The two books used for the analysis are the “The Storyteller”, by Jodi Picoult and the “Salt Sugar Fat” by Michael Moss. The price that Amazon currently charges for the “The Storyteller” is $15.97, however this includes a 45% discount from the original price of $28.99. Amazon does not apply delivery fees unless express delivery option is chosen. The same book is sold on www.barnesandnoble.com for $16.44. The original price was also quoted at $28.99, which shows that Barnes & Noble is willing to offer a 43% discount to its customers. However, the stated price does not include the delivery charge of $3.99. Free shipping can be only obtained in case the book is purchased as a part of the order that overall exceeds $25. “Salt Sugar Fat” by Michael Moss is sold on Amazon for $15.40 (45% discount off $28), while Barnes & Noble offers the same book for $16.27 (41% discount off $28.00). The delivery charge for the book is also $3.99.
In order to understand the business models of the two retailers, it is firstly important to analyze the overall industry characteristics. The structure of the book retail industry can be classified as monopolistic competition, which is characterized by a large number of relatively big players. Market entry and exit are rather free, however some barriers exist in the form of agreements with publishers, scale economies and brand recognition. As the products sold online are identical, customers generally make their decision based on prices. Price competition, however, is unsustainable and in the log-run lowers the overall industry profitability. That is one of the reasons for the identical prices on the two websites (other reasons may refer to the peculiarities of the book industry, such as contracts with publishers and authors). Hence, companies should differentiate their offering according to other parameters in order to gain market share and to win over customers.
The most apparent feature that distinguished the two offerings is the discount. The eventual difference in price is very small and doesn’t aim to give the companies a competitive edge, but rather helps to position themselves in the industry. Barnes & Noble has a long tradition of selling books in the U.S. through retail stores and now through online channels. They are perceived as an upscale store chain that boasts a large collection of books and a unique experience that combines online and brick-and-mortar shopping. The feeling of exclusiveness is reinforced through membership cards that offer a variety of benefits to the members. In general, Barnes & Noble clients look for a superior book experience and are ready to pay a few more dollars for it.
Amazon, on the other hand, is no longer associated with books only. Their core strengths are low operating costs and a variety of products sold. Typical Amazon customers are more price sensitive and do not only shop for books, therefore the main objective of the company is to attract to their website as many visitors as possible because their revenue is mainly driven by volumes. Although Amazon’s book collection is somewhat comparable to that of Barnes & Noble the distinguishing products of Amazon are ebooks. The synergies derived from Kindle ebook readers sold by Amazon allow the company to open an entirely new area of book retail business and nearly monopolize it for now. Kindle owners prefer shopping for books on Amazon as the device is already linked to Amazon accounts and allows easy website navigation. This product appeals to price-sensitive customers as ebooks cost less than paper versions and attract people to the website, where they can potentially buy other items as well.
Another aspect that differentiates the two companies is the delivery service. As Amazon operates large volumes of different products, they are able to offer free delivery that will normally take a few days. Barnes & Noble promises to deliver in Manhattan within 1 day, however it charges $3.99 for the service. The company also leverages their network of brick-and-mortar stores and offers a “pick in store” service that allows customers to collect items at no extra cost in the closest store already 1 hour after the purchase. Hence, buyers, who are not willing to wait for the delivery will most likely choose Barnes & Noble, while more patient clients can get the book cheaper through Amazon.
The example of the two book retailers is very illustrative. It demonstrates that competition does not have to be based on price and that rivals may coexist in the market and even earn profits as long as they are able to differentiate their products.
References
Amazon.com, . N.p., 14 Mar 2013. Web. 14 Mar 2013.
Barnes & Noble, . N.p., n.d. Web. 14 Mar 2013. http://www.barnesandnoble.com/
Best Sellers. The New York Times, 14 Mar 2013. Web. 14 Mar 2013.
Meyer, Debbie. Concepts in Economics. 11th. McGraw-Hill, 2011. Print.
