market entry strategy case study framework

Introduction | Case types | Sample framework | Example case

Market entry cases ask a candidate to evaluate a specific growth opportunity and decide whether or not the company should pursue it.

Introduction to market entry cases (Top)

For example, a classic market entry case might read like this:

“Retail Co. specializes in outdoor apparel for children. They’ve been very successful in the midwest and are considering launching in Canada due to similar climate and demographics. What factors would you look at to determine if this expansion would be successful?”

Just hearing this type of question makes some people nervous - where do you start and how do you evaluate the problem in a structured way? Don’t worry; after reading this post, you’ll be able to recognize a market entry question like this and crack it in no time!

Market entry cases are a very common type of case during the interview process. There are two reasons for this. First, they test a variety of skills consultants care deeply about: structured problem solving, logical reasoning and creativity. Second, consulting companies frequently help clients with market entry problems, and case interviews mirror real world consulting work. Since consultants often give candidates cases they’ve worked on with real clients, tso there’s a good chance you’ll get one of these eventually.

The good news is, these are fairly straightforward cases. We’ll go through one framework that can be used to solve these types of cases, as well as a more detailed example. As always, don’t forget that every problem is unique, and a great answer will always take into account the nuance of the problem and propose a tailored framework.

Types of market entry cases (Top)

There are three main buckets of market entry cases: geographical, product line expansion, and generic growth strategy.

1. Geographic expansion cases

The question you’re trying to answer in the geographical type is whether a company should expand their current business to a new market. For example, if Chipotle should expand into Europe, or if Uber should launch in China.

2. Product line expansion cases

In the product portfolio type of market entry case, the question is if a company should launch a new product into their existing market. For example, if Harley Davidson should launch an electric motorcycle, or if Whole Foods should start selling meal kits in addition to groceries.

3. Generic growth strategy cases

Sometimes market entry cases can be hidden in the introduction but appear partway through the case.

For example, your interviewer might say something akin to: “Client Co. has seen declining revenue recently. What should they do?” This is a growth strategy case, which could have various paths such as acquire a competitor or invest in internal R&D. One hypothesis may be expanding to a new market to grow their customer base. In this example, the market entry aspect of the case would branch out from a higher-level growth strategy problem.

Market entry case framework (Top)

Now that you’ve seen what market entry cases look like, let’s talk about how to solve them. There are four steps to these cases: assessing the target market, evaluating the company’s capabilities, quantifying the opportunity, and outlining a go-to-market strategy.

Assessing the target market

In this step, you’ll want to evaluate the market in question. The main goal here is to determine if the market is large, growing, and what the competitive landscape looks like. In addition, you’ll want to determine if there are any additional factors that might prevent a company from expanding successfully, for example, if there were a war in the country, high levels of corruption or anti-American sentiment.

Key questions include:

• How big is the market and is it growing?
• Who is the target customer and what are their needs or preferences?
• What is the competitive landscape?
• Are there any social, macroeconomic, or geopolitical factors to consider?

Evaluating company capabilities

Now it’s time to look internally, you’ll want to dive into the client’s business to understand their product offering, their current customers, strengths and weaknesses, and their financial situation. Just because a new market is attractive doesn’t mean a company should always expand there. The company needs to have the right characteristics to successfully enter.

For example, expanding into China might look like a good opportunity for a hotel chain, but if they don’t have anyone on their team with experience in China and have never grown internationally before, it will probably be a very tricky strategy to carry out successfully.

The key questions you’ll want to answer in this step are:

• What is the current product and customer mix?
• What are the strengths and weaknesses of the company?
• Who are the key suppliers or partners?
• What is the current financial position?

Quantifying the opportunity

If you’ve gone through the first two steps and decided the market entry is a good idea for the client, the next step is determining the investment that would be required to enter the market versus the expected revenue potential. In other words, would the juice be worth the squeeze?

• What share of the market could be captured?
• What would the primary costs of entry be?
• What are the outstanding risks?

Developing a go-to-market plan

The final step for a market entry case is laying out the ‘how’ once you’ve come up with an answer on whether or not to enter. There are several ways a company could enter a new market.

Each of these would be evaluated using pros and cons:

• Acquire a company in the target market
• Form a partnership with a company e.g. sell through a local distributor rather than direct to consumers
• Grow organically into the new market, either with an existing brand or through a new brand

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Example market entry case (Top)

Let’s try going through a market entry case using the framework above. The question we’ve been given is: “Taco Bell recently expanded into the UK with great success, should they launch in France as well?”

We’ll walk through each question below and demonstrate the kind of thought process the candidate should be going through (and voicing over to the interviewer) if they were in a real case interview. Remember, this isn’t how an actual conversation would go, but it does provide an example of how this framework could be applied to a real question, and the types of issues you should be thinking about.

Step 1: Assess the market

We’ll begin by assessing the attractiveness of the French market. Let’s go through our key questions:

How big is the market and is it growing? Here, we’d want to know how big the fast food market is in France and what the growth rate is. Let’s say our interviewer tells us it’s a $50B market and has been growing at 12% for the past 3 years. Right away, we see that this is a large and rapidly growing market, which means this is an attractive place to be at a high level.

Who is the target customer and what are their needs or preferences? Based on what we know about Taco Bell domestically, we can build a profile of the target customer: someone who goes to other fast food restaurants, is looking for a quick and cheap meal, enjoys Mexican food, and isn’t very health conscious. The biggest question is if this type of consumer is as prevalent in France as they are in the US. We might receive additional information from our interviewer that the French don’t prefer spicy food and aren’t as familiar with Mexican cuisine.

What is the competitive landscape? Competitors to Taco Bell would include any other businesses that meet the same customer needs mentioned above. For example, other fast food restaurants or other Mexican restaurant chains that are popular in France. In this case, we’re told there are no direct competitors (no Mexican fast food restaurants) but McDonalds, Subway, and Pizza Hut have ~25% of the fast food market.

Are there any social, macroeconomic, or geopolitical factors to consider? Here we could bring in any current events that might impact our strategy. For example, we might know that the minimum wage in France is much higher than the US. This higher cost of labor could cut into Taco Bell’s profits if they weren’t able to raise prices to offset it.

Overall, after a quick evaluation of the market, it appears to be an attractive region for a fast food restaurant, but there’s an open question on the customer preferences piece and whether French people will embrace Mexican food.

Step 2: evaluating company capabilities

The next step is looking at Taco Bell’s current performance and determining if they would be successful expanding into France:

What is the current product and customer mix? Taco Bell serves lunch and dinner with a broad menu of American Mexicanized food. Historically, their largest customer segment is 18-25 year old men, although menu additions such as salad bowls have aided in their effort to attract 25-35 year olds as well as women. Domestically, the bulk of their business comes from drive-thru orders, however, in the UK their urban locations attracted a broader demographic, including teens and families.

What are the strengths and weaknesses of the company? Taco Bell is a well known brand that’s recognized globally. They’ve recently proved an ability to successfully co-brand menu items (for example their domestic partnership with Doritos) which could be employed abroad with popular brands in the target country. In addition, their success in the UK has shown they have the skills and experience needed to launch in a new market.

What is the current financial position? Taco Bell’s revenue is ~$11B and has been growing in the double digits recently. We would also want to look at same store sales to determine if revenue was growing solely due to expansion or if existing locations were also seeing an increase in business.

From this quick look, we see that Taco Bell is in a solid place financially and has a dominant position in the market. They’re experienced with new market entry as well.

Step 3: quantifying the opportunity

Now we want to determine if expanding into France will be financially attractive for Taco Bell.

What share of the market could be captured? Of the $50B fast food market, how much do we think Taco Bell can capture? At this stage, we would likely be given some additional information, such as the market share of the largest competitors. We find out McDonalds has a 10% market share and they’ve had to transform their product in order to be successful - focusing on a Cafe area and larger seating spaces. In this case, we might assume Taco Bell could eventually capture just 1% of the French fast food market, or $500M, as the cuisine isn’t nearly as popular

What would the main costs of entry be? The primary costs would include real estate, building the team, and doing market research to develop a menu tailored to local tastes. Marketing would also be a large cost to educate the French market about their brand and product.

What are the outstanding risks? The biggest risk for Taco Bell is there’s no product-market fit e.g. the French consumer doesn’t eat Mexican food. One way to mitigate this is to start with a very small footprint, just a couple locations, and put them in a densely populated area with a more diverse population.

Step 4: Developing a go-to-market plan

Finally, we would want to recommend a strategy for Taco Bell to enter France. In this case, growing organically makes the most sense as the brand is the major strength. Starting with a couple locations in Paris where there is lots of foot traffic and both locals and tourists makes sense. Additional market research would need to be done to determine which menu items should remain and what should be added to localize the flavor profiles.

You’re bound to get a market entry case during the interview process, so it’s a good idea to get familiar with this framework and the types of questions you’ll be looking to answer. Your interviewer will guide you through the process a bit in terms of the additional information they start to share, so you’ll see where to push more or less. Remember, these are real problems clients are looking for advice on, so it’s great practice in that regard as well!

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Beating the odds in market entry

The annals of business history report that for every successful market entry, about four fail. Inexperienced start-ups suffer some of these disappointments, but so do many sophisticated corporations and seasoned entrepreneurs who should know better. After all, industrial economists and strategists generally agree about what makes market entrants successful: factors such as timing, scale relative to the competition, and the ability to leverage complementary assets. Moreover, the magnitude and importance of entry decisions—encompassing everything from geographic expansion to new products to diversification efforts—should prompt detailed analysis.

But cognitive biases —systematic errors in the way executives process information—often wreak havoc on market entry decisions. 1 1. Behavioral economists have written extensively about the impact of cognitive biases on financial markets and on a wide range of decisions. See Charles Roxburgh, “ Hidden flaws in strategy ,” McKinsey Quarterly , 2003 Number 2, pp. 26–39 for an overview of the relationship between cognitive biases and strategic mistakes, as well as a partial summary of the broader literature on this topic. For one thing, when confronted with a difficult decision, most executives rely solely on an inside view: they focus excessively on the specific case at hand. This tendency prevents many of them from developing an outside perspective based on previous market entries and even from evaluating opportunities in the light of common predictors of success. Furthermore, when an analysis is conducted, cognitive biases often lead executives to believe that a company's skills are more relevant than they really are, that the potential market is bigger than it actually is, or that rivals won't respond to the entry move.

