Boston Consulting Group Potential Test Practice Test igotano! er.com er.com
BCG Potential Test #1
How to make the most of this practice test (1/2)
We have designed our tests to resemble the official BCG Potential Test Test as closely as possible. The layout of this test follows exactly the one offered by BCG in most of its offices. Here are a few tips to use this test as efficiently as possible: Do not print out the test. Remember, Remember, the BCG Potential Test Test is an online test. When you will be sitting the test in the BCG offices, you will have to do the test on a computer screen and will not be allowed to print it. You You should therefore get used to reading the questions and documents on a computer screen and working through your answers on scrap paper. If you print out the test and take notes directly on it, you will not experience the real test conditions. Do the whole test under real time conditions: you have 45 minutes to complete it. At the end of the 45 minutes, put your pen down, even if no one is there to ask you to. The reason this is important is that you need to track your progress across different sample tests. If you do not stick to the allocated time, you will have no way of knowing for sure whether you are progressing or not. Check your answer sheet against the t he answer key. Grade each of the questions: +3 points for correct answers, -1 point for incorrect answers, 0 points for questions not answered and then t hen calculate your total score. Your Your objective is to improve your score compared to the last sample test you tried. In fact, it is likely that your score in the first test t est you solve will be fairly low (around 30 points). This is completely normal, as you are still learning about the format of the test, and how to use your answering method within the time allocated. If you stick to the method, and review your answers carefully, you should see a quick improvement in your score.
How to make the most of this practice test (2/2)
Review the solutions in the answer key carefully And compare them with your notes, to see whether or not you approached the question question correctly in the first place. A careful review requires that you go through the steps given in the solution, pencil in hand, and re-do all the steps that aren’t obvious to you. This will take some time, but will prove invaluable to your progress. Do the test again Once you are comfortable with all the answers, you can move on to the next sample test. After going through all the available practice tests, you should return to the ones you have already done, and make sure that you can now solve them easily within the t ime limit. When you do so, use a different piece of scrap paper, so that you don’t get distracted by your previous notes, and feel like you are under real test conditions. Finally, Finally, we are here to answer any of your questions, so if you get stuck trying to understand the explanations in the answer key, key, just drop us a line at:
[email protected] [email protected].. We’ll be happy to fill any gaps!
Instructions
Online case. During your recruiting process with BCG you will have to go through an online case. The purpose of this exercise is to test your analytical and logic skills as well as your business sense. Each question is divided into 2 parts: • on the left, you will find the question itself • on the right, you will find the information you need to answer the question No calculator. This calculator. This sample test has been designed to be completed without a calculator. However, However, we have worked with candidates in Israel and Russia who have been allowed to use a calculator when completing their test. We therefore advise you to contact your local HR at BCG to clarify whether you will be allowed to use a calculator or not during your actual test. Sample. This document is a sample of 23 questions put together by IGotAnOffer. IGotAnOffer. Its purpose is to help you prepare for the actual online exercise you will have to complete. If you find out that you are allowed to use a calculator, you should complete this test in about 35 minutes instead of the standard 45 minutes without a calculator. calculator. Scoring system. You should select one or more answers for each question. During the actual test you will be able to move onwards and backwards and change your prior answers so you should feel free to do the same here. For each right answer you will get +3 points, 0 points for no answer and -1 point for a wrong answer.
BCG Potential Test – High Tech Entertainment Question 1 What is the profit margin of the home entertainment category? 1. 2. 3. 4.
20.0% 17.5% 12.5% 10.0%
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Profit margin Company overview
Finances – End of FY 2014 HTE‘s financials
High Tech Entertainment (HTE) is a multinational conglomerate with headquarters in London. The company is one of the leading electronics manufacturers in the world and has more than 500 stores worldwide. HTE mainly sells TVs, white goods, video games, sound systems, smartphones and digital Question x it/ is23known for the quality of cameras and its high end products. The company has experienced a decline in profitability over the last three years. As a consequence, it is trying to increase the profit margins of all its business streams. HTE segments its products in four main categories: home entertainment (A), white goods (B), smartphones (C) and digital cameras (D). Segment A in North America is limited to TVs onl y.
Revenues (£ bn)
Profit margin (%)
A
-
-
B
12
12.5%
C
5
10.0%
D
8
12.5%
Total
40
15.0%
Competitors’ profitability in home entertainment 30% 25% 20% 15% 10% 5% 0% Sonic Labs
Yosi Electronics
Peach Sound
QPN
BCG Potential Test – High Tech Entertainment Question 2 How much will the total cost of category B be at the end of FY 2019 assuming revenues grow at 5% p.a. and profits decline at 10% p.a. in each segment? 1. 2. 3. 4.
£18.5bn £14.4bn £12.2bn None one of of the the abov above e / we lack sufficient information
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Profit margin Company overview
Finances – End of FY 2014 HTE‘s financials
High Tech Entertainment (HTE) is a multinational conglomerate with headquarters in London. The company is one of the leading electronics manufacturers in the world and has more than 500 stores worldwide. HTE mainly sells TVs, white goods, video games, sound systems, smartphones and digital Question x it/ is23known for the quality of cameras and its high end products. The company has experienced a decline in profitability over the last three years. As a consequence, it is trying to increase the profit margins of all its business streams. HTE segments its products in four main categories: home entertainment (A), white goods (B), smartphones (C) and digital cameras (D). Segment A in North America is limited to TVs onl y.
Revenues (£ bn)
Profit margin (%)
A
-
-
B
12
12.5%
C
5
10.0%
D
8
12.5%
Total
40
15.0%
Competitors’ profitability in home entertainment 30% 25% 20% 15% 10% 5% 0% Sonic Labs
Yosi Electronics
Peach Sound
QPN
BCG Potential Test – High Tech Entertainment Question 3 How does HTE’s profit margin in the home entertainment category compare to its second least profitable competitor? 1. 2. 3. 4.
