Interviewer view · keep this screen to yourself
Break-even on a new flavor, with cannibalization
You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.
Case timer
00:00
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
An Indian snack brand sells about 500 million packs a year across its flavors. Launching a new masala flavor costs INR 50 million one time (INR 5 crore, since 1 crore is 10 million), for recipe work, packaging, and launch advertising. Each pack contributes INR 4 (price minus variable cost). Past launches reached about 3 percent of brand volume in their first year. The chart below shows where research says the new flavor's sales would come from. Should it launch?
The prompt refers to Exhibit 1. After reading it, say: "Open Exhibit 1 now."
Format note: Interviewer-led: the interviewer shows the survey chart and asks for break-even, then the effect of cannibalization, then a recommendation.
2. Answers to clarifying questions
Give these answers only if the candidate asks. If they ask something not listed, give a sensible answer or say it does not matter here.
If asked: Is the launch cost one-time or yearly?
Answer: One-time.
If asked: Do existing flavors earn about the same contribution per pack?
Answer: Yes, about INR 4.
If asked: What payback does the company want on launches?
Answer: Within two years.
3. The hypothesis a strong candidate states
Listen for an early, testable guess like this one. It does not need to match word for word.
A new flavor from a strong brand usually sells, so demand is not my main worry. My hypothesis is that cannibalization, the sales taken from our own flavors, decides whether this launch pays.
4. A model structure
Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.
- Does the launch add enough new contribution?
- Break-even ignoring cannibalization
- Expected year-one volume
- Key: Break-even after cannibalization
- Payback versus the two-year rule
Exhibit 1
The prompt uses this exhibit, so the candidate opens it right after you read the prompt ("Show exhibit 1" on their screen).
Pie chart: Where the new flavor's sales would come from (survey of 1,000 snack buyers). Shoppers who would otherwise buy one of our flavors: 40 percent; Shoppers who would otherwise buy a rival brand: 35 percent; Shoppers new to the category: 25 percent.
So-what
Only 60 percent of the new flavor's sales are new to the company; the other 40 percent move from our own flavors.
5. The working, step by step
Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.
Step 1: Break-even, ignoring cannibalization
What a strong candidate does: INR 50 million divided by INR 4 per pack.
Naive break-even (packs): 50,000,000 ÷ 4 = 12,500,000
Step 2: Expected year-one volume
What a strong candidate does: 3 percent of the brand's 500 million packs.
Year-one packs: 500,000,000 × 0.03 = 15,000,000
Step 3: Read the chart
What a strong candidate does: Sales taken from rival brands and from shoppers new to the category are new to the company.
Share of sales new to the company (%): 35 + 25 = 60
Step 4: New contribution per pack
What a strong candidate does: Only 60 percent of each new pack is a new sale; the other 40 percent replaces a pack we would have sold anyway.
Incremental contribution per pack (INR): 4 × (1 - 0.4) = 2.4
Step 5: Break-even after cannibalization
What a strong candidate does: INR 50 million divided by INR 2.4.
True break-even (packs): 50,000,000 ÷ 2.4 = 20,833,333
Step 6: Year-one new contribution
What a strong candidate does: 15 million packs at INR 2.4 of new contribution each.
Year-one new contribution (INR): 15,000,000 × 2.4 = 36,000,000
Step 7: Payback
What a strong candidate does: Launch cost divided by yearly new contribution.
Payback (years): 50,000,000 ÷ 36,000,000 = 1.39
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
Launch, but test in one region first. First, ignoring cannibalization, break-even is 12.5 million packs and year one looks comfortable at 15 million. Second, 40 percent of those sales come from our own flavors, so each new pack adds only INR 2.4 of new contribution and break-even rises to about 20.8 million packs. Third, at 15 million packs a year the launch still pays back in about 1.4 years, inside the two-year rule, but only if sales hold in year two. A regional test would measure the real volume and the real cannibalization before a national launch.
Risks a strong answer names: Cannibalization may be higher than 40 percent if the new flavor is close to an existing one; Sales of new flavors often fall after the first year.
Next steps: Run a three-month test in one state and track both new-flavor sales and existing-flavor sales; Decide on national launch only if payback stays under two years.
Strong versus weak
A strong answer
Used contribution, adjusted break-even for cannibalization, and checked payback against the company's rule before proposing a test.
A weak answer
Computed 12.5 million packs, compared it with 15 million, and said yes, missing that 40 percent of the sales were the brand's own.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
Total
0 out of 25
Score all five criteria to see the band and the feedback template.