Setting up an Online Bookstore for an Existing Business - Case Study Example

INTRODUCTION This paper is about a business plan for setting up an online bookstore for an existing business. The business considered is Borders which is a fictional entity considered for the purposes of this paper. Throughout this paper I would be using Borders as the organisation and BooksRUs.com as the online bookstore that is being proposed to be established. The reason I chose Borders is that though it has a presence online, most of its revenues come from selling books in the traditional “bricks and mortar” way and the sales through its website are a miniscule portion of the total sales. Hence, this proposal is being submitted to the management of the company with the express purpose of convincing them to ramp up their online presence. The annual turnover of the book industry runs into billions of dollars and the leading retailers like Amazon, Borders, eBay etc have cornered the lion’s share of the market. This proposal seeks to present a case for an online book store that is modelled along the lines of Amazon and Fictionwise.com with the proposed online version selling physical book as well as e-books. The proposal also covers selling used books and customised books for a specific kind of reader software that is necessary to view and read e-books. The need for this project grew out of the business objectives that were proposed by the management namely that of increasing revenues without diversifying too much away from the core competency of selling books. This proposal is written in a business report format with the summary of the project, the alternative options, the timelines for the project and the expected benefits from the same. A final justification for the project is also provided in the concluding section of the paper. It is hoped that the management of Borders would consider this proposal and the project being considered for the stated objectives as enunciated by them. BACKGROUND OF THE ORGANISATION AND A BRIEF SUMMARY OF THE PROJECT BEING PROPOSED Borders is a well established book seller and retailer that commands a place in the Top Five book sellers in the United States. Worldwide, Borders has a significant footprint in the way in which it has franchisees and resellers who sell books procured from Borders. The project that is being proposed would involve setting up of the online bookstore that would cover the areas of selling books (physical), e-books and used books. These formats of books are already being sold by Borders with the exception of the e-books. Hence, the proposed project would entail additional costs of setting up the website and the warehouse to stock books along with the marketing and setup costs involved with establishing an online presence. These are nominal additions to the existing infrastructure for Borders and hence the assumption of this project is that the break even for the project would be no more than two to three years of the initial setup or lower depending on the kind of marketing effort that is launched to entice customers to the online book store. It has to be noted that the proposed project does not cover the sale of accessories and merchandise and the online version would sell only books. Unlike other retailers who have an online presence and sell a wide variety of items, it is my contention that the scope of the proposed project should include only sale of books, either in physical or e-book format and not necessarily include sale of accessories. The reason for this approach is that sale of accessories and brands would tantamount to diversifying away from the core competency of Borders i.e. selling books. The other exclusion relates to the sale of music records and items related to songs in mp3 format or any other music format. This exclusion however is temporary, since Borders has capability in the sale of these items and the proposed project would include these items once the project breaks-even. WHY THE PROJECT IS BEING PROPOSED It has been found during market surveys that the annualised growth rate of the online book business far exceeds that of the traditional book shop format. Hence, there has to be a place for an online book store catering to the customers who shop online and prefer to buy books from online stores rather than the traditional bookshops. Further, as compared with other businesses, online book stores make eminent sense as the product bought from the online stores need not be checked by the buyer for purposes of quality and assuring themselves of the genuineness of the product. A book that is bought from an online book store is as good as the book that is bought from a traditional book shop. In fact, the online book stores are a convenient way to sell books because there would be a provision for customer reviews of the products and ratings of the books being sold by the customers who have bought them. This would greatly enhance the saleability of the books as prospective customers can view what others who have read the book are saying about it. Compared to the traditional bookstore where customers browse through the books, the online bookstores like Amazon have a facility wherein the customers can “look inside” the book virtually by browsing through sample chapters from the book. Further, the success of online book stores like Fictionwise.com and BooksOnBoard.com have meant that there is a ready market for books sold online. I have to add here that the project that is being proposed would involve selling books in the physical as well as the e-book formats. As