Question

Strategic Management Edition 4. - Frank T. Rothaermel

Amazon - Chapter 8

While Amazon as a firm continues to diversify its products, services, and markets under one corporate umbrella, why do firms such as Barnes & Noble choose to split into separate firms for greater focus on each piece of the business? Do these different strategies align with the core competencies of each? It may be helpful to review Exhibit 8.9.

Answer 1

There are many forms of diversification. Some companies choose to diversify under one single brand name. This helps them in expanding quickly based on the goodwill earned by the company over the years. Aso, marketing requires fewer efforts and finance as the brand is already a well-established name in the market.

However, there are also companies which prefer to market each product under a different brand name. A prime example of this Procter & Gamble. It has brands like Tide, Ariel, Olay, Oral-B, etc but very few people know that all of the brands belong to a single company. Often these brands are in direct competition with each other like Ariel and Tide.

This form of diversification helps a company in forging different identities for different brands. Therefore, if one brand is not doing well or has received negative reviews, it doesn't shed a bad light on the rest of the brands. Also, when the brands are different, the company can enjoy a greater market share by targeting different needs of the people through different brands.

In this case, Barnes & Noble is trying to implement this strategy of having different firms for its diversification. This will help the company in expanding its marketing reach. Though it will require higher investment to market the products, a fallout of a single firm won't have an impact on the rest of the firms which will help the company in managing its risks.

Yes, the different approach towards the diversification is aligned with the core competencies of both the firms. Since the beginning, Amazon has been wanting to become the no.1 spot for people to shop for everything. This is represented in their logo as well which shows an arrow from the letter A to letter Z to depict that the company sells everything. But Barnes & Noble has always been into being a bookselling business. While the company has been upgraded from offering paperbacks to ebooks but the core competency remains one of being a business that facilitates reading. In this regard, its diversification through separate firms makes sense and is aligned with its core competencies.