Barnes & Noble External Analysis

Barnes & Noble
Interim Report

One of the most popular leisure activities in the world is reading. The reading industry is a multi-billion dollar industry, and Barnes & Noble is no small player. Primarily a retail business, New York-based Barnes & Noble has cemented themselves as a pillar of strength in the industry by operating over 1300 retail stores in the United States. More recently, they have entered the technology field as the reading industry moved more towards digital media. Currently, Barnes & Noble provides retail services on over 600 college campuses, and operates one of the world’s largest e-commerce web sites. With their entry into digital media, Barnes & Noble has expanded its profitability by selling digital e-books to its customers, as well as traditional paperback, hard cover, textbooks, reference, fiction, and all other types of print media. Barnes & Noble remains one of the literary industry’s top firms, and looks to continue this performance long into the digital age.

Opportunities & Threats
With competition on the rise, the retail book industry has gone through numerous changes over the years, creating few opportunities and more threats. New developments in technology in the past decade and more businesses expanding their product offering have created intense rivalry between on-line based organizations and storefront organizations. “Intense rivalry among established companies constitutes a strong threat to profitability.” (Hill & Jones, 2010). Organizations such as Amazon.com and Barnes & Noble not only compete with each other, but also must fight to gain market share over retail stores such as Wal-Mart and Sam’s Club.

This increase in rivalry within the industry has created an unstable market, and a threat by limiting the price an organization may charge. This enables organizations to drive out the competition by offering superior quality products at a lower price. As the retail book industry continues to see an increase in rivalry, price wars will continue, creating a threat to firms without an absolute cost advantage (ex. Amazon.com cutting costs by being strictly web-based), along with creating high barriers of entry. These threats will continue to remain within the industry creating multiple problems for both organizations trying to gain market share and those trying to enter the industry.

In addition to threats, opportunities are also being presented in the retail book industry. With technology successfully reducing the barriers of communication, an opportunity is created for organizations to expand their services to both storefront and web-based retail, This allows them to compete with much larger organizations which have an absolute cost advantage. Technological forces have had a profound impact on the social environment, which have shifted much of the world population to favor web-based purchases. These forces create an opportunity for both organizations within the industry, as well as to new entrants by allowing them access to customers they would otherwise not have.

Overall, the retail book industry is not an attractive industry for new entrants due to the intense rivalry among established organizations, in addition to those organizations who have gained cost advantages. Organizations within the industry must adapt to the changing environment by slashing prices, along with developing on-line based stores in order to increase market share in a much broader, more competitive global marketplace. They must develop new innovative ideas if they want to stay ahead of the competition and gain a competitive advantage, along with decreasing the chance of threats.

Rivalry
Rivalry is a very strong force for Barnes & Noble. Some of the major rivals include Amazon, Kindle, Sony and even Apple. Amazon.com has the Amazon Marketplace that allows other stores and individuals to sell new and pre-owned books on their site. These online retailers are driving down the prices of books. Amazon came out with the Kindle, which is an electronic book reader. In response to that, Barnes & Noble also came out with an electronic book reader called the Nook. Another rival that came into play after the Nook is Sony’s eReader followed by Apple’s iPad.

Threat of Substitute Products
The threat of substitute products is very weak. Barnes & Noble will continue business unless books become obsolete and are no longer being printed. Barnes & Noble lowered the chance of a substitute product by creating their own, the electronic book reader called the Nook. This will help keep the firm alive in the market in the event that digital media completely usurps printed text as a medium.

New Entrant
Risk of entry is a strong force in this industry despite the efforts Barnes & Noble has made to change their cost leadership and differentiation strategy. The efforts that Barnes & Noble is constantly making to improve their cost leadership and differentiation strategy from introducing online book purchasing, readjusting their stores to include more gift and toys items, and now the introduction of the e-bookstore as part of their online strategy with the various Nook hardware. The rivalry between giants like Amazon.com and Barnes & Noble make this industry extremely volatile. New entrants will have to compete at a high level of competition since constant innovation is taking this industry to unpredictable turns with high tech devices and the competitive advantage of selling books online.

Bargaining Power of Suppliers
Bargaining power of suppliers is weak since Barnes & Noble is the last hope for publishers. Publishers ' fear of losing the only giant book storefront retailer has caused the publishers to reduce prices in an attempt to maintain a physical store presence. The major competition for this presence comes from online book retailer Amazon.com. After the sale their own publishing company, Sterling, Barnes & Noble is now focusing in the competitive advantage of what is to become of their core business, the Nook tablets. The adjustment from their main supplier, the publishing companies, to now, manufacturing and engineering intelligence is a strong force, since this innovation has caused Barnes & Noble to incur high cost, decreasing their net sales.

