Subject: Strategic Analysis & Leadership

CGA Md. Wahid Murad FCA, FCGA

Question for HASAN BOOK DEPOT

Introduction

HASAN BOOK DEPOT (HBD) is a specialist business publisher; commissioning, printing and distributing
books on financial and business management. It is based in a small town in Jessore, a high-cost economy, where
their printing works were established 50 years ago. 60% of the company's sales are made through bookshops in
Jessore. In these bookshops HASAN BOOK DEPOT's books are displayed in a custom-built display case
specifically designed for HASAN BOOK DEPOT. 30% of HASAN BOOK DEPOT's sales are through mail
order generated by full-page display advertisements in magazines and journals. Most of these sales are to
customers based outside Jessore. The final 10% of sales are made through a newly established website which
offers a restricted range of books. These books are typically very specialized and are rarely featured in display
advertising or stocked by general bookshops. The books available on the website are selected to avoid conflict
with established supply channels. Most of the online sales are to customers based in Jessore. High selling prices
and high distribution costs makes HASAN BOOK DEPOT's books expensive to buy outside Jessore.

Business changes

In the last decade costs have increased as the raw materials (particularly timber) used in book production have
become dearer. Paper is extremely expensive in Jessore and the trees used to produce it are becoming scarcer.
Online book sellers have also emerged who are able to discount prices by exploiting economies of scale and
eliminating bookshop costs. In Jessore, it is estimated that three bookshops go out of business every week.
Furthermore, the influential journal 'Management Focus', one of the journals where HASAN BOOK DEPOT
advertised their books, also recently ceased production. HASAN BOOK DEPOT itself has suffered three years
of declining sales and profits. Expenditure on marketing has been reduced significantly in this period and further
reductions in the marketing budget are likely because of the weak financial position of the company. Overall,
there is increasing pressure on the company to increase profit margins and sales. Despite the poor financial
results, the directors of HASAN BOOK DEPOT are keen to maintain the established supply channels. One of
them, the son of the founder of the company, has stated that 'bookshops need all the help they can get and
management journals are the heart of our industry'. However, the marketing director is keen for the company to
re-visit its business model. He increasingly believes that HASAN BOOK DEPOT's conventional approach to
book production, distribution and marketing is not sustainable. He wishes to re-examine certain elements of the
marketing mix in the context of the opportunities offered by e-business. A young marketing graduate has been
appointed by the marketing director to develop and maintain the website. However, further development of the
website has not been sanctioned by the Board. Other directors have given two main reasons for blocking further
development of this site. Firstly, they believe that the company does not have sufficient expertise to continue
developing and maintaining its own website. It is solely dependent on the marketing graduate. Secondly, they
feel that the website will compete with the established supply channels which they are keen to preserve.
However, the marketing director is convinced that investing in e-business is essential for the survival of
HASAN BOOK DEPOT. 'We need to consider what unique opportunities it offers for pricing the product,
promoting the product, placing the product and providing physical evidence of the quality of the product.
Finally, we might even re-define the product itself'. He feels if the company fails to grasp these opportunities,
then one of its competitors will, and 'that will be the end of us'.
Required
(a) Determine the main drivers for the adoption of e-business at HASAN BOOK DEPOT and identify potential
barriers to its adoption. (5 marks)

(b) Evaluate how e-business might help HASAN BOOK DEPOT exploit each of the five elements of the
marketing mix (price, product, promotion, place and physical evidence) identified by the marketing director. (20
marks) (Total = 25 marks)

Page 1 of 3
 Subject: Strategic Analysis & Leadership
CGA Md. Wahid Murad FCA, FCGA

Suggested Answer

(A) Drivers for e-commerce

 Reduction in costs, including the cost of raw materials and bookshop distribution
 Increased profit margin as physical bookshop no longer required
 Increased revenue due to increased sales. E-commerce allows HASAN BOOK DEPOT to market to and
sell to an extended customer base.
 The need to keep up to date to avoid falling behind the competitors, which the marketing director claims
'would be the end of us'
 The marketing director is a driving force for the change.
 A graduate has been taken on to develop and maintain the website.
 Ecological awareness is a driving force as there is an acceptance that timber is becoming scarce and the
earth's resources should be protected.

