Traditional and Digital Markets

The book retailing industry defines the differences between traditional and digital markets and continues to be a catalyst of innovation for both. Of the two, the digital or online markets for book retailing and e-commerce far outpace traditional book retailing market growth and profitability. Digital or online book retailing is expected to grow at a 10.5% compound annual growth rate through 2015, while traditional bookstores are expected to only see a 3% growth in the same period. Profits from e-commerce book sakes in 2010 are projected to be $2.2B with bookstores generating $33M. The barriers to entry in e-commerce are very small compared to those of entering the traditional book retailing market. The intent of this analysis is to evaluate the differences in traditional and digital or e-commerce-based book retailers.

Analysis of Traditional and Digital Markets

In evaluating the differences between traditional and digital markets, Dr. Michael Porter’s value chain model is invaluable in putting each industry into context (Porter, Millar, 1985). This model defines the underlying support activities that each functional area needs to contribute to profitability (Porter, Millar, 1985). The differences between traditional and digital markets in book retailing are very significant and lead to a completely different value chain for each. Over the last twenty years, many studies have been completed about why e-commerce bookstores continue to outpace their traditional counterparts. The conclusion is that online stores have the ability to generate greater customer loyalty over time, creating more unique and personalized shopping experiences for online customers and offering greater variety of books as well (Shih, Fang, 2005).

Because of these factors being taken into account, the online market has gone through much more rapid market consolidation over time, as is shown in the analysis of competitors in Figure 1.

Figure 1: Market Shares of e-Commerce book Retailers

In contrast, the value chain for traditional book retailers is far more difficult to replicate from a competitive standpoint and pricing is driven my multi-tier distribution channels. The result is a much more fragmented competitive landscape as is shown in Figure 2.

Figure 2: Market Share Traditional Market

Conclusion

What differentiates the e-commerce value chain and corresponding digital market vs. The traditional market is that accuracy and speed of information use in the former (Shih, Fang, 2005). Comparing the pricing structures of each of these industries illustrates how critical the role of multi-tier distribution is in traditional markets, and how essential the ability to tailor experiences and build trust is online (Alwi, Da Silva, 2007).

References

Syed Alwi, S., & Da Silva, R.. (2007). Online and Offline Corporate Brand Images: Do They Differ? Corporate Reputation Review, 10(4), 217-244.

Porter, Michael E., & Millar, Victor E.. (1985, July). How Information Gives You Competitive Advantage. Harvard Business Review, 63(4), 149

Ya-Yueh Shih, & Kwoting Fang. (2005). Customer defections analysis: an examination of online bookstores. The TQM Magazine, 17(5), 425-439.