Leadership online: Barnes & Noble Vs. Amazon

Although Barnes & Noble implemented a number of strategies since 1996 to respond to the substitute threat from Amazon.com, the strategies of Barnes & Noble did not threaten Amazon.com. Instead, Barnes & Noble seemed to imitate the online business models of Amazon.com, such as the discounted price structure and forming alliances with other reputable web sites to increase site traffic. However, Amazon.com set itself apart from Barnes & Noble by building a strong customer database with sophisticated user personalization tools, which Barnes & Noble was not able to imitate for a period of time.

Among the Barnes & Noble's strategies to compete with Amazon.com, a low-cost strategy was the core plan, but it remained questionable. The web site had a discounted price structure, which offered a variety of discounts on almost every book, and Barnes & Noble enabled direct-from-warehouse pricing for its customers to reduce price. However, Amazon.com set its positioning with the first mover advantage and was able to face the challenge by lowering prices of all its sales. In addition, Amazon continued to advertise off-line and increased Associates such as Yahoo! and Excite to make the enormous customer database even more solid. This proves that cost competition without implementing different strategies from competitors, cannot be seen as an alternative.

In conclusion, what Barnes & Noble did to try to surpass Amazon.com did not work. According to Exhibit 7, DMG estimated that the gap between revenues and costs would decrease, making a positive net income after fiscal year 1999. Cash balance is also expected to significantly increase after fiscal year 1999. This is because Barnes & Noble focused on price cuts rather than developing its own strengths that its competitor could not imitate. Failure in developing the unique strength of Barnes & Noble resulted in failing to differentiate it from Amazon.com. Without showing significant differences from Amazon.com, customers would not appreciate Barnes & Noble's online bookstore.

To solve this problem, I would like to suggest attracting customers by utilizing the strength of Barnes & Noble as a leading traditional bookstore. Throughout the SWOT analysis, I found out the unique strength of Barnes & Noble that it sets apart from Amazon.com, which is a well-organized physical infrastructure. Barnes & Noble's "Back-end" operations are unique, which Stephen Riggio mentioned as a core competency. With the great infrastructure that Barnes & Noble maintains, a smooth transition to an on-line based store should be made rather than rapid change, due to its decreasing cash balance (Exhibit 4) and low level of recognition as an online store. Yet, consistent marketing to advertise the online store of Barnes & Noble is necessary to change the image as a traditional bookstore. Sequentially, stores