Waterstones is one of the largest bookstores in Britain. Like any other business, it is affected by environmental factors that influence its marketing operations. In order to understand these factors, we shall use PEST analysis based on the case study, Can you judge a book by its e-cover? Organizations do not have control over pest factors (political, economical, social, technological, and legal), but they can control internal micro environmental factors influencing their operations.
Political factors affect organizations in several ways. Some political environments create opportunities while others can create obligations that affect organizations. According to Brassington and Pettitt, organizations must exist and operate according to the laws of the societies within which they conduct business.
They must also conform to general laws of the industry. The roles and influence of national government have direct impacts on marketing mix of organisation. Regulatory bodies also use their statutory powers to influence the laws that organizations must follow (Brassington and Pettitt, 2005).
Political factors affecting the operations of Waterstones in the UK are mainly marketing regulations, trade agreements, and tax (VAT) issues. In this case, Waterstones must conform to copyright and patents protect laws. Copying eBook is a copyright infringement by pirates and other online eBook users.
Copyright laws differ from country to country. There are some laws restricting the number of copies made and experienced. The UK has copyright terms that seek to be in line with other European countries by raising it from 50 years to 70 years, after the end of the year in which the author died.
Such laws aim to protect booksellers from piracy. Consequently, booksellers like Waterstones will ultimately benefit. Currently, the UK is recommending changes to Copyright, Designs and Patent Act in order to cope with future development in the book industry and curb illegal file sharing.
According to the case study, the explosion of online file sharing has increased market demands for digital rights management (DRM). This is a watermark and a secure distribution system. It enables the publisher to trace books at any time in the future. This system scrambles and encodes books such that only the paying recipient can use them. However, such pre-determined business regulations control the number of copies made, and the number of copies that users can share.
The UK government has reviewed its tax system to march those of other EU nations. Currently, the government has exempted tax on physical books.
However, eBooks sold have a standard rate of 20 per cent. According this case study, eBook retailers in the UK will no longer have the previous disadvantage in comparison to their EU counterparts following the EU decision to impose VAT on eBooks, games and music.
This is both a case of tax and trade agreement influencing the operation of retailers like Waterstones. Such regulations create fair competitive environment against other online eBooks retailers in other EU nations and the US.
Economic factors of both global and national level affect businesses. Economic factors may include interest rates, fiscal policy. The prevailing economic conditions influence how buyers, sellers, and other stakeholders in a given economy behave. Economists like McConnell, Brue and Barbiero argue that changes in the general economic environments affect business operations (McConnell, Brue and Barbiero, 2008).
An economy experiencing recession will have a higher unemployment rate, reducing spending ability and diminishing stakeholders’ confidence. Conversely, a promising economy will have increasing stakeholders’ confidence, a higher spending power and low unemployment rates.
Booker sellers like Waterstones have been experiencing effects of fluctuating economic factors. For instance, during 1980s, Waterstones did not suffer the recession of the time. Instead, it increased its sales and revenues to become one of the leading book retailers in the UK. Such resistance to recession made the industry pundit to conclude that the UK book industry was recession-proof. However, the tough current economic situations have seen some book retailers like Borders collapse in the 2009.
The tough times have not spared Waterstones either. The giant book retailer has changed ownership on several occasions, and most recently to a Russian buyer, Alexander Mamut. The effects of economic downturn have forced the company to close 20 stores, and recorded operating losses of £9.9m.
Waterstones responded to this crisis by replacing the managing director and changing it structure in January 2011. Economists note that successful organisations must respond to economic situations and stakeholders’ relations and behaviour. Organisations must review the impacts of recessions on its operations and competitions, and respond accordingly.
Some economic crises have no boundaries. For instance, the economic crisis of 2007 originated from the US and fuelled the credit crunch in the UK. Further, there was euro crisis in the EU zone. These factors affected the buying patterns of Waterstones’ customers and other stakeholders.
Social forces such as relations and media have affected most organisations. This is because such factors affect consumers’ emotions, attitudes, opinions and interests about products. Consequently, they influence what consumers buy and in what form. In the case study, the research of BML in 2007 shows that personal recommendations from families and friends influenced consumers’ decisions. At the same time, some consumers were likely to buy books on impulse while browsing the shelves.
