The candidate may recommend entrance into either the Membrane Keyboard market or the Ergonomic Keyboard market given their equal incremental revenue - either way, the candidate should use Exhibit 1 to justify their answer.
Example Recommendation 1:
- Question: We were hired to help determine what Keyboard Co. should do to recover profitability.
- Answer: If Keyboard Co. enters the Ergonomic keyboard market, they’d gain $108M in additional revenue. Compared to the Membrane market, they’d gain the same revenue but the Ergonomic market is growing at a much faster rate than the Membrane market creating higher potential for the long-term.
- Risks: The largest risk is market volatility - just as Ergonomic Keyboards have risen in popularity, it’s likely that they can fall just as much. The second largest risk is lack of information on profit margin - our client may see negative margins when entering the Ergonomic market and we do not know since we have no information about their margins.
- Next Steps: Our client should investigate the causes of volatility in the Ergonomic keyboard market and identify margins when entering.
Example Recommendation 2:
- Question: Keyboard Co. hired us to help them determine what they should do to recover profitability.
- Answer: Our client should enter the membrane keyboard market. They would see the same incremental gain in revenue, $108M, as if they were entering the Ergonomic market except with less volatility and a much stronger market share. Managing a vast majority of the market gives our client a wonderful moat and potentially the ability to manipulate the market into future growth.
- Risks: The membrane market has been slowly declining for the last four years so it’s possible that the market continues to decline and our client declines with it.
- Next Steps: Our client should identify the causes behind the Membrane market’s fall and if they could reverse the trend with a potential 60% market share.