is evident from the success of Amazon that sells and ships books in physical format as well as e-books tailored for its Kindle reader, this project also proposes to sell books in all formats. The reason for going in for a comprehensive online book store is because Borders already has a presence in the traditional book store format and hence all it would have to do to sell and ship books would be to sort out the logistics and operations part of the store. Borders would have to ramp up on its warehousing and holding capabilities that would ensure that books are available in stock and can be shipped at short notice depending on the locations of the customers buying the books. It has to be mentioned that the online book store would, for a start, sell physical books in the United States only as the cost of shipping to locations worldwide would be more than the cost of the books, in many cases. Unless Borders establishes partner companies or warehouses in locations in the other regions of the world, it would not be possible to break even by shipping books to all destinations. For instance, Amazon has warehouses in the Hong Kong and Sydney (Asia Pacific) and all over Europe as well. This reduces the shipping costs of the books greatly and adds to the value that the customers get from buying books online. Turning to the e-book format, it is relatively easier for Borders to sell e-books as they can be downloaded right from the website in the format that is preferred by the customers and there are no overheads like Warehouse costs, shipping costs and other costs associated with logistics and operations. As a further value addition, Borders can think of launching its own version of the e-book format like the Kindle version that Amazon has developed. However, it has to be mentioned that this is not being considered right now as having a dedicated e-book format would involve getting the necessary software infrastructure in place and is contingent upon developing the reader software. Further, there is the issue of the customers switching to the customised e-book reader and given the various options already present in the market, this is something that takes time to build and operate. BRIEF DESCRIPTION OF THE OPTIONS CONSIDERED FOR THE PROJECT INCLUDING RECOMMENDATION OF THE CHOSEN OPTION As noted above, the options that were considered include setting up of partner locations around the world to cater to a global audience. The other option that was considered was increasing the chain of Borders stores in the United States to increase market share and raise the profits from the sale of books. However, after considering all the options, it was resolved that having an online presence is better for increasing revenue rather than the other options that were considered. The project was conceptualised as a response to the need felt by Borders to increase its revenues and capture market share so as to retain its pre-eminent position in the market for books. The idea was to leverage the existing infrastructure and get more out of the same by incremental investment rather than an all out effort at diversification. The project aims to address these needs by proposing a solution that would not entail huge investments and also garner market share. Among the options considered to increase revenues and the profits, the proposal of an online bookstore makes business sense as the ROI (Return on Investment) that is generated from setting up an online bookstore is to the tune of 4-6% and hence this venture would be more profitable than increasing the number of bookstores or diversifying into other areas. WHAT ARE THE EXPECTED MEASURABLE BENEFITS OF THE PROJECT? In this section, I look at the expected measurable benefits of the project in the first two-three years of the project being launched. The project is expected to generate a Million Dollars in revenue from the second year onwards. As noted in the previous section, the project would return an annualised average of around 8-10% from the second year onwards. This is the best case scenario and if the examples of other online bookstores are any indication, the project may have to wait till the fourth or fifth year to turn in a profit. In an industry that traditionally has an ROI of around 10%; the project is indeed commercially viable and would contribute to the overall bottom-line of Borders in a significant way. As mentioned in the previous sections, the online bookstore once functional can surpass the traditional format in a matter of four to five years time and be the most profitable among the group. Though the proposal does not envisage the chain of Borders bookstores giving way to the online variety, once the projects gets underway, it is entirely up to the project sponsors to steer it in any direction they want. This proposal is for the feasibility of the project alone and hence does not recommend strategic changes in the company’s approach towards its core competency. A SUMMARY OF THE KEY RISKS OF THE PROJECT The risks to the project can be classified as the technical, supply chain and the marketing aspects of the project. The technical aspects relate to the delays in executing the deliverables of building a portal by the software developer. Hence, it is recommended to outsource the building and deployment of the project to a third party vendor with agreements that cover penalties for late delivery in place. The risks associated with the technical aspects also include software non-compatibility and downtime resulting from overloading of the website. Hence, the technologies