13 Industry Insights For Consulting
An overview of essential insights great candidates use to ace their case.
Basic knowledge
Great candidates are the ones that know basic things about a wide variety of industries. This article provides you with these theoretical insights. Next, to these, we strongly encourage you to read high-level news about different businesses and industries (e.g. the last airline news, bigger trends in logistics, headlines about the energy industry…). This will help you have a complete picture of these industries.
Again, remember that being a great consultant doesn’t mean that you are an inudstry expert. Rather, you are interested in different industries and gradually develop a refined business sense for some of these.
1. Financial services
Provide financial services such as asset management, insurance, loans, deposits and credit cards. Their customers are private individuals and businesses. They make money through the fees and interests they charge. They have to pay interests themselves, cover overhead costs and cover the bad debt expenses (happens when a customer isn’t able to reimburse his loan).
The industry is mature but is being pressured by the entry of new financial technology firms. On top of this, fewer customers visit their bank branches and more of these interactions are moving online. Finally, the advent of machine learning and improved statistical tools enable banks to cut their workforce.
2. Private equity
Equity can be understood as the part of the firm that the shareholders own. Every shareholder owns share of the firm. After the debt is paid, these shares enable shareholder to claim the assets (cash, property, machinery…) of the firm.
Simply put, there are two types of firms: private and public firms. Public firms are the ones traded on the stock market. This means that everyone can become a shareholder in these firm by buying up shares on the stock market. Private firms on the other hand, are not traded on publicly traded markets.
Private equity firms buy the shares of firm that aren’t public. Or they may buy the shares of a firm that is public (so listed on the stock market) and take it off the public markets.
Private equity (PE) firms often buy the shares of firms they believe to be undervalued. Once they have the majority of the shares, the PE firm changes elements it believes will increase the value of the firm. These PE firms are able to buy the shares of other firms as they are financed by private investors, use debt and sometimes sell the firm’s assets. These PE firms make money by selling the shares of the firm some time after they conducted the changes they wanted to implement. In case of success, the payout can be large.
Sometimes, these PE firms rely on the help of consulting firms in order to assess whether they should go on with their plans and buy the shares of the firm they are looking at. The case is then usually resolved by computing the Net Present Value of the investment.
For a broader introduction into the topic of Private Equity, please visit Investopedia.
3. Consumer goods
Consumer goods companies provide customers with a range of every-day products such as food, snacks, detergent, toothpaste, pet supplies and so on.
Their costs are mostly made up of marketing, research and development (R&D) expenses, costs of goods sold (commodity costs and packaging) and logistical costs.
Their customers are the large retailers, discount shops, convenience shops and wholesalers. Technology has also enabled some of these firms to sell their products directly to the customers through monthly subscriptions.
Recently, the industry has been affected by the entry of local competitors and smaller startups that have a better fit with customers. Private labels developed by retailers have also pressured the industry. As the legacy players have little to none R&D advantage over private labels, legacy players are trying to win over customers through superior marketing campaigns.
4. Industrial goods
The manufacturing sector consists of firms that are in the business of mechanical, chemical or physical transformation. They source raw materials and transform these raw materials into processed goods. Next to these, some firms also make machines, equipment and parts for other businesses.
These firms sell directly to their clients as their sales teams demonstrate the qualities of the products they sell.
Revenue is generated through the sale of the products, the support they give to their client in setting up their products and machines, the after-sale and maintenance service they offer. Finally, they can also license or patent their intellectual property.
This industry is highly cyclical. As most of the industries’ clients are themselves businesses, they will only make a purchase if they feel that their own customers will buy their products. Once the economic outlook improves, the industrial activity improves as well.
The industry has to deal with rising labour costs in developed countries as their workforce is unionised. As a result, these jobs are moving to lower-cost regions of the world.
Due to their intellectual property, for security reasons or because they need a highly qualified workforce, some firms (Boeing, Tesla) are not able to outsource their production to lower-cost regions of the world.
5. Energy
Energy businesses sell sources of energy to their clients. These are consumers and businesses.
They generate revenue from the sale of their energy and the payments from their patents. This business is also cyclical. When the economy is slowing down, the demand for energy falls sharply, pushing down energy prices and pressuring the margins or energy businesses.
Their costs consist of the set-up costs of their plants, the explorations costs in case they are looking for natural resources, the transports costs, the cost required to comply with local regulations, labour costs and overhead costs (staff, IT).
6. Automotive industry
This industry consists of all the firms that are engaged in the production of cars and trucks. The customers are both consumers and businesses.
The large car manufacturers often do not produce their cars on their own. Rather, they rely on a complex web of suppliers that manufacture the seats, gears and parts of the engine. The car manufacturer then assembles the cars in its plants.
Revenue is generated from the sales of vehicles, leasing of car fleets, renting of vehicles. On top of this, automotive firms make a large share of their profits in the after-market by replacing used parts, charging maintenance fees and reselling used vehicles.
