Problem Definition
Lumo Lamps is a five-year-old smart-lighting brand based in Austin, Texas. It designs app-controlled table lamps, floor lamps and smart bulbs that work with Matter, Alexa, Google Home and Apple Home. Its hero product, the Lumo Arc table lamp, retails for $89. The company sells exclusively through its own website and reached $18 million in revenue in 2025.
For its first four years Lumo grew by more than 40% a year, almost entirely through paid social media advertising. In 2025 growth slowed to 8%. The cost of acquiring a new customer on social platforms has risen sharply, and the founders believe the website has reached most of the shoppers it can reach at an acceptable cost.
The board has set a goal of $40 million in revenue within three years (by 2028). The founders have hired you to answer one question: Which sales channels beyond its own website should Lumo Lamps open, and in what order, to reach that goal profitably?
Additional InformationAsk for dataInterviewer’s data
If asked, please share that:
- Lumo's landed product cost (manufacturing, freight and duty) for the Arc lamp is $30, and the Arc makes up about 60% of revenue
- Lumo has 140,000 past customers and a 4.6-star average review score on its own site
- The company is profitable but small: EBITDA margin is about 6%, and it has $3 million of cash available for growth investments
- Lumo has no Amazon listing, no retail partners and no B2B sales team today
- The founders care about protecting the brand's premium design positioning
Question 1Structuring
How would you structure your approach to deciding which new channels Lumo should open?
Hint · Structuring
Build 3–4 branches that are specific to this client and question, not a generic framework. Check they don't overlap and together cover the problem.
Additional InformationAsk for dataInterviewer’s data
Share if the candidate asks for market context:
- There are approximately 135 million US households (US Census Bureau, 2025)
- About 13% of US internet households own a smart light bulb and about 6% own a smart lighting control system (Parks Associates)
- About 42% of US internet households own at least one smart home device (Parks Associates)
- E-commerce was approximately 16% of total US retail sales in 2025 (US Census Bureau)
- Published estimates of the US smart lighting market range from about $1.8 billion to about $4.7 billion, with forecast growth of roughly 6% to 15% a year depending on the research firm and how "smart lighting" is defined
Try it first, then checkCheck my answerModel answer
A strong structure compares each channel option on four branches:
1. Size of the prize
- a) How much incremental revenue can the channel deliver by 2028?
- b) How much of that is new demand versus sales taken from Lumo's own website (cannibalisation)?
- c) How big is the gap to $40M after organic website growth?
2. Unit economics
- a) Contribution per unit after channel fees, marketing, fulfilment and product cost
- b) How does that compare with the current website model?
3. Investment and feasibility
- a) Upfront cost (inventory, packaging, sales team, marketing) against the $3M budget
- b) Time to launch and capabilities Lumo lacks today
- c) Working capital needs (retailers pay on terms; Amazon holds inventory)
4. Strategic fit and risk
- a) Brand positioning: will the channel push the price down or place Lumo next to cheaper rivals?
- b) Control of customer data and the customer relationship
- c) Concentration risk (one large retail buyer) and operational risk (returns, chargebacks)
Key sequencing question: which channel should come first, because early success in one channel (for example, strong reviews and sales history) can make the next channel easier to win.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
A good candidate builds a structure around the decision (which channels, in what order), not a generic growth framework. A strong candidate recognises that each channel must be judged on the same criteria so the options can be compared, and that the $40M target gives a concrete test: does a combination of channels close the gap? An excellent candidate asks about the size of the revenue gap early and notices that most shopping still happens offline (e-commerce is only about one-sixth of US retail).
If the candidate jumps straight to "go on Amazon", ask: "How would you know whether Amazon alone gets Lumo to $40M?"
If the candidate asks why market estimates vary so much, reward it: different firms include or exclude commercial lighting, fixtures versus bulbs, and hardware versus software. A candidate who says "I would not rely on a single top-down number; I would size our own addressable demand" is showing good judgement.