25% higher 33% higher 41% higher 100% higher
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Profit margin Company overview
Finances – End of FY 2014 HTE‘s financials
High Tech Entertainment (HTE) is a multinational conglomerate with headquarters in London. The company is one of the leading electronics manufacturers in the world and has more than 500 stores worldwide. HTE mainly sells TVs, white goods, video games, sound systems, smartphones and digital Question x it/ is23known for the quality of cameras and its high end products. The company has experienced a decline in profitability over the last three years. As a consequence, it is trying to increase the profit margins of all its business streams. HTE segments its products in four main categories: home entertainment (A), white goods (B), smartphones (C) and digital cameras (D). Segment A in North America is limited to TVs onl y.
Revenues (£ bn)
Profit margin (%)
A
-
-
B
12
12.5%
C
5
10.0%
D
8
12.5%
Total
40
15.0%
Competitors’ profitability in home entertainment 30% 25% 20% 15% 10% 5% 0% Sonic Labs
Yosi Electronics
Peach Sound
QPN
BCG Potential Test – High Tech Entertainment Question 4 Rank the manufacturing regions from the most costefficient to the least costefficient. 1. 2. 3. 4.
Europe Euro pe,, Nor North th Amer Americ ica, a, Asia, Australia Europ urope, e, Asia Asia,, Nort North h America, Australia Asia, sia, Eur Euro ope, pe, Nor North th America, Australia Asia Asia,, Euro Europe pe,, Aust Austra rali lia, a, North America
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Manufacturing efficiency Manufacturing plants HTE has manufacturing facilities across four continents. The company opened its first facility in Europe thirty years ago and then expanded to North America and Australia. Recently, it started developing in Asia to take advantage of attractive labour costs. Europe has traditionally been HTE‘s biggest market. In 2014, 64% Question 23 entertainment came of revenuesxin/ home from the region, 12% from North America, 16% from Asia and 8% from Australia. The percentage distribution of manufactured devices for each region is 40% in home entertainment, 30% in white goods, 20% in smartphones and 10% in digital cameras every year. In total, in 2014, 62.50m devices were manufactured in Europe, 40.00m in Asia, 50.00m in North America and 11.04m in Australia. HTE’s total manufacturing costs across all categories and all regions amount to £9.2bn.
Cost distribution
Europe
Asia
100%
North Australia Am. 90%
90%
90% 90%
80%
) % ( 70% n o i g60% e r n50% i h t i w40% x i m t 30% s o C20%
74% 74% 74%
39% 39% 39%
10%
34% 34% 34%
79% 79% 79%
78% 78% 78%
36% 36% 36%
37% 37% 37%
59% 59% 59%
41% 41% 41%
88% 88% 88%
0% 0
10 20 30 40 50 60 70 80 90 100
Cost split between regions (%) Labour
Raw Materials
Overheads
BCG Potential Test – High Tech Entertainment Question 5 Which statement best explains why Australia’s cost profile is different from those of the other three regions? 1.
2.
3.
4.
Labo Labour ur cos costs ts in in Aus Austr tral alia ia are a lot higher than in the other regions HTE’ HTE’s s raw raw mat mater eria ials ls cos costs ts in Australia are high due to low manufacturing volumes HTE’ HTE’s s ove overh rhea ead d cos costs ts in Australia are low because HTE has relatively small operations there Raw Raw mate materi rial als s cos costs ts in Australia are a lot higher than in the other regions
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Manufacturing efficiency Manufacturing plants HTE has manufacturing facilities across four continents. The company opened its first facility in Europe thirty years ago and then expanded to North America and Australia. Recently, it started developing in Asia to take advantage of attractive labour costs. Europe has traditionally been HTE‘s biggest market. In 2014, 64% Question 23 entertainment came of revenuesxin/ home from the region, 12% from North America, 16% from Asia and 8% from Australia. The percentage distribution of manufactured devices for each region is 40% in home entertainment, 30% in white goods, 20% in smartphones and 10% in digital cameras every year. In total, in 2014, 62.50m devices were manufactured in Europe, 40.00m in Asia, 50.00m in North America and 11.04m in Australia. HTE’s total manufacturing costs across all categories and all regions amount to £9.2bn.
Cost distribution
Europe
Asia
100%
North Australia Am. 90%
90%
90% 90%
80%
) % ( 70% n o i g60% e r n50% i h t i w40% x i m t 30% s o C20%
74% 74% 74%
39% 39% 39%
10%
34% 34% 34%
79% 79% 79%
78% 78% 78%
36% 36% 36%
37% 37% 37%
59% 59% 59%
41% 41% 41%
88% 88% 88%
0% 0
10 20 30 40 50 60 70 80 90 100
Cost split between regions (%) Labour
Raw Materials
Overheads
BCG Potential Test – High Tech Entertainment Question 6 Assuming that the profit margin of the home entertainment category is the same across all regions and that HTE has zero inventory in Europe what was the TOTAL cost per device in Europe in home entertainment in 2014? 1. 2. 3. 4.
£395.65 £328.40 £307.20 £289.15
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Manufacturing efficiency Manufacturing plants HTE has manufacturing facilities across four continents. The company opened its first facility in Europe thirty years ago and then expanded to North America and Australia. Recently, it started developing in Asia to take advantage of attractive labour costs. Europe has traditionally been HTE‘s biggest market. In 2014, 64% Question 23 entertainment came of revenuesxin/ home from the region, 12% from North America, 16% from Asia and 8% from Australia. The percentage distribution of manufactured devices for each region is 40% in home entertainment, 30% in white goods, 20% in smartphones and 10% in digital cameras every year. In total, in 2014, 62.50m devices were manufactured in Europe, 40.00m in Asia, 50.00m in North America and 11.04m in Australia. HTE’s total manufacturing costs across all categories and all regions amount to £9.2bn.
