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Medium Profitability Pricing Business Unit Performance

Let's Vroom

#Media & Entertainment #Racing
ProHub Comment

This case tests the candidate's ability to distinguish between operating profit and net profit when fixed costs are allocated across business units. The key insight is recognizing that the small race format has positive operational profit but appears unprofitable on a net basis due to allocated fixed costs. Strong candidates move beyond the initial shutdown recommendation to propose pricing optimization as a superior alternative, demonstrating strategic thinking about cost allocation and pricing leverage.

Estimated Time 26 minutes
Difficulty Medium
Source ROSS
10 / 100
Your client is Race Co, a racing track company in Chicago. They hold 3 kinds of races in their track- small, medium and big. The client feels that they should stop the small race format since it has been struggling with profitability over the last 3 years. What would you recommend?

Clarifying Information

  1. They only host racing events in their track, no other racing track in Chicago
  2. The land is leased, with long-term rental contracts
  3. Classification of small/ medium/ large races depends on the brands of the drivers who come in to participate (more popular contestants are clubbed into large races)
  4. Business model- people buy tickets to come and watch the game. Tickets are available for single races.
  5. Tickets available- through their website, inside the stadium
  6. Metric of success- they want to decide if they should continue the small race format or not
Mock Interview
Interviewer

Your client is Race Co, a racing track company in Chicago. They hold 3 kinds of races in their track- small, medium and big. The client feels that they should stop the small race format since it has been struggling with profitability over the last 3 years. What would you recommend?

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
Practicing...
Score coming soon
Practice this case with AI Mock Interview

Race Co operates three racing formats with different profitability profiles. While the small race format shows negative net profit, it actually generates positive operational profit and benefits from 100% occupancy. Rather than shutting it down, the recommendation is to increase ticket prices to capitalize on high demand, ultimately improving overall company profitability.

Key Insights:

  1. Distinguish between operational profit (direct costs only) and net profit (including allocated fixed costs) to avoid incorrect business decisions
  2. High occupancy rates (100% for small races) indicate strong demand and pricing power, suggesting price increase potential rather than format elimination
  3. Fixed cost allocation methodology significantly impacts apparent profitability of business units; candidates must identify and challenge allocations that may distort decision-making
  4. Pricing strategy and revenue optimization should be considered before cost-cutting or business elimination decisions
  5. Brainstorm multiple levers beyond pricing: new distribution channels (StubHub), alternative product formats (passes vs. single tickets), cost reductions through digitalization of marketing and automation of manual processes