So What? cascade:
- Level 1: there are several possible channels (Amazon, big-box retail, B2B, international)
- Level 2: each channel has a different mix of volume, margin, investment and brand risk, so they must be compared on the same criteria
- Level 3: the $40M target is a hard constraint. The question is not "which channel is best?" but "which combination closes the gap to $40M (about $22M from today's $18M, or about $17M after organic website growth) within Lumo's $3M budget?"
Question 2Numeracy
The founders want to start by comparing the economics of one Arc lamp sold on the website versus on Amazon, and versus selling it wholesale to a big-box retailer. Using Exhibit 1, calculate the contribution per lamp in each channel.
Hint · Numeracy
Write the formula before you plug in numbers, keep units and zeros explicit, and sanity-check the order of magnitude at the end.
Exhibit 1Per-Unit Economics of the Lumo Arc Lamp by Channel
| Item | Own website (DTC) | Amazon (Fulfilled by Amazon) | Big-box retailer (wholesale) |
|---|---|---|---|
| Shelf / selling price | $89.00 | $89.00 (price parity with website) | $89.00 retail; Lumo sells at 50% of retail |
| Landed product cost | $30.00 | $30.00 | $30.00 |
| Payment processing | 3% of price | Included in Amazon fees | Not applicable |
| Marketplace referral fee | None | 15% of price | None |
| Fulfilment | $11.00 pick, pack and ship | $8.00 FBA fee (Lumo quote, incl. fuel surcharge) + $2.00 inbound freight | $2.00 freight to retailer's distribution centre |
| Marketing | 60% of orders come from new customers; paid-social cost per new customer $45 | Amazon advertising at 12% of price | Co-op marketing and returns allowance at 8% of wholesale price |
Source: Lumo Lamps finance team. Amazon's published referral fee for Home & Kitchen and Tools & Home Improvement is 15%, and FBA fees carry a 3.5% fuel and logistics surcharge from April 2026.
Source: Lumo Lamps case file
Try it first, then checkCheck my answerModel answer
Step 1: Website (DTC)
| Line | Calculation | Per lamp |
|---|---|---|
| Price | $89.00 | |
| Product cost | -$30.00 | |
| Payment processing | 3% x $89 | -$2.67 |
| Pick, pack and ship | -$11.00 | |
| Marketing | 60% x $45 | -$27.00 |
| Contribution | $18.33 (20.6% of price) |
Step 2: Amazon (FBA)
| Line | Calculation | Per lamp |
|---|---|---|
| Price | $89.00 | |
| Product cost | -$30.00 | |
| Referral fee | 15% x $89 | -$13.35 |
| FBA fee + inbound freight | $8.00 + $2.00 | -$10.00 |
| Amazon advertising | 12% x $89 | -$10.68 |
| Contribution | $24.97 (28.1% of price) |
Step 3: Big-box retail (wholesale)
| Line | Calculation | Per lamp |
|---|---|---|
| Wholesale price | 50% x $89 | $44.50 |
| Product cost | -$30.00 | |
| Freight to retailer | -$2.00 | |
| Co-op marketing and returns | 8% x $44.50 | -$3.56 |
| Contribution | $8.94 (20.1% of wholesale price) |
Summary
| Channel | Contribution per lamp | Contribution margin |
|---|---|---|
| Amazon | $24.97 | 28.1% of price |
| Website | $18.33 | 20.6% of price |
| Big-box retail | $8.94 | 20.1% of wholesale price |
Key insight: Amazon earns about $6.60 more per lamp than Lumo's own website ($24.97 - $18.33 = $6.64). Amazon fees total $34.03 per lamp ($13.35 + $10.00 + $10.68), while the website's non-product costs total $40.67 ($2.67 + $11.00 + $27.00). The expensive part of the website model is not shipping but customer acquisition.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
The candidate should set up one clean table and work line by line. The two traps are: (1) forgetting that only 60% of website orders carry the $45 acquisition cost, so the blended marketing cost is $27 per order, not $45; and (2) calculating the retail percentage on the $89 shelf price instead of the $44.50 Lumo actually receives.
