Reddit Case with Commentary

Quick TDLR:
1.​ ask questions about company/industry →
2.​ framework →
a.​ ex. Market, company: products and consumers, finances: revenue and costs
3.​ focal points →
4.​ addressing/asking questions about first focal point 1Q + clarifying Q with example
on that 1 Q: hypothesis driven →
5.​ second focal point Qs if first focal point is a bust →
6.​ Graph given as response to Q if on the right track:
a.​ top down: tag lines, charts, etc. don’t forget to read footnotes:
i.​ Okay x axis is this, y axis is this, these r the trends I see
b.​ Revenue and costs → ask about profitability:
c.​ After lots of info: summarize and ask qs if poss
7.​ Calculations
a.​ If variable cost then ask for amount of items
b.​ Start with formula then ask if right approach before calculating
c.​ Take every new hypothesis and tie it back to og question
8.​ Suggestions
a.​ Consider using a mini issue tree to categorize your thoughts for the
interviewer:
i.​ 2 different types of suggestions, clarify sub points within suggestions
and why
1.​ Then given main suggestion: hypothesis driven
9.​ Solve calculations, compare suggestion with other data points to see if it’s
feasible
10.​Give answer
11.​Next steps after the answer + examples

Role Case Commentary

PROFITABILITY

Interviewer: You have been hired by the CEO of Never forget the goal of the
Chickflix.com. The latest financial figures case. Throughout the
just came out, and Chickflix.com’s gross interview, constantly return to
profit margin has decreased for two years in how you are progressing
a row. He would like our recommendation on towards answering the issue.
how to address this problem.
Recruit: Can you tell me more about Chickflix and If you don't understand the
how it operates? company / industry, ask! Don't
make assumptions on
fundamental components of
the case.

Interviewer: Chickflix is a online website similar to the

original Netflix. Clients sign up online, order
online, receive the movie in the mail, and mail
it back when they're done. What's unique
about Chickflix is that it targets only women,
and a majority of its titles are 'chick flicks'.

Recruit: Great. Could I have some time to structure For the framework, a bare
my thoughts? minimum would be 3
categories, each with at least
one or two sublevels. There is
value in memorizing
frameworks to start, but you
should quickly progress to
mixing and matching pieces of
those frameworks specifically
to fit the case. Furthermore,
tailor the vocabulary used to
the case to show the
interviewer you are immersed
- for instance, if talking about
a train company's revenues,
say passengers and fares
instead of volume and price.
Try to stay within ~90-120
seconds for writing down a
framework.

Interviewer: Go ahead.
Recruit: I'd like to look into three major categories: the When presenting the issue
Market we are operating in, the Company's tree, use top-down
intrinsics, and its Financial performance. In communication. Start by
market, there are several important factors to describing the high level
consider. categories, then go back and
Market provide the details. When
First, I'd like to understand industry trends to providing the details, explain
see if this is a systemic issue or specific to why each one is important.
Chickflix. Next, I'd like to understand our
competitors and substitutes - if anyone's
making aggressive moves, or if there's any
new entrants that could impact profitability
like streaming services. Then, there's
governmental - it'd be good to know if there's
been any new regulations that impact our
business.

Company intrinsics
From a company perspective, I want to learn
more about its products and customers. On
the product side, I'd focus on what product
types are offered and the competitive
advantage to make sure we still fit our
market. On the customer side, I'd like to
understand what segments we target,
hopefully getting more granular than just the
broad category of women.

Financial Performance
Financially, I'd decompose it to Revenue and
Cost, to see if we can isolate where the
problem lies. In revenues, I'd like to
understand our trends in both subscribers
and subscription prices. In costs, I'd like to
understand our variable and fixed costs. On
variable costs, I imagine a lot of it will come
from the cost of the DVDs, cost of mailing
them, and maintenance like cleaning the
DVDs and fixing the packaging. On the fixed
costs side, I'd delve into the SG&A costs of
the business - sales, admin, technology.
 First focal point questions: market Remember to show that you
I'd like to start with tackling the market. Have are hypothesis driven, so tell
there been any major shifts in the market? the interviewer where you want
For instance, are our competitors facing a to start. Consultants strive to
similar decline in margin? be hypothesis first, 80/20,
avoid boiling the ocean, etc.
The interviewer can always
correct you.

