Annexure-V- Cover Page for Academic Tasks

Course Code: MKT510 Course Title: Product & Brand Management

Course Instructor: Dr. Prashant Chauhan

Academic Task No.: 3 Academic Task Title: Assignment

Date of Allotment: 15.04.2021 Date of submission: 05.05.2021

Student’s Roll no: RQ7E46B45 Student’s Reg. no: 11608771

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I declare that this Assignment is my individual work. I have not copied it from any other
student’s work or from any other source except where due acknowledgement is made
explicitly in the text, nor has any part been written for me by any other person.

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 A

Case Analysis on Borders

Introduction

Borders Group Inc. Borders Group Inc. was founded in the early 1970s by Tom and Louis
Borders. After graduating from University of Michigan they developed an inventory tracking
system that according to the standards of the time and was as sophisticated as computers
allowed. An early innovator in managing and controlling inventory, there was expert staff at
its Ann Arbor headquarters and store managers who believed in the value of book-selling. At
its peak, Borders superstores had all the attributes of good book. They were selling whereby
it had extensive selections, browsing space, coffee bars, and outreach programs to
surrounding communities.

The Borders brothers decided not to stay in the book business, and in 1991 sold the small
chain and inventory systems to Kmart for $125 million. In retrospect, that was when the
trouble began. Kmart already owned Walden mall stores, which were an awkward
commercial fit with the Borders culture. Kmart itself was at the start of a downward spiral,
and in 1995 Borders was spun off in an IPO. Under the leadership of Leonard Riggio, Barnes
& Noble (B&N) which was a big competitor to Borders was also expanding, and the
competition seemed tight. Then came along Amazon.com to sell books online.

The external environment at that point of time was influenced by globalization. The Internet
made it possible for companies to expand without even opening a physical store. Book
enthusiasts switched to eBooks and tablets were on the rise. It was also in the mid-1990s that
Amazon launched as an online book retailer. B&N was quick enough to respond to the
changes in the external environment. But instead of beginning to develop its own initiatives
on the Internet, Borders went international, building a substantial chain in the United
Kingdom and opening physical stores as far away as Singapore. Borders closed an eye on the
external environment.

In this case analysis, we will look into the various strategic mistakes made by Borders that
caused it to always be a step behind where they needed to be. The company listed $1.29
billion in debt and $1.27 billion in assets in a filing in United States Bankruptcy Court in
Manhattan. The Group is now non-existent in the market.

5W Analysis of Border’s Strategic Mistakes

Strategic Issue 1: Negligence of Digital Technology and Poor Management

During the period of mid-1990s (when), the book industry was transcending to the digital age.
E-books were becoming popular compared to paper books. Extracting one of the PESTEL’s
checklists, Borders failed to analyse its Technological future in the speed of change and
adoption of new technology in its business plan strategies. Instead of adapting to the market’s
changing needs, it opted to neglect e-books completely, and thus, running away from the
current wave.

The Amazon Kindle came out in November 2007. Barnes & Noble (B&N), its long-standing
competitor, debuted its latest e-book system, known as ‘Nook’, which was sold in Walmart
and Best Buy. Apple's iPad came out as a direct result of the increase in popularity of e-
books. Other companies adapted to market changes. Borders just did not adapt (what) and
this was a very big problem that affected its going concern.

It started off in the UK (where) and due to globalization, this problem became widespread.
Borders was now losing money from all over the world when B&N was diversifying its
source of revenue without even opening stores overseas.

The top management’s (who) environmental scanning was poor because they failed to
discover the changes in the external environment clearly.

Pushing a product to a market (selling physical books) instead of giving the market what it
wants (eBooks) will cause customers to be frustrated and as such, loyal customers will look
for another company that can meet their needs. This strategic mistake (why) by Borders
caused it to lose its customer loyalty which is crucial for a market leader. At that moment, all
of its competitors had already tried to make a change for their business strategies in order to
follow the rise of the new era. The competitors such as B&N, Walmart, Costco, and other
stronger retailers reset their outlook by launching their own online bookstores. Realizing that
Borders was going the wrong direction, B&N quickly took advantage of this strategic mistake
and launched www.Barnesandnoble.com within two years.

Strategic Issue 2: Outsourcing Online Sales to Competitor, Amazon

After many years in the red (due to its decision to ignore the Internet), Borders rethinks its
strategy to go online. Since 1995 and the founding of Amazon.com, books have been sold
over the Internet. It can be said that the environment and marketplace changed and Borders
was finally aware of this. The first strategic mistake made by Borders is to outsource its
online book operations to Amazon (from 2000 to 2008) instead of establishing its own web
presence (what).

It was obvious that online sales would start making up its main source of revenue but Borders
choose to hand over their most important growth channel to a competitor. It was a problem
because Borders basically grew its competitor for eight years (why)!

Outsourcing its website to Amazon.com had cut deeply into Border’s profit and even
goodwill of brand. In 2000 (when), it wanted to create an online presence to finally follow the
market trend. However, to avoid system development costs, it decided to outsourcing
Borders.com to the most efficient online organization, Amazon.com, hoping that this
partnership would be able to turn around Borders.

In the short-term, this saved a lot of money while in the long run, Borders' branding, multi-
channel strategy, and customer base suffered worldwide (where) because we know that the
internet is too important.

