What should be analyzed to help Lux Flex determine if launching Penny Pressure is profitable?
Lux Flex (LF) is a high-end gym chain from Europe with 50 spots in various cities across the continent. It’s thinking about opening new sites that would be managed by its budget gym brand – Penny Pressure (PP).
The market for budget fitness centers is fragmented, with budget gyms differing from high-end ones. For example, potential workout options are only cardio and weights, and they don’t offer supervision and one-on-one training.
After hearing the case prompt, reiterate what has been said. Ask follow-up questions that will let you understand the case better and finally, prepare your structure.
Take your time – it is better to have a well thought-out structure than one that’s rushed.
Here are some sample questions you could ask:
- Why do they want to open Penny Pressure?
- Do we have any information about Lux Flex‘s revenue, cost or profit?
- In what countries are Lux Flex operations focused?
Build your Framework
Your structure needs to have distinct, self-contained parts with ideas proposed in each one of them. Once you’re comfortable with your structure, give your interviewer a quick overview of its different elements. After your interviewer has a basic idea of your structure, you can delve deeper into each part. Remember to stop occasionally to allow for questions – your interviewer must understand your plan.
Your framework should help you structure and breakdown complex problems into simpler, smaller components. For example, here you might consider the following parts for your structure:
- Lux Flex (current state)
- Penny Pressure (target)
Let’s focus on one of the cities where Lux Flex and Penny Pressure operate. It has 5 million citizens and a market size of 300 million EUR per year. Lux Flex hopes to cover 25% of the budget market and requires at least 210 million EUR of revenue per year to do so. With budget gyms' clients spending an average of 30 EUR per month (360 EUR yearly), they will need to attract both existing gym-users and non-users. They want to do it via two approaches:
- Opening new gyms closer to people’s homes than current sites.
- Providing a better quality of service (customer service, equipment etc.).
What percentage of people currently not working out need to join Penny Pressure to reach the target revenue level?
- A helpful method for adding large numbers when you need to perform many math operations quickly is to leave out all the zeroes. For example, to represent 1 million – which in long-form would be written as 1,000,000 – just write 1M
- Don't be afraid to ask clarifying questions - they can give you critical information and help you develop a strong hypothesis that will help you solve the case more easily
- Structure your problem around the issue you’re solving and remember to steer your interviewer through your thought process and the intermediate steps in your calculations.
The CEO of Lux Flex is cautious. Although she is satisfied with the analysis so far, her experience showed her that a successful business needs to have multiple potential sources of revenue. So, she kindly but firmly asks for other ways Penny Pressure can make money.
What are other revenue streams Penny Pressure can implement to increase the overall revenue?
- During consulting interviews, we will often ask candidates to brainstorm different solutions or ideas on the spot to test them and see if they're suitable for a job in consulting. Remember to remain structured and try to divide your potential ideas into three distinct groups (or two, if that’s not possible) – just like you would in a structured framework question.
The CEO of Lux Flex is in a rush and has very little time before heading to her next meeting. She wants to know what findings we have so far and what should be our next steps before providing an official recommendation.
What are you going to tell the CEO?
Remain as focused as at the beginning of the case - this is your last chance to show you are an appropriate candidate. To help you close your case, remember the following five key points when giving your final recommendations:
- Give a structured answer
- Wording needs to be concise and precise
- A clear direction of the next steps is required
- The conclusion should be as decisive as possible
- Use the key facts you’ve discovered to back your findings