The Vault Guide to the Case Interview, 7th Edition

Key frameworks and tools you’ll need for each case:

1. Market Sizing: This is a common question, where the goal is to estimate the size of a
particular market. Key tools for this case include:
o Top-down or Bottom-up Approach: Depending on the question, you’ll either
start from broad industry data and narrow it down or start with specific data
and scale up.
o Clarification Questions: Always ask for the exact parameters of the question
(e.g., volume or value, region, target audience).
o Logical Assumptions: Use reasonable assumptions to make the calculation
plausible. For instance, dividing population into segments to estimate
purchases.

Example: Estimate the annual market size for coffee shops in a city.

Approach:

 Top-down Approach: Start with the total population of the city. For example, if the
city has 1 million residents and assume that 50% of the population drinks coffee, that
gives you 500,000 potential customers.
 Assumptions: If the average coffee drinker visits a coffee shop 2 times a week and
spends $4 per visit, you can calculate:
o Weekly Revenue = 500,000 customers * 2 visits * $4 = $4,000,000
o Annual Revenue = $4,000,000 * 52 weeks = $208,000,000.
 Clarification Questions: Ask whether to consider only independent coffee shops or
include chains and whether to include takeout and dining services.

Solution: The estimated annual market size for coffee shops in this city is approximately
$208 million

Market Sizing: EV Battery Market in a Country

Example: Estimate the market size for EV batteries in Morocco for the next 5 years.

Approach:

 Top-down Approach: Start with the number of vehicles in Morocco. Suppose there
are 4 million vehicles in total, and estimate that 5% of these vehicles will be electric in
the next 5 years, equating to 200,000 electric vehicles. Assuming each EV requires a
new battery every 5 years, and the average cost of an EV battery is $10,000, the
market size would be:
o Market size = 200,000 vehicles * $10,000 battery cost = $2 billion in battery
demand over 5 years.
 Clarification Questions: Ask if you should account for replacement batteries and if
the market will include local manufacturers or just imported products.
  Logical Assumptions: Factor in potential adoption rates, government incentives, and
consumer trends towards electric vehicles (EVs).

Solution: The estimated market for EV batteries in Morocco is $2 billion over the next 5
years based on vehicle adoption projections and battery cost assumptions

2. Profitability: When a company faces a decline in profitability, the key steps include:
o Revenue Breakdown: Separate revenue into key components (product lines,
regions, or customer types) and analyze their trends.
o Cost Breakdown: Look into fixed vs. variable costs and assess which parts are
impacting profitability.
o Drill-down into Costs: Use tools like a Profit and Loss statement analysis to
highlight problem areas.

Example: A technology company reports a decline in profits.

Approach:

 Revenue Breakdown: Identify revenue sources (e.g., software, hardware, services)

and analyze trends over the last three years. Assume software sales decreased by 10%,
while hardware sales increased by 5%.
 Cost Breakdown: Separate costs into fixed (salaries, rent) and variable (materials,
commissions). If fixed costs are $2 million and variable costs are $3 million for this
year, the total costs are $5 million.
 Drill-down: Use a Profit and Loss statement to identify major cost drivers. If
marketing costs have increased significantly, that may need further investigation.

Solution: Focus on reducing marketing expenses or restructuring pricing strategies to improve

profitability.

Example: A company that manufactures EV batteries has reported declining profits despite
an increase in sales.

Approach:

 Revenue Breakdown: Analyze revenue by product type (e.g., high-performance vs.

standard EV batteries). If high-performance batteries are more expensive but represent
a smaller market, this could be a factor.
 Cost Breakdown: Consider the fixed costs (e.g., factory leases, salaried employees)
and variable costs (e.g., raw materials, energy, logistics). If the price of lithium or
cobalt has increased, this could affect profitability.
 Drill-down into Costs: Use a Profit and Loss (P&L) statement to pinpoint areas
where costs have risen disproportionately. For example, rising material costs for
lithium batteries could be a major factor.

Solution: Investigate negotiating better raw material contracts or streamlining production to

lower costs, particularly with raw materials. Alternatively, focusing on high-margin,
specialized batteries (e.g., long-range or fast-charging) could increase profitability.
 3. Mergers and Acquisitions (M&A): For cases involving M&A, you’ll need tools like:
o SWOT Analysis: To assess the strengths, weaknesses, opportunities, and
threats of the target company.
o Synergies Analysis: Estimate cost savings or revenue growth from combining
the two companies.
o Valuation Metrics: Use financial metrics like P/E ratios or discounted cash
flow (DCF) models. Price-to-Earnings (P/E) Ratio company's current share
price relative to its earnings per share (EPS). It indicates how much investors
are willing to pay for $1 of earnings. The DCF model estimates the value of an
investment based on its expected future cash flows, adjusted (or discounted)
back to their present value. This involves estimating the cash flows that the
investment will generate and the appropriate discount rate.

