The Publishing Sector of the US Economy - Essay Example

?Borders Books Fights For Survival Introduction The publishing sector of the US economy is a rather well-developed and established industry. Borders Books, Barnes & Noble and Amazon are some of the major players in the field. However, while Barnes & Noble and Amazon, having adapted to the technological innovations, are continuously reaching good sales, Borders Books’s situation is not as bright. Borders Books have come to delay payments to its vendors and even considers closing some of the stores. Such a situation is a result of the company’s failure to adapt to the changes in its market environment. Being a creative industry the organization should have been one of the most innovative sectors of the economy (Muller, Rammer and Truby 2009, 149). Innovation and its implementation is what made Barnes & Noble and Amazon more successful. Before e-readers were introduced to the market, everyone was competing on rather equal terms: both Barnes & Noble and Borders Books were selling their products in own superstores, so the major source of income was always coming from physical in-store sales. The process got somewhat changed when Amazon developed as an online book store. First of all, it became a strong competitor because offered people an alternative to going to a superstore – online shopping for books. Secondly, it gave such companies as Barnes & Noble and Borders Books to enter the online marketplace as well. However, the progress didn’t stop at that stage. Technologies gave publishers such e-book reading applications as Kindle of Amazon and the Nook of Barnes & Noble. That was the point when Borders Books got behind. Case Analysis: the Publishing Market Thought the physical book sales of Barnes & Noble were going down, the company managed to raise them by 80 percent compared to the last year, with the help of the developed by them e-book reader – the Nook. While, of course, e-books are a separate niche of the publishing industry, it is actively taking over the positions of printed books. The statistics of International Digital Publishing Forum (2011) show a rapid growth of e-books popularity: e-book publishers’ wholesale revenue for the third quarter of 2010, for instance, is three times higher than that of a year ago ($46,500,000 in the third quarter of 2009 vs $119,700,000 in the third quarter of 2010). Retail numbers, according to the International Digital Publishing Forum (2011) might be as much as two times above the presented figures because of the industry wholesale discounts. This means that the e-book industry is still growing and developing. Furthermore, more and more companies are working on the development of their own e-book readers with the purpose of taking some share of this market. However, Apple's iPad has made it nearly impossible for some organizations: Plastic Logic Que, a businees-oriented device, Bookeen Orizon, the Skiff for reading magazines and newspapers (Neary 2011, 3)– these devices never got popular in the market due to the already existing competition from Apple’s iPad, Amazon’s Kindle and Barnes & Noble the Nook. Key Problems of the Industry It can be seen that both, Borders Books and Barnes & Noble, have taken some steps to adjust to the new market conditions: both have some online presence. Nevertheless, both companies still heavily rely on physical sales in their stores. Borders Books has not even gone further than letting Amazon manage all of the company’s online sales - Borders Books failed to invest into entering the emerging at that time online book market (Neary 2011, 4). This may have been caused by an assumption that, according to Henderson (1993, 248), many companies fail to adequately respond to market innovations because of the security they had enjoyed for many years’ stable presence in the market. Such companies then get used to continuous change process, if any, and do not make any attempts to introduce some radical changes, even if such are crucial for survival (Chandy, Prabhu, and Antia 2003, 1). So Borders Books, having felt well in their market niche for some period of time, did not pay much enough attention to the changes taking place within the industry and did not take any adequate measures to adapt to those changes. The company got used to the stability of its position and, as a result, did not notice how radically the industry was changing. Consequently, Borders Books did not respond to the change in a timely manner. With the rapid development of technologies all the businesses, as well as their competitive environment, have to change to adapt to the industry changes. The publishing industry is not an exception. Furthermore, with the evolvement of online marketplace and e-book readers the publishers have faced a challenge of adapting to the technological innovations and readers’ use of electronic sources of information. Barnes & Noble, on contrast, took an emergent approach to change and managed to adapt to the innovation. In such a way the company has not only raised its physical sales, but entered a totally different market niche – that of e-book publishing. Barnes & Noble, seeing the potential of the new niche and realizing the need for change, did invest into the development of