The costs of miscalculation can be large. The efforts of Anheuser-Busch to diversify into the snack food business, for example, went awry when the beer giant underestimated Frito-Lay's response to a threat to its Doritos franchise. Similarly, EMI failed to capitalize successfully on an exciting medical innovation—the CAT scanner—because the company overestimated its ability to compete in this new market and underestimated the strengths of experienced competitors such as General Electric and Siemens.

Fortunately, some practical steps can help executives control cognitive biases in market entry decisions. Objective predictors of success, for example, can be used to create a reference class: a group of similar decisions that other companies have made in the past. 2 2. For a description of how reference classes can inform decisions extending beyond market entry, see Dan Lovallo and Daniel Kahneman, “Delusions of success: How optimism undermines executives' decisions,” Harvard Business Review , July 2003, Volume 81, Number 7, pp. 57–63. The reference class yields comparative data that are an invaluable reality check on the inside-view analysis. (Government bodies in the United Kingdom have used reference class forecasting to predict the cost of infrastructure projects, and the American Planning Association, a society of professionals focused on public-works projects, has endorsed the use of reference classes.) Additional tools, which can improve the quality of the inside view itself, include competitive-gaming exercises, the study of industry life cycles, and a policy of involving managers from diverse parts of the organization in important decisions. In our experience, the combination of a robust outside view and an improved inside one—better assessments of value propositions, capabilities, market size, competitors, market share and revenue, and costs—dramatically raises the odds of making good entry decisions.

Step outside

Companies have no reason to repeat the mistakes of others. Yet they frequently fail to learn from history, because a myopic focus on the market entry decision at hand prevents them from creating a reference class of at least five (and preferably more) similar entry decisions in the past. Such a reference class promotes systematic learning from the successes and failures of other companies. It also counteracts the tendency of many decision makers to fall into the “confirmation trap” : seeking information that confirms their hypotheses. A broad reference class, in other words, forces analysts to consider more possibilities and new data.

The failure rate of projects is high in industries such as pharmaceuticals, oil and gas, and motion pictures. Companies in these sectors do understand how important it is to play the probabilities and can draw on a rich body of cases in creating a reference class. But companies that place product bets less frequently, and with less apparent risk, have fewer internal reference cases to compare and generally either don't consider looking at the experience of outside companies and industries or, if they do, often conclude that the effort isn't worth the expense. Since the tens (if not hundreds) of millions of dollars at stake in a typical big-company market entry far outweigh the costs of forming a reference class, that conclusion is penny wise and pound foolish.

Companies developing an outside view can benefit from a wide body of statistical research showing that six factors are particularly important predictors of successful market entry (Exhibit 1). Even before companies select their reference cases, an explicit review of these factors sometimes shows that the dice are loaded against going forward.

In constructing a reference class, the first step is to review which of these factors are most relevant. Say a small, technologically adroit company that lacks complementary assets enters a new industry at the same time as large, diversified companies that do have them enter it. In this case, the small company should create a reference class of similar entrants in other industries, not this one. Next, companies should look for reference cases involving as many of the most important factors as possible (Exhibit 2). It's important to uncover both successful and, even more, failed entries so that the reference class approximates the distribution of actual outcomes. The greater the overlap with the experience of the industry in question, the more valuable each example will be for the reference class. But it is also useful—and sometimes, if the industry is a new or emerging one, necessary—to reach out across different industries.

The use of a reference class guards against a weak and dangerous alternative: hypotheses based on an analysis of just one or two cases, whose selection is subject to the “availability bias”: choosing whatever comes to mind most readily. During the buildup to the current conflict in Iraq, for example, the two analogies consistently reported in the press were the Vietnam War and the 1991 Gulf War. These were natural choices, since they were the two most recent large-scale conflicts involving the United States, but they weren't necessarily the most similar ones. Expanding the reference class to include the troubles in Northern Ireland, Britain's involvement in the Middle East after World War I, and US policy in Europe after World War II might have raised fresh, relevant questions about troop requirements, the policing of occupied populations, and postwar reconstruction.

Improve the inside view

Besides developing a reference class, companies should remove any bias from their analysis of the entry decision. Start by targeting five core issues: the value proposition and capabilities, the market's size, the competition, market share and revenue, and costs (Exhibit 3). Of course, other analyses (of regulatory issues, for example) are occasionally necessary and sometimes of paramount importance.

What value proposition and skills are necessary?

The closer a company stays to its core capabilities and value proposition, the greater its chances of mounting a successful entry. 3 3. Companies should measure the distance in “degrees.” Selling the same product through the same distribution channel to the same customer groups, but in a new geography, represents one degree of difference. Selling to different customer groups as well adds a second degree. But companies can be egocentric: they may assume, for example, that since their employees are excited about a product customers will feel the same way, that the resources and assets they already have are the ones needed to meet the needs of the target market, that what they do well is sufficient for success in it, or that they can easily acquire any missing skills. All of these biases undermine the analysis.

A memorable example of a company that underestimated the difficulty of developing new skills dates back to the 1970s, when the music producer EMI entered the CAT scanner business on the back of an innovation developed primarily by Godfrey N. Hounsfield, a researcher in the company's labs. EMI had no experience in the manufacture of medical-diagnostic-imaging equipment or in medical sales and distribution. Its senior management decided to build these capabilities rather than partner with other companies to obtain them. More than five years passed before EMI delivered the first product. Soon thereafter, General Electric, with its world-class manufacturing and sales and distribution networks (and 75 years of experience with X-ray equipment), entered the US market. So did Siemens, which had already entered the European one. Not surprisingly, GE and Siemens became dominant and EMI exited after sustaining substantial losses. (Hounsfield, however, won a Nobel Prize in 1979.)

To avoid such mistakes, companies should use the reference class to identify the key determinants of successful entries into similar markets. Which product attributes and business models have succeeded in the past? Were the winners superior marketers? Did they have outstanding distribution systems? If new capabilities seem to be needed for success, companies should exercise caution and consider contractual approaches, such as joint ventures and licensing, that can help them secure the missing assets. It's frequently valuable to have people who are not directly involved in making the decision help determine what's needed for a successful entry. After all, the analysis of managers from different divisions will be less biased by ingrained knowledge of the organization's current value proposition and skills.

How big is the market?

Estimating a market's potential size typically involves categorizing customers into a number of segments and then using pricing and elasticity assumptions to estimate the percentage of buyers in each category the company might capture. Two biases typically distort such estimates. One is the fact that human beings, when considering potentially positive outcomes, are almost always optimistic. The second is “anchoring and adjustment”: the failure to adjust estimates sufficiently from an initial value, regardless of its origin. An optimistic anchor that often infects market estimates is an industry's current growth rate, which rarely endures for long. Another anchor is the initial “gut” forecast number an analyst plugs into a spreadsheet with the intention of making adjustments as more information arrives.

How influential are such anchors? In one recent study, experienced real-estate brokers, who had contended that the listing price 4 4. The price a person selling a house asks for it publicly. of a house wouldn't affect their evaluation of its “true” value, were asked to assess a property. Each broker received a ten-page booklet on the house and on the prices and characteristics of houses in the area. Each then visited it, plus others in the neighborhood. The agents didn't know that the listing prices they had been given for the house in question were all different and had been randomly manipulated within a range of plus or minus 11 percent of the actual listing price. Those spurious listing prices significantly affected the evaluations of the agents. Yet even when they were told about the results, they maintained that the listing-price anchor had had no effect on them.

To avoid anchoring estimates on a target market's current growth rate, companies should always try to determine the life cycle stage of the business they wish to enter. At some point, most industries experience shakeouts, which can be particularly severe in fast-growing sectors. Although it is difficult to predict the exact timing, efforts to think through the possibility of a shakeout—and how many companies are likely to survive it—often highlight the unsustainability of current growth rates.

A second useful way of improving estimates of market size is to use the reference class of other entrants as a benchmark. Consider the fate of the Segway, a new type of two-wheeled vehicle unveiled in December 2001. Although we don't know for sure what the inventor, Dean Kamen, did to estimate the size of the market, we do know how many Segways he thought could be sold after a year: 10,000 a week. A typical approach for arriving at such a figure would have involved combining an analysis of the number of consumers who could both afford the Segway and realistically use it for commuting or recreation, on the one hand, with penetration rates in this demographic for similar products, such as scooters and bicycles, on the other.

But the Segway's usefulness depended on changes to infrastructure. How many cities would allow people to drive the vehicle on sidewalks? If roads were the only alternative, how many potential purchasers would still be willing to use it? Since the answer to both questions was “not many,” just 6,000 Segways were sold in the first 21 months. A broader reference class that included conventional automobiles, fuel cell cars, hydrogen cars, and infrastructure-dependent technologies such as high-definition television and telephones might have shown that securing the right to ride the Segway in cities was of paramount importance. After all, it took years to create the roads, power grids, standards, and networks necessary for cars, electric lighting, HDTV, and telephone service to become ubiquitous.

Who are the potential competitors?

Other market entries fail because companies underestimate the competition. Many decision makers, for example, don't grasp the likelihood that their rivals may enter the same market they have targeted; they suffer from competitive blind spots when thinking about what could go wrong. That's what happened to British Satellite Broadcasting (BSB) after it outbid Rupert Murdoch's Sky Television, in 1988, to win the contract to broadcast on a new British satellite. Even as BSB prepared to launch its service, Murdoch obtained the rights to broadcast from a Spanish satellite that could reach Great Britain. Sky went on the air in early 1989, beating BSB to the market by 13 months. Despite Murdoch's 1988 bid, Richard Brooke, BSB's treasurer, said that “Murdoch’s announcement came from left field and took everybody by surprise.”

While it is difficult to generate a reference class for potential entrants, in our experience it can be very helpful to brainstorm about them and then to test these hypotheses in a disciplined way. The first companies to consider are those in the same industry; after all, if one of them is contemplating plunging into a market, its competitors probably are too. If companies in other industries could succeed in the target market, they should be considered as well. Hindsight will always reveal the “necessary” capabilities, but expanding the list of possible competitors increases the odds of spotting unexpected threats. Although discretion is sometimes the better part of valor, this analysis is meant to help companies react to the competition's moves before they happen, not to scare entrants away from a fight.