Cost distribution
Europe
Asia
100%
North Australia Am. 90%
90%
90% 90%
80%
) % ( 70% n o i g60% e r n50% i h t i w40% x i m t 30% s o C20%
74% 74% 74%
39% 39% 39%
10%
34% 34% 34%
79% 79% 79%
78% 78% 78%
36% 36% 36%
37% 37% 37%
59% 59% 59%
41% 41% 41%
88% 88% 88%
0% 0
10 20 30 40 50 60 70 80 90 100
Cost split between regions (%) Labour
Raw Materials
Overheads
BCG Potential Test – High Tech Entertainment Question 7 Which of the following statements regarding the revenues of the home entertainment category in 2014 are correct? 1.
2.
3.
4.
The The reve revenu nues es gen gener erat ated ed in in each region are proportional to the total manufacturing cost The The regi region on with with the the low lowes estt total manufacturing cost had also the lowest revenues Regio egions ns with with low low overhead costs tend to have higher revenues compared to regions with high overhead costs Regi Region ons s with with simi simila larr manufacturing cost distribution profile had the same level of revenues
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Manufacturing efficiency Manufacturing plants HTE has manufacturing facilities across four continents. The company opened its first facility in Europe thirty years ago and then expanded to North America and Australia. Recently, it started developing in Asia to take advantage of attractive labour costs. Europe has traditionally been HTE‘s biggest market. In 2014, 64% Question 23 entertainment came of revenuesxin/ home from the region, 12% from North America, 16% from Asia and 8% from Australia. The percentage distribution of manufactured devices for each region is 40% in home entertainment, 30% in white goods, 20% in smartphones and 10% in digital cameras every year. In total, in 2014, 62.50m devices were manufactured in Europe, 40.00m in Asia, 50.00m in North America and 11.04m in Australia. HTE’s total manufacturing costs across all categories and all regions amount to £9.2bn.
Cost distribution
Europe
Asia
100%
North Australia Am. 90%
90%
90% 90%
80%
) % ( 70% n o i g60% e r n50% i h t i w40% x i m t 30% s o C20%
74% 74% 74%
39% 39% 39%
10%
34% 34% 34%
79% 79% 79%
78% 78% 78%
36% 36% 36%
37% 37% 37%
59% 59% 59%
41% 41% 41%
88% 88% 88%
0% 0
10 20 30 40 50 60 70 80 90 100
Cost split between regions (%) Labour
Raw Materials
Overheads
BCG Potential Test – High Tech Entertainment Question 8 What will be the average cost per device in segment A in Asia for 2015 assuming that the price per device remains £360? 1. 2. 3. 4.
£306 £298 £284 £275
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Product quality Faulty products After the expansion of its manufacturing facilities in Asia, HTE noticed a reduction in product quality in the region. This seems to be one of the reasons for HTE‘s profit margin decline. HTE analysts predicted that the average profit margin in Asia will drop by 25% in the home entertainment segment in 2015. Currently, Question x / 23of HTE in the home the profit margin entertainment category is the same across all regions. HTE offers a 12-month warranty and every faulty product returned costs the company £50. This includes shipping, and replacement of faulty parts. The probability that a product manufactured in Europe is faulty is 5%. This probability is 10% in Asia, 4% in North America and 2% in Australia. The average price for the home entertainment category in 2014 was £652 in Australia, £933 in North America, £360 in Asia and £613 in Europe.
Segment A units sold
20 18 16 14 s t i 12 n u f o 10 n o 8 i l l i M 6 4 2 0
North Australia America
Europe
Asia
2013
13,03
6,25
10,00
2,45
2014
15,64
5,00
1,93
2,70
2015
18,77
4,00
10,00
2,52
BCG Potential Test – High Tech Entertainment Question 9 Which of the following actions will NOT help HTE prevent a further profit margin decline in Asia? 1. 2.
3.
4.
Impr Improv ove e prod produc uctt qua quali lity ty Incr Increa ease se tra train inin ing g for for the the employees of the manufacturing facilities in Asia Streamline th the manufacturing process across all regions Expa Expand nd manu manufa fact ctur urin ing g capacity further
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Product quality Faulty products After the expansion of its manufacturing facilities in Asia, HTE noticed a reduction in product quality in the region. This seems to be one of the reasons for HTE‘s profit margin decline. HTE analysts predicted that the average profit margin in Asia will drop by 25% in the home entertainment segment in 2015. Currently, Question x / 23of HTE in the home the profit margin entertainment category is the same across all regions. HTE offers a 12-month warranty and every faulty product returned costs the company £50. This includes shipping, and replacement of faulty parts. The probability that a product manufactured in Europe is faulty is 5%. This probability is 10% in Asia, 4% in North America and 2% in Australia. The average price for the home entertainment category in 2014 was £652 in Australia, £933 in North America, £360 in Asia and £613 in Europe.
Segment A units sold
20 18 16 14 s t i 12 n u f o 10 n o 8 i l l i M 6 4 2 0
North Australia America
Europe
Asia
2013
13,03
6,25
10,00
2,45
2014
15,64
5,00
1,93
2,70
2015
18,77
4,00
10,00
2,52
BCG Potential Test – High Tech Entertainment Question 10 Which of the following statements are true: 1.
2. 3.
4.
Prod Produc ucts ts in in reg regio ions ns wit with h higher prices are less likely to be faulty 2014 2014 was was a real really ly bad bad yea yearr for HTE in North America In Eu Euro rope pe,, HTE HTE’’s uni unitt sales increase by 20% every year in segment A The The hig high h pro proba babi bili lity ty of faulty products in Asia was the main reason for the sales decline in the region.
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Product quality Faulty products After the expansion of its manufacturing facilities in Asia, HTE noticed a reduction in product quality in the region. This seems to be one of the reasons for HTE‘s profit margin decline. HTE analysts predicted that the average profit margin in Asia will drop by 25% in the home entertainment segment in 2015. Currently, Question x / 23of HTE in the home the profit margin entertainment category is the same across all regions. HTE offers a 12-month warranty and every faulty product returned costs the company £50. This includes shipping, and replacement of faulty parts. The probability that a product manufactured in Europe is faulty is 5%. This probability is 10% in Asia, 4% in North America and 2% in Australia. The average price for the home entertainment category in 2014 was £652 in Australia, £933 in North America, £360 in Asia and £613 in Europe.
