Pyramid Principle Almost all consultants have a copy of this book.
Author: Barbara Minto This is not a typical case interview preparation
book, but reading it will provide you with a solid
understanding of how consultants work with
structure and communication.

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Quantitative preparation

Most management consulting companies put em-
phasis on a candidate’s numerical capabilities, and
strive to test these in one way or another as part of
the recruitment process. Numerical skills are easy to
improve with practice, and we strongly recommend
that you set aside some time for practicing numeri-
cal accuracy and speed by repeating basic arithme-
tic operations.
How are you tested quantitatively?
Normally you will be tested on
• Your ability to make computations accurately
and efficiently without a calculator
• Your ability to develop and communicate
a numerical model

• Your ability to interpret quantitative

Why are you tested quantitatively? measures and data

We need to be confident that every team member is

able to structure and carry out quantitative analyses.
Most client recommendations are based on quantita-
tive evidence. Being comfortable with numerical esti-
mations and arithmetics is also a cornerstone of a
consultant’s sanity-checking procedures.

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Estimates & mini cases

Estimates Mini cases

1. How big is the market for home delivery of 1. The Swedish prime minister has asked for a
newspapers in Stockholm?
Key: Number of households in Stockholm, Share of
households that subscribe to a newspaper (segmen-
ted on interests, education, age, income or other),
Number of subscriptions per household (segment-
ed on interests, education, age, income or other),
Frequency of delivery (magazine, journal, daily).
Delivered newspapers in Stockholm per day multi-
plied by days in a year to detect volume, multiplied
again by cost per delivery to find market size.
meeting with you, inquiring what the govern-
ment can do to improve the business climate
in Sweden for life science companies for the
coming 25 years.
Key: Should be able to reason about core charac-
teristics of the industry
• Life science firms are typically protected
by patents for long periods. In countries where
patents are upheld for a longer time and easier
to attain, drug development is more attractive.

• Life science is a knowledge-intensive industry

2. What is the market size for exterior house and the key to success is having access to
paint in Denmark? skilled workforce. A necessity is strong educa-
tion or beneficial conditions for expats to work
3. How much coffee is consumed in Scandinavia in the host country.
every day?
• Due to long pipelines between drug discovery
4. What is the collective amount of money spent and market launch, life science firms will require
on domestic flight travels per day in Sweden? much upfront cash. Access to investors for
smaller firms is essential.

2. Can you valuate 10,000 hectares of forest,

how would you do it, and on what parameters
do you base your valuation?

3. The biotechnology industry is one of the most

profitable industries, whereas airlines have
had low returns for decades. Why do you
think this is the case?

4. You are asked to do the advertising campaign

for a new best-selling action movie. You have
USD 100 million to spend. How, and through
which channels, would you market it?

31
Example cases

The juice case

Interviewer Our client, a Scandinavian private equity fund, is considering an acquisition of a Swedish
company that produces freshly squeezed juice. We have been invited to help the client
evaluate the attractiveness of such an investment. What are the key elements for us to
look at?

Candidate Just to be clear, are we talking about a retail juice chain or a wholesale juice manufacturer?

Interviewer Good question, we are evaluating a manufacturer/wholesaler.

Candidate Interesting, let me think about my approach for a short while.

Interviewer Sure, I’ll be back in a minute or two …

The interviewer walks out of the room and returns a couple of minutes later

Candidate All right! On a high level, I would like to understand

1) The attractiveness of the market in terms of size and growth

2) The competitive landscape and the target company’s competitive position
3) The company’s current business portfolio and its performance

Interviewer Okay, that sounds appropriate. Why don’t you start with the size and growth of the market?
How would you estimate the size of the Swedish juice market?

Candidate Okay, let me take a minute to think through my approach.

The candidate thinks for about a minute and resumes the conversation

Candidate In order to estimate the market size in terms of value, I need to look into the drivers of
market value, which are (a) yearly juice consumption in litres and (b) price per litre. I’ll start
with the consumption.

Interviewer Okay, good. It sounds like you have a good overall approach but I would like you to re-
fine your structure a bit; what do you think is an appropriate customer segmentation to
find out how much juice is consumed every year?

Candidate Hmm, we could segment the consumers into different categories both in terms of be-
haviour and in terms of age groups.

32
Interviewer Sounds good!

Candidate Let’s start with the behavioural parameters. Since we’re only focusing on the wholesale
market, I’ll look at the consumption of pre-bottled juice. This is more or less the same as
breakfast consumption, according to my experience. Let’s create three types of breakfast
juice drinkers; a) everyday drinkers, b) occasional drinkers and c) non-drinkers. I assume
that the weekly consumption within the three groups is: a) 7 glasses (1.5 litres), b) 2-3
glasses (0.5 litres) and c) nothing.

Interviewer Great, then you mentioned that you were going to analyse age groups. How?

Candidate In addition to the behavioural aspects, I believe that age is relevant due to different life-
styles. I think that the share of people who belong to the different behavioural groups
(a, b and c) varies with age. I would like to start off by defining the age groups: 0-20 years,
20-40 years, 40-60 years and 60-plus.

