Thanks for registering for our live case walkthrough with experienced hire Jensen Vu. Jensen went through a mock BCG-style case in front of a live virtual audience, and crushed it. After the timer went off, Jenny Rae provided detailed feedback on both his gap areas and his strengths, making for a complete BCG-style case experience.
If you're looking for quality practice cases, check out the All Access Pass for hundreds of practice cases, digital drills, and more - no more going back to that 10-year-old MBA casebook.
Find the recording below, and write to us with any follow-up questions!
Video Transcription:
Jenny Rae:
I’m going to run the case today in the BCG style. And so you’re going to be in charge of using your structure to navigate with me through the case. The case is a lot of really good robust information, and I think that you’ll find the problem kind of fun and relevant with some of the things that we’ve been doing right now. So Jensen, are you ready to go?
Jensen:
I’m ready.
Jenny Rae:
Awesome. I am going to start our clock as I begin the background of the case, okay? So here we go. Our client is a large B to B and B to C housewares and home furnishings retailer. We’ll call them Fermizon. It sells over 200,000 SKUs of product manufactured by over 1000 niche brands. The products featured on the site are all designed by up-and-coming European and North American artisans, but are manufactured in runs of at least 10,000 units.
One of the sales channels is email, through which it sells a selection of products to customers. The company is headquartered in the US, and it has logistics capabilities to deliver its goods to eight countries in North America and Europe. Despite many quick early wins as a business, growth has slowed. To combat slowing growth in the US, the company started offering aggressive price promotions on first-time purchases. The purchases are sent by email, but tied to a customer’s phone number using two factor authentication to attempt to ensure the customer only uses the promotion once.
In its first 12 months, the campaign has seemed like a winner. It produced very high response rates. However, management is concerned because profitability has continued to decline. We’ve been called in to analyze the promotional campaign and determine what, if anything, the client should do to improve its effectiveness. Do you have any questions about the background?
Jensen:
Yes. So before I dive into my questions, could I just run through what I just noted down to see if I got everything right?
Jenny Rae:
Absolutely.
Jensen:
So we have a B to B and B to C houseware firm called Fermizon, and they have about 20,000 SKUs, 1000 niche brands, so really big, all sorts of things kind of clients here. And they sell mostly through emails to the US and Europe as well. They’ve been experiencing slow growth, so they offer this kind of first-time purchase promotions through emails, but also having this phone authentication – yeah, phone authentication two phase method that they do it through. They are still worried about how this seemed to work well at first, but now it’s slowing dowhat, and they want to get our help to see how to figure this out, maybe turn this over. Yeah.
Jenny Rae:
Absolutely. I think you caught everything. The only thing, Jensen, that I want to make sure we got is that there are 200,000 SKUs of product. I don’t know what number you said, but I feel like it might not have been that. So I just want to make sure we’re on the same page about that one.
Jensen:
Definitely, yeah. No, thank you so much for that. So yeah, I have a few questions before I start diving into this case. My first question is with regards to this idea of the slow growth and what the objective is, I want to clarify that a little bit.
Jenny Rae:
Yeah.
Jensen:
I want to – so are they looking at a certain number that they are targeting, do they want to turn this into a from a negative to positive profit, or what are we looking at here?
Jenny Rae:
So you know, actually we don’t have any information yet about profitability, but we are course always interested in that, especially if we feel like we’ve grown to a place that we are satisfied with that. In terms of growth, I wouldn’t say that we have targets, but definitely reversing the decline in profitability would be important to us. Back to positive.
Jensen:
Reversing decline. Sounds good. And just to make sure, this decline has been happening after the 12-month campaign, so we are at the end of this 12 months right now. So we are looking at.
Jenny Rae:
Exactly.
Jensen:
Yeah. And I have another question with regard to the business model a little bit. So they sell through emails, and then they have this phone authentication as kind of method here and I want to dig deeper into what that actually means. So by selling through emails you mean that they do all their promotions through email, or does that mean that they ask people to send in prices or things like that? I don’t think that’s like way to 2000, but maybe.
Jenny Rae:
So 2000, yeah. No, this is an e-commerce retailer. That’s a great differentiating question. And so one of their primary sales channels that we’re using, which could also be called a marketing channel, is just that direct email for consumers. But the primary focus of the email is to bring them back to the website. And so we have a website that houses all the information.
Jensen:
Sounds good. And then my last question is just what do they do with these 2000 SKUs, 1000 niche brands and then 10,000 units. So I want to get to know what exactly does SKUs mean versus 10,000 units.
