Since its incorporation in 1994, Amazon’s business model had expanded from offering a simple internet marketplace for books to providing web services to online retailers, storage solutions and a dramatically….
Case Study of “Bookoff, Amazon Japan, and the Japanese Retail Bookselling Industry”
Case Study of “Bookoff, Amazon Japan, and the Japanese Retail Bookselling Industry” 1. The reasons for the profitability of large Japanese retail booksellers relatively poor and their scale relatively small. One reason for this is that there is no significant industry consolidation has occurred, so there is no dominant bookseller, because there is a unique formal institution which is price-fixing system that makes it illegal for larger and potentially more efficient competitors to use price competition to drive out small competitors.
Laws have allowed publishers to fix the price of new books, music, and newspapers in the bookselling industry, this means retailers are unable to compete on price. For a long time, sales has been in stagnation, even worse, the steady increase of costs over time has reduced the profitability of both large chains and small stores. Also because of the undifferentiated book in multiple book stores, the only way to compete is on price, but this is illegal, and also the entry to this industry is low, small entrants can enter this industry easily ,this lead to the scale relatively small. . The benefits for individual companies and the industry to participate in Saihan system and the costs. Under Saihan system, for individual companies, they sell books, musics, magazines at fixed price, the competition is not fierce and they can almost earn average profit of this industry, because there is no need to compete on price, this can make them more cautious of their diversity of products, so they would provide as more product as they can, which could increase customer loyalty if customers could always find what they want.
Another benefit is that Saihan system encourages new tittles to publish, this enables individual company to bring many new books in their stores to attract customer. While the costs of this system for individual companies are becoming bigger, they have to spend large amount of money to process the new titles while they are making less profit on them. Because of fixed price, all the stores are providing undifferentiated books and also the less competition makes individual companies much less efficient.
As the industry is under price fixing system, first benefit is that this system combined with Consignment sale system which allows retailers and wholesalers to return unsold books to the publisher free of charge, leading publishers and wholesalers prefer to supply larger retailers first, which drives small retailers out of business. Another benefit is that this system maintains market stability, the price is not volatile and the industry can grow steadily.
On the other hand, costs are, as the industry entry is not high, many small book stores being set up in Japan, with the large number of stores, every company is earning lower profit but they can not compete on price. Because of the rigidity of price, customer would like to buy cheaper imported books and CDs and also buy second-hand books, online books, and also rental books instead of buying a new book, these substitutes are now threatening the industry and also hamper the growth of the industry. . Industry-, resource-, and institutional based views to explain the success of Bookoff and Amazon Japan. • Industry-based view From industry-based view, rivalry among competitor in Japanese industry is characterized by large numbers of relatively small booksellers, as they are all selling products at the same prices, the rivals in the industry are similar in size, influence and product offering, so the competition with this saturated industry is vigorous.
As the entry barriers of this industry is relatively low, some incumbents enjoys economies of scales, only large retailers are earning higher profits, small operations are being driven out of this industry, the profitability of the industry is not so attractive, so, potential entrants are few. In the area of book distribution channel, the competition is very low, as Nippon Shuppan Hanbai and Tohan control between 70% and 90% of the book wholesale market. They prefer to supply larger retailers first, because they don’t need to worry much about returned books under Consignment Sale System.
So the small number of suppliers and they provide the newest and most popular books shape the strong bargaining power The buyers of this industry now can choose to use internet to entertain, this causes the overall drop in book sales in Japan, and the number of retailers in the industry is very big, so they can choose between different stores without any switching costs, and they are all facing undifferentiated books, so the bargaining powers of buyers in the industry is very enhanced.
The substitutes are posing big threat of this industry, e-book and cell phone novel are convenient and less expensive compared to existing hard copy books and customers virtually incur no costs when switching from hard copy books to e-books, cell phone novels. So the substitutes are a big threat for this industry. For Bookoff, the strategy Bookoff deployed is low-cost leadership, it uses a loophole in the Saihan system to offer lower prices by opening used-book stores, because used books are an exemption to the Saihan system.
Bookoff uses its new technologies to clean book covers and grind down dog-eared pages to make a used book look practically new, and the rehabilitated books are at new book quality, so, it offers the same value of a product at a lower price compared with its rivals, the technology it is using is an entry barrier for other competitors and potential entrants. While the suppliers of Bookoff are those used book holders, their bargaining power is much lower since it buys books form the suppliers at 10% of its list price.
In addition, Bookoff focuses on the used book and differentiates itself by shaping the new recycle industry, the students can feel frugal and environmentally conscious without suffering a drop-off in the quality of books when buying new-used ones, and new-used book store such as Bookoff is also an acceptable compromise for the still image-conscious, but increasingly thrifty, Japanese consumer. For Amazon Japan, first, it uses product differentiation strategy to provide a wide variety of products besides book. It offers music, DVDs, videos, software, gaming and even kitchen appliances.
