Barnes and Noble’s strategy is simple; capitalize on a customer demand for inexpensive books. This was a cost leadership and a differentiation strategy. Barnes and Noble identified a gap in the publishing industry, which primarily focused on blockbuster types of books and marquee authors that “rocketed to the best seller list” that the publishing industry in turn sold at a premium. These best sellers were not big profit sources for Barnes and Noble, in contrast Barnes and Noble identified, perhaps through its process of data mining and customer focused research, that its customers wanted less expensive books. Barnes and Noble hoped to get a bigger piece of a shrinking pie; research showed that the number of households that purchased hardcover books actually declined and book sales dwindled throughout the industry. Barnes and Noble created a capability and possibly a core competency through its discovery of this demand and the intimate knowledge of its customer’s demands.
The cost leadership strategy consisted of publishing less expensive books that their customers demanded. By publishing these books internally they increase their profits. Differentiation was also prevalent in this strategy. Barnes and Noble focused outside of best seller categories, which account for only 3% of their sales, and thus they didn’t compete with their high profile publishers. This also allowed Barnes and Noble to retain the magnet of best selling books that attracted customers to their stores. The focus of publishing classics, atlases, illustrated coffee table books, and niche publishing markets such as out of print books, allowed Barnes and Noble to reconfigure new value and will eventually affect the share price.
Barnes and Noble’s strategy was sound and with the reallocation of resources should be poised to succeed. The conservative implementation of this strategy doesn’t commit all of Barnes and Noble’s resources at once and the success of the self published illustrated “coffee table” books points toward the success of this deeper venture into publishing. The mistakes made by Tommy Hilfiger Corp and Borders aren’t good comparisons because the venture of Barnes and Noble focuses on a market niche. Hyperion Robert Miller’s comments that “the niches Barnes & Noble is targeting will still leave room for general-interest publishers.” I agree with Mr. Miller’s assessment that Barnes and Noble’s move is savvy "since they don't pay a 50% markup [to a publisher], they can apply that advantage to price and still make more money than publishers selling the same Charles Dickens title." This makes solid business sense and the by not alienating the best selling publishers it stands to loose little.
Barnes and Noble also leveraged its buying power to force changes on the publishing industry. Some of its current supplier publishers are adapting to this demand as Stuart Dolgins aptly described his firm’s changes to accommodate Barnes and Noble’s demand, "we're competing against ourselves, but if I didn't do this, somebody else would.” The publishing industry is ripe for change of this type. Like the music industry and the problems it currently has with the Internet and illegal copying of music, the publishing industry is content to demand high margins despite the cries of its consumers for lower prices. Barnes and Noble identified this customer demand and appropriated the resources to capture this share of the market. If Barnes and Noble succeeds in reconfiguring a new value for itself it will reshape the publishing industry through a reallocation of resources; Barnes and Noble will become the most efficient user of the available resources and thus reconfigure the industry’s supply chain. This will force other publishing companies to follow suit or find other markets and there will be winners and losers. The winners will ultimately be those firms that capture additional profits; the winners will also be the budding authors that are overlooked because of the risk they pose to a quick profit, as well as the consumers who have demanded less expensive books.
Based on this information I am indeed attracted to Barnes and Noble stock at its current price. I believe that the cost leadership and a differentiation strategy is well though out and has been well executed so far. I believe that Barnes and Noble will stand in the winner’s circle; along with budding (if not frustrated) authors like myself and many happy customers.
