VS.VS.

CONSULTANTS:Jack ChangMaria DimokaMatthieu GuibourgeHiroo OdaSteven Zhang

Business Models

Value Propositions

Barnes & Noble/Amazon.com

- Mission

- Strategic position

- Porter’s Five Forces

Examine Strategies

Recommendation

Update of the case

Questions

Agenda

Largest Book Retailer in US

Revenue of $ 2.5 billion*

431 superstores

20,000 employees

Major cities and shopping malls

Online Retail vs. Brick & Mortar Shops

Largest Online Book Seller

Revenue of $16 million

1 on-line store

250 employees

Internet access only

*(Numbers in 1996)

Two value very similar propositions

Value

Variety (2.5 million titles DB)

Quick Access & Reliability

24H / 7 Days a week

Low Price

Cost

Supply Chain Management

Less Operation Cost

Speed

Quick Delivery (7 days)

Value

Variety (175,000 books in stores

+2.5 million title DB)

Superstores (Amusement)

Low Price

Cost

Supply Chain Management

Best Buying Power

Speed

Availability at Stores

Quick Delivery for Online (7 days)

MissionTo sell books by all means to all Americans, at an affordable price

Barnes & Noble’s strategic position

Core Competencies Supply Chain Management

Distribution Techniques

STRENGTHS

Store Environment Leadership Multi Channel Penetration

High Structural Costs Costly Growth Engine

WEAKNESSES

Competitiveadvantages

(-) E-retailing (-) New online books retailers(-) Chain stores

Potential entrants

(+) More competition(+) More choices(+) More information(+) Lower prices(+) Usage of froogle services

Buyers

Substitutes(-) E-books, free information on-line(-) Leisure items (video games, cinema, theatre etc.)

(+) Direct access to customer with on-line service(-) More reliable on less but bigger suppliers, which create centralized wholesale system (vertical integration)

SuppliersIndustry

Competitors

(+) High competition, especially from Amazon.com with aggressive marketing strategy

Porter’s Five Forces: Barnes & Noble

Mission

To become the biggest bookstore on Earth

STRENGTHS WEAKNESSES

Brand Name Reliability User Friendly Web Page

Inexperienced No Recovery Plan

Amazon.com’s strategic position

Core Competencies

Procurement System Short delivery times

Competitiveadvantages

Potential entrants

(+) More competition(+) More choices(+) More information(+) Lower prices(+) Usage of froogle services

Buyers

Substitutes

(-) E-books, free information on-line(-) Leisure items (video games, cinema, theatre etc.)

(+) Short time distribution from wholesalers.

SuppliersIndustry

Competitors

(+) High competition, especially from B&N which has a strong brand and market penetration

Porter’s Five Forces: Amazon.com

(-) E-retailing (-) New online books retailers

Clearly stated, focused strategy

0 5 8 10

Flawless operational execution

0 5 7 9 10

Performance oriented culture

0 5 10

Fast, flexible, flat company structure

0 5 8 9 10

Innovation that transforms the industry

0 5 10

Achieving growth via mergers and partnerships

0 5 7 9 10

4 + 2 Formula for Success

A fierce competition

Centralized Procurement System Used wholesaler’s warehouses Build their own warehouse

Innovation : Recommendation Service

Discounts : 20% to 40%

Innovation : Personalized Services for Availability Personalized Book Recommendation Service

Discounts : 10% to 30% Discounts : 20% to 40%

Partnership : AOL Other Joint Ventures

Partnership : Associates Program PartnershipAssociates Program Agreementswith Search Engines

Barnes & Noble should leverage its opportunities

Increase loyalty

Sales to Non-U.S.

Modify Advertising Policy

New Cultural Commodity Market

Amazon.com should fasten its penetration

Distribution for Independents

Increase loyalty

New Cultural Commodity Market

New Geographic Market

Where are we now(2003)?

Amazon, “The biggest Earth’s store” Six world-wide websites About $600m book sales 7,500 employees Diverse consumers products International sales still 30%

Barnes & Noble, still US leader 628 superstores About $3,600m book sales 50,000 employees New products: music, DVD/video and online courses Sales growth in games/entertainment product Sales average per store from $4.3m in 1997 to $5.7m in 2003

Who do you think is the winner ?

Amazon.com First time profitable in 2003 Worldwide presence

Barnes & Noble Still dominating the US book market