The costs consist of cost of goods sold, logistical costs, labour costs, research and development and marketing costs.
The industry is under pressure to switch to electric vehicles. This would compromise the classic business model of this industry as electric cars require less maintenance and new parts. On top of this, the emergence of car-sharing models and ride-hailing businesses are further pressuring the industry.
7. Technology and telecom
This industry is made of firms designing and assembling technological products and the operators of these products such as telecom companies. Customers are both private individuals and businesses.
Revenues come mainly from the fees customers pay in order to have access to the network, the price of the technological equipment businesses purchase, the subscription fees businesses pay for the software they use, the revenues for a firm’s intellectual property and the maintenance fees customers pay.
The costs are mainly covered by research and development costs, marketing and sales costs and the cost of goods sold.
A bigger trend in the technological sector is the emergence of artificial intelligence and cloud computing. These changes are affecting several industries such as the pharmaceutical, entertainment, finance and automotive industry.
8. Healthcare industry
The healthcare industry is made of pharmaceutical companies, medical insurance companies, hospitals and special care facilities.
Customers are the doctors who prescribe the drugs, the insurance companies who pay for them and the patients who use them. In some countries, various officials (political leaders, central government) are the customers as they control the access to the drugs.
The industry is highly regulated, products have long development cycles and need approval from various key authorities. Most of the cash is generated in rich regions (United States, Europe, Japan).
Most players invest huge amounts of money and time into the development of a drug in order to patent their products. The costs of creating these drugs include the research and development costs, the clinical trials, the sponsored studies, marketing costs and the sales effort in order to convince doctors.
9. Transport
The transport industry consists of the shipping and transportation of goods. Customers can be both businesses and private individuals. However, the larger share of transport is conducted for businesses as they have to move goods around their supply chains.
Revenue is generated by the fees transporters charge for moving freight from point to point, the warehousing possibilities they offer, insurance of goods, the last-mile delivery in order to bring the product to the final customer, the extras customers can pay for in order to protect their merchandise or speed up the delivery.
The costs consist of trucks, trains and aircrafts used, the overhead costs of IT and staff, the marketing expenses, the warehousing costs, the technological costs and the labour costs.
10. Retail
The retail industry sells the goods and products from their suppliers. These businesses thus stock the products in their warehouses and then put them for sale in their shops.
The customers are private individuals and the suppliers are small to large businesses that want to reach the final customer of their products.
Revenues is generated from the sales of their products, the lump sums and advertising money they get from their suppliers in order to sell their products. They also make money by selling their customer’s data to their suppliers and buy promoting certain products to their customers.
The costs consist of the rent of their locations, the labour costs, IT costs, logisitical and warehousing costs.
11. Commercial airlines
Airlines transport people. The industry has been changed by the entry of low-cost airlines that offer a no-frills service and generate revenue by selling additional perks (baggage, seat selection, food, beverages, priority boarding, insurance, hotel and car booking) to their customers. Tickets are mainly sold online, through travel agencies, by phone or even at the counter.
The costs are made up of fuel, aircraft lease, food and beverage, crew (wages, hotel, ground crew), airport fees, IT and administrative costs. Some legacy carriers cannot compete with new entrants as their pilots and staff are generally unionised.
Commercial airlines buy their planes from two large aircraft manufacturers: Airbus and Boeing. Both manufacturer already have high numbers of orders and airlines thus have to wait some months before taking delivery of their planes.
12. Media and entertainment
The media and entertainment industry consists of the print, video and audio content generation and dissemination. The customers are on one hand the consumers of the content and on the other hand are also part of the product as they spread the media on their social media, rate the movies they watch and write recommendations online. The real customers are thus often potential advertisers. The number of viewers or listeners (the number of consumers) is most often a simple metric used to sell advertising room to potential advertisers.
The industry generates revenue from the subscriptions fees customers pay, the pay per watch fees, the ticket sales, the food and drinks sales in theatres and events, the advertising revenue and the television rights. The costs are made of production costs (staff, performers, direct production costs), studio costs, marketing, advertising, printing.
This industry is in constant evolution as the way individuals consume content is constantly evolving. Social media and subscription models such as Netflix and Spotify have greatly changed the way the industry works.
13. Travel, leisure and tourism
This industry concerns the sports, travel, hotel and leisure businesses. The industry is evolving rapidly as the tastes of consumers evolve and technology enables consumers to experience sports and travelling in different ways.
Revenues are generated by the price customers pay for a hotel room, the extra activities customers go for, the membership fees for sports clubs, the data travel agencies collect and the equipment customers purchase.
The costs consist of the cost of goods sold, overhead costs, transportation costs, rent of facilities, labour costs and marketing costs.
Credits
This article was built on great insights and articles from Kellogg Consulting Club, Wharton Consulting Club and Stanford GSB Preparation Guide, Make sure you check these out!
