Hi, I am Jenny Rae Le Roux, Managing Director of Management Consulted, and I'm here
with Matt Plummer who is about to become a famous case interviewee, wouldn't you say?
Absolutely. I've been training for a long time for this.
Matt has an amazing background, he's worked in corporate, he works for
Bridgespan, and he's offered to come today to show
us how market sizing is done. And of course I'm not going to be nice to you
I'm gonna push on a whole bunch of things, but we'll have some fun in the
process. I would expect nothing less. So we're gonna dive into this, I'll read you
the prompt of the question, the goal for this is that we're mirroring a Bain
style first round interview. Probably more targeted at undergrad, that would do
this as kind of a, let's called it a math plus or a strategy case that's wrapped
with mostly a math question. Okay. And so I've come up with a question that I
think that's kind of interesting it'll be fun to walk through with you.
Awesome. Great. So the question is that we serve a large conglomerate that does
direct to consumer lamps and other small furniture pieces for homes. Think:
accessorizing features, baskets, small side tables, etc. We do these flat-packed,
and they are successful in the US. They've been operating for about four
years. The company's interested in entering the Mexican market as one of
their closest neighbors from a logistical standpoint. And they're
interested in sizing the market specifically for their lamp segment. So
they're wondering how many lamps are sold every year in Mexico, and what does
that mean for the client. Any questions about the background? Okay yeah, and about
and what's the market share and market size that they have in the US at this
point? Great let's assume that it's a pretty fragmented market, so under 10%.
But still what they would consider to be a sizeable share. Great, well is it okay
if I take a minute or two to write down the structure first? Take as much time
as you need. All right, great.
Okay. And just to clarify, is it okay if I focus on lamps that would
be... you know I'm thinking like a conventional lamp, thought you would find
the house either on a desk, or even a standing lamp that would be in like a
living room type, versus like something that would show up more like in an
office space or in a shop. Tell me why you think that makes sense to focus on,
I'll let you do it, but you have to convince me.
Yeah I think so, as I think about the the Mexican market I think that it's
probably a broader residential market at this point. Particularly because there's
likely to be some underdeveloped areas that are unlikely to have as
much of the, either corporate furniture, or the more industrial furniture. Great,
then let's go for that. Great. So first I would start with, What is the population
of Mexico?". Okay. And then we want to know, you know, "How is that broken into
households?" Okay. And then you know "How many lamps does each household have?".
and then you know "What's the rough amount that a household would
spend on a lamp?". Yeah so does that basic structure seem to make sense? Seems to
make sense to me. Why don't you walk through what some of
the data would be. Okay. So population of Mexico, so, know that the United States is
you know around 325 million. I had guess it's you know maybe around a
third of that, so I'd say let's say 125 million. Okay.
Why would you guess it's a third? Just based on, you know I'm thinking about the
rough size of the country, and the number of an urban centers there,
compared to the US. So it seems like that would be, you know, not bordering on
half, but yeah. Okay. Scarily close, it's about 130 million. So we can
use 135, or 130 sorry, as our number. Ok, great.
And then yeah, number of households, so if you have 130
million people, you know if I think that the number of children per family is
likely to be higher there than in the States. And so I'm if I start with an assumption
of 2, and then adjust off of that, I'd say you know, it's probably gonna be a
bit higher. So I might say something closer to two and a half around for
a household number. Okay, sounds good. And then, number of lamps per household, so you know, I'm
thinking to my own experience of how many lamps would I have, you know,
in the houses I've been in. You know a number of rooms per house, so, you know if
we think of a two bedroom for example which maybe is an average in the States
and then although just for Mexico, so you have five rooms maybe in a two bedroom.
And let's say there's probably about one or two lamps per room, so, I'll say seven.
Seven lamps in a US household. So I might think that household size, or the
houses, might be a bit smaller on average, and so, I don't know, I think five
is probably a rough estimate of how many lamps you would find in the house. Sounds
good to me. Okay. I reserve the right to disagree with you later. Don't take my numbers as a sign of
enforcement or approval, Okay? Go ahead. Great.
So thinking about how much someone would spend on a lamp, you know, in the
United States, probably, I'm thinking around $30. And so, Mexico I would expect it to be a
bit cheaper. Let's say 20 pesos. Ok. Do you know what the currency exchange rate is?
Yeah, I was going to ask- I don't know. Why don't we just do it in
Dollars, and we can always convert it later. Okay. So are you thinking
30 to 20 dollars each? So I think it would be would be more like twenty
dollars if it was a one-on-one exchange rate. Fair. Yeah so we'll do
$20. Okay. So then shall I run through the math? Go for it. Okay, so we
have 130 million, we want to divide that by the number of
households there are, so I'm gonna do some quick [math]
So, five so we're talking about...
