Kearney First Round Case - Top Chemicals

Information to be shared only under request:

• The company would like to maximize next year’s profits.
• The fertilizer can be used for corn crops.
• For the first year they will focus on selling the fertilizer only in Illinois, one of the biggest markets for corn crops in the US.
• Other competitors already offer similar products in the market.
• The price that must be identified refers to the yearly price per acre of land of a corn crop.

Example of an excellent answer (score: 2)

GOAL CLARIFICATION

An excellent candidate would clarify the objective in terms of profits and understand more about the product.

STRUCTURE

A great candidate would include in the analysis the following elements:

1. Pricing options
   1. Market/competition
   2. Customer willingness to pay
   3. Cost-based
2. Financial analysis
   1. Estimate revenues
   2. Estimate costs
   3. Estimate synergies and cannibalization
3. Risks and next steps

COMMUNICATION

An excellent candidate should present clearly the different areas in a structured way.

Moreover, the candidate should clearly present the rationale for why he/she wants to explore a particular point, connecting the answer to the objective of the client.

Suggested score

An excellent candidate should: 

1. Clarify the goal of the client
2. Include the main elements as presented above in the structure
3. Communicate the structure in a clear way

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate did not clarify the objective
• The candidate did not include two or more of the areas described above
• The candidate included multiple useless elements in the structure
• The candidate communicated the structure in a disorganized way or without a clear connection to the goal

Looking at Exhibit 1, what do you think could be the right price for our fertilizer?

Information to be shared only under request:

• The graph shows information on competing products and the price per acre of land at which they are currently sold.
• The safety risk is something we want to minimize, for it refers to the likelihood of damaging the crop.
• Benefit on crop refers to the advantages the fertilizer would bring to the corn crop yields.
• The size of the bubble indicates the easiness of application – the larger the bubble, the better.

Example of an excellent answer (score: 2)

• It emerges that our client offers:
  • Higher benefits at equal risk and application easiness if compared to competitor 2 (price = $80)
  • Equal benefits at lower risk and easier application if compared to competitor 3 (price = $100)
  • Slightly lower benefits at a much lower risk and easier application if compared to competitor 4 (price = $140)
  • The market seems to give a premium for higher benefit, even if risk is higher and application is harder, with the exception of competitor 1
  • Hence we could select a price above $100. The exact value should be calculated once derived price elasticity of demand
• Possible consideration: It would be necessary to make sure that customers are aware of the strengths of the client’s product to be willing to pay a higher price.

Suggested score

An excellent candidate should: 

1. Ask for additional information
2. Take a reasonable amount of time to look at the graph
3. Identify a price above $100, presenting his/her rationale in a clear way
4. Make final considerations on the identified price e.g., risks

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate did not ask for additional information
• The candidate spent several minutes analyzing the information in the graph without identifying the key points
• The candidate did not identify a reasonable price
• The candidate did not comment on the implications of the result

Looking at Exhibit 2 and 3, what do you think could be the right price for our fertilizer?

Example of an excellent answer (score: 2)

The candidate does not have enough information to find the price that maximizes total profits.

He/she should realize the choice is about setting a lower price to gain higher volumes versus choosing a higher price that would therefore imply lower volumes.

It can be assumed that if a price of $100 is set, our fertilizer can capture the entirety of the market. If the price is $150, we lose Segment A; if the price is $200, we lose segments B and C.

At this point, the candidate should realize they need to know the total size of the market and move to Part 4.

Suggested score

An excellent candidate should: 

1. Take a reasonable amount of time to look at the graph
2. Make sure they understood the information correctly
3. Understand the consequences on volumes for each price
4. Ask about the size of the market

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate misunderstood the graphs
• The candidate did not set-up the right analysis
• The candidate did not comment on the implications of each price
• The candidate did not ask about the size of the market

Let's first estimate the potential market in acres for our client with a price of $100. Knowing we have the possibility to collect some data, which information would you need to estimate the size of the potential market for our client in terms of acres of land?

