Catalogue Companies Set the Standard in Managing On- and Offline Channels for Customer Value.

Business Editors

BOSTON & CAMBRIDGE, Mass.--(BUSINESS WIRE)--July 5, 2000

Bain & Company, Mainspring find the top four catalogue companies

have twenty-times more transactions per day than the top four online

pure plays

Many established retailers - companies with valuable assets such as brand equity, physical stores and efficient distribution systems - are still struggling to get their channel strategy right. A study released today by Bain & Company and Mainspring identifies key pitfalls traditional retailers face in managing on- and offline channels and highlights the success of catalogue companies in achieving channel confluence. The study notes that the top four catalogue companies have twenty times more transactions per day than the top four online pure plays. For example, JC Penney, the largest catalogue company in terms of transactions, has 457,000 transactions per day compared to Amazon.com with 25,316 transactions per day.

At least three factors support their success. First of all, they embrace cannibalization, managing the launch of new channels and their impact on the old for maximum overall revenue; second, they integrate their offering, instead of defaulting to a spin-off for online operations; and finally, they do not fight fire with fire - copycatting offerings of pure plays. Rather they fight fire with water: they use their unique assets to create unique value.

"Today, one of the most tragic errors in judgment an established retailer can make is to fight pure-play e-tailers on their own terms - which typically means lowest price," said Randall Hancock, senior vice president, Mainspring. "For most established retailers, the strategic way to compete is with a solid multi-channel business that leverages the company's existing assets."

The volatile consumer market has already forced several pure-play retailers out of the game, and bricks-and-mortar players have several potential advantages over pure plays, including deep customer knowledge and purchasing power. Given these strengths, retailers have the opportunity to force remaining online competitors to play on their turf. For many, this means using their assets to build a strong organization that is able to deliver a seamless offering across multiple channels, and build loyal customer relationships. "Unfortunately," says Hancock, "many retailers have been slowed to inaction by fear of cannibalizing their existing business. If approached correctly, many of these fears can be overcome. The real opportunity is to transform physical assets into an advantage."

"Established retailers have the capacity to build strong multi-channel organizations," said Darrell Rigby, a director at Bain & Company. "They must face cannibalization and act, and not be tempted into creating spin-offs by potential market valuations without a coherent channel strategy. Moreover, most retailers have been mesmerized by pure plays into believing there is only one way to compete - on price. Retailers should use all assets, including customers and their physical stores."

According to the study, for traditional retailers to truly embrace and thrive in a multi-channel commerce environment, they must face several realities in order to position themselves for long-term success:

-- Cannibalization is not the problem, it's the solution: Assess

your online competition carefully - if it's economically

viable, don't let fear of cannibalization prevent you from

exploiting a channel your customers want to use. Instead, bet

that you will lose those customers to competitors who want to

cannibalize your business for you if you don't do it first

yourself. Don't mourn the loss of store traffic; rather focus

on ways to grow revenues across all your channels.

-- Spin-offs are not always the right answer--Off-line assets are

critical: Don't lessen your ability to gain synergies across

channels by rushing to create separate online operations.

Instead, examine how you can use your assets to create a

seamless offering that pure plays can't touch. Spin-offs do

make sense in some cases. For example, if your off-line model

is becoming obsolete, or your target online customers belong

to your current channel partners, you may need to distance

your Internet offerings from your existing business. Or if

your Internet business is only loosely related to your core

business, a spin-off may be appropriate.

-- Don't fight fire with fire: Bricks-and-mortar retailers should

not try to fight fire with fire. By launching copycat

offerings, traditional retailers simply can't compete

profitably with pure plays that have spent millions to acquire

customers and compete on price online because they have no

other differentiation. Established retailers should view the

Internet as a tool to deliver value to customers in the long

term, challenging themselves to use the Internet to re-define

their offers and leverage assets the competitors don't have.

-- Don't let the technology supercede you: If you are creating a

strategy for a dial-up distribution channel, you are too late.

Broadband and wireless technologies are already removing

channel barriers, and TV-based Internet access will

revolutionize the Internet channel once again. Ask what these

innovations could do you for your customers, and plan ahead.

The findings of this channel conflict study are based on a series of detailed segmentation and competitive analysis studies developed jointly by Bain and Mainspring.

About Bain & Company, Inc.

Bain & Company is one of the world's leading global management consulting firms, serving clients across six continents. With headquarters in Boston and offices in all major cities throughout the world, Bain has worked with over 1,500 major multinational and other corporations from every economic sector, in every region of the world. bainlab, Bain's Internet business incubator, brings Bain's intellectual property, execution capability and network of contacts to identifying and building Internet businesses. For more information, visit www.bain.com, www.bainlab.com.

About Mainspring

Mainspring is a strategy consulting firm that focuses exclusively on developing actionable Internet strategies primarily for Fortune 1000 companies. Mainspring works with clients to develop eStrategies that are designed to enable them to protect, evolve and transform their businesses in the new Internet economy. The Company provides three integrated service offerings: eStrategy Consulting, eStrategy Direct and the eStrategy Executive Council. Mainspring is organized into four vertical market practice areas: financial services; retail and consumer goods; technology, communications and media; and manufacturing. Mainspring is currently working with approximately 40 Fortune 1000 companies.