Business School Strategy Question

October 5, 2012 by



GMAT blog, business school, MBA, strategy questionSince most readers are all studying hard to get into business school, I thought that today I would throw a strategy question out there for discussion.  Read through the following situation and post your thoughts in the comments.  I will let a few days go by to gather ideas, and then I’ll chime in.

You are the CEO of a trucking company, and you are thinking about entering a new market.  You will only invest the resources to enter one of the two markets that are available to you.   You need to decide which market is most attractive.

In the first market, another trucking company is already serving customers.  This company has invested $100 million in their operations and their cost to serve the customer is $.003 per mile.

In the second market, a train company is already in operation and serving customers.  This company has also invested $100 million in their operations and is able to serve the customer at a cost of $.003 per mile.

Which market do you enter and why? For this example, assume that the quality and convenience of both services from the customer perspective is absolutely equal.

4 Comments Filed under MBA & Career Tagged with , , , ,

  • Deep Maity

    The topic has failed to mention the convenience of the services in their respective fields. e.g. The feasibility of running the service depending on distance the transport can cover and the availability and access to the service. Also, it should have mentioned about frequency with which the service can be availed.
    Just because the services have quality and convenience doesn’t mean it would be cost-effective for the concerned shipper and customer.

    • jonathanwylie

      Hi Deep Maity,

      These are all great considerations. However, for the purposes of this discussion, those things (and many others) have been purposely omitted. In other words, if you consider that there is absolutely no variation in these characteristics between the two markets, which market is most attractive and why?

      Best, Jonathan

  • LT

    Jonathan,
    I would enter the second market to compete with the train company which is already operating and serving customers. I would do this simply because my trucking company has a distinctly different service offering and a possible competitive advantage over the train company. The most distinct advantage is that once cargo is offloaded from the train, it has to be loaded onto a truck to reach more customers. By entering the second market, my trucking company can save time, money and streamline the process by transporting cargo end to end.
    Regards,
    LT

  • Scott

    I would enter the second market as well and compete with the train company. Product differentiation is the key here. While your company may overlap in some instances with the train company, trucking is a much different product that does offer many more types of services than rail does. Not to mention the potential to do business WITH the rail company in an intermodal capacity. I feel like there would be too much overlap in the first market, and trucking transportation is a very low margin business as it is, so that level of competition would make it difficult for anyone to have a healthy bottom line.