Information to be shared only under request:

• Number of corn crops in Illinois: 20k
• Average number of acres per crop: 500
• Our client’s market share: 30%, assuming a price of $100

Example of an excellent answer (score: 2)

The candidate should take some time to come up with a structure similar to this:

• Client’s market in acres =
  • Number of corn acres in Illinois, times
  • Client’s market share
• Number of corn acres in Illinois =
  • Number of corn crops in Illinois, times
  • Average number of acres per crop

Then, they should ask whether existing information is available.

Based on the data provided, they should then obtain an estimate for the volume:

• Number of acres in Illinois = 20k * 500 = 10m
• Clients’ market = 10m * 30% = 3m

Suggested score

An excellent candidate should: 

1. Ask for additional information
2. Take a reasonable amount of time to think of a structure
3. Present the structure clearly
4. Carry out the computation without mistakes and present it clearly

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate did not ask for additional information
• The candidate did not identify a reasonable structure
• The candidate made mistakes in the computation
• The candidate made it difficult for the interviewer to follow the computation

Based on the data available, can you identify the best price for the fertilizer?

Information to be shared only under request:

• Production cost per acre: $50

If needed, clarify this is the only cost the candidate should take into account.

Example of an excellent answer (score: 2)

The candidate should identify the price that maximizes profits.

• Scenario 1: price = $100
  • Marginal contribution per acre = $100 - $50 = $50
  • Market size = 100% * 3m = 3m acres
  • Profits = $50 * 3m = $150m
• Scenario 2: price = $150
  • Marginal contribution per acre = $150 - $50 = $100
  • Market size = (100% - 40%) * 3m = 60% * 3m = 1.8m acres
  • Profits = $100 * 1.8m = $180m
• Scenario 3: price = $200
  • Marginal contribution per acre = $200 - $50 = $150
  • Market size = (100% - 90%) * 3m = 10% * 3m = 300k acres
  • Profits =$150 * 300k = $45m

In conclusion, setting the price per acre equal to $150 would maximize profits.

Suggested score

An excellent candidate should: 

1. Ask for additional information
2. Take a reasonable amount of time to think of a way to set up the analysis
3. Carry out the computations clearly
4. Identify the right price

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate did not ask for additional information
• The candidate did not set up the right analysis
• The candidate made mistakes in the computation
• The candidate did not identify the right price

What is your final recommendation to Top Chemicals?

Example of an excellent answer (score: 2)

The candidate should:

1. Recap the objective
2. Provide an answer-first approach to the question asked
3. Mention risks and the next steps to take

RECAP OF THE OBJECTIVE

“Our client asked us to identify the price that would maximize profits for their new product, a corn crop fertilizer.”

ANSWER-FIRST APPROACH TO THE QUESTION

“Based on our analyses, we recommend selling the fertilizer at a price of $150/acre, a choice which would:

• Yield $180m in yearly profits
• Capture a large portion of the market, estimated at 60% of it in terms of acres"

RISKS AND NEXT STEPS

“The identified risks behind this analysis include the overestimation of the reachable customer base, not all farmers may be aware of the top qualities of our product. Also, if the fertilizer is not approved, its characteristics may change, hence our results. 

As for the next steps, we would like to analyze additional elements to ensure higher profits, such as: 

• Setup a marketing campaign to raise awareness of farmers on our product’s qualities
• Evaluate the possibilities of expanding beyond the Illinois market
• Evaluate further profits opportunities for this product with other types of crops”

Suggested score

An excellent candidate should: 

• Recap the objective of the case
• Present the price of $150 as the best option, with reasons
• Mention possible risks and propose next steps related to the original structure and to implement the suggested approach

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following: 

• The candidate did not have an answer-first approach
• The candidate presented the conclusion in a disorganized way
• The candidate did not provide reasons why $150 would be a good price
• The candidate did not conclude the recommendation proactively, mentioning the next steps