Crack the Case. D. Ohrvall

Candidate Review Sheets

Pack: 009 page 24 of 28

A Logical Flow Using the FRAME Method™ A Logical Flow Using the FRAME Method™

A– Anchor a Hypothesis

What were you thinking with regard to the revenue loss? Did you think that price was the main driver? As you mentally prepare to ask questions consider if your thinking meets these thresholds:

•Data driven in trying to discern what is happening with prices

•Realistic in assessing Houdini’s market strength, their ability to change prices and the private label company’s response to changes

•Logical and systematic when reviewing the handouts

SuggestedSuggestedAnswers,Answers,DiagramsDiagramsandandBehaviorsBehaviors

Potential Hypotheses

These ideas and others may be swimming through your head as you begin the case. You do not need to explain your hypothesis to the interviewer, but use this mental anchor to help you structure your questions as you move through your plan. Here are some potential hunches:

Pricing

“Houdini is getting beaten at price. Maybe they should consider lowering price to get their market share back”.

Supplier Power

“Since Houdini produces product for private label companies, I wonder what kind of control they have over the price they offer the PL companies. I bet they can raise prices on what they offer the PL companies”.

Competitors

“PL companies may be getting better prices from competitors, who are trying to erode Houdini’s market share”.

Grocery Store Pushback

“Since stores are enjoying additional profit from their own pretzel brands, they are probably taking away Houdini’s shelf space. This change may be making it more difficult to sell the same kind of volume”.

Pack: 009 page 25 of 28

Mining Zones

Houdini Volume

•Have private label prices dropped over time?

-Yes. They took a sharp downturn in Oct 2002. See Handout A.

•Does the PL price drop and the Houdini volume drop correlate?

-Yes. When the price gap between branded product and PL product exceeds 15¢, customers switch to PL.

•Does volume fluctuate due to seasonality?

-Yes. It slightly increases in the summer.

PL Company Costs

•What have been the historical charges to PL companies for production?

-There’s no data on typical charges to PL companies.

•Does Houdini sell much product to PL companies?

-Yes. They have several plants that produce a large portion of the PL.

•Is the manufacturing cost the majority of the costs to produce?

-Yes. PL companies leverage the labor force and distribution channels in place.

Supplier Power

•Do private label companies have many options for getting their production done?

-No. Houdini produces 80% of the product. Smith’s has little capacity to take on more PL.

•Does Houdini have control over how much they can charge the PL manufacturers?

-Yes. Their contracts are not long term. In fact, many of the Houdini plants recently reduced the price they charge PL companies.

Competitors

•Has Smith’s seen their volume drop over the last 10 months?

-No. Smith’s produces very little PL product. Their branded product has remained stable.

•Does it appear that grocery stores are trying to push out Houdini’s product?

-No. They are pushing their own product but understand the draw of Houdini products. Pretzel sales help push high margin, soft drink sales.

Industry Trends

•Have overall sales of pretzels dropped or been displaced by other snacks?

-There’s no data to indicate that anything has changed in terms of overall industry pretzel sales.

•Is there a trend for consumers to eat cheaper brands of pretzels?

-No macro trend exists. Some portion of consumers will continue to switch between branded pretzels and private label depending on the price.

Shelf Space

•Has Houdini seen a uniform drop in their shelf space at grocery chains?

-No. They have had more pressure in that direction but it has not been consistent across grocery stores.

•Would a reduction in display space have an impact on the volume of product sold?

-It would have a minimal impact since Houdini’s distribution process ensures that fresh product is always in stock.

Pack: 009 page 26 of 28

Candidate Review Sheets

Pack: 009 page 27 of 28

A Logical Flow Using the FRAME Method™ A Logical Flow Using the FRAME Method™

E– End the Case

What is the candidate’s final conclusion? This case is rather complex so the candidate may have trouble pulling together a crisp ending. Push them to conclude when you feel the time is up:

•How would you wrap this up?

•So what’s your conclusion? What should Houdini do?

•How is Houdini going to take care of this private label problem?

Additional Discussion Points

•Houdini could make a lot of enemies by returning production prices to their original level. How would you recommend they communicate their messages to the grocery chains?

•What kind of internal tracking systems does Houdini need in the future to alert them of these kinds of problems?

SuggestedSuggestedAnswers,Answers,DiagramsDiagramsandandBehaviorsBehaviors

Good Ending: “Houdini is looking at an erosion of

about $7M of revenue over eight months, or a little less than 5% of sales. The cause of the decline was a bad decision on the part of the plant managers to give the grocery chains a 5¢ per unit reduction. This seemingly small discount gave private label the ability to siphon some of our customers and reduce our sales volume. Our first priority is to get volume back. Since Smith’s is at full capacity, we control most of the private label production. My conclusion is that we should raise prices. To address the utilization problem in the plant, we should consider plant consolidation and new business leads.”

(You outlined the big picture with numbers while still hitting all of the key issues. Great job!)

OK Ending: “Houdini needs to close the retail pricing gap to within 15¢ of their branded product to get volume back up. It seems that the discount we are giving them is hurting us in our branded sales. Since we control the majority of private label production and Smith’s appears to be at full capacity, we can raise prices without fear of losing their business. As for shelf space, we need to review our promotional advertising with the stores and offer additional incentives.”

(Good answer in terms of giving me all of the actions you would take. You hit all the key issues with a plan. I would have like to hear a little more data.)

Poor Ending: “We need to close the pricing gap between Houdini and the private label competition. We can do that by increasing the amount we charge the grocery companies to produce private label in our plants. After that we’ll need to spend time negotiating with the grocery chains for better shelf space and also make sure that they’re not angry about the price hike.”

(Not awful but you missed some key issues like plant utilization. The shelf space issue is not primary.)

Candidate Self Assessment

Pack: 009 page 28 of 28

Analytics

7. I analyzed the data well on a piece by piece basis.

8. I integrated data well and reached insights (saw the big picture).

Recommendation

9. My final recommendation was to the point and data driven.

10. I was persuasive in making my final points.

Total Score:

(10-60)

Do this self assessment before asking the interviewer for feedback. How did your numeric score compare to the one the interviewer gave you? What is your top priority going forward?

C

Pages

31-39

Candidate

•Working with an interviewer: Remove pages 3 through 6 to take notes and do your

work. Give the rest of the pack to your interviewer. Interviewer prep is about 10-15 minutes for this case.

•After the interview: Rate yourself using the Self Assessment sheet in the back of the case pack. Review the feedback score and comments from your interviewer and discuss ways to improve. Review the suggested answers in the case.

•Self-study: Remove pages 3 through 6 to take notes and do your work. Remove any data handouts and place them face down. Follow the three Self Study Steps listed on these sheets. This self study method will help you form your plan, practice asking good questions and improve your ability to pull insights from the data slides. Keep in mind that you will benefit most from working with an interviewer who can evaluate your performance objectively.

Throughout these notes references will be made to the MVM™ (Maximum Value Model) and the FRAME Method™, the building blocks of the One Model/One Method™ approach to case interviews. Full descriptions of these unique tools, as well as additional cases, can be found in the book, Crack the Case: How to Conquer Your Case Interviews, available at www.consultingcase.com.