A strong candidate will notice the counter-intuitive result: Amazon's fees look expensive, yet Amazon earns more per lamp than Lumo's own website because the website's customer acquisition cost is so high. An excellent candidate will add that Amazon also cannibalises some website sales, which the per-unit view hides.
If the candidate is stuck on the retail column, prompt: "What price does Lumo actually receive from the retailer?"
So What? cascade:
- Level 1: Amazon contribution is about $25 per lamp, website about $18, retail about $9
- Level 2: the website is not the most profitable channel. Paid social has become so expensive that Amazon's 15% fee plus ads is cheaper than finding customers on social media
- Level 3: retail earns half the contribution per lamp but can deliver volume that no online channel can, so the right comparison is total contribution (units x margin), not margin per unit
Question 3Judgement & Insights
The team has estimated what each channel option could deliver by 2028 (Exhibit 2). Exhibit 3 shows the competitive price landscape. Which channels should Lumo pursue to reach $40M, and which should it drop?
Hint · Judgement & Insights
Read the exhibit title, axes and units first. Lead with the ‘so what’, then back it with one or two numbers.
Exhibit 2Channel Options, Estimated Position in 2028
| Channel | Incremental revenue in 2028 | Contribution margin | Upfront investment | Time to launch | Main risks |
|---|---|---|---|---|---|
| Amazon marketplace | $9M (of which 20% is taken from Lumo's website) | 28% | $0.4M | 3 months | Price erosion from resellers, review management |
| Big-box retail (800 stores) | $12M (at wholesale prices) | 20% | $1.5M | 9-12 months | One buyer controls the account, markdowns, returns |
| B2B (boutique hotels, apartment developers) | $3M | 35% | $0.6M | 12 months | Long sales cycles, needs a new sales team |
| International DTC (Canada, UK) | $4M | 15% | $1.0M | 6-9 months | Product certification, VAT and duties, new ad markets |
Source: Lumo Lamps strategy team estimates. Investments are one-off; margins are before fixed overheads.
Source: Lumo Lamps case file
Exhibit 3Smart Lighting Price Points in the US
| Product | Type | List price | Price per bulb or unit |
|---|---|---|---|
| Philips Hue White and Color Ambiance 75W A19 (single) | Premium smart bulb | approximately $60 | approximately $60 |
| Philips Hue White and Color Ambiance Essential A19 (4-pack) | Premium brand, entry-level bulb | approximately $60 | approximately $15 |
| Govee smart bulbs (4-pack) | Value smart bulb | approximately $40 (often discounted to about $30) | approximately $8-10 |
| Lumo smart bulb (2-pack) | Lumo | $39 | $19.50 |
| Lumo Arc table lamp | Lumo design lamp | $89 | $89 |
Source: Philips Hue US online store and published retail listings for Govee, 2026; Lumo price list.
