Strategic Analysis on Borders

MGT 4201 : Strategic Management
A Strategic Analysis on Borders
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Executive Summary
The company that we have chosen for our research is Borders Group Inc. The research
question relating to the topic extracted from the textbook (Lynch, Stratgic Management, 2012),
“Analyzing the External Environment of a Firm” is “The failure of Borders to perform effective
External / Environmental Analysis”. We chose this topic for our discussion because we believe
that analyzing the competitive environment is important and in strategy management, the
environment basically means the outside forces that impact the people outside the organization,
including competitors, customers, suppliers and other influential institutions such as local and
national government. Environmental analysis is therefore crucial to a company and may even
affect its going concern, just as in the case of Borders.
The aim of this assignment is to look at the strategic issues faced by Borders and perform
a Strategic Analysis comprising three Strategic Tools (SWOT, PESTLE and Porter’s Five
Forces) by conducting secondary research by utilizing the Internet and even library books. Thus,
our in-depth research about the strategic issues of Borders has helped us come up with
appropriate solutions that could have helped Borders understand and adapt to the changes in the
External Environment to remain competitive. As such, we would be covering the Five Ws and
One H technique to assist in finding the core problems and solutions of the ineffective strategies
which caused the downfall of Borders Group Inc.
As it is important to study the environment surrounding the organization to gain not just a
competitive advantage but Sustainable Competitive Advantage, an organization must be able to
learn from its mistakes in the past and move forward. As such, we will also look into the lessons
learned from the mistakes made by Borders in failing to analyze its External Environment
promptly and accurately.

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1.0 Introduction : Borders Group Inc
Borders Group Inc was founded in the early 1970s by Tom and Louis Borders, University
of Michigan graduates who developed an inventory tracking system that, by the standards of the
time, was as sophisticated as computers allowed (Osnos, 2011). An early innovator in controlling
inventory, there was expert staff at its Ann Arbor headquarters and store managers who believed
in the value of book-selling. At its peak, Borders superstores had all the attributes of good book-
selling whereby it had extensive selections, browsing space, coffee bars, and outreach programs
to surrounding communities.
The Borders brothers decided not to stay in the book business, and in 1991 sold the small
chain and inventory systems to Kmart for $125 million. In retrospect, that was when the trouble
began. Kmart already owned Walden mall stores, which were an awkward commercial fit with
the Borders culture. Kmart itself was at the start of a downward spiral, and in 1995 Borders was
spun off in an IPO (Bosmon & Michael, 2011). Under the leadership of Leonard Riggio, Barnes
& Noble (B&N; a big competitor to Borders) was expanding too, and the competition seemed
tight. Then came along Amazon.com to sell books online.
The external environment at that point of time was influenced by globalization. The
Internet made it possible for companies to expand without even opening a physical store. Book
enthusiasts switched to eBooks and tablets were on the rise. It was also in the mid 1990s that
Amazon launched as an online book retailer (The Conversation, 2011). B&N was quick enough
to respond to the changes in the external environment, but guess what Borders did instead?
Instead of beginning to develop its own initiatives on the Internet, Borders went international,
building a substantial chain in the United Kingdom and opening physical stores as far away as
Singapore. Borders closed an eye on the external environment.
In this research, we will look into the various strategic mistakes made by Borders that
caused it to always be a step behind where they needed to be. The company listed $1.29 billion
in debt and $1.27 billion in assets in a filing in United States Bankruptcy Court in Manhattan.
The Group is now non-existent.