Example: Assess whether Company A should acquire Company B.

Approach:

 SWOT Analysis: Evaluate Company B's strengths (strong market share) and
weaknesses (high debt levels).
 Synergies Analysis: Identify potential cost savings from consolidating operations. For
example, estimate $2 million savings by eliminating duplicate roles.
 Valuation Metrics: Calculate the P/E ratio of Company B. If Company B’s share
price is $20, and EPS is $2, then the P/E is 10. If the industry average is 15, Company
B may be undervalued.

Solution: If synergies and market position improve post-acquisition, recommend proceeding

with the acquisition.

Example: A large automotive company is considering acquiring a startup that produces

cutting-edge solid-state batteries for electric vehicles.

Approach:

 SWOT Analysis:
o Strengths: The startup has a unique technology that promises faster charging
times and longer battery life.
o Weaknesses: The company has limited production capacity and high R&D
expenses.
o Opportunities: The startup could scale with the backing of a larger automotive
company, and the technology is in demand.
o Threats: Established battery manufacturers like LG or CATL could develop
similar technologies faster.
 Synergies Analysis: Identify cost-saving synergies, such as using the larger
company’s production capabilities or distribution channels to increase scale and reach.
 Valuation Metrics: Use P/E ratios for comparable companies or a DCF model to
estimate the value of the acquisition. If the startup is projected to generate $20 million
in cash flow in 5 years, and the company’s WACC is 10%, the DCF can be calculated
to estimate a fair acquisition price.
Solution: Given the growth potential of solid-state batteries and operational synergies,
recommend proceeding with the acquisition while negotiating for technology exclusivity

4. Market Entry Strategy: If a company is considering entering a new market, the

analysis might involve:
o Porter’s Five Forces: To evaluate the competitive dynamics of the new
market.
o Market Segmentation: To identify the right target audience.
o Entry Strategies: Deciding between direct investment, partnerships, or joint
ventures based on the competitive and regulatory environment.

Example: A beverage company wants to enter a new country.

Approach:

 Porter’s Five Forces: Analyze the competitive landscape. If there are many
competitors, the threat of new entrants is high, which may deter entry.
 Market Segmentation: Identify target demographics. For example, focus on health-
conscious consumers if introducing a new organic drink.
 Entry Strategies: Assess the best entry strategy. A joint venture with a local company
could be less risky than direct investment.

Solution: Recommend entering through a joint venture to leverage local knowledge while
minimizing risks.

Example: A global battery manufacturer wants to enter the African market, particularly in
countries like Morocco, South Africa, and Egypt.

Approach:

 Porter’s Five Forces:

o Threat of New Entrants: The threat is moderate; while barriers to entry are
not very high, established players like CATL and Panasonic dominate.
o Bargaining Power of Suppliers: The supply of raw materials like lithium and
cobalt is concentrated in a few countries, giving suppliers significant power.
o Bargaining Power of Buyers: Buyers (car manufacturers) have moderate
power, as battery prices can fluctuate depending on the global supply chain.
o Threat of Substitutes: The threat is low for now, as alternatives like hydrogen
fuel cells are still in early stages compared to lithium-ion batteries.
o Industry Rivalry: High competition exists with global players dominating.
However, local production could create a competitive advantage.

 Market Segmentation: Focus on high-demand regions with strong governmental

support for EV adoption, like Morocco, which has incentivized electric vehicle
purchases.
  Entry Strategies: Consider joint ventures with local governments or automakers to
mitigate political and operational risks, or direct investment to establish a
manufacturing presence.

Solution: Recommend entering the market through a joint venture or partnership with a local
automaker, taking advantage of government incentives, and positioning the product as a
sustainable solution in high-growth markets

5. Growth Strategy: For cases focused on increasing a company’s growth, the tools
include:
o Market Penetration vs. Market Development: Evaluating existing markets
versus new product development.
o Customer Lifetime Value (CLV): Helps in deciding whether to focus on
customer retention or acquisition.

Example: A retail chain seeks growth opportunities.

