BCG-005

GAMING LAPTOP
Answer Keys
Case Context

QUESTION TEXT

Our client is the PC brand "Gamers Republic" (GR), which produces and sells gaming PCs and peripherals (keyboards, mice, gaming gears, etc.)
Their current flagship product is the President gaming laptop - priced at $5,000, it represents state-of-the-art technology and gaming experience.

Cheng - the CEO of GR - is an avid fan of Rise of Empires - a strategy game where players take control of historical empires to fight on open battlefields.
Rise of Empires is a competitive e-sport game, with its largest championship - the League of Nations - attracting millions of gamers worldwide.
This year, the final match of the League of Nations sees the Solar Falcons from Korea competing against Spirits Of The Law from Sweden.
Given the track record of the Solar Falcons, most people expect them to lose the match.

Cheng decides to take this opportunity by offering a refund for every President laptop sold 1 month before the match IF the Solar Falcons win.
Cheng hopes this would attract public attention to the brand and raise revenue for this product line.
Case Context

EXPLANATION

It is important to take note of the key details of the case context. This helps you keep a focus on the objectives of the case and avoid deviating from the
hypotheses in mind.

For this case, the case context should be summarized as follows:

- Client: Gamers Republic (GR)
- Situation: Current flagship product is the President gaming laptop ($5,000). Cheng - the CEO of GR utilized the final match of the League of Nations to
hold a promotion campaign. If the Solar Falcons team wins, customers will get a refund for every President laptop sold 1 month before the match.
- Objective: Attract public attention to the brand and raise revenue for this product line.
Question 1 of 6

QUESTION TEXT

The first concern from Cheng is whether GR can make a positive profit from the promotion.

Without the promotion, GR expects to sell 300 President laptops for a price of $5,000 each during the 1-month timeframe.

Select the fewest possible items from the below list that are necessary to determine the change in expected operational profit if GR runs the promotion.
Expected profit is defined as the probability-weighted average of all possible profit outcomes. For an example of how expected profit is calculated, see the
image below.

For example, if there is a 70% chance that GR will make $ 700 in profit, and 30%
chance that GR will make -$ 400 in profit, then
Expected profit = (70% x 700) + (30% x -400) = $ 370

A. Variable cost of each President laptop

B. The probability of Solar Falcons losing the match
C. Per-laptop retail store rental costs of the GR retail chain
D. Expected profits without the promotion, considering all fixed and variable costs
E. Potential limits on the number of laptops available for sale during this promotion
F. Additional demand for President laptops generated by the promotion
Question 1 of 6

EXPLANATION

This is a Structuring/Information question, Multiple-choice Multi-select answer format.

To answer this question, we follow a 2-step process:

• Step 1: Structure the problem, using options as suggestions

• Step 2: Rule out options that do not fit within the structure / come with wrong measurements / covered by other options

Applying these steps to this question:

• Step 1: We can start from the basic formula of change in expected profit (which is asked in the question), and break down the formula into smaller
components covered in the suggested options.

Change in expected profit = Expected profit (with promo) − Expected profit (without promo) (1)

Expected profit (with promo) = Expected revenue1 − Total variable cost1 − Total fixed cost
= Quantity (w/ promo) × Expected price (w/ promo) − Quantity (w/ promo) × Unit variable cost − Total fixed cost
= Quantity (w/ promo) × [Price × a% + (1 − a)% × 0] − Quantity (w/ promo) × Unit variable cost − Total fixed cost
= Quantity (w/ promo) × Price × a% − Quantity (w/ promo) × Unit variable cost − Total fixed cost (2)
* Note: a is the probability to acquire revenue, here it is the probability that Solar Falcons lose. (a-1) is the probability of not getting revenue or price equals to 0.