Factors such as text design, cover, feel and look of the book also influenced consumers’ buying behaviour. Brassington and Pettitt observe that social factors are of main concern to marketers. Therefore, marketers must try establish what drives consumers and organize their marketing campaign accordingly. For instance, consumers’ attitudes are changing towards physical books. As a result, Waterstones has realised there are increasing number of people reading eBooks.
Therefore, the company decided to launch it websites where consumers could place their eBooks orders. Social changes have given rise to new group of consumers.
The buying patterns of books at Sainsbury, Asda, and other supermarkets together with the research suggest that new groups of book consumers are emerging, socio-economic groups are now buying books regularly and increasing customer base beyond the traditional segments. In short, Waterstones realized the need to offer books in all forms the consumers need in order to complement and enhance the behaviour and busy lifestyle of consumers.
Kotler et al note that both consumers and marketers wonder what the future will bring. Some predict that we will not be shopping in multi-aisle supermarkets by 2025.
The growth of e-commerce and rapid speed of the internet has lead to online ordering of low-priced and non-perishable products like music, books, and games among others. Online information sources have also enabled retailers to easily access information. Technological developments have changed the way book retailers operate (Kotler, Wong, Saunders and Armstrong, 2005).
Following the success of Amazon and other eBook retailers, Waterstones ended its five-year deal with the Amazon in order to launch its own website (www.waterstones.com). The company noted the increasing sales from eBooks and dwindling sales from physical books.
Advanced technological devices enable customers to purchase, download and share their eBooks. Through its website, Waterstones offers more than 3 million eBooks and recommendations. The company has adopted the use of online channels to conduct significant amount of transactions.
Waterstones has also incorporated the use of cards and e-mails to enhance customer loyalty and track buying patterns of its customers. Technology has resulted into aggressive marketing, price wars, price cuts, discounts, immediate availability and constant formation of alliances with publishers.
Technology has also enhanced social media platforms. Waterstones uses I Spy, Twitter, YouTube and Facebook to promote the launch of their latest books. Further, it has advanced stock management systems to ensure that every book has a unique range of profile and space at its front store in order to promote particular books at certain stores.
Industry analysts conclude that the rate of technological advancement has created niche for all age groups. Therefore, marketers must study the consumer habits and expectations. Organizations must face these facts in order to survive competition (Solomon, Marshall and Stuart, 2009).
Micro environmental factors are within the control of Waterstones. The company experienced difficulties when it tried to diversify its operations. For instance, Waterstones tried to increase its revenue by introducing ancillary products that affected its image as a bookstore. The company also experience difficulties and delays in distributing book orders. This results from its Hub where it controls all its distributions. Further to this, Waterstones had to rely on a competitor, Gardeners in order to make deliveries to customers.
Waterstones entered into a digital deal with Sony in order to enhance its eBooks sales. The company sold over a million eBooks in the year 2010. However, industry experts dismissed the deal as poorly executed. This is because the company had limited choices of eBooks.
Criteria and different segment methods
Buyers in every marketing situation differ in one or more ways. Difference may be in terms of wants, resources, location, attitude, and buying practices. Marketers must understand these differences and apply market segmentation appropriately. Market segmentation has enabled companies to divide their large heterogeneous markets into smaller segments that they can reach efficiently with their products and services that match customers’ unique needs (Solomon, 2006).
Geographical segmentation divides the market into different geographical units, such regions, nations, counties, cities, or neighbourhood. Companies choose to operate in one or more of these divisions. However, they must pay attention to geographical differences.
For instance, Waterstones identified major cities within the UK where it opened multiple stores for customers who prefer physical books. At the same time, the company is defying geographical boundaries by launching Waterstones website to reach online and international customers.
Demographic segmentation looks at variables such as family size, income, age, sexual orientation gender, occupation, religion, education, ethnicity, and nationality. Marketers prefer using demographic factors in segmentation of their markets. This is because customers’ needs, wants and usage vary considerably with different demographic factors.
The same demographic factors are easy to measure than other segmentation methods. According to statistics, Waterstones can use demographic variables like age in segmenting its consumers. Research findings on book consumptions show that the main customers are female aged between 25 and 34, and 55-64 classified as ABC1.
