Compare Amazon.com and Barnes & Noble

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This is a powerpoint showing the competitive forces in the marketplace and how they impact both companies.

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Compare Amazon.com and Barnes & Noble

  1. 1. The Fight to Be the Best BooksellerPrepared By: Tristan Geiger
  2. 2. As I began to read the case study,“Amazon.com verses Barnes & Noble: The Battle of theBookstores,” I thought of how the Internet has offeredopportunities for retailers to bring in more money.However, the Internet can also adverse effects whentoo much money is invested in hope that a businesswill prosper. When a company decides to become aclicks-and-mortar store, they must make sure thattheir business models are able to adapt their businessprocesses, can create new business strategies, integratenew information technology, and re-organize theirsupply chain management. Amazon.com Using the Value Chain andCompetitive Forces ModelsAmazon.com developed many competitivestrategies in order to succeed in their market using thevalue chain and competitive forces models.Amazon.com produced a supply chain system andcustomer relationship system, which let them expandtheir business. To stand apart from Barnes & Noble,Amazon.com used the value chain model to increasethe competition by broadening their inventory toattract a variety of different customers. Amazon.comlearned that they would be more successful if theywere to offer unique services and enlarge their marketto provide more than books. By offering speedy onlineordering and their collaborative filtering system thatcreates personal productrecommendations based on past purchases givingmore value to the customer. To bring their customersin, they spend millions of dollars to advertise acrossthe Internet. As they provide suppliers with organizedbilling and shipping systems, orders can be completedfast making business processes run smoothly.The competitive forces model is used atAmazon.com when they react to new entrants into themarket, continue to learn about new products andservices, and address the position of traditionalindustry competitors. To keep their standing of one ofthe most successful companies on the Internet, theyconstantly introduce new products to their existingbook database. Sales began to rise as they added newproducts to their website. “. . . in the first three monthsof selling CD’s, Amazon.com’s sales surpassedestablished on-line music seller Cdnow.com’sperformance during the same period(327)” To competewith other Internet and store front companies, theyoffered other products that would appeal to peoplewhile they were buying books at their website. As theyestablished partnerships with companies such asDrugstore.com, they attracted customers who mayhave taken their money to other websites or brick andmortar stores.
  3. 3. Furthermore, With their excellent customer responsesystems, they were able to respond to the demands ofthe customer based on their buying habits andcustomer feedback. In turn, Amazon.com was able togain lasting relationships with vendors and customers. Barnes & Noble Using the Value Chain andCompetitive Forces ModelsLike Amazon.com, Barnes & Noble tries tofind competitive strategies in order to be the leadretailer of the book market. The company uses thevalue chain model to try to appeal to customers whowant a wide selection of books but still feel like beingin a small bookstore. Their shelves that carry morethan 150,000 titles appeal to the customer who doesn’twant to go online. Barnes & Nobles size allows thecompany to stock a variety of titles and obtaindiscounts from distributors, thereby offering discountsto customers. By constructing a value web withcompanies such as Microsoft, Random House, andThe Ingram Book Group, Barnes & Noble can createbusiness relationships that will provide value for theirin-store and online customers.Barnes & Noble uses the competitive forcesmodel to address the threats of new entrants into themarket and the pressure from new products andservices in the marketplace. When Amazon.com cameinto the book selling market, Barnes & Noble had tofigure out how to compete. Unlike Amazon.com whoadded more products other than books, Barnes &Noble developed a relaxed in-store environment thatcould appeal to people who wanted to sit andphysically see a book before buying it. In-store andonline customers received lower discounts forcingAmazon.com to purchase their books from moreexpensive sources. With the construction of Barnes &Noble’s online store they were able to compete byoffering a more specialized inventory that would leaveAmazon.com struggling to catch up. The Business Model Used By Amazon.com:What Are Its Core Competencies? WhatRole Does the Internet Play in It’s BusinessModel?Amazon.com is regarded as "the firstsignificantly successful enterprise to sell traditionalconsumer goods over the Internet."() The companysbusiness model is to use the Internet to attractcustomers to buy products. Many Internet usersflocked to their website to buy products; such that in1998 they earned more than $500 million annually. Toachieve this large income, Amazon.com providedservices to make users have a more valuable andpleasant online shopping experience. Their corecompetency that puts them ahead of their competitorsis their knowledge of e-commerce and a user-friendly