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2.0 Strategic Issues : 5W Analysis of Border’s Strategic Mistakes
2.1 Strategic Issue 1 : Negligence of Digital Technology and Poor Management
During the period of mid-1990s (when), the book industry was transcending to the digital
age. E-books were becoming popular compared to paper books. Extracting one of the PESTEL’s
checklists, Borders failed to analyze its Technological future in the speed of change and adoption
of new technology in its business plan strategies. Instead of adapting to the market’s changing
needs, it opted to neglect e-books completely, and thus, running away from the current wave
(what). The Amazon Kindle came out in November 2007. Barnes & Noble (B&N), its long-
standing competitor, debuted its latest e-book system, known as ‘Nook’, which was sold in
Walmart and Best Buy. Apple's iPad came out as a direct result of the increase in popularity of e-
books (Lowrey, 2011). Other companies adapted to market changes. Borders just did not adapt
and this was a very big problem that affected its going concern.
But where did this problem take place? It started off in the UK and due to globalization,
this problem became widespread. Borders was now losing money from all over the world when
B&N was diversifying its source of revenue without even opening stores overseas.
The top management’s (who) environmental scanning was poor because they failed to
discover the changes in the external environment clearly. This similar mistake was done by the
famous Nokia. Nokia, was at heart, a hardware company rather than a software company. Its
engineers were experts at building physical devices, but not the programs that make those
devices work. In the end, Nokia profoundly underestimated the importance of software to the
new age customers, including the apps that run on smartphones. Instead of catering to the needs
of modern day smartphone users, the top management of Nokia continued to market its phones
based on superior hardware designs without even implementing good software. It basically gave
the market a product Nokia thought is best for them, instead of giving the market what they want
(Gregory, 2011). Just like Nokia, Borders ran away from the current market trend.
Why was it a problem? Pushing a product to a market (selling physical books) instead of
giving the market what it wants (eBooks) will cause customers to be frustrated and as such,
loyal customers will look for another company that can meet their needs. This strategic mistake

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by Borders caused it to lose its customer loyalty which is crucial for a market leader. At that
moment, all of its competitors had already tried to make a change for their business strategies in
order to follow the rise of the new era. The competitors such as B&N, Walmart, Costco, and
other stronger retailers reset their outlook by launching their own online bookstores. Realizing
that Borders was going the wrong direction, B&N quickly took advantage of this strategic
mistake and launched www.Barnesandnoble.com within two years.
The top management of Borders was unable to identify and understand digital trends
(what). In fact, the top management of Borders was unable to use effective strategies to adapt to
the fresh web-based environment. They mistook the popularity of technology by venturing into
the sale of CDs and DVDs, a total strategic catastrophe! Peter Wahlstrom, an investment
researcher stated that Borders’ strategy showed that Borders was “handing the keys over to a
direct competitor" and was making “mistakes after mistakes” (Noguchi, 2011).
2. 2 Strategic Issue 2 : Outsourcing Online Sales to Competitor, Amazon
After many years in the red (due to its decision to ignore the Internet), Borders rethinks its
strategy to go online. During the era of globalization and the age of the Internet, it was apparent
to everyone that book sales would increasingly be made online. Since 1995 and the founding of
Amazon.com, books have been sold over the Internet. It can be said that the environment and
marketplace changed and Borders was finally aware of this (Austen, 2011). The first strategic
mistake made by Borders is to outsource its online book operations to Amazon (from 2000 to
2008) instead of establishing its own web presence (what).
It was obvious that online sales would start making up its main source of revenue but
Borders choose to hand over their most important growth channel to a competitor. Why was this
a problem? Borders basically grew its competitor for eight years! Outsourcing its website to
Amazon.com had cut deeply into Border’s profit and even goodwill (brand). In 2000 (when), it
wanted to create an online presence to finally follow the market trend. However, to avoid system
development costs, it decided to outsourcing Borders.com to the most efficient online
organization, Amazon.com, hoping that this partnership would be able to turn around Borders. In
the short-term, this saved a lot of money while in the long run, Borders' branding, multi-channel