Jenny Rae:
Totally. Yeah, yeah. So the batches of each product are in 10,000 unit batches, right? So we’re not selling like three lamps of this kind, and eleven of something. Every time we would put in an order it would be for this very large manufacturing run.
Jensen:
Gotcha.
Jenny Rae:
But the 200,000 SKUs are unique different products, right? Different tablecloth would be one SKU, if we had that in five colors, each one of those would be a separate SKU. And so the SKU is to represent an individual product in an individual color.
Jensen:
Sounds great. And I think that those would be all my questions to start with, and I’m ready to just dive in to figure out how to reverse the trend and decline in growth for this firm.
Jenny Rae:
Let’s do it.
Jensen:
Can I take a few moments to start to brainstorm my thoughts?
Jenny Rae:
Yes, take your time.
Jensen:
Thank you so much. Yeah, so I think I have kind of a structure going on here. Could I go through with you about all the buckets I have to tackle this issue?
Jenny Rae:
Let’s do it.
Jensen:
Yeah, so we have a problem of declining growth and revenue, or in sales in general, and in order to tackle that I think there is definitely two things that we should look at here. Of course, the first and most important thing is to look at revenue and whether – yeah, how our revenue has been affected, and then the other bucket I want to look at is cost, because even though it’s a slow growth in revenue, if that is associated with a significant decrease in cost, that will be, I guess, is fine as well. But yeah, we want to look at both things and see how the business is doing in general, even though revenue is our main concern.
So with regards to the bucket with the revenue here, I’m going pretty classic of looking at quantity and price, but with regards to quantity, I want to segment it a little bit more into looking at where there is buy in the market so we’re targeting, so either in US or in other countries in Europe. But more importantly, I want to look at our quantity sold, pre-and post-offering this kind of promotion strategy because I think this is like a huge, a big change that we made that would have impacted our revenue a lot. And the same with price as well, so price I want to look at kind of our price pre-and post this offering this promotion to see what we sold.
And on top of that, I want to look at somewhat of the market trend as well to see if there’s things that happened with the market. So if there is a decline in the market and overall, then it’s pretty much out of our control and there’s not much going on that we can do about it. On top of that, yeah. And I think, yeah, get a pervading this question of price is also, I guess, I should’ve had another bucket, but this is fine too. Looking at here in terms of price compared to other things going on in the economy. So if there’s slowing in the economy, then, for example, we’ll get right now COVID, then I’m sure people might be less likely to purchase niche brands furniture or things like this of this nature. So yeah, so that will be everything with at the revenue bucket.
In the cost bucket is less important, as I mentioned, but we still want to look at it. So in terms of fixed cost, we want to look at how much – how much more cost we’re spending to roll out this promotion strategy of the email marketing campaign, or all of that. And also this two-phase authentication problem here, yeah, to see what’s the deal with that and how much we’re spending on it. And then variable cost as well, to just see if anything happened with our product chain in general. So yeah. So those will be all of the things that I would look at, but of course I would love to start with kind of the revenue issue, especially with regard to the quantities that we’re selling because it seems like a decline in growth in sales is more directly associated with quantity first of all. So with that, yeah. Unless you have any other preferences.
Jenny Rae:
No, I think that sounds great. Jensen, I do just want to let you know that I have some data for you, but I’ll just rely on what you’re interested in. If I don’t have data, it doesn’t mean that it’s not important, it just means that we are not going to consider it as a part of what we’re talking about in the case. And so I’ll ask you just to lead me through the data that you are looking for. And if I’ve got data on the things that you’re looking for, I’ll share it with you.
Jensen:
Definitely. So yeah, so first looking at the quantity of the products sold, I would love to look at the quantity of the products sold in the past 12 months, and before that as well. So the past 12 months has been appeared after we rolled out the promotion, but before that as well to see what the change is because of this promotion. So do we have any data on that?
Jenny Rae:
So I don’t have data on that directly. I do have some data that could be a little bit related to that. So I have the percentage of response rates from the promotion, and that might be helpful in kind of understanding. But I actually don’t have the total volume. The response rate, in general, the response rate of 2% to a direct marketing campaign of this type is considered super successful. Amazingly, 8% of households who received this promotional email are taking advantage of the promotion and making a purchase within the first year.
Jensen:
Taking advantage, that’s awesome. Yeah, so we have 8% taking advantage of this, and 2% is very successful, which is a great thing to hear. So I do want to, in that case then since we’ve mentioned this issue of a two-phase authentication problem, and since we are looking at how, yeah, the success rate of this, I wonder if do we have any studies or qualitative entities or anything like that of that nature to see how this two-phase authentication issue is affecting this because yeah, it seems a little bit complicated for me just hearing about it, so yeah.