their own e-reader. The sales strategy for the e-reader, in its turn, has helped Barnes & Noble to increase its physical sales. Furthermore, it should be noted that Barnes & Noble took the action in proper time. It is possible that if they launched their e-reader later, the Nook wouldn’t become popular enough to compete with Kindle of Amazon. So Barnes & Noble noticed the change early in its development and took actions to respond to the change in order to adapt to the new market conditions. At the same time, both companies had similar opportunities at the start. They both were large enough and did have the resources to invest into innovation. That, according to Chandy and Tellis (2000, 475), was giving both companies an opportunity to become aggressive and radical innovators. While Barnes & Noble has used its opportunity, Borders Books has not and is now in trouble because of the failure to respond to the change in time. Competitive Forces Model and the Marketing Mix Srinivasan, Lilien, and Rangaswamy (2002, 48) outline that technological change, like the one Barnes & Noble implemented, “is a principal driver of competition”. Such a change, according to the authors, even creates new industries. So, the change Barnes & Noble implemented created a competitive advantage for the company, and allowed to remain successful in the changed market environment. Considering the major concepts of Porter’s competitive forces model (threat of new entrants, the intensity of competition, threat of substitutes, customers’ and suppliers’ bargaining power) (Smit 2006), it can be said that, though the industry has a relatively low risk of having new entrants, the competition is rather intense. Furthermore, what Borders Books experienced is an appearance of substitutes to printed books – e-book readers. At the beginning the competitive strategies of both companies were in having a great number of stores in many locations. In addition, both were selling a great number of titles, so the customers had a great variety of literature to choose from. So, extensive distribution channels and extensive market coverage of the place aspect of the classical marketing mix were, for long time, the advantages of both companies. The product aspect was another advantage, since both offered to their customers a great variety of titles. However, with time the importance of both product and place aspects of both companies’ competitive advantage diminished. They got overridden by the emerging market of e-books. Seeing the decline in physical sales Barnes & Noble decides to introduce a new product – the Nook – to raise the overall sales of the company. Borders Books, at the same time, does not even work on its infrastructure development and still totally relies on Amazon for handling its e-commerce function. As Neary (2011, 2) outlines, Borders Books was not ready to compete in the digital book market. Furthermore, the company did not take any steps for changing the situation. Instead, they wasted much time trying to solve some existing problems and raise physical sales. At the same time, the technological change, if implemented, would become the best tool for further growth and development of the company (Sood and Tellis 2005, 152). That is exactly what the experience of Barnes & Noble shows. They have diversified their offer and, as a result, implemented product differentiation. This new substitute for Borders Books’ products, along with high barriers to entry, reduced demand elasticity and the number of firms in the industry, and that is one of the keys to competing in the market effectively (Andrew and Whipp. 1993, 14). In addition, Barnes & Noble took a decision to sell the Nook in their superstores. This resulted in an increase in foot traffic to their stores and, as a result, higher sales. The management has made a right decision to sell all the products at one place. Thus, when a consumer comes to a store for the e-reader, there are great chances that he or she will buy something else, like a book of which existence one had never been aware. In such a way one product (the e-reader) helps to sell others. So, product differentiation accompanied by effective planning and marketing has helped Barnes & Noble to overcome the challenges of the digital world. Furthermore, the technological change became a great and effective response to competitive uncertainty caused by the product market change (ibid). Organizational Culture: Leadership and Vision However, not the smallest role in this process was played by company leadership and vision. According to Stebbins et al (1994, 94), good leadership is the basis of organizational health, which, in its turn, ensures that all the processes taking place within the organization, leader to better performance. Furthermore, as Schneier (1994, 278) outlines, effective leadership is crucially important in the process of implementation of an effective system-wide change. Obviously, Barnes & Noble’s leaders worked collaboratively and managed to effectively introduce and implement the planned change. Borders Books, on contrast, had been continuously having problems with leadership: their managers were changing frequently and, as result, the company lacked consistency and stability the management should