Interviewer Okay, tell me why you chose those age groups?

Candidate Hmm, I get your point; I need to explain the rationale for defining different age groups
which has to be connected to the different lifestyles I was talking about.

Interviewer That’s right!

Candidate OK, so 0-7 is the first group and I assume they do not drink juice at all. The next group is
7–20 as they typically live at home with their parents and are not buying juice themselves.
Based on my experience, half of these people do not drink juice at all, in fact many of them
don’t even eat breakfast. I assume 1 out of 4 drinks every day and the rest drinks a couple
of times per week. The next group is 20-65, which is basically the working population. If
I look at my friends and family, there are about 50% who do not drink juice at all. Then I
think there is a slightly higher share of everyday drinkers than in the 7-20 age group. Based
on my experience, I assume 30%, leaving us with 20% drinking occasionally. Finally, in the
group 65-plus I think the share of everyday drinkers goes down a bit due to lower income,
I assume 20% and I think the non-drinkers are still about 50%, leaving us with 30% occa-
sional drinkers.

Behavioural distribution Weekly litres/behavioural type

Ages Number of Everyday Occassionally Never Everyday Occassionally Never Total week Total yearly
people consumption

0-7 700,000 0% 0% 100% 1.5 0.5 0 - -

7-20 1,300,000 25% 25% 50% 1.5 0.5 0 650,000 33,800,000

20-65 4,500,000 30% 20% 50% 1.5 0.5 0 2,475,000 128,700,000

65-plus 3,500,000 20% 30% 50% 1.5 0.5 0 1,575,000 81,900,000

Total 10,000,000 4,700,000 244,400,000

33
Interviewer Excellent, what do you do next?

Candidate Let’s continue with (b), price per litre. Based on my experience from ICA, a package of
juice is about SEK 18 per litre …

Interviewer Okay, but before you do the calculation I would like to ask you – there is an element
you’re missing, can you think of what it is?

Candidate Ah! Yes, since we’re talking about a wholeseller, my price includes a retailer mark-up which
should not be considered in the wholeseller market.

Interviewer Yes, that’s it. There’s also another consideration. What do you think that is?

Candidate We are only talking about one juice type here. Maybe we should consider different types
of juices?

Interviewer Yes, what would that mean?

Candidate That we get different prices for different juices; I would say that there are three basic types
with different price levels; high-end, low-end and private-label.

Interviewer Exactly, I’ll help you out and give you some numbers.

The candidate runs the numbers based on an assumed retail price and calculates
backwards to find out the wholesale price

Volume in Price/litre to
Share of sale Retail price VAT Retail mark-up Total value
litres retailer

Brand
10% 24,440,000 30 25% 20% 20.0 488,800,000
high-end

Brand
65% 158,860,000 18 25% 20% 12.0 1,906,320,000
low-end

Private-label 25% 61,100,000 20 25% 60% 10.0 611,000,000

Total 100% 244,400,000 3,006,120,000

Candidate Okay, so given these price levels, I arrive at approximately SEK 3 billion in wholesale value.
In terms of weaknesses of the estimation I would say that the consumption assumptions
are the ones that I’m least comfortable with. If I had more time I would dig deeper into that.

Interviewer What do you think of SEK 3 billion? Is it realistic?

Candidate Well, a simple sanity check is to find out how much that would be per person per week,
and it is about SEK 6 plus retail mark-up across the entire population. To me, that sounds
reasonable, which would make 3 billion a realistic estimate.

34
Interviewer Okay, it sounds like you have thought this through. Assume for the rest of the case that
your estimate of SEK 3 billion is correct. So what’s next?

Candidate Next I would like to look at the market growth and if we have any information on whether
it is set to grow in the next years.

Interviewer Okay, you can assume that the market has been declining by 4% per year over the past
five years and is set to continue to do so over the next five years.

Candidate Is that 4% in real decline or nominal decline?

Interviewer Good question, assume it is 4% in nominal decline.

Candidate Okay, so is it fair to assume that we can expect even more than 4% real decline in the next
five years?

Interviewer Yes. So where do you want to go next?

Candidate Next I would like to analyse (2) the competitive landscape and the target company’s com-
petitiveness to see if it might have some kind of unique position in a particularly attractive
subsegment because overall, the market does not seem very attractive.

We will wrap up the case example at this stage. We do, however, encourage you to try and think what your
approach would have been in mapping the competitive landscape, and how you would have proceeded in
analysing whether we should recommend to the private equity fund to acquire the company or not.

35
The space case

Interviewer
After years of engineering work, you finally have the world’s first commercially viable
spacecraft. It cost you EUR 50 million to build. From its launching pad outside Paris, it
can take a load of up to 12 passengers into space, orbit earth and then return safely eight
hours later. There are no safety concerns whatsoever. The spacecraft can do three trips
per week and the operational costs related to each trip (salaries, fuel, maintenance) are
EUR 75,000. There are no competing products, and the design is effectively protected
by patent rights for the next 25 years. It will take you three years to build an additional
spacecraft.

