The Case

Interview
 • What is a case interview?
The Case
Interview • What specific skills does it assess?

• How to prepare for a case interview?

• An interactive example.
 What is a “Case Interview” anyway?
The Case
Interview
Simulation of a business problem. Similar to
what our associates encounter every day.

Series of open-ended questions. They’re

designed to stimulate your conceptual,
quantitative, analytical and – most importantly –
creative abilities.
 There are several types of cases. Each is
The Case designed to assess different skills.
Interview
 Classic Case
The Case • Should an organization add capacity?
Interview
• How should an organization react to a new
competitor?

• Should an organization enter/exit a new/old market?

Measures

• Your broad functional skills

• Your big-picture perspective

• Your comfort with detail and analysis

 Special Case
The Case • Why are manhole covers round?
Interview
• What’s the estimated weight of a Boeing 747?

• What will interest rates do next?

Measures

• Your comfort with ambiguous challenges

• Your level of creativity

The Case
Interview What are we looking for?
• Logical skills

• Analytical/reasoning skills

• Conceptual problem-solving abilities

• Critical path thinking

• Flexibility
 What do we mean by………..
The Case
Interview Problem-solving ability?
Can you identify the key issues of the case while
accurately and methodically reaching the solution?

Critical path thinking?

Can you use the clues that build on each other while
staying on track and focusing on what’s relevant?

Flexibility? .
Can you adapt your answers to a changing
situation?
The Case
Interview

What do you need to bring?

 Your logical business sense
The Case • How do decreasing marginal costs affect
Interview profitability?
• What effect will fixed costs have on the result?

Your mathematical aptitude

From basic mathematics to….
• Algebra
• Probability
• Weighted averages
• Unit conversion
 Your strategic interpretation skills
Can you……
The Case
Interview • Interpret your answer’s impact?
• Assess alternatives?
• Keep a grasp on the “big picture” as well as the
minor details?

Your presentation skills

Can you…….
• Clearly state your thoughts and synthesize
information?
• Explain how your answer changes in the face of
changing variables?
• Defend your answer?
The Case
Interview

Be prepared!
Let’s work through a case
together.
 Background Information
The Case
Interview • You are a manager at a company that markets
various products and services and that is looking
to diversify
• You receive some information indicating
magazine publishing may be interesting
• You are considering developing a new magazine
but are not sure how profitable it might be

What are some of the issues you must consider

when evaluating the magazine business?
 Things to consider
The Case • Defining the target market
Interview
• Competition
– # of competitors, fragmentation, brand name
• Build off of core competencies
• Barriers to entry
• Business cycle stage
• Method of measuring viability
• Opportunity cost

Our next step is to understand the economics of the

business. What are the profit drivers in the
magazine publishing business?
 Main profit drivers of the publishing business
include …
The Case
Interview
Revenue Sources Costs

• Subscriptions • Printing

• Newsstand sales • Distribution

• Advertising • Content Development

• Customer lists • Marketing/promotions

• Internet
 Through some initial research you have
been able to determine the following …
The Case
Interview • You can charge £25 for an annual subscription of 50
issues
• You can generate £1 in advertising revenue per
issue for each subscription
• Printing and distribution costs are £1 per copy per
issue
• Content development costs run £1 million per year
• Let’s ignore newsstand sales for now
• Let’s ignore marketing expenses for now

How much profit will you generate a year from one

incremental subscription?
 Let’s figure it out together…….
The Case Subscription revenue per year = £25
Interview
Advertising revenue per year = £50
£1/issue x 50 issues
Yearly production and distribution costs = £50
Profit from one incremental subscription = £25
£25 + £50 - £50

How many subscriptions would we need to sell

in order to breakeven on this venture?
 How many subscriptions do we need to sell to
break even?
The Case
Interview
Profit (contribution margin) = £25 per subscription

Magazine content development = £1 million per year

Breakeven = £1 million/£25 = 40,000 subscriptions

Given you need 40,000 subscriptions to

breakeven, do you move forward?
 What about marketing costs?
The Case
Interview Your company has expertise in direct mail solicitation
so you decide to use that method to market your new
magazine.

Each piece of mail costs £0.50.

You are able to achieve a 2% response rate.

How much does it cost you to sign up a

subscriber?
 Cost per subscriber calculation
The Case Cost of mailing/response rate = Cost to sign up one
Interview subscriber
£0.50/2% = £25 per subscriber
Another way to calculate cost per subscriber:
Assume you mail offer to 100 people
Costs = £50 (£0.50 x 100 people)
Responders = 2 (2% of 100)
Cost per responder = £50/2 or £25

How will this affect your breakeven calculation?

 New break even calculation
The Case
Interview Old contribution margin
- Marketing costs
New contribution margin

New contribution margin = £25 - £25 = £0 Ouch!

What can we do to make this venture better?

 Some possible considerations:
The Case
Interview • Raise subscription prices

• Raise advertising rates

• Reduce production costs

• Increase response rate

• Make each response matter more

– Consider renewals and multi-year subscriptions

 Renewals look like an obvious avenue to
explore…
The Case
Interview • In the best case scenario, zero cost to acquire
with no drop in revenues

How might you encourage renewels?

 Some possible options:
The Case
Interview • Price promotion

• Competitions

• Marketing

• Free gifts
 Some market testing gives you 2 possible
The Case options
Interview
1) Do nothing:
• 50% of existing subscribers will renew each year

2) Offer a free second year subscription

• 75% of existing subscribers will renew each year

Which is the best option?

 Let’s look at how much money each strategy
The Case makes:
Interview Option 1
• Assume 40,000 customers in year 1
• £25 net revenue per customer per year (excluding fixed costs)
• 50% renewal rate per year

…so our overall net revenue for year 1 subscriptions is:

40,000 * £25 * (100% + 50% + 50%*50% + …) - upfront mrkting

…using 1 + a + a2 + a3 + … = 1/(1-a), taking a = 50%, we get a total of:

40,000 * £25 * 2 - £1million = £1 million
 Option 2
The Case • Assume 40,000 customers in year 1
Interview • No net revenue in year 2
• 75% renewal rate every year
• Revenue resumes in year 3

Free year 2 subscription cost = 40,000 * £25 * 75% = £750 k

…so our overall net revenue for year 1 subscriptions is:

40,000 * £25 * (100% + 75% + 75%*75% + …) - £750k – upfront mrkting
= 40,000 * £25 * 4 - £750k - £1million = £2.25 million
 So which option would you go with?
The Case
Interview
Excluding fixed costs, net profit of year 1 bookings:

Option 1 = £1 million
vs
Option 2 = £2.25 million

Is Option 2 the obvious choice?

 Not necessarily!
The Case • Year 2 net revenue in option 1 is £0.5million, while in
Interview option 2, it is zero – your investors may not like this!
• Do we really believe a free year 2 subscription would
permanently raise renewals – what was this
assumption based on?
• Is profit next year as good as profit today?
 Some tips:
The Case
Interview • Stay confident – stay cool

• Show enthusiasm – not frustration

• Be thorough – avoid mistakes

• Ask questions

• Show your stuff

The Case
Interview

Questions?
 Find out more about Capital One

• Click on careers on http://www.capitalone.co.uk

• Email us at grads@capitalone.com

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