Vending Machine case study: Background
Situation: Office Vending Services, Inc. is the market leader
in office vending machine services
The business services provided include sales and
delivery of product, restocking of machines, and
repair of faulty equipment
Complication: Profits are substantially down in the business
Key question: The CEO of Office Vending Services needs Bain to
assess the root causes of the profitability decline
CHI Vending Machine Case 1
This information is confidential and was prepared by Bain & Company solely for the use of our client; it isMachine
Vending not to be relied on by any 3rd party without Bain's prior written consent.
Case
Office Vending Services market trend
Total market sales CAGR
Total: 3%
$500M
Others 17%
400 Candy & Pop Co 22%
300
Vend International
44%
200
Office Vending Services
100
(20%)
0
1996 1997 1998
In a growing market, OVS is losing market
share
Source: Market Research; Company Annual Reports; Office Vending ServicesCHI
Financials Vending Machine Case 2
This information is confidential and was prepared by Bain & Company solely for the use of our client; it isMachine
Vending not to be relied on by any 3rd party without Bain's prior written consent.
Case
Office Vending Services cost per delivery
Cost Per Delivery
$125
$105
Other
100 $95 $94
Repair
75 Delivery
50 SG&A
25
COGS
0
Office Vending Vend Cand & Pop Co
Services International
OVS has a higher cost structure
Source: Financial Statements & Annual Reports CHI Vending Machine Case 3
This information is confidential and was prepared by Bain & Company solely for the use of our client; it isMachine
Vending not to be relied on by any 3rd party without Bain's prior written consent.
Case
Customer satisfaction
Importance/Performance: 1=Low, 10=High
10 10
10
9
8 8
8
7 7
6
6
5 5 5 5
4 4 4 Cand &
4 Pop Co
Vend
International
2 Office
Vending
Services
Importance
0 Price Product Variety/ Delivery Machine Complaint
Selection Reliability Service/Repair Resolution
Source: Bain Customer/Market Research for Office Vending Services (n=3500)
CHI Vending Machine Case 4
This information is confidential and was prepared by Bain & Company solely for the use of our client; it isMachine
Vending not to be relied on by any 3rd party without Bain's prior written consent.
Case
Summary
• Profitability falling due to lower quantity sold
- Lower quantity sold, lower capacity utilization
- Decrease in capacity utilization, increase in fixed costs as a percentage of
sales
• In a growing market, we are losing share and our costs are high
- According to customer satisfaction, we are good at what customers don’t
care about (repair), and terrible at what they care about (price)
• Solution is to re-allocate investment from the areas where we are over-
delivering to those which the customer values most
- Ex. Reduce focus on machine repair and increase product variety/selection
CHI Vending Machine Case 5
This information is confidential and was prepared by Bain & Company solely for the use of our client; it isMachine
Vending not to be relied on by any 3rd party without Bain's prior written consent.
Case
Task 2: What should our client do?
Background: Our client is experiencing declining profitability
This has been caused by a decrease in sales volume
Next Step: • What can be done to reverse the trend (i.e. why are
sales decreasing)
How do we evaluate what to do?
CHI Vending Machine Case 6
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Vending not to be relied on by any 3rd party without Bain's prior written consent.
Case
Interviewer notes
Cost = Fixed Cost + (Variable
Revenue = Quantity * Price
Cost * Quantity)
Variable Cost =
Price =PP
Price = Quantity
Quantity ==QQ Fixed
Fixed Cost
Cost ==FC
FC Variable Cost = VC
VC
Q: “Have prices “Has quantity “Have fixed “Have variable
dropped as a dropped as a costs increased costs increased
result of result of people due to due to more
increased buying less at significant expensive raw
competition?” our vending investments?” materials?”
machines?”
A: No Yes! No No
Profit is declining due to
decreases in quantity
CHI Vending Machine Case 7
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Vending not to be relied on by any 3rd party without Bain's prior written consent.
Case
Interviewer notes, part 2
Determine the factor(s) that is affecting our sales decline
4C’s
Customers Competitors Costs Company
Q: “Have the “Have our “Are our costs “Does our
demographics of competitors different than company
our customers been taking some of our possess a one of
changed?” away market competitors?” a kind
share?” capability?”
A: No Yes! Yes! No
CHI Vending Machine Case 8
This information is confidential and was prepared by Bain & Company solely for the use of our client; it isMachine
Vending not to be relied on by any 3rd party without Bain's prior written consent.
Case