Source: Lumo Lamps case file
Additional InformationAsk for dataInterviewer’s data
- Share Exhibit 2 and Exhibit 3
- If asked: organic website revenue is expected to keep growing at about 8% a year without new channels
- If asked: the big-box retailer in discussion has about 800 US stores and would place Lumo in its smart-home aisle next to Philips Hue and Govee
Try it first, then checkCheck my answerModel answer
Step 1: Size the gap
- Organic website revenue in 2028: $18M x 1.08^3 = $18M x 1.26 = approximately $22.7M
- Gap to $40M: $40M - $22.7M = approximately $17.3M of new-channel revenue needed
Step 2: Evaluate each channel on total contribution, not per-unit margin
| Channel | Net new revenue | Annual contribution | Investment | Payback |
|---|---|---|---|---|
| Amazon | $9M - 20% cannibalised = $7.2M | $9M x 28% = $2.52M, minus lost website contribution of $1.8M x 20.6% = $0.37M, so about $2.15M | $0.4M | about 2 months |
| Big-box retail | $12M | $12M x 20% = $2.4M | $1.5M | about 7-8 months |
| B2B | $3M | $3M x 35% = $1.05M | $0.6M | about 7 months |
| International DTC | $4M | $4M x 15% = $0.6M | $1.0M | about 20 months |
Step 3: Test combinations against the $17.3M gap
| Combination | Net new revenue | Reaches $17.3M? | Investment |
|---|---|---|---|
| Amazon + B2B + International | $7.2M + $3M + $4M = $14.2M | No (2028 revenue about $36.9M) | $2.0M |
| Amazon + Big-box retail | $7.2M + $12M = $19.2M | Yes (2028 revenue about $41.9M) | $1.9M |
Recommendation: pursue Amazon first, then big-box retail. Together they close the gap with about $2M of headroom and cost $1.9M, leaving about $1.1M of the $3M budget as a buffer or to start B2B later. Drop international for now: it has the lowest margin and slowest payback.
Insight from Exhibit 3: in retail, Lumo should lead with the Arc lamp and other design lamps. Lumo's bulbs at about $19.50 each cost more than Hue's entry-level Essential bulbs (about $15 each in a 4-pack) and about twice as much as Govee (about $8-10), without Hue's brand strength, so they have no clear reason to win shelf space. The lamp has no like-for-like competitor on the shelf.
What the interviewer is looking forInterviewer’s viewInterviewer’s view
The candidate should first calculate the gap, then test combinations of channels against it. The key insight is that the two online-only options cannot close the gap on their own; retail is required, even though its per-unit margin is the lowest. A second insight comes from Exhibit 3: Lumo's bulbs cost more per bulb than Hue's own entry-level Essential bulbs and about twice as much as Govee, so they will be hard to sell on a shelf next to those brands, but the Arc lamp is a design product with no direct equivalent, so retail should lead with lamps, not bulbs.
Push the candidate if they recommend "all four channels": "Lumo has $3M. What does your plan cost?"
So What? cascade:
- Level 1: Amazon has the best margin and fastest launch; retail has the largest revenue
- Level 2: after organic growth and cannibalisation, only a plan that includes retail reaches $40M
- Level 3: Amazon should go first because it is fast, cheap and builds the reviews and sales history that the retail buyer will ask for; B2B and international can wait
Question 4Synthesis
The CEO walks in and asks for your recommendation in one minute. What do you tell her?
Hint · Synthesis
Answer first: the recommendation, two or three reasons with numbers, then risks and next steps.
Try it first, then checkCheck my answerModel answer
Recommendation: Lumo should reach $40M by opening Amazon now and big-box retail within 12 months, while keeping the website as its brand and loyalty hub.
Why:
- The website alone will not get there. At 8% growth it reaches only about $22.7M by 2028, leaving a gap of about $17.3M.
- Amazon is the fastest and most profitable step. It earns about $25 per Arc lamp versus about $18 on the website, because Amazon's fees ($34) cost less than Lumo's current acquisition and shipping costs ($41). It launches in about 3 months for $0.4M.
- Retail is needed for scale. Retail earns only about $9 per lamp, but it adds about $12M of revenue. Amazon plus retail delivers about $19.2M of net new revenue, taking Lumo to about $41.9M, for a total investment of about $1.9M.
Risks and mitigations:
- Price erosion on Amazon: enforce price parity at $89, register the brand to control listings, and limit third-party resellers
- Retail concentration and markdowns: lead with the Arc lamp (where Lumo is differentiated), negotiate a capped returns allowance, and start with a test in a subset of stores
- Cannibalisation of the website: use website-only bundles and loyalty perks for the 140,000 past customers
Next steps:
- Launch on Amazon with the Arc lamp and bulbs within 90 days
- Set a gate: at least 1,000 reviews at 4.5 stars or higher and a steady sales rate before signing the retail deal
- Shift part of the paid-social budget from acquisition to retention and email once Amazon becomes the main acquisition channel
What the interviewer is looking forInterviewer’s viewInterviewer’s view
Look for an answer-first summary with numbers, a clear sequence, and specific risks with mitigations. A strong candidate states the counter-intuitive finding (Amazon is more profitable per lamp than the website). An excellent candidate proposes a milestone that must be met before committing to retail.