  4. 4. site. Since amazon.com has been one of the majorInternet retailers, they have the advantage of knowinghow users surf the web; where they go for information,what they want to shop for, and where they willprobably go to buy. Soon after sales boosted with CD’s,Amazon.com added The Internet Movie Database thathelped them boost video sales. To keep their sales upand attract customers, they needed to create a userfriendly website. For example, they added singlemouse click checkouts and user accounts, whicharchive customer billing options and shipping addressfor faster future purchases.Their collaborative filtering informationsystem targets specific customers withrecommendations and reviews on products thatchange continuously. Potential customers can alsofind reviews on books from authors, staff, and othercustomers who bought the book. These personalizedfeatures are convenient and let a user interact with thesite leaving with the feeling of quality customerservice. In addition to these services, Amazon.combought out the companies Junglee Corp. andPlanetAll, to give benefits such as birthday remindersand gift ideas, which attract returning customers. Asthey broaden their product database, Amazon.comappeals to a wider range of customers because when acustomer is looking for a book and also sees a DVDlink nearby then instead of going to another websitethey can buy what they need in one place. The Business Model Used By Barnes &Noble: What Are Its Core Competencies?What Role Does Its Internet Play In ItsBusiness Model?Similar to Amazon.com, Barnes & Noblesbusiness model is to offer a pleasant shoppingexperience with product at a lower price. However,Barnes & Noble wants to offer an option of in-store orInternet shopping. The companys core competencesare to offer a pleasant shopping experience and to havea variety of books. The company has over 1000 super-size stores but wants to give the customer a feeling ofbeing in a small town bookstore. To achieve this,Barnes & Noble encourages customers to bring coffeeand read and participate in "childrens story-time"readings. With In-store author signings and Internetservices such as online links to author and bookreviews, it allows customers to have a variety of ways toshop.Barnes & Noble readily re-stocks shelves andupdates its Internet databases with new titles allowingfor more diversity than a traditional bookstore. Thisspace provides room for best sellers and a variety ofother books promoting customers to return to searchfor new titles.
  5. 5.  How Viable is Amazon.com’s BusinessModel?As more people learn how to shop onlineand learn about Amazon.coms website, the companylooks as if it may succeed. As well as pleasing thecustomer, their efficient and speedy businessprocesses show how the company succeeds in itsmarket. With its organized cash flow, they are able togain revenue faster thereby making more profit. Forexample, when a customer’s item is shipped,Amazon.com charges their credit card and gets apayment from the credit card company within a day.Since Amazon.com doesnt have to pay the distributerfor about a month and a half, the company uses theirprofit to expand their store and improve customerservice.However, from this case study there aredetails that lead me to believe that Amazon.com maybe spending too much money on services such asadvertising and not bringing in enough profit. Forexample, In 1998 Amazon.com spent more than $50million dollars on advertising at sites such as AmericanOnline (AOL), Yahoo!, and Excite in hopes of gainingcustomers. The company also launched an AssociatesProgram in 1998, which allows any website to display alink to Amazon.com’s website. When a sale resultsfrom the link, the website would get 15% of the sale.Furthermore, the company seems to gamble with theirmoney to offer new services and product in hopes thatcustomers will buy their product. In the long run,Amazon.com could lose customers resulting inbankrupcy. How Viable is Barnes & Noble’s BusinessModel?While Amazon.com dominates the Internetmarketplace, Barnes & Noble continues to expand itsphysical stores and is slowly offering new services totheir online store. By serving customers in their brick-and-mortar and online stores they become moreversatile, attracting new customers, and gaining moreprofit. Since they dont spend as much money onadvertising and different products, they are able toexpand on their existing services such as customerdiscounts and a more variety of book inventories.Barnes & Noble is able to gain revenue with theirbrick-and-mortar stores and can slowly build on theirInternet site to compete better against Amazon.com.
