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"Based
on your own experience of traditional bookselling and your exploration
of online bookselling, compare willingness-to-pay for books supplied
by these two business models."
‘If
Something Is Worth Having, Then It Is Worth Paying For’
Traditional bricks and mortar book-selling has been around for a longtime
in comparison to modern, e-commerce shopping. Over this period, vast
changes and improvements have been relentless, creating the bookshops
that we witness today. With the growth of online bookstores, consumers
now have a choice between the atmosphere and ability to browse which
is available in high street bookstores, versus the lower costs and/or
convenience associated with online retailers. The price paid for an
item, depending on whether it was bought offline or online, can be considerably
affected by various factors surrounding the purchase, despite the fact
that the end product is the same. This is known as the willingness-to-pay
(WTP), the maximum amount that a consumer is willing to pay for any
given good or service on top of its underlying value.
These surrounding factors can be considered as an added economic value,
producing value through the firm’s capability to increase quality competition.
This added value is created by the firm’s activities, in its particular
industry, to create goods and services, and the relationship between
these activities (Porter 1985: pp48-49), denoted by the firm’s value
chain. Although traditional and online bookshops are in the same industry,
their value chain will be very different, “embodying significant differences”
(Porter 1985: p36), which can lead to their competitive advantage.
The WTP for an item can have a considerable effect on how much value
is captured by a transaction, with the value created being the “difference
between the customer’s WTP and the opportunity cost of the resources”
(Ghemawat & Rivkin 2008: p55); of which a ‘wider wedge’ between
the two can result in competitive advantage. As the WTP can depend a
great deal on “intangible factors and [consumer] perceptions” (Ghemawat
& Rivkin; Cited by Palowski & Horsburgh 2008: p61) this can
make it difficult to measure and identify. Hence, an ‘incentive-compatible’
procedure is used to encourage truthful responses, in both “eliciting
minimum seller prices as well as maximum buyer prices” (Bohm et al 1997:
p1079); a commonly used method, known as the Becker-DeGroot-Marschak
(BDM) Mechanism (1964).
Fig. 1 – Economic Added
Value. Source Adapted from Palowski & Horsburgh (2008).
Satisfying Customers Needs
In comparing traditional offline and online bookselling, the attributes
contributing to the WTP or the willingness-not-to-pay (WNTP) can be
deconstructed into several components to compare and contrast between
the two business models.
Convenience/inconvenience
Time spent within an offline bookshop is limited to its opening hours
and the hours its phone lines are in operation. These times, although
they may vary from shop-to-shop, can be restricted by the associated
costs of keeping the shop open, set against the amount of traffic that
would flow through the store outside peak hours; factoring the cost
and availability of employees, security costs and the additional costs
of heating and lighting the store. There are also governmental restrictions
out of the shop owner’s control, including, for example, local planning
restrictions.
In comparison, the browsing time of online shopping is limitless (as-is
what you wear, or what you don’t), the only restrictions concern one's
access to an internet connection, the stability of the connection and
the functionality of the ISP.
Online shopping, however, lacks the instant gratification in making
a purchase, requiring potentially lengthy delivery periods. This can
be most inconvenient at times when a book is required that same day,
for example from an airport before a holiday; attributing, also, to
the convenience of the positioning of offline book shops. Online, too,
lacks the ability to read, or evaluate the book, providing only textual
specifications and pictures. This, however, can be offset by researching
a book offline, then benefiting from making a lower cost purchase online.
Websites are gradually improving on this through the ability to access
extracts of the book online, on sites such as Google books (http://books.google.com/).
Price
Convenience can, however, come at a price. Additional costs can be incurred
in accessing offline shops with respect to transportation, in terms
of both time and money. Additional time is required in searching for
a title at the cheapest price. It is rare that one will go from shop-to-shop
to compare prices. However, online one can access cost comparison websites,
offering a supplementary service to help find and direct one to the
lowest prices available; reducing search costs dramatically, and associated
stress levels.
Online shopping can incur additional costs in the shipping of items,
which at times can increase the cost quite considerably. Recently, however,
shipping costs have become less of an issue, and is becoming more commonly
free, thereby making the purchase more attractive. Overall, online prices
are almost always cheaper than offline because of lower company running
costs derived from hiring less staff, stocking more books per floor
space, bulk purchasing and/or avoiding the need for an expensive high
street shop front.
Buying from a brand store can increase customer reassurance, thus permitting
premium pricing; with the expectation that the service and quality you
receive will be the same high level in each store. The reputation of
the stores can offset any added value against buying from an unknown
store, or from a second hand shop.
Depth of choice
The depth of choice can vary between offline shops, with choices more
specific to the local culture/society. Stock is limited, and there is
only so much space on a shelf, with newer books more visible than older
ones, pressured by the publishers to place products. In contrast, online
shops have vast amounts of books available for perusal, with higher
stocks available, access to out-of-print books, and a wider choice of
specialist books. Online shopping has more recently also included second-hand
books as an option before buying, allowing the comparison of prices
before committing to any purchase.
Community
Online shopping leads the way in building a community, allowing for
social contagion effects, with people able to connect with one another
directly on the bookseller’s website or via an external website. Consumers,
authors and publishers alike have the ability to review and evaluate
books that can be informative to other people with similar interests,
providing increased security in the selection when buying books. This
can also enhance cross-product promotion and encourage browsing, whilst
informing consumers of other titles that may be interesting to them;
a feature which many online bookshops have already exploited. Such online
retailers can create highly personalized offerings to the individual,
with selections of books predicted by software and based on the buying
history of that individual, or on the buying patterns of other purchasers.
Building a community offline is less popular, as people can be conscious
of how people perceive them, and it requires more free time. However,
there are a variety of book events, clubs and groups that connect the
book community. Communities have also been built through television
personalities, the most recognisable being Richard and Judy and Oprah
Winfrey, whose popular recommendations have led to other shops, such
as supermarkets, stocking the books.
Experience
Online shopping does not as yet compete with the experience and atmosphere
that bookshops offer. Shops are all very similar, and akin to that of
the ambience of coffee houses; warm and welcoming, with comfy seats
allowing you to take your time whilst browsing. Many of the larger stores
do also include cafes that serve food and drinks as you shop. For this
reason you can pass time in the shop without being inconvenienced by
having to find a toilet or snacks.
Contact with staff allows
the possibility to build a relationship with the people who work there,
and who offer their own personal opinion and recommendations. This can
also make support easier to obtain, whereas online customer support
is purposely difficult to acquire, and can come in the form of a recorded
message.
Strategies
By comparing these two business
models it appears that the WTP for books in an offline scenario is higher
than when purchasing online. This WTP a premium price may be explained
by the consumer ensuring that the product and service is of quality,
as advertised; for the ambiance and enjoyment of the shopping experience;
and that the transaction takes place securely without any risk, commanding
a higher WTP through “unique product attributes” (Murray 1988: p395).
Whereas there are, increasingly, other consumers who are less risk averse
and willing to pay the lower price, achievable by the lower costs associated.
Next
Chapter: Question Two
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