The benefits of recognizing and countering potential entrants can be large. Consider the case of Softsoap, the first liquid-soap manufacturer. The shift from hard to liquid soap was an incremental innovation that couldn't be protected by a patent; there are too many ways to make the product. The businessman who had the idea for Softsoap, Robert Taylor, knew that if it entered the industry without protection, consumer-marketing giants like Dial would crush it. His solution: signing contracts to obtain all of the existing capacity for the pumps capable of dispensing Softsoap. The result was an 18-month lead on the competition. Today, Softsoap is synonymous with the product category in the same way Coke is with cola drinks.

What market share and revenue can be achieved?

In addition to overlooking potential competitors, companies often fail to factor in the likely responses of current ones. We call this the “brick wall effect”: assuming that competitors won't adjust their prices, broaden their product offerings, or otherwise change strategy in response to the entry. (The focus on current competitors rather than potential new ones distinguishes the brick wall effect from the competitive blind spots described previously.)

Consider the experience of Anheuser-Busch after it diversified into snack foods, in 1979. Its Eagle Brand operation initially succeeded by staying small and focusing on supplying airlines and taverns. Once Anheuser-Busch expanded beyond these markets, however, it was encroaching on Frito-Lay's turf, stimulating a harsh counterattack: deep across-the-board price cuts by Frito-Lay and a concerted effort to drive Eagle out of supermarkets. These aggressive moves ultimately forced Anheuser-Busch to sell Eagle to P&G.

The best way to anticipate competitive responses is to conduct gaming exercises, with executives role-playing competitors to gain insight into their likely behavior. One telecommunications company that leaned toward using a premium-feature, low-cost strategy to enter a new market assumed that the incumbents would maintain the status quo of premium features and high prices. But after using game theory, simulations, and competitive analysis to assess the incumbents' likely responses, the prospective entrant realized that it had overestimated its returns by a hefty 800 percent. It modified its entry strategy and performance expectations accordingly. 5 5. Hugh Courtney, 20/20 Foresight: Crafting Strategy in an Uncertain World , Boston: Harvard Business School Press, 2001, pp. 167–71.

Using the reference class to set reasonable bounds on market share estimates also helps. If the reference class attained only a 3 to 5 percent market share, decision makers should pause when they see higher estimates.

How much will it cost?

Good cost estimates can make the difference between creating value and destroying it, but many companies can't arrive at them, because of the “planning fallacy”: the tendency to underestimate the duration and cost of any endeavor. Most of us recognize this problem in our own lives, and research shows that we should. One study assessed the accuracy of the estimates that psychology students made of the time they would need to complete their honors theses. Even though the question was asked toward the end of the year, 70 percent of the students took longer than they had predicted—on average, 7 days longer than their worst-case forecast (48 days) and 22 days longer than their “realistic” one (33 days). Studies of holiday shopping, tax filings, and other routine chores yield similar results.

Large corporations are also susceptible to the planning fallacy. Even in fairly routine endeavors (such as launching new consumer products), expenditures often exceed forecasts dramatically. In more novel initiatives, the effects of the planning fallacy are often severe. A Rand Corporation study of 44 chemical-processing plants owned by Fortune 500 companies, for example, found that the actual construction costs of these facilities, on average, were more than double the initial estimates. One year after start-up, about half of the plants produced less than 75 percent of their design capacity; a quarter produced less than 50 percent.

If sufficiently broad, a reference class is a potent tool to counteract the planning fallacy. For a new type of polymer-processing plant, say, the reference class should include not only plants built by the company contemplating it but also cutting-edge processing plants in the chemical industry and perhaps new types of processing plants in other industries. A broad reference class gives would-be entrants a realistic range of costs associated with attaining various market share levels. Cost estimates far below the realized costs of the reference class should make decision makers think again.

Paraphrasing Thomas Hobbes, the renowned late economist Paul Geroski, of the London Business School, once said, “The life of a typical entrant is nasty, brutish, and short.” He was right. Fortunately, companies can boost their odds of success by tackling cognitive biases head on.

John Horn is a consultant in McKinsey's Washington, DC, office; Dan Lovallo is a professor at the Australian Graduate School of Management (of the University of New South Wales and the University of Sydney) as well as an adviser to the firm; Patrick Viguerie is a director in the Atlanta office.

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How to Solve a Market Entry Case Interview

Market Entry cases often involve strategic questions such as: ‘Your client Company Z is currently manufacturing and selling coffee machines. It is now considering to enter the microwave market. Should they do that?’ In some cases, the answers to these questions are simple YES-or NO-answers, but in other cases the client might also want to know HOW to enter a specific industry or market. Either way, both questions follow the same structure in the beginning. The market entry framework used in this example covers a company characteristics analysis, industry analysis and an entry-mode vehicle selection.

Company characteristics

You want to start off with some general questions about your client’s company. Why is it that Company Z is thinking about entering a different market? Do they have excess money to invest? Is Company Z’s current business stagnating? Or are they simply looking for new ways to grow? By asking this question you will find out more about the motives of your client. Secondly, you could ask when entering a new market is considered successful? Is there a certain market share the company wants to conquer or are they already satisfied when their business would make a profit in the first year? Answers to these questions would make it easier for you to quantify the case objectives in terms of market share (% of the total market size) or profits (expected revenues−costs). If needed you could also ask about the company’s current business (e.g. core capabilities, product mix, revenue stream, customer segment). It would for example help if Company Z’s current customers have overlap with the customers it would be targeting when entering a new industry. Don’t take too long for these kind of questions, but do make sure that you have a good impression of what your client looks like.

Market and industry analysis

This is the main part of your analysis. Here you want to determine how much potential the industry your client is thinking about entering actually has. You could start off with the market size. In some case interviews, they will ask you to estimate the size of the market yourself. This could be done by multiplying the amount of customers in a certain area by the average price of a product × the average amount of products that are being bought a year by a single customer. In addition, it is very important to ask about trends: has the market size changed over time? In what life cycle stage is the industry at the moment: emerging, mature, declining? You don’t want to enter an industry that is already declining massively. Next you could ask about the major players in the industry: the competition. Is the industry consolidated (a few large players) or fragmented (many small players)? And how are all players differentiated from each other? Don’t forget to also take into account potential new entrants, substitute products, entry barriers and supplier power. A great framework for this part of the analysis is  Porter’s Five Forces . Consequently, you could look at the customers. What are their needs and how loyal to existing brands are they? Is Company Z able to capture some of these clients from rivals in that industry? This is also where you need to think about positioning Company Z in the current competitive landscape. As extra option you could also do a quick  PESTEL Analysis  to determine what macro-environmental factors could affect your business in the long term.

Figure 1: Porter’s Five Forces

Entry-mode vehicle

In case both the company analysis and the industry analysis above turn out to be favorable for a market entry, your client might want to know HOW it should enter the focal market. There are multiple ways in which a company can enter a new market. During an interview it is often enough to mention the three most common vehicles: starting from scratch yourself ( greenfield investment ), forming a strategic alliance or joint venture  with a local player, or acquiring a competitor in that specific industry. It is important to know the pros and cons of each vehicle compared to the other options. An acquisition for instance is a faster market entry vehicle than starting from scratch yourself. A drawback of an acquisition however is the integration process and possible cultural clashes. A strategic alliance would sound like a great middle ground alternative. However, even with strategic alliances there can be cultural clashes and so called learning races. For a more exhaustive list with pros and cons of organic growth, acquisitions and alliances, you could look here  and  here . Other entry-mode strategies you could consider are licensing , exporting or franchising . In order to decide between these options and foreign direct investment (greenfields, acquisitions and joint ventures), you could use the Eclectic Paradigm  (or OLI Paradigm).

Figure 2: OLI Paradigm/Eclectic Paradigm

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Market Entry Strategy: Key Insights, Best Practices, and Case Studies

In an increasingly globalized world, the need for businesses to expand beyond their domestic markets is more important than ever. A well-crafted market entry strategy is crucial to successfully penetrate foreign markets. This article explores various market entry strategies, their potential benefits, and considerations, supported by relevant examples and case studies.

What is a Market Entry Strategy?

A market entry strategy outlines the method by which a company intends to sell products or services in a new market. It encompasses factors like product adaptation, pricing strategies, distribution channels, promotional tactics, and much more. The right strategy depends on various factors like the nature of the market, competition, legal and regulatory environment, and the company’s resources and capabilities.

Key Types of Market Entry Strategies

Several strategies can be employed depending on the specific context and business objectives. Here are some common ones:

• Exporting:  This involves selling products made in one country to customers in another. This is often the first strategy used by companies looking to enter foreign markets.
• Franchising:  This involves licensing the right to use a company’s business model and brand to a local operator.
• Joint Ventures:  This involves partnering with a local company to share resources and capabilities. This strategy is often used when the local partner has significant market knowledge or resources.
• Foreign Direct Investment:  This involves setting up operations or acquiring businesses in the foreign market. This strategy typically requires significant resources and commitment.

Choosing the Right Market Entry Strategy: Key Considerations

Selecting the appropriate market entry strategy requires careful consideration of several factors:

• Market Research:  Comprehensive understanding of the foreign market is vital, including consumer behavior, competition, and regulatory environment.
• Company Resources:  The company’s resources and capabilities must align with the strategy. For example, FDI requires considerable financial resources.
• Risk Tolerance:  Each strategy comes with its own set of risks. Companies must consider their risk tolerance when choosing a strategy.

Case Study: Starbucks’ Market Entry into China

Starbucks provides an excellent example of a successful market entry strategy. When entering China, Starbucks recognized that its standard model wouldn’t work in a country where tea, not coffee, was the traditional drink. Starbucks adapted its product offering to include local teas and food items, and positioned its stores as a place for social gatherings. This adaptation of product and positioning, combined with a joint venture strategy to leverage local knowledge, led to Starbucks’ success in the Chinese market.

Summary: The Power of a Well-Planned Market Entry Strategy

A sound market entry strategy is a cornerstone of successful international business expansion. By understanding different strategies and the considerations involved in choosing one, businesses can position themselves for success in new markets. The Starbucks case study underscores the importance of market understanding and product adaptation in foreign markets.