Barriers to the adoption of e-commerce

 HASAN BOOK DEPOT does not have sufficient expertise to continue developing and maintaining its
own website; therefore costs would be incurred in getting someone to do this on their behalf. This has a
significant impact on the long term viability of the project.
 Profits and revenue are declining and so HASAN BOOK DEPOT will struggle to meet the costs
involved in developing the website.
 The website will compete with existing supply channels that they are keen to preserve.
 Fraud risks associated with electronic financial transactions
 Piracy risks may arise if the online books are not carefully protected. They could potentially be
illegitimately copied and sold on.
 Resistance from the other directors.

(B)

Product
HASAN BOOK DEPOT currently sells physical books. E-business would allow them to either replace the
product with an electronic equivalent (ebook) or to augment the products by adding additional services such as
an associated website which offers further case studies and questions etc.

Replacing the product with eBooks may allow the product range to be increased as it allows books to be
introduced that would otherwise be uneconomical to print. This method would reduce the cost of raw materials
and assist in meeting environmental targets, therefore reinforcing two of the drivers noted in part (a).

Augmenting the product would improve the product the customer receives and enhance their experience.

E-business could also be used to extend the product range, eg training or financial advice could be offered by an
intermediary.

Price

E-business should involve lower costs than those incurred selling physical books in physical shops. By
eliminating bookshops (and the commission payable to them) the price could be lowered, yet HASAN BOOK
DEPOT's profit margin could still be increased.

Page 2 of 3
 Subject: Strategic Analysis & Leadership
CGA Md. Wahid Murad FCA, FCGA
Current high prices mean that overseas sales have been low. This could be addressed by combining differential
pricing (in local currencies) with electronic alternatives.
HASAN BOOK DEPOT will have to monitor competitors' costs and react accordingly due to the existence of
price comparison websites. They will also have to be aware of large existing channels (e.g. rokomari.com) that
pay commission on books sold through their site.
Alternative pricing strategies, such as subscribing to the site rather than purchasing individual books, could also
be explored.
Direct pricing to customers, such as pre-publication deals and other special offers could be made to existing
customers.
Promotion
Currently, promotion involves bookshop displays and full-page adverts in magazines/journals. This is a classic
'push' approach as it focuses on the product, not the customers.
E-business allows information, such as customer details, to be recorded so HASAN BOOK DEPOT can then
target them specifically, for example online suggestions at the checkout stage ('people who bought this book
also bought the following') and next time they visit (welcome page of tailored suggestions based on previous
activity).
Banner adverts on associated websites, such as sites that provide management advice. Links to academic
websites could also be established via their reading list. Commission will be payable for this.
HASAN BOOK DEPOT will also have to develop their website carefully to ensure it features prominently in
search engines.
In order to develop these new promotion methods, expenditure on offline advertising may need to be scaled
back.

Place
Bookshops have limited reach, and although circulation figures for magazines/journals are provided it is unclear
how many people read the adverts, therefore their reach is difficult to predict. The scenario also indicates the
reach of both bookshops and magazines/journals is in decline.

The internet, by contrast, has unlimited (global) reach. Few books are currently sold outside Jessore, however
this may be simply down to unfamiliarity with HASAN BOOK DEPOT. The internet could address this easily.

Jessore is a high-cost economy and it is likely that printing and distributing the books in lower labor cost cities
could lead to significant cost savings.

Physical evidence

Bookshops have an advantage over the internet (and journal advertisements) in that they allow customers to
inspect books properly to ensure they meet their needs before deciding to purchase them.

This can be partially addressed online by providing a 'look inside' facility. This allows the customer to view key
pages such as contents list, index and the first few pages or chapter.

Customer reviews, feedback and ratings can provide customers with a form of physical evidence that they are
unlikely to obtain from any bookshop.

By providing books online, possibly through subscription, much of the need for physical evidence is removed.

Page 3 of 3