  6. 6. Figure 1.1: Where Do People Shop Online?General PurchasesBook Purchases37%3%60%Amazon.com Bn.com Other56%27%17%Amazon.com Bn.com Other• What Model Is Working Best?To further my evaluation of Amazon.comsand Barnes & Noble’s business models I created a twoquestion survey to see what type of shopping people areconducting online today. Similar to Lauren Cooks Levitanssurvey, I questioned people about what Internet site theythought of when they heard Internet shopping. The first piechart in figure 1.1 illustrates my results. 37% of usersthought of Amazon.com and only 3% thought of Barnes &Noble. 60% of users chose other sites on the web. When Iasked the “Other” people why they chose their sites, theysaid that they liked going to company websites that soldtheir favorite product. When I asked those people if theywould consider shopping at Amazon.com or Bn.com(Barnes & Noble), they said that they would probably gothere for reviews and suggestions but look on other sites tofind the cheapest price. Some people said they would lookon Ebay.com or Craigslist.com before they would go toAmazon.com or Bn.com.The second question I asked was what storepeople would think of if they were to buy a book online.There was a dramatic change; the second pie chart in figure1.1 displays the outcome of the data. 56% of the peoplestated they thought of Amazon.com, 27% thought ofBn.com, and 17% said other websites. Everyone who choseAmazon.com said they liked theirpricing, suggestions, recommendations and the ease offinding books on the site.
  7. 7. The people who answered Bn.com said theyrecognized the name from when they shopped in theirbrick-and-mortar store and knew that they had anonline website. However, all participants said that theywould shop around until they found the lowestprices, even if the book they wanted was on anotherwebsite. As I look at my survey results, not so differentfrom Levitan’s survey conducted around 1998, it leadsme to believe that Amazon.com has a better businessmodel and knows how to bring customers in to buy attheir site. Amazon.com Dominates the BookRetailing MarketBased on the information found in the casestudy I believe that Barnes & Noble is the companythat will dominate the book retailing industry. Byhaving thousands of brick-and-mortar stores aroundthe United States and an online branch, the companycan let customers have the option of shopping in bothplaces and still make a profit. Furthermore, by offeringmore benefits, cost discounts, and a more variety ofbooks, Barnes & Noble will attract more customers.However, since the case study is outdated Idecided to look at the online sites and compareoptions and pricing before I made a final decision.The business market has changed since the twentyethcentury and now more customers are going online tobuy books. When I clicked on Amazon.coms book tabI found many options that were similar at Barnes &Noble’s site. For example, there were categories fortextbooks, bestsellers, and new and future releases.Amazon.com also has a link to a third-party site thatsells eBooks that appeals to specific groups ofpeople, which Barnes & Noble does not have on itssite. Although customers will be shopping for theseeBooks on a separate site, Amazon.com will still getprofit off the sale.To see if Amazon.com raised their prices anddid not have the selection of books that Barnes &Noble had, I went to Bn.com and compared them toAmazon.com. I chose twenty different books andfound each book on both sites. Furthermore, In mostcases I found that Amazon.com had the better pricefor a new copy of a book and even offered it cheaperused. In many cases Bn.com had a similar discount asAmazon.com; however, you need to have a $25 per yearmembership in order to get the low price. In figures 1.2and 1.3, I included a picture of the web page displayingthe new Harry Potter book at Amazon.com and theBn.com website. I found it cheaper at Amazon.comthan at Bn.com’s membership price.
