Copperfields Books

Issue

The issue in the case of Copperfield’s Books Inc is that they are a small chain in an industry dominated by big-box book chains. This memo will discuss why Copperfield’s Books Inc is in trouble and it will also offer alternatives for Copperfield’s Books Inc.

Industry Analysis вЂ" Traditional Book Retailers

Traditional book retailers across the nation of all shapes and sizes are facing some of the same problems. One of these problems is that internet-only firms such as Amazon have eaten into the overall market for books. As of 2002 internet firms accounted for 8.1% of all units sold in the industry. This is an increase over past years and it is a trend that is likely to continue as the internet retailers begin to reach more customers. There are two reasons to believe that internet retailers will continue to increase their market share. The first reason is that not every person in the country has internet access yet, so the growth potential in that industry translates to growth potential in this market. The second reason is because many of the internet retailers are unknown to a percentage of the population. The brand awareness is not fully established for most internet firms like it is for long standing brick and mortar firms.

The second problem that the traditional book retailing industry faces is that much of the information that educational books cover is now available for free on the internet. This could have an effect some potential customers in that these potential customers would feel that they can get the same information for free on the internet.

Strengths

One of the strengths of the traditional book retailing industry is that they have already established their presence in their markets. Any firm wanting to enter the market that these stores are entrenched in would be forced to undertake a large marketing campaign in order to get their brand name out to potential customers. This is obviously an advantage for entrenched firms since they could potentially have a cost savings while the new entrant would be undertaking their initial marketing campaign.

These existing retailers also know their local markets. This means that they will be relatively far along the learning curve, while a new entrant may make some mistakes. This will result in a high learning curve cost for these new entrants. Until the new entrants learn all that the entrenched retailer knows, they will most likely be at a disadvantage as far as knowledge in that market. This learning curve is even more complex for internet retailers. Since online retailers service a much wider area they tend to not specialize in one market like an individual store would.

An advantage that brick and mortar book retailers have over internet retailers is that when a potential customer needs a book immediately, they cannot order that purchase from the internet firm due to the shipping lag. This is only the case for normal books since e-books can be downloaded.

Weaknesses

The traditional book retailers have many weaknesses that can be exploited by their competition. Smaller, independent retailers, like Copperfield’s, have an even longer list of weaknesses that can be exploited by both the new competition to the industry and the larger retailers that already exist within the industry.

The first weakness is that small retailers fail to achieve the same economies of scale as the large chains. This is important in this case because Copperfield’s does not have the purchasing power to get large discounts like large chains, such as Barnes & Noble’s. This means that Copperfield’s is starting out at a disadvantage because they are selling the same products at a higher price. This also applies to online firms, such as Amazon, because they have a much wider area of service. Thus, they also possess great purchasing power, and therefore can secure a lower rate from publishers.

The amount of books purchased by each firm also has bearing on how many of which titles they are able to purchase. This is because the publishers are more willing to sell large quantities of their best titles to their biggest customers. The reason that this is important is because book sales are driven by how many of the hit titles are available for purchase. (221) In the case of Copperfield’s this hurts because they are competing with both Barnes & Noble and Borders in their market. This means that Copperfield’s competition will be able to stock a greater volume of the popular titles in comparison to Copperfield’s. Also, Copperfield’s has already learned that they cannot directly complete with these firms in a head-to-head competition, when they were forced to close their downtown Santa Rosa store in 2004. (230)

The business model for firms like Barnes & Noble and Borders is to offer a vast array of titles in stores with larger square footage than their competitors while also giving customers a low price on the items. This model is difficult for a small firm to duplicate because it relies upon economies of scale as a competitive advantage. These larger stores require more of an investment to open. According to Barnes & Noble this investment was about $1.9million per store. The larger selection of titles in these larger stores is a draw for customers. (221)

The Large firms in the industry also have a more high profile brand name that they can use to their advantage. This marketing tool makes it easier for these chains to be able to expand into a new market without incurring costs as high as they may have if they did not have a known brand name.

The entire retail market for books is changing with the emergence of firms such as Amazon. It can be seen that online retailers are growing as a percentage of the market when we see that their percentage of total sales has increased from 5.5% in 1999 to 8.1% in 2002. (219) Internet retailers possess numerous cost advantages over traditional retail stores. One advantage is that internet retailers only need a single warehouse to ship their products from, rather than having to pay for individual retail locations. This will obviously cut overhead costs for the