Case Analysis: Leadership Online: Barnes & Noble vs. Amazon.Com

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Msc. Management (FT)
Strategic Management (2007)
Assignment
Case Analysis: Leadership Online: Barnes & Noble vs. Amazon.com Answer all three questions. All questions carry equal marks.

Q1. Based on your own experience of traditional bookselling and your exploration of online bookselling, compare willingness-to-pay for books supplied by these two business models. In the US, the traditional bookselling had a market of about 26 million dollars in the year 1996 and had grown to about 33 million dollars in the year 2001. It is growing at the rate of about 4.8 % per annum. An average American citizen buys about 10 books a year in 1996. Book buying usually increases during the weekends and during the fourth quarter of the year. Usually individuals between the ages of 35 to 75, buy books. In the US, more than 50, 000 new titles are published every year. However, people read both old and new releases. When considering traditional bookstalls, it is important to take into consideration the publishers, wholesalers and the retailers. One of the most popular publishers in the US is Simon & Schuster (which hold a 11 % share of the market). In recent years, many of the small publishers have been taken over by the larger ones as they were facing loses and it was increasingly becoming difficult to maintain relationships with writers and retailers. In the traditional system of book vending, the publishers for bulk purchasers offer huge amounts of discounts to retailers and wholesalers. Retailers are offered a discount of about 55 %, whereas wholesalers are offered a margin slightly above that. However, there has been a lot of controversy in this regard, due to apparent favoritism. Hence, many of tee publishers are now made to sign agreements with the retailers and the wholesalers, regarding the amount of discounts that could be offered. In the traditional system, the retailers and the wholesalers can return books to the publisher and they would get a full refund of the money. However, it may be difficult to return the soft copies such as CD’s to get a credit on the amount. The practice of returning the books to the publisher has developed as early as the depression period, in which retailers were guaranteed return of the unsold copies so that only the popular books could be kept on the shelves. The number of return of books is rising gradually, as people want to read the new books and the best sellers. In the year 1986, returns of the books were in the range of 15 to 25 % and in 1996 it rose to 30 %. These books have to be recycled or sold through alternative ways with discounts.

Baker and Taylor were one of the major wholesalers in the US and Ingram Books was another major wholesaler. These wholesalers provided the retailers with discounts and volume-based purchases. They acted as middlemen between the publisher and the retailer. Although, the costs of services were slightly higher, they performed many functions for the convenience of the retailer and the publisher including speedy delivery, after sales services, free-services, cutting the gaps between the manufacturer and retailer, accepting feedback, etc.

Retailers on the other hand have increasingly beginning to gain an important share in the market since the 1970’s. The two largest chain stores in the US included Dalton and Waldenbooks. There were several developments at the retail end of the book stores which really improved production of books and several other aspects including author profiles, wholesales, etc. Supermarkets, malls and libraries began to be developed so that retailing could pick up. One of the largest book chains stores in the US has been Barnes and Noble. It employees about 20, 000 staff and had made sales of about 2.45 million dollars in the year 1996. Barnes and Nobles remained as two separate store chains and were actually combined by Leonard Riggio in the year 1971. The company has several stores in New York,...
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