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strategy, and customer base suffered worldwide (where) because we know that the internet is too
important (Clarke, 2011).
Borders’ strong brand empowered Amazon's e-commerce platform. It seemed that
Amazon anticipated a parasitic outcome through this partnership, as seen through its evident
success in making its brand publicly-known through Borders’ mistake, while at the same time,
earning high fees (from Borders) for this service. This shows that Borders’ management’s poor
strategic decisions and ineffective strategic leadership (who) caused it to suffer net losses of
$344 million for 2008 and 2009. This is similar to the case of IBM in the 1980s whereby IBM
“naively” handed over crucial parts of the computer business to companies like Microsoft and
Intel which caused IBM to soon lose the early lead in both, PC hardware and software to small
companies like Microsoft and Intel (Sommer, 2011).
2.3 Strategic Issue 3: Overexpansion in Physical Stores Overseas with High Costs
In the late 90s (when), instead of keeping abreast with the current market changes and
fast-booming growth in technology, Borders decided to venture into the overseas book market.
So, what did Borders actually do? It hesitantly went overseas building chain stores in the United
Kingdom, Ireland, Australia, New Zealand and opening stores as far away as Singapore. The
focus on Borders’ business in the United States seemed to have been blurred by this global
expansion. Eventually, its international strategy failed (The Atlantic, 2011).
Why did this move stretch the company thin? “They over expanded and caused costs to
escalate, further cutting into profits,” said Michael Norris, senior analyst with Simba
Information, who provided research and advice to publishers. The stores tended to be too big and
expensive in terms of overhead. In the late 1990s, Fair Labor Practices Act in America were
revamped due to the increased number of Labour Unions. For example, federal minimum wage
rate increased from $5.15 per hour in 1997 to $6.55 per hour in July, 2008 and it kept going up to
$8.55 per hour in 2009 (Labour Law Center, n.d.). This caused labour costs to escalate as most of
Borders’ bookstores were reliant on labour. All over the world (where), minimum wage rates
increased gradually..
To top it all, inflation rate in America at that time was at 5.4% (highest till today). In the
midst of expansion, most parts of the world were hit by the financial crisis in the early 1990s and

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the Asian Crisis in the early 2000s (Duggan, 2011). These events caused expansion costs to
increase even more. Borders also noted that it had signed too many long term leases (in line with
its strategy to expand overseas), making it harder to shed unprofitable locations later. The vast
use of Debt Financing to finance its expansion also caused high interest expenses. The more
unprofitable it was, the more collateral was demanded by banks and this increased loan interest
rates (Jacobsen, n.d.). In the end, Borders could not even sustain its own expansion and the
decisions made were costly and seemed irreversible.
This seemed like a terrible time for Borders to be expanding but that was exactly what it
did! This shows that the management (who) of Borders clearly neglected the importance of the
PESTLE Analysis. In the end, Borders closed most of its stores and laid off tens of thousands of
its employees after a failed attempt to sell the company at an auction as part of the process (Even
other companies thought that saving Borders was a terrible idea!).

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3.0 Strategic Analyses, Recommendations and Lessons Learned
Now that we have analyzed the strategic issue and mistakes made by Borders in terms of
the 5Ws, we can now look at HOW these strategic mistakes could have been avoided through a
thorough strategic analysis. We will first draw up the Strategic Tools and later come up with
recommendations and lessons learned. No successful company can survive and grow without a
well-researched and clearly articulated strategy. Yet even when a company has developed a solid
strategy, they must regularly evaluate its effectiveness based on changes in the external
environment. According to Mark Evans, former Director of Merchandise Planning & Analysis
at Borders, bankruptcy was the result of “a failure to properly invest in and develop an internal
internet sales channel, too sizable an investment in its CD business, and an over-investment in
book inventory.”
Environmental scanning requires members of an organization to look externally and
identify prominent lessons, trends, opportunities, or threats that can adversely affect the
company. Once identified, the company can develop new strategies that best correspond to these
external market factors.
3.1 Strategic Tools & Analyses
3.1.1 SWOT Analysis
The management of Borders should have first done a SWOT Analysis to highlight its
Strengths, Weaknesses, Opportunities and Threats. From the table below, we can see that
Borders’ weaknesses outweighed their strengths, explaining the reason for its liquidation.
Despite the opportunities around Borders, the threats were growing increasingly larger with
every strategic mistake made by Borders. The outweighing of its threats and weaknesses finally
consumed Borders into bankruptcy.

