McKinsey Case Interview-Practice Case:Electro-Light

Electro-Light

Client goal

Our client is SuperSodaSuperSoda is a top-three beverage producer in the United States and has approached McKinsey for help in designing a product-launch strategy.

Description of situation

As an integrated beverage company, SuperSoda leads its own brand design, marketing, and sales efforts. In addition, the company owns the entire beverage supply chain, including production of concentrates, bottling and packaging, and distribution to retail outlets. SuperSoda has a considerable number of brands across carbonated and non-carbonated drinks, five large bottling plants throughout the country, and distribution agreements with most major retailers.

SuperSoda is evaluating the launch of a new product, a flavored sports drink called Electro-Light. Sports drinks are usually designed to replenish both energy (sugars) and electrolytes (salts) in the body. However, Electro-Light has been formulated to focus more on the replenishment of electrolytes and has a reduced sugar content compared to most other sports drinks. The company expects this new beverage to capitalize on the recent trend away from sugar-rich products.

McKinsey study

SuperSoda’s vice president of marketing has asked McKinsey to help analyze the major factors surrounding the launch of Electro-Light and its own internal capabilities to support the effort.

Helpful hints

  • Write down important information.
  • Feel free to ask the interviewer for an explanation of any point that is not clear to you.
  • Remember that calculators are not allowed – you may write out your calculations on paper during the interviews.

Question 1:

What key factors should SuperSoda consider in deciding whether or not to launch Electro-Light?

Helpful hints

  • Take time to organize your thoughts before answering. This tells the interviewer that you think about the problem in a logical way.
  • Develop overall approach before diving into details.

Reveal Answer

A good answer would include the following:

Consumers. Who drinks sports drinks? Are there specific market segments to address?

Cost/price. Is the sports drinks market more profitable than those markets for SuperSoda’s current products? Is it possible to profitably sell (at a price set by the market and internal production costs) Electro-Light? Given the fixed costs involved, what would be the break-even point for Electro-Light?

Competitors. Which products will Electro-Light compete with? Which companies are key players and how will they react?

A very good answer might also include multiple additional key factors SuperSoda should consider. For example:

Capabilities and capacity. Are the required marketing and sales capabilities available within SuperSoda? Does the product require specialized production, packaging, or distribution? Is it possible to accommodate Electro-Light in the current production and distribution facilities? What impact does geography have on the plant selection?

Channels. What is the ideal distribution channel for this product? Are current retail outlets willing to add Electro-Light to their product catalog?

Question 2:

After reviewing the key factors SuperSoda should consider in deciding whether to launch Electro-Light, your team wants to understand the beverage market and consumer preferences to gauge potential success of Electro-Light.

Your team has gathered the following information on the US sports-drink market. The information shows an estimate for the share of electrolyte drinks, as well as the current share for the two main electrolyte products: CoolSweat and RecoverPlus.

Based on the target price and up-front fixed costs, what share of the electrolyte drink market would Electro-Light need to capture in order to break even? Here is some additional information for you to consider as you form your response:

  • Electro-Light would launch in a 16-ounce presentation (one-eighth of a gallon) with a price of $2 to retailers.
  • In order to launch Electro-LightSuperSoda would need to incur $40 million as total fixed costs, including marketing expenses as well as increased costs across the production and distribution network.
  • The vice president of operations estimates that each bottle would cost $1.90 to produce and deliver in the newly established process.

Helpful hints

  • Ask for clarification of information.
  • Take notes of the numbers, and don’t be concerned if the units are unfamiliar to you.
  • Take time to plan out how to approach the calculation.
  • Describe your approach and talk the interviewer through your calculation. The more you talk the easier it will be for your interviewer to help you.

Reveal Answer

A very good answer would include the following:

Electro-Light would need to capture a 12.5 percent market share of electrolyte drinks in order to break even. Therefore, Electro-Light would need to be the number-two product in the market:

  1. Electro-Lightwould need to sell 400 million units in order to break even:
  • Variable profit per unit = $2.00 – $1.90 = $0.10
  • Break even units = Total fixed costs/Variable profit per unit = $40 million/$0.10 per unit = 400 million units
  1. Electro-Light would need to capture a 12.5 percent market share:
  • Electrolyte drinks market = 5% x 8,000 million gallons = 400 million gallons
  • Electro-Lightsales in millions of gallons = 400 million units/8 units per gallon = 50 million gallons
  • Market share = 50 million gallons/400 million gallons = 12.5%

Question 3:

SuperSoda executives believe that the company’s position as a top three beverage company gives them strategic strengths toward achieving the desired market share. However, they ask the team to outline what would be needed to achieve the target of 12.5 percent share of the electrolyte-drinks market. What would SuperSoda need to do to gain the required market share for Electro-Light following its launch?

Reveal Answer

A very good answer would include the following.

Match with consumer preferences. Ensure product image, attributes, and quality fulfill the needs of all consumers or niche segment, reaching desired market share. Ensure target price is consistent with other products in the market and the consumer’s expectations

Strong branding/marketing. Create a successful introductory marketing campaign, including advertising, pricing, and bundling promotions. Leverage top-three producer status and limited market fragmentation in order to position Electro-Light brand within top three in the market segment. Anticipate response from competitors (for example, advertising, pricing, distribution agreements). Ensure product positioning does not cannibalize on other, more profitable SuperSoda products. (Note: in marketing, the decreased demand for an existing product that occurs when its vendor releases a new or similar product is called “cannibalization.” It is not important for you to use this business terminology.)

Operational capabilities. Ensure access to preferred distribution channels. Ensure sales-force capabilities to sell the new product. Ensure production ramp-up that allows response to increased demand.

Question 4:

To help SuperSoda determine how best to launch the new Electro-Light product, the team conducted a consumer-research study. The following information shows results from the study. What can you conclude from this regarding how the new Electro-Light product should be launched?

Reveal Answer

A very good answer would include the following insights:

Branding should emphasize “healthy natural” identity. “Leisure drink” identity is dominated by CoolSweat product, “energy replenishing” by RecoverPlus, and “healthy natural” fragmented in other products. There is a clear niche within the “healthy natural” identity, with top-two brands currently occupying only 30 percent of share of mind. “Healthy natural” branding should also determine thinking around the sales channels (for example, sales through health and nutrition outlets, health aisles at supermarkets).

Distribution differs from current outlets and needs new agreements/research. Major shifts compared to current distribution model required in “supermarkets,” “other,” and “convenience stores.” Agreements with major retail players may accommodate product introduction, with SuperSoda managing mix across channels. “Other” channels need further research, since they are a major component of the sports-drink segment.

Marketing message to emphasize identity and availability. Marketing campaign should be built around the currently unaddressed market need for “healthy natural” drink in order to connect with customers in that segment. Given required changes in distribution channels, Electro-Light messaging should clarify new distribution strategy.