Merger of two beer manufacturers

After you read the introduction the interviewee should recap key points to make sure he/she got everything right and then ask some clarifying questions.

a) Why those two companies decided to merge?

b) Are there any specific costs our clients would like us to focus on and do they have any specific number in mind when it comes to reducing them?

c) What should be the key goal of the new marketing strategy?

d) What's the market share of both players and competitors?

e) What's the budget?

f) What's the timeline?

g) Do our clients operate outside of their home country?

h) How the overall market has been doing?

a) Why those two companies decided to merge?

Answer: It is a defensive move to protect themselves against an aggressively growing competitor (Company C).

b) Are there any specific costs our clients would like us to focus on and do they have any specific number in mind when it comes to reducing them?

Answer: Our clients are interested mainly in production costs, all other areas are of secondary importance. They would like to see them cut by as much as possible, they do not have any specific number in mind.

c) What should be the key goal of the new marketing strategy?

Answer: To increase market share and become the market leader in terms of it.

d) What's the market share of both players and competitors?

Answer: Company A - 20%, Company B - 10%, Company C - 40%.The rest of the market is divided among small regional breweries, none of them has more than 5% of the total market share.

e) What's the timeline?

Answer: Our clients are the most interested in hearing about strategies that could be implemented in around 2 quarters from now. Any strategies that take longer to implement are of secondary importance.

f) What's the budget?

Answer: We don't have an exact number, but we can assume it's sizable and shouldn't be considered a constraint.

g) Do our clients operate outside of their home country?

Answer: No, let's assume they do not.

h) How the overall market has been doing?

Answer: The market has been growing at a steady pace of 2% and is expected to continue that growth pace in the foreseeable future, however, there are important differences between the 3 segments of the market. Premium growth rate: 4%, High Quality: 1%, Traditional: -2%. The decline in Traditional is caused by demographics, many elderly customers prefer this beer and they tend to limit consumption as they age, additionally as the country continues to develop new customers opt for Premium beer.

There is no one and only ideal structure to tackle this, as several different structures could be used, however, a strong one should certainly include most of the following points:

• Segmentation of costs
• Analysis of production levels and capacity.
• Analysis of current marketing strategies of our clients (For example 4P framework could be used here - Prices, Product, Place(distribution channels), Promotion).
• Benchmarking marketing strategies of Competitor C to understand what has let this company grow at a rapid pace.
• Analysis of customers and their preferences
• Best strategies to decrease production costs and increase market share.

The case structure could be organized as a list of those bullet points or by grouping them into; for example, 2 main buckets, one dealing with cost-cutting and the other with marketing strategy. Below is an example of how it could potentially be presented by a strong interviewee. We will follow that structure later on.

Example: "To effectively tackle 2 objectives presented by our clients I would like to break down my analysis into two main buckets, one called "cost-cutting" and the other "new marketing strategy". After going through those buckets I would also like to spend a moment summarizing my work and thinking about the best recommendations. In the first bucket, I would like to firstly understand the current production costs of our clients by breaking them down by any way that's available, and then I would like to also better understand the current production process, including where and how the beer is produced. In my second bucket, I would like to firstly understand the current marketing strategies of our clients by focusing on 4 different aspects: pricing, product quality, promotional activities, and distribution channels used. I would like to see how effective those have been when compared to what the competition has been doing in those areas. Then I would like to understand who are customers in this market and what do they want. Finally, I would like to combine all the insights gathered along the way and come up with some recommendations."

The best way to start analysis here is for the interviewee to ask for a cost breakdown. This could be combined with a question about production volume.

If the interviewee won't volunteer any hypothesis on his/her own then you can ask for brainstorming before providing that information. This insight already gives us something that could be recommended to the client.

Below are some additional insights that should be provided to the interviewee upon request:

Each company has one facility and they are located on the opposite sides of the country. There is no way to move any of those facilities and our clients are currently uninterested in capacity expansion. Company A operates at 80% of its total capacity and Company B at 60% (from the capacity perspective there is no difference in what type of beer is produced).

A strong candidate should try to proactively optimize production levels for both facilities (for simplicity we can assume that the cost per bottle won't change together with changes in capacity utilization rate and that there won't be any other major costs related to production level shifts). If the candidate won't go in that direction try to guide him/her there.

Based on that data a strong candidate should hypothesize that costs are mostly driven by economies of scale and this is true. On top of that differences in employees' skill sets and differences in supplier base also play a role.

A strong candidate wouldn't stop cost analysis after getting just a few insights, but would try to dig a bit deeper and obtain more information to get a better picture. If the candidate doesn't seem to go in this direction you can ask him/her where else he/she would like to look for other cost reduction opportunities. Several reasonable ideas could be presented here (e.g. removing overlaps in administrative costs), acknowledge all valid ideas presented, but say in this particular case examining manufacturing facilities should potentially offer the biggest opportunities.

A strong candidate should figure out that it will be useful to know the total capacity of both plants. The math to get that is as follows.