My question to you is: how would you take the product to the market in the next three
years, before you could have another spacecraft?

Candidate So we’re talking about a commercial spacecraft here? Our goal is to push this thing to the
market, right? Okay, let me make sure that I caught all the details in the data.

• In terms of costs, we have invested EUR 50 million, and each

round trip costs us approximately EUR 75,000.

• We can do three trips per week, so basically 150 trips per year,
and each trip can carry 12 passengers.

• Our technology is completely protected for the next 25 years.

Did I get all that right?

Interviewer Yes, that’s right. What I want you to start with is deciding on a couple of areas that you
would like to investigate further.

Candidate Okay, give me a minute and I’ll collect my thoughts a bit.

The candidate takes around three minutes and then resumes the conversation

Candidate All right - there are a couple of areas that I would like to explore, which fall into three main
categories

1) What is the market for commercial space trips?

2) What are the finances behind the operation?
3) How do we market the space trip?

My primary concern with area (1), the market, is that I want to understand the product and
situation a bit better. My hypothesis is that the demand is rather high in relation to our
supply …

Interviewer Well, the demand would depend on the price, right?

36
Candidate Yes, of course you’re right. I would like to explore the dynamics of the market
by understanding:

(1.1) Who are our potential customers? What are the segments? What are their
considerations when buying a ticket?

(1.2) How big is our market? What I would like to figure out is whether we can fill our
capacity or not.

(1.3) What is the competition like? I.e. are there any substitutes?

For (2), finances, I would like to do a break-even analysis to understand whether it is a

profitable idea, and if yes, how much room do we have left for marketing?

For (3), marketing, I don’t have a clear idea yet. But we’ll dig deeper into that later.

Interviewer Good. I would like to hear your thoughts on topic (1.3), competition, what do you think?

Candidate Well, I don’t know of any other space trips, and I guess it is safe to assume that no one else
will develop such a concept in a three-year period?

Interviewer You are right, and in addition, I did mention that there are no competing products,
remember?

Candidate You are right, I forgot to note that down.

Interviewer No problem, so what about substitutes?

Candidate Good question, the closest thing I can think of is different types of leisure trips, which
aren’t really comparable to this, if you ask me. My hypothesis is that there are no real sub-
stitutes. I mean, what compares to travelling to space?

Interviewer I agree. Let’s assume there are no substitute products either, so effectively there is no
competition of any kind for the remainder of the case.

Candidate Okay, then I would like to continue with the first branch of the analysis: (1.1), customers,
who are they in this situation?

Interviewer Well, what do you think?

The candidate takes about half a minute to think before he proceeds

Candidate This is a bit tricky, because I would assume that the vast majority of the human population
would be interested in travelling to space – but, as we concluded, this depends on the tick-
et price. For example, I would definitely go for EUR 100, but maybe not for EUR 1 million
in my current situation. The key takeaway here is that: the higher the price, the fewer the
people who would be interested in a ticket.

37
Interviewer Yes, of course. Can you look at the customer group and price issue from another angle
perhaps? Let’s assume we are looking at the market for the next three years.

Candidate Ah, yes, we could look at how many tickets we could possibly sell per year, and divide this
by the number of inhabitants in the world. I think this can give us a clue as to how much
we can charge for the tickets.

Interviewer Okay, let’s explore that.

Candidate We have around 150 trips per year, with 12 passengers each, which adds up to 1,800 seats
per year to fill. Considering a world population of 7 billion people, this corresponds to less
than one person in a million. Given that, I think it is safe to assume that we could charge a
lot for these tickets. I mean, one person in a million is quite a small group of people.

Interviewer That sounds reasonable, with that in mind, I would like you to go into issue (2), the
finances, and run some numbers on the break-even price for the first three years.

Candidate All right, we have two cost components that I noted down during the introduction of the
case, the initial investment cost and the round trip cost. I’m not completely sure of whether
we should consider the initial investment as a sunk cost or use it in the break-even analysis.
My suggestion is that we should include it.

Interviewer Great! Do that.

The candidate writes down his calculations on a piece of paper

Candidate Okay. I will translate both costs into costs per seat, so given that and assuming that there
are no additional costs, the investment cost of EUR 50 million will be EUR 16.7 million per
year, and a little less than EUR 10,000 per seat, let’s assume EUR 9,500. The round trip cost
of EUR 75,000 becomes EUR 6,250 per seat since we have 12 seats. So in total we have a
cost per seat of around EUR 16,000, which would be our price if want to break even after
three years.

Interviewer Okay, what does that tell you? That we should charge at least EUR 16,000 per ticket?

Candidate It completely depends on the circumstances. If the useful life of the spacecraft is three
years we would have to charge significantly more to make a good profit but if the useful
life is longer it could be a viable option to charge the 16 thousand.

Interviewer Good thinking, unfortunately we don’t have any information on the useful life right now
so let’s leave it at that. But what about EUR 16,000, how do think that ticket price
sounds?