  8. 8. Although Barnes & Noble offers a relaxingin-store environment and specialty links on theirwebsite such as "Meet the Writers," Amazon.comoffers lower prices, special deals, reviews, and a user-friendly website, which promotes returningcustomers. Amazon.com and Barnes & Noble TodayIn summary, I realized it began to bother methat the case study did not have current informationabout the profit of the two companies. Due to theexplanation in the case study that Amazon.com waslosing money rather than gaining a profit, I decided tosearch for more recent information on the Internet. Ifound two articles which stated some more recentearnings of the company.In his 2003 Internet article, "Jeff Bezos andAmazon.com: Profit by the Numbers," Wally Bockstates that Amazon.com made an annual profit of $39million dollars. Bock explains that much of this profitwas due to acquiring and keeping lasting customerswith services such as free shipping and discounts onproducts. By offering products by other merchants onAmazon.coms site its earnings would most likely notcome from books.In a more recent article posted in April2007, "Amazon.com reports quarterly net profit morethan doubles," USA Today states that Amazon.com hasFigure 1.2: The new Harry Potter bookat Amazon.com is $17.99.
  9. 9. doubled since 2006 proving that it is dominating thee-commerce world. In this first quarter of this yearsales were at $3.02 billion. With their variety ofinventory, satisfied returning customers, and userfriendly site, the company no longer operates in thered.In contrast, Barnes & Noble seems to belosing money. Today, Barnes & Noble relies onproducts other than books to gain revenue. At theirwebsite they sell a variety of products such asDVDs, music, video games, toys, and office supplies.In the February 2007 article, "DisappointingEarnings Forecast Hammers B&N Shares," Jim Milliotstates that Barnes & Nobles sales have fallen in 2007.Although sales in February 2007 rose in theirsuperstores to $4.5 billion, their Internet sales fell to$433 million. They have also consolidated theirInternet company to one facility, which probablymeans that their online store is not bringing in asmuch revenue as they would like. Furthermore, withtheir new loyalty program, which will give customersmore discounts, Barnes & Noble’s CEO, SteveRiggio, says that it will have loss of revenue. Althoughhe says this loss is short term, he has already closedmore stores this year than he has opened and this givesAmazon.com the advantage of gaining more profit inthe book selling business.Figure 1.3: The new Harry Potter bookat Bn.com is more expensive priced at $18.89.
  10. 10. Works Cited Bock, Wally. Jeff Bezos and Amazon.com: Profit by the numbers – Wally Bock’s Monday Memo, Author, BusinessFuturist, Keynote Speaker. 2003. megastarmedia.com.11 May 2007 <http://www.mondaymemo.net/040202feature.htm>. Amazon.com reports quarterly net profit more than doubles – USATODAY.com. Reed Business Information.24 April 2007.11 May 2007 <http://www.usatoday.com/money/companies/earnings/2007-04-24-amazon_N.htm>. Milliot, Jim. Disappointing Earnings Forecast Hammers B&N Shares – 3/5/2007 – Publishers Weekly.5 March 2007. Reed Business Information.12 May 2007 <http://www.publishersweekly.com/article/CA6421441.html>. Amazon.com: Harry Potter and the Deathly Hallows (Book 7): Books: J.K. Rowling, Mary GrandPre. 2007.Amazon.com, Inc.14 May 2007 < http://amazon.com/o/ASIN/0545010225/ref=s9_asin_image_1-2288_g1/104-5127949-6663959?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=center-2&pf_rd_r=16A4EFP92A84RFMMMC5V&pf_rd_t=101&pf_rd_p=278240301&pf_rd_i=507846 >. Barnes & Noble.com - -Books: Harry Potter and the Deathly Hallows (Harry Potter #7), by J.K. Ro . 2007.Barnesandnoble.com.14 May 2007 < http://search.barnesandnoble.com/booksearch/isbninquiry.asp?isbn=9780545010221&z=y&cds2Pid=9481>.

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