Question

Caselet (Questions 101-104): Shekhar, an MBA from Singapore, returned to his hometown of Jamshedpur. Jamshedpur had a population of 10 lacs and one of the highest per capita incomes among Indian cities. Shekhar loved music. While listening to his favourite song on satellite radio one day, he wondered if he could combine his passion with a business. A few weeks later, by coincidence, Music World called for expressions of interest from potential franchisees. Jamshedpur did not have a single good music store where residents could buy quality, variety, and the latest releases.

Music World wanted its franchisees to own at least 1200 square feet of space and invest Rs. 30 lacs. Profits were to be split in the ratio of 3:7 between Music World and the franchisee. Shekhar liked the idea of working with a well-known brand, but he worried whether Rs. 30 lacs was too much money to put in. He did not have the full amount and was thinking of borrowing from a bank. He checked with other Music World franchisees in towns like Patna and Ranchi, expecting similar footfall in Jamshedpur. A franchisee in Patna reported monthly sales revenue of Rs. 1 to 2 lacs, with a profit margin of 25 to 30 percent. Satisfied with this, Shekhar decided to go ahead.

He then began looking for space. Jamshedpur had three main areas: Bistupur, Sakchi, and Sonari, all connected by good roads. Bistupur was a business area with most of the high-end retail stores, shopped at by the upper-middle and higher classes, and was also the city's education hub. Sakchi was a growing lower-middle-class business area, while Sonari was mostly residential.

Shekhar preferred Bistupur, since it was where he did his own shopping. But he ran into problems there: space was hard to find, and rentals had touched Rs. 30 to 40 per square foot per month, compared to Rs. 15 to 20 per square foot per month in Sakchi and Sonari. A friend who lived in Sakchi told him that several branded outlets were opening up there, and that it looked like the fastest-growing market in Jamshedpur with the highest share of teenagers. Still, Shekhar was against Sakchi because of its "downmarket" image. He wanted to target the college-going crowd, and he expected to find them in Bistupur.

The high real-estate cost in Bistupur, set against his low opinion of the Sakchi market, left Shekhar confused. To think the decision through properly, he decided to drive down the Jamshedpur-Ranchi highway in his newly bought car.

Question: How best should Shekhar resolve his confusion?

• A. By investing in the franchise.
• B. Do not invest in the franchise and look for a different brand name.
• C. Go back to Singapore and start to find the drivers and potential of the business.
• D. Do a further in-depth study to find the drivers and potential of the business.

Hint:

Confusion from missing information is resolved by getting more information, not by guessing or quitting.

Answer 1

The Correct Option is D

Step 1: Understanding the Question:
Shekhar is torn between the high-cost, high-status Bistupur and the cheaper, faster-growing Sakchi, and the question asks how he should resolve this confusion.

Step 2: Key Approach:
Good decision making under uncertainty means gathering the missing facts before committing money, not picking an option on gut feel or abandoning the plan altogether.

Step 3: Detailed Explanation:
At this point Shekhar has only assumptions: that Jamshedpur's footfall will resemble Patna's, that Bistupur's college crowd will actually buy from him, and that Sakchi's "low image" outweighs its faster growth and lower rent. None of these have been tested. He also has real, unresolved cost data (30 to 40 rupees per square foot in Bistupur against 15 to 20 in Sakchi and Sonari) that changes the economics a great deal depending on where he opens. Before locking in Rs. 30 lacs, the sound move is to properly study footfall, spending patterns, and the real growth potential of each locality, rather than trusting an assumption borrowed from a different city. Option A commits money before this study is done. Option B abandons the franchise brand entirely, throwing away a workable opportunity over confusion that better information could resolve. Option C is an overreaction: going back to Singapore does not help him study a market in Jamshedpur.

Step 4: Final Answer:
Shekhar should do a deeper study of the real drivers and potential of the business before deciding.
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