Candidate Well, since we are looking at the “one-in-a-million-most-willing-to-pay-person” as our cus-

tomer group, I think that it is safe to assume that we can charge at least that. EUR 16,000
is a lot but I am confident we could sell the tickets at least at that price. As I mentioned
before, however, I think we should make a large marketing campaign to build some mo-
mentum around the demand so we might want to add a bit of a margin on top of that EUR
16,000 if we are to break even including that in three years.

38
Interviewer That is true. We should probably try to make a splash before the launch, but at the same
time, a big attraction like this might almost sell itself, don’t you think?

Candidate Well, yes, you might be right, but we should still ensure that the word gets out there so we
don’t risk not filling the seats during the first weeks before the word spreads.

Interviewer Okay, so what are your ideas on marketing?

We will wrap up the case example at this stage of the case. We do, however, encourage you to consider
what your approach would be for a marketing campaign for the first commercial space trip.

39
Vertical Windows

Interviewer Our client, the Swedish window manufacturer “Vertical Windows”, is considering enter-
ing the German market. The company has an annual revenue of EUR 600 million and is
currently the market leader in Sweden and one of the top three in Denmark and Norway
– 90% of its sales are within the Nordic region. Vertical Windows also has sales and pro-
duction facilities in the UK.

What aspects do we need to look into in order to evaluate whether entering the German
market is an attractive opportunity for Vertical Windows?

Candidate Ok, let me think about how to approach this issue for a moment.

Interviewer No problem. I will grab a coffee and be back in a couple of minutes.

The interviewer returns to the room after a short break.

Candidate To assess how attractive it would be to enter the German market, I would start by looking at:

1) The size of the German market

2) Market growth – to better understand the dynamics
3) Current profitability in the industry, if information is available
4) Vertical Windows’ product offering versus current market demand

Interviewer Good, it sounds like an approach that can provide useful insight to get us started. How
would you estimate the size of the German market for windows?

Candidate First, I would start by estimating the number of households in Germany, to get an idea of
the total number of windows sold. I know that the population in Germany is roughly 80
million. Assuming that each household counts, on average, two people, this would give us
a total of 40 million households.

Interviewer The assumptions you have made so far are fairly accurate, but maybe we should slow
down a little bit and try to structure our approach a bit more, so that we do not miss
out on any important details? For example, would private households represent the only
potential market for a company selling windows?

Candidate Yes, of course. In addition to the residential market, we also have to consider the non-resi-
dential market. Maybe I should set up an issue tree to make the analysis more structured?

Interviewer I think that is a good idea!

40
 Candidate sketches a simplified issue tree on his paper

Residential market

Market size
Non-residential market

Market growth

Attractiveness of the German market

Profitability

Product

Candidate I use the four elements initially mentioned as the base of my issue tree, and I will continue
down the “market size” branch first. I would like to complete the analysis of residential
property before moving on to non-residential.

Interviewer That is fine.

Candidate So, if we have 40 million households, these can be split into flats and houses. Is it fair to say
that the split could be 50/50 between family houses and apartments?

Interviewer Sounds fair, so let us go with that.

Candidate Great, obviously houses would have more windows than apartments, so this has an in-
fluence on our total number of windows. I would say houses have, on average, twice the
number of windows compared to those of apartments. Perhaps 10 windows per house and
5 windows per apartment are reasonable estimates?

Interviewer I agree that those numbers sound reasonable.

Candidate Then that would give us a total residential market size of: (20 million apartments x 5 win-
dows) + (20 million houses x 10 windows) = 300 million windows in the residential market.
I think the residential market is larger than the non-residential market by a decent margin.
Perhaps 2/3 of all windows are residential and 1/3 is non-residential?

Interviewer Sounds reasonable. Anything else we need to consider here? Would this be the total
market size – and what does this number actually imply?

Candidate Given that we have estimated the residential market to 300 million windows, the total
market would amount to about 450 million windows. However, windows are normally not
changed every year, so annual sales would not be 450 million windows. I do not know too
much about windows, but is it fair to say they are changed, on average, every 20 years?

Interviewer Do not worry! This is not a test of your knowledge of the lifetime of windows, but I would
say your number is a bit low and that a better estimate would be 30 years. What else do
you need in order to get an idea of the total annual sales?

41
Candidate Thanks! So, this would give me a number of 15 million windows sold in Germany every
year. To estimate annual sales, I would need the average price of a window. Does EUR 400
sound like a fair guess?

Interviewer EUR 400 per window sounds like a good estimate.

Candidate Great! Then that would give us total annual sales of 15 million windows times EUR 400,
which makes the annual sales worth EUR 6 billion.

Interviewer Does that number make sense to you?

Candidate Vertical Windows currently has revenues of 600 million from sales in the three Nordic
countries. Altogether, the Nordics are about one quarter of Germany in population size;
following the same reasoning as before, this means that the total Nordic market should
be about 1.5 billion. With a market share of 40%, Vertical Windows could be making 600
million in sales. So, given this, I would say the estimate is within the ballpark.