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Market Entry Strategy Framework

08/05/2024 27/02/2014 | Octopus

Market entry strategy framework

Planning to enter a new market can be daunting. There are many factors to consider, and the process can be complicated. However, using a market entry strategy framework can help simplify the process and make it easier to understand. It can also help you identify the right markets for your product or service. With a good market entry strategy in place, you can increase your chances of success in entering a new market.

The market entry strategy framework is an easy way to understand the new market entry process and helps you identify the right market for your product or service.

Identify the Problem

The first step in creating a successful business is identifying the problem you want to solve. You need to determine what people are looking for and why they aren’t getting it.

Define the Solution

Once you have identified the problem, you need to define the solution. This means defining the problem as clearly as possible so you can communicate it effectively.

Develop a Value Proposition

A value proposition is a clear statement of what your company does and why people should buy your products or services. You can use a value proposition to describe your business model, explain how your product solves a customer problem, and demonstrate how your product will benefit customers.

Create a Marketing Plan

Once you have identified your target market, you need to develop a plan to enter that market. This is called a market entry strategy. There are four key steps to creating a successful market entry strategy:

• Identify the market
• Define the value proposition
• Develop a competitive analysis
• Determine the sales channels

Build a Sales Team

A good market entry strategy requires a team effort, and you must work with others to build a sales team. In addition to creating a sales team, you should consider hiring a professional services firm to help you with legal, accounting, and other administrative tasks.

Using your Market entry strategy framework

In conclusion, the market entry strategy framework is an easy way to understand the process of entering new markets. It helps you identify the right markets for your product or service. Additionally, the framework can help you assess the risks and opportunities associated with entering a new market. Finally, the framework can help you develop a plan to enter a new market successfully.

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How to crack market entry consulting cases?

Market entries can be at the core of a company's strategy for years and involve huge amounts of money. For instance, Uber has raised more than $20bn since it started its international expansion in 2011. And it is likely to raise even more in the future to try to strengthen its foothold in Europe, Asia, etc.

Market entries are uncertain situations and can therefore be quite stressful for executives. They can literally make or break companies. As a consequence, top consulting firms such as McKinsey, BCG and Bain are often brought in to help during these key moments.

There is therefore a good chance that you will come across a market entry case at some point during your consulting interviews and it is important that you prepare for this situation. Let's first analyse what framework you should use in your market entry cases. And let's also discuss a few examples of successful and failed market entries and try to learn from them.

Click here to practise 1-on-1 with MBB ex-interviewers

Market entry case framework.

There are two broad types of market entry situations companies face:

• Entering a new geography. For instance, Uber entering the Chinese market.
• Entering a new product category. For instance, Apple launching an electric car.

In both cases, partners at McKinsey, BCG and Bain tend to broadly analyse the same four areas in their framework. Let's step through each of them one by one and list the questions you'd want to answer for each category.

The first area consultants typically analyse in market entry cases is the market. This is extremely important because a big part of the success or failure of the new venture will depend on broader market dynamics. Here are some of the questions you could look into:

• Who are the customers? And what products do they buy today?
• How big is the market? And how fast is it growing?
• How profitable is the market? And is its profitability stable?
• How intense is the competition? Are there more and more players?
• How heavily regulated is the market? Are there barriers to entry?

2. Capabilities

Second, once they understand the market in detail, consultants typically try to figure out how hard it will be for their client to win in that market. This is important because a market can be very attractive but the company might not have the required capabilities to succeed in that market.

• What are the main differences between the company's current market and the new market? How difficult is it for the company to develop / hire new capabilities to adapt to these differences?
• Has the company ever done any new market entries in recent years? If so, how successful was it and what has it learned?
• Have other people similar to the client tried to enter the new market in the past? Is there anything we can learn from their attempt?

3. Financials

The third important area to analyse is the financials. Your objective here is to understand how attractive it is financially to enter this new market:

• What's the current financial situation of the client? Does it have spare financial resources to invest?
• How much will it cost to enter the new market (e.g.: setting up new factories, recruiting a team, etc.)?
• What will be the ongoing costs once the market is entered (e.g.: variable cost of manufacturing, advertising to build brand, etc.)?
• What are the expected revenues from the new market? Through which channels / customers will they be achieved?
• What is the overall Return on Investment we can expect from the market entry?

4. Entry strategy

And finally, the last area consultants typically analyse is HOW to enter the market. Planning the exact operational mechanics that will be used is key in order to succeed.

• When should the company enter the market? Is there a first mover advantage or is it better to wait for a few competitors to try first?
• At what speed should the company enter the market? Test a region first, or enter the whole market at once?
• Should the company establish its own entity and have full control? Or should it buy / build a Joint Venture with a competitor?
• Should the company control the market entry from its head office? Or should it give a lot of freedom to the new country manager?

It is almost impossible to cover all these aspects in a 40mins case interview . Once you will have laid out your framework, your interviewer will then typically make you focus on a specific area of the framework for the rest of the case. This is usually the market, or the financials. But can also sometimes be the other two points.

Market entry examples

Now that you know what framework to use in market entry consulting cases, let's take a look at a couple of successful projects, and a couple of failures. As you read through these cases, we'd encourage you to take a few minutes to apply the framework above to the company we are describing.

Success #1: Starbucks in China

For thousands of years, the Chinese have produced and drank tea. When Startbucks announced it would enter the market in 1999 most people doubted it would be successful. Indeed, coffee had always been a distant second beverage compared to tea in the country.

So how did the American brand manage to grow from 0 stores in 1999 to more than 1,500 today? How did it manage to sell coffee to a nation of tea drinkers?

The answer is that Startbucks understood they were not selling just coffee, they were selling an experience. To be more precise, they were selling a "third place" that is neither home nor work, and where one can feel comfortable spending time with friends. And it turned out the Chinese needed this "third place" as much as anyone else.

Success #2: Redbull in the US

Redbull's market entry in the US has been so successful and smooth that many Americans don't realise it is actually a European company (Austrian to be precise). When it first got into the US, the energy drink category was almost did not exist. And giants such as Coca-cola were dominating the beverages industry.

So how did the small Austrian company manage to become a household brand with a strong followership?

The answer is that Redbull knew it would not be able to compete in mass-market advertising and decided to innovate on marketing. Instead of running ad campaigns on TV it started sponsoring extreme sports competitions (e.g.: cliff diving, surfing, etc.) which made it stand out as a very differentiated brand and eventually contributed to its success.

Failure #1: Uber in China

China is one the most attractive ride-hailing markets in the world. It has one of the highest population densities, and about 10 of the 30 largest cities on the planet. This makes it an ideal playground for companies like Uber and in 2013 the American start-up decided it wanted a share of the market and started investing heavily. But in 2016, after 3 years of efforts, it had to pull back and sell its Chinese business to a local competitor.

So why did Uber fail in China? What should it have done differently?

The main reason is timing. When Uber entered the Chinese market, there was already an established and well-funded brand called Didi Chuxing. Uber and Didi faced off for three years but the American company never managed to acquire more than 20% of the market. In 2016, it was already losing $1bn in the country and had to sell to its local competitor to refocus on other international markets.

Failure #2: Fire Phone by Amazon

Amazon was extremely successful with its e-reader Kindle. So in 2014 it decided to try to enter the phone market. This was a risky move but the Seattle company thought it would be able to replicate its Kindle success in a different market. Unfortunately it wasn't and it had to discontinue the production of its new phone only 13 months after it started.

So why didn't Amazon manage to replicate its Kindle success? What was different about mobile phones?

The main reason is the intensity of the existing competition. The Fire Phone was a good phone but a lot of good phones were already available (e.g.: the iPhone). That wasn't the case in the e-readers market where the Kindle really made a big difference when it launched.

Market entries can make or break companies and executives sometimes feel they need support from consultants in these situations. You should therefore expect to come across market entry cases during your consulting interviews.

Getting familiar with the framework we have laid out above is a good idea. But as we have already mentioned in the past, you should not reuse frameworks as is in your actual interview. You should customise them as much as possible to make them relevant to the problem you are trying to solve.

Mock interviews

The best way to improve at case interviews is to practise interviewing out loud, and you can do that in three main ways:

• Interview yourself (out loud)
• Practise interviewing with friends or family
• Practise interviewing with ex-interviewers

Practising by yourself is a great way to get started, and can help you get more comfortable with the flow of a case interview. However, this type of practice won’t prepare you for realistic interview conditions. 

After getting some practice on your own, you should find someone who can do a mock interview with you, like a friend or family member.

We’d also recommend that you practise 1-1 with ex-interviewers from top consulting firms . This is the best way to replicate the conditions of a real case interview, and to get feedback from someone who understands the process extremely well.

Click here to book your mock case interview.

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The Market Entry Framework: An Essential Tool for Consultants

Discover how the Market Entry Framework can help consultants navigate the complexities of entering new markets.

Posted May 11, 2023

Featuring Mattijs B.

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Table of Contents

When a company decides to enter a new market, there are many challenges that must be addressed. Market entry is a complex process that requires careful consideration of various factors such as competition, regulations, customer needs, and cultural differences. To succeed in this endeavor, businesses need a tool that can help them navigate through these complexities and create a comprehensive market entry plan. This is where a market entry framework comes in. In this article, we will discuss what a market entry framework is, how it helps consultants, and the key steps involved in developing one.

Understanding the concept of market entry

Before delving into the market entry framework, it's important to understand what market entry is. Market entry is essentially the process of introducing a product or service into a new market. It is a critical decision for any business looking to expand its operations and achieve growth. Entering a new market presents significant opportunities, but also poses several risks and challenges. For this reason, it's important to take a strategic approach and develop a plan that will help guide the entire process.

One of the key factors to consider when entering a new market is the cultural differences that may exist between the home market and the new market. These differences can impact the way in which the product or service is received and may require adaptations to be made to the marketing strategy or even the product itself. It's important to conduct thorough research on the new market and its cultural nuances to ensure that the market entry strategy is tailored to the specific needs and preferences of the target audience.

The role of market entry framework in consulting

Consultants play a vital role in helping businesses navigate the market entry process. They bring a wealth of experience and expertise, helping businesses to identify opportunities, mitigate risks, and develop effective strategies. Market entry framework is an essential tool for consultants as it provides a systematic approach for analyzing and addressing the various factors that influence market entry decisions. By using a framework, consultants can develop a comprehensive plan that provides a structured approach to market entry, and ensures that all critical issues are addressed.

