What is the fate of the brick and mortar bookselling industry? Borders just announced plans for bankruptcy and foreclosure of 226 stores in February. For Borders, they just made one too many mistake. Experts at Wall Street Journal have highlighted three missteps – operation of too many unprofitable physical stores; lack of sales in the outdated format of music CDs; and missteps of not joining the first the e-book wave. Seeing how rapid changes occur in technology, the brick and mortar bookstore and physical book selling industries are in grave danger.
Although Barnes & Noble dodged the bullet this round, the company must be ready to battle its biggest threat, the giant online retailer Amazon. Barnes & Noble has already tightened its belt by eliminating dividends while reporting a 7.3% profit in its latest fiscal quarter. As the largest book retailer, Barnes & Noble must avoid find ways to leverage its core competencies: upscale store atmosphere, superior customer service, and the NOOK e-Reader.
Here is my list of recommendations: 1) to enhance the brick-and-mortar stores’ ambiance and environment by opening newer redesigned stores, eliminating shelf space, and integrating in-store NOOK functionality; 2) to create partnerships with schools and Starbucks to drive NOOK adoption and capitalize on powerful network effects; 3) to introduce an unlimited subscription service on the NOOK to add value to the customers and gain market share.
From Borders’ failure, we recognize that the key to success lies within the fierce competition over e-book. Whoever dominates the e-book market wins. In order for NOOK e-reader to gain market share, Barnes & Noble must integrate NOOK into a store’s floor design. Many customers come to Barnes & Noble to browse and read books without purchasing anything. By allowing customers who own a NOOK to have special perks inside a Barnes & Noble retail store, it will increase brand awareness and promote NOOK sales. For example, Barnes & Noble can implement a member card that can be imbedded in the customer’s NOOK that will keep track of every book read by him. When he enters the store and swipes the card, the NOOK will notify him of a “Book of the Week” that is specific to his interests. The NOOK now has become a consumer’s personal shopper while he browses the store.
Barnes &Noble can further extend this strategy by expanding their existing partnership with Starbucks, which offers its coffee products through Barnes & Noble café. Last year, Barnes & Noble released a beta version of their Read in StoreTM feature on the NOOK. This feature allows users to read books on their NOOK in any B&N store, free for one hour. Essentially, NOOK owners gain free browsing access to Barnes & Noble’s enormous selection of books by walking into any brick and mortar store.
If Barnes & Noble wants to broaden its network effect, they should consider extending this feature to regular Starbucks cafés. Any NOOK owner would be able to enter a Starbucks and read any book on their NOOK for free. Given the ubiquity of Starbucks cafés, this partnership will offer many advantages for its consumers. It is advantageous for Starbucks as well because of their third place ideology. Starbucks uses the catch phrase “third place” to promote the ambiance of their stores – “there is home, there is work, and there is Starbucks”.
I see this as a win-win situation. If Starbucks were to continue to open additional locations in the US, more NOOK owners would be able to use their NOOK in more places. Likewise, if NOOK sales continued to grow rapidly in the coming year, Starbucks could expect an inflow of new consumers who have come in to buy a coffee while reading a book on their NOOK.
And here is my brightest and boldest idea – The Netflix Model. Netflix broke away from the traditional brick-and-mortar format with an Internet-based video rental business. It beat its competition with a completely different pricing strategy through the creation of a prepaid subscription service with unlimited rentals and elimination of single-rental service. Netflix singlehandedly destroyed Blockbuster and won the loyalty of 20 million subscribers.
Borrowing from Netflix, I want to adapt its “unlimited subscription” model to fit into Barnes & Noble’s e-book business. Barnes & Noble must develop its broad and open e-book platform, its relationships with smaller publishers, and its specific focus on books to offer an unlimited subscription model for a majority of its e-books.
Blogger J.D. Roth comments that most books published in the past century do not sell as well as e-books because of their comparatively higher prices, free books at the public libraries, used bookstores, eBay, and even Amazon’s used book marketplace. Barnes & Noble’s unlimited subscription model would revive millions of book titles that are otherwise gathering dust at publishers’ storage shelves.
Similar to the Netflix’s model, customers of Barnes & Noble’s unlimited subscription model would be able to “check out” a maximum of 2-3 books for as long as they wanted, and exchange their finished e-books for new ones at their leisure. Think of the model as a digital library rather than a digital bookstore.
According to The Washington Post, one study found that one in four adults does not read a book yearly. If Barnes & Noble could price its unlimited subscription model as low as one or two times the average price of a physical book per month ($15-$20), it would still profit immensely from the majority of Americans who read less than one book per month.
The main media industry leaders including Netflix and Apple have been successful because they make access to their products effortless for their users. The newly proposed plan offers consumers the convenience of one-click, on-demand e-book downloads without having to worry about the complexity of tiered subscriptions or the effort of comparing book prices. Additionally, the service would offer dramatically lower risk for consumers because they would not be stuck with a book they dislike.
Barnes & Noble’s ability to outlast the recession and competitors is rooted within the company’s strong brand in book retailing and foresight into digital books. With the implementation of brick-and-mortar store redesign, advanced partnerships, and new subscription platform, Barnes & Noble will regain its unyielding position as the number one book retailer.
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