Comparing the offline and on-Line Retail Environment of Amazon and How Value Is Created

Book retailing is a high-transaction-volume industry with a variety of outlets and ownership models. It was estimated in 2009 that the UK book retailing industry was worth £3.128 Billion, of which chain bookshops accounted for 40% of total market share, independent book retailers 15%, supermarkets 10%, direct mail 11% and other shops 7% (Walker, 2010). In the same year it was estimated that the online book retailing industry was worth £531.76 million representing 17% of the total market share (Walker, 2010).

There are many key differences between the offline and online book retailing environment, one of which is placement. Placement of stores can be of crucial strategic importance. An offline book store will locate where there is little competition in an area of high foot fall and convenience. These factors are hugely important in order to attract customers. For an online book store placement can be less of an issue as they are only just one click away. In contrast however, an offline store may be the only book shop on a busy high street offering very little in terms of competition, whereas an online store is operating in a very competitive market as all their competitors are also only a click away (Rayport and Jaworski, 2003).

Presentation refers to those factors of a store that add to or detract from a products appeal to customers. An offline store layout is crucial in how a store wishes to be perceived and a key driver of how much a customer enjoys their shopping experience. In store customer service very much complements store presentation, having the ability to seek the help of a store merchant is extremely influential in the buying process. For an online book shop, store layout is of equal importance and relates to the ease of which a customer can view products and complete transactions. Online customer service is also in place through the web via chat, email and discussion groups. However, this can never compare to in store customer service and face to face feedback (Rayport and Jaworski, 2003).

It has been suggested by Levin et al (2005) that online book retailing is a more convenient shopping channel as it offers rapid and extensive display of information resulting in great time-savings and efficiency. In comparison to offline stores, customers can more easily find merchants, products and product information which reduces search costs and eliminates the need to travel, especially since there is virtually no geographical constraints through the online environment (Levin et al, 2005). It is the ability to compare prices through tailored sites that has been one of the key drivers of increased spending. This allows shoppers, especially in this period of economic uncertainty to compare prices and locate the best deals (Walker, 2010).

On the other hand, lack of personal service, inability to inspect or handle the product and concern about delivery and exchange processes have been perceived as disadvantages to online retailing (Levin et al, 2003). This is reflected in a survey conducted by Levin et al (2003) which noted that consumers found online shopping provided access to a greater range of products, better prices and a quicker form of shopping. On the other hand, the offline environment was said to make for a more enjoyable experience due to the personal service, no-hassle exchange and instant delivery available.

Figure 1.

Figure 1 summarises the Amit and Zott. (2001) model for value creation in e-business.

The term "value creation" in e-business refers to the total value created through e-business transactions (Chaffey, 2009). Amit and Zott (2010) identified four major drivers essential to enhancing the value creation potential of an e-business; efficiency, complementarities, lock-in and novelty (see table 1 of appendix for description).

In order to establish how value is created in the online book retailing environment amazon.co.uk and waterstones.com approach to enhancing complementarities and lock-in will be considered. As well as books, Amazon.co.uk also sell a range of other products therefore they are able to offer what is known as "horizontal complementarities", such as Barclay's credit card and a range of products from clothes to DVDs. Additionally, both websites offer what is known as "vertical complementarities" such as the ability to have your book gift wrapped or a bundle of books for a discounted price, offering superior total value for the customer compared with each book sold separately. Furthermore, as Waterstones is a "Clicks and Mortar" business they offer customers the option of having their book either posted to their home address or their nearest Waterstones store. This adds particular value to the customer as it allows convenient returning or exchanging of merchandise. It is important to note this interdependency between the sources of value creation. Complementarities may lead to increased efficiency. When customers have access to products and services that are complementary to the primary product of interest, efficiency may be enhanced through reduced search cost and improved decision making (Lumpkin and Dess, 2004).

There are several methods of lock-in which are implemented by online book retailers to secure repeat custom. Waterstones operate a "Waterstones card", this is a loyalty programme rewarding repeat customers with points, which, when enough have been collected can be traded in for discount off new purchases. Loyalty programmes not only establish a better relationship between the seller and the customer but also allow the seller to accumulate information about the buyers purchasing preferences and patterns which will benefit the customer during future transactions (Amit and Zott, 2000). Although waterstones.com and amazon.co.uk both sell the same products,