Market and company analysis of Waterstones

The principle and the idea of the first electronic book were originally described by Alan Kay as early as in 1968 under the name of Dynabooks (Kay, 2000). Despite the fact that the proposed technological innovation and modernisation of such a familiar thing as a book seemed to be very attractive, no one could forecast that e-books would enter the market so quickly in the new century and take up so steady position (Albanese, 2001; Chu, 2003). By the present time the necessary technological base for even greater spreading of e-books has been already worked out. They are highly demanded by customers because of the ease of access and use and lower prices. Such rapid growth of electronic books causes concern that sooner or later they supplant public libraries and traditional high street outlets. However, the UK traditional bookselling market is said to be absolutely unaffected by various critical influences, such as recession and substituting products (Gabriel, 2009; Christianson and Aucoin, 2005).

Today, the UK bookselling market is presented by both independent and major players. The market share of “the indies” is equal to approximately 20%. The key majors are Waterstone’s, Amazon and WH Smith, whose market share constitutes 20%, 16% and 13% respectively (Gabriel, 2009). The current paper based on the proposed case study is a report that raises a number of marketing questions in Waterstone’s the leading book retailer in the UK. In the consecutive order, macro marketing environment, decision making process and the Marketing Mix of Waterstone’s will be considered and possible recommendations for the company will be concluded. Waterstone’s mission is to be the leading Bookseller on the High Street and online providing customers the widest choice, great value and expert advice from a team passionate about Bookselling. Waterstone’s aims to interest and excite its customers and continually inspire people to read and engage in books. It is a part of HMV group since 1998, about 16 years from the opening of its inaugural store.

Environmental Factors Affecting the Marketing of Waterstone’s

Environmental analysis proves to be very important in order to single out the forces and pressures that may affect an organisation from the outside and inside. Environmental factors create a certain framework and conditions a company has to operate in (Wilson and Gilligan, 2005). According to Drummond and Ensor (2005), in order to make the environmental analysis more specific and organised, two groups of environmental influences are usually singled out: macro-environmental factors and micro-environmental factors. In the course of this report we will look into the most important of the two factors the macro-environmental factors affecting the marketing decision making. And to conduct this analysis we will use the PESTEL.

PESTLE Analysis

As it was stated by Thompson and Martin (2005), “PESTLE framework enables the evaluation of key environmental variables or forces in an attempt to judge their potential future impact upon the organisation” (Thompson and Martin, 2005, p. 138). PESTLE appears to be the acronym for the set of the singled out macro-environmental factors: political, economic, social, technological, legal and ethical issues (Thompson and Martin, 2005). The above mentioned external factors produce the following effect on the marketing of Waterstone’s.

Political:

In general, the UK political environment can be considered a favourable one for the development of bookselling industry. There are no clearly marked political tendencies within the country that would hamper growth of Waterstone’s. The number of the UK residents buying books is growing; however, half of the nation does not buy books at all (Gabriel, 2009). Within the global environment there are no common political regulations that would pursue piracy in the sector of electronic books, which reduces the sales of Waterstone’s web outlet (Gabriel, 2009; Rao, 2004; Cornish, 2004).

Economic:

According to Gabriel (2009), the total value of the book sails in the UK in 2008 constituted as much as £3.44 billion. It may be calculated that this figure demonstrates the decrease by 0.7% with comparison with the previous year. Full-priced books are considered to be rather expensive by the population. It may be supposed that the whole industry was influenced by the recession, as people prefer buying first necessity products more than books. However it is argued by Gabriel (2009) that the UK bookselling has never been affected by recessions. Besides, smaller retailers collapse and the market has thinner margins than earlier.

Social:

Almost all age groups read. However, there is differentiation into books for children, academic literature for schoolchildren and students, professionally-oriented literature and fiction for adults. Males read more for educational and specialisation purposes while women read usually for leisure (Gabriel, 2009). E-books have started to enjoy wider popularity than traditional books (Just, 2007).

Technological:

There exists strong technological base for further development of e-books sails. In particular, there is a complex structure of content providers and e-book retailers (Waterstone’s appears to be the dominant one in the UK market), which offer a great number of titles of all genres. E-books can be downloaded via the internet for lower prices in comparison with traditional hardback or paperback books. Furthermore, there exists a range of portable electronic devices specially designed for e-books downloading from the web and reading (Sony’s eReader for Waterstone’s and several devices of competitors) (Gabriel, 2009; Thompson, 2005; Marett, 2002). They operate on different platforms depending on a market player to create greater competition (ePub open format and the format used for Kindle). Mobile platform is becoming more and more convenient for these purposes too (higher penetration of smart phones). Moreover, Waterstone’s uses technological advantages of ‘blogging’ and social networking services to promote its production such as Twitter and Facebook (Gabriel, 2009).

Legal:

The e-books and traditional books retailing is in a way determined by the copy right laws that differ from country to country. Before the 1980s, there was Net Book Agreement (NBA) that established the recommended retail price. According to this law, only limited discounting models were available (Clark et al., 2008; Gabriel, 2009). Today there is no benchmark price for an electronic book in the UK. In addition, discounting is often prescribed for well-known authors. Competition is intensified by the fact that hypermarket chains were permitted to sell bestsellers for even lower prices recently (Gabriel, 2009; Rupp-Serrano, 2005).