Interviewer That was a good approach to check your estimate. Let us use 6 billion as the market size
for Germany. What should we look at next?

Candidate Next, I would like to look at growth: How has the market developed historically, and are
there available predictions for the upcoming years?

Interviewer The market has been, and is predicted to remain, stable.

Candidate Ok, then I think it is safe to say that there will be no change in market size. Next, I would
like to look into the profitability of the industry – do we have any data on this?

Interviewer Yes, we do. Looking at the largest players in Germany, they are currently operating at a
lower profitability than that of the Nordic countries.

Candidate Ok, I would need to continue my investigation into whether Germany would be a good fit
for our client’s company.

Interviewer I think that is a good idea. How would you do that?

Candidate First, I think it would be interesting to look at the competitive landscape to see if the mar-
ket is fragmented or consolidated. Second, I would ideally like to see if the company has
any kind of competitive advantage it can benefit from.

Interviewer We actually have some data on the competitive landscape.

42
 The interviewer hands over the following diagram to the candidate.

The European vertical windows market split by market share

European vertical window market

100% – total market size

100% 100% 100% 100%

Market share of top-3

20% players in the market

40%

55%

90%

80%
60%
45%

10%

Sweden Denmark Norway Germany

Candidate It looks like the German market is much more fragmented than the Nordic markets, indi-
cating that there are no large players dominating the market but rather a lot of smaller
players. This might actually be good for our client, since there is no player that can easily
start a price war to keep our client out of the market.

Given that the current competitive landscape looks fairly good, I think we should look into
our client’s product portfolio to see if there are any pockets in the market that look obvi-
ous for it to take advantage of.

Interviewer Let’s do that!

Interviewer provides data.

The European vertical windows market split by market material

European vertical window material

100% – total market size

3%
3%
100%
5%
10%
17%

Wood/Aluminium
47% 50%
37%
37%
Aluminium

Wood
90%
6% 4%
PVC

40% 53%
42% 41%

7% 4% 4%

Sweden Denmark Norway Germany Vertical Windows

43
Candidate My first observation is that Vertical Windows currently does not offer windows in the seg-
ment that is the largest in Germany, PVC. This is an immediate concern, as it reduces the
addressable market by 41%, unless Vertical Windows would be able to broaden its port-
folio to also include PVC windows.

Interviewer I agree that it reduces the addressable potential of the German market, but do you per-
ceive it to be a reason not to enter the market?

Candidate No, I would not dismiss the German market based on this information, since Vertical Win-
dows’ strongholds are “wood” and “aluminium”, which still account for 54% of the German
market. Furthermore, Vertical Windows has a somewhat similar situation in Denmark and
Sweden, where woods/aluminium represents roughly 50% of the market but constitutes
only 10% of Vertical Windows’ total sales.

Interviewer I think you are right that we should not dismiss the German market simply because Ver-
tical Windows cannot address the entire market. To help you in the continuation of your
analysis, we have also been provided with some data on the price levels of the different
window types. Does this new data cause you any further reflection regarding the attrac-
tiveness of the market?

Price level by window type

Price levels by material

Indexed

300

100

PVC Aluminium Wood Wood/Aluminium

Candidate Well, Vertical Windows sells mainly the slightly more expensive windows, which indicates
that its value proposition is that of a premium brand rather than an economy brand. As
a premium brand, you will typically have greater margins and be less dependent on high
volumes, making the fact that Vertical Windows currently can address only 54% of the
German market less troubling. In fact, this convinces me that the German market does
have an attractive pocket that Vertical Windows should address by trying to enter the
market as a premium brand.

Interviewer Exactly. So how would you sum up the analysis at this point?

44
Candidate Based on the provided information and the conducted analysis, I would say that entering
the German market is a potential next step for Vertical Windows. This conclusion is based
on the attractiveness of the market in terms of its size and competitive situation. Further-
more, Vertical Windows’ main segments constitute 54% of the German market, which
represent a significant pocket to tap into.

Interviewer Vertical Windows actually reached the same conclusion that you did in your analysis.
They have started to develop a market entry strategy for Germany, and they have also
started talking to a German window manufacturer, which they think may represent an
interesting acquisition target

We will wrap up the case example here. We do, however, encourage you to reflect on what your approach would
be in order to analyse the potential acquisition as a means for supporting Vertical Windows’ market entry.

45
The newspaper case

Interviewer A Swedish newspaper company has approached us to assist them in improving their
profitability. They are currently operating at a break-even level of SEK 200 million per
year and would like to reach a 10% margin by the end of next year. You have been as-
signed to determine whether there are any cost savings to be made.

Candidate OK! So if I’ve understood this correctly, I am to evaluate the cost structure of a Swedish
newspaper company to potentially improve its profitability from its current break-even
level to a 10% profit margin within a year?

Interviewer Sounds like you caught it all!

Candidate Great! I just have one more question before I begin to sketch an approach. I’m not an
expert on the news industry, but I’ve heard some newspapers outsource the production
of the actual newspapers and manage only the marketing and content creation, whereas
others do all the work internally. What kind of newspaper company is this one?

