Case interviews allow you to demonstrate how you think - your ability to understand a problem, break it down into its requisite parts, analyse them and communicate a solution. In this series, we give you ten case studies to give you an idea of how to approach the case and how to walk through it with your interviewer.
You may want to consider the case question first and think about how you might structure a response before looking at the ‘answer’. Of course, bear in mind there are many ways to answer a case, so this is just one example!
For the purposes of these examples, we will only look at market sizing and business cases.
What is the total number of automobile tyres sold in the US every year?
This is a fairly typical market sizing question. In market sizing questions, you can either apply a ‘top-down’ or ‘bottoms-up’ approach. A top-down approach would look at the total population or household to derive a market size. In this instance, we could consider the total US population and the number of people that drive, and therefore need to use tyres.
Let’s see what happens when we take this approach.
You: Great, thanks. I’m going to consider the various sales channels and different sources of demand for auto tyres in the US.
Interviewer: Ok, sounds good.
You: I’m going to define our market a little more closely. I’m going to assume that our market concerns rubber tyres for passenger cars and light trucks only. This means excluding commercial vehicles, tractors, trailers and so on for the purpose of my estimate. Is that ok or would you like me to define the market more broadly?
Interviewer: I am happy with this approach.
You: Great. So one source of demand for tyres is for new cars and trucks. I’m not sure how many cars are sold every year, so I’m going to develop a rough estimate. I know that there are about 300 million people in the US. Of those, we can assume that about three-quarters of them are above the driving age. This means about 225 million people. Of those, I will assume that three-quarters of those who are of legal driving age own a car. This is based on my own personal experience with friends and family in Australia. I’m not overly familiar with the US market but I’m going to assume it is similar. Is this an ok assumption?
You: Ok, so this leaves about 160 million people in the US who own cars today. Now I’ll assume that people replace their cars on average once every 10 years. This is just to keep it simple. This means about 16 million new cars are sold, resulting in about 64 million new tyres sold for those new cars and trucks alone.
So that’s the demand for new tyres. Another key source of demand would be for cars and trucks that are already on the road. I just estimated that about 160 million people in the US own cars today, so I’m going to use the same number now.
What I need to think through now is the average amount of time for a car to wear through its tyres. I think I have heard that the average tyre lasts for about 100,000km. If we assume that the typical driver drives about 25,000km a year, then the average tyre will last about four years. Or in other words, each car will need its tyres replaced once every four years. Doe this sound reasonable to you?
Interviewer: This is all making sense. Please go ahead.
You: In this instance, we can, therefore, assume that about 40 million cars require new tyres to replace old ones every year. And given cars have four tyres, this means 160 million new tyres for used cars every year.
When we add those together, we have 64 million tyres for new cars and 160 million tyres for used cars, which means in total every year, there are 224 million tyres.
Interviewer: Are there any other sources of demand for tyres outside of new and used cars?
You: Hmmm, I haven’t accounted for tyres that need to be replaced as a one-off. For example, if you get a flat or damaged tyre. Should I estimate those tyre sales too?
Interviewer: That’s ok, I think we have settled on a good number for now but it is definitely something worth considering for next time.