Jenny Rae:
Yeah, it does. I can explain it a little bit more. The two-factor authentication, we use it because people often have seven different emails, but only one phone number. And so it’s an easier way to make sure that they are not redeeming this coupon multiple times. And one of the – so basically that’s why we use it. Two factor authentication the kind of thing that happens when you try to log in somewhere and they say we just sent a code to your wherever, and so this would be used through SMS so you would, you know, send a message to them, or you would be trying to buy you’d have to put in your phone number and it would send to you a message to that phone number and then they are capturing of that as your phone number for it. That 8% of the numbers is actually the full redemptions, so that includes everyone that goes through that two-factor authentication process, and it excludes anyone who drops off because of it.
Jensen:
Gotcha. That sounds really great – good system. And yeah, in that case I wonder if – so we currently have right now, we’ll get revenue and we have kind of data on the response rate to our promotion campaign. Is there – and this is kind of the main way that we are selling our products through this promotion – through this email channel.
Jenny Rae:
There are definitely others as well, but this one is a primary one for us.
Jensen:
Definitely. Yeah, and on that note I kind of want to dig deeper into this since it’s the main channel and see if we have any demographic data on whose taking advantage of this, or any trends at all on say from when it started versus where it is right now.
Jenny Rae:
Yeah, I love it. Well, I do have some data on that. So the target customers for the promotion tend to be young adults that live in suburban and urban locations. Not usually rural locations. They skew college educated, they are generally apartment, not house dwellers, and they usually live alone with a small number of roommates, or with their significant others. In addition, they move on average every 1.5 years.
Jensen:
Move every 1.5 years and then roommates. Okay, so I think, yeah. This makes a lot of sense then just to get this kind of moving rate because just reasoning it out to myself it seems like when we rollout this campaign and my hypothesis is that people see this campaign and start into it, but then they just keep staying in their apartments and of course they’ve already furnished once so they don’t really do it, so maybe if we wait and tell another – not just 12 months, but 18 months then maybe there will be another wave of buying, even though there’s not a sale associated to it.
Jenny Rae:
I actually have data on that for you, Jensen, if you want data on it. Do you want data on that?
Jensen:
Yeah, I would love data on that.
Jenny Rae:
Okay, amazing. So the lifetime value of the furniture is six years. What I mean by that is that this isn’t the kind of furniture that you’re going to pass on to your grandchildren some day. This is the kind of furniture that you use for a little while, and then you kind of don’t use it forever. But the thing that’s tagged to what you just said is that we do have – we do find that these customers that buy from us often will repeat their purchase, and those repeat customers tend to purchase from us for up to three years. After three years they really do not purchase anymore.
Jensen:
Will purchase up to three years. Sounds good. Okay, so we have kind of a predicament here because we do have this campaign that’s been rolled out over the past 12 months, where people will buy a lot of things that will last for six years, but their repurchase rate is only up to three years. So they definitely would not buy the same kind of products anymore and especially, yeah, but they might buy different things, especially when they move every one and a half years as well. So on that note, I think, yeah, one thing that just qualitatively that just – I’m just thinking aloud right now is that we might see a resurgence in people buying at that 1.5 years mark, but then I think we might have to do more – looking to the customers or customer surveys, or look into what kind of products they’ve bought to see, yeah, what they will buy again in the future.
Jenny Rae:
What kind of data would you want on that? What would be helpful in the clearest and simplest way to help us kind of identify what you’re looking for here?
Jensen:
I think the sales data, what people bought, would be –
Jenny Rae:
Is what they bought the big driver, or is there something else that you are looking for?
Jensen:
What they bought versus – hmm. What they bought – no, it’s not what they bought that’s the main driver. I think what they bought – the rate of buying what the promotion offered, and then people buying just like buying the products with that promotion would be great.
Jenny Rae:
Yeah, okay. Great. So I have that for you. Let me give you that detail.
Jensen:
Thank you.
Jenny Rae:
So of the clients – I mentioned before that 8% purchase in the first year, right? And then of that, 20% of those clients, 20% of the 8% repurchase in year two. And then of that 20%, 50% of those repurchase in year three.
