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On the Internet there are no personal interactions in the selling process and some customers might see this as negative. On the other hand many brick-and-mortar stores have started to emphasize self-service rather than a personalised shopping experience.
- Many users of the Internet are young and therefore on-line bookstores can (theoretically) keep the customer for a long time. By using modern techniques it is also possible to collect a lot of information about the customer and create personalised offers to a greater extent.
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One thing that keeps customers from buying books at the Internet is that the purchase process is not entirely safe. The risk however is quite small but is perceived as higher by customers.
- The on-line company has in some aspects lower costs since many flows are reduced. The books do not have to be transported to the stores and many costs associated with the actual store are reduced. Some other costs are increased e.g. by having to transport small units to a large amount of customers.
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One major disadvantage of on-line bookstores is that everyone does not have access to the Internet. According to Stern, "the majority of consumers in industrialised countries will not be connected to the Internet in the near future". With time this disadvantage is likely to decrease in importance.
- Using the Internet for selling products might also have some tax-benefits.
In summary there are many competitive advantages of selling books on the Internet, both for the customer buying them and for the company. However, there are some major disadvantages that have to be considered. For sure, Internet has capacities but it is important to realise that all of this capacity cannot be used until the market is ready. For example, the performance of Internet business will probably increase as more people gain access to the Internet. It is likely that the stock price of Amazon is based on very high expectations on the new technology and that all disadvantages are not taken into account. The risk of Amazon growing to fast, i.e. needing too much money to be invested in it without showing profit definitely exists. The availability of money in the company without it making profit could also prevent its development by not motivating its employees enough. The knowledge of the future competition-situation is also very restricted. Today it is also a fact that many Internet stocks have lost tremendous value due to the hyping of the new business.
Is it a good strategy for Amazon to rely on the wholesalers?
Arguments for that they should rely on the wholesalers:
Why should Amazon rely on Ingram and the other wholesalers? There are a number of facts that supports that they should. One is that the wholesalers business is to distribute books from the publisher to the retailer. Another one is their ability to deliver the goods fast. Amazon can always rely on that the wholesalers do not run out of stock.
The wholesalers could always try to open their own online store, in fact Ingram and Baker & Taylor has already done this. To enter this market they need to force the barriers that Porter describes. Most of the barriers are quite easy for the wholesalers to force, but nr 5, Access to distribution channels, are the one that traditionally has been the retailer’s area. Sure, Ingram and the others have very good connections within the channel of publisher-wholesalers-retailers. But their lack of connections with the final customers is a reason for them to let Amazon handle the final step.
What is more important is the tendency for retailers to order directly from the publishers. This is a threat to the wholesalers business. If wholesalers would launch a full-scale competitive campaign against the retailers, the retailers could eliminate the wholesalers as an institution in the channel arrangement. The retailers themselves could replace the function of wholesalers.
Arguments why not rely on the wholesalers:
There are also a number of reasons why they should not rely on the wholesalers. One is that their margins are decreasing with the same amount that the small retailers reduce in number. This is because of the competitive power of the superstores and the online stores. This also results in that the wholesalers become more and more depending on the volumes of the big online stores but also could force them to open their own online business (see discussion above).
The online stores are in some cases already using the wholesalers to send the shipment directly to the customer. This is a way of helping the wholesalers one-step closer the final institution in the market channel, the consumers. The wholesalers would take advantages of this if they started to compete online.
Advantages and disadvantages of Barnes & Nobles Net- based business
Advantages of Barnes & Nobles in Net-based competition through its position in the superstore business
Barnes & Nobles has several advantages in establishing a successful Net-based business.
- Barnes & Nobles has a well-known and established brand name. This brand name gives the company free promotion and recognition when it tries to get in to the Net-based business. Many customers who are used to shopping in the stores of Barnes & Nobles will continue to use the same companies Net-services.
- Many of the services that Net-based companies would like to offer their customers have already been developed by Barnes & Nobles. The company established some of these service opportunities in 1996 through its cooperation with a company called Firefly. Barnes & Nobles can establish services like personalized book recommendations faster through its previous knowledge of customers. It can also take benefit from business relationships with other actors in the market.