Interviewer That’s a great question! You’re right, some firms outsource production, but this parti-
cular firm prints its own newspapers and take care of all other parts of the business too!

Candidate Alright, if you allow me to take a moment to collect my thoughts on how to approach this
issue…

Interviewer Sure!

*Moment goes by*

Candidate Ok, I thought it would be a good idea to look at what costs are currently the biggest for the
newspaper by breaking its SEK 200 million cost base into its different components, and
then assess which costs can potentially be reduced and how. To do so, I’d like to under-
stand the value chain for the newspaper company and what costs each step contains.

Interviewer That sounds like a good approach!

Candidate I imagine the value chain of a newspaper company could be divided into a five-step process
including: purchasing, content creation, production, selling and distribution.

Interviewer Could you elaborate?

Candidate Sure! I assume the process of making a newspaper would start with purchasing the materi-
als necessary to produce the newspaper. As I have understood it, larger companies typical-
ly have purchasing units that take care of acquiring the materials necessary to produce the
goods they sell. To fill the newspaper with newsworthy articles, I suspect the firm would
also need to have journalists, editors, proofreaders and copywriters. This would constitute
its content creation. Once the content has been written and the necessary materials ac-
quired, the newspaper would have to be printed. Then comes the task of selling the news-
papers. I’m not sure, but I imagine that newspaper companies sell their newspapers both

46
 through direct sales and through convenience stores? Either way, I suspect the newspaper
is sold before it’s delivered. Perhaps you could tell me?

Interviewer You’re absolutely right! The bulk of sales for this newspaper is through subscriptions that
are delivered directly to the end customer, but a sizeable portion is also sold through
convenience stores and newsstands. Go on!

Candidate Ok! So, once the newspaper has been sold it will have to be delivered to either the custom-
er or to a convenience store. I imagine the whole process something like this:

*Shows chart*

Purchasing Content
Production Selling Distribution
creation

Cost Purchasers Journalists Paper Sales people Drivers

Cost Editors Energy Energy

Cost Copywriters Machinery Transportation

vehicles

Production
Cost
workers

Interviewer *Inspects the chart*

It looks like you’ve laid out the value chain in an orderly fashion, how about assigning
how big a share of the costs each component constitutes?

Candidate No problem! I think that production would have to be the most cost intensive part of the
value chain. I know that the machinery is very expensive and it requires a lot of paper and
energy to produce a year’s worth of newspapers, so let’s say 30% of the SEK 200 million
comes from production.

Interviewer Actually, it’s closer to 40%, but I like how you are reasoning, go on!

Candidate Ok, so we adjust the production cost to 40%.

The next item would probably be distribution. Since the bulk of our client’s sales are to
the end customers, I suspect they would need more cars with smaller loads of paper than
if most of the magazines were sold to convenience stores. That means they would need a
lot of trucks and drivers, and I suspect the gas for the cars costs a lot too. Let’s say 30%
of the SEK 200 million.

Interviewer That’s about right, so let’s stick with that!

Candidate Next we have purchasing, selling and content creation. I actually have no idea how much
journalists, editors or purchasers are paid or how many of each are necessary, but I suspect

47
 their salaries are roughly equal, because the qualifications they require to do their job
properly are about the same, and I guess that the newspaper company roughly needs the
same amount of people for each of the three parts of the value chain. Against that reason-
ing I’d like to assign the each 10% of the SEK 200 million.

Interviewer Good reasoning!

Candidate That means we have the following cost structure:

Purchasing Content
Production Selling Distribution
creation

Share 10% 10% 40% 10% 30%

SEKM 20,000,000 20,000,000 80,000,000 20,000,000 60,000,000

Against this backdrop, I would like to look into potential cost savings in production, since
this represents the greatest portion of the total costs, so efficiency improvements would
have a bigger impact on the total costs than it would be the case for other parts of the-
value chain.

Interviewer All right!

Candidate We said earlier that the four main costs associated with production were: paper, energy,
machinery and production workers. Since our client wants to improve the bottom line
immediately, I think they should focus on reducing the cost of either paper or labour since
the machinery depreciation and energy cost are tied to the machines they already have in
place. Besides, I don’t think production labour is very expensive, since I suspect the print-
ing process must be highly automated. Do we have any information on how much each of
these components cost us?

Actually, yes! We know from the purchasing office that last year, 60% of the total pro-
Interviewer duction cost of SEK 80 million came from raw materials such as paper and ink.

Candidate So that means our client spent SEK 48 million on paper last year?

Interviewer Exactly.

That sounds interesting. Since paper represents almost 25% of the total costs, I would like
Candidate to investigate whether it would be possible to reduce that number. Could I have another
minute to think of how we could go through with that?

Interviewer Of course!

* Sketches an approach *

48
Candidate All right, the way I see it, to reduce the paper costs, our client must either reduce the price
they pay for the same quantity of paper, or they could purchase less paper. I have come up
with a few proposals for each option

* Shows sketch to interviewer *

Price Quantity

Look for other suppliers Decrease size of newspaper

Bulk buying Shift to online

Secure longer supplier contracts in

return for lower prices

Buy lower quality of paper

Interviewer This looks interesting! Which of these options do you think they should pursue?