Jensen:
Sounds great. Okay, so if 8% are responding to the email chain, and then 20% repurchase in the next year, even though they don’t get to take advantage of the same promotion anymore, and then 50% still purchase in year three. So what we have here is that I think it gives us kind of a – this gauge into how effective this one time promotion is in the long run of the lifecycle of the consumer for our product concerning the return rate will be 20% without promotion, and then 50% in the next year as well after that. So on that note, I kind of want you have more kind of like exact numbers of whether the quantity number, or the average price numbers we can actually go into doing some calculations on this to see if everything pays off, or yeah, it was worth it or not.
Jenny Rae:
I do. And actually, Jensen, I’ve got details on this, I have details on the value of the promotion to us, and that I also have details on a potential alternative. And so I’d actually love to look at the numbers for both of them and see if there’s any insights that you can draw out of them. Can I give you some more of those numbers?
Jensen:
Yes, that would be great.
Jenny Rae:
Okay, amazing. So the average contribution of the first year of activity is $15. So let me explain what that contribution means. Contribution is the retail price, minus the cost of goods, minus the cost of marketing, minus the discount. The discount that we are giving is $100. In year two and year three, the contribution is $50.
Jensen:
Yep.
Jenny Rae:
So my question to you is across the entire pool of everyone that we are marketing to and offering this to, what would you say the total contribution is for these folks?
Jensen:
Definitely. And you mentioned that year two is $50. Is that minus all costs as well at this contribution?
Jenny Rae:
Yes, so it’s evaluated the same way. I do think that it’s important to note that in year one that that amount, the contribution represents the cost of all marketing because we obviously only have 8% that are buying, and there is a cost for everyone. So that’s why we are interested in knowing what the total contribution would be here. How would you lay this out?
Jensen:
I was wondering there’s also that 50% that purchase in year three as well, so I wonder what the average contribution of those are because we only have data for year two.
Jenny Rae:
For sure. It’s the same as year two, so it’s 50 in year two, you are at 50 in year three.
Jensen:
Sounds good. Perfect. So the way I would lay this out of how I would approach this math is just to – I think because we are looking at the cost of marketing for the total, kind of the whole of everyone, I might want to take a more macro look at this and look at the total contributions for every customer for the first year, and then total contributions for everyone for year two and then for your three, and then minus all cost for all years. So we can leave out those cost of marketing that significantly increase in the first year of the questions for the first year, and not consider that in the next two years.
Jenny Rae:
Good. All of those costs are actually already included in the contribution, so just to make it one step easier. That contribution includes even the marketing costs of the first year.
Jensen:
Sounds good. So yeah, so we currently have average contribution of first year which is $50, and then we offer this $100 promotion.
Jenny Rae:
So actually you don’t have to do any math on that because that $15 – and it’s 1-5 just to make sure that’s clear, 1-5 in the first year. That $15 is inclusive of that $100 number.
Jensen:
Gotcha. And for year two, the average contribution is $50, but yeah, it’s also has minus all kinds of cost as well.
Jenny Rae:
Yeah.
Jensen:
So yeah, $15 plus $50, and then plus another $50 as well, that would be $115 for all three years for one customer for their total – for the total contributions for our customers for all three years.
Jenny Rae:
That would be for a single customer if they went the whole way through. How do we wait that by our total customer pool to figure out what the actual value is?
Jensen:
Oh, gotcha. Because we only have 20% who will repurchase in year two, so I think for the total pool it will be 20% of this $50 for the second year, which would be about $10, kind of yeah, just will weight it out for the second year. And then 50% of that for year three as well which would be 50% of that $10, average contribution so I think would be about five dollars for year three. So $15 plus $20 +$10 +5 dollars would be $30 for estimate total contributions for customers throughout their life years.
Jenny Rae:
Okay. What do we think about that?
Jensen:
I think this would be very low considering we are offering a marketing discount of $100, yeah, and I’m sure – so I mean, so I wonder what the elasticity would be if we try to cut less of the promotions or anything like that to see if we can maybe offer only $90 but we get $45 total contributions, or something like that. Yeah.
Jenny Rae:
Great. Okay, well we do have an alternative that we wanted to look at as I mentioned. So the client estimates that it could achieve a 3% response rate at the start if the amount of the initial discount was lowered to $20. It also estimates that the number, not the rate, but the number of repeat purchasers in subsequent years would be the same as it is currently. So the percentages of that initial percentage would remain the same, if that makes sense.
Jensen:
Definitely.
Jenny Rae:
The contribution and subsequent years, in year two and year three would also be the same.
