Case study example - Deloitte

1 Case study < strong >examplestrong > Footloose Duraflexis a German footwear company with annual men s footwear sales of approximately billion Euro( ).They have always relied on the boot market for the majority of their volume and in this market they compete with three other major , these four brands represent approximately 72% of the billion German men s boot market. The boots category includes four main sub-categories:Work boots, casual boots, field and hunting boots, and winter boots. Work boots is the largest sub-category and is geared to blue collar workers1who purchase these boots primarily for on-the-job purposes. Casual boots is the fastest growing sub-category, and is geared more towards white collar workers2and students who purchase these boots for week-end / casual wear and light work four key competitors in the market are Badger, Duraflex, Steeler, and study < strong >examplestrong > | Footloose 1 Bluecollar workers: wageearnerswhogenerallyworkinmanualorind ustriallabourandoftenrequirespecialworkc lothesor protectiveclothing, whicharereplaced approximatelyevery6months2 Whitecollarworkers.

2 Salariedemployeeswhoperformknowledgework , suchasthoseinprofessional,managerialor administrativepositions < strong >Deloittestrong > & Touche( )Badger and Steeler are both well established as work boot companies, having a long history and strong brand recognition and credibility among blue collar workers. At the other extreme is Trekker, < strong >a strongstrong > player in the casual boot market but a very weak player in work boots. Duraflex, however, is a cross between the other competitors, having a significant share in both work boots and casual boots. Historically Duraflexhad an even stronger position in the work boot sector. However, since 1996 when the company began selling casual shoes and focusing on the growth opportunity in casual boots, sales of the Duraflexwork boot line have steadily declined.

3 Also, around the same time Duraflexshifted its emphasis, Badger became a much more assertive competitor in the work boot market, increasing its market share to 43% in just three Boots by Company (2013)0%10%20%30%MarketShare40%50%Badger DuraflexSteelerTrekkerOther43%11%16%40%1 9%4%5%34%17%Workboots11%Casualboots2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Consultants role&datacollectedIn the fall of 2013, Badger launched a new line of aggressively priced work boots. The strong success of this line has caused Duraflex smanagement to re-evaluate their position in work boots. With limited additional resources, management must now decide if they should focus their efforts on competing with Badger in the work boot sector, or focus their resources on further strengthening their position with casual boots.

4 In January of 2014 Duraflexhired a leading consulting firm to conduct research to help management in its decision making. To make an informed recommendation, the consultants realized they needed to collect information that would enable them to size the market and better understand Duraflex scompetitive position. To begin with, the consultants developed a 20 minute quantitative telephone survey that was conducted among 500 randomly dialed consumers across the country s 6 primary regions. In addition, the consultants completed some internal cost and pricing analysis for Duraflex swork and casual boot lines. The market pricing analysis showed Duraflexcompeting at the premium end of the market for both its casual and work boot lines. 2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )ExhibitonePropensity to Buy Boots by Population Segment (MalePopulation12+)60%25%15%20%35%55%10% 0%20%30%40%50%60%70%BlueCollarWhiteColla rStudentBoughtworkbootsinpastyear BoughtcasualbootsinpastyearPopulation AveragePrice 130 110 2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Exhibit two28%ShoeStore21%Other16%Other39%Safety /Work54%ShoeStore28%ShoeStore23%Athletic Store35%ShoeStore22%Safety/Work16%Dept.

5 Store13%Discount / Outlet15%Discount / Outlet26%Other14%ApparelStore6%AthleticS tore11%SportingGoods13%Dept. Store0%20%40%60%80%100%DuraflexBadgerSte elerTrekkerChannelpreferencebyBrandChann el Share (%)21%Other2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Exhibit three0%BuyerPurchaseCriteriabyBrandDuraf lex20%40%60%Share (%)20%40%Share (%)0%60%Styling0%20%40%60%Share (%)0%20%40%Share (%)60%Past ExperiencePriceComfortQuality/ DurabilityComfortBrandFeaturesComfortSty lingQuality/ DurabilityComfortStylingBrandFeaturesSty lingQuality/ DurabilityPriceBrandPast ExperienceTrekker45%41%35%21%13%45%37%19 %18%10%45%39%30%17%13%52%43%22%19%15%Bad gerSteeler2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Exhibit four020406080100120140160180 Duraflex-CasualDuraflex-WorkBadger21%Des ign15%Materials12%Labour21%Materials17%L abour15%Sales& Price of Selected Boots, Split by Price Component Market price(DM)2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Case study questionsWork through these questions on your own, using the text and exhibits in the preceding slides.