Interviewer: There have been no major changes, and our Typically, if the interviewer is
competitors have maintained margin. short on a response to a
potential hypothesis, it's likely
(though not always) that it's
not the right direction. A case
guide won't give a whole
storyline to something that's
outside the point of the case.

Recruit: Got it. That probably means that the industry Bringing in relevant outside
isn't being disrupted either, if our competitors information is a way to show
haven't seen any changes. What about the creativity and general business
government? Has there been any notable knowledge.
changes that have impacted us moreso than
others? I know in the past that Netflix was
impacted by regulations due to the sheer
volume of DVDs they shipped.

Interviewer: No specific issues in the last few years.

Recruit: Second focal point qs: finance

I see. So it seems like the market has been
pretty stable. So, I want to jump to explore
the financial aspects and hopefully identify if
the margin issue comes from the top or
bottom line. Do we have any information
about the revenues and costs?
Interviewer: Sure - we've collected some information from Exhibits usually mean you are
the client. Why don't we start with this: on the right track.

So I see we've got two charts here… revenue It may seem awkward, but it
Recruit: over time and different types of subscription doesn't hurt to read out all of
models. I see that we've had a really nice the information on the chart. It
growth rate over the past few years, and that gives you time to comprehend
we've introduced a new subscriber model the material, and shows off
last year. It looks like Subscription 2 and 3 your thought process. As
have been pretty stable, and that a lot of the usual, start 'top-down' - the
growth is from Subscription 1. Given the time tagline, chart titles, etc.,
frame, an initial hypothesis may be that has before going into the details.
something to do with the margin decline. On Don't forget to read any
the right hand side, we've got a list of the footnotes. Also, once you have
subscription models. Looks like we have 3, meaningful data like an exhibit,
with different price points and limitations on it's time to state an early
how many videos you can rent at a time. hypothesis, which you
continually test throughout the
case.
 I can also see that the new subscription Even if you've already received
model is a low end one - one movie at a time some exhibits, others may only
for $9.99 / month. It'd be interesting to see be provided if you ask for them
the profitability for each of these different specifically.
models. Do we have any information about
the cost side of these?

Interviewer: Yes, here you go: https://imgur.com/xXKi1X2. Adding up total variable cost

Recruit: This is great - so I see this is the variable cost If anything is unclear, make
for each unit. And we have a description of sure to ask.
each category. This also confirms my original
belief that the distribution and content costs
are the biggest buckets. Two quick questions
- is 'unit' a shipped DVD? And does this vary
based on the subscription model?

Interviewer: Yes, a unit is a shipped DVD. It does not vary

based on the subscription model.

Recruit: Great. So if we add this up, it looks like the After receiving a lot of
total variable cost is $1.85. I also just realized information, it can be worth
we need some more information. To recap, summarizing and re-framing
I'd like to assess the profitability of each of the approach.
our subscription models. You've already
given me the price points and the $1.85
variable cost - so the only other thing I need
to know is how many DVDs each type of
customer rents on an average month. Do we
have that?
Interviewer: In an average month, Subscription 1 If variable cost then ask for
customers rent 6 DVDs, Subscription 2 amount of items
customers rent 7.5 DVDs, and Subscription 3
customers rent 8 DVDs.

Recruit: Great - so I'll now calculate the profitability of A rule of thumb for rounding is
each model. For quickness sake, I'll round the +/- 10% of the value. More
$1.85 to $2 if that's okay? than that would be material.

Interviewer: That's fine for now.

Recruit: Okay, great. If a Subscription 1 member rents Profitability margin : revenue -

6 movies per month… that's about $12 in cost
costs. That means every subscriber causes
us to lose $2. Subscription 2 members rent
7.5 movies per month… so that's about $15,
so they're just about breakeven, actually
slightly profitable since I'm rounding up.
Subscription 3 members rent 8 movies per
month, so that's about $16, so about a
healthy $4 profit margin.

