Entrepreneur's web site

I originally wrote this article, “Entrepreneur’s web site” in June 2003.

A group of three Australian friends were thinking about forming a small business partnership to be called "Books 'R' Us." The idea for the name came from the store Toys 'R' Us, which car ried a wide assortment of toys. This new company would do the same for books. In fact, the friends were planning to offer as many books as possible at a 20 percent discount off the list price. Once they had set up their small book store, they would create a Web page on the Internet and offer to sell any book in their listing at a discount. Since the partners could order books at a significant discount from publishers, their only major problem, as they see it, would be to have these books available. They had very little working capital, so they couldn’t afford to buy the books and store them at their facility. However, they intended to sidestep this problem by playing the role of book broker merely to bring buyers and sellers together. When someone visited the Books 'R' Us Web site and ordered a book, the store would take this order, place it with the respective publisher, have the latter send the book directly to the customer, and then remit payment to the publisher. And since the customer would pay for the book in advance using a credit card, the bookstore would avoid a cash outlay.

The basic idea for this business had been presented to a number of knowledgeable people, and they all agreed that it could work well if “Books 'R' Us” could generate sufficient or ders from its Web page. This is why the potential partners were determined to create a page that was attractive and kept people coming back to see what was new. One of the features was to be a random drawing every day to send one winner a free book from the current New York Times best-seller list. The winner's name and his or her book choice would be displayed on the page for a week so that everyone who visited the site would know who the latest win ners were and would be encouraged to enter the drawing. Every entry would be eligible for a period of seven days. So people who return to the site every week to enter could par ticipate in the contest every day.

The group also intended to make available as many of the publishers' titles as possible. Since publishers often dis tributed their book lists on CD-ROMs, this was not a problem. However, the group wanted to list the titlesby subject (mystery, drama, history, humour, cooking, gen eral interest, and so on) and author and not just by pub lisher. So Books 'R' Us may need to modify the material from the publishers.

Finally, the group had considered that publishers have their own Web pages, so someone who wanted to buy a  book from a major publisher did not have to visit the Books 'R' Us Web site or any other on-line bookstore to buy this book. Nevertheless, these publisher Web pages carried only the publisher's titles, while the group would carry as many of these publisher offerings as possible in one site.

I advised the group on its business plan. I told them what I thought of a Books 'R' Us Web page.  I made recommendations for improvement.  I gave reasons why someone would buy from the part ners rather than visit a publisher's Internet site and pur chase directly. Of these reasons, I recommend one that the group should emphasize most heavily. I suggested how the friends could do this through their Web page. Finally, I identified and offered additional recommendations to the three potential partners.  Two of these are described.

An evaluation of the introduction of a “Books 'R' Us” website is best done by looking at the opportunities and threats  faced by the group of three friends thinking about the small business partnership. Opportunities exist with a growing economy, government support, a product easily marketed using the internet and an established market of Australian online book buyers.  However, global and local competition needs to be considered.

Opportunities

The Australian GDP growth is forecasted to increase from 3.0 percent this year to 3.5 percent in 2004 and unemployment has fallen slightly from 6.3 percent last year to 6.1 percent this year, according to The Economist (2003).

An article in Financial Review (2003) reports that the Small Business Minister for Australia, Joe Hockey, was present at the launch of the e-businessguide in Melbourne, last week. This is part of a $6.5 million federal government package to encourage small businesses to go online. At the same launch, it was stated that 'almost half of Australia's present economic growth was caused by communication technology' by Communications Minister, Richard Alston.

Spector (2000, p. 29) gives a major reason why Jeff Bezos of Amazon chose to sell books on the internet as his first product is that 'everybody understands what a book is. You didn't have to explain product specifications; the book you would buy on the internet would be the same book you could buy at a bricks-and-mortar store. By contrast, if Bezos wanted to sell electronics on the internet, he would have to show side-by-side comparisons of the models, product reviews...'.

Australian online book retailer Ozbooks claims in Internet Business News (2002) that Australians spent more than AUD 120 million in 2001 ordering books online from U.S. sites Amazon.com and Barnes and Noble. The company also states that many of the books ordered internationally could have been purchased from www.ozbooks.com at a lower cost and with faster delivery.

Threats

The world's largest online book retailer, Amazon, has operations located in Austria, Canada, France, Germany, Japan, U.K. and U.S. but not in Australia. Books ordered by Australians, from Amazon take two to six weeks to arrive.

There are many online book retailers already operating in Australia and a search for the word 'book' at the Australian site of Google gives 1,140,000 entries. A search for the words 'books on line' gives 291,000 entries. These figures are not surprising, given the low market entry cost of online book retailing.

Several Australian online book retailers pay a regular fee to internet search engine companies to be located on the first page of search results connected with buying a book on line. Sites such as www.buyaustralian.com, www.readersrefuge.com.au, www.getonce.com.au, qbdthebookshop.com.au are examples of these web sites.

From the above analysis, it is evident that a market exists for the online service being considered by the three friends. Competition from already established companies has to be taken into account  when they create a marketing plan to diversify their service offering from that of the competition.