The best way to lower costs based on the data and assumptions provided is to focus production of all High Quality and Traditional beers (100 000 000 bottles in total) in facility A and all of the Premium beer (20 000 000 bottles) in facility B. This would put facility A at full capacity - an excellent candidate would ask whether this is feasible from the practical perspective. Extra points if the candidate notices that by making Facility B specialized in the production of only one product type further cost savings should be achieved.

When some candidates hear the term "marketing strategy" they have only a narrow understanding of it, usually limited to promotional activities. In this situation ask: What other aspects of marketing strategy can you think of? (Answer: price, distribution channels, product/packaging) After the candidate has a broad understanding of the term you should guide him/her to perform one by one benchmarking with Company C of every aspect of marketing strategy.

• Price

• Product

During blind tests of taste, products of both of our clients are consistently rated higher than those of the key competitors. When it comes to product packaging customers rate our clients unfavorably, all bottle designs are quite similar to each other and are based on the style of Traditional beer. When it comes to Company C, its bottle designs are differentiated for every beer segment in a way customers find appealing.

• Place (distribution channels)

Our clients have very strong exposure in all types of stores, however, they are lagging behind Company C when it comes to Restaurants and Night clubs channel becomes more and more important beer consumption spot for younger customers.

• Promotion

The promotional efforts of our clients are not differentiated by segment. They promote all of their products in pretty this same way, using those same channels which are most appealing to customers of Traditional beer. Company C has a differentiated strategy, they use various channels, based on the preferences of respective customers.

The key takeaway from those tables is that despite much higher prices Company C is doing great in Premium and High-Quality segments. If asked advise the interviewee it is caused to a huge extent by affluent customers who associate lower price with lower quality and who are because of that are not even willing to even try other options they deem as potentially inferior.

Brief overview of customers who prefer beer for each segment:

Premium beer customers- they are usually on the younger side, live in bigger cities, and have a relatively high income. Those people like to be seen as fashionable and trendy, they like to frequent popular restaurants and night clubs and this is where they very often consume their beer, They are not price-sensitive. Their brand loyalty is low and they will quickly switch as soon as something more attractive is introduced to the market.

High-Quality beer customers - they also usually live in bigger cities and have a high income, however, they are older - we can think of them as usually 40+. As the name suggests quality is very important for them and they are prepared to pay extra just to get it. They like to consume beer at home with friends or during different social events. Brand loyalty is moderate.

Traditional beer customers - they usually live in smaller provincial cities or are blue-collar workers from big cities. Due to lower incomes they often price sensitive. As the name suggests tradition is very important for them and they could react very negatively to any changes to their favorite beers. Their brand loyalty is high and they are only willing to switch to a cheaper option when forced by financial difficulties.

Recommendations should be given in a logical and well-organized manner. It is perfectly fine for a candidate to take a moment to think how to go about it. A great order to follow is Recap-->Actual recommendations-->Reasoning-->Risks-->Next steps.

RECAP

The candidate should start with a brief recap of the clients' objectives.

Example: "Clients asked us to help them decrease costs of their post-merger operations and help them develop a new marketing strategy".

ACTUAL RECOMMENDATION

What should follow are the actual action-oriented recommendations. They should be given in a concise, straight-to-the-point manner.

Example: "When it comes to cost reduction I advise optimizing production by shifting all Premium beer manufacturing to Facility B and all the rest to A. On top of that, you should facilitate the transfer of know-how between employees and choose the best suppliers. When it comes to marketing strategy differentiated advertising and packaging for each of the beer segments should be introduced. Additionally, prices of High-Quality beer should be increased to at least match those of Company C and aggressive expansion of Restaurants and Night Clubs channel for Premium beer should be pursued"

REASONING (WHY?)

It is good to add reasoning to provided recommendations. Again, as concisely as possible. You basically want to explain to your client why what you recommend makes sense.

Example: "Recommended production shift is the most optimal one due to significant differences in production costs per bottle for High Quality and Traditional beers and lack of thereof for Premium beer. Know-how transfer will help less knowledgeable employees of Company B to catch up. When it comes to marketing strategy, what is advised is basically to utilize strategies that helped the current market leader to grow so aggressively. Differentiating ads and packaging makes sense due to different customer types responding to different styles in each segment. Higher prices in High-Quality segment attract affluent customers there. Penetration of Restaurants and Night Clubs assures the Premium beer will be available where its customers usually want to drink it."

Finally, it is good to finish the recommendation with any potential risks and next steps. No matter what strategies are recommended in the business world there are always some risks attached and mentioning them makes the recommendations look much more objective. Mentioning the next steps shows the consulting mindset, where the goal is not only to deliver one project to the client but to establish a long-term relationship.

Example: "The biggest risk is related to production shift as demand for High Quality and Traditional beers might become greater that capacity of Facility A which would force the company to reopen production of these beers at extra cost at Facility B. To address that during the next step an advanced future demand forecast should be developed."