Given the growth of Subscription 1 and the Remember to take every new
stability of the other models over the past conclusion and test against
two years, this is confirming my initial your hypothesis, then tie back
hypothesis that Subscription 1 is the driver to the overall question.
of the declining profitability margin. So now
that we know the root issue, we should start
addressing the CEO's question of what he
should do.
 I'm going to break up potential solutions into Always remember to maintain
two buckets, aligned against Revenues and structure, especially in the
Costs. In the revenue bucket, we could look brainstorming / solutioning
into a) increasing the price on Subscription 1 part of the case. Consider
or b) converting those members to our more using a mini issue tree to
profitable Subscription 2 or 3. In the cost categorize your thoughts for
bucket, I know that the variable costs apply the interviewer. I also
to every subscription model, but maybe recommend throwing caution
there's opportunity to shave some to the wind when listing ideas -
percentage off and benefit the whole get creative, as you can always
company. Or, we might put a cap on the go back and rationalize after.
number of movies a person can rent under
each plan, or at least the lowest plan.
Alternatively, it may also be worth expanding
the scope to look at fixed cost for additional
savings.

I'd like to investigate putting a cap on rentals As usual, be hypothesis driven.

for the lowest subscription type. If we cap it
at 5 per month, we'd immediately stem the
loss and reverse the trend.

Interviewer: Actually, I'd rather we look into increasing

prices. What price would we have to charge
Subscription 1 customers for them to have
the same profitability as Subscription 3
customers?

Role Case Commentary

Recruit: I see. To figure that out, I'll first figure out the Before diving into calculations,
profitability of Subscription 3 - which is just consider walking the interviewer
margin over price. Then, I'll set up an equation through your approach. If the
to find out the price for Subscription 1. interviewer confirms your
approach, then you can focus
your mind on calculations.
Alternatively, if you build the
approach while you calculate, you
have to split your focus and also
run the risk of wasting time if the
approach turns out wrong.

For Subscription 3, the margin is about $4 as I Walk the interviewer through your
mentioned earlier. To be more exact, 8 DVDs math. This shows your thought
times $1.85 is $15. So it's actually $5 over $20, process and gives them the
so each customer has a 25% margin. opportunity to catch mistakes.

To figure out the price for Subscription 1, let's Setting up an equation can help
have X equal the price. X - 6 DVDs times 1.85 = solve tougher problems. Don't be
X /4. So this becomes 3/4 X = 11. So X = $15. afraid to use your scrap paper to
This means you would have to charge $15 for the fullest extent.
Subscription 1 in order to have the same
profitability margin as Subscription 3.

In an average month, Subscription 1 customers The answer to the calculation is

rent 6 DVDs → this is where the 6 DVDS come not enough - the important part is
from, then X/4 = margin percent for applying the answer to the
subscription 3 overarching problem. Also known
as the "so what".
I don't think this is realistic though, since our
Subscription 2 is already $15. However, we
could still charge something between $11 and
$15. However, we'd have to look into what this
does to overall subscriptions.
Interviewer: Okay - you happen to run into the CEO into the Obviously there was much more
elevators and he's asked for a quick summary that could be done - however, 30
on where the team is. What would you tell him? minutes goes by fast, which
means the interviewer will have
to cut you off somewhere - don't
worry too much about the
conclusion feeling abrupt.

Recruit: I believe we need to adjust Subscription 1 The easy format for

through a combo of raising prices and recommendations follows
instituting a rental cap. We found that the top-down communication
margin decline began with the introduction of principles: recommendation first,
this low cost subscription model. Each 2-3 supporting proof points, and
customer is losing Chickflix $12 / year because next steps. For next steps, either
they are renting too many DVDs given the $10 highlight issues raised in the
monthly price point. For next steps, we need to conversation or refer to parts of
investigate the impact on subscribers. This your original framework you
recommendation could lose subscribers, didn't cover.
though the remainder would be profitable.
However, I also know that early-stage tech
companies often focus on growing subscribers
at all costs, so we should also have a
discussion on ChickFlix's priorities.

Interviewer: Thank you.