One of the key benefits of using a market entry framework is that it helps consultants to identify potential barriers to entry. These barriers can include regulatory requirements, cultural differences, and competitive pressures. By identifying these barriers early on, consultants can develop strategies to overcome them, and increase the chances of success for their clients.

Another important aspect of market entry framework is that it helps consultants to evaluate the potential risks and rewards of entering a new market. This involves analyzing factors such as market size, growth potential, and competitive landscape. By conducting a thorough analysis, consultants can help their clients to make informed decisions about whether or not to enter a particular market, and how best to do so.

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Benefits of using a market entry framework for consultants

The use of a market entry framework provides several benefits for consultants, including:

• Better decision making - A market entry framework helps in identifying and analyzing key factors that influence market entry decisions.
• Improved efficiency - Frameworks are systematic and comprehensive, helping consultants to develop efficient and effective strategies for market entry.
• Reduced risk - A market entry framework helps to identify and mitigate potential risks and challenges associated with entering a new market.
• Increased success rate - By following a framework, consultants can increase the likelihood of success in entering a new market.

Another benefit of using a market entry framework is that it provides a structured approach to market analysis. This allows consultants to gather and analyze relevant data about the target market, such as market size, competition, and consumer behavior. By having a clear understanding of the market, consultants can develop a more targeted and effective market entry strategy. Additionally, a market entry framework can help consultants to identify potential partners or acquisition targets in the new market, which can further increase the chances of success.

Different types of market entry strategies

There are several types of market entry strategies that businesses can use when entering a new market. Some of the most common include:

• Exporting - Selling products or services to customers in a foreign country.
• Licensing - Allowing a foreign company to produce and sell your products or services in their country in exchange for royalties or fees.
• Franchising - Allowing a foreign company to use your brand name and business model to sell your products or services in their country in exchange for fees and royalties.
• Joint ventures - Partnering with a local company in the foreign market to create a new business entity.
• Direct investment - Establishing a foreign subsidiary or branch office to sell products or services in the foreign market.

Each market entry strategy has its own advantages and disadvantages. Exporting is a low-risk strategy that allows businesses to test the waters in a new market without making a significant investment. However, it can be challenging to establish a customer base and build brand recognition in a foreign country.

On the other hand, direct investment requires a significant investment of time and resources, but it allows businesses to have greater control over their operations in the foreign market. Joint ventures can be a good option for businesses that want to share the risks and costs of entering a new market with a local partner, but it can also be challenging to find the right partner and manage the relationship effectively.

Key considerations when developing a market entry framework

When developing a market entry framework, there are several key considerations that must be addressed. These include:

• Assessing market potential and competition - Understanding the market size, growth potential, and competition in the target market.
• Identifying target customers and segments - Identifying the key customer segments and their needs in the target market.
• Analyzing regulatory and legal requirements - Understanding the regulations, laws, and compliance requirements in the target market.
• Developing a comprehensive entry strategy - Developing a clear, well-defined strategy that outlines the approach to entering the target market.
• Evaluating risks and challenges in market entry - Identifying potential risks and challenges that may arise during the market entry process.
• Implementing the market entry plan effectively - Implementing the market entry plan effectively requires a sound understanding of the market environment and a well-executed plan.
• Measuring success and making necessary adjustments - Evaluating the success of the market entry plan and making necessary adjustments as needed.

Another important consideration when developing a market entry framework is understanding the cultural and social norms of the target market. This includes understanding the language, customs, and values of the target market, as well as any cultural sensitivities that may impact the success of the market entry plan. Failure to understand and respect these cultural and social norms can lead to misunderstandings, miscommunications, and ultimately, failure in the target market.

Real-life examples of successful market entry using a framework

Several businesses have successfully used a market entry framework to enter new markets. For example, Coca-Cola used a rigorous market entry framework to enter the Indian market in the early 1990s. The framework helped the company to overcome several challenges, including differences in taste preferences and cultural norms. Another example is Toyota, which used a well-defined market entry framework to enter the North American market in the 1970s. The framework helped the company to develop a comprehensive strategy that focused on quality, safety, and efficiency, which ultimately contributed to its success in the market.

Another company that has successfully used a market entry framework is Starbucks. When the company entered the Chinese market in 1999, it faced several challenges, including competition from local tea shops and a lack of understanding of Chinese culture. However, Starbucks used a market entry framework that included extensive market research, localization of its menu, and partnerships with local businesses to overcome these challenges and establish a strong presence in China.

Similarly, Airbnb used a market entry framework to enter the Indian market in 2016. The company faced challenges such as a lack of trust in online transactions and a preference for traditional hotels. However, Airbnb used a market entry framework that included partnerships with local businesses, targeted marketing campaigns, and customized services to overcome these challenges and successfully enter the Indian market.

Future trends in the use of market entry frameworks by consultants

The use of market entry frameworks is becoming increasingly popular among consultants due to its effectiveness in helping businesses succeed in new markets. In the future, we can expect to see market entry frameworks becoming even more sophisticated and specialized, as businesses seek to enter new and emerging markets. Additionally, the use of data analytics and artificial intelligence will also play a significant role in developing market entry frameworks, allowing businesses to make more informed decisions and achieve greater success in new markets.

Another trend that we can expect to see in the use of market entry frameworks is the incorporation of sustainability and social responsibility factors. As consumers become more conscious of the impact of their purchases on the environment and society, businesses will need to consider these factors when entering new markets. Market entry frameworks that take into account sustainability and social responsibility will help businesses not only succeed in new markets but also contribute positively to the environment and society.

Furthermore, with the rise of remote work and virtual communication, we can expect to see market entry frameworks that are tailored to the digital landscape. Consultants will need to develop strategies that take into account the unique challenges and opportunities of entering new markets through digital channels. This may include leveraging social media platforms, optimizing websites for international audiences, and utilizing virtual events and webinars to connect with potential customers in new markets.

The market entry framework is an essential tool for consultants in helping businesses to succeed in new markets. By providing a structured and comprehensive approach to market entry, the framework helps businesses to identify opportunities, mitigate risks, and develop effective strategies. To use the framework successfully, businesses must account for various factors such as market potential, customer needs, regulations, and competition. With the right approach and proper implementation, the market entry framework can contribute significantly to a business's success in new markets.

One of the key benefits of using a market entry framework is that it helps businesses to avoid common mistakes that can lead to failure in new markets. For example, businesses may underestimate the level of competition in a new market or fail to adapt their products or services to meet local customer needs. By following a structured approach, businesses can identify and address these challenges before they become major obstacles to success.

Another advantage of using a market entry framework is that it can help businesses to build strong relationships with local partners and stakeholders. By taking the time to understand the local business culture and customs, businesses can establish trust and credibility with potential partners and customers. This can be especially important in markets where personal relationships and networks play a significant role in business success.

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Mastering Case Study Frameworks: A Comprehensive Guide for Success

Note: Don’t forget to read and work through our Masterguide to Case Frameworks if you’re still struggling with your profitability case frameworks after reading this article.

Table of Contents

Case study frameworks are crucial tools for management consultants and aspiring candidates in the consulting industry. They provide a structure to analyze and solve complex business problems, helping consultants deliver valuable insights and recommendations to their clients. In this comprehensive guide, we dive into the most essential case study frameworks, their applications, and how to effectively use them in your consulting practice.

Introduction to Case Study Frameworks

Case study frameworks are structured approaches used to analyze and solve business problems during consulting case interviews and client engagements. These frameworks help consultants break down complex problems into smaller, manageable components, allowing for a systematic and efficient approach to problem-solving.

Consultants Create Frameworks to Run Teams

Remember, frameworks are not just to be memorized. They are your tailored, objective-driven, approach to solving a problem.

Because frameworks are simply the modules that a consulting team would assign to their team members.

When creating your frameworks, think to yourself, can my buckets be assigned successfully to Team Member 1, Team Member 2, and Team Members 3 & 4?

The Importance of Case Study Frameworks

Case study frameworks are valuable for several reasons:

• They provide a structured way to approach business problems, making it easier to identify the root cause and develop actionable solutions.
• They help consultants effectively communicate their thought process, findings, and recommendations to clients and interviewers.
• They enable consultants to leverage their experience and knowledge by applying proven methodologies to new business situations.

Flexibility and Adaptability in Applying Case Frameworks

It’s essential to understand that case frameworks are not one-size-fits-all solutions . Instead, they should be viewed as flexible tools that can be adapted, combined, and customized to fit the specific problem at hand. In other words, the best case frameworks are those that can be tailored to address the unique challenges and requirements of each client and situation.

In the following sections, we will discuss some of the most commonly used case study frameworks in management consulting. We will cover their key components, when to use them, and how to apply them effectively.

Profitability Case Frameworks

The profitability framework is a fundamental case study framework that focuses on understanding the drivers of a company’s financial performance. It is most applicable in cases where the client’s primary objective is to improve financial performance, either by increasing revenue, reducing costs, or both.

If you want to read even more on profitability and how to approach it for any case type , take a look at our article here .

Do Not Regurgitate Revenue Cost

As we mentioned above, it is absolutely critical that you stay flexible and adaptable with your frameworks. This is especially true for Profitability. Gone are the days of a generic Revenue Cost framework.

Consultants do not solve real life projects with Revenue and Cost and nor should you in your cases.

Adapt and Adjust Based on the Case

The most important thing to remember about a profitability framework is that it needs to be adjusted to the case . Bucket options include (but are not limited to):

• Competition
• Store (breakdown)
• External/Macro
• Revenue (in context/tailored)
• Cost (in context/tailored)
• Value chain

How do you decide which buckets to use? Well, it depends on the case! For example, if the prompt tells you there are 3 products our company has and we just launched a 4th, of course you need a products bucket. If we are McDonalds (international, different models worldwide), of course you need to break it down by geography.

Listen to how I break this down to a candidate of mine here:

As an example, say we have a food delivery company that has previously focused on topline revenue growth, has negative margins, and now needs to become profitable. How would you create a framework for this? (Please don’t say revenue cost!)

