USAs Book Selling Industry - Essay Example

It is worthwhile to mention that US retail book market (physical sale shops and e-businesses) is estimated to have worth over $35 billion. Indeed, the book-selling industry comprises different areas such as elementary to university textbooks, religious literature, fictitious novels on all subjects, cooking stuff, books on international relations and current affairs, etc. However, the industry has observed a sharp decline in growth after the advent of electronic commerce coupled with recent economic turmoil that further hampered its growth. This will be discussed in detail in the following section when the author will present real-world scenario. (Foner Books Report, 2010)

Porter’s Five Forces model:
The author would now provide an analysis of the Book Selling Industry across the USA by using Porter’s Five Forces model. Each force will be discussed in detail so that a reader could have a clear insight into the scope and business potential in this industry.

Bargaining Power of Buyers:
It should be pointed out that book buyers in the USA could be divided into two major groups such as core students (the educational textbooks market) and book lovers (that tend to buy books on various subjects). The bargaining power of core students has increased considerably in the last 2 years because of the decline in demand for school, college and university education. Indeed, the reasons behind that include lack of short-term unemployment opportunities followed by a surge in inflation, which compelled the students to take a semester or yearly breaks. In this way, the decline in demand of students sharply reduced the demand for courses or textbooks, thereby leading to a decline in book-selling activities. As far as demand from book lovers are concerned, it should be emphasized that bleak employment prospects and a decrease in consumer purchasing power also forced potential buyers to tighten their belts and reduce spending on books.

For instance, today book lovers also demand higher value for the money they spend in the market. Hence, it is worthwhile to point out the fact that an increase in the bargaining power of consumers has resulted in downward pressure in pricing. Leading book retailers such as Amazon, Barnes & Noble, BN.com and Borders were forced to reduce their prices by announcing heavily discounted rates. In addition, the demand for tangible books has also been reduced because of growth in e-commerce, where owners of websites offer electronic journals and e-books at competitive prices. Indeed, customers are attracted towards the above-mentioned online businesses that enjoy bulk sales and that could offer more discounts and lesser prices than physical shops. The industry analysts expect that the demand for books would increase in 2010 and 2011 because of the expected improvement in the economy followed by the availability of employment opportunities and better purchasing power. It is, therefore, concluded that the ideal time to enter business would be early 2011. (Colton, 2009) and (Foner Books Report, 2010)

Bargaining Power of Suppliers:
The bargaining power of specific suppliers (book publishers such as McGraw Hill, Blackwell and others, etc.) is reduced because of a decrease in total business activities and surplus stocks of previously published books. Amazon and other top booksellers are already focusing to clear off existing inventories amid relatively lower demand. Indeed, suppliers’ business is directly dependent on booksellers’ business and failure of the latter would also adversely impact the sales of suppliers.

Potential New Entrants:
Indeed, the steep fall in aggregate demand of booksellers due to fewer purchases by educational and book lover segments has compelled potential investors to forgo their aim of entering and investing in bookselling businesses. The industry, at present, could not be called lucrative because of the shrinking demand for physical books. In addition, the costs have increased substantially in the past few years because of higher input costs such as paper, printing material, utilities and transportation, etc. In simple words, the threat of potential new entrants in this sector is low because of relatively lower returns and weak consumer response because of a decline in real income and purchasing power. The top retailers including Amazon, Barnes & Noble and Borders, etc. are also opting to unload inventories at extremely low prices to entice maximum buyers. Hence, it is almost impossible for a new entrant to compete with key industry players at this moment. (Foner Books Report, 2010)


Threats of Substitute Products:

Obviously, each bookseller tends to offer the same textbook (for example Principles of Management by Richard Daft) printed and supplied by several publishers. However, some booksellers also offer hundreds of books on different subjects written by different authors. In the light of the above light, it is justified to argue that the threat to perfect substitutes always remains for similar textbooks. Usually, in this case, booksellers with lower prices are able to tempt maximum buyers towards their shops. In contrast, if a bookseller tends to offer books on specific subjects such as Fiction, Marketing and Romance, etc., even then the threat of substitutes is high. Indeed, bookstalls with greater variety and choice are in a win-win position in the latter case. In conclusion, if a new entrant could offer a large variety of books at affordable prices on diverse subjects, there is a greater probability that it could survive even in a challenging business environment. (KRI Report, 2007)

Rivalry among Competitors:

It is worthwhile to mention the fact that rivalry among existing physical and online competitors would be higher because of any expected price-wars and new product offerings in today’s external business environment.