Analysis of Major IssuesCreated by: Tamara Myers

Contributors: Dana Kubissa Charlie Lamm Paulisha ruffin

Major Issue 1

Struggling digital media sales Current strategic and financial objectives are

tied to digital media sales Barnes & Noble aims to decrease EBTIDA losses

in digital media market, and increase overall profit in this segment, so addressing struggling digital media sales should be a priority

However, a 27% drop in digital content sales occurred over 2013 holiday season, making this a key issue to be addressed by Barnes & Noble

Issue 1, Alternative 1

Summary Pros

•Increase purchasing power

•Attract new customers

•Improve customer loyalty

Cons

•Costly strategy

•Competitors sell digital content below costs

•Would be expensive to implement due to need for enacting profitless strategy

• Lower cost of digital media content to make it more competitive with other retailers

Issue 1, Alternative 2

Summary

•Capitalize on licensed NOOK apps on competing devices by selling digital content directly through apps on Apple products.

Pros

•B&N would be only e-reader app outside of iTunes that allows direct purchasing on Apple devices.•Would reduce synching requirements among users that would allow easier use of NOOK applications.

Cons

•B&N would be required to pay a premium on each in-app digital content purchase to Apple.•Premiums for content purchase may be up to 30% of profit for each purchase.

Issue 1 Recommendation

Alternative 2 is the recommended option Financial and strategic objectives for Barnes & Noble

are tied to increasing profits within the NOOK and related digital media market

Utilizing the app related strategy will create an additional advantage for B&N that competitors have not adopted

Extending digital content to additional markets will increase purchasing power

While it will cost B&N to use this strategy, the additional purchases should outweigh the costs associated with offering content through Apple devices

Major Issue 2

Falling physical book sales In previous years, all sales excluding NOOK

have fallen as much as 5.8% Improving sales and profit margins are a key

part of strategic and financial objectives for Barnes & Noble

Physical book sales loss have stabilized in recent years, but sales loss in this core division should be addressed immediately

Issue 2, Alternative 1

Summary•Diversify title selection in stores•Include wider array of titles in stores to meet market trends•Allow customers to notice that multiple genres and titles are well-represented in store retail spaces

Pros•Customers who previously felt diversity and available products were missing will be drawn to stores, appealing to more audiences, and increasing sales

Cons•Increasing product diversity in stores can be difficult to manage when high inventory levels should be present.

•Changing the inventory ordering process will be complex and potentially costly to B&N

Issue 2, Alternative 2

Summary•Leverage loyal customer market by changing Rewards Program

•Lower or allow for waiving of annual membership fees or add volume shopping discounts

Pros•Increased purchases due to added discounts•Increased enrollment in B&N Rewards Program•Customers no longer discouraged by costly Rewards Program, so satisfaction improves

Cons•Loss of annual recurring revenue

•With reduction or elimination of Reward Program fees, B&N may potentially lose millions in ARR

Issue 2 Recommendation

We recommend the second alternative Benefits of lowering Reward Program fees outweigh the

costs of changing supply chain processes that may go unnoticed by some consumers

Though lowering membership fees or allowing fees to be waived will result in a loss of annual recurring revenue, it should increase overall physical book sales

Customers who avoided enrollment or purchases due to high costs will become incentivized to shop at Barnes & Noble

Current and previous customers will develop strengthened loyalty due to lower fees and new discounts.

Major Issue 3

Declining NOOK device sales Barnes & Noble entered market later than competitors,

and has struggled to keep up since developing the device Sales growth for NOOK product line has been on the

decline Some stabilization has occurred, but losses are still

occurring for this key product area Sales growth for the NOOK segment is a key factor in

both strategic and financial objectives Due to heavy emphasis on NOOK segment, sales loss

should be addressed quickly

Issue 3, Alternative 1

Summary•Implement promotional or penetration pricing strategies to sell additional NOOK devices

•Consider previous sales strategies that lower prices and offer free digital content at time of purchase

Pros•Shoppers will be incentivized by lower priced devices and free digital content

Cons•Cutting device prices and offering free digital content can be detrimental to profit margins

•B&N has already struggled to maintain profits in both divisions, so cutting prices temporarily may not fully resolve the issue

Issue 3, Alternative 2

Summary•Implement Flashnotes application on NOOK system•Flashnotes allows users to buy and sell class notes•Technology has been purchased as part of education service strategy