Here’s one option (of multiple):

This probably looks different to what you expected. But it’s also why my candidates consistently get interviewer feedback saying their frameworking is the best they have ever seen.

Remember, every profitability case should have a slightly different set of buckets, based on the problem you are solving.

Again, for a deeper breakdown, check out our article here .

Applying the Profitability Framework

To apply the profitability framework effectively, follow these steps:

•   Identify the relevant components (revenue, costs) and drivers (price, quantity, variable costs, fixed costs) that are most pertinent to the client’s problem.
•   Analyze the current performance of these components and drivers, comparing them against industry benchmarks and competitors.
•   Identify opportunities for improvement and develop recommendations to address these opportunities, considering both short-term and long-term implications.

When identify which areas to pursue (across profit, margin, revenu, and cost), you want to tackle any of the following:

• What’s the biggest? – This refers to the biggest piece of the revenue/expenditure pie, which has the potential to significantly impact the end result.
• What’s changing the most? – Rapid changes in a revenue/cost segment could be a significant driver and potentially fixable.
• What’s the easiest to answer or eliminate? – Opt for quick wins. These are typically yes/no types of questions that can eliminate many other factors.
• What’s the most different? – Look for differences between companies, business units, products, and geographies. Differences often equate to opportunities.
• What’s the most likely? – This is self-explanatory and refers to the most probable source of revenue/cost issues

Market Entry Case Frameworks

The market entry framework is used to evaluate the attractiveness and feasibility of entering a new market or launching a new product. It helps consultants assess the potential opportunities and risks associated with market entry and develop a comprehensive strategy for successful market penetration.

Key Components of the Market Entry Framework

Just like with profitability, you have to tailor your framework to the case prompt.

One option for a market entry framework is as follows:

•   Market Analysis : Assessing the size, growth, and dynamics of the target market.
•   Competitive Landscape : Evaluating the competitive forces and players in the market.
•   Internal Capabilities : Analyzing the company’s strengths, weaknesses, and resources to enter the market.
•   Entry Strategy : Determining the best approach to enter the market, such as organic growth, joint ventures, or acquisitions.

But, the above is just one option. We could also have a Market, Company/Competition, and Financials framework. However, ideally we would articulate it as follows:

Now, remember that all of the above is just for the question Should We Enter This Market?

A different market entry question might be “Our Client has determined that x market is attractive and wants to enter. They have brought us to figure out if we should”. This needs a different framework.

Or, the question might be “Our client has decided to enter x market. How should we enter?” The above frameworks don’t work here!

As a final example, perhaps the case tells us “We are evaluating between 3 markets to enter. Which one should we enter?” Again, new framework needed.

To understand how to tackle these more unconventional market entry cases, please take a look at our 360 degree course .

The Porter's Five Forces Case Framework

Porter’s Five Forces is a widely recognized case study framework developed by Harvard Business School professor Michael E. Porter. It helps consultants analyze the competitive forces shaping an industry and understand the attractiveness and profitability of a market.

Key Components of Porter’s Five Forces Framework

The Porter’s Five Forces framework consists of five main components:

•   Threat of New Entrants : The ease with which new competitors can enter the market and challenge established players.
•   Bargaining Power of Suppliers : The ability of suppliers to influence the terms and conditions of their business relationships with companies in the industry.
•   Bargaining Power of Buyers : The ability of customers to influence the terms and conditions of their business relationships with companies in the industry.
•   Threat of Substitute Products or Services : The likelihood that customers will switch to alternative products or services that fulfill the same need.
•   Rivalry Among Existing Competitors : The intensity of competition among companies within the industry.

When to Use Porter’s Five Forces Framework

The Porter’s Five Forces framework is most applicable in cases where the client is considering entering a new market, launching a new product, or assessing the competitive landscape of an industry.

Applying Porter’s Five Forces Framework

To apply the Porter’s Five Forces framework effectively, follow these steps:

•   Analyze each of the five forces, considering their impact on the industry’s attractiveness and profitability.
•   Identify the key drivers and trends influencing each force and assess their potential implications for the client.
•   Develop recommendations to address the opportunities and challenges posed by the competitive forces, considering both short-term and long-term strategies.

The SWOT Analysis Framework

The SWOT analysis is a widely recognized case study framework that helps consultants evaluate a company’s internal strengths and weaknesses as well as external opportunities and threats. This framework enables consultants to identify key strategic issues and develop recommendations to address them.

Key Components of the SWOT Analysis Framework

The SWOT analysis framework consists of four main components:

•   Strengths : The internal capabilities and resources that give the company a competitive advantage.
•   Weaknesses : The internal limitations and vulnerabilities that hinder the company’s performance.
•   Opportunities : The external factors that the company can capitalize on to improve its performance.
•   Threats : The external factors that pose risks to the company’s performance and success.

When to Use the SWOT Analysis Framework

The SWOT analysis framework is most applicable in cases where the client is seeking to improve its overall performance or address specific strategic issues.

Applying the SWOT Analysis Framework

To apply the SWOT analysis framework effectively, follow these steps:

•   Identify the company’s key strengths and weaknesses, considering factors such as resources, capabilities, and market position.
•   Analyze the external environment, identifying opportunities and threats that may impact the company’s performance.
•   Develop recommendations to leverage the company’s strengths, address weaknesses, capitalize on opportunities, and mitigate threats.

Growth Case Frameworks

The growth strategy framework focuses on identifying and evaluating potential avenues for a company to achieve revenue and market share growth. This framework helps consultants develop a strategic roadmap for the client’s expansion and growth.

Key Components of the Growth Strategy Case Framework

One growth strategy case framework can be broken down into four main components:

•   Market Penetration : Increasing sales of existing products or services in current markets.
•   Market Development : Entering new markets with existing products or services.
•   Product Development : Introducing new products or services in existing markets.
•   Diversification : Expanding into new markets with new products or services.

Remember, however, just like with profitability and market entry cases, you need to listen to the prompt and adjust this framework accordingly to the prompt and company context. Different growth prompts will have different case frameworks.

When to Use the Growth Strategy Case Framework

The growth strategy framework is most applicable in cases where the client is seeking to expand its business, increase market share, or explore new growth opportunities.

Applying the Growth Strategy Framework

To apply the growth strategy framework effectively, follow these steps:

•   Assess the company’s current performance, market position, and growth potential.
•   Identify potential growth opportunities across the four growth strategy components, considering factors such as market attractiveness, competitive landscape, and internal capabilities.
•   Evaluate the feasibility and risks associated with each growth opportunity, taking into account factors such as market entry barriers, resource requirements, and potential synergies.
•   Develop a strategic roadmap for the client’s growth, prioritizing the most attractive and feasible growth opportunities.

Tips for Successfully Applying Case Study Frameworks

To effectively apply case study frameworks in your consulting practice, consider the following tips:

•   Don’t rely solely on case frameworks : Remember that frameworks are just one tool in your problem-solving toolkit. Use them as a starting point, but be prepared to adapt and customize them to fit the specific problem at hand.
•   Listen carefully to the client’s needs : Understand the client’s objectives, priorities, and constraints before selecting and applying a framework. Tailor your approach to address the client’s unique needs and circumstances.
•   Stay flexible and adaptable : Be prepared to adjust your approach as new information emerges or as the client’s needs evolve. Be open to combining and customizing frameworks to develop a tailored solution.
•   Communicate your thought process clearly : Clearly explain the rationale behind your chosen framework, the steps you took to apply it, and the insights and recommendations that emerged from your analysis. This will help ensure that your client and interviewers understand and appreciate your approach.

Enroll in our 360 course . This comprehensive course focuses heavily on building up your frameworking optimally. To get a better understanding of how to create killer case frameworks, start with our master article on case frameworks.

Mastering case study frameworks is crucial for success in the consulting industry. By understanding the key components, applications, and best practices for applying these frameworks, you can develop a strong foundation for effective problem-solving and strategic thinking.

Remember to stay flexible, adaptable, and customer-centric in your approach, and always be prepared to learn and grow as you refine your skills in applying case study frameworks. By doing so, you can unlock unparalleled insights and deliver exceptional value to your clients and interviewers alike.

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Career in Consulting

11 must-know case interview frameworks

This is a complete guide to case interview frameworks.

In this in-depth guide, you’ll learn:

• 11 must-know consulting frameworks to ace your case interviews
• How to use these frameworks in your case interviews
• And how to create custom frameworks

So, if you want to land an offer from a top consulting firm, this guide is for you.

Let’s dive right in.

Table of Contents

Get the latest data about salaries in consulting, what are case interview frameworks.

A case interview framework is a structured way to approach how to solve a problem .

In other words:

Case interview frameworks help Consultants (and aspiring Consultants) brainstorm and organize their ideas to solve complex problems.

For example, a case interview framework is the profitability framework.

Let’s imagine this business problem:

Your client is manufacturing cars. And, for the past 2 years, they have been experiencing declining profits. They hire us to determine the root causes of this business problem.

And to help this company, you should explore the two main profit drivers: revenues and costs.

And explore if revenues decreased (one cause of declining profits).

Or explore if costs increased (another cause of declining profits).

Well… this (simple) example is a business framework.

Related articles

Check also these articles to ace your case interviews:

16 case interview tips

16 case interview mistakes

Ace market sizing questions (incl. 3 market sizing frameworks) 

Case interview preparation

280 case interview examples

Let’s detail the 11 common case interview frameworks you must know to ace your case interviews .

And let’s start with Porter’s five forces.

Case interview framework 1: Porter’s Five Forces

Let’s start with an analysis of external factors.

And one of the most well-known business frameworks is Michael Porter’s Five Forces model.

And it can be found in the book Competitive Strategy: Techniques for Analyzing Industries and Competitors .

Michael Porter’s Five Forces model says the following:

Competitive advantage in an industry is dependent on five primary forces :

• The threat of new entrants
• How much bargaining power do buyers have
• The bargaining power of suppliers
• Threat of substitute products
• Rivalry with competitors

The degree of these threats determines the attractiveness of the market:

• An intense competition allows minimal profit margins.
• Mild competition allows wider profit margins.

Therefore, the goal is to assess whether a company should enter/exit the industry or find a position to defend itself against these forces best or influence them in its favor .

For instance, your market entry framework should include the components of Porter’s Five Forces. 

