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Bain&Company:CaseInterviewIntroduction•Takenotes•Askquestions•Structureyouranalysis•DrivetowardsarecommendationCaseQuestion:EntertainMe•Musicretailer:cassettes,CDs,andvideos•BusinessActivities–Mailorder—recordsandtapes–Wentpublic–Expandedretailstoresto400mall-basedstores–RecentfocusonInternet–Mailorderchannelwasallowedtodie•Issue:DecliningrevenueandmarginsStructureyourapproach•Wrong:Alwaysusethesameframeworkregardlessofthebusinessissue•Better:–Clarifytheprimarybusinessissues–Evaluateoptions•Explorebroaderissuestodetermineifchannelsegmentationisappropriateduringanalysis–Sameproductcompetinginoverallmarket–ChannelsmayhavecostadvantagesFramework•CostofGoodsSold(COGS)–Multi-channelapproachinordertoincreasevolumeanddecreaseunitcosts•Sales,General&Administrative(SG&A)–Retail:salespeople–MailOrder:callcenters–Internet:promotions,ads,programdevelopment–Thesechannelsmaysharegeneraloverhead,butitisimportanttoexplorepointsofdifferentiation:•Activities•Customers•CompetitorsCompetitors&Customers•Onlinecompetitionishighlyfragmented–MailOrder:historicallyhavefocusedonthischannel;nowmovingonline–Retailstores:off-lineconsolidation;movingonline–Internet:ManyInternet-onlyretailers•CustomerdemographicsforvariouschannelsdifferChannels•Retail:Adequate,consistentwithindustrystandards•MailOrder:Mayhavebeenacashcowevenifmarketgrowthwasdeclining•Internet:DriveprofitablegrowthExploreeachchannel’srevenueandmarginsindividuallyStrategicIssues•Levelofdifferentiation–Reputation–Mallstores:easyreturns,advicefromentertainmentassociates•Metrics–Revenue•+10%in1997•+2%in1998•-10%in1999•comparedto50+%marketgrowth•CostPerformance–Structure:Howdoesthisoverallcoststructurecomparetothecoststructurewithineachchannel?•60%COGS•10%distribution•SG&Aup5%overlast2yearsRevenueAnalysis•Declineinprices–Lackofdifferentiation•Easyproductreturnstomallstores•Crosspromotionstocreateloyaltyeffect•Recommendationengines•Declineinvolume–Customerdemographicsforvariouschannels–Keyvolumedrivers•Visitorstothesite•Purchasefrequency•Averagepurchasevolume•Repeatpurchases•ComparetomailorderchannelandonlinecompetitorsRecommendation•Encourageexistingmailordercustomerbasetomoveonline–Directmailtobuildawarenessofthesite–Communicatewithcustomerstomitigateonlinesecurityconcerns•Crosschannelpromotions–Virtualcouponsindirectmailer–Long-termcouponplantobuildrepeatpurchases–Friends&familyprograms•Integrateofflineassets–Easyreturnsatover400storesnationwide–ProfessionaladvicefromentertainmentassociatesLeverageassetsacrossmultiplechannelsRecommendation•Targetnewcustomerswithtrialsandpromotions•Adjustproductlinetofocusonnichemarket•Strategicalternatives–Merger–DivestitureConsideralternatives