Case 4: HitNot Tires

• Type: Market Entry

• Difficulty: Medium
• Industry: Manufacturing / Automotive
• Firm Format: N/A
 Difficulty: Medium
Industry: Manufacturing / Automotive
HitNot Tires Type: Market Entry

(Ross Original – modified from Southern California Edison 1st round)

Problem statement narrative Information provided upon request

• The R&D division of ABC chemicals has Objective: 10% increase in total revenues in 2
invented a special rubber with the unique years
quality that the rubber is impervious to any
ABC facts: Mature company with constant annual
impact. This material is also much lighter and
revenue of $10B. No products in the current
slightly cheaper to manufacture than
lineup sold to the auto industry; current chemical
conventional rubber.
products sold to refineries, semiconductor plants
etc. through B2B channels
• ABC wants to produce bullet proof tires for the Product fact: It is patent protected. No other
auto industry using this new material. product in the market right now can stop bullets
completely, competitors tires sustain damage but
allow the car to run at up to 75mph after a hit.
• The client has approached us and they need
Bullet proof Tire Market facts: 5 big players
our help in assessing the market size for bullet
control the market with 20% market share each
proof tires and come up with a pricing strategy.
The client also wants to decide whether Market growth: last 5 years (8%, 11%, 12%, 9%,
entering the bullet proof tire market is a good 10%) (individual year data not important,
decision. interviewee can assume 10% avg.)
Channels: If candidate mentions channels, guide
to bonus section on channels after completing
market sizing and pricing.

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Suggested Structure

Solution Guide

• Ideal candidate structure will look similar to this

1. Analyze company
• Size
• Revenue Note:
• Brands This is a new product, not only for the company but the
• Channels industry. Good candidates will want to think about price
before sizing the market.
2. Analyze market
• Major Players
• Barriers to entry
• Product differentiation

3. Pricing
• Cost based
• Value based
• Competitions prices

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Pricing

Solution Guide

• Info to be provided when candidate wants to work on pricing

• Competitors prices: $800 - $1000

• Assume industry profit margin to be 25%

• Our costs to manufacture a tire: $450

• Ask the candidate about pricing strategies (cost-based pricing and value based pricing). Let them
list out pros and cons of each.
• Cost Based Pricing: Ask candidate to calculate price using cost based strategy (Ans. $600)
• Value Based pricing: Any price that the candidate can justify when thinking about value to
customer will work. The final number is not important. Do not let the candidate spend too much
time on this.
• Brownie points if the candidate brings up the conventional tire market. They should quickly realize
though that there is a huge difference in price and ABC will not be able to achieve much
penetration in the conventional tire market

Conventional tires sell for $60-$300

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Market Sizing

Solution Guide

• The interviewee should start calculating the market size . Let them make assumptions as and
when needed. Focus on the approach used by the candidate and help with following assumptions
if asked
• 1 percent of US cars have bulletproof tires, US market is 10% of world market
• US population: 320 M translates to 100M households (3.2 people per household)
• Candidate should segment households by income level and calculate total number of cars owned
by the US population: 160M (sample table on next page, the candidate can assume any
breakdown in income and number of cars per household as long as it is realistic)
• Push candidate to realize that there is another important segment besides households (the
Government heads, High ranking corporate executives, Military, Police, Armored trucks,
Celebrities etc.) and should try and assume a number for this market
• Let the candidate assume a number that helps him reach a total number to the nearest round
number (in our calculation lets assume 40M cars)

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Market Sizing Cont’d

Solution Guide

• The candidate should ask about life expectancy of tires. They can assume 4 years.

• Calculation
• 200M cars on the road, Cars that need new tires every year 200M/4=50M
• Tires per car: 4, Annual Tire market in US: 200M tires
• Bullet proof tire market share:1%, Annual Bullet proof tire market : 200M*0.01=2M tires
• US is 10% of world market, therefore world market: 20M bullet proof tires annually (The
candidate may end up with a completely different number but they should be logical in their
approach)
• If candidate asks, say that client assumes it can capture 10% of mkt.
• Most candidates will calculate revenues at this point in the case and conclude that the
revenue is ($600*20M*10%=$1.2B) which meets the clients objective ($1B revenue)

Income Households # of cars/HH Total cars

High 10M 4 40M

Middle 50M 2 100M

Low 40M 0.5 20M

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Market Entry

Solution Guide

• When the candidate concludes that the client should enter the market, let them brainstorm the
different modes of market entry

• Some relevant modes of entries that the candidates may bring up are:
• Produce in house and grow organically
• Acquire a competitor (very hard to do given that there are only 5 competitors)
• Sell patent on technology
• Produce and supply to all competitors

The candidate should support one of the modes of entry and be able to present clear pros and cons
of that strategy

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BONUS – Sales Channels

Solution Guide

Only go through this section if the candidate framework includes channels!

• 75% of tires are sold through OEM’s and 25% are after market

• Tell the candidate that establishing a OEM channel takes at least 3 years

• The candidate should identify that the only viable channel is the aftermarket route

• This reduces the addressable annual global market to (25%*20M = 5M)

• Expected revenues, at 10% market share in this channel are therefore only ($600*5M*10%) =
$300M

• This implies that the client should not enter the market

• Ask the candidate to conclude and provide next steps

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Conclusion

Recommendation Possible Next Steps

• Do not enter the bullet proof tire market • Look for alternate markets to monetize the new
technology
• Sell the patent on the technology
• Sell the business to a competitor
• Conduct sensitivity analysis to test pricing at
premium above competition
• Explore contracts with government and military

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