Why is the increase in revenues (as a result of market share increase) calculated the way it is? As opposed to simple calcs?

Question

Here they've calculated the increase in revenue in a convoluted way, I would've thought that if the market share increased by 3% then the additional revenue would simply be 3% x total market size (4.3bil) = $129mil

Or was I supposed to clarify whether market share is in terms of units sold (as opposed to rev/year ie 3% of 4.3bil)? In which case it makes sense because I need to figure out how many additional units and multiple by avg sale price.

Answer 1

Hi there,

I would be happy to provide the solution:

Given that BabyformulaCo will be provided more shelf space, their market share increases from 30% to 33%. However, out of those 5.16m additional cans of baby formula, they sell 3.00m cans via the WIC.
As such, in order to avoid double counting, you need to subtract the WIC cans from the total additional cans sold to arrive at the additional cans through market share increase (see also here).

Best,

Hagen

Answer 2

Hi there,

Great question!

Always ask questions when a case doesn't make sense. It doens't necessarily mean there's a mistake there, but it's always worth going deeper in order to validate it.

Basically, you need to subtract those WIC cans to avoid doublecounting. Then you should get to the same number as in the solution.

Sharing with you a couple of other cases you might find useful to practice:

https://www.preplounge.com/en/management-consulting-cases/interviewer-led-mckinsey-style/intermediate/element-mobile-expands-into-refurbished-phones-mbb-2nd-round-302

https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/advanced/mbb-first-round-soy-technologies-303

https://www.preplounge.com/en/management-consulting-cases/candidate-led-usual-style/advanced/mbb-second-round-codewave-employee-turnover-challenge-304

Best,
Cristian