Segment A units sold
20 18 16 14 s t i 12 n u f o 10 n o 8 i l l i M 6 4 2 0
North Australia America
Europe
Asia
2013
13,03
6,25
10,00
2,45
2014
15,64
5,00
1,93
2,70
2015
18,77
4,00
10,00
2,52
BCG Potential Test – High Tech Entertainment Question 11 What is the variable cost per TV in Europe? 1. 2. 3. 4.
£150 £160 £170 £180
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TV business TVs in Europe The home entertainment segment is the biggest one for HTE. Therefore, the company has decided to investigate this category further, in order to identify other reasons for the profitability decline than the decline in product quality. Within Europe, products in the home account for a large share of total revenues. In particular, televisions are a very important product in the region. When HTE started manufacturing in Europe it only produced two types of TVs. Today they offer a range of models from small LCD screens to large plasma TVs and home cinemas.
Question x / category 23 entertainment
HTE‘s pricing strategy is different in each region. The prices of TVs are 40% higher in Europe than in Asia and 20% higher than in Australia. TV prices in North America are 40% higher than in Australia.
Data for Europe 2014
TVs
Average Price (£)
Market Share
800
40%
Total European market size (# of units) 2,000,000 Fixed cost of TVs 40% of 2014 revenues from TVs
Based on their experience, the European managers of the company know that they break even at 400,000 units in the TV category . The break even point is the point at which the company’s revenues are equal to its total costs.
BCG Potential Test – High Tech Entertainment Question 12 In Asia, how does the price of TVs differ from the average product price in the home entertainment category assuming that this price is £360? 1. 2. 3. 4. 5.
£185 hi higher 59% higher £151 hi higher 36% higher It’s th the sa same
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TV business TVs in Europe The home entertainment segment is the biggest one for HTE. Therefore, the company has decided to investigate this category further, in order to identify other reasons for the profitability decline than the decline in product quality. Within Europe, products in the home account for a large share of total revenues. In particular, televisions are a very important product in the region. When HTE started manufacturing in Europe it only produced two types of TVs. Today they offer a range of models from small LCD screens to large plasma TVs and home cinemas.
Question x / category 23 entertainment
HTE‘s pricing strategy is different in each region. The prices of TVs are 40% higher in Europe than in Asia and 20% higher than in Australia. TV prices in North America are 40% higher than in Australia.
Data for Europe 2014
TVs
Average Price (£)
Market Share
800
40%
Total European market size (# of units) 2,000,000 Fixed cost of TVs 40% of 2014 revenues from TVs
Based on their experience, the European managers of the company know that they break even at 400,000 units in the TV category . The break even point is the point at which the company’s revenues are equal to its total costs.
BCG Potential Test – High Tech Entertainment Question 13 How much profit did the TV business generate in North America in 2014, assuming that the profit margin across all regions is the same? 1. 2. 3. 4.
£780M £360M £190M None one of of the the abov above e / we lack sufficient information
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TV business TVs in Europe The home entertainment segment is the biggest one for HTE. Therefore, the company has decided to investigate this category further, in order to identify other reasons for the profitability decline than the decline in product quality. Within Europe, products in the home account for a large share of total revenues. In particular, televisions are a very important product in the region. When HTE started manufacturing in Europe it only produced two types of TVs. Today they offer a range of models from small LCD screens to large plasma TVs and home cinemas.
Question x / category 23 entertainment
HTE‘s pricing strategy is different in each region. The prices of TVs are 40% higher in Europe than in Asia and 20% higher than in Australia. TV prices in North America are 40% higher than in Australia.
Data for Europe 2014
TVs
Average Price (£)
Market Share
800
40%
Total European market size (# of units) 2,000,000 Fixed cost of TVs 40% of 2014 revenues from TVs
Based on their experience, the European managers of the company know that they break even at 400,000 units in the TV category . The break even point is the point at which the company’s revenues are equal to its total costs.
BCG Potential Test – High Tech Entertainment Question 14 How long will it take for HTE to break even if the company decides to acquire Sonic Labs taking into account the risk of failing certification and assuming that the fixed and variable costs here are negligible? 1. 2. 3. 4.
24 months 36 months 40 months 48 months
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Sonic Labs Ultra HD 4D Curved TVs Sonic Labs, one of HTE‘s new competitors, developed a unique ultra HD 4D curved TV. Currently HTE has a large range of TVs on offer but not a 4D model. Sonic Labs’ TV is connected wirelessly to special armchairs that vibrate based on what is displayed on screen. The product currently has a patent pending status and Question x / 23 the required safety has not achieved certifications yet. The board of directors of HTE is considering acquiring Sonic Labs in order to add the new TV to their product range. HTE is planning to develop an app that lets users stream content from HTE‘s smart phones to the new ultra HD curved TV via Wi-Fi. Yosi Electronics, which generated £175M of profit in the TV business in 2014, and has the same pricing strategy as HTE, has also shown interest in Sonic Labs.
Acquisition information information Increase in sales # of new 4D TVs / year
500
Price (including 2 armchairs)
£4,080
Cannibalisation For every 10 new 4D TVs HTE sells, its traditional TV sales go down by 1 TV Price of traditional TVs
£800
Risk of failing safety certifications
10%
Acquisition price
£5.4m
BCG Potential Test – High Tech Entertainment Question 15 What would be the % increase in Yosi Electronics’ revenues in the TV business in 2015 relative to 2014 if they acquired Sonic Labs assuming that the profit margin of Yosi Electronics in the TV business is the same with their overall profit margin in the home entertainment category, no cannibalisation takes place and the sales of traditional TVs remains at the same levels with 2014? 1. 2. 3. 4.
