Bicycle Manufacturer
Case setup (facts offered by interviewer): ❑ Your client is a manufacturer of bicycles ❑ They have been in business for 25 years ❑ They manufacturer and sell three categories of bicycles: ➢ Racing bikes: High end, high performance bikes for sophisticated cyclists ➢ Mainstream bikes: Durable, but not overly complicated bikes for everyday riders ➢ Children’s bikes: Smaller, simpler versions of their mainstream bikes for children ❑ Profits at your client have decreased over the past five years
Question: ❑ What is driving the decline in overall profits? ❑ What recommendations might correct the situation?
Suggested solutions:
The first question is to determine what has caused overall profits to decrease. To accomplish this the candidate must first understand what has transpired in each of the three product categories over the past five years during which profitability has slipped. The following are questions and answers that would be provided in an interview scenario.
❑ What are the client’s margins for a bicycle in each of the three segments?
Racing: Cost = $600/unit, Profit=$300/unit
Mainstream: Cost = $250/unit, Profit = $75/unit Children’s: Cost = $ 200/unit, Profit = $50/unit
❑ What has happened to the market size of each of the three segments over the past five years? Racing: Has remained constant at its present size of $300MM Mainstream: Has increased at 2% growth rate per year to its present size of $1.0B Children’s: Has increased at 3% growth rate per year to its present size of $400MM
❑ What has happened to our client’s market share in each of these segments?
Racing: Market share has decreased from 60% to 30%
Mainstream: Market share has increased from 0% to 5% Children’s: Market share has increased from 0% to 3%
❑ Who are the client’s major competitor’s in each market segment? What has happened to their market share in each segment over the past five years?
Question: ❑ What is driving the decline in overall profits? ❑ What recommendations might correct the situation?
Suggested solutions:
The first question is to determine what has caused overall profits to decrease. To accomplish this the candidate must first understand what has transpired in each of the three product categories over the past five years during which profitability has slipped. The following are questions and answers that would be provided in an interview scenario.
❑ What are the client’s margins for a bicycle in each of the three segments?
Racing: Cost = $600/unit, Profit=$300/unit
Mainstream: Cost = $250/unit, Profit = $75/unit Children’s: Cost = $ 200/unit, Profit = $50/unit
❑ What has happened to the market size of each of the three segments over the past five years? Racing: Has remained constant at its present size of $300MM Mainstream: Has increased at 2% growth rate per year to its present size of $1.0B Children’s: Has increased at 3% growth rate per year to its present size of $400MM
❑ What has happened to our client’s market share in each of these segments?
Racing: Market share has decreased from 60% to 30%
Mainstream: Market share has increased from 0% to 5% Children’s: Market share has increased from 0% to 3%
❑ Who are the client’s major competitor’s in each market segment? What has happened to their market share in each segment over the past five years?