The threat of new entrants (barriers to entry)

Several factors determine the degree of difficulty in entering an industry:

• Economies of scale

Product differentiation

• Capital requirements vs. switching costs
• Access to distribution channels
• Cost advantages independent of scale
• Proprietary product technology
• Favorable access to raw materials
• Favorable location
• Government subsidies
• Learning curve
• Government policy

Relationship with buyers (buyer power)

• It is concentrated or large purchases volumes relative to the seller’s sales
• The products it purchases front the industry are standard or undifferentiated
• It faces few switching costs
• Buyers pose a credible threat of backward integration
• The industry’s product is unimportant to the quality of the buyer’s products or services
• The buyer has full information
• Purchasing potential
• Growth potential
• Structural position: intrinsic bargaining power and propensity to use it
• Cost of servicing

Relationship with suppliers (supplier power)

A supplier group is powerful if:

• It is not obliged to contend with other substitute products for sales in the industry
• The industry is not an important customer of the supplier group
• The supplier group is an important input to the buyer’s business
• The supplier group’s products are differentiated, or it has built up switching costs
• The supplier group poses a credible threat to forward integration

Key issues in purchasing strategy from a structural standpoint are as follows:

• Stability and competitiveness of the supplier pool
• An optimal degree of vertical integration
• Allocation of purchases among qualified suppliers
• The threat of backward integration

Substitute products

Substitute products that deserve the most attention are those that:

• Compete in price with the industry’s products
• Are produced by industries earning high profits

Rivalry among competitors (competitive analysis)

Now, let’s analyze the competitive landscape.

Rivalry among existing competitors increases if:

• Numerous or equally balanced competitors exist
• Industry growth is slow
• Fixed costs are high
• There is a lack of differentiation (commodity market)
• There are low switching costs
• Production capacity is augmented in large increments

To end this first section about Porter’s Five Forces, you can watch this video made by the channel Business To You.

Case interview framework 2: the 4 P’s

The 4Ps are:

And it’s often seen as a Marketing framework.

The 4Ps framework can help you in your case interviews in one of the following situations :

• A market entry strategy or a product launch strategy
• To understand why sales (or market shares) have decreased

Now, let’s look at the different elements of the 4P framework.

In examining the competitiveness of a company’s product, whether it is a new product being introduced on the market or an existing product manufactured by the company, one must examine the product itself.

The following are some of the questions you might find helpful in assessing a product’s competitiveness :

• Does the product serve a particular market segment? Is it a mass market or a niche product
• Is it differentiated enough to stand out against the competition? If yes, how? If not, what can be done to improve its value perception?
• What features can be added to the product that would add to the perception of value to the consumer?
• What are some of the packaging issues that might present an opportunity or impediment to increased sales?
• Does my packaging reflect the positioning of the product?
• Does the product have patent protection?
• What financial role is the product playing (i.e., cash cow, long-term profit potential, etc.)?
• Are there any other products that can act as substitutes?

Getting the right price for a product is extremely important for the company’s success.

Unfortunately, sometimes the right price is not easy to determine.

Depending on the price elasticity of the product, a 1% increase in price has anywhere from a -20% reduction to a 25% increase in net income.

The most important factor that drives price is the customer’s perceived “value” of the product .

This is also known as the customer’s willingness to pay.

For example, if a company produces shirts with a unit cost of $10, but the market perceives the product as fashionable or has the right brand name, the shirt can be priced to capture any consumer surplus at $50 or even $80 per shirt.

The same manufacturer introduces another shirt at the same cost the following season.

This time, however, the shirt is no longer considered in vogue and thus has little “value.”

This time, the shirt would be priced at $25.

Other factors determining a product’s price are:

• The Cost to Produce COGS : maintain low costs to capture a bigger profit margin.
• The price paid previously – the expected price: if consumers are used to paying a certain price for a product, it is challenging to convince them to pay a $20 premium for the same product. However, if their perceived product value is higher than what they paid in the past, there’s room to capture some consumer surplus.
• The price of substitutes : the price of a product is driven down if the product can be easily substituted by another that serves the same function.

After assessing the product positioning and understanding who your customers are, you need to develop a strategy around which distribution channel to use and where to sell your product .

The distribution channel can be through a third party or an in-house sales force.

And the distribution channel is responsible for transmitting the company’s product to the customer (wholesaler, retailer, end-user).

The selected distribution channel and the outlets at which the product is sold MUST be aligned with the product’s positioning and focused customer segment.

There are many issues to consider when examining the place/channel distribution.

Below are some thoughts to formulate a strategy for delivering the product to market :

• What are the customer preferences regarding distribution?
• Which channels most closely align with the company’s strategy?
• Does the company need to build new channels or eliminate existing ones?
• Does it make more sense to go direct to the end-user or deliver the product through intermediaries?
• What are the economics of the channel?
• What would be the relationship of the company’s sales force in this arrangement?
• How would the company address any potential shifts in power to the channel?
• How do competitors distribute their products?

Promoting and developing a specific brand for the product has many benefits :

It develops a certain perception of the product in consumers’ eyes.

The product’s success will depend on the message conveyed to the consumer and what that consumer ultimately believes about the product.

To maintain a certain perception of exclusivity, traditional advertising (mass or niche), refraining from advertising, word-of-mouth marketing, direct mail, etc., can all be included in promotion and branding.

Here is a list of issues worth analyzing in case interviews:

• How is the marketing strategy different from the competition?
• What message are we trying to communicate? What is the objective?
• Where are we advertising our product (newspapers, TV, radio, Internet, etc.)?
• Pull strategy: (direct at end-user) use of advertising, direct mail, telemarketing, word of mouth, and consumer promotions.
• Push strategy: trade promotions, sales aids, and sales training programs
• How much money is allocated to marketing?
• How are competitors marketing their products?

Ace market sizing questions

Case interview framework 3: the 3 C’s

Knowing the 3C framework and the details upon which the framework is based is crucial to cracking the case .

For instance, the 3C framework is often used to assess the business landscape.

Or by simply defining a growth strategy.

For instance, your market entry framework should include the 3C’s. 

By analyzing the three elements, Consultants can identify the key success factors and create a viable marketing strategy.

DO NOT attempt to tackle a case during the interview by saying, “I would like to use the 3Cs framework…”

Before you even finish your sentence, the interviewer will have decided to reject you.

This point will be emphasized many times during this guide.

A good first step in assessing the business landscape is to examine the customer, the people whose problems the industry is trying to solve.

Below are eight factors to consider when examining the customer.

#1: Customer Identification

Who is the customer?

In trying to identify the customer, remember that the person who makes the purchase decision, the person who pays (the customer), and the end user (the consumer) may all be different people.

For example, a doctor may prescribe medicine that will be paid for by an insurance company (the customer) and ultimately used by a patient (the consumer).

#2: Customer Segmentation

Is it possible to group customers into distinct segments?

Customer segmentation can make it easier to understand customer needs and preferences, the size and growth rate of different revenue streams, and to identify trends.

It may make sense to segment customers by: 1. Age group 2. Gender 3. Income level 4. Employment status 5. Distribution channel 6. Region 7. Product preference 8. Willingness to pay 9. New versus existing customers 10. Large versus small customers.

How big is the market?

How big is each customer segment?

How many customers are there in each segment, and what is the dollar value of those customers?

How fast is the market growing?

What is the growth rate of each customer segment?

#5: Customer Preferences

What do customers want?

Do different customer segments want different things?

Are the needs and preferences of customers changing over time?

#6: Willingness to Pay

How much is each customer segment willing to pay?

How price sensitive is each customer segment?

For example, students will normally be very price sensitive, which means that offering student discounts can increase units sold by enough to increase total revenue.

#7: Bargaining Power

What is the concentration of customers in the market relative to the concentration of firms?

If there is a small number of powerful customers who control the market?

Then it may be necessary to either play by their rules or search for a more favorable market.

Do customers face high switching costs?

If customers face high switching costs, this will reduce their bargaining power and allow firms to charge higher prices than would otherwise be possible.

#8: Distribution

What is the best way to reach customers?

Does each customer segment have a preferred distribution channel?

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Competitors

It is also important to understand the business landscape to understand the competition .

Competition can come from firms within an industry offering similar solutions to the same group of customers (for example, Pepsi and Coca-Cola).

But, competition can also come from firms in other industries who produce substitutes .

Substitutes may have quite different characteristics (for example, petroleum and natural gas).

Still, they represent a form of indirect competition because consumers can use them in place of one another (at least in some circumstances).

For example, petroleum and natural gas might produce heat and energy.

Below are ten factors to consider when examining the competition.

#1: Competitor Identification

Who are the company’s major competitors?

Taking Cadbury as an example, some of its major competitors might include Lindt, Ferrero, Nestlé, Hershey’s, and Mars.

What products and services does the competition offer?

#2: Substitutes

Who are the company’s indirect competitors? That is, which firms are producing substitutes?

Identifying indirect competitors helps to take a broader view of what the company offers.

For example, Cadbury sells chocolate.

But it might be considered a snack food company.

So indirect competitors might include companies like Lays, Cheetos, and Doritos.

#3: Competitor Segmentation

Is it possible to segment competitors in a meaningful way?

The competition might be grouped by distribution channel, region, product line, or customer segment.

#4: Size and Concentration

What are the revenues and market shares of major competitors?

What is the concentration of competitors in the industry?

Are there many small competitors (a low-concentration industry) or a few dominant players (a high-concentration industry)?

Examples of high-concentration industries include oil, tobacco, and soft drinks.

Examples of low-concentration industries include wheat and corn.

#5: Performance

What is the historical performance of the competition?

Relevant performance can be profit margins, net income, and return on investment.

#6: Industry Lifecycle

Where is the industry’s lifecycle (early stage, growth, maturity, or decline)?

#7: Industry Drivers

What drives the industry: brand, product quality, the scale of operations, or technology?

#8: Competitive Advantages

What is the competition good at?

How sustainable are these advantages?

What are the competition’s weaknesses? How easily can these weaknesses be exploited?

#9: Competitive Strategy

What strategy is the competition pursuing?

Is the competition producing products that are low-cost or differentiated?

What customer segments is the competition targeting?

What are the competition’s pricing and distribution strategies?

What is the competition’s growth strategy?

Are they seeking growth by focusing on customer retention, increased sales volume, entering new markets, or launching new products?