Jensen:
Wow, yes. This is good. So instead of offering a $100 discount, there offering only $20 discount, and then with that they would get 3% response rate instead of 8% response rate. So I guess in comparing this 3% to 8%, are we able to get kind of yeah, the ratio between the total amount of customers among the two groups, and then use that percentage to see what the kind of total contributions that we would get out of that would be. So 3% compared to 8% is 3/8, and then 3/8, and that I will impose that upon the kind of total contribution for all customers on average that we got for the $30. So that would be 30×3/8.
Jenny Rae:
And actually, by the way Jensen, just something that might be really helpful here is that we could actually identify the number of the contribution. I have it for the second scenario. So rather than doing some math on it, it’s $35.
Jensen:
Okay, $35. Gotcha. So yeah, thank you so much for that giving that number. So $35 compared to yeah, so we have $35 total contributions right now after giving $20 versus $100 discount. Let me just gather all my numbers here. $20 discount and then we get $35 contribution, and then on the other side we have 3% response rate. And then on the other side we have 8% response rate, $100 discount, and then $30 average contribution.
Jenny Rae:
$35. Sorry, I don’t think that those numbers didn’t line up to what I have. Let me just double check them. 8% response rate for the $100, but we don’t have to really factor in the $100 in this math, that’s just a fact for the case. The $15, the 1-5 dollars is for the purchase contribution. For the first one, and then the second one it’s $35, and a 3% response rate.
Jensen:
Gotcha. So three dollars – I mean $15 for the first group that is throughout the whole life year, or just the first year? I think I calculated it out.
Jenny Rae:
So years two and three actually remain the same. So it’s just in year one that it’s different. $35 is different.
Jensen:
Gotcha. Okay, perfect. Okay, so looking at this, I think I will calculate the 8% compared to 3%, and then $15 compared to $35, and yeah. So 3/8 verses 15/35.
Jenny Rae:
Tell me why you’re doing this math here, Jensen. Just keep me in the loop.
Jensen:
So I’m just calculating what kind of – I guess, for the first year what would be the average kind of – so I’m getting –
Jenny Rae:
We’re trying to figure out how to factor in that 8% and the 3%, right?
Jensen:
Yeah, I’m trying to.
Jenny Rae:
How do we account for the difference in that. Let me give you a hint. At this will actually – we’ll kinda have to go back a little bit to the last problem, but it won’t be that long to do that. What we should do is take the 8% of the $15, and then take the 3% of the $35 as your baseline numbers, so rather than starting at 35 in the beginning, start with that. And then instead of giving me 20% of the second year, give me 20% of 8% of the second year.
Jensen:
20% of 8%.
Jenny Rae:
Does that make sense? So we’ll weight the first year by the percentage that buys to bring that number down in the first place. Because what you found was still the lifetime value of an actual purchaser, not the lifetime value of our population, right?
Jensen:
Gotcha, gotcha, perfect.
Jenny Rae:
So I think that’s what we were missing here. So if we can weigh that in, then that would be great.
Jensen:
Yeah, yeah. So 8% of $15 that would be 15×0.08, which is 15×0.08. 15×8 would be 120, takes out 20, that would be 0.12, and divided –
Jenny Rae:
I think you are right before. 120.
Jensen:
Actually, no, 1.2.
Jenny Rae:
Yeah, there you go.
Jensen:
1.2 – yeah, $1.2. And then we take 20% of that to get what we get in year two. What we get in year two, which would be 1.2÷5 and that would be –
Jenny Rae:
So wait, let’s make sure we’ve got that. So we take 20% of the 8% in year two. Not 20% of the dollar 20. Because remember we now have a different contribution number.
Jensen:
So what’s 20% of 8%, which is. So for me, I was thinking if we get the total number and then – oh yeah, because year to the contribution is $50 instead. Yeah, that makes a lot of sense.
Jenny Rae:
Exactly. Yeah.
Jensen:
Yeah, so 8% and then 20% of 8%, that would be 8÷5, and that would be 1.6% and $50, 1.6% of $50 that would be 1.6×50 – oh yeah, it would go up. Yet that would be 0.8 dollars.
Jenny Rae:
Perfect.
Jensen:
And then year three is 50% of the 20%, so even 50% of 1.6 which is 0.8%, and 0.8% of also $50, which is half of what we got for year two, which is 0.4. So 1.2+0.8, +0.4 which is 2.4. Okay, and I’ll do the same for the other group, I mean for the alternative quickly. So 3% of $35 for the first year so that would be 35 times 3÷100, that would be 1.05. $1.05 for the first year and then year two, year two that would be 50 – no, 20% of 3%, so that would be 3%.
