Questions on Leadership Online (A): Barnes & Noble vs. Amazon.com
- Q1: Summarize Barnes & Noble’s business strategy and business model based on the case descriptions. How have these strategies and business models been evolved since the case was written?
ANS. Barnes and Noble applied a combination of Economies of Scale and Vertical Integration and Monopoly as its Business Strategy in the 90s. They were the dominant sellers of books, CDs, and Videos. Barnes and Noble acquired B. Dalton in 1986 the third-largest bookseller in America.
After acquiring, the chain, B&N started converting its stores to Superstores. It also achieved some of its growth by cannibalizing the sales or growth of smaller mall-based stores. Business Model – B&N superstores relied on destination shopping rather than convenience, to build traffic in their stores. Most Superstores had convenient access to major roads and parking. They tried to replicate the feel of an old-world library in their stores with their fixtures and furnishings and typically offered a cafe as well as ample public space and restrooms.
They encouraged browsing, staged book signing events, and tried to build a sense of community. There was no pressure on consumers to buy any books, but studies suggested that there was a positive relationship between the number of time consumers spent in the stores and the money they spent. The average transaction in the superstore was double the average of mall-based stores. In 1997 Barnes and Noble went in to online booking selling with its subsidiary BarnesandNoble. com and in two years announced the IPO for B&N.com. It was the largest Internet IPO at that time.
Sales for the full year ended December 31, 1999, were approximately $203 million, more than three times 1998 sales of $62 million, and significantly higher than the sales of any other traditional retailer online. Barnes and Noble implemented the strategy of multi-channel access to customers by launching its website. Customers had access to its huge selection of books online and in stores. It leveraged reputation and brand name in the online business. In line with its vertical integration strategy, B&N consolidated its online and retail distribution centers to control its own Supply Chain.
- Q2: Summarize Amazon. om’s business strategy and business model based on the case descriptions. How have these strategies and business models been evolved since the case was written?
ANS. Amazon’s business strategy Business strategies that have helped Amazon. com to enhance its competitive advantage are – Low cost-leadership, Customer differentiation, and Long Tail. The first strategy, cost-leadership is pursued by Amazon. com by differentiating itself primarily on the basis of price. Due to this strategy, Amazon. com always makes sure that it offers the same quality products as other companies for a considerably less price.
Its third strategy is long-tail, Amazon only started the online retail business with books, but now it sells everything from toys to books and is looking in future to sell more and more products. Unlike its competitor Amazon. com didn’t maintain huge inventories of books; it relied on wholesalers to supply books on time. The most obvious benefit of this “just-in-time” procurement system was that it multiplied inventory turns and reduced working capital requirements. Amazon saved money on everything except people and computers. Amazons’ investment in computer technology was focused on software rather than hardware.
In that sense Amazon. com’s business strategy involved maintaining “Unique resources”, its people. Amazon did more than just sell books; It also provided a range of services including information about books: interviews with authors, book reviews and recommendations from other customers and media, links to other sites, new release information, and more.
- Q3: In your opinion, how well did Barnes & Noble counter the moves that Amazon.com had made (up to when the case was written)? How about now? How is Barnes & Noble doing vis-a-vis Amazon.com?
ANS. In my opinion, Barnes and Noble’s counter moves were impressive; they started by announcing plans to become exclusive bookseller on AOL’s marketplace and then to launch their own website. B&N leveraged its brand-name and launched a multi-channel distribution strategy. Later it added book recommendation service to its website and it also offered deep discounts on books to meet Amazon’s low-cost challenge. B&N. com was organized as an entirely different company with a separate CEO to avoid paying taxes on online sales and to create a separate identity in order to attract different types of customers.
Procurement was the activity that was tightly coupled across Barnes and Noble’s traditional and online businesses, most books were centrally purchased by the company’s buyers. B&N’s virtual storefront was graphically richer than Amazon’s; it offered customers 2. 5 million titles and deep discounts off suggested retail price. In addition to selling books on its website, B&N. com offered a range of services, including book-related information, to visitors. Many of these services resembled the ones available at Amazon; B&N broke new grounds with its use of Firefly.
Firefly’s technology allowed B&N to offer “collaborative filtering”, a technology with its roots in computerized dating.
- Q4: Based on the case and your own research, how do you characterize the competition in the bookselling industry in 2000 and 2010? Applying Porter’s Five-Force model, which forces are impacting most on the profitability of firms?
ANS. The competition is clearly being won by Amazon. com, although when we compare financial numbers for the two companies, we are comparing apples to oranges, as Amazon is selling a lot more items then just books, it is called the “Wal-Mart” of online retail.
Amazon. om has relied extremely heavily on information systems to keep track of books, manage suppliers, distribution centers, and keeping track of consumer information. Amazon.com has set up banners on other websites and if they track a sale that was made from that banner, they would give that site 15% of that sale. Barnes and Noble on the other hand have the advantage of multi-channel distribution strategy through their stores and website. B&N operated more than 1000 stores and has 27,000 employees. As soon as a purchase has been made their systems would locate that book closest to the purchaser and proceed to ship.
Their information systems do not seem to be as elaborate and complex as Amazon. Any business that operates through the Internet relies heavily on the Internet; it is their means of reaching their target market. Competition on the net these days is extremely high. Applying Perter’s five-force model
- Bargaining Power of Suppliers is High
- Publishers usually service a number of different stores and have an established customer base. The Threat of New Entrants is High on the online side.
- Infrastructure to set up a new website is not as expensive as setting up a physical store.
- Bargaining Power of Buyers – Number of options available to purchase books. The threat of substitute products or services is High as well.
- People have many alternatives to reading books, going to movies, social events, and just browsing on the Internet. Rivalry among existing competitors is high – This brings down prices and the customer benefits directly.
References
- www.barnesandnobleinc.com
- http://wiki.media-culture.org.au/index.php/Companies_-_Amazon www.answers.com
- www.escholarship.org