They mainly buy fictions. There are also children, food and drink titles. Competitions like Asda and Mintel Books target families and women of 25 to 34 years, and offer discounts to get these consumers. Recent studies also show that new group of consumers are emerging classified as C2, D and E.
Psychographic segmentation puts buyers into social class, personality characteristics or lifestyle. Marketers are increasingly segmenting their consumers by lifestyle and targeting consumers of all ages (Adcock and Halborg, 2004). Waterstones can use lifestyle segmentation because what consumers buy reflect their lifestyles.
The case study shows that men and women read for different reasons. Men may read for education or work purposes while women read for leisure. However, this segment of the market has lesser time to read. Therefore, they tend to read while commuting particularly women. Waterstones can exploit this market through offering its eBooks to consumers with busy lifestyles.
The company can also understand lifestyle of its potential customers through internet usage. This will enable Waterstones adapt its eBooks in friendly and easily accessible platforms. This is because the emerging consumers tend to prefer reading on digital devices. There is also a booming market associated with celebrity lifestyle.
Consumers prefer celebrity books especially during Christmas. According to John, Managing Director of Waterstones, the company has brand names of celebrity authors, such as Lee Evans, and Johnny Vagas, among others. However, preferences for celebrity books have created price wars.
The buying decision-making process between Waterstones high street retail outlet and Waterstone’s web presence
Consumers’ buying decision-making process depends on a number of factors. Some of these factors relate to marketing environment while others depend on individual characteristics, such as learning, attitude and personality (Jobber and Fahy, 2009). Factors influencing individual purchase decision are mainly socio-cultural.
Likewise, personality, perception, attitude and motivation also influence consumers’ purchase decisions at Waterstones. Customers who prefer physical books will buy from the stores while those who prefer eBooks will order on the company’s web page. Technology and competitive environment have influenced purchasing decisions of readers.
Consumers who are familiar with latest technology will also tend to order their books online. Waterstones offers discounts and has loyalty cards to track buying activities of their customers. The BML 2007 research also suggests that consumers are likely to buy on impulse while browsing books in a retail store. This group tends to buy books as gifts.
The rationale of the Marketing Mix variables used by Waterstone’s between 2008 and present day
There are four elements of marketing mix. These are price, product, place, and promotion (Palmer, 2004). Out of all these, Waterstones can only use price in achieving its marketing objectives. For instance, the book industry in the UK is experiencing price wars and discounts offers. This is mainly in the eBook sales where competitions cut prices up to half of the recommended retail cost.
Waterstones tries to coordinate its pricing with book designs, distributions, and promotion decisions in order to form a consistent and effective marketing programme. The competitive book industry has forced the company to focus on pricing, promotion and place. For instance, there are outlets charging publishers displaying shelves to support and promote their products.
Waterstones’ decision to position itself among the online book retailers means it must recover the costs invested in Sony partnership. At the same time, this will enable its online customers to get eBooks anywhere and at any time provided, there are no restrictions.
Waterstones’ marketing mix tends to consider the total marketing mix when setting prices. This is because the competitive book industry cannot allow for non-price strategy. At the same time, the use of such online features as PDF and ePUB secured with Adobe ADEPT Digital Rights Management affects the quality, promotion and distribution of its books.
These will strongly affect its pricing strategy. In all these marketing mix oriented towards pricing, Waterstones must remember that buyers rarely consider price alone. Instead, the books they seek must give them the best value.
Current problems and recommendations for the future marketing strategy for Waterstones
The recent operation losses have affected the company’s profit. Consequently, the management replaced the leadership. Waterstones must reorganize its internal management structure. This is due to the recent acquisition by Russian. The new management must focus on enhancing the company’s profitability and position it as an alternative online book store. This is because Waterstones also ventured into other operations that affected its image as a book retailer.
The company is experiencing delays in distribution at its central Hub. These delays have alienated customers as staffs also complain of delays. At the same time, the delays have forced the company to rely on third-party wholesalers to ensure that customers get their deliveries. Waterstones must streamline operations at its Hub to ensure efficient distribution and refilling of stocks.
The industry experts considered its deal with Sony has poorly executed. Though it sold over a million eBooks, consumers complained of limited choices. This is an area that Waterstones must address in order to remain competitive or else face extinction.
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