Ethical Issues:

Ethical issues may be again associated with considerable concentration of web portals that provide the opportunity of illegal and free downloads of e-books and texts, which hampers the development of e-book retail. Moreover, this can affect even the high street retail (Gabriel, 2009). Independent players are in the minority and they are in a way suppressed by the bigger retailers (Gabriel, 2009).

It may be concluded that the external environment of the bookselling industry in general and the performance of Waterstone’s in particular are characterised by the tensions of breaking copy right laws, forced discounting, economic recession and different electronic formats. At the same time, developing technological base and increase in book buyers in the UK favour the bookselling industry.

Recommended Strategy for the Future

Taking into consideration all the mentioned problems the company may be recommended to propagandise and encourage legal internet purchases of e-books, stressing its importance. The decision to rationalise costs should be taken, and this aim should be attained not by staff reduction. It can be supposed that the compatibility of the eReader should be limited for the users apply to the company’s e-commerce site only. And finally, the corporate supply chain is to be improved. Also setting up of a e-book store at the same time looking at reducing their existing franchisees would help them gain more control over the market. Especially when it comes to piracy of e-books which does not have a strong legal framework to support it. Also the promoting of titles which is currently at around 12% should be brought down to at least 7%-8% which will help in reducing the overall costs for the company.

PART-B

Competitive Advantage in the e-book market:

The main sources of competitive advantage are architecture, reputation and innovation. It is the ability of the firm in how it utilizes its distinctive capabilities to add value to its competitive advantage.

Architecture is the first primary distinctive capability of competitive advantage. It is a network of relational contracts within, or around, the firm. As far as Waterstone’s are concerned the merger with HMV in 1998 could be seen as a major advantage over its competitors. It gave the company a distribution strength increase which saw the number of stores of the group raise from 330 to a massive 650 plus. This also ensured that the company had a distinctive edge over its competitors in distribution. This created a structure, a certain style, a set of routines which operates to get the best out of employees. These routines have continued to produce exceptional results and add value. This major change in the firm’s architecture triggered a flow of innovations which formed a sustainable advantage against Waterstone’s competitors. Secondly, the architecture of the group thus formed allowed the company to successfully adopt new technology sooner and more efficiently than its competitors.

The second primary distinctive capability is Reputation. This is the most important commercial mechanism for conveying information to consumers. The process of building up a reputation for the merger with HMV was not as painstaking and difficult as it might have been to many other companies due to the fact that both companies were already established in a related market. Once this was created, it had an advantage competing for new customers and further strengthening the group’s reputation. The most important concerns of maintaining the premium available for its products and the likelihood of a same or a similar product was also effectively managed by the merger. This ensured that Waterstone’s yielded substantial added value compared to its competitors.

Innovation is the third primary distinctive capability. The process of innovation involved complex interactions between both HMV and Waterstone’s. Though managing innovation was costly and risky, there was a risk of new products failing because of the lack of demand for them. The innovation that came up because of this merger was the “loyalty card” concept which ensured that the customer base of Waterstone’s grew more than its competitors. Thus giving it a competitive advantage over its competitors.

The advantage that Waterstone’s had over its competitors with regard to strategic assets was that it was already a well-established market during the merger and it became even stronger thus eliminating the new entrants to even think about competing against it. This can be further explored by looking at how the Marketing Mix is used by Waterstone’s in devising the strategy for the organization.

Marketing Mix Variables of Waterstone’s

According to Shilbury et al. (2003), the main marketing mix variables appear to be the dimensions of product, price, place (distribution) and promotion, which are also known as 4 P’s of marketing. The company should be able to control all the mentioned variables in order to reach the maximum customer satisfaction (Shilbury et al., 2003). The following graph will illustrate the 4 strategic P’s for Waterstone’s.

Marketing Mix of Waterstone’s

Product:

– Strong brand;

– Premium quality;

– Multy level support online and in physical outlets;

Place:

– High market coverage;

– Service aimed at different categories;

– Investment in supply chain;

– Largest outlets in Europe

Price:

– Discounting for best-sellers;

– Loyalty cards;

– Stationary goods cards

Promotion:

– Piggy-back promotion;

– Sales of additional devices, eReaders;

– Cooperation with celebrities;

– Contracting with publishers

Target Market

Source: Gabriel, 2009; Shank, 2004

Product:

One of the key marketing traits for Waterstone’s happens to be the “strong brand” built over 17 years in its line of business. This kind of strong branding helps the Waterstone’s in maintaining its position as the market leader. The branding is so strong that it makes it our perception of the company and not the company’s perception of its own self. The quality of books you get is another example of the strong marketing trait as all the books are in “Premium”. You very rarely get something which does not match a reader’s interest. On the whole the quality of books are always up to the reader’s expectations. If you take the kind of “Multi-level support” both online and in physical outlets, it is world class. The kind of support that is given to the readers is always ensured that they are maintained above the expected levels. This on the whole ensures that the product is successfully marketed to the end users who are the target market.