Three reasons why someone would buy from the “Books 'R' Us” web site rather than the publisher's internet site

The group of three friends have identified three features for their web site to differentiate it from that of the publisher's internet site and to create a reason for someone to buy from the “Books 'R' Us” website, rather than the publisher's internet site. Two of the features are based upon the two selling rules described by Hodgetts and Kuratko (2001, p.32). The third feature is that of differentiation, as recommendedby Kotler (2003, p. 315).

The first selling rule is that the internet company should make it easy for people to find the site. By choosing the name "Books 'R' Us", the group of three friends have managed to include the category of product they sell within their company name and web site. The name is short, easily remembered and identifies the product sold in either a category search or an alphabetical search.

The second selling rule is to keep potential customers coming back. According to the case study in Hodgetts and Kuratko (2001, p.50), one of the “Books 'R' Us” features on the web site is to be a random drawing everyday to send one winner a free book from the current New York Times best-seller list.

The winner's name and his or her book choice will be displayed on the page for a week so that everyone who visits the site will know who the latest winners are and will be encouraged to enter the drawing. Every entry will be eligible for seven days. So people who return to the same site every week to enter can participate every day.

The third feature of differentiation is provided by the pricing policy, breadth of product range and breadth of product information to be provided by “Books 'R' Us“. The case study states that 'the friends are planning to offer as many books as possible at a 20 percent discount off the list price.' This provides a comparative advantage against the publisher's internet site, where books are sold at list price. The product range at the publisher's internet site is limited to those books sold by the publisher whereas the Books 'R' Us web site will feature books from many publishers. The case study also states that 'the group wants to list the titles [sold at the “Books 'R 'Us” web site] by subject (mystery, drama, history, humour, cooking, general interest, and so on) and author and not just by publisher.' These features give further reasons why someone would buy from the “Books 'R' Us” web site rather than the publisher's internet site.

Recommendations in relation to launching the web site

Seven recommendations are made to “Books 'R' Us” in relation to launching their web site. They are associated with the market, segmentation, book variety, returns policy, supplier agreements, pricing and promotion.

The group of friends need to determine who their target or served market will be. Assuming that they will not, at this stage, receive orders internationally then they are restricted to the Australian population of approximately 20 million. Of this population, a market of (say) two million actual and potential customers exists. The available market of consumers who will be aware of Books 'R' Us, read books and buy online may only be (say) 100,000 people. The group of friends need to decide upon a strategy of marketing to the whole available market or a target market within the available market.    Their penetrated market needs to be at least several thousand consumers to provide sufficient income for the group of three friends to pay for salaries, shop rent, utilities, financing, inventory, advertising, etc. If the group are able to segment their market geographically then they may achieve a larger market share in their city of operations to counterweight a lower national market share.

Assuming that the group of friends takes advantage of their shop location for geographic segmentation then demographic, psychographic and behavioural segmentation can be done to further create the target market. Market surveys using secondary information can be used to determine the reading preferences of major segments. This would form the basis of choice of segmentation to create the inventory stocked within the premises and listed online.

Based upon the above target market, the variety of books to be listed can be chosen. Additional factors to be considered in creating the listed variety of books are profit margins per book and promotions for books having an unusually high appeal, e.g. Harry Potter.

The group of friends need to formulate and publish a returns policy. As they receive the purchase order, yet the publisher distributes the books, responsibilities need to be clearly defined.

Agreements need to be signed with each book publisher that they choose to represent. The case study states that 'the friends are planning to offer as many books as possible at a 20 percent discount off the list price.' Each publisher will have a different discount structure for retailers ranging from 10 percent to 50 percent and the discount amount will be related to sales volume figures and monetary value by “Books 'R' Us“. Additionally, payment terms of net monthly account, upon invoice, etc. need to be agreed with each book publisher.

The implications of the fixed 20 percent discount pricing policy need to be determined by “Books 'R' Us“. Although simple to administer and advertise, the group of friends may find themselves selling below cost if demand is high for books having a low retail discount from the publisher.  Alternatively, customers may be lost if books having a high retail discount are priced above their competition. Alternative pricing methods of mark-up pricing, target-return pricing, perceived value pricing, etc. should be considered.

Considering the promotion of “Books 'R' Us“, the decision of the group of friends to set up a small physical bookstore is a good one. It provides further differentiation from other local virtual online book retailers and increases customer confidence in the anticipated level of service. The bookstore also acts as free advertising for the web site to passing trade. This would be enhanced by placing advertisements in local journals, magazines and newspapers to get around the problem of letting the target market easily know the web site address.

List of references

'Australians order books from U.S. web sites', Internet Business News, 20 May 2002

'Economic and financial indicators', The Economist, 31 May - 6 June 2003.

Hodgetts, R.M. & Kuratko, D.F. 2001, Effective Small Business Management, Harcourt, Florida

Kotler, P. 2003, Marketing Management, Pearson, New Jersey

'Small business told to find productivity online', Financial Review, 24 June 2003.

Spector, R. 2000, Amazon.com: get big fast, HarperCollins, New York.