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SWOT Analysis
Strengths
 Strong brand and recognition –
When a person thinks of a bookstore,
Borders is always the first store that
comes in mind.
 Diversification in formats and target
customer
 Geographical coverage – has
bookstore outlets all over the world
 Diversified industry – Music, Books,
CD/DVDs and cafe
 Strong customer base who are aged
40 and above.
 Attractive loyalty program
 Able to rise up to increase ebook
sales despite its late entry to the
World Wide Web.
Weaknesses
 Outdated stores which needed remodelling
 Gave its customers what was easiest (paperback
books) instead of giving them what they wanted
(e-books)
 Outsourced its online sales to Amazon
 Grew its competitor B&N when it decided to
run away from the market trends
 Misread market signals and diversified its trade
activities causing it to lack focus on the real
deal
 Over expanded when the whole book industry
was moving towards ebooks due to
globalization
 Used debt-financing to finance their expansion
and subsequently the use of modern technology
– High interest rates and credit risk rate
 Poor cash flow
 Poor management – CEO and Executives
comprised of people who lack knowledge and
experience in the book industry
 Very late in catering to the market’s needs
 Failed to realize its true consumer segment
 Never a market leader, always a follower.
Opportunities
 E-commerce partnership with
universities to supply textbooks
 Ebooks save space Reduction in
cost – lesser outlets – lower rental
fees – Lower inventory holding cost
 Could have been the market leader
due to the oligopolistic nature of the
market (few key players)
 Costly and physical expansion could
have been avoided – just needed an
online system
Threats
 Newage competitors – online retailers without
prior book trade experience growing rapidly due
to the usage of technology
 Globalization – readers need only swipe their
iPads to buy an online book – Borders would be
very obsolete
 B&N collaborated with the best  Starbucks –
can increase B&N’s brand recognition
worldwide
 The book trade industry was transforming from
oligopolistic (few key players) to monopolistic
(many players) – Borders could easily lose out
 Borders could have still lost money due to the
fact that its expansion costs are ‘sunk’ in nature
and not easily reversible.

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3.1.2 Porter’s Five Forces
Porter's Five Forces of Competitive Position Analysis were developed in 1979 by
Michael E Porter as a simple framework for assessing and evaluating the competitive strength
and position of an organization. This theory is based on the concept that there are five forces that
determine the competitive intensity and attractiveness of a market.
COMPETITIVE RIVALRY
 HIGH
 Competition from all sides – online, in store,
ebooks, small retailers, book renters, even
companies who have never been in the book
industry but have the technology to go online
(Eg Amazon)
 Fast-paced competition – Competitors are
acting quickly
 Technological competition – New age ebook
vendors are utilizing technology to increase
market share
 Increased players in the industry –
mushrooming of new competitors may drive
prices down
BARRIERS TO ENTRY
 LOW
 Empowered customers can easily find the
cheapest prices from suppliers, large or small,
anywhere in the world.
 Global outsourcing erodes economies of scale
 Cost on entry at this age is significantly lower –
no need for physical expansion
 Online channels render distribution strength
impotent, customer word of mouth undoes
huge brand investments, and networked
consumers
 Entrepreneurs undermine copyrights and
patents.
BARGAINING POWER OF CUSTOMERS
 HIGH
 It is a customer-centric era
 Many types of customers – Online Shopper, In-Store Shopper, eBook Shoppers (Borders
failed to identify its various customer base to tailor their offerings based on individual needs)
 Consumer habits are changing - culture irreversibly affected by innovations in technology
 Customers tell the industry what they want – Emergence of PULL STRATEGY
 Customer preferences to prevail over one-size-fits-all
 It is the customer that causes an increase in threats to substitutes
BARGAINING POWER OF SUPPLIERS
 HIGH
 The traditional supplier base has the least
impact on current market dynamics.
 The relevant suppliers are the book publishers,
authors, artists and other content providers.
 Traditional publishers stand to lose along with
Borders, and continue to fall into the black hole
 May prefer to work directly with Amazon or
any company with good online system to sell
ebooks
 Negotiation on Royalty fee – Amazon may be
able to pay higher RF due to its lower cost of
operation – the referral fee program
THREAT OF SUBSTITUTES
 HIGH
 Digital products supersede physical offerings
 Digital substitution is collapsing value chains
and erasing profits across multiple industries.
 The customer creates high threats of substitutes
because innovators targeting any business
know that if you give the customer what he/she
perceives as value, the customer will gladly
substitute your product for the competitor’s
 eBook rentals

