Airgun Products, Inc. (API) is a small firm that sells airguns and related products directly to consumers. From their founding in 1989 through the mid-1990s, they sold their products through a catalog-based phone order sales channel, and in 1995, they introduced their first Web site. Since the introduction of the online channel, they have struggled with how to best utilize their complementary channels and produce a profit. API is in a common retail scenario—a small firm in a niche market with an off-line and online channel with limited monetary and human resources that wishes to effectively use both channels, minimize their costs, increase sales, and become profitable. Their current challenges are to identify which of their customers prefer which channel(market segmentation), identify and take advantage of the relative advantages of their two channels (paper vs. online catalogs), and identify opportunities for enhancing the value provided by their Web site.