Question

The Book Publishing industry in Australia

• 20% of books are sold via independent retailers that tend to specialize in a particular genre or prefer unusual (not mainstream) books

• 70% of books are sold via large retail chains that only deal in mainstream books published by large or long-established publishers who also provide promotional dollars to support their books

• 10% of books are sold via the internet (e.g. Amazon) and this is expected to dramatically increase as they increasingly capture the time-poor or budget-conscious market segments

• Book sales have been fairly stable in this mature industry, however they are expected to decline in the future as internet and cable-TV usage increases

• Australia has one of the highest per capita magazine sales in the world

• There has been a dramatic increase in self-publishing over the past 10 years, however these books are typically not accepted by retailers and tend to have print runs of less than 1,000

• E-books would be in the early growth phase of their product life cycle. They currently have relatively low sales but are expected to steadily increase over time

• There is an increased number of authors in the marketplace, appearing to be driven by easy access to research material (via the internet) and by the increasing popularity of blogs

• Despite more authors available, there is only a small number of “brand” authors (such as Bryce Courtney) who can attract significant book sales on their name alone

• Excluding self-published books, there are around 500 new books available in the Australian market each month (including books published internationally)

• There is an increasing number of large book publishers, as the larger ones battle for market share by acquiring smaller publishing houses

QUESTIONS

1. Assess the book publishing industry using Porter’s Five-forces model.

2. What key insights have you gained by assessing this industry using this structured model?

3. Therefore, what is your overall assessment of the attractiveness of the industry?

4. How could a firm use Porter’s Five-forces model in their strategy and planning activities?

Answer 1

Porter's five forces are:

1. Competition in the industry

2. Potential of new entrants into the industry

3. Power of suppliers

4. Power of customers

5. Threat of substitute products.

1. Competition in the industry

• Assessing the industry using this force;

The competition for independent retailers and large retail chains who has 20% and 70% market share respectively is significantly high as the online shopping sites like Amazon, expected to dramatically capture the market share for time-poor and budget-conscious segment.

• Key Insights;

According to Porter completition rivalry is good for any industry as this will keep the price in check and refrain certain players from setting terms of deals to achieve higher sales and profits.

2. Potential of new entrants into the industry

• Assessing the industry using this force;

The potential new entrants are E-book sellers and blog writers. With the increasing internet accessibility people are preferring E-books, authors also appering to be more driven by blogs than traditional publishing methods.

• Key Insights;

The less time and money it costs for a competitor to enter a company's market and be an effective competitor, the more an established company's position could be significantly weakened. In this industry it is relatively easier for new authors to enter the market. Although brand authors have their market value still they need to adapt to the changing trends in order to sustain.

3. Power of suppliers

• Assessing the industry using this force;

This force analyses how easily suppliers can drive up the cost of inputs. It is affected by the number of suppliers of key inputs of a good or service, how unique these inputs are, and how much it would cost a company to switch to another supplier. In the given case there has been a dramatic increase in self-publishing over the past 10 years, which means there are more options for retailers to choose from.

• Key Insights;

This will definitely keep the well established publishers in check as the retailers can anytime choose to sell the self-pulished author's books without spending any significant cost

4. Power of customers.

• Assessing the industry using this force;

   Here large retail chains who deal in mainstream books published by large or long-established publishers have significant advanteage due strong market share.

On the other hand online platforms like Amazon will have to keep their prices lower to suit their smaller and price oriented cusomer base.

• Key Insights;

The ability that customers have to drive prices lower or their level of power is one of the five forces. It is affected by how many buyers or customers a company has, and how much it would cost a company to find new customers or markets for its output. A smaller and more powerful client base means that each customer has more power to negotiate for lower prices and better deals.

5. Threat of substitute products.

• Assessing the industry using this force;

E-books and blogs are very near substitutes for paperback books, with increasing internet reach and availability of thses alternatives the book industry is under serious threat.

• Key Insights;

Companies that produce goods or services for which there are no close substitutes will have more power to deal in their own terms. When close substitutes are available, customers will have the option to forgo buying a company's product, and a company's power can be weakened.

Overally the industry is witnessing rapid change both in terms of business perspective as well as customer preferences.

Understanding Porter's Five-force model and using this in strategy and planning can save an entity from serious threats.