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Our client is WumbleWorld, a theme park operator located in a wealthy coastal city in China. WumbleWorld is a 50/50 joint venture between a foreign firm and a China state-owned enterprise. The company manages a single park year-round and principally generates revenues from park admissions, food and beverage, and merchandise.
WumbleWorld's CEO has asked Oliver Wyman to identify the reasons for her company's declining profits and develop suggestions for how to reverse this trend.
This sample case was designed to simulate a real Oliver Wyman interview. Due to time constraints, you may not complete the entire case in a real interview setting. Most important is that you demonstrate your ability to think in a structured, analytical, and creative way.
As is true of most business problems, many questions have more than one solution. We are most interested in your thought progression and reasoning. Please bear in mind that a real interview is much more interactive, and you are encouraged to ask questions. You may want to have a pen and paper on hand to take notes. You do not need a calculator.
You will be presented with a series of questions. Answer each question, then click "next" to view the suggested response and subsequent question.
You cannot go backwards once you've clicked on "next". When you've completed the case study in its entirety, you will be able to print out a final document and compare your answers to the ones we're looking for.
30 Minutes
Our client is WumbleWorld, a theme park operator located in a wealthy coastal city in China. WumbleWorld is a 50/50 joint venture between a foreign firm and a China state-owned enterprise. The company manages a single park year-round and principally generates revenues from park admissions, food and beverage, and merchandise.
WumbleWorld's CEO has asked Oliver Wyman to identify the reasons for her company's declining profits and develop suggestions for how to reverse this trend.
Your team leader suggests that you conduct a high-level brainstorming session. What general information would you like to gather to help you with this case?
A few possible areas for research are listed below. Understanding these important foundations can be helpful in formulating and structuring a good answer.
Industry
What are the general trends? What, if any, innovation has taken place? What is the structure, size, and growth rate of the industry? In what stage of its life cycle is the industry (e.g., emerging, maturity, decline)? Have any merger or acquisitions taken place? Do any barriers to entry or exit exist? What role does government play in its regulation?
Competition
Who are the major players and what are their relative market shares? Are there any new entrants?
Customers
What is the customer breakdown in terms of income, demographics, geography, etc.? How is consumer behavior changing?
Company
What is the company's position within the industry? How is the company structured? Have there been any recent changes within the company? What do the firm's financials look like? Is the joint venture structure functioning?
Suppliers
How many suppliers exist? What are the conditions in their market? Are the supplier relationships controlled by the Chinese side to the joint venture? How transparent are they?
Your team has been asked to address profitability. How would you structure your investigation into WumbleWorld's weakening profitability?
The diagram below depicts one way of breaking down the proposed problem.
Your team has chosen first to explore fixed costs. Please identify some of WumbleWorld's fixed costs and explain why they may or may not be changing.
Fixed costs are those that would not change as a function of the number of park visitors. As demonstrated in the graph below, the main buckets of fixed costs are:
You have found that fixed costs have been fairly constant and, as such, are unlikely to be contributing to weakening profits. The team has decided to investigate variable costs. Please list a few of WumbleWorld's major variable costs.
Variable costs change with the number of units that are sold. The following buckets of costs are dependent on the number of park visitors each day:
Variable labor
cleaning crew, ticket counters, ride facilitators, general staff
Cost of goods sold (COGS)
food, beverage, merchandise
Utilities
electricity, fuel
Other
park maintenance, taxes
The client has again provided your team with additional data. WumbleWorld's breakdown of variable costs are shown below.
Your team has determined that labor is the key cost driver. WumbleWorld's variable labor costs over the past 5 years are presented below. What conclusions can you draw about WumbleWorld's variable labor cost trends?
Variable labor costs on a per-visitor basis have remained constant and thus are not likely the cause of the downward trend in profitability.
At first glance, you may have thought that variable labor costs declined. This is only true on an aggregate basis. As fewer people have visited the parks, labor costs have fallen. If you divided the total labor costs by the number of visitors each year, you would see that the per-visitor labor cost is approximately 30 CNY in most years.
(Note: The per-visitor labor costs in 2009 did not equal 30 CNY due to a lag in labor reduction. WumbleWorld was not able to adjust its labor force quickly enough to match the sharp decline in the number of visitors.)
Given that costs are likely not the cause of the decline in profitability, your team has decided to examine WumbleWorld's revenues. Displayed below is the per-customer breakdown and value of revenue for WumbleWorld and its competitor, MightyMountain. Neither company has any additional revenue streams. What insights can you draw from these graphs?
The following insights about revenue can be drawn from the graph:
WumbleWorld's average daily spend per visitor has been relatively constant.
It appears that WumbleWorld has not been as successful as MightyMountain at converting admissions into merchandise and food & beverage sales.