...about fifty million there. Times 5 lamps per household, which is 250 million,
times, $20 per lamp, so we're talking about five billion, there in US dollars.
Okay. So, for a full market size in Mexico we're saying that, for lamps,
household lamps, that it would be roughly 5 billion. Now what does that
5 billion represented specifically? So that represents the total spend in
Mexico, for residential household lamps. Totally. When we think about it in
total, or is there a better way to think about it that would maybe match up with
our revenue estimates? So we could we could look at the, you know you mentioned
the market share in the beginning, of what the we have in the US. And you
mentioned it was a fragmented market. Yep. You know if we're entering a new
market there's likely to be some established players, so, we would, you know
if we have 10% in the US, my guess is that, at least starting off, we would have even
lower than that. So if I'd just say 5% of that. So... I'm poking on one other thing
too. So 5 billion represents all of the lamps that anyone would own in
Mexico. But if we think about the market size, what if we did it on a per year
basis? Okay, yeah, so how often are people buying
those. Totally, how do you factor that into your numbers as well? So I guess you
know how, what's the replacement frequency of the lamps, and so, you know
I'm thinking about, lamps lasts quite a long time. So, I would say, my guess and I
think this might even be a little aggressive would be, ten years, on a lifespan
of a lamp. You know I could imagine it being I could imagine being longer, but I
say ten years. So then essentially if people are gonna
buy them every 10 years, then they're only for the amount that's being
purchased in a year, it's going to be a tenth of that, so, 500 million.
Great. So then we would take the 500 million, we measure it up against
the market share. Right. Great, so what's your strategic assessment of this? So if
we're... I'm just gonna write some numbers... so 500 million, and then we said
that you know, maybe you could assume you have 5% of that, going into it.
Which is, 25 million per year. So they've been at it for years in the US
and they have ten percent market share, and this offers a potentially a 25 million
dollar market on a yearly basis.
You know, without knowing the full size of the
market in the US and going through that, my guess would be that this doesn't feel
like a huge market to me. I would want to consider it relative to their other
growth opportunities and see how it compares to that. But my sense is that
this would be a moderate opportunity based on potentially other opportunities
they would have. Great. Okay, relax. Let's just talk about it real quickly. I took a couple
of notes as you were going through it. Overall, good job. I like you. I could see
that you could do the work and you were very receptive to my pushback which is
definitely an important thing from a Bain interview perspective. And so
I thought your notes and your clarifying questions were really good. I wasn't sure
at the beginning when we asked about the market share where you were going to tie
that in, but then when I saw later, you added it back into the strategy, I thought
that was a really good question. So I was concerned at the beginning that you were
just asking me random strategic questions, not really thinking about the
implications of them. Maybe just one hint would be to push a little bit more into
identifying why you're asking the question. Okay. "I want to know market
share because...", and you also asked about the other adjacent markets, and I kind of
push back on that too. And I said you know why would you want to know? And what
you're saying is essentially, I'm interested in this, but I also would
think that the opportunity will be bigger than just lamps so what would you think about for that.
Then your numbers I thought that your structure was pretty good, that
one piece at the end of the replacement rate, I think would be pretty
standard, so that's why I was just asking you at the beginning, I'd really want you
to define, here's why I want to go after households, and then this is the piece
that you know we really have to focus on, and here's why we're calculating it in
this. But I think most of the time for Bain, I'd probably want it in the annual
basis, just because it's gonna, most markets are gunna feel big, not knowing how long it's gonna take to
replace things. Or maybe too small, if something that has a more frequent
replacement rate. And then, I would want you when you go through the household
explanation, to just defend yourself. Tell me at the beginning, I want to do
households and here's what I did. So I thought you were very polite
about that and asking permission for it, but just explaining, I built the
structure around the household market because I think it's the most important,
gets me right to where I would want to go, and then I still might reserve the
right to tweak it. And then one final tip about that piece, at the end of the case,
I probably would have gone back to that assumption, because that 25 million is
probably under estimating the full size of the market, because you only carved
out households in the beginning. Yeah, that makes sense. Other than that I
thought your assumptions were pretty reasonable, I couldn't believe that you
actually knew close-ish the population of Mexico.
We usually get people around the 50 million mark or the classic 100
million guess, where they are, so I thought that was a pretty good estimate.
The 2.5 on households I was really worried when you said that, because it's
not the easiest number from a calculation standpoint. So anyhow you did a good job
with the calculations for that. And then the 5 was good. I was really glad
that you picked an easy number and defended it, and I thought your defense
was good, and then the 20 was also pretty good from a calculation standpoint, and
your calculations I didn't see major issues with. So across the board I really
liked the bigger picture and I feel like you could have tied a few of those
things together, but overall really good job and thanks for walking through
market sizing case. Awesome, Thank you.