- Barnes & Nobles has unlike Amazon an already established business, which is bringing the company profit. Since the system is already there, the company can start running its Net-based business without investing extraordinary sums that start-ups would have to invest. The company is not as financially wounarable as Amazon. Amazon is dependent on IPO:s in order to be able to finance its development.
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Barnes & Nobles can take advantage of its economy of scale benefits. It has also a much greater experience of the business than a new entrant in the market. Generally, traditional stores have a stronger negotiation power with suppliers.
- The company has a well functioning distribution system. It can also offer customers shorter delivery times because of a warehouse dedicated to the online-business.
- The customers of Barnes & Nobles might feel that having a physical bookstore, which they can turn to with questions and perhaps for personal contact with the company they are purchasing goods from, is favourable.
Disadvantages in the brick-and-mortar-heritage of Barnes & Nobles
Barnes & Nobles can also experience several disadvantages because of their traditional business model.
- The company might be less flexible and have problems reorganising and adapting itself to a changing environment. It has to adjust to the present organisation form, which could prohibit the company’s innovativeness.
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Barnes & Nobles might also feel locked in by its present long-term relations to other companies on the market. This might also prevent the company of making the right moves and optimally take advantage of business opportunities.
- Start-ups face many difficulties but they also have some advantages. A start-up can offer a much more entrepreneurial environment for its employees than traditional companies. Barnes & Nobles has separated the Net-based part of the company as a freestanding unit but the employees will still feel the connection to the bigger company.
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There is a risk of Barnes & Nobles Net-business cannibalising the companies traditional business. This can lead to conflicts within the company. Customers could free ride on the stores by examining the products there, and then purchase them cheaper online.
- Barnes & Nobles has a similar situation as Amazon when it comes to establishing in new geographical areas. The experience of Barnes & Nobles of the American market might lead it to wrong decisions if the differences of these markets are not carefully considered.
- Barnes & Nobles might not be as knowledgeable as Amazon in IT. The company has more experience when it comes to books but not necessarily concerning new technology and the opportunities of it.
4. Discussion of the future online book retailing
A customer buys a book online because he will gain from this in one-way or another. It’s of great importance that the online shop functions almost impeccable since the customers patience is less than in an ordinary store. Hence it is very important that the whole distribution line works satisfactorily. Therefore the supplier-retailer relation must contain a high level of trust. Probably the retailer is more dependent on his supplier (the wholesalers), because of the need of having the products delivered at the right time at the right place. This will have the consequence that the wholesaler can use its power on the online retailer. This description give us a hint of how relationships could be today but we can also see that all these relations and links are very diffuse and could fast be exchanged with new technology.
A possible evolution of the online book retailing could be as follows: Wholesalers like Ingram suddenly can realize that they also can make money by selling books over the Internet. They can then reform their organisation in order to be able to take over the role of retailers. This development would make companies like Amazon quite abundant. The future competition will probably be between wholesalers and the major competing factors will probably be the logistic costs.
If this thesis is correct there will be several consequences. The market channels will change since an institution (retailers) disappears. According to Stern one institution can be substituted but the function it had will remain. The distributing part of the retailers will be taken over by the wholesalers. The ongoing technological development might also threaten the role of the publishers. A development from books consisting of paper to e-books could make the publishers abundant. In that case the whole problem concerning logistics and distribution as it looks today will vanish. The writers as well as the customers will gain a much stronger position. The only link connecting them will be some kind of electronic distribution network consisting of databases.
This process can lead to juridical conflicts concerning copyrights, royalties’ etc. The conflict will be between the writers and this new developed distribution system. For a profitable adjustment to the new market systems, a common trust between these institutions will be necessary.
References
Printed sources
Stern. Marketing Channels, 1996;2001, compendium Stockholm school of economics
Porter, M.E., How competitive forces shape strategy, Harvard Business Review, March-April 1979
Ford D. The Business Marketing Course, 2002, John Wiley & Sons Ltd