and the delivery mechanism must be fail proof and due diligence about the viability of the same must be done. The risks associated with the supply chain would relate to the lack of progress on building the capability to deliver the books across the US and hence, the lack of supply chain expertise, particularly on the delivery side might hurt the project. The other element of risk arises from the most important part of the exercise i.e. creating awareness among the consumers about the online portal. Without the consumers, the project would be a failure and hence all efforts must be made to rope them in large numbers and make them buy the products. As the project proposes to sell books, it is the branding side of the selling that needs to be taken care of. As soon as consumers start to make visits to the online portal and purchase books, the project would repay itself. Hence, this is the crucial aspect of the risk associated with the project and hence must be treated as such. It is expected that Borders would sign up with reputed logistics partners in their effort to provide efficient and reliable delivery options. A SUMMARY OF THE EXPENDITURE OF THE PROJECT The project is expected to cost around $ 4 Million that includes $ 1 Million for the actual software development and building the online portal, $2 Million for marketing and branding related expenses and $ 1 Million for the logistical setup that is required for the company to be operational. The marketing spend appears to be on the higher side but it is justified because of the need to provide adequate support to the campaign to popularise the online portal. A SUMMARY OF THE KEY MILESTONES The key milestones of the project would be the planning phase, execution phase, deliverable phase and launch. If we take each of these milestones separately, the first phase of planning has already started and this proposal is for the feasibility of such a venture. Once this proposal is accepted, the next phase of design of the website and the actual building of the online portal kicks in. Concomitant with these activities, establishing warehouses and building the supply chain would be the activities for the execution phase. The planning and execution phases combined would take around 6 months with the estimated time for the building of the online portal and the warehouses taking up the bulk of the time and effort. It is strongly advised to run these activities in parallel to ensure that there are no time lags between each activity and they can merge together into one phase of the activity. After these phases, the launch of the online bookstore can be expected two months after the building and testing of the website is completed. Along the way, the supply chain must be made operational and the most important activity from the fourth month of the timeline would be the marketing and branding of the online portal. It is expected that a significant portion of the expenditure for the project would be spent on marketing and branding and given the fact that Borders is already a well established brand among book buyers, it would be a matter of time before the intangible brand value percolates to the online version as well. FINAL JUSTIFICATION OF THE PROPOSAL The success of the project depends on creating the “online experience’ for the consumers. Considering the fact that Borders has an established “top of the mind” recall among book lovers, it is not inconceivable that they would migrate to the online way of shopping. Further, referral and reward programs can be put in place to leverage the power of existing customers in bringing new customers. Provision of loyalty points and book club memberships can increase the sales as well. As has been mentioned throughout the proposal, the success of the project lies in developing synergies between the brick and mortar bookstore and the online version. The supply chain needs to be augmented on the delivery side whereas the supply side is already present with Borders having existing relationships with its suppliers. Hence, what needs to be built apart from the portal is the network of delivery mechanisms that include tying up with logistical partners like FedEx to ensure the shipping and delivery components. It is a matter of formality that due diligence must be conducted on the viability of the project, financially and operationally. It is my contention that this proposal be vetted by a committee that includes the senior management as well as an independent auditor or consultant to validate the key points that has been made in the proposal. This proposal has indicated the options that were considered to meet the stated business objectives of Borders. After considering the options presented above as well as the break even point for the project being relatively easier to attain, it is indeed a proposal that would ensure the success of the venture. In conclusion, I end this report with the hope that the project is indeed executed and that Borders would have the necessary wherewithal to grow into a leading online bookseller on the lines of Amazon and other online bookstores and garner market share and increase revenues as desired by the management of Borders. Conclusion Amazon website. http://www.Amazon.com (Retrieved 12 Aug 2009). Borders Website. http://www.borders.com/online/store/Home (Retrieved 12 Aug 2009). Open an Online Bookstore. http://infoheaven.bravepages.com/Book-Store.htm (Retrieved 12 Aug 2009). How to start an Online Bookstore. http://www.ehow.com/how_2122196_start-online-bookstore.html (Retrieved 12 Aug 2009) Read More