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Strategy Field Project_MBA
- 1. Kobo Strategic Analysis 13 Apr 2018 Ajeeth Gajendran Ravitej Laxman Sankarsan Ghosal Sarita Mishra Samir Mohanty Syeda Shahbazi
- 2. Stagnation of e-book sales in certain markets Lack of Differentiation Profitability Decline Strategic Issues Loss of market share owing to increased competition Continuous Impairment
- 3. Problem Statement xx “In the face of growing threats from competitors, what should Kobo do to grow and remain in the forefront of delivering digital contents?”
- 4. Inimitable Strategy Profitability Customer Acquisition Costs Global Impact Evaluation Criteria for Alternatives
- 5. Leverage Rakuten Leverage Rakuten Exclusive Content Subscription Box Subscription Box Translation Translation Exclusive Content Generation of Alternatives Based on Kobo’s Strengths
- 6. Inimitable Strategy (25%) Global Impact (40%) Weighing Alternatives As Per Evaluation Criteria Profitability (15%) Customer Acquisition Costs (20%) Leverage Rakuten Exclusive Content Subscription Box Leverage Rakuten Translations Leverage Rakuten Exclusive Content Translations Leverage Rakuten Subscription Box
- 7. Criteria(weightage) Leverage Rakuten Translations Exclusive Content Subscription Box Global Impact(40%) 35 15 30 30 Customer Acquisition Costs(20%) 15 20 5 5 Inimitable Strategy(25%) 25 25 20 5 Profitability(15%) 10 5 5 10 Total Score 85 65 60 50 Final Scoring Matrix
- 9. Kobo – Rakuten : Year One EBITDA Kobo - $4.32 M Profits for Kobo - $3.03 M Addl Revenue - $16.56 M Addl Customers - 1.73 M EBITDA Kobo - $3.2 M Profits for Kobo - $2.64 M Addl Revenue - $9.3 M Addl Customers - 0.72 M EBITDA Kobo - $3.25 M Profits for Kobo - $2.93 M Addl Revenue - $8.75 M Addl Customers - 0.75 M EBITDA Kobo - $1.14 M Profits for Kobo - $0.80 M Addl Revenue - $1.32 M Addl Customers - 0.116 M
- 12. Global Impact of the Strategy Only Kobo Kobo & Other Rakuten brands Other Rakuten brands 7
- 13. Exploit the services of a global online shopping cart Entry into Indonesia and South Korea Shared profits with Rakuten Expansion of Kobo e- books into Asia Pacific Enhanced brand recognition in e- book sales Product diversity in e- commerce Shared profits with Kobo Expansion of customer base and revenues in the European market Kobo – Global Market Symbiosis
- 14. Can exploit Rakuten’s popularity in Japan for its e-books Potential to sell e-books while redeeming points 60% reduction in costs to acquire customers Potential to add 1.1 million customers Can benefit from Kobo’s presence in Europe Differentiation in the facilities offered Shared profits with Kobo Expansion of customer base into Europe Kobo – Travel Symbiosis
- 15. Kobo e-books promoted through Overdrive will boost Kobo sales Attract indie authors by incentivizing them with Overdrive for research Leverage the customer reach of Overdrive in USA Make Kobo books accessible to Overdrive customers Obtain content from self-publishing authors of Kobo for its readers Kobo – Overdrive Symbiosis
- 16. Increase in customer base especially in Asian countries Bottomline growth Enhancement of brand name view association with Kobo Shared profits with Kobo Cross-selling opportunities Kobo – Viki Symbiosis
- 17. • Kobo and Overdrive earn an additional 750,000 customers • Kobo can capitalize on Overdrive’s presence to make ingress into USA • Kobo earns $2.93M profit with 50% as Overdrive’s share for offering services • Kobo and Travel can earn potential 1.1M customers • Opportunity to cross- establish presence in Asia Pacific and North America • Kobo earns $2.64M profit of which 20% is Travel’s share for services offered • Kobo and Viki earn an extra 116,000 customers • Kobo gets an opportunity to establish presence in USA & Asia Pacific. Viki can expand its customer base into Europe • Kobo has $800,000 profit with 20% as Viki’s share • Kobo and Global Market earn an additional 1.73M customers • Both get an opportunity to establish presence in each other’s geography • Kobo earns $3.03M profit with 30% as Global Market’s share Triple Bottom Line Fusion Benefits
- 18. Implementation Plan – Global Market Aug 2018 Oct 2018 Mar 2019 May 2019 June 2019 Promotion Social Media Promotional campaign on Facebook Integrate Systems Develop IT systems Divert users to Kobo website for purchases Troubleshooting Resolve problems in website downtime Ensure zero defect while transferring customers to Kobo website Monitor Service expected to be fully functional Jun 2018 Contract Signing Kobo and Rakuten to initiate contract Terms & Conditions Data Sharing Share e-book data with Global Market Develop web pages
- 19. Inadequate resources Priority Procurement Plan, Reduce or revise project scope Technical challenges in IT infrastructure integration Checks & Balances, Trials in low impact environment, Go Live procedure Demographic milestones do not match with projections Re-prioritize order of strategy implementation Market Sizing based on assumptions Hedging, ERV forecast, monitor inflationary trends Geographic Expansion – Regulatory Laws Geo-political study Royalty Disputes Terms and Conditions of contract Risk Assessment And Mitigation Risk Risk Mitigation
- 20. Implementation Timeline Jun ‘19 Jun ‘18 Jun ‘20 Jan ‘21 Jun ‘22 Global Market Overdrive Travel Viki In progress
- 21. Questions?