have been providing. Each new management change, of course, slows the company down (Neary 2011, 4). For that reason the company was not able to adequately meet the renewed customer needs. Another issue worth attention in regards to leadership is that the longer an executive works with an organization, the better he or she understands the opportunities or challenges of the company. In case of Borders Books it is possible that each new executive simply had not enough time to lead the organization to change, because was working on solving the existing problems. Management of Barnes & Noble, on the contrary, served as a stable and consistent foundation for the whole organization. They managed to create a clear vision of where the company is going, and implement it into reality. The fact that Barnes & Noble has reached the set goals means that the company’s leaders were able to communicate their vision and goal to the organization (Kotter 1996, 85). Potential Future Risks While the Nook has helped Barnes & Noble to restore its competitive position, the e-books market is going to get saturated one day and, therefore, the company should already be thinking of how it is going to continue selling its printed books. Furthermore, it should be continue being as responsive to external environmental changed as it showed to have been. Another challenge for Barnes & Noble is that the level of online sales is constantly increasing. Therefore, certain strategies for increasing Barnes & Noble’s online presence should be designed and implemented. At the same time, one of the major advantages of the company – its vast chain of book superstores – should not be underestimated. It can serve as a great tool for maintaining sales, especially, if the product range is diversified further. New offers and technological advancements are very likely to attract new customers. Amazon has already experienced such a success having introduced Kindle and provided its customers to read all the books on the e-reader. So, in order, to be as successful, Barnes & Noble will have to step further from the traditional publishing and find new opportunities in the e-world. This might help to get a larger market share in the online business and, potentially, outweigh a decrease in paper book sales by an increase in e-book sales. Recommendations So, in order to maintain their leading positions and competitive advantage, Barnes & Noble and Amazon should be continuously and closely monitoring the market changes. Then those changes should be responded to in a timely and effective manner. New trends and new customer preferences should be the drivers of innovations the companies are to present to the market. In addition, it never hurts to diversify – the more offers a company presents to its prospect, the higher are the changes that some of them will be successful and, as result, provide the organization with the resources needed for further growth, development and change. Conclusion Barnes & Noble’s desire was to attract more people into their superstores. For that purpose they decided to diversify the range of their offers and design the Nook. As a result, the new product attracted a great number of people into the stores and contributed to the sales growth. On contrast, lack of clear vision and concentration on existing problems in the times of industry’s being changed, made Borders Books unable to compete within the modified market conditions any more. Furthermore, they have already lost the time when changes should have been implemented. So now, when the market is already saturated with e-readers, Borders Books will have to invest very much of its resources if it decides to finally adapt to the new environment. Nevertheless, though Barnes & Noble seem to have strengthened its position, while Amazon remains as competitive, there still exist market threats that may significantly influence both in the long run. First of all, the economy does not stay at one point and the environment is continuously changing. The process of globalization, as well as emergence of newer technologies, should be always kept in mind of the managers. References: Chandy, Rajesh, Jaideep Prabhu, and Kersi Antia. 2003. “What Will the Future Bring? Dominance,Technology Expectations, and Radical Innovation.” Journal of Marketing 67 (July 2003): 1–18. Chandy, Rajesh and Gerard Tellis. 1998. “Organizing for Radical Product Innovation: The Overlooked Role of Willingness to Cannibalize.” Journal of Marketing Research 35(November): 474–487. Henderson, Rebecca. 1993. “Underinvestment and Incompetence As Responses to Radical Innovation: Evidence from the Photolithographic Alignment Equipment Industry.” RAND Journal of Economics 24(2): 248–271. International Digital Publishing Forum. 2011. Industry Statistics. Extracted from http://idpf.org/about-us/industry-statistics. Kotter, John P. 1996. Leading Change. Harvard Business Press. Muller, Kathrin, Christian Rammer, and Johannes Truby. 2009. “The role of creative industries in industrial innovation.” Innovation: Management, Policy & Practice 11(2):148–168. Neary, Lynn. 2011. “Borders Books Fights For Survival.” MC300 Case study 2011 Semester 2: Extracted from http://www.npr.org. 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