Borders’ strong brand empowered Amazon's e-commerce platform. It seemed that Amazon
anticipated a parasitic outcome through this partnership, as seen through its evident success in
making its brand publicly-known through Borders’ mistake, while at the same time, earning
high fees (from Borders) for this service. This shows that Borders’ management’s poor
strategic decisions and ineffective strategic leadership (who) caused it to suffer net losses of
$344 million for 2008 and 2009.

Strategic Issue 3: Overexpansion in Physical Stores Overseas with High Costs

In the late 90s (when), instead of keeping well-informed with the current market changes and
fast-booming growth in technology, Borders decided to venture into the overseas book
market. It hesitantly went overseas building chain stores (what) in the United Kingdom,
Ireland, Australia, New Zealand and opening stores as far away as Singapore (where). The
focus on Borders’ business in the United States seemed to have been blurred by this global
expansion. Eventually, its international strategy failed

Inflation rate in America at that time was at 5.4% (highest till today). In the midst of
expansion, most parts of the world were hit by the financial crisis in the early 1990s and the
Asian Crisis in the early 2000s. These events caused expansion costs to increase even more
(why). Borders also noted that it had signed too many long term leases (in line with its
strategy to expand overseas), making it harder to shed unprofitable locations later. The vast
use of Debt Financing to finance its expansion also caused high interest expenses. The more
unprofitable it was, the more collateral was demanded by banks and this increased loan
interest rates. In the end, Borders could not even sustain its own expansion and the decisions
made were costly and seemed irreversible.

This seemed like a terrible time for Borders to be expanding but that was exactly what it did.
This shows that the management (who) of Borders clearly neglected the importance of the
PESTLE Analysis. In the end, Borders closed most of its stores and laid off tens of thousands
of its employees after a failed attempt to sell the company at an auction as part of the process.

Reviving Recommendations based on Strategic Analyses

From the Strategic Analyses above, we can see that there are many areas in which Borders
could have improved on to avoid liquidation. First and foremost, we must understand that it is
the top management that ultimately ‘pulls the strings’ regarding strategic decisions that are
needed to steer a company. Therefore, the first recommendation would be:

Careful Selection of Top Management

Borders should have realized that it needed a CEO with relevant experience in the industry.
Greg Josefowicz, the new CEO of Borders (1999), had background in food and drug retail.
During the era when globalization was screaming for attention, rather than build its online
presence, Borders turned to the international market for growth. A food chain or outlet may
need to physically expand its chain of outlets to reach new markets due to its very nature;
food is a perishable item. This same strategy should not have been applied to Borders.

Embrace the Technological Advancement

Borders should have embraced the multichannel strategy. In particular, bookstores that have a
strong presence in inner-city locations (like Borders in UK) and are able to transfer this to the
Internet, enjoy a good starting position in this respect. Borders should ‘Rethink its Integration
of its Value Chain’ and followed B&N’s strategy. We know that before Borders’ competitor
(B&N) set-up an online portal to sell eBooks, Amazon was way ahead. Despite the delayed
launch of the ‘Nook’ by B&N, B&N had successfully established a position against Amazon
and within a short period, B&N had succeeded in increasing its market share for eBooks and
its online revenue increased to US$573 million. But Borders should consider B&N’s
experience with the Nook as they plan their own eBook strategies.

To differentiate itself from B&N, Borders could have launched paperback rentals and
(gradually) eBook rentals which would involve monthly or even yearly subscription fees.
This means that Borders would be able to “look in” future revenue through subscriptions.
This was done by Oyster, a start-up offering all-you-can-read eBook subscriptions, whereby
for $9.95 a month, subscribers receive unlimited access to a library of more than 1,00,000
eBook titles. To be better than Oyster, Borders could utilize its strong connections with
famous authors and publishers to make eBook deals with them, to provide a more attractive
subscription plan to include “Best Sellers” that would lure its online readers! It could even
provide a 30-day free trial by signing up online.

Move from Product-Centric to Customer-Centric

Borders should have come up with its own mobile application available at Google Play store.
With online reviews and mobile web access, customers now would know more about Borders
books and eBooks, keep track of loyalty points and even get the latest news on eBook
arrivals. As such, with B&N and even Amazon (on its own), selling eBooks online too,
customers can now easily compare prices of books online. A multitab browser showing the
prices of the same book from Borders, B&N and even Amazon can easily allow customers to
make price comparison. By outsourcing its online book sale to Amazon, the prices of its
books were bound to be high as Borders would need to pay a fraction of the book price to
Amazon as part of the partnership. This was a costly mistake to Borders.
Borders should personalize its communication channels to each of its customers to enhance
customer retention. According to research 5% increase in customer retention can generate a
75% increase in profitability, and it costs six times more effort to get a customer than to keep
one whom you already have. Experiences that tie the customer’s profile, past engagement
history, and current situation into contextually personalized customer experiences become
very personal to the customer.

Borders could create an “eBook Wish list” (through its app) that allow customers to add Best
Seller eBooks that they want (and is usually hard to find) in the wish list. When there is stock,
the app would notify the customer immediately with a very personalized message. Regular
customers should be given loyalty discounts via the app. Borders should have better focused
on identifying its true market segment and should re-aim its marketing strategies.