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Introduction
Your client is a well-known beer company. Recently they have become aware that their
profits have been declining while those of their main competitors have been increasing.
Where would you start to solve this problem?
I d like to start by asking some clarifying questions.
Does the company manufacture and sell beer? Yes
Is the beer sold in pubs/restaurants and in bottles/cans (supermarkets, grocery stores,
etc.)? Yes, but mainly in pubs and restaurants
Part I
I ll start by considering Costs and Revenues since Profit = Revenue Cost
On the cost side, dividing costs into fixed and variable items, the main cost items would
be:
Fixed costs Variable Costs:
Capital equipment Distribution
Salaries Raw materials
Maintenance Overheads
Contributions to pension schemes
Depreciation on assets
Sales and Marketing
Moving onto the revenue side I would consider:
Revenues:
Sales of products
Investments
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License fees
The client s costs seem to be in line with its competitors. Where would you look next?
Ok, I d consider the revenues. Since the main revenue comes from sales of final
product, I would start here. Have sales been declining?
Yes, sales have declined 10% in the last year how would you go about figuring out
why?
Revenue is comprised of No of units sold (volume) x Price.
Have the prices been reducing?
No, prices have remained fairly stable.
What about the volume sold has this been declining?
Yes, this appears to be the problem the volume of beer sold has declined by around
10% over the last year.
Part II
Can you estimate the overall size of the market for beer in the UK?
I ll start by assuming that the market includes beer consumed both in restaurants and
bars and at home (purchased in the grocery store)
The UK Population is about 60million
I ll now estimate proportion of people of the population who drinks beer at some time
within the potential market, which is everyone over 18 years old
Assuming Population is evenly distributed across all age groups up to 80 years old,
roughly 75-80% of the population could be a beer drinker = > 50million people
But there are some people who never drink beer and some people who rarely drink beer.
Divide the potential beer drinkers into male and female, assume 50:50 split:
Females
25 million females assume almost half of them (almost) never drink beer (prefer wine
or other alcohol). 15 million drink beer at some point. Divide into high and low users
10 million low users 1 pint per week (average)
5 million high users 2 pints per week (average)
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Total annual consumption (Females) = 20 million pints per week, 1 billion pints per
year.
Males
25 million males assume 20% never drink beer. The remainder drink beer at some
point.
10 million High users 6 pints per week
10 million Low users 2 pints per week
Total annual consumption (Males) = 160 million pints per week, 8 billion pints per year
Assume cost of pint = ¤ 2
Value of beer sold in a year in UK = ¤ 18 billion
Part III
Our client currently holds 20% market share and is the 3rd largest in the UK market.
(Lead 27%, 2nd 22%). How would you begin to find out why the sales of our client are
declining?
I d want to carry out a study to find out about three different areas:
Customers
Who are the target customers?
What is the target demographic?
What is the target outlets for the sales of the client s product? Has this changed?
Competition -
Has the competition taken any action which might affect our sales? E.g. price
promotion? Marketing? Release of new product lines?
Company -
Are we behind the times?
Has the client been standing still while the competition is moving forward e.g. launch
of new product ranges like low carb. beer or low alcohol beer?
Do we have good products but the sales and marketing part of the business has not been
active enough?
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Could we be targeting sales and marketing more carefully?
What about our distribution channels are they in line with our target consumer?
Part IV
Assuming that the major contributing factors to the decline in sales is a combination of
competitor action with price promotions and marketing campaigns - and a view that the
client s product is no longer cool but an old-man s drink , how would you go about
growing the client s sales again? (looking for creativity)
Analyse customer segments to understand what consumers value in each segment.
Select a target audience and then relaunch brand with their preferences in mind
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