0.026% 0.26% 2.6% 26%
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Sonic Labs Ultra HD 4D Curved TVs Sonic Labs, one of HTE‘s new competitors, developed a unique ultra HD 4D curved TV. Currently HTE has a large range of TVs on offer but not a 4D model. Sonic Labs’ TV is connected wirelessly to special armchairs that vibrate based on what is displayed on screen. The product currently has a patent pending status and Question x / 23 the required safety has not achieved certifications yet. The board of directors of HTE is considering acquiring Sonic Labs in order to add the new TV to their product range. HTE is planning to develop an app that lets users stream content from HTE‘s smart phones to the new ultra HD curved TV via Wi-Fi. Yosi Electronics, which generated £175M of profit in the TV business in 2014, and has the same pricing strategy as HTE, has also shown interest in Sonic Labs.
Acquisition information information Increase in sales # of new 4D TVs / year
500
Price (including 2 armchairs)
£4,080
Cannibalisation For every 10 new 4D TVs HTE sells, its traditional TV sales go down by 1 TV Price of traditional TVs
£800
Risk of failing safety certifications
10%
Acquisition price
£5.4m
BCG Potential Test – High Tech Entertainment Question 16 Assuming that 50% of HTE’s new customers use the app, and that the TV receives the safety certification, how much should HTE charge per app download, in order to increase its revenues by £500 in 2015? 1. 2. 3. 4.
£2.00 £2.80 £20.0 £28.0
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Sonic Labs Ultra HD 4D Curved TVs Sonic Labs, one of HTE‘s new competitors, developed a unique ultra HD 4D curved TV. Currently HTE has a large range of TVs on offer but not a 4D model. Sonic Labs’ TV is connected wirelessly to special armchairs that vibrate based on what is displayed on screen. The product currently has a patent pending status and Question x / 23 the required safety has not achieved certifications yet. The board of directors of HTE is considering acquiring Sonic Labs in order to add the new TV to their product range. HTE is planning to develop an app that lets users stream content from HTE‘s smart phones to the new ultra HD curved TV via Wi-Fi. Yosi Electronics, which generated £175M of profit in the TV business in 2014, and has the same pricing strategy as HTE, has also shown interest in Sonic Labs.
Acquisition information information Increase in sales # of new 4D TVs / year
500
Price (including 2 armchairs)
£4,080
Cannibalisation For every 10 new 4D TVs HTE sells, its traditional TV sales go down by 1 TV Price of traditional TVs
£800
Risk of failing safety certifications
10%
Acquisition price
£5.4m
BCG Potential Test – High Tech Entertainment Question 17 Assuming that HTE meets its 2015 target, how much of the increase in smartphone revenues would be attributable to online advertising? 1. 2. 3. 4.
£240m £680m £800m £920m
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Increasing sales Marketing campaign HTE has concluded that its profitability decline is not related to the TV category. Instead, it seems to be driven by a decrease in sales in the smartphone category. HTE has been developing a new smart phone, called HTE K7, over the past two Question / 23 years. It isxexpecting that the phone’s unique features will make it the best smartphone of the year. In order to boost sales of the new model, the company has launched an aggressive marketing campaign. The campaign will use different media channels: online, TV, magazines and radio. HTE hopes to increase sales in the smartphone category by 40% in 2015 as a result of the new marketing campaign.
Marketing media effectiveness effectiveness 35
x e d 30 n i s 25 s e n e 20 v i t c e 15 f f e 10 a i d e 5 M
4
30
5 12
9
0 TV Online Magazine Radio
HTE measures the efficiency of its investments in different channels via an index. The higher the index, the more efficient the investment. Smartphone revenues (£ bn) 2014
5
2015
-
BCG Potential Test – High Tech Entertainment Question 18 Which piece of information would you need in order to calculate the payback period of the marketing campaign? 1. 2.
3.
4.
The The cos costt of of the the camp campai aign gn The actu actual al prof profit it generated by the campaign The actu actual al reve reven nue generated by the campaign Answe swers 1 and 2
Doc 1
Doc 2
Doc 3
Doc 4
Doc 6
Doc 5
Increasing sales Marketing campaign HTE has concluded that its profitability decline is not related to the TV category. Instead, it seems to be driven by a decrease in sales in the smartphone category. HTE has been developing a new smart phone, called HTE K7, over the past two Question / 23 years. It isxexpecting that the phone’s unique features will make it the best smartphone of the year. In order to boost sales of the new model, the company has launched an aggressive marketing campaign. The campaign will use different media channels: online, TV, magazines and radio. HTE hopes to increase sales in the smartphone category by 40% in 2015 as a result of the new marketing campaign.
Marketing media effectiveness effectiveness 35
x e d 30 n i s 25 s e n e 20 v i t c e 15 f f e 10 a i d e 5 M
4
30
5 12
9
0 TV Online Magazine Radio
HTE measures the efficiency of its investments in different channels via an index. The higher the index, the more efficient the investment. Smartphone revenues (£ bn) 2014
5
2015
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BCG Potential Test – High Tech Entertainment Question 19 Assuming that the overall media effectiveness remains constant what should be the advertising strategy for the whole company for next year? 1. 2. 3. 4.
Focus ocus only only on onl online ine marketing Focu Focus s on on onli online ne and and TV marketing Maint aintai ain n the the sam same strategy None one of of the the abov above e / we lack sufficient information
Doc 1
Doc 2
Doc 3
Doc 4
Doc 6
Doc 5
Increasing sales Marketing campaign HTE has concluded that its profitability decline is not related to the TV category. Instead, it seems to be driven by a decrease in sales in the smartphone category. HTE has been developing a new smart phone, called HTE K7, over the past two Question / 23 years. It isxexpecting that the phone’s unique features will make it the best smartphone of the year. In order to boost sales of the new model, the company has launched an aggressive marketing campaign. The campaign will use different media channels: online, TV, magazines and radio. HTE hopes to increase sales in the smartphone category by 40% in 2015 as a result of the new marketing campaign.