- 22. APPENDICES
- 23. This slide should contain the WBS made by Ravitej for the Global Market Implementation Plan (remove the one made by me which is there in the next slide – it is not the relevant one)
- 24. RAKUTEN GLOBAL MARKET - WBS FOR IMPLEMENTATION PLAN M (JUNE 2018) M + 1 M + 2 M + 3 M + 5 M + 6 CONTRACT SIGNING ONLINE ADVERTISEMENT PROMOTION CAMPAIGN WEBSITE ACCESS TROUBLESHOOTING MONITOR AND IMPLEMENT TERMS & CONDITIONS YOU TUBE TRADE FAIRS SHOPPING ONLINE FAULT DETECTION CHECKS AND BALANCES KWL and RGM agreement Check connectivity Promotion events Click on link Access Times Check functionality status Royalty terms and condns Digital ad team to prepare ad Exhibitions Register first time Product traceability Check connectivity speed Revenue sharing method Link for You tube videos Appoint a PRO for public liaison Sign in as registered user Bandwidth utilization Check access time to site Ichiba Facilities Give wide coverage to events Follow instructions online Connectivity speed Check for stable operation E-book conversion costs RAKUTEN WEBSITE Book events at appropriate venues Select / De-select Ichiba Site availability Check for customer reviews Publisher Profit retention Provide a link Browse through products Downtime issues Monitor execution periodically Advertise Kobo's e-books LOCAL TV CHANNELS Choose e-book/audiobook LIQUIDATED DAMAGES Digital ad team to prepare ad Book air space on top channels Add to shopping cart FAULT LOCALISATION Breach of Contract Attractive gift offers Publicise RGM through commercials Pay through card Have a complaint site Defaulting on payment Celebrity endorsements Access link to e-book content Examine customer feedback Delay in revenue SEM / SEO Assess principal defect Penalty to be imposed Pay per click PRESS RELEASE PROVIDING SERVICES Technicians to resolve issue Search engine optimization Correspond with Press IT Team to liaise with Sales Build up a complaint log PREMATURE TERMINATION Website conversion Highlight online sales Provide access to link on site Special conditions Give press interviews Carry out trial-close Unavoidable losses SOCIAL MEDIA WEBSITE Publish news article on RGM Check for connectivity issues No-Go situation reached Instagram Liaise with leading newspapers Check connectivity speed Targets not being achieved Twitter Super Points Program Customer Protection Program Go Live WORK BREAKDOWN STRUCTURE – GLOBAL MARKET
- 25. EXPECTED REVENUE AND CUSTOMERS 16
- 26. IMPLEMENTATION PLAN - TRAVEL Aug 2019 Dec 2019 March 2020 April 2020 May 2020 Promotional Campaign Social Media - Facebook Website Access Add eBook as part of the free facilities in Travel website Troubleshooting Resolve problems in accepting promotion codes and giving $10 credit Monitor Service expected to be fully functional Jun 2019 Contract Signing Kobo and Rakuten Travel Integrate systems Develop technology to accept promotion code from Travel users 17
- 27. IMPLEMENTATION PLAN - VIKI Aug 2020 Jan 2021 March 2021 Customer Segmentation Based of movie preferences target e-book market is identified Promotional Campaign/ Go Live Troubleshooting Customer service team of kobo will handle customer complaints, if any Monitor Continuously monitor the campaign effectiveness Jun 2020 Collaboration Management team of Kobo and Viki Technical Kobo will work with Viki’s IT team to prepare for promotions Oct 2020 18
- 28. IMPLEMENTATION - OVERDRIVE July 2019 Aug 2020 Monitor Close monitoring system to keep track of authors’ books sold Jun 2018 Contract Signing Kobo and Rakuten Overdrive Spread the word Kobo will create awareness of Overdrive service benefits to self-publishing authors Enhance Content Overdrive will give access to Next Generation enhancements to the authors for better content Ongoing 19
