Page 1

Profitability

Big Picture• Product

– Change in features• market

– growth– developmental stage– Profitability levels– Demand elasticity

• Competition– Rivalry– New entrants– Substitutes

• Consumers– Change in needs /

preferences– Segments– WTP– What is most important

Revenues• Price:

–Premium pricing–Market power–Product mix

• Volume–Volume per type of

product–Distribution issues–Supply chain / logistics /

inventory management

Costs• FC• VC• Capacity utilization• Short run / long run costs • Benchmark vs. competition• Weighing of different costs

components (COGS, etc.)

Page 2

Decrease in sales

Big Picture• Product

– Change in features• market

– growth– developmental stage– Profitability levels– Demand elasticity

• Competition– Rivalry– New entrants– Substitutes

• Customers– Change in needs /

preferences– Segments– WTP– What is most important

Revenues• Price:

–Premium pricing–Market power–Price war–Product mix

• Volume–Volume per type of

product–Distribution issues–Supply chain / logistics /

inventory management

Company• Core competencies /

resources • Positioning

Page 3

Expansion

Big Picture• Market• Competition• Consumer

Success Factors• Current profitability:

–Volume–Prices–Product mix–Costs

• Core competences and BTE for other potential entrants

• Potential benefits of expansion

• How to expand:–Available location /

resources–Proximity to customers–Technology–Capital costs–Labor costs–Time required to complete

expansion• Cost/benefit analysis• Risks

Alternative Opportunities• Acquisition• JV• Outsourcing / leasing• Franchise

Page 4

Market Entry

Big Picture• Market

– Size and growth– Profitability– Developmental stage– Relevant trends

• Competition– Rivalry– Substitutes– Core competences &

resources– Likely reaction to entry

• Consumer– Drivers of purchase

behavior– Segmentation– Gap in needs– WTP

Success Factors• Investments and costs• Revenues• Fit of company with the

new market:– Core competences– Potential positioning– Source of volume (steal

share? Expand category)– Cost structure

(economies of scale / scope)

• BTE:– Product differentiation– Brand loyalty– Switching costs– Regulation– Access to distribution

channels– Other

Alternative methods of entry• Build/acquire/partner• Investments costs and

risks• Past experience – has the

firm been successful in penetrating markets in the past?

Page 5

Industry analysis (how to increase market share?)

Big Picture• Market

– Size and growth– Profitability– Developmental stage– Relevant trends

• Competition– Rivalry– Substitutes– Positioning

• Consumer– Drivers of purchase

behavior– Segmentation– Gap in needs

Company• Revenues

– Price– Volume

• Costs• Core competences &

resources• Product

– Features vs. competition

Opportunities and risks• Opportunities:

– Expand to new product categories

– Change focus• Risks:

– Competitors reaction– Loss of focus – Lack of fit between new

business and company’s competences

Page 6

Acquisition

Rationale for acquisition• Company (acquiring and

acquired)– Value chain– Core competences and

resources– Profitability

• Market and competition (acquiring and acquired)

– Size and growth– Rivalry– Developmental stage– Relevant trends

• Consumers of acquiring and acquired

• Potential synergies– Economies of scale– Economies of scope– Brand expansion– Technology– Access to distribution

channels / customers

Success factors• Investment• Revenue increase / costs

decrease• NPV analysis

– Financing– Discount factor– Growth

Strategic aspectsIf NPV positive• Organizational issues:

– Realization of synergies– Changes that need to be

made pre-acquisition • Risks:

– Likely response of competition

• Sensitivity for main assumptions

If NPV negative• Alternatives to acquisition:

– Other target– JV– Organic growth

• In what conditions would the acquisition be economical