Market entry, market sizing and pricing in one case. This management consulting case study follows a Korean conglomerate deciding whether a chemical picked up in an acquisition is worth taking to apple growers, and what to charge for it.
Case Scenario
Our client, Danut, is a Korean giant that has just bought a small biotechnology company in Boston. The biotech company has created a chemical that helps manage the ripening of vegetables. Danut would like to know whether it should try to market this chemical, since after testing it seems to work particularly well with apples: it enables apple orchards to harvest sooner and it increases the overall quality of the harvest.
Key Case Steps
- Seize opportunities to confirm market attractiveness.
- Examine the income and expense profile of the orchard.
- Assess the financial success of Project Danut.
- Identify the qualitative considerations for market size and price.
Key Questions
Is the market substantial enough to be worth it? How much more profit does our product provide for a farmer who owns an apple orchard? Analyse Danut's manufacturing expenses to see how much profit the company may make at its price.
How large is Maine's apple market? Does this sound potentially significant enough to warrant more research into this product?
- A typical orchard contains 100 acres of land and generates $30K per acre in annual revenue. There is just one apple harvest each year.
What are the cost savings of using the chemical?
- Thanks to the chemical, the farmer may harvest 10 days earlier.
- The expense of crop maintenance for a 100-acre orchard is $1.5K each day, so harvesting 10 days earlier saves the farmer real money.
Analysis
The candidate should give a number between 25% and 50%. The novelty of the offering should make anything beyond 50% suspect. The gross margin, assuming $1,000 per acre pricing, will be 50%. This is unquestionably a reasonable asking price, if not a touch low. The interviewee should take note of the farmer's exceptionally large profit margin.
Recommended Solution
Our client should commercialise this chemical and price it at approximately $1,000 per acre to make a 50% margin. Questions still worth raising: is there a risk of backlash or boycotting from the general public? Could the U.S. government attempt to regulate the product? Does Danut have the resources to do this? And is this opportunity too small relative to the size of the client?
Want to upskill yourself? If yes, then join our free workshops: jobaajlearnings.com/workshop
Practise More Consulting Case Studies
- Wine in boxes – another new product decision
- Specialty chemicals growth strategy
- Guesstimate drills – practise the market sizing this case needs
- Timed prep cases for full interview practice