Jenny Rae:
I have good news for you. It’s actually not 20% of 3% because we actually keep the same rate that we did in the first one, so you can just keep the same numbers that we did in the first one.
Jensen:
Perfect. Oh perfect. So then we have 0.4 and then we have 0.8 as well. So overall with this, we have 1.2+1.05. So 2.25.
Jenny Rae:
What do we think about this, Jensen?
Jensen:
This is really – I think these are good numbers. Yeah, these are good numbers, but yeah, then with all taken into consideration, so I think that the first – yeah, the current options that we’re doing is optimal based on the number, so we can disregard the option.
Jenny Rae:
It absolutely seems that way. Yeah. However, I’m going to push you just into a little bit of brainstorming. Right? We’re concerned that even though this number looks better, there may be some ancillary factors about either. I don’t know. We don’t know what it might be. Something that we are not factoring in about the difference between $100 promotion, the message of that, and the $20 promotion. So I think your recommendation of keeping the option seems reasonable. However, what else should be thinking about or factoring in that could be driving down profitability, whether with this promotion or without.
Jensen:
Yeah, so I think – I think it’s the promotion that we’re offering might affect a few different things, and I think the first thing that I want to look at, the first bucket is kind of the perception of the brand. Perception for brand. And yeah, and also we’ve already mentioned that the rates of customers falling out will be the same in the existing pool of customers, so that’s fine. Among the perception of brand I want to look at kind of what kind of market we’re competing in with this promotion that we’re offering, so if we’re offering this $100 discount, that might give the impression that we’re competing in a market for furniture’s or for goods that are less luxury, or yeah, lower quality versus offering this $20 discount it might offer, yeah, make us closer to the actual price of the product from the purchaser, and in that way it will – yeah, just allowed to compete in different markets. Also, it might give the impression that’s for customers, but also in the side of people that we’re buying from, so the niche brands that we are buying from, it might affect our kind of negotiating powers on what price we are buying this product at. So for example, if we’re having to buy these products and yeah, selling them with a significant discount, that might the impression to these manufacturers that we are not able to sell these problems effectively, and therefore they will not, yeah, continue their partnership with us anymore. So yeah, those are the two things in terms of how it would affect our relationship with customers and manufacturers.
Jenny Rae:
Okay, thanks Jensen. Well, we’ve run out of time and our CEO has a quick pass that they make of us in the hallway. They wanted update. Can you give us a quick update where we are in the case so far, and what else you’d like to do?
Jensen:
Yeah. So it’s a great running into you. We’ve run some numbers on the things that we – we’ve run some calculations on the numbers that you’ve given us, and we’ve come to the conclusion that we are fine with sticking with the current options and promotions that we’re doing instead of the alternative. However, we might want to look into that further to see what the implications of that is, that would be with regards to the perceptions of the brand by customers, and also by the manufacturers as well. So nitty-gritty details, the current plan would give us a bit more of money per customers then would the alternate plan if we give a higher discount for this one. However, things that we have not looked at would be some qualitative issues with regards to whether offering the significant discount would affect brand awareness, whether it would be competing at a different market for less luxury goods, and also on negotiating powers with our partners. So for those matters, we would love to conduct more interviews or more qualitative work to see what to get to the bottom of the issue, but that would be the update right now. And for now, just stick with the option that we’re going with for promotions.
Jenny Rae:
Amazing. Thank you so much, Jensen. And congratulations, we’re done with the case. Well done.
Jensen:
Thank you.
Jenny Rae:
Are you sweating? How do you feel? How do you feel?
Jensen:
I feel okay. I think I came in with a sea of confidence that waned significantly by the half-point of it. But yeah, I think the math is fine once I figured out what to actually do, because I’m not – I’m not afraid of doing math, I’m just afraid of not knowing what to calculate. Yeah.
Jenny Rae:
Yeah.
Jensen:
So that put me off a little bit.
Jenny Rae:
Yeah. I want to – so I want to give you – I want to give you kind of my overall take away on the big pro and the big con, okay?
Jensen:
Yeah.
Jenny Rae:
So I feel like you are big pro was I saw 110% what I call the game factor. Like whenever I gave you data or asked you to do something, you are like what a great idea. Like you were into it. And I don’t want to – I want people on the call to really focus more on that than on the analytics or the tactics that we went through because ultimately, that’s the game changer. That’s what make me hire you in the second round, okay? In the first round I want structure and tactics, and I need a different level of insights than where you were. So I felt like there was insight gaps in some of what we were talking about, and I really want to focus on that. So I’m to go back through each piece of the case as a quick debrief for you. Just tell you what I was seeing, what I was thinking as I was going through it, and, you know, kinda emphasize the things that I would want you to do differently as you are continuing your case prep because I know you’ve got a little ways to go and I’m excited to see where you go from here.