Expected profit (without promo) = Expected revenue2 − Total variable cost2 − Total fixed cost
= Quantity (w/o promo) × Price − Quantity (w/o promo) × Unit variable cost − Total fixed cost (3)

From (1), (2), (3), we have the final formula for change in expected profit:
Change in expected profit = Price × [Quantity (w/ promo) × a% − Quantity (w/o promo)] − Unit variable cost × [Quantity (w/ promo) − Quantity (w/o promo)]

• Step 2: (Continue on next page)

Question 1 of 6

EXPLANATION (continued)

• Step 2: Analyzing the given options, we have the following table:

Option Correct Wrong type Explanation

A Yes n/a This option refers to Unit variable cost, which is used to calculate Change in expected profit

B Yes n/a This option refers to Probability to acquire revenue, which is used to calculate Change in expected profit

C No Irrelevant This option refers to Total fixed cost, which is NOT relevant to calculate the change in expected profit (they already cancel out in the formula)

This option refers to Expected profit (without promo); however, it does not prove to be necessary to calculate Change in expected profit. Keep
D No Already covered
in mind that we have already known Price and Quantity (w/o promo) and other options already nearly cover the formula.

E Yes n/a This option helps us determine Quantity (w/ promo) based on the supply's capacity

F Yes n/a This option helps us determine Quantity (w/ promo) based on the customers' demand

CORRECT ANSWER(S): A, B, E, F
Question 2 of 6

QUESTION TEXT

Following an analysis, the team has attained the following information:

1. The variable cost for each GR President laptop is $3000
2. The chance that the Solar Falcons win the match (i.e. GR has to refund the laptops) is 10%

By what percentage would laptop sales need to increase so that expected profits are the same whether or not the promotion is run?

(example: if GR needs to sell two times the number of laptops, then the increase would be 100%)

A. 20%
B. 25%
C. 33.30%
D. 66.70%
E. 100%
F. 150%
G. The promotion will always increase expected profit
H. The promotion will always decrease expected profit
Question 2 of 6

EXPLANATION

This is a Quantitative question.

As expected profits to remain the same whether or not promotion is run, we have a function:

Expected profit (w/o promo) = Expected profit (w/ promo)

<=> Quantity (w/o promo) * Price - Quantity (w/o promo) * Unit Variable Cost - Total Fixed Cost = Quantity (w/ promo) * Price * Probability to acquire
revenue - Quantity (w/ promo) * Unit Variable Cost - Total Fixed Cost
<=> 300 * (5,000 - 3,000) = Quantity (w/ promo) * (90% * 5,000 - 3,000)
<=> Quantity (w/ promo) = 400

Therefore, the number of laptops sold needs to increase by 33.33% (from 300 to 400 units) so that expected profit remains the same.

CORRECT ANSWER(S): C
Question 3 of 6

QUESTION TEXT

Based on the data provided in the table below, calculate the expected change in profits due to the promotion.
Please provide your answer rounded to the nearest whole number, without further explanation (for example, 123456) - you may omit the currency ($) label.

Exhibit BCG.005-1:
Expected price and demand for President gaming laptop
Price ($) 3000 3500 4000 4500 5000 5500
Demand (unit) 1100 1000 800 600 300 150
Question 3 of 6

EXPLANATION

This is a Quantitative question.

Under the promotion, the expected price would be the weighted-average result: (10% * 0 + 90% * 5,000) = $4,500
At $4,500, the number of units under promotion should be 600 (units) (Data from the table).

Expected change in profit = 600 * (4,500 - 3,000) - 300 * (5,000 - 3,000) = 900,000 - 600,000 = $300,000
Question 4 of 6

QUESTION TEXT

Which of the following, if true, will decrease the expected profit change resulting from the promotion? Please select all that apply.