Price:

The next key element in marketing for Waterstone’s is the pricing of the product. The “Discounting for best sellers” has always been one of the major strong points for Waterstone’s. Waterstone’s always aims to interest and excite its customers and continually inspire people to read and engage in books through this discounting concept. It also has this “Loyalty cards”concept which is actually a way of connecting with their customers. This concept gives their customers, beyond the basic incentive of the three-points-per-pound or two-points-per-euro offer, they also have an extraordinary asset in their very large (and growing) email base. Direct email communication is sent to their customers inviting them to take advantage of targeted special offers, to receive email newsletters and to enter exclusive competitions. Also they are awarded extra point offers on selected titles and these customers are also entitled for an exclusive ‘cardholder only’ shopping evenings. This concept helps in boosting their sales to a very great level as a very high proportion of sales are done using these cards. They also have a very good collection of stationary goods & cards priced at attractive rates, catering to all ages right from 5 years to 20 years. This ensures that they do not lose out on their position as the number one e-book seller in the UK market.

Place:

The next important aspect of Waterstone’s strategy in gaining the top most position in the e-book sector is the kind of distribution it has with regard to its products. The market coverage is very high compared to its competitors. After its opening at Old Brompton Road in 1982, it has grown up to 300 stores till date, something that none of its competitors have achieved in such a small time. Other than these the company also has a number of stores operating on University campuses in UK, Republic of Ireland and continental Europe (Brussels and Amsterdam) as well as on the Isle of Man, Jersey and the Isle of Wight. This kind of distribution has helped it in getting the required advantage over its competitors. The service provided by Waterstone’s has always been diversified. That is it has been always aimed at different categories. The investment that the company has done in its supply chain has drastically improved its stature as the number one in high street book retailing. In May 2008, they replaced their existing distribution arrangements, which involve publishers delivering directly to each of the company’s 330 stores, with a centralised distribution system through which books from the 2,500 publishers that supply to Waterstone’s will be delivered directly to their 14,700 sq m facility in Staffordshire. There they are sorted and distributed to stores nationwide using a fleet of up to 60 delivery vehicles supplemented with sub-contractors on smaller routes. This kind of change has ensured that they deliver all publications well before the time their competitors did. Another aspect of the marketing strategy adopted by Waterstone’s to beat their competitors were the size of the outlets they had in Europe. Waterstone’s flagship branch on Piccadilly in London is the biggest bookshop in Europe. They have special floors concentrating on fiction, academic genres and children’s books (among many other subjects) it is a great resource for booklovers everywhere. A great 5th floor bar helps to relax their customers in between heavy bouts of serious browsing. Waterstone’s in Gower Street, London, is their flagship academic branch, and Europe’s biggest academic book specialist. They have similar superstores throughout the UK. By having such stores in important places ensures that they can cater to different age groups under one single roof. This emphasises the power of place or distribution for the Waterstone’s.

Promotion:

This is one aspect that Waterstone’s have invested a lot and it has paid off starting from the piggy back strategy they used for selling less interesting books by bundling it with best sellers and selling it at a cost profitable for them, to getting big celebrities to launch new books. They also engage in contracting big publishers, thus ensuring that they don’t lose out to competition in any way. The piggy back strategy was one of the strategies that really worked out for Waterstone’s during the recession period that affected most of its competitors. Though Waterstone’s haven’t had any big promotions lately but the book launches that they have for their premier publishing houses are always filled with celebrities ensuring they get enough free media attention which helps them on their sales. Sales of additional devices like eReaders along with their products helps Waterstone’s ensure their e-books are distributed more effectively.

With the above presented set of marketing mix variables, Waterstone’s aims to reach the target market. As it may be seen numerous strategic decisions pursue establishing more durable relationship with buyers (discounting and special offer cards, post purchase support and broader specialisation). Moreover, Waterstone’s tends to maintain its authority and exclusive state by cooperating with celebrities and possessing the largest physical outlets. Much attention is given to the speed of supply chain (Gabriel, 2009).

Conclusion

Therefore having seen that the distinctive capabilities of competitive advantages do and can yield added value to the firm over a period of time but can only be sustained to a certain degree, we tend to look at the other factors that can actually emerge as the real sources of competitive advantage. However, we cannot ensure that all the sources of competitive advantage are not sustainable over time because they are all characteristics which, given time and expenditure, can be imitated and replicated by other firms.

Hence, while trying to gain competitive advantage in the e-book sector, Waterstone’s sources of competitive advantage rarely yield added value which can be sustained over time, although there are certain sources that rarely yield added value which can be sustained over time but there are also sources which can continuously yield and sustain added value over time which further strengthen the competitive advantage a firm has in the market. So, Waterstone’s should look maintaining the stronghold on the retail market on high street and ensure that it never falls down below the expectations of the customers at any cost. As that is its stronghold and it is only through its stronghold can it generate any kind of competitive advantage.