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3.1.3 PESTLE Analysis
There are many companies all over the world that conduct PESTLE analysis on their
brands in order to ascertain strategies for the future or else to understand the market before
launching them. It is a fundamental tool of market planning and strategizing that must be carried
out to comprehend market trends and the systematic risks involved. PESTLE analysis would
have been able to gives Borders an overview of the whole situation it might be in. Precisely, it is
a bird’s eye view of the stimulus and the scenarios that surrounded Borders’ trade and business.
POLITICAL
 Fair Labor Practices Act in America
politically motivated
 Federal minimum wage rate increased from
$5.15 per hour in 1997 to $6.55 per hour in
July, 2008 and it kept going up to $8.55 per
hour in 2009 and remained the same in 2010
 Strong unions
 Wage rates were getting attention worldwide
SOCIAL
 Strong preference of the public towards
eBooks
 Strong emphasis on customer service
 Different age distribution of readers have
different needs – younger readers prefer
eBooks while baby boomers prefer to read a
good book at a quiet place while sipping
coffee
ECONOMY
 Inflation rate in the US in 1990 was at 5.4%
(highest till today)
 Financial crisis in the early 1990s
 Asian Crisis in early 2000s
 It would have been very costly for Borders
to expand during these years
TECHNOLOGICAL
 High and rapid technological change
 Kinddle and Nook set up by Amazon and
B&N – more digital device to support
ebooks
 Many software-equipped companies with
technological advancement are penetrating
the book industry easily – Amazon
 High spending on R&D – come up with an
eBook reading device or an all-in-one tab
like an iPad?
LEGAL
 Copyright and Patents for eBooks as well as e-Commerce Laws
 Royalty Fee across continents, Cyber Law, Data Protection Acts across the world
 China may not respect copyright policies – Intellectual Property Law
ENVIRONMENTAL
 eBooks help in reducing the need to print books and as such, saves water
 Paperback books require mass processing which involves the usage of large volumes of water
 Proper waste management techniques voiced out by Environmental Pressure Groups – this
may increase the cost of publishers in printing and publishing books in an environmentally-
safe way – This in turn, increases cost to book retailers like Borders

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3.2 Recommendations based on Strategic Analyses
From the Strategic Analyses above, we can see that there are many areas in which
Borders could have improved on to avoid liquidation. First and foremost, we must understand
that it is the top management that ultimately ‘pulls the strings’ regarding strategic decisions that
are needed to steer a company. Therefore the first recommendation would be:
3.2.1 Careful Selection of Top Management
From the SWOT Analysis, top management was a weakness. Borders should have
realized that it needed a CEO with relevant experience in the industry. Greg Josefowicz, the
new CEO of Borders (1999), had background in food and drug retail (Milliot, 2011). During the
era when globalization was screaming for attention, rather than build its online presence, Borders
turned to the international market for growth. A food chain or outlet may need to physically
expand its chain of outlets to reach new markets due to its very nature; food is a perishable item.
This same strategy should not have been applied to Borders.
Is it true that CEOs with similar industry experience are better at turning the company
around? In 2001, Larry Johnston, the CEO of GE Appliances was praised for moving the
division into China and had headed the successful launch of upscale appliance lines. He then left
GE to become the CEO of Albertson’s (a grocery store that was under the attack of Wal-mart).
Though Johnston was a skilled cost cutter, he was unprepared for an industry with few unique
brands and inflexible labour and real-estate costs. As such, Albertson’s suffered losses and
Johnston took four years to abandon plans to expand through acquisition and eventually
engineered the sale and breakup of Albertson’s portfolio of stores.
This supports a study made by Harvard Business Review whereby it stated that in cases
where a GE executive moved into an industry similar to the one that had formed the core of his
experience at GE, his new company generated annualized abnormal returns of 8.8% and the
opposite was also true (Nohria, McLean & Groysberg, 2006). As such, Borders should have
hired a CEO with a more industry-relevant CEO who is also innovative and always adherent to
market needs.

