Essay on Amazon’s Vertical Integration
The marketing mix includes four essential components: product, price, promotion and place. Place denotes the approach to distribution and pertains to the methods of delivering the product or service to the target customers. The methods of distribution are shaped by the nature of the product or service, by technological factors, by the strategies of competitors, by the strategies of other participants of the supply chain or distribution chain, etc.
In particular, there exist several distribution methods which include integration. The most frequently used methods are horizontal integration – the inclusion of companies or business activities pertaining to the same level of the value chain, and vertical integration – the integration of different levels of supply chain in one company or one union. The purpose of this paper is to analyze backward integration in publishing undertaken by Amazon, to review the facts of the battle between Amazon and Barnes and Noble, to discuss Amazon’s decision to get into publishing and to consider the perspectives of signing contracts with Amazon from the position of a well-known and a novel author.
Key facts on the battle between Amazon and Barnes and Noble
Amazon was one of the pioneers of e-commerce, and its department dealing with online sales of print books quickly became successful. Amazon paid a lot of attention to its book business and started investing into e-books and devices for reading e-books in order to attract the audience. Although Amazon clearly chose to focus on the segment of electronic books, it also entered the publishing segment and offered exclusive publishing services to the authors.
Besides the bold decision on backward integration, Amazon also undertook several predatory marketing campaigns which were focused on directing customers from other book stores such as Barnes and Noble. In particular, Amazon offered an $15 discount for those customers who visited traditional bookstores and used Amazon price check app to purchase print versions of the necessary books in Amazon (instead of purchasing the books at the store they were visiting) (Hertner, 2012).
Although Amazon managed to drive customer interest, publishers and book retailers united in a protest against such practices (Hertner, 2012). The companies also protest against Amazon tax protection: the company is allowed not to pay taxes across the United States because it has no physical presence in the states with sales tax (Hertner, 2012). Furthermore, Barnes and Noble made a public statement calling authors to avoid agreements with Amazon since such agreements strengthen Amazon’s monopoly and threaten to undermine the whole publishing industry (Turner, 2012).
Despite the united efforts of publishers and book retailers, Amazon is clearly winning the game. Barnes and Noble reports that the sales of electronic and printed books are decreasing as well as the sales of electronic devices and accessories (Gelles, 2014). The revenues of Barnes and Noble are declining, and the Nook department of Barnes and Noble is no longer able to compete with Amazon Kindle devices and the variety of tablets and smartphones available at the market. Barnes and Noble is planning to use the services of third-party manufacturers to upgrade its Nook line of e-readers or to sell the department to G Asset Management (Gelles, 2014). Although Barnes and Noble managed to optimize costs and therefore increase the overall profits despite the drop in revenue, the prospects of brick-and-mortar bookstores are not very optimistic. At the same time, Amazon is actively pursuing its vertical integration strategy and growing the market of electronic books and e-readers.
Assessment of Amazon’s entry into publishing
Amazon started as online retailer and its major competitive advantage was formed by the benefits caused by early entry into the industry (Krug, 2012). At the same time, Amazon quickly expanded its presence in innovative market segments. One of these segments was the publishing segment. Amazon started offering publishing services to authors and focused on selling both printed and electronic versions of books. From the author’s perspective, such idea is fruitful as it allows to gain access to a large audience and helps to target both the fans of printed books and the new generation of readers who prefer e-ink devices for reading.
Amazon’s conditions are exclusive and the authors might be unable to publish their books with other publishers. In this way, Amazon manages to eliminate intermediaries and therefore decrease publishing costs. Furthermore, Amazon receives the opportunity to capitalize on publishing books and strengthens its supply chain. At the same time, Amazon’s exclusive publishing conditions result in the weakening of other publishers and book retailers and in the strengthening of Amazon’s market position. Therefore, vertical integration is highly beneficial for Amazon as it helps the company to expand the market of e-books and at the same time to retain its leadership in selling printed books.
Author choices in different situations
From the perspective of a popular author of children’s fiction, it might be not very beneficial to sign a contract with Amazon since this company requests exclusive rights, and a popular author might want to choose more beneficial contracts with other publishers in the future. Furthermore, book retailers and publishers often boycott Amazon’s printed books and therefore signing a contract with Amazon might limit access to readers audience for a popular author. Therefore, it would be reasonable for a popular author to reject Amazon offer and to retain the relationships with the traditional publisher.
In the case of a new author working on a first book it is best to accept Amazon’s offer because of several reasons. First of all, it is difficult for beginning authors to attract the attention to traditional publishers because of numerous procedures and requirements as well as competition in this sphere. Every publisher also targets a particular audience and it is hard for a new author to choose the right publisher and to win the contract. In Amazon’s case, the risks for a new author are lower and the author can quickly gain access to a worldwide audience (especially in the case of electronic books).
Conclusions and recommendations
The development of technology has dramatically changed distribution channels in the publishing industry. The dynamics of the recent decade shows that the sales of e-books are increasing and the sales of print books are declining (Trachtenberg, 2014). Amazon is the global leader in selling e-books while the sales of Barnes and Noble are declining (Trachtenberg, 2014). However, there are specific categories of print books the demand for which is growing or keeps at the same level: these are textbooks, books for entertainment (detectives, fiction), books for children and illustrated books such as recipe books (Herther, 2012).
The major strategic advantage of Barnes and Noble is its brick-and-mortar chain of stores. At the same time, this chain of stores incurs significant costs. It is recommended for Barnes and Noble to track the categories of print books the demand for which is still high, and to optimize its store layout to offer only these categories of books available for instantaneous purchase. Other categories of books should be sold in online store of Barnes and Noble.
Furthermore, to stay in the publishing business, Barnes and Noble needs to keep in touch with technology. In this context, acquisitions of new technologies might be helpful for the company if these technologies can enhance reading experience. Currently Barnes and Noble can improve its market position if the company focuses on delivering ultimate reading experience and empowering it with technology. The company made a bold move by introducing Nook reader, and it would be efficient to empower this device with break-through technology. In any case, Barnes and Noble should focus on online distribution of print and electronic books, and use its brick-and-mortar stores in combination with its digital strategy.
Do you like this essay?
Our writers can write a paper like this for you!
(No Ratings Yet)
Loading...