Marketing media effectiveness effectiveness 35
x e d 30 n i s 25 s e n e 20 v i t c e 15 f f e 10 a i d e 5 M
4
30
5 12
9
0 TV Online Magazine Radio
HTE measures the efficiency of its investments in different channels via an index. The higher the index, the more efficient the investment. Smartphone revenues (£ bn) 2014
5
2015
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BCG Potential Test – High Tech Entertainment Question 20 Assuming that HTE’s decline in online sales follows the same trend from 2012, that the company does not acquire Sonic Labs, and that Peach Sound continues to grow its online sales at the same pace what would be the difference in online sales between the two companies in 2018? 1. 2. 3. 4.
£7bn £8bn £9bn £10bn
Doc 7
Online business Underperforming business Anothe r reason for HTE‘s profita bility decline seems to be linked to its online business.
Competitive online sales
10
QPN
9
8 HTE‘s market analysts identified that the competition grew its online sales rapidly, 7 while HTE‘s online sales declined. Additionally, the profit margins of each of 6 Yosi Question x / 23in the online business n HTE‘s competitors Electronic b is equal to their respective profit margin in £ 5 the home entertainment segment while 4 HTE‘s profit margin in online sales is half of its overall profit margin. This is due to 3 Peach the inefficiency of HTE’s delivery system. 2
In an effort to increase its online sales, HTE has decided to restructure its online business from the ground up. For this purpose, they set aside a £75M budget with a targeted payback period of 2 years.
HTE *
Sonic Labs
Sound
1 0 2011
2012
2013
2014
2015 *
* Predictions for 2015 take into account the acquisition of Sonic Labs by HTE.
BCG Potential Test – High Tech Entertainment Question 21 Which company generated the highest profits in online sales in 2014? 1. 2. 3. 4. 5.
QPN Yosi osi El Electr ectro onics nics HTE Peach Sound Sonic Labs
Doc 7
Online business Underperforming business Anothe r reason for HTE‘s profita bility decline seems to be linked to its online business.
Competitive online sales
10
QPN
9
8 HTE‘s market analysts identified that the competition grew its online sales rapidly, 7 while HTE‘s online sales declined. Additionally, the profit margins of each of 6 Yosi Question x / 23in the online business n HTE‘s competitors Electronic b is equal to their respective profit margin in £ 5 the home entertainment segment while 4 HTE‘s profit margin in online sales is half of its overall profit margin. This is due to 3 Peach the inefficiency of HTE’s delivery system. 2
In an effort to increase its online sales, HTE has decided to restructure its online business from the ground up. For this purpose, they set aside a £75M budget with a targeted payback period of 2 years.
HTE *
Sonic Labs
Sound
1 0 2011
2012
2013
2014
2015 *
* Predictions for 2015 take into account the acquisition of Sonic Labs by HTE.
BCG Potential Test – High Tech Entertainment Question 22 Which of the following statements CANNOT be concluded, based on the information given? 1.
2.
3.
4.
If HTE HTE had had acqu acquir ired ed So Soni nic c Labs in 2013, then it would have had the highest online sales in that year If HTE HTE does does not not acq acqui uire re Sonic Labs, its online sales would go down in 2015 If Son Soniic Lab Labs s is is not not acquired by HTE, it would have more online sales than HTE by 2018 If Yosi osi Ele Elect ctro roni nics cs had had acquired Sonic Labs in 2014, then it would have had the highest online sales for that year
Doc 7
Online business Underperforming business Anothe r reason for HTE‘s profita bility decline seems to be linked to its online business.
Competitive online sales
10
QPN
9
8 HTE‘s market analysts identified that the competition grew its online sales rapidly, 7 while HTE‘s online sales declined. Additionally, the profit margins of each of 6 Yosi Question x / 23in the online business n HTE‘s competitors Electronic b is equal to their respective profit margin in £ 5 the home entertainment segment while 4 HTE‘s profit margin in online sales is half of its overall profit margin. This is due to 3 Peach the inefficiency of HTE’s delivery system. 2
In an effort to increase its online sales, HTE has decided to restructure its online business from the ground up. For this purpose, they set aside a £75M budget with a targeted payback period of 2 years.
HTE *
Sonic Labs
Sound
1 0 2011
2012
2013
2014
2015 *
* Predictions for 2015 take into account the acquisition of Sonic Labs by HTE.
BCG Potential Test – High Tech Entertainment Question 23 What market share does HTE need to capture in 2016, in order to achieve the targeted payback period, assuming that the market size in 2016 is the same as in 2014 and that HTE’s online sales in 2015 meet the prediction given in the chart? 1. 2. 3. 4.
41.45% 34.64% 22.95% 16.32%
Doc 7
Online business Underperforming business Anothe r reason for HTE‘s profita bility decline seems to be linked to its online business.
Competitive online sales
10
QPN
9
8 HTE‘s market analysts identified that the competition grew its online sales rapidly, 7 while HTE‘s online sales declined. Additionally, the profit margins of each of 6 Yosi Question x / 23in the online business n HTE‘s competitors Electronic b is equal to their respective profit margin in £ 5 the home entertainment segment while 4 HTE‘s profit margin in online sales is half of its overall profit margin. This is due to 3 Peach the inefficiency of HTE’s delivery system. 2
In an effort to increase its online sales, HTE has decided to restructure its online business from the ground up. For this purpose, they set aside a £75M budget with a targeted payback period of 2 years.
HTE *
Sonic Labs
Sound
1 0 2011
2012
2013
2014
2015 *
* Predictions for 2015 take into account the acquisition of Sonic Labs by HTE.
Answer key
Question 1
Question 2
Correct answer: 1
Correct answer: 2
The profit margin for segment A can be calculated by taking the following steps:
The total cost for category B can be forecasted as follows:
1. Segment A revenues: Revenues A = Total Revenues – (Revenues B + Revenues C + Revenues D) = 15
1. Estimate revenues for segment B in 5 years: Revenues B (2019) = 12 x (1 + 5% x 5) = 12 x 1.25 = £15bn
2. Segment A profits: Profit A = Total Total Profit – (Profit B + Profit C + Profit D) = Total Profit – (Revenues B x Profit Margin B + Revenues C x Profit Margin C + Revenues D x Profit Margin D) =3 3. Segment A profit margin: Profit Margin A = P rofit A / Revenues A = 20% Answer 1 is therefore the correct answer. answer.