So the first thing is that at the beginning, I thought you asked some really good clarifying questions, right? What is the actual tactic of this business. None of them were new data specifically, except you asked a little bit about growth topics and I kind of said, you know, at just me can we want to return to profitability. You know, I think you can generally make the assumption that we are not going to be withholding data from you guys in a McKinsey, Bain, or BCG interview. There could be nuances for other firms, but for the most part, really focus your beginning questions on understanding the channel, the problem, the product, right? Some of those things and just really understanding that. So the question about SKUs, great clarifying question. The question about the numbers, I really felt like you got it at the beginning of the case. And it only took you about 3 ½ minutes, which is textbook. That’s like amazing, right? Up to four minutes for the opening of the case, so your full opening was 3 ½. Well done.
Also, when you went to do your structuring, you were a minute and 36 seconds which was pretty good, but I did feel like your structure came across a little weak, and then interestingly, it took you 3 ½ minutes to present your structure afterwards. And so that imbalance I think was reflective of the fact that you could have spent a little bit more time going a bit deeper, maybe even spending just a second numbering your structure. I wish you could see my paper. These are my notes about your structure. There is like lots of arrows and other things, because I was having a hard time following you. And in a virtual environment, which we’re going to be in potentially for a little while, you really need to make sure that you very clearly articulate. And I also, I wouldn’t want you to start with – you could have spent almost a half minute talking about like this is a declining growth problem, which it wasn’t really, actually. It was a declining profitability problem was the bigger problem, right? Slowing growth, but declining profitability was the big problem here.
And then you are like and then it’s revenue and cost, and then we finally got down to like the lower category of buckets. So just start with like that level that your then going to sub the data underneath, and then make sure you’re giving me an incredibly clear, numbered piece of data as you are going through each one. And so – it wasn’t super clear to me exactly what structure we were operating in, or exactly where we were going to go inside the case. So I felt like that was one big growth area. And that’s really where the insight gaps, I think, began. Because at the beginning, what we’re trying to figure out, essentially, is like is this promotional campaign driving the profit decline or not. Right? That was really, I think the fundamental question, and therefore we’re going to have to evaluate whether it’s profitable or not profitable. So I would’ve liked for you to go one level deeper at the beginning to the tactics that we got into later in the case of measuring the profitability of this actual campaign. Right?
Jensen:
Gotcha.
Jenny Rae:
And I think if you had used your structure for that, then we would’ve gotten there more quickly.
Jensen:
Gotcha.
Jenny Rae:
Now I do want to commend you because after that, you went through a series of really only three questions to get us into the math. And I, like when you said I’m not afraid of numbers, I felt that from you. I saw that, I felt that you wanted to get to the numbers. I thought you were asking very good questions. When I gave you the numbers, you didn’t insight for me either it though. So again, like what you are really good at was getting to the numbers, and you only asked three questions to get there. What you weren’t great at was when I gave you the numbers giving me the insight. Like $100 an initial like offer is ridiculously high, right? And I would have wanted you to kind of weave in some insight as we’re going through it. Like that seems really high. I’m wondering if this been a profitable prospect for them. And so you are asking the right questions, but not interpreting the data in a way that kind of added that value to me.
Then we got into the data, I actually really liked the way that you laid it out. And that first step, in this case, I’ve done it a number of times. It’s not super clear whether we’re supposed to wait for the first step, or not wait for a step. We really only figure that out oftentimes when we get to the second step. And so I felt super comfortable with your analytics. I felt like I could trust you. You had – your math numbers were solid. The one time you are like playing around with the decimals a little bit and I was just like you can just get there. You know, I know you’re fine. But I was doing that because I made the assessment pretty early on that I did not feel like math was going to be a flaw or a challenge for you. I felt like if I gave you a spreadsheet you’d be able to figure it out. What I was looking for, though, again, was like when you came up with the insights. Number one is higher, but it’s really close. Number two, these numbers are undiscounted as well. Number two has a much higher take in the first year, and so one of the benefits of that when we’re looking at that is that actually, you know, in the first year we have this like higher revenue per customer.