#10: Barriers to entry

Key barriers to entry include capital requirements, economies of scale, network effects, product differentiation, proprietary product, technology, government policy, access to suppliers, access to distribution channels, and switching costs. (see Porter’s five forces model).

In assessing the business landscape, it is not enough to understand the customer and the competition.

Understanding the firm from whose perspective you are analyzing the industry is also important .

Below are ten factors to consider when examining the company.

#1: Performance

What is the historical performance of the company?

What is its market share?

If profits are falling, what is the cause of the issue?

#2: Competitive Advantage

What resources and capabilities does the company possess?

Consider tangible assets (property, plant, equipment, inventory, and employees) and intangible assets (brand, patents, copyrights, and specialized knowledge).

How sustainable are the company’s advantages? What are the company’s weaknesses, and can they be remedied?

#3: Competitive Strategy

What is the company’s competitive strategy?

Is the company producing products that are low-cost or differentiated?

Which customer segments does the company target? What are the company’s pricing, distribution, and growth strategies?

#4: Products

What does the company offer, and how does it benefit consumers?

Does the product have any downsides or side effects?

Is the product differentiated?

How does the company’s product offering compare with the competition?

Are there substitutes available?

#5: Finances

If the company is considering a particular course of action, does it have sufficient funds available?

Financing may be secured from various sources, including internal cash reserves, bank loans, shareholder loans, bond issues, or the sale of shares.

How many units will the company need to sell to cover the cost of the project?

Is there sufficient market demand?

#6: Cost Structure

To understand a company’s cost structure, it helps to break each business unit down into the collection of activities performed to produce value for customers.

How each activity is performed, and its economics will determine a firm’s relative cost structure within its industry.

Are costs predominantly fixed or variable?

How does this compare with the competition?

#7: Organisational Cohesiveness

Understanding a firm’s inner workings is important since competitive strategies can fail if they conflict with its culture, systems, and general business.

The organizational aspects of a firm can be examined using the McKinsey 7 S Model.

#8: Marketing

How do customers perceive the company and its products?

How does the company communicate with customers?

#9: Distribution Channels

What distribution channels does the company use to reach customers?

Are there other channels that are more cost-effective or preferred by customers?

#10: Customer Service

Does the company have a customer loyalty program?

How does the company interact with customers and support its customers post-sale?

Are employees empowered to solve problems and delight customers?

Case interview framework 4: PESTEL (or PESTLE)

PESTEL is an acronym for five factors – Political, Economic, Social, Technological, Legal, and Environmental – that can influence a company’s performance or strategic decisions.

A PESTEL analysis examines these external forces that can have strategic implications for the company .

And conducting a PESTEL analysis can be helpful for three reasons:

Understanding the facts : Understanding the big picture can help a business make informed decisions and avoid incorrect assumptions based on past experience.

Anticipating change : Understanding the macro environment can help a business identify trends and anticipate change, allowing it to take advantage of opportunities and manage potential threats.

Avoiding failure : Understanding the macro environment can help a business (and its investors) to identify projects that are likely to fail due to unfavorable conditions.

Below is a list of some of the general issues the interviewee should consider:

Political forces

• Are there any legal or political restrictions, such as new legislation, that would impede the product’s sale?
• What regulations must be addressed before introducing the product (health regulations/antitrust, etc.)?

Economic factors

• Has the economy’s overall performance impacted the sale of my product? Interest rate? Unemployment figures? Exchange rates? Balance of Payments? Free-Trade Agreements?

Socio-cultural forces

• What norms/cultural practices should be considered when entering a new market?
• Are there any trends in religious practices/traditions/rituals that should be considered?

Technological factors

• What are some of the technological trends in the market that could help/diminish the sale of the product (e.g., paper-based media vs. internet)?
• What R&D advancements were made by the market that would have a long-term impact on the very survival of the company (e.g., pay-per-view video vs. video stores)?

Environmental factors

• How does the business affect the environment?

Legal factors

Finally, the folks from the YT channel Business To You have made a great video about the PESTLE model:

Case interview framework 5: Profitability framework

There’s a good chance that the cases discussed during the interview will often touch on issues of declining profitability .

This framework is very helpful in organizing your thoughts and methodically approaching profitability problems.

According to the Profitability Framework’s opening statement, profit is a function of revenue and costs.

A company’s profitability declines when revenue has dropped, costs have risen, or both.

The goal is to identify the component of the equation that is reducing profitability and determine the best course of action for fixing it.

A quick note:

Variable costs are costs that vary with the units sold.

Fixed costs are costs that do not vary with the units sold.

Case interview framework 6: Unit contribution

The following is a framework you can use to help you understand the economics of the product’s contribution.

This framework is critical when forecasting the overall success of the product .

Case interview framework 7: Break Even

A break-even analysis tells you how many units of a product must be sold to cover the fixed and variable production costs.

For instance, this is important when deciding whether to launch a new product.

Also, a break-even analysis concerns a product’s contribution margin (selling price minus variable costs per unit; see the previous section).

So, the contribution margin is the excess between the selling price of the product and the total variable costs .

For example, if an item sells for $100, the total fixed costs are $25 per unit, and the total variable costs are $60 per unit, the product’s contribution margin is $40 ($100 – $60).

This $40 reflects the revenue collected to cover the remaining fixed costs, which are excluded when figuring the contribution margin.

Case interview framework 8: ROI

ROI is an acronym for Return On Investment.

The ROI is a performance measure that a company can use to evaluate the return from an investment or to compare the returns of several different investments .

For example, if you spent $10,000 and made $15,000, your ROI would be 50%.

[ ( $15,000 – $10,000 ) / $10,000 ] x 100% = 50%

Case interview framework 9: Payback

A payback period is the time needed to recover the cost of an investment.

Simply put, it is the time an investment reaches a breakeven point .

For example, if a company invests $300,000 in a new production line, and the production line then produces a positive cash flow of $100,000 per year, then the payback period is 3 years.

Another example:

You are offered to invest in the project $120K.

The project will bring on average $30K a year in net profit.

Using the payback formula, we get a payback period for capital invested of four years (we divided 120,000 by 30,000).

Case interview framework 10: Value Chain

A Value Chain Analysis is a concept first described and popularised by Michael Porter in his 1985 book, Competitive Advantage .

Value Chain Analysis involves identifying all the important business activities and determining which ones give the company a competitive advantage .

Also, a value chain analysis can be performed to identify potential root causes of a business problem.

For instance, a Value Chain Analysis can be undertaken by following three steps:

• Break down a company into its key activities under each heading in the model.
• Identify activities that contribute to the firm’s competitive advantage by giving it a cost advantage or creating product differentiation.
• Develop strategies around the activities that provide a sustainable competitive advantage.

Cost advantage

A business can achieve a cost advantage over its competitors by understanding the costs associated with each activity.

And then organizing each activity so that it is as efficient as possible.

Porter identified ten cost drivers related to each activity in the value chain : 1. Economies of Scale 2. Learning 3. Capacity utilization 4. Linkages among activities 5. Interrelationships among business units 6. Degree of vertical integration 7. Timing of market entry 8. Firm’s policy on targeting cost or product differentiation 9. Geographic location 10. Institutional factors (regulation, union activity, taxes, etc.)

A firm can develop a cost advantage by controlling these ten cost drivers better than its competitors.

A firm can achieve product differentiation by focusing on its core competencies to perform them better than its competitors .

Product differentiation can be achieved through any part of the value chain.

For example, procurement of unique inputs and not widely available to competitors, providing high levels of product support services, or designing innovative and aesthetically attractive products.

Case interview framework 11: Ansoff Matrix

The Product/Market Expansion Matrix (or “Ansoff Matrix” as it is sometimes called) was developed by a Russian-American mathematician named Igor Ansoff.

And it was first explained in his 1957 Harvard Business Review article entitled Strategies for Diversification.

The Product/Market Expansion Matrix can help a firm define a product-market growth strategy by focusing on four growth alternatives :

1. Market Penetration; 2. Market Development; 3. Product Development; and 4. Diversification.

The four alternative growth strategies are:

Market Penetration : A strategy to increase sales without departing from the original product-market strategy. This involves increasing sales to existing customers and finding new customers for existing products.

Market Development : A strategy to sell existing products to new markets (normally with some modifications). Ansoff described this as a strategy “to adapt [the] present product line … to new missions.” For example, Boeing might adapt a passenger aircraft model for cargo transportation.

Product Development : A strategy to sell new products, with new or altered features, to existing markets. Ansoff described this as a strategy to develop products with “new and different characteristics such as will improve the performance of the [existing] mission.” For example, Boeing might develop a new aircraft design with improved fuel economy.

Diversification : A strategy to develop new products for new markets, which can be related to the current business (e.g., vertical integration or horizontal diversification) or unrelated (e.g., conglomerate diversification).

Learn how to create custom case interview frameworks

The question then becomes, “How do you use business frameworks in consulting interviews?”.

On the Internet, numerous suggestions exist for how you ought to proceed.

However, the two main schools of thought are Victor Cheng’s frameworks and Marc Cosentino’s Case In Point.

However, these two approaches have one thing in common: they both attempt to impose pre defined frameworks on cases .

For instance:

For a market entry case, those resources tell you the market entry framework you should use.

And for an M&A case, those resources tell you exactly the merger and acquisition framework you should use.

They push you to adapt the problem to your tools .

Since every case is different, this will inevitably result in average outcomes and rejections.

For instance, 10 different M&A cases should have 10 different merger and acquisition frameworks. 

Another example: 10 different market entry cases should have 10 different market entry frameworks. 

So, you have to learn how to create custom case interview frameworks.

You must create your own unique frameworks using First Principle Thinking .

Those case interview frameworks must be MECE .

To do so, I’ve created free training to help you in that journey .

You can sign up for free with the link below.

Case interview frameworks: Final words

I hope you enjoyed this updated guide to business frameworks.

Those consulting frameworks will help you join a top consulting firm.

Now, I’d like to hear from you:

Which frameworks from today’s guide do you use the most?

Or which frameworks are new to you?

Has this guide helped you develop your business acumen?

Let me know by leaving a quick comment below right now.

To your success,

P.S. Need help with your case interview preparation?

Check whether our coaching program is a good fit. 

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