- 31. GLOBAL MARKET FACEBOOK AUDIENCE 22
- 33. 0 5 10 15 20 25 30 35 40 45 50 2012 2014 2015 2018 2019 2020 2022 Revenue Years Revenue in million Revenue in million Log. (Revenue in million) KOBO – CURRENT STATE Revenue grew at 114% between 2012 to 2015 Revenue stagnated and grew at a marginal rate of 8% between 2015 to 2018 24
- 34. 12% 4.20% 0.30% 1.90% 2.10% 79.60% US market Share (2017) Apple B&N Nook Kobo Google Other Amazon Market Amazon Kobo Size USA 79.6% 0.3% 3177M UK 82.8% 2.2% 405M Canada 52% 27% 136M Australia 60% 2% 126M Market Share Amazon vs Kobo Company 5 country market share Amazon 82% Apple iBooks 10% Kobo 2% B&N Nook 3% 5 country Market Share COMPETITORS’ MARKET SHARE 25
- 35. Amazon 91% Apple 6% Nook 2% Kobo 1% Indie Self Published Amazon 85% Apple 11% Nook 2% Kobo 2% Small Medium Publisher Amazon 70% Apple 20% Nook 7% Kobo 3% Big 5 Published Amazon 87% Apple 9% Nook 2% Kobo 2% Uncategroized Authors COMPETITORS’ MARKET SHARE IN PUBLISHING MEDIUM 26
Editor's Notes
- To begin with, what are the strategic issues that ail Kobo ? What are the core strategic problems staring the company in the face today ? We were able to identify two main issues namely stagnation of e-book sales and loss of market share due to increased competition. Diversion of modern day consumers to other forms of leisure such as Netflix, movies, internet surfing, web browsing, mobile applications, and video games has resulted in e-book sales plateauing in recent years in certain markets like Canada, Mexico, Germany, France, and South Africa. This has resulted in declining profitability in sales, which is evident in the not so encouraging net profit margins of Kobo. The stagnation of e-book sales has had a cascading effect on Kobo’s fortunes, wherein in 2015, its parent company Rakuten reported an impairment loss of $80 million due to Kobo’s finance division. The loss of market share is a strategic issue emanating as a result of disruptive methodologies adopted in the e-book industry by companies like Amazon who are fast eating into Kobo’s market share by resorting to predatory pricing, draconian price matching, and exclusivity contracts with e-publishers and authors. This has resulted in a total lack of differentiation value for Kobo, who has nothing unique to showcase at the moment in order to steal back market share from Amazon.
- Therefore, Kobo faces the ultimate truth – if it is not able to turn the tide in the face of growing threats from competitors by creating unique value proposition for itself as well as its customers in the e-book industry, it could be the end of the road for the digital content distributor. In less than 5 years, we feel that the company will either be shunted out of the market or be taken over by a bigger firm.
- Therefore, it is imperative that the company generates alternatives that could be the starting point for identifying the panacea to its bag of problems. In this regard, we identified four major evaluation criteria on the basis of which alternatives worthwhile to Kobo’s cause could be generated. These were: having a strategy that cannot be replicated, embarking on a strategy that would be profitable to business, adopting a strategy that would have a global impact, and following a strategy in which the costs to acquire customers would not be high. These evaluation criteria were considered relevant to Kobo’s strategic issues as well as the consequences arising out of those issues (explained in the first slide). Therefore, alternatives that arose out of these evaluation criteria would address Kobo’s strategic problem.
