Gas stoves? Or gas lighters?
You are the Amazon Product Manager for the household items category. You have to introduce a new category. Between a gas stove or a gas lighter, which would you choose and why?
Candidate: I would like to understand what is the goal behind introducing the new category, is it to increase revenue or users? (Clarify)
Interviewer: Let’s say it is to increase the number of transactions we support.
Candidate: Alright, let me quickly compare the two products
- Gas lighters are bought frequently, much more so than often than gas stoves. I’d say easily 5x more often, since they wear out quickly.
- They’re operationally much easier to sell, since there are no installation or repair costs, so easier to purchase
- They’re easy to store, so we can have a much greater reach in terms of the locations we support selling this
- They’re way cheaper — and therefore have a lower ‘barrier to purchase’ since there’s less money at stake.
I’d therefore go with selling gas lighters instead of gas stoves.
Interviewer: Okay fair points. Now say you have to present the business case to Amazon leadership & need to put the transactions forecast in the first year after launch — what would be your best estimate?
Candidate: So in the first year, I’d launch the category only to users in Seattle to see the response & make the changes to the product accordingly, so will estimate the transactions we can get in Seattle, but eventually we can use similar formula for any other market in future.
#Transactions = Number of users who need a gas lighter * Frequency of replacement per year * Market share of Amazon
Does that sound OK to you?
Interviewer: Sure, let’s see where this takes us
Candidate: Now possible users of a gas lighter are: Households, Restaurants, Canteens, etc. Considering households number will be way bigger than restaurants & canteens, I’m ignoring the latter and will just concentrate on households for now. Is that OK?
Interviewer: Alright.
Candidate: Okay, to calculate this, do we know the population of Seattle?
Interviewer: About a million I guess.
Candidate: Okay on an average household will have 3 people, so that brings down to 300K households. Now do we have any information on gas stove vs electric stove usage?
Interviewer: Take your best guess?
Candidate: Since currently half of my friends have an electric stove in the US, I’ll assume a similar split for Seattle too. So say 150K households have gas stoves. For now I’m assuming each household only has 1 gas stove.
Now from my experience, a gas lighter needs to be changed at least once every 6 months, so I’m going to assume the frequency will be 2 per year, in terms of purchases per household.
Finally, let me calculate what will be the share of Amazon in this market. For this I divide the households by age group of the key buyer in the household, as I believe millennials will have a higher chance of buying a product online vs a more traditional shop user who might prefer offline stores instead.
Considering an average life expectancy of 70 years and minimum age of a household owner be 25 years, so 25–40y is millenial and 40–70 will be traditional, so household split by 1:2, thus
Thus in 50K households the user buying household items will be in the millennial age bracket (25–40).
In a real world scenario, I’ll just find the market share of Amazon for similar items (say kitchen towels or oven mittens) & use that as a benchmark to calculate the market share of Amazon in each of these customer segments, but for now I’ll assume 50% of users in millenial age group buy online and 75% of them buy on Amazon (considering US & Amazon being the leading e-commerce player). For the traditional segment I’ll assume 25% of users buy online and 75% of them buy on Amazon
Thus calculating the gas lighters sold for these two segments separately using the formula above:
For millennials
Transactions = (50000*2*0.5*0.75) = 37500 ~40K per year
For elderly people
Transactions = (100000*2*0.25*0.75) ~40K per year
Adding both comes to 80K transactions per year.
And if I include restaurants, canteens, etc, those can maybe add around 25% (major assumption here of course), bumping it up to a neat 100k per year approximately.
Now let me double check whether the numbers make sense, so let’s say every household in Seattle was to buy gas lighter online, then we would have 600K transactions per year, so with 100K transactions per year, Amazon will have about 15–20% total market share which sounds like a believable and ambitious market share to start with for any leading e-commerce player.
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