Bain & Company: Case Interview Introduction

Bain & Company: Case Interview

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

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

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

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

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

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

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

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

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

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