Bargaining Power of Buyers
Bargaining power of buyers is a strong force since buyers have low cost alternatives when it comes to enjoying a book. The trend of e-books is imperative to the continued success of Barnes & Noble. Increasing buyers ' perceived value with the atmosphere offered at each store is a vital effort in order to prolong the existence of their 705 Barnes & Noble branded stores in the United States. With their in-house coffee shop, innovative toys and children’s section, Barnes & Noble retail outlets offers a great advantage to those customers that still believe in the touch and browsing of a book before purchasing it

Technological Macroenvironment
In today’s society, reading a book is something that is considered old fashioned. Paper writings have been around since 2400 B.C. with modern books coming into fashion somewhere around 1450 when Johannes Gutenberg invented the movable type printing press.

Much of that thought changed on November 19, 2007 when Amazon.com released its Kindle e-reader. Moving books into the digital age, the Kindle operates on EInk technology rather than a backlit LCD screen. According to Amazon.com, "E Ink screens look and read just like real paper. Kindle e-readers ' matte screens reflect light like ordinary paper and use no backlighting, so you can read as easily in bright sunlight as in your living room. Unlike LCD screens, E Ink screens have no glare." (Amazon.com, 2012)

The invention of this technology has threatened to push paper books toward obsolete. In order to stay afloat in the newly evolving market, Barnes & Noble released their answer to the Kindle on November 20, 2009 and called it Nook. Like the Kindle, the Nook utilizes E Ink technology. However, in an attempt to appeal to consumers. Barnes & Noble improved upon the product by adding additional features such as removable battery and the ability to expand the device 's internal 2 GB memory with a SDHC card. Today, the Nook proves to be one of Barnes & Noble’s most profitable divisions, and has enabled the bookseller to remain competitive during the evolution of digital media.

Political and Legal Forces Macroenvironment
Recently, the United States Justice Department has alleged that major U.S. publishers are colluding with Apple to control electronic book prices. "The case centers on Apple 's move to change the way that publishers charge for e-books as it prepared to introduce its first iPad in early 2010" (Catan & Trachtenberg, 2012). Prices for newly released books had been fairly steady around $9.99 at the introduction of the Kindle and Nook. However, in 2010, Apple 's Steve Jobs "suggested moving to an 'Agency model, ' under which the publishers would set the price of the book.... Apple also stipulated that publishers couldn 't let rival retailers sell the same book at a lower price" (Catan & Trachtenberg, 2012). This type of contractual price controlling is illegal and has a huge affect on how Amazon and Barnes & Noble can distribute their media to their customers.

Bibliography
Amazon.com. (2012, March 19). Amazon Kindle Product Page. Retrieved March 19, 2012, from Amazon.com: http://www.amazon.com/gp/product/B0051QVESA/ref=sv_kstore_0
Catan, T., & Trachtenberg, J. A. (2012, March 9). Wall Street Journal. Retrieved March 13, 2012, from wsj.com: http://online.wsj.com/article/SB10001424052970203961204577267831767489216.html
Enderle, R. (2012, Febraury 21). Barnes & Noble declares eBook price war. Retrieved March 12, 2012, from TGDaily.com: http://www.tgdaily.com/opinion-features/61604-barnes-and-noble-declares-ebook-price-war
Hill, C. W., & Jones, G. R. (2010). Strategic Management, An Integrated Approach. Mason: South-Western Cengage Learning.
Reuters. (2012, March 23). Reuters. Retrieved March 23, 2012, from Reuters.com: http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=BKS
Thornton, S. (2012, March 23). Barnes & Noble SWOT Analysis. Retrieved March 23, 2012, from eHow.com: http://www.ehow.com/facts_5750571_barnes-noble-swot-analysis.html

Bibliography: Amazon.com. (2012, March 19). Amazon Kindle Product Page. Retrieved March 19, 2012, from Amazon.com: http://www.amazon.com/gp/product/B0051QVESA/ref=sv_kstore_0 Catan, T., & Trachtenberg, J. A. (2012, March 9). Wall Street Journal. Retrieved March 13, 2012, from wsj.com: http://online.wsj.com/article/SB10001424052970203961204577267831767489216.html Enderle, R. (2012, Febraury 21). Barnes & Noble declares eBook price war. Retrieved March 12, 2012, from TGDaily.com: http://www.tgdaily.com/opinion-features/61604-barnes-and-noble-declares-ebook-price-war Hill, C. W., & Jones, G. R. (2010). Strategic Management, An Integrated Approach. Mason: South-Western Cengage Learning. Reuters. (2012, March 23). Reuters. Retrieved March 23, 2012, from Reuters.com: http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=BKS Thornton, S. (2012, March 23). Barnes & Noble SWOT Analysis. Retrieved March 23, 2012, from eHow.com: http://www.ehow.com/facts_5750571_barnes-noble-swot-analysis.html