2. Calculate profits in 2014: Profit B (2014) = 12 x 12.5% = £1.5bn 3. Estimate profits in 2019: Profit B (2019) = 1.5 x (1 – 10% x 5) = 1.5 x 0.5 = £0.75bn 4. Calculate costs for 2019: Cost B = Revenues B – Profit B = £14.25bn The closest answer is therefore answer 2. Note that we have used an estimate method to project revenues and profits here. The precise calculation for revenues gives: 12 x (1 + 5%) 5 = 15.32 vs. our estimate: 12 x (1 + 5% x 5) = 15. Similarly for profits.
Answer key
Question 3
Question 4
Correct answer: 2
Correct answer: 1
QPN is the second last profitable competitor. QPN’s profit margin in the home entertainment category is 15% and HTE‘s 20% (calculated in Q1).
Cost efficiency can be defined as the cost of manufacturing per device.
The percentage difference can be calculated as follows: (0.2-0.15)/0.15 = 33% Therefore answer 2 is the correct answer. answer.
To calculate the cost of manufacturing per device in each region, you should first calculate the total cost in a given region as: total cost x percentage share of total costs for that region, and then divide by the number of devices produced in that region. A faster and equivalent way to determine the cost efficiency ranking is to divide the share of total costs by the number of devices for each region: •
Europe: 34% / 62.50 (ignore the % to make the calculation easier) => 34 / 62.56 = 0.54 • Asia: 25 / 40 = 0.62 • North America: 29 / 50 = 0.58 • Australia: 12 / 11.04 11.04 = 1.09 Therefore the right ranking is: Europe, North America, Asia, Australia The correct answer is therefore answer 1.
Answer key
Question 5
Question 6
Correct answer: 2
Correct answer: 3
1. Wrong. We only have information about the labour cost for HTE in Australia. Therefore we can not conclude that the labour cost in Australia is in general higher than any other region. 2. Correct. HTE Australia can’t take advantage of economies of scale due to low manufacturing volumes. Therefore the raw materials cost is higher compared to other regions. 3. Wrong. There is not enough information to conclude to this statement. Also, small companies tend to have very high overheads. 4. Wrong. Similar to Answer 1 we only have information about raw materials costs for HTE in Australia and not for all the companies companies in Australia.
Europe Europe:: 62.5 62.50 0 M device devices s Segment A Europe: 25.00 M devices – 40% in home entertainment Reve Revenu nues es A: £15 £15.0 .00b 0bn n – from from Doc Doc 1 Reve Revenu nues es A Euro Europe pe:: £9. £9.60 60bn bn - 64% 64% of of tota totall Prof Profit it A Euro Europe pe:: £1. £1.92 92b b - 20% 20% pro profi fitt mar margi gin n Cost A Europe: Revenues – Profit = £7.68bn Cost per device Europe: Cost A Europe / # of devices = £307.20 Therefore answer 3 is the correct answer. answer. Note that the question is asking to calculate the total cost per device. Avoid the confusion of calculating the total manufacturing c manufacturing co ost from the graph.
Answer key
Question 7
Question 8
Correct answer: 2
Correct answer: 1
1. Wrong. Europe’s revenue in home entertainment sector is 64% of total revenue which is 4 times higher than the revenue of Asia (16%). The total manufacturing cost for Europe is 34% which is less than double of the manufacturing cost of Asia (25%). 2. Correct. Australia is the region with the lowest total manufacturing cost (12%) and it also has the lowest revenues in the home entertainment sector (8%). 3. Wrong. Australia Australia has low overhead costs but it also has low revenues. 4. Wrong. North America and Asia have very similar manufacturing cost distribution profiles but they don’t have the same revenues.
We know that the price per device in Asia is £360 for the home entertainment category and that the profit margin dropped by 25%. Profit Margin (2015) = 20% x 0.75 = 15% Profit Margin = (Revenues – Cost) / Revenues = (Price – Cost per device) / Price => Cost per device = Price - Price x Profit Margin = £306 Therefore answer 1 is the correct answer. answer.
Answer key
Question 9
Question 10
Correct answer: 4
Correct answer: 3
1. Wrong. Improved product quality will prevent a further decline in profit margin. 2. Wrong. Increasing the training of the employees could possibly lead in less faults during the manufacturing process and therefore improved product quality which will prevent a further decline in profit margin. 3. Wrong. Streamlining the manufacturing process across all regions will help reduce the cost of manufacturing and therefore prevent a further profit margin decline. 4. Correct. The reduction in product quality that has lead to a decrease in profitability seems to be linked to an increase in production capacity in Asia. As a consequence, increasing capacity capacity is least likely to improve profit margin.
1. Wrong. Prices in North America are higher than those in Australia and so does the probability of a product being faulty. 2. Wrong. We only have information about the home entertainment category and not HTE as a whole in North America. 3. Correct. Looking at the data in the graph we can calculate that HTE sales in home entertainment in Europe increase by 20% every year. 4. Wrong. Product quality might decrease sales based on the information we have in the document but we do not know if it is the main reason for the sales decline in Asia.
Answer key
Question 11
Question 12
Correct answer: 2
Correct answer: 2
The key here is to first write down the formula that defines HTE’s break even point
The price of TVs in Europe (£800) is 40% higher than in Asia. Therefore the price of TVs in Asia is: £800 = Price in Asia x 1.4 => Price in Asia = £571.43
# of units to break even x price = fixed cost + # of units to break even x variable cost The unknowns in the above formula are the fixed and variable costs. Fixed costs are 40% of revenues according to the data. Revenues therefore need to be calculated first. Revenues = # of TVs sold x price = market share x market size x price = 2M x 40% x £800 = £640M Fixed costs = 40% x £640M = £256M Therefore: Variable costs = (400,000 x £800 - £256,000,000) / 400,000 = £160
The average price in the home entertainment category in Asia is £360 so the difference is: (£571.43 - £360) / £360 = 211.43 / 360 = 0.59 or 59% Therefore answer 2 is the correct answer. answer.