So What? cascade:
- Level 1: go on Amazon and into retail
- Level 2: the sequence matters; Amazon funds and de-risks the retail launch
- Level 3: the website's role changes from "the only store" to "the brand home and loyalty engine", so paid-social spend should shift towards retention
Data Sources
Company figures for Lumo Lamps are fictional. Market facts come from the public sources below; figures are rounded for interview math.
- US households approximately 135 million (134.8 million in 2025) -> U.S. Census Bureau via FRED (Federal Reserve Bank of St. Louis), "Total Households (TTLHH)", 2025, https://fred.stlouisfed.org/series/TTLHH
- 13% of US internet households own a smart light bulb; 6% own a smart lighting control system -> Parks Associates, "13% of US internet households have a smart light bulb and 6% have a smart lighting control system", 2023, https://www.parksassociates.com/blogs/press-releases/13-of-us-internet-households-have-a-smart-light-bulb-and-6-have-a-smart-lighting-control-system
- 42% of US internet households own at least one smart home device -> Parks Associates (PR Newswire), "42% of US Internet Households Own a Smart Home Device", 2023, https://www.prnewswire.com/news-releases/parks-associates-42-of-us-internet-households-own-a-smart-home-device-302006129.html
- US smart lighting market approximately $1.8 billion in 2025, about 6% CAGR 2025-2030 -> MarketsandMarkets, "US Smart Lighting Market", 2025, https://www.marketsandmarkets.com/Market-Reports/geography/smart-lighting-market/US
- US smart lighting market approximately $4.7 billion in 2024, about 15% CAGR 2025-2033 -> IMARC Group, "United States Smart Lighting Market Report 2025-2033", 2025, https://www.imarcgroup.com/united-states-smart-lighting-market
- E-commerce approximately 16% (16.4%) of total US retail sales in 2025 -> U.S. Census Bureau, "Quarterly Retail E-Commerce Sales, 4th Quarter 2025", 2026, https://www2.census.gov/retail/releases/historical/ecomm/25q4.pdf
- Amazon approximately 40% of US e-commerce sales in 2025 (context for the channel discussion) -> eMarketer, "Amazon will surpass 40% of US ecommerce sales this year", 2025, https://www.emarketer.com/content/amazon-will-surpass-40-of-us-ecommerce-sales-this-year
- Amazon referral fee 15% for Home & Kitchen and Tools & Home Improvement; Professional plan $39.99 per month -> Amazon, "Selling on Amazon: Fees and pricing", 2026, https://sell.amazon.com/pricing
- 3.5% fuel and logistics surcharge on FBA fulfilment fees from April 17, 2026 -> AMZ Prep, "Amazon FBA Fees 2026: Full Breakdown + April 17 Surcharge Update", 2026, https://amzprep.com/amazon-fba-fees/
- Philips Hue White and Color Ambiance 75W A19 bulb approximately $60; White and Color Ambiance Essential A19 4-pack approximately $60 (single Essential bulb approximately $25) -> Philips Hue US online store, product pages, 2026, https://www.philips-hue.com/en-us/p/hue-white-and-color-ambiance-essential-a19-e26-smart-bulb-800-lm-88w-4-pack/046677592592
- Govee smart bulb 4-pack approximately $40 list, about $30 on discount -> Gizmodo, "Govee Smart LED Bulbs (4-Pack) Drop to Record Low", 2025, https://gizmodo.com/govee-smart-led-bulbs-4-pack-drop-to-record-low-and-each-costs-less-than-10-work-with-alexa-and-google-assistant-2000707895
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