Pros•B&N can capitalize on student market segment through Flashnotes implementation•Brand loyalty will increase among students•NOOK devices will become useful study tools for student users

Cons•Primary focus is on student users in NOOK segment

•Does not address NOOK sales concerns for non-student users

Issue 3 Recommendation

We recommend the second alternative A Flashnotes application will increase durability and

product diversity among NOOK users

Customer loyalty will be renewed amid current device owners and new consumers will be drawn to the market

Increasing loyalty and drawing new customers will increase revenue and meet competitive strategic objectives

Major Issue 4

Heavy competition with online retailers

Rivalry is a strong competitive force within the industry

Competition is vigorous with retailers such as Amazon, Apple, and Oyster

Maintaining market share is difficult among strong competitive forces, so this should be addressed quickly

Issue 4, Alternative 1

Summary•Form strong partnerships with publishers•Sell inventory on consignment to reduce costs associated with poorly selling books and increase compensation for better performing products

Pros•Publishing interest may be increased by consignment opportunities, strengthening relationships with publishing partners•Sales opportunities will increase •Strategy will help prevent cannibalization of physical book sales by competitors

Cons•Biggest advantage with consignment agreements will be realized with books that are not top sellers

•Little to no advantage for consumers with this strategy

Issue 4, Alternative 2

Summary•Aggressively lobby for exclusive content rights, including those offered by best-selling authors•Tap into beneficial relationships and partnerships to provide customers with content they cannot find at competitors

Pros•Creating agreements that provide B&N customers with exclusive content will help them stay competitive•Using this strategy will spark public interest and draw additional loyalty

Cons•Agreements may be costly to Barnes & Noble

•Authors and agents may view contracts in terms of profit or ease of use, either of which may be costly for B&N to implement

Issue 4 Recommendation

We recommend the second alternative Entering into direct competition with chief competitor

Amazon for access to exclusive content will likely have a larger impact in the competitive landscape than other partnerships

Barnes & Noble who faces strong competition in the retail industry should find ways to improve their position in the market.

Offering exclusive content will have the advantage of making B&N an exclusive provider, and should help to improve their position as desired

Major Issue 5

Difficulty maintaining brick-and-mortar stores

Many stores have closed in the last 5 years By August, 2014, 63 stores have closed Even the flagship store on 5th Avenue in Manhattan

has closed Recurrent profit losses, shrinking physical book

sales, and heavy competition have contributed to financial strain and brick-and-mortar closures

Issue 5, Alternative 1

Summary•Increase number of store-hosted author events•Include advertising via B&N email, website postings, and social media to attract customers to events and obtain store-wide discounts during them

Pros•Current and new customers will be inspired to visit stores and meet their favorite authors•Offering discounts in conjunction with author events will incentive shoppers to visit and make purchases

Cons•Authors may request costly reimbursements for events•Scheduling these events may be difficult to coordinate due to conflicting itineraries•Store-wide discounts may temporarily reduce potential profits

Issue 5, Alternative 2

Summary•Dedicate store segments (or entire stores depending on number of stores in proximity) to College & Education•Supplement B&N College locations in university-heavy areas where the company has not been able to establish on-campus bookstores

Pros•Will draw more attention to B&N College segment

•Will be helpful in drawing customers to brick-and-mortar locations when campus bookstores are unavailable

Cons•Costs associated with rededication and/or restructuring can be very high•Some estimates include costs of several million dollars per store•ROI may not be realized if upheaval only addresses limited markets

Issue 5 Recommendation

We recommend the first alternative Due to high potential renovation costs, hosting more

author events in brick-and-mortar locations would be more cost effective

Since financial strain has been prominent, Barnes & Noble should implement a strategy that can address multiple markets and be most cost efficient for the organization

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9. Greenfield, J. (2013, March 3). Mounting Problems for Barnes & Noble: Is There a Way Out? Retrieved from Forbes: http://www.forbes.com/sites/jeremygreenfield/2013/03/03/mounting-problems-for-barnes-noble-is-there-a-way-out/

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References

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12. Trachtenberg, J. (2014, January 9). Barnes & Noble's Digital-Content Sales Fell 27% Over Holidays. Retrieved from The Wall Street Journal: http://www.wsj.com/articles/SB10001424052702304347904579310321835632740