By offering the wide range of products, Amazon Japan differentiates itself by offering larger selection of products. Also, it differs itself by allowing customers to read excerpts and passages from books before they purchase them. Low cost leadership strategy is also deployed to compete with existing competitors by offering free shipping which put Amazon on par with its bricks and mortar competitors but give it an advantage over other online stores. • Resource-based view. Bookoff has several new technologies as tangible resource and has intangible resource as reputation for offering new used books.
These new technologies can add value to those used books, Boooff can clean book covers and grind down dog-eared pages to make a used book look practically new. And the value-adding activity is very firm-specific, so, the technology resource is vey valuable. As Bookoff’s new valuable technology is a rare resource and capability, other competitor has no access to it, so it has the potential to provide continue competitive advantage. And because the new championed technology probably has been registered as patent by Bookoff, the imitation of this capability is almost impossible.
The organization of Bookoff is unlike most bureaucracy-laden Japanese companies, it franchises all its stores, and the owners and employees are encouraged to act like entrepreneurs, and this feature of organization of Boooff gives its competitive advantage that its competitors don’t have. For Amazon Japan, when the bookselling activity is not value-adding in Japan, it turns to offer a wide variety of products besides books such as electronics, toys, and sporting good, etc. Because of this innovation resource, Amazon Japan always keeps increasing its product lineup to provide value to consumers.
Another question is that this innovation of Amazon Japan is not rare, it can be easily imitated by its competitors, and thus, this competitive advantage is just contemporary for Amazon Japan, but other competitors can only imitate its product line, they probably are not as innovative as Amazon Japan. • Institution-based view Institution is the humanly devised constraints that structure human interaction, the institution in Japan is quite unique compared with that in American. The Saihan system, a formal institution, this law prevents these bookseller competing on price.
For Bookoff, this institution doesn’t constrain its competitive advantage, it uses low-cost leadership to compete with its competitors, there is a loophole in the Saihan system, because it is a used-book stores, so, it is an exemption to the Saihan system, then, it can lower its prices which can be much lower than its competitors. Further more, it accommodate to the changed informal institution in Japan that the Japanese consumer’s image-conscious, but thrifty culture, and it also cater for the Japanese young people’s taste that it is new-used book stores, the young generation are much more environmentally conscious.
For Amazon Japan, it uses a clever methods to bypass the Saihan system to offer free shipping to customers which put its products at lower prices than its competitors that do not offer this service, and its also opened Amazon Marketpalce, this allows Amazon to indirectly sell books and music at prices below Saihan-mandated prices as third-party uses, where those third-party users are not bound by Saihan system. In addition, Amazon uses a points system for customers to accumulate points to redeem for a gift certificate, this also by pass the Saihan system to lower the price of its products.
Because of the informal institution of Japan, people in Japan are fear of fraud to use credit care for online purchase, in order to cater for this unique culture, Amazon Japan started a service to allow its customer to make payments at any convenience stores and ATMs throughout the country, enabling customers to avoid the risk of online fraud. And Amazon Japan also accommodate the Japanese customers’ tradition of standing and reading to provide “look inside” option to allow customer to read excerpts and passages from books before they purchase them. 4. What will happen if the Saihan system dissolves?
After the dissolve of Saihan system, all the competitors in Japan can then compete on price, a lot of small stores will not hold because they lack economies of scale and will be driven out of the bookselling industry, the industry structure will have fundamental change. The competition will be fierce, significant industry consolidation will occur and the industry will probably be dominant by giant companies. The suppliers’ competition will also be intensified, so, it will be important to have good supplier intimacy, buyer will have access to much lower prices of books. 5.
If I were a board member of Barnes& Noble or Borders, I would approve a proposal to open a series of book stores in Japan, because the success of Amazon Japan and Bookoff has indicated that Saihan system can be easily by-passed, we can follow the success of Amazon Japan to offer free shipping and provide a wide selection for our customers, because the capabilities Amazon Japan are not hard to imitate, we have our own human resources to even build even better facilities than Amazon Japan, based on out resources in American, I believe we can success in Japan, if the Saihan System dissolves, we can still proceed to Japanese market, because after Saihan System dissolves, the competition in Japan will be very fierce, a lot of small operation will be driven out of business, we can then buy these small business and integrate them into our business operation. And we have economies of scale, we believe we can offer lower prices if price war begins in Japan. References 1. Peng, M (2009) Bookoff, Amazon, and the Japanese retail bookselling industy, Global Strategy, 2e, 387-395.