- Notwithstanding the evaluation criteria, the 601 team also considered evaluation of Kobo’s strengths for generation of the alternatives as pivotal to the process. This is because although Kobo does not have any differentiation status at present, it has certain unique strengths, which if channelized correctly, could create differentiation value. Therefore, the 601 team generated possible strategies that the company could embark on, based on its plus points and core competencies. It is pertinent to mention that a particular strategy could be applicable for more than one strength, as is evident from the slide. For example, Kobo could implement the subscription box model as a strategy not only because of its excellent partnerships with local publishers, but also because of its strong and established presence in non-English speaking countries.
- Having generated the alternatives, it was necessary to weigh them as per the evaluation criteria, to determine the chosen one. Prior to that, the team internally brainstormed on the weighted average that should be assigned to each criteria, depending on its relative importance. Through brainstorming and internal consensus, the team decided that global impact and inimitability were the most important criteria in a strategy because a strategy which scored high on these two counts would definitely stand a better chance of reversing Kobo’ fortunes than any other strategy would. And therefore, the highest scores were assigned to these two criteria. It can be seen that leveraging Rakuten is a strategy which satisfies all the four evaluation criteria to some extent or the other, but scores highest in global impact and inimitability.
- And therefore, in the final scoring matrix, leveraging Rakuten amasses the highest score, getting the highest in three out of four evaluation criteria. That is because leveraging the capability of parent company Rakuten is a unique feature that Kobo can exploit, but not companies like Amazon or Apple or Barnes and Noble. This would have a global impact as well, since Rakuten is a globally reputed online retail company, and has revenues worth 7.2 billion USD. The advantage of being associated with a reputed brand like Rakuten is that Kobo can enjoy both reach and sustainability in business, and ride on Rakuten’s strengths to achieve its objectives. Thus, the 601 team adopted a phased approach in the selection of the final alternative to be implemented – Evaluation of criteria, evaluation of Kobo’s strengths, generation of alternatives, weightage marks to evaluation criteria, weighing of alternatives based on evaluation criteria, final scoring matrix (in that order).
- The four sub-brands of Japanese retail behemoth Rakuten that Kobo could partner with to achieve profitability and recognition in business are: Global market, Travel, Overdrive, and Viki. Therefore, as part of the chosen strategy “Leveraging Rakuten”, Kobo can implement and execute this strategy through these four sub-brands, wherein each association would be a potential revenue stream for Kobo.
- The proposed association with each of the sub-brands is depicted on the slide, along with four key metrics for each configuration : EBITDA, Net Profits, additional revenues, and additional customers generated. The detailed market sizing, calculations, and financial models for each of these configurations have been covered in the main report. It may be noted that Kobo’s association with Rakuten Global Market is the most favoured one, on the basis of the calculated metrics: Highest EBITDA, net profits, additional revenues and additional customers. The two most important metrics in considering the impact of the strategy are EBITDA and bottom line (net profit margin). The configuration with the highest EBITDA and bottom line would be the preferred one in terms of order of implementing the strategy.
- Sankarshan and Ajeeth – this is one slide I could not decide how to alter and what story to insert. In order to ensure flow of the storyline, I think you need to put numbers or percentages to each of the shaded areas. Or whether you need to do something else, I am not too sure. Just ensure that the shaded areas and the legends are not contradictory in telling our story as Kostas pointed (during our Phase 4 out) for Canada and Japan (shaded in maroon and depicting only Kobo). Please do up this slide as I couldn’t figure out what exactly to do to keep the story going.
- The symbiotic relationship between Kobo and Rakuten Global Market (RGM) is depicted on the slide. For Kobo, the benefits would be availing the services of a mega online global shopping mall like RGM. It would offer Kobo the opportunity to enter two new markets namely South Korea and Indonesia. Apart from sharing profits with RGM, Kobo would be able to utilize this association to expand its sale of e-books and audio books in the Asia Pacific region. For RGM, apart from product diversity in its digital cart, it would share profits with Kobo as well as earn brand recognition in e-book sales, this being the first time it would sell e-books and audiobooks online. This would also be an opportunity for RGM to expand its customer base in the European market by virtue of its association with Kobo.