Answer key
Question 13
Question 14
Correct answer: 2
Correct answer: 2
The profit margin in the home entertainment category for HTE has been calculated in question 1 and it is 20%.
The following formula defines the break even point:
From Doc 2 the revenues of the home entertainment category for North America in 2014 are 12% of the total revenues of this segment. Total Total revenues of the home entertainment category are given in Doc 1 (15bn). Therefore revenues in North America = 15bn x 12% = £1.8bn The profit in the home entertainment category for North America is then; £1.8bn x 20% = £0.36bn or 360M. Doc 1 mentions that in North America the home entertainment category is limited to TVs only. Therefore the profit in the TV business for North America is £360 and answer 2 is the correct answer. answer.
Acquisition cost = (Annual Revenues – Annual Losses) x # of years x Probability of success Each element can then be calculated separately: • Annual Revenues = 500 x £4,080 £4,080 = £2,040,000 • HTE is losing one customer for every ten new customers therefore the losses are: Annual Losses = (500/10) x £800 £800 = £40,000 • Probability of success: 1-10% = 90% • Acquisition price = £5.4M The different values can then be used in the formula: £2M x 90% x # of years = £5.4M The number of years is therefore 3 years or 36 months. Answer 2 is therefore the correct answer. answer.
Answer key
Question 15
Question 16
Correct answer: 2
Correct answer: 1
Yosi Electronics profit in 2014 in the TV business was £175M and their respective profit margin is 25% (from Doc 1). Therefore the revenues for 2014 in the TV business are: £175M / 25% = £700M
The new customers will be 500 therefore 250 of them (50%) will download the app.
The additional revenues from the acquisition of Sonic Labs in 2015 will be: 500 x £4080 x 90% = £1.83M Note that here we need again to include the probability of the new TV failing the safety certification. The percentage increase in Yosi Electronics’ revenues is then £1.83M / £700M = 0.0026 = 0.26% Therefore answer 2 is the correct answer. answer. Tip: There is no need to do the final calculation. You can see that the increase in sales (£1.8M) is less than 1% but more than 0.1% of the total revenues (£700M).
In order for HTE to increase its revenue by £500 the price of the app should be £500 / 250 = £2 Therefore answer 1 is the correct answer. answer.
Answer key
Question 17
Question 18
Correct answer: 3
Correct answers: 4
HTE hopes that smart phones revenue will grow by 40%. The expected growth is therefore: £5bn x 40% = £2bn
Payback period is calculated as follows:
Online media’ contribution can then be calculated as follows: 1. Total media effectiveness is 30 (from the graph) 2. Calculate online media’s percentage contribution: 12 / 30 = 40% 3. Calculate online media’s actual contribution: £2bn x 40% = £800M
Therefore answers 4 is the correct answer. answer.
The correct answer is therefore answer 3
Payback period = Cost of project / Annual Profits
Answer key
Question 19
Question 20
Correct answer: 4
Correct answer: 2
There is not enough information to answer this question.
Looking at the graph and the information given in the question we can create the following table:
The media effectiveness given is only for the smart phone segment. No additional information is provided for the other segments. Moreover, there is not enough information about the cost of last year’s campaign and whether any of the media channels reached their saturation point. Therefore answer 4 is the correct answer. answer.
2014
2015
2016
2017
2018
Peach Sound
6
7
8
9
10
HTE
6
5
4
3
2
Note that the prediction for HTE for 2015 should not take into account the Sonic Lab acquisition. Therefore the difference in 2018 is £8bn and answer 2 is the correct answer.
Answer key
Question 21
Question 22
Correct answer: 2
Correct answer: 2, 3
The profit margin of all competitors in their online business is the same with their profit margin in the home entertainment category which is given in Doc 1.
1. Wrong. This statement CAN be concluded since the combined online sales of Sonic Labs and HTE in 2013 would have been £9bn (7+2) which is the highest for that year. 2. Correct. We don’t have enough evidence to predict the online sales of HTE in 2015 therefore this statement CANNOT be concluded. 3. Correct. Again we don’t have enough information to predict the future online sales of Sonic Labs therefore this statement CANNOT be concluded. 4. Wrong. Similar to answer 1 the combined sales for 2014 would have been £9.5 (7+2.5) which is the highest for that year. Therefore this statement CAN be concluded.
HTE‘s profit margin in its online business is 15%/2= 7.5% Online sales profits in 20014: HTE: £6bn x 7.5% = £0.45bn Yosi Electronics: £7bn x 25% = £1.75bn Peach Sound: £6bn x 10% = £0.6bn QPN: £9bn x 15% = £1.35 Sonic Labs: £2.5bn x 20% = £0.5bn Yosi Electronics has the highest profits in online sales therefore answer 2 is the correct answer. answer. Tip: There is no need to do all the calculations. Looking at the features it can be estimated that either QPN or Yosi Electronics will have the highest profits in online sales.
Answer key
Question 23 Correct answer: 3 The cost of the investment is £75M and in order for HTE to achieve a two year payback period it needs to generate £75M of additional profits in online sales in two years. The profit margin for the online sales of HTE is 7.5% therefore the additional revenues that need to be generated from the online sales is: £75M / 7.5% = £1bn The 2015 revenues in online sales remain the same with the revenues in 2014 therefore the 2016 revenues need to increase by £1bn. Therefore 2016 online sales need to be £7bn. The market size of 2016 is the same with the market size of 2014 which is 6 +7 + 6 + 9 + 2.5 = £30.5bn Therefore HTE‘s market share in 2016 needs to be: £7bn / £30.5bn = 22.95% Answer 3 is the correct answer. answer.
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