Candidate I think the easiest change to look into would be to decrease the size of the newspaper and
to buy lower-quality paper. Since paper is a commodity good, I don’t think they’ll be able
to find much cheaper suppliers elsewhere. If they bulk buy, they still have to store the paper
and that might cost more than it saves. Writing longer supplier contracts may sound ap-
pealing, but if customer preferences shift toward online news consumption further, our
client may be left with excess paper. Shifting the business online is a good response to
reduce paper costs, but that shift will likely take longer than until the end of the year, so
that is something they should look into for the medium to long term. This leaves them with
two remaining options.

Interviewer Great thinking! The news company has, however, already looked into the paper quality
of its newspapers and they don’t think it would be a good decision to buy any cheaper
quality than they do today. They do however like the idea of changing the size of the
newspaper. Today, the newspaper is 40cm x 55cm but management believes that 30cm
x 40cm is a more fitting size.

Candidate Alright, with these measures, they would decrease the newspaper from its current size of
2200 cm2 to 1200 cm2. Assuming they use the same thickness and number of pages as
previously, this represents a 45% decrease in area and volume. If they sell the same number
of newspapers as the previous year, with the same prices for paper, the volume reduction
would save them 45% of SEK 48 million, or SEK 21.8 million. That alone would be enough
to reach the 10% profitability goal as long as sales stay flat!

Interviewer Great! Why don’t you wrap up our findings and make a recommendation?

49
Candidate Absolutely! I recommend that management goes through with its proposal to shrink the
size of its newspaper, since it would save them annual costs of SEK 21.8 million. This alone
would help them reach their profitability goal of 10%. Before launching the new sizes,
I would, however, recommend that management look into how their customers would
appreciate the new sizes. Because there is now less space for news, perhaps customers
aren’t prepared to pay as much as they have done before, or perhaps the loss effect on
removed space for advertisement sales for the newspaper company would outweigh the
cost benefits of shrinking the newspaper.

Interviewer Perfect! Do you have any additional advice to the newspaper company going forward?

Candidate Sure, I would also look into shifting the newspaper company’s business strategy to focus
more on online news consumption in the long run, which essentially would remove the
expensive production stage of the value chain. Another area that potentially could be im-
proved would be distribution that also constitutes a significant portion of the total costs.

Interviewer Great job! Thanks!

50
The investment case

Interviewer A Nordic private equity fund is considering the acquisition of a Swedish wood pellets
manufacturer. The company is currently owned by an industrial conglomerate.

Wood pellets are used as heating fuel. They are manufactured by compressing sawdust
into pellets. Pellets are extremely dense and can be produced with a low moisture con-
tent, which allows them to be burned with a very high combustion efficiency.

In this case, only the heating of buildings with wood pellets is in scope.

The first question our client asked was to assess whether there will be a future demand
for wood pellets. What do you think would be a good structure to analyse future de-
mand for wood pellets?

Candidate Let me take a minute to structure my thoughts.

Interviewer Of course, take the time you need.

A minute passes and the candidate resumes the conversation …

Candidate In order to assess the future demand for wood pellets, I would like to divide the issue into
two main parts:

1) Who are the main users of wood pellets?

2) What is the substitute for using wood pellets?

Interviewer Interesting, let us start with looking at the first one. Who are the primary users of wood
pellets?

Candidate Since pellets are used for heating, owners of any kind of building in need of heating are po-
tential customers. There are different set-ups for heating a building. In my view, multi-family
houses and commercial buildings in cities are primarily connected to central heating sys-
tems, and would therefore not be direct users of pellets. The primary customers of pellets
would be A) small family houses and B) commercial buildings in rural areas.

Interviewer You mention central heating systems, what kind of fuel do they use?

Candidate I see your point. Central heaters can probably also run on pellets.

Interviewer Good! So, you have now identified three main types of customers. What would the alter-
native for wood pellets be in each category?

Candidate I believe that there is a different dynamic to each segment. There are central heating sys-
tems running on garbage, wood – well, anything that burns basically. They buy fuel in great
quantities and probably shift it depending on the price.

51
Candidate For small houses, demand is more static. They can use electricity, oil or geothermal for
heating, but they do not shift fuel. Shifting fuel would be connected to an investment in a
new boiler. So, the installed base would perhaps be slightly more stable over the invest-
ment horizon.

Interviewer Yes, there is a different dynamic in play for each segment. Could you describe in an over-
all way how you would investigate future development in each segment?

Candidate One could look at the historical development and growth rates, and of course get hold of
an industry expert to provide additional market insight.

Interviewer That sounds like a good approach. Let us say that after looking at historical data and
conducting expert interviews, we found that the demand from small houses is declining,
commercial is increasing and central heating is flat lining.

Candidate So there will be a demand for wood pellets over the investment horizon, but no spectac-
ular growth.