MightyMountain reduced its admission price between 2008 and 2011.
This led to a decrease in total average daily spend per visitor, but increased food & beverage and merchandise spend per visitor. MightyMountain's price decrease likely contributed to an increase in the number of visitors, which might explain the significant decline in the number of WumbleWorld visitors between 2008 and 2009 (as displayed in a previous chart).
Volume (number of park visitors) seems to be a key driver of revenue.
Though the relative profitability is unknown, MightyMountain's decision to reduce prices hints that its strategy hinges upon increasing the number of visitors to its parks and increasing average visitor spend on food & beverage and merchandise.
Your team has decided to first focus on the number of visitors and then hone in on average spend per visitor to drive profitability forward. To better understand the drivers of park attendance, the team has chosen to analyze WumbleWorld's consumer market. Specifically, the objective is to divide visitors into groups of people with similar characteristics. How might you group customers in this market? What metrics would you use?
The market may be segmented using a number of different metrics, including (but not limited to) demographics, income level, geography, spending behavior within the park, activities within the park, and cost of customer acquisition.
Oliver Wyman has conducted a thorough analysis of the various consumer segments in this market. Most of WumbleWorld's visitors align with one of the three segments listed below. Which of WumbleWorld's customer groups is the largest.
(in terms of total number of visits annually)?
To determine the largest segment (in terms of total number of visits annually), multiply the total people in segment by WumbleWorld's penetration rate by # of visits/person annually. The results of these calculations is shown below, revealing that the family segment is largest.
If you were asked to determine which segment is most attractive for WumbleWorld to pursue, what additional information would you need?
WumbleWorld would want to target the greatest profit contributors that align with its business. To determine this segment, you would need to clarify a few points.
Relative profitability of each customer
What is the average spend per customer and the relative cost of customer acquisition in each segment?
Growth rate of each segment
Who WumbleWorld's offering
caters to most
Does WumbleWorld have a compelling and differentiated value proposition for that segment? Looking forward, what are the changing needs of WumbleWorld's customers and can it meet those needs?
WumbleWorld's CEO, who is very pleased with your team's analysis, has decided to focus on the family segment, where she believes she can capture the most value. She proposes creating a 20% family discount such that the admissions price for the family segment decreases from 200 CNY per person to 160 CNY per person.
If the new pricing scheme were implemented, variable costs per person would remain the same at 75 CNY. Average total daily spend per person would fall to 260 CNY as a result of the price change.
Based on primary research your team has conducted, WumbleWorld's share of families would increase from 5% to 7%. All other data would remain the same. Would offering a family discount increase overall profitability?
Assume that market penetration would remain the same if she does not implement the discount (i.e., there would be no further decrease in the number of visitors
under any circumstance).
This question may be answered using a few different methods. One way is to compare the projected profit loss from the price change to the projected profit gain from volume enhancement (increase in the number of visitors).
The profit gain (92.5mm CNY) is greater than the profit loss (50mm CNY). Based on the numbers alone, WumbleWorld should offer the 20% family discount.
What qualitative factors should WumbleWorld consider before offering the discount?
Before implementing the plan, WumbleWorld would likely want to consider a few additional areas, including:
- Effects that increased traffic would have on the customer experience (e.g., negative effects such that customers do not return to the park in future years)
- Effects that the increased traffic would have on customer spend in the parks
- Park capacity
- Customer reaction (e.g., from target segments that are not offered the same discount)
- Other stakeholder response (e.g. opposition from Chinese government)
To further increase revenues and capture value in each of its customer segments, the CEO asks that your team re-address daily spend per visitor. Please list some ideas to increase average daily spend per visitor.
Some answers may include, but are not limited to, the following:
Product/Service
Speed passes for rides, more food/beverage vendors (e.g. premium restaurants) and merchandise differentiation, games and prizes, hotel (to encourage longer stays), parking fees, childcare, stroller, locker fees, park tours, concerts and events
Promotion
Coupons and seasonal promotions, Special features and rides
Price
Season passes price variation by day of week and season, special child and senior citizen rates
The WumbleWorld Case was designed to help you develop many of the skills needed to master your case interviews. Specifically, this case tested your ability to structure and organize your approach, analyze numerical data, and think creatively about solutions.
In a real case interview, you should take time to organize your thoughts, ask questions, and explain your thinking. Print out the completed WumbleWorld case to review your responses, or move on to the Aqualine case. Good luck!
Our client is Aqualine, a manufacturer of small powerboats high-speed, engine-driven boats under 25 feet in length. It designs, manufactures and sells its premium-quality boats, which are priced at $30,000 per unit, through a dealership network on the East Coast
of the United States.