So we also have only projections for option number two. And so you said, you know, kind of stick with number one, I don’t think that’s the problem. I think that is the level one insight here. But I think that there is a level II insight, which is just like the second one is pretty close. It might be worth testing, it might be worth seeing if we actually get a higher rate of return in year two and three because maybe we are attracting better customers. Maybe we are attracting better customers at higher margins. And so that’s really where I pushed you too on the final creative questions, right? Which is what if the customers that we are getting are actually not ideal in the long run, using this promotion. Right? And so you broke it down into four areas, but your four areas were all at one level. I would have rather had three areas with some subcategories underneath them to really push us into that place where we were evaluating that.
And then your conclusion was super solid. It had all three pieces, the recap, the recommendation, and the kind of overview of the and part of the case. It was a almost like a minute and a half, which is great. A minute and a half to two minutes is perfect. Your creative question was under three minutes, also Bueno. So, you know, this was a BCG-style case, which feels really hard because you have to find the data first before you get to use it. But overall, if that was a first round, I would’ve been like I think Jensen can do the job. In a second round I couldn’t have passed you because the insight piece was missing. And so, I don’t think it was a shoo in for either one, but I really think that it’s not that far for you between where you are to where you need to go. So what questions do you have for me?
Jensen:
I think – no, that was super great. I think I got tripped up definitely a little bit from the start with kind of structuring of the case, because I was looking at it at a profitability of the whole firm and all, but not just the part that’s the marketing campaign.
Jenny Rae:
Right. So I’m kind of – I’m throwing both of those at you and trying to see, right, how big picture can you stay, but also focus on like the specific question I asked.
Jensen:
Yeah. And I think, yeah. It definitely tripped me up with like the amount of information, the data that was giving at the beginning. It was like okay, send me 200,000 SKUs. That’s like that must mean something, right? Especially you corrected me on it as well. You’re like no, it’s not 2000, it’s 200,000. Just making sure you got that right. And it’s like this must be really important.
Jenny Rae:
You are like whoa, yeah, exactly.
Jensen:
So I think that tripped me up a little bit because I was thinking big picture of the whole thing, not just this campaign. But yeah, no, I think everything else makes a lot of sense, and yeah, I don’t have any questions. I enjoyed the case a lot.
Jenny Rae:
Well let me show you – that’s so good. Let me show you something here, which is just like the kind of the data that I was working off of, right? So in a BCG case I’m going to have some options. What I did was I italicized the things that you asked me for. What I really liked is that there was actually a lot of other information that you did not need to solve the case that would’ve been contextual, but you could’ve asked me for, and I put it here together. But it doesn’t actually really matter. There are a couple of questions that I could have asked you but didn’t need to. And so like I said, that three steps, those three questions that you asked me got us to those numbers. Now some of them you didn’t ask me, but I gave you, and there really wasn’t a clear way for us to do that unless I gave them to you. That wasn’t a fault of yours.
That was me needing to give you the information because there are 10 different ways that we could actually calculate this lifetime customer value, right? So I needed to kind of give you some of those numbers to shortcut it. And then I had to clarify it a few times because I had given you some data, and I could tell you weren’t clear about whether it was included or excluded. And so again, I think if you would’ve pushed to the insights early, you would have paid attention to that aspect of it a little bit more. But overall, I wouldn’t say that not gathering that data was a key piece that was in here, right.
Jensen:
Yeah.
Jenny Rae:
And then this is the calculation that you did. I don’t know what your paper looks like, you know, in an ideal scenario, your tabling this out and it looks very clear. I felt like you didn’t make any missteps in terms of mixing things up, so I would imagine that your notes are clear enough. And that’s all I really care about. Clear enough is good enough as far as I’m concerned. When a model comes back to me, right, answering the question is good enough. Like perfection is not necessary, I just need to have it not have errors or other problems with it.
And then this distinction in the second piece, you know, I again kind of pushed you toward it and you picked it up really quickly, was that the rate we’re assuming is going to be the same of 1.6% of the overall population purchasing. Right? And that’s – so whenever you hear an assumption like that, I’m just queuing you up to say well we’re making that assumption, but what if that’s number higher? Then that changes the game entirely. And so because that 20% and that 50% weren’t off of the 3%, the 1.6 and 0.8 stayed. And that’s why it remains the same. In the 20% and the 50% are really of the 8% in the first place. We could almost black those out there.
Jensen:
Gotcha.
Jenny Rae:
So yeah. Any final questions before I turn it over to just a little bit of Q&A from the group?
Jensen:
No, I think I’m good for now. But yeah, thank you so much. I really appreciated it. I learned a lot.
Jenny Rae:
Okay, amazing Jensen. we love you.