Interviewer That sounds like a good hypothesis.

I will provide you with some additional information about the target company, so you
can evaluate the attractiveness of the potential investment.

• The target company is a pioneer in the industry and

was established some 25 years ago

• According to the management team, the company has a very

strong brand and excellent customer relations which enable a
price premium ­— albeit modest — compared to its competitors

• The company’s business model is to operate four factories

in forest areas where it sources sawdust from local sawmills
(50-100 km from the production sites)

Would you say that the pellets company is an attractive target for the private equity fund?

Candidate Hmm, the attractiveness of the investment is determined by the private equity fund’s abil-
ity to increase the value of the firm and ensure that it becomes an attractive target when
selling again. Buy low and sell high, right?

Interviewer That’s right. And how would they try to increase the value of the company?

Candidate There should be a case for how to increase the company’s profits, either by increasing
revenues or lowering the cost base – or both.

Interviewer Ok, if we start by looking on the revenue side, what could be done there?

52
Candidate Well, the company already has a strong brand and good relations with its customers. But,
wood pellets is a really basic product, a commodity – I mean, I would not pay extra for
a branded bag of charcoal for the barbeque. I wonder if the company’s price premium is
sustainable over time …

Interviewer What options could the company pursue to increase revenues?

Candidate Well, the market is not really growing, so to increase revenues they either need to gain market
shares or raise product prices.

Interviewer Is raising prices a possible strategy? What do you believe is the most important criterion
for the customer when shopping for wood pellets?

Candidate Assuming that the quality is equal across suppliers, the most important thing would be
the price.

Interviewer That is right, so how would you go about determining the target company’s market
position?

Candidate Since wood pellets are a commodity, the price is determined by the market and the suppli-
ers’ competitiveness is about being the most cost-efficient. The way forward would be to
make a cost comparison across the value chain for the target company and its competitors.

Do we know who the other suppliers of wood pellets are in Sweden?

Interviewer Good question, there are three main categories of competitors in the market. A) medi-
um-sized suppliers with a similar set-up as the target company, B) large forest compa-
nies and C) international importers.

Candidate Do the largest forest companies operate their own sawmills, and can they thus produce the
pellets out of sawdust from their own wood production?

Interviewer Yes, they use their own sawdust for the production.

If you were to make a structured comparison of the different competitors’ value chain,
how would you approach this?

Candidate Give me a minute to gather my thoughts.

A minute passes …

We have three types of competitors, and a value chain for producing and distributing
pellets consisting of four main steps: A) acquiring raw material B) transportation to pro-
duction, C) production and D) distribution. By evaluating each step per competitor, we can
identify advantages and potential disadvantages to base our assessment on.

53
 Value chain

A) Raw materials B) Transportation C) Production D) Distribution

Candidate We concluded that the large forest companies have a minor advantage compared to the
target company with regards to raw materials. Also, the large forest companies have an
advantage when it comes to transportation by having the production of pellets in imme-
diate connection to the sawmills.

Interviewer Good. As you mentioned, the forest companies have back-integrated their operations
and co-located the pellets production with the sawmill. How could you assess the ad-
vantage of having the production next to the sawmill?

Candidate Well, that depends on how much sawdust you need to produce one unit of pellets?

Interviewer The density of sawdust is six times less than in pellets, which is the whole idea of the
product.

Candidate So, in order to produce one truckload of pellets, they would need to transport six loads of
sawdust between the sawmill and the production site. That is a pretty big disadvantage
for the target company.

If we look at production, are there any significant economies of scale when producing
wood pellets?

Interviewer Production costs are almost equal across competitors. There is no economy of scale that
is relevant in this case.

Candidate Looking at the final step of the value chain, distribution, importers would have a disadvan-
tage, as they need to ship the pellets in by boat. Shipping costs are still low, so perhaps it
is just a minor disadvantage.

So, summing up the cost advantages and disadvantages and plugging them into a matrix
organised according to value chain and competitors, we see that the target company
holds a poor competitive position compared to its competitors.

Candidate explains the rationale behind his matrix.

Value chain

Raw materials Transportation Production Distribution

A) Equal to target company - - -/+ -/+

B) Forest companies + + -/+ -/+

C) Importers + + -/+ -

54
Candidate Do you have any information on the recent market development such as sales or market
share per competitor?

Interviewer The forest companies and the importers have only been on the market for a couple of
years, but have quickly gained significant market shares from the traditional players (like
our target company). This proves that we are facing a price game, and that customer
relations is not a sustainable competitive advantage, but rather a reflection of the manage-
ment team’s wishful thinking.

Candidate That further supports my suspicion.

The large forest companies have integrated the pellets production directly with their saw-
mills, hence, they have a structural advantage that the target company cannot mitigate.

Interviewer Interesting, so what recommendation would you give to the investment committee?

Candidate The structural disadvantage compared to competitors will make it hard for the target com-
pany to compete on price. We already see signs of this disadvantage in the current market,
with the company’s decreasing market share.

In my view, the wood pellets company would not be a good investment for the private
equity fund.