A. The President gaming laptop's manufacturing cost and retail price both increased by 10%.
B. GR offers a 30-day, no-questions-asked money-back guarantee on all of its laptop purchases.
C. The key player for Spirits of the Law has chosen to participate in the game after recently recovering from a hand injury.
D. In order to accommodate the anticipated increase in sales volume, GR would need to rent more warehouse storage space.
Question 4 of 6

EXPLANATION

This is a Critical / Logical (CRI) question, with a Multiple-choice Multi-select answer format
For CRI questions, we suggest the following two-step process:
• Step 1: Categorize each option on a 5-point scale from -2 to +2: Explicitly Rejected (-2); Implicitly Rejected (-1); Inconclusive (0); Implicitly Confirmed
(+1); Explicitly Confirmed (+2).
• Step 2: Depending on the qualifiers of the question, choose the correct options.

Analyzing the given options, we have the following table. Note that because there are NO qualifiers, we only choose all positively graded options.

Options Categorization Explanation

A Inconclusive There is not enough data to conclude the impact of this event to change in expected profit

B Inconclusive There is not enough data to conclude the impact of this event to change in expected profit

Implicitly This will increase Probability to acquire revenue, hence it will increase Change in expected profit. This is wrong because
C
Rejected the question asks for cases decreasing the expected profit.
Implicitly This will increase the Unit variable cost (after promotion), hence it will decrease the Expected profit (after promotion)
D
Confirmed resulting in a lower change in profit
Question 5 of 6

QUESTION TEXT

Besides the profit increase, what are some other non-financial benefits that GR may attain from this promotion?
Please select all that apply.

A. Rewards loyal customers

B. Helps GR access to a bigger customer database
C. Helps to increase the quantity sold for other laptop models
D. Helps GR cut down on its long-term variable costs thanks to economies of scale.
E. Helps GR establish themselves in the market as a notable brand
Question 5 of 6

EXPLANATION

This is an Intuition/Insights question, with Multiple-choice Multi-select answer format

To answer this question, you need to grasp the basic business concepts and develop an understanding of the case context.

Analyzing the given options, we have the following table:.

Options Correct Explanation

This option is likely to be incorrect. Since the promotion's goal is to boost sales, it does not have any tangible benefits directly tied
A Yes
to the loyal customer segment.

B Yes This option is correct. As GR has more new customers, it can collect more customer data.

This option is correct. The promotion campaign can increase customer volume to the store, hence increasing the probability to
C No
purchase other products.

D No This option is incorrect. As GR has more customers, total variable cost will always increase.

E Yes This option is correct. Due to the promotion, customers may create a linkage between the laptops of GR and online gaming.
Question 6 of 6

QUESTION TEXT

One of the most important impacts of this innovative promotion is to get people talking about GR. Your leader has asked you how you might estimate the
dollar value of this increased popularity to GR. Please share your thoughts on this in 3-4 lines.
Question 6 of 6

EXPLANATION

This is a Structuring/Information question, Long-text format.

Basically, this question asks for the financial impact of the "marketing buzz", which can be measured by the additional potential revenue (thanks to the
buzz).

To answer this question, try to structure the problem on scratch paper before transferring it onto the message box.
An answer to this question should be 3-5 lines long, containing:
- Brief description of the issue tree, in bullet list form
- Data necessary to test the branches of the issue tree
- How to gather the necessary data

For this question, we may structure the problem using the following formula/issue tree:
Additional revenue earned = Revenue earned in the latest period (without promotion) x Change in probability to purchase products of GR

A sample answer could be as follows:

The dollar value of the campaign's "buzz" can be estimated by the additional revenue earned thanks to the promotion. We may divide additional revenue
earned into two components: Revenue earned in the latest period (without promotion) (A) and Change in probability to purchase products of GR (B).

- A can be extracted from the company's financial statement, the period chosen will be based on the estimated length of effect of a promotion campaign in
the past.
- B can be estimated by referring to the average benchmark of similar case studies in the past or conducting a testing experiment in a control group.

To help the client answer their question, the next step for the team is to contact the client for the financial report and check the firm's internal
library/conduct a press search/conduct a testing experiment to get the data needed.

This is only a suggested answer, if you have a better answer and want to receive our assessment, please send it to support@mconsultingprep.com