1. Bain & Company: Case Interview

2. Introduction Take notes Ask questions Structure your analysis Drive towards a recommendation

3. Case Question: Entertain Me Music retailer: cassettes, CDs, and videos Business Activities –Mail order—records and tapes –Went public –Expanded retail stores to 400 mall-based stores –Recent focus on Internet –Mail order channel was allowed to die Issue: Declining revenue and margins

4. Structure your approach Wrong: Always use the same framework regardless of the business issue Better: –Clarify the primary business issues –Evaluate options Explore broader issues to determine if channel segmentation is appropriate during analysis –Same product competing in overall market –Channels may have cost advantages

5. Framework Cost of Goods Sold (COGS) –Multi-channel approach in order to increase volume and decrease unit costs Sales, General & Administrative (SG&A) –Retail: sales people –Mail Order: call centers –Internet: promotions, ads, program development –These channels may share general overhead, but it is important to explore points of differentiation: Activities Customers Competitors

6. Competitors & Customers Online competition is highly fragmented –Mail Order: historically have focused on this channel; now moving online –Retail stores: off-line consolidation; moving online –Internet: Many Internet-only retailers Customer demographics for various channels differ

7. Channels Retail: Adequate, consistent with industry standards Mail Order: May have been a cash cow even if market growth was declining Internet: Drive profitable growth Explore each channel’s revenue and margins individually

8. Strategic Issues Level of differentiation –Reputation –Mall stores: easy returns, advice from entertainment associates Metrics –Revenue +10% in 1997 +2% in 1998 - 10% in 1999 compared to 50+% market growth Cost Performance –Structure: How does this overall cost structure compare to the cost structure within each channel? 60% COGS 10% distribution SG&A up 5% over last 2 years

9. Revenue Analysis Decline in prices –Lack of differentiation Easy product returns to mall stores Cross promotions to create loyalty effect Recommendation engines Decline in volume –Customer demographics for various channels –Key volume drivers Visitors to the site Purchase frequency Average purchase volume Repeat purchases Compare to mail order channel and online competitors

10. Recommendation Encourage existing mail order customer base to move online –Direct mail to build awareness of the site –Communicate with customers to mitigate online security concerns Cross channel promotions –Virtual coupons in direct mailer –Long-term coupon plan to build repeat purchases –Friends & family programs Integrate offline assets –Easy returns at over 400 stores nationwide –Professional advice from entertainment associates Leverage assets across multiple channels

11. Recommendation Target new customers with trials and promotions Adjust product line to focus on niche market Strategic alternatives –Merger –Divestiture Consider alternatives