- The symbiotic relationship between Kobo and Rakuten Travel is depicted on the slide. For Kobo, the benefits would be increase in customer base, reduction in customer acquisition costs, and piggybacking on Rakuten’s popularity to sell its e-books. Travel would benefit from Kobo’s presence in Europe by expanding its tourist base into Europe. Parallely, Kobo could exploit Rakuten’s popularity in Japan and the Asia Pacific region for sale of its e-books at the time of booking reservations online for Japanese and South-east Asian hotels. Considering that the proportion of tourists is currently heavily skewed towards Japanese, this strategy offers an opportunity to embrace tourists from Europe as well, considering Kobo’s presence in that continent. Rakuten Travel would also share the profits arising out of its association with Kobo. The exclusive offer of associating e-books at discounted prices / giving a free e-book to prospective customers at the time of booking hotel reservations is a differentiated strategy for Rakuten Travel which would have an edge over online booking services offered by other companies.
- The symbiotic relationship between Kobo and Overdrive is depicted on the slide. For Kobo, the benefits would be threefold – promoting its e-books through Overdrive to boost sales, attract indie authors by giving them suitable incentives of using a globally renowned digital library for their research, and leverage Overdrive’s customer reach to gain a foothold in USA. Gaining ground in USA is pivotal for Kobo, given the non-existent status the company has in the country. The opportunity of associating with Overdrive needs to be gainfully exploited, since Overdrive is a world-renowned digital library network with a stellar reputation of maintaining exhaustive digital content. Overdrive would get a chance to make Kobo books available for its regular customers. It would also obtain content written by indie (self-publishing) authors, and make them available for its readers.
- The symbiotic relationship between Kobo and Rakuten Viki is depicted on the slide. For Kobo, the benefits would result in an increase in customer base especially in the Asian countries where Viki already has an established presence in online streaming, and growth in bottom line through net profits. For Viki, besides being a profit-sharing mechanism, this strategy would offer cross-selling opportunities and enhancement of Viki’s brand name due to its association with Kobo.
- The slide shows the triple bottom line cross-functional benefits between Kobo and each of the Rakuten sub-brands in the leveraging Rakuten strategy. The cross-functional benefits pertain to three areas namely: social (increase in customer base), environmental (benefits of geography), and economic (monetary share of profits). The fusion between Kobo and each of the Rakuten sub-brands would definitely be a win-win for either party from the TBL angle, and therefore leveraging Rakuten capabilities is strongly recommended from a CSR perspective as well. Not only would it address the triple bottom line concerns of people, planet, and profit but also, it would be a very effective tool for cross pollination, with each party reaping the best from a mutually beneficial harvest.
- The timeline of events to implement the Rakuten Global Market plan is depicted through this slide. Rakuten Global Market is the most preferred configuration (although the other three configurations would be implemented as well) because of having the highest crucial metrics – EBITDA, net profits, customer base increase, and additional revenues increase. Therefore, it is recommended that the plan be initiated first. The start point for this strategy configuration is Jun 2018 (depicted by M), and all other activities and events of the implementation plan are relative to the start month. The order of activities (first to last) would be signing of contract, sharing of data, integration of systems, troubleshooting, monitoring, and promotion through an online campaign. We estimate the implementation time for these activities to be 6 months i.e. a planning horizon of Jun 2018 – Jan 2019.
- Some associated risks along with mitigating strategies have been explained through this slide. The 601 team has identified the risks from a triple bottom line perspective. Therefore, each of the risks pertains to people, planet, or profit. Risks pertaining to the IT overlay, regulatory laws, government regulations, and the market form a part of environmental concerns. Risks pertaining to Royalty disputes and demographic milestones is essentially about people, whereas risks related to inadequacy of resources, exchange rate variation, hedging, and market sizing are the economic concerns that the team has raised about program implementation. The risk from a TBL perspective is denoted in red and its associated mitigating strategy is denoted in green.
- Considering that Rakuten Global Market is the most profitable venture, we recommend that the client execute this tactic right away, commencing June 2018. It is envisaged that this tactic would take six months to implement. It is pertinent to mention that Overdrive services would commence concurrently, since these services are ongoing, and have the maximum gestation period (June 2018 – June 2020). We recommend that Rakuten Travel commences with effect from Jan 2019, since it is the next most profitable venture after Rakuten Global Market and Overdrive. As per our estimation, this tactic would take six months to implement. Depending on the resources available, Viki would be implemented with effect from Jun 2019 on completion of the Global Market tactic. This phased sequencing of plans is recommended to ensure resource leveling (smoothing), keeping in mind limited resource availability.