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3.2.2 Embrace the Technological Advancement
Based on Porter’s 5 and PESTLE Analyses done, we can see that Technological
Advancement which included “online” stores were trending and in the SWOT Analysis, we can
see this as a weakness. Borders should have embraced the multichannel strategy. In particular,
bookstores that have a strong presence in inner-city locations (like Borders in UK) and are able
to transfer this to the Internet, enjoy a good starting position in this respect. Borders should
‘Rethink its Integration of its Value Chain’ and followed B&N’s strategy. We know that before
Borders’ competitor (B&N) set-up an online portal to sell eBooks, Amazon was way ahead.
Despite the delayed launch of the ‘Nook’ by B&N, B&N had successfully established a position
against Amazon and within a short period, B&N had succeeded in increasing its market share for
eBooks and its online revenue increased to US$573 million (Edgar Online, 2012). But Borders
should consider B&N’s experience with the Nook as they plan their own eBook strategies.
To differentiate itself from B&N, Borders could have launched paperback rentals and
(gradually) eBook rentals which would involve monthly or even yearly subscription fees. This
means that Borders would be able to “look in” future revenue through subscriptions. This was
done by Oyster, a startup offering all-you-can-read eBook subscriptions, whereby for $9.95 a
month, subscribers receive unlimited access to a library of more than 100,000 eBook titles
(Sottek, 2013). To be better than Oyster, Borders could utilize its strong connections with
famous authors and publishers to make eBook deals with them, to provide a more attractive
subscription plan to include “Best Sellers” that would lure its online readers! It could even
provide a 30-day free trial by signing up online.
Borders should have electronically grown itself up instead of growing its competitors.
Before the opportunities were grabbed by mushrooming competitors (Amazon, B&N, Apple),
Borders should have stopped outsourcing its online book trade service to Amazon and should
have done it by itself through the help of IT specialists. The outsourcing of its online sales to
Amazon caused a major shift of value added, from Borders to Amazon. Also, the fact that the
book trade industry was turning into a monopolistic market due to globalization, should have
been a signal to Borders to stop physical expansion and start investing in technology as well as
online systems. Besides, with the increase in worldwide labour wage rates and inflation rates, it

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is extremely costly for Borders to pay its employees in all of its stores on a global scale (Labour
Law Center, n.d.). Borders failed to realize that in the long run, the benefits from selling eBooks
(via the use of its own website) outweighed the cost of the development of an online system. A
cost and benefit analysis would have helped Borders to carefully review each of its investment
decisions and would have saved it much trouble.
Borders should have also done an Environmental Analysis with the help of Management
Consultants, at the very least. This is because Borders had misread the need for technology as the
need for CD and DVD sales! Borders should have used the Internet as a platform for
distributing music online and not selling physical CDs and DVDs. This was done by
Bertelsmann, AOL Time Warner and EMI. These companies formed a Joint-Venture called
Musicnet and distributed music online (Wilde, 2002). If Borders had come up with its very own
website, it could have categorized music into different types (R&B, Rock and Roll, Jazz and
others) and allow its online members to select their preferred genre upon registration. Every time
a new music MP3 or even video relating to the specific genre was uploaded for sale, each
member could be notified. To keep its members on the edge of their seats, Borders could
implement “Early Bird Discounts” to the first 100 members who buy the newly released music.
Imagine the amount of space and rental as well as inventory holding cost Borders could have
saved had it implemented this!
3.2.3 Move from Product-Centric to Customer-Centric
Imagine this; As you walk to your destined seat in an airplane, look around you. What are
the people doing? They would most probably be either watching movies on laptops, listening to

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music on their iPhones, or even reading an eBook from their Kindles, iPads and Nooks. From all
three Strategic Tools used, we can see that Customers are increasingly important and have
become key determinants of profitability. Figure 1 shows that the ‘age of information’ began in
the 1990s and how it slowly became the the ‘age of customers’ (Cooperstein, 2013).
Borders should have come up with its own mobile application available at Google
Playstore. With online reviews and mobile web access, customers now would know more about
Borders books and eBooks, keep track of loyalty points and even get the latest news on eBook
arrivals. As such, with B&N and even Amazon (on its own), selling eBooks online too,
customers can now easily compare prices of books online. A multitab browser showing the
prices of the same book from Borders, B&N and even Amazon can easily allow customers to
make price comparison (Morris, 2013). By outsourcing its online book sale to Amazon, the
prices of its books were bound to be high as Borders would need to pay a fraction of the book
price to Amazon as part of the partnership. This was a costly mistake to Borders.
Borders should personalize its communication channels to each of its customers to
enhance customer retention. According to Bain, a 5% increase in customer retention can generate
a 75% increase in profitability, and it costs six times more effort to get a customer than to keep
one whom you already have (Lawrence, 2012). Experiences that tie the customer’s profile, past
engagement history, and current situation into contextually personalized customer experiences
become very personal to the customer. For example, Google Now automatically gets access to
users’ Gmail accounts, and any time the user receive an email receipt for a flight he or she
booked, Google Now will take note of the flight number.
Once the flight comes around, it will store information regarding the time of the flight,
when boarding starts, what terminal and gate the flight is at and it will notify the user if there are
delays (Rodriguez, 2015). The service will even send a notification when it is time to leave for
the airport as shown below.
.

