Management Information Systems

Assignment II

Barnes & Noble

1. Use the value chain and competitive forces models to evaluate the impact of the Internet on
book publishers and book retail stores such as Barnes & Noble.
In our modern world, the considerable influence of Internet can be observed in many areas,
and one of those fields is book industry. Arrival of e-books, different apps, and technologies
changed the rules of the game. People started to prefer and utilize e-books, due to their price,
accessibility, and other various qualities that bring convenience to consumers. Consequently,
bookstores like Barnes & Noble found themselves in financially problematic situation. They
lost their clients day by day which in turn impacts their sales, revenues, and profits. Firstly,
with the help of Porter’s Competitive Forces Model, we will analyze business environment of
Barnes & Noble, its competitors, and how these competitive forces (Traditional Competitors,
New Market Entrants, Substitute Product & Services, Customers, and Suppliers) shaped the
future of this company.
Traditional Competitors- Barnes & Noble (B&N) had 20 years of dominance in book retail
business, and this company was continuously increasing its market share with more than
3300 bookstores. Although B&N had different pricing method which brought revenue to the
company for several years, the company failed to recognize ultimate opportunity which was
online platforms for selling books. This mistake resulted with decreasing company’s market
share to 27%(this number continues to decline) and keeping only 2200 stores in 2011. B&N
could compensate this mistake by putting much emphasis on importance of Internet, and
possible opportunities it could bring. Rather than competing for highest number of titles in
the stores, B&N should have researched new methods, and strategies to attract costumers
especially e-book business. Their mistake also caused the raise new strong competitors such
as Amazon and Apple. By using online book store idea, and further differentiating its
products, Amazon outperformed B&N, and only in 2011 Amazon had 60% market share in
digital book market.
New Market Entrants- In its early years, Barnes & Noble was able to build high entrance
barriers for new entrants in book retails business. Access to the required resources, and very
aggressive pricing strategy helped to eliminate many competitors from this field.
Nevertheless, this technique was not successful when it came to new competitors with unique
innovation ideas. Amazon entered the digital book market just on time, while B&N was not
paying enough attention to this million-worth opportunity. Although, B&N started its online
shop on AOL, the company was 2 years late. After that B&N started again to compete over
price and differentiation of products. The company decreased the price of its e-readers-Nook
from $259 to $199. Response from Amazon was immediate, and they also dropped price of
Kindle to $189, and even released new model with $10 cheaper price.
Substitute Product & Services- One of the essential competitive force in market is the
existence of the substitutes. E-books that Amazon offers had several advantages over B&N
books. Firstly, as we know price is the important deciding factor for the purchase process,
and with the help of online platforms Amazon was able to lower the price to $10, and even
sell world famous e-books and New York times for that price. Moreover, Amazon did limit
itself with only one type of products, company utilized strategy and started to offer online
music store, e-readers, and other apps. In all of these cases, B&N was late to catch the trend.
By the time, B&N entered the market, the substitute of the product had already existed and
the competitor- Amazon had already huge power in the area. We can observe this power just
by comparing market capitalization of two companies based on data of 2020; Amazon’s
market capitalization is 998.61 billion, almost a trillion. In contrast, B&N has 475.12 million
market capitalization. These numbers demonstrate what kind of excellent opportunity Barnes
& Noble missed just by disregarding importance of the Internet.
Customers- As we have learned the demand from the customers, their needs and wants are
key factors that controls the markets. When those needs impacted by the advanced of the
technologies, companies should adapt to those changes. Before these changes, B&N had huge
bargaining power over customers, and they offered in store experience. However, the
introduction of e-books, e-readers by Amazon changed and shaped their needs. E-books was
cheaper, and e-readers was easy to carry since they were not heavy as traditional books.
Although B&N still has 1363 stores, leading position (closest competitor- Books-A-Million
has around 250 stores) in book retail business, company lost its customers due to presence of
better alternative.
Suppliers- Another essential force in business environment is supplies, and they also can
provide competitive advantage to the company. Initially, suppliers of Barnes & Noble and the
company had a system in which they operated effectively to provide thousands of copies to
3300 stores. Nevertheless, with the presence of Amazon and its game-changing online
products, the position of B&N weakened. The company decreased the number of stores
which means lower demand for physical books and their publishers and this situation
negatively impacted suppliers for retail book business, decreased their power. Additionally,
Amazon wanted to eliminate publishers, and wanted to directly publish and sell books with
lower price in order to stimulate sales of e-readers. This strategy also influenced suppliers in
negative manner, and they depict Amazon as an ‘enemy’.

With the help of Competitive Force Model, we analyzed business environment of Barnes &
Noble, the competitive forces within this environment, and how these forces impacted the
company. Now by applying Value Chain Model, we will explore what Barnes & Noble needs
to do in order to have operational excellence, which specific strategy it needs to follow. This
model describes companies as the set of activities that are connected like a chain. These
activities are divided into two categories; primary and support activities. From primary
activities, company can concentrate on sales and marketing. The company still exercise
power in retail book business, and has support of suppliers. By applying proper marketing
strategy in online platforms, company can persuade readers to use print books. Moreover,
Barnes & Noble can benefit from outbound logistics; distributing books to customer could
provide unique experience and increase sales. From support activities, Barnes & Noble has to
make investment in technology. By this way it can decrease production cost and have
competitive advantage. Furthermore, company needs to improve products, and expand the
domain of digital products.

2. How did Barnes and Noble change its business model to deal with the Internet and e-book
technology?
The first strategy that Barnes & Noble followed was to close the stores, since they were
making loses. Only in 2011, their stores decreased from 3300 to 2200. Moreover, CEO of the
company had idea that each year 20 stores will be closed until this number reaches nearly
450. In 2020, they have 627 stores. This huge decline in the statistics, also impact the number
of reaches to the customer. As a result, they had decrease in sales. Another method that
Barnes & Noble applied was differentiation. Although they fell behind of Amazon, they kept
producing e-books, e-readers. Additionally, they try to attract customers to stores by offering
games, access to different apps. Furthermore, they produce toys which bring considerable
revenue to the company.
3. Will Barnes & Noble’s new strategy be successful? Explain your answer.
In order to survive in the market, Barnes & Noble’s differentiation strategy is essential.
Although the company failed to take initiative, start online book business while it had power,
later on Barnes & Noble tried to follow trend. The comparison of the market capitalization of
both Amazon and Barnes & Noble leads us to conclude that this strategy was successful to
save company from being closed and operate on moderate level. However, this is not enough
to take dominant position in the business. Barnes & Noble’s new method which is attracting
customers to the stores, and influencing them via online platforms to purchase printed books
can bring positive cash flow to the company.