Approach:

 Market Penetration vs. Market Development: Determine if expanding existing

product lines or entering new markets is more viable. If sales have plateaued, market
development may be necessary.
 Customer Lifetime Value (CLV): Calculate the CLV to see if focusing on retention
or acquisition would yield better long-term benefits. Assume average purchase
frequency is 5 times a year at $50 each, with a retention rate of 70%.

Solution: Focus on customer retention strategies, as the CLV suggests long-term profitability
from existing customers.

Example: A battery manufacturer wants to increase sales of their EV batteries over the next 3
years.

Approach:

 Market Penetration vs. Market Development: Consider whether to increase market

share in existing markets (e.g., Europe) or enter new regions (e.g., Africa or Asia).
 Customer Lifetime Value (CLV): Evaluate whether to focus on selling higher-
capacity batteries for long-range EVs, which could offer higher CLVs. The calculation
might include an average battery lifespan of 8 years, costing $12,000, and a 30%
repeat purchase rate for replacement batteries.

Solution: Focus on market development in Africa, where EV adoption is projected to rise,

while enhancing customer loyalty programs for battery replacements in existing markets to
maximize CLV
 6. Operational Efficiency: If the case concerns improving operational performance,
tools like:
o Value Chain Analysis: Identifies which steps in the production or service
process add the most value.
o Lean Management: Focuses on eliminating waste to improve efficiency.

Example: A manufacturing firm wants to improve its production processes.

Approach:

 Value Chain Analysis: Map out the production process to identify areas that add
value and those that do not. For example, if packaging is identified as a bottleneck, it
may require optimization.
 Lean Management: Implement lean techniques to reduce waste. Analyze current
processes for non-value-added activities.

Solution: Recommend restructuring the packaging line to improve flow and reduce waste,
leading to increased productivity and cost savings.

Example: A battery manufacturer seeks to reduce production costs while maintaining quality.

Approach:

 Value Chain Analysis: Map out the production process from raw material
procurement to final battery assembly. Identify where value is added at each step and
where inefficiencies exist (e.g., long lead times for raw material sourcing).
 Lean Management: Implement lean practices like just-in-time manufacturing, waste
reduction, and continuous process improvement to streamline production. For
example, analyze if automation can be introduced to reduce labor costs and increase
throughput.

Solution: Optimize raw material procurement and enhance production lines through
automation to reduce costs by 15-20%, which will improve overall profitability

MEMO

Porter’s Five Forces is a framework developed by Michael E. Porter in 1979, used to analyze
the competitive dynamics of an industry and assess its attractiveness in terms of profitability.
Here’s a breakdown of the five forces:

1. Threat of New Entrants: This force examines how easy or difficult it is for new
competitors to enter the market. Factors influencing this include:
o Barriers to Entry: High capital requirements, regulatory hurdles, and
economies of scale can deter new players.
o Brand Loyalty: Established companies with strong brands make it harder for
newcomers to gain market share.
o Access to Distribution Channels: If existing firms have exclusive access to
distribution networks, it becomes challenging for new entrants gaining Power
 of Suppliers**: This force looks at the power suppliers have to drive up prices.
Factors include:
o Concentration of Suppliers: Fewer suppliers can increase their bargaining
power.
o Substitutes for Inputs: If there are many alternatives available, suppliers have
less power.
o Impact on Quality: Suppliers who provide critical components may have
more leverage, as their products significantly affect the final product's quality.

2. yers: This force assesses the ability of customers to affect pricing and quality. Key
factors are:
o Buyer Concentration: If a few buyers dominate sales, they can negotiate
lower prices.
o Product Differentiation: Unique products reduce buyer power because
alternatives are limited.
o Price Sensitivity: If buyers are very price-sensitive, their power increases.

3. Threat of

Services: This force evaluates the likelihood that customers will switch to alternatives.
Factors influencing this include:

o Availability of Substitutes: More substitutes mean a higher threat level.

o Price-Performance Trade-off: If substitutes provide similar benefits at a
lower cost, customers may switch.
o Brand Loyalty: Strong loyalty to a brand can mitigate the threat of
substitutes .

4. **Rivalry Among Existing Competilyzes the intensity of competition within the

industry. Influencing factors include:
o Number of Competitors: Many competitors typically lead to price wars and
increased marketing expenses.
o Industry Growth: Slow growth often intensifies rivalry as firms fight for
market share.
o Product Differentiation: Firms with differentiated products may face less
rivalry than those with undifferentiated offerings.

By using Porter’s Five Forces, companies can competitive landscape and identify strategic
opportunities and threats in a new market. This framework aids in crafting a robust market
entry strategy by evaluating both external pressures and internal capabilities.