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Source: International Business Times (2015)
Borders could follow this example by creating an “eBook Wishlist” (through its app) that
allow customers to add Best Seller eBooks that they want (and is usually hard to find) in the
wishlist. When there is stock, the app would notify the customer immediately with a very
personalized message. Regular customers should be given loyalty discounts via the app.
Borders should have better focused on identifying its true market segment and should
re-aim its marketing strategies. Based on a research done by Chenhansa et. al (2010), Borders’
customer profile is very different from the actual segment shares of the market. The study
showed that most of Borders in-store customers consisted of those aged 40 and above. When
surveyed, most respondents in this age category said that they have more free time and
retirement money. As such, they prefer to come to Borders to enjoy a nice cup of coffee while
reading a physical book. Borders could market mainly to meet the needs of the 46-60 years age
group. In this segment, customers rate customer service and extra amenities to be their priorities
in a bookstore and prefer genres like cooking, adventure, Do-It-Yourself and religious books.
Therefore, Borders could stock up more on these genres of books in its physical store,
provide “Golden Rewards Card” (to encourage the elderly to shop and relax at Borders) while at
the same time market the other books online via eBooks. One strategy is to use the physical
stores for advertising, including emblazoning Borders’ website on shopping bags and receipts.
Additionally, special promotions and coupons could be issued to drive additional website visits
or purchases. The combination of businesses offers a seamless approach to order taking and
would provide for customer flexibility. For example, if there's ever a problem with an online

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order, customers can return a product to a store or exchange it on the spot rather than wait at the
post office. This could help Borders magnify its presence in all types of customers.
3.3 Lessons Learned
Lesson #1: Top management is the key decision maker and the decisions made by them can
even affect the going concern of the organization. A very good example would be Anne Mulcahy
(CEO of Xerox). Having spent her entire career at Xerox, she became the new CEO to bring the
company out of the red. Mulcahy believed deeply in Xerox's values and its proud heritage of
inventing plain paper copying (George, 2008). She had vast experience in the paper copying
industry and within a short period of time, Xerox was back in the black. As such, Borders should
have been more careful in choosing its top management (by doing industry screening) who were
more experienced in the book industry and were also innovative rather than choosing a CEO who
only cuts cost to stay afloat.
Lesson #2: A company must constantly perform an Environmental Analysis as the market
responds easily to even slight changes in the Political, Economic, Societal, Technological, Legal
and even Environmental changes. As such, It is crucial to have preemptive strategies as well as
emergent strategies in case an organization needs to react quickly to the changes in market
conditions. Borders had neither. Its only strategy was to continue what it was doing all this while
without even considering the possibility of changes in market trends. Through this, it lost its
customer loyalty and was even naïve when it ‘unknowingly’ grew its competitor, Amazon.
Lesson #3: The customer is always right. An organization should always adhere to
customer’s feedback and tailor their products to suit the needs and wants of the customer. This is
because competitive advantage and profitability is sustained by customer loyalty. In a
monopolistic environment where sellers are many, customers are easily swayed to buy from
organizations that offer products which best meets their requirements. If Borders gave its
customers eBooks from the very beginning, Borders would have remained as the market leader
easily due to its strong customer loyalty.

17 | P a g e
4.0 Conclusion
There are many things that Borders could have done to avoid liquidation as highlighted.
However, it had to be quick to react. That was one issue. But the main reason would always be
its lack of innovation. In the so-called neoclassical growth theory of economics, by far the most
important source of sustained growth is innovation. A truly modern economy does not rely on
more and more capital and labour being fuelled into the machinery of production or even into
physical expansion. That was the old Soviet model. A modern economy relies instead on
innovation. This should be the focus of policy.
Borders did not understand that the potential gains were huge, not marginal and short-
lived. We hope that our research question is able to clear your doubts as to what was the problem
with Borders and how this could have been avoided. The limitation of our research is that we
only managed to use secondary source documents due to the fact that it is a short semester. Time
is always the essence of a good and in-depth research. With that, we would like to thank our
lecturer for giving us this opportunity to be able to delve into the strategic issues and come up
with the strategic analysis of Borders.

18 | P a g e
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