6 An answer key is provided in the slides that big istheworkbootmarket (expressedineuros)?DoesDuraflexget moreofitsrevenuefromworkbootsorcasual boots? whyBadger isoutperformingDuraflexinthework boot changes would you recommend to Duraflex swork boot strategy? Why? Would you recommend they introduce a sub-branded boot line?2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Answer big istheworkbootmarket (expressedineuros)?DoesDuraflexget moreofitsrevenuefromworkbootsorcasual boots?Tofindthesizeofthemarket,wecanuset hefollowingequation:(AverageBootsPrice) * (%ofmalepopulationthatboughtworkbootsinp astyear)*(totalpopulationfor thesegment)*(numberofpairsboughtinayear) , Forwork boots, weknowthatbluecollarworkers purchasean averageof2pairsper year (from Introduction, Footnote1) Whitecollarworkers andstudents whobuywork boots probablyuseless rigorouslyandless frequently, thereforeprobably only1pairperyear Forcasualboots, wecanmakeareasonableassumption, knowingthat casualbootsarepurchasedprimarily forweekendsandlightwear(fromtext)sotheav eragenumberofpairs shouldbenomorethanwork boots fromExhibit1( ) price per pair of boots Work boots costmore(compareBlueCollarvs.)

7 Student)sotheaveragepriceshouldbehighert han140 forall (150 is reasonable); casual shouldbelowerthanstudent (100-110 is reasonable).2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Answer big istheworkbootmarket (expressedineuros)?DoesDuraflexget moreofitsrevenuefromworkbootsorcasual boots?Thetotalmarketvaluewillthenbethesu m, foreachsegment, ofthefollowingequation:(AverageBootsPric e) * (%ofmalepopulationthatboughtworkbootsinp astyear)*(totalpopulationfor thesegment)*(numberofpairsboughtinayear) ( 150* 60%* 11MM* 2)+( 150* 25%*12MM* 1)+( 150* 15%* 7MM* 1)= 2,588 MMThefollowingtableshows anotherway toseeit:Population%Buying WorkBoots# Pairsworkboots bought /yearPrice Per Pair( )SegmentSize( ) , ,600MM2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Answer big istheworkbootmarket (expressedineuros)?

8 DoesDuraflexget moreofitsrevenuefromworkbootsorcasual boots?Followingthesameprocedurethecasual bootmarket isthen:(AverageBootsPrice) * (%ofmalepopulationthatboughtworkbootsinp astyear)*(totalpopulationfor thesegment)*(numberofpairsboughtinayear) ( 100* 20%* 11MM* 1)+( 100* 35%*12MM* 1)+( 100* 55%* 7MM* 1)= 1,025 MMOr:Population%Buying WorkBoots# Pairsworkboots bought /yearPrice Per Pair( )SegmentSize( ) ,030MM2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Answer big istheworkbootmarket (expressedineuros)?DoesDuraflexget moreofitsrevenuefromworkbootsorcasual boots?Summary: We know from the table on slide 2 that Duraflexhas a 16% share of the work boot market and 40% of the casual boot market, therefore: Duraflex srevenuefromtheworkbootmarket=16%*2,588M M=414MM Duraflex srevenuefromthecasual bootmarket=40%* 1,025MM=400MM SoDuraflexgetsmost ofits revenuefrom workboots,eventhoughtherevenues arealmost evenly splitOurAnswer:The size of the work boot market is ~ billion.

9 The casual boot market is ~ billion large. Duraflexgenerates 414 million from work boots and 410 million from casual boots. Depending on the assumptions taken, work may be slightly larger but the two should be relatively study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Answer why Badger is outperforming Duraflexin the work boot ,andwhatweknowasindustrydynamics, theanalysiscanbesplit in4mainareasthatwoulddemandfurtherstudy: Distribution BuyerPurchaseCriteriaby Brand(BPCs) Pricing Cost analysisEven if you have many good ideas to answer this question, you won t be impressive without STRUCTURE. You don t need a formal framework, just be methodical and organisedin your approach and summariseat the end!2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Answer why Badger is outperforming Duraflexin the work boot (BPCs) Duraflexis notsoldwherework boots arebeing purchased.

10 Exhibit2showsthat Badger s and Steeler s boots areoftenpurchasedinsafety/ work channels, whereasDuraflexdoesnot have asignificantpresenceinthem Therefore,Duraflexwillneedtobroaden distributionif it is toincreaseitsshare;it needs to get shelfspaceintherelevant channels Exhibit 3 shows us that Badger s top two associated criteria are: Quality / Durability (45%) and Comfort (39%). The same holds true for Steeler. Thus, these seem to be critical criteria for work boot market However, Duraflex stop criteria are Styling (45%) and Quality / Durability (37%), with Comfort is a distant 3rdat 19%, far from its competitors figures Duraflexis not meeting the key needs of blue collar workers and will need to strengthen its comfort perception Additionally, we should note that Badger has built up a loyal customer base: past experience as a criteria represents 30% and is 3rd on its list of associated criteria2 Case study < strong >examplestrong > | Footloose < strong >Deloittestrong > & Touche( )Answer why Badger is outperforming Duraflexin the work boot We know that Badger is launching an aggressively priced work boot line.