GROUP TWO

Case Study: Better World Books - HBS

Question 1: As a for-pro*it social enterprise, Better World books (BWB) follow a triple bottom line philosophy, basing their economic activities on the elements of people, planet and pro*its. They aim to create and deliver value for customers, employees, shareholders and most importantly, the illiterate population by selling, receiving and donating used books. With social responsibility and community involvement at the core of their value proposition, the world can become a more literate and better place. Although a rosy but attainable ideal, such proposition can have its weaknesses including the volatility of inventory, the distribution of pro*it and the ignorance of minority towards social issues. A weakness arising from the planet element of BWBs value proposition is the reliance of donations to supply majority of the total inventory. Since donation levels are not always consistent, inventory levels *luctuate creating a degree of constant uncertainty. In addition, 35.1% of consumers interviewed in a study by BWB do not or somewhat care about social responsible behaviour (Norton, M., Wilson, F., Avery, J. & Steenburgh, T. 2012, p.17). Also if they wanted to, they can donate straight to the non-pro*it organisation instead. BWB must thus emphasize how their brand ful*ils their needs to read and save money, builds on their values why illiteracy is an issue and imply urgency so that action can be taken today. (Austin,J., Stevenson, H. & Wei-Skillern, J. 2006, p.7). As part of the people and pro*its element, BWB returns a percentage of their pro*its to its investors, partners and shareholders. The dif*iculty with this is how it is distributed. BWB management needs to frequently be aware of issues relating to customer perception and reassess the percentage they give to stakeholders. Since customers only see the exterior, they may perceive 5-10% as a small amount when actually it is more than what the two BWB co-founders have ever earned. In addition, how much they set aside towards literacy initiatives need to be in line with investment returns because low returns means lower attractiveness for further investment in BWB. This could have detrimental affects for future expansion. Lastly, when balancing the pro*its and people elements of their value proposition, *inancial incentives need to be taken into consideration to attract talented labour to further develop the company. BWB can turn to the equity method of funding whereby they allow the purchase of larger shares in the company however this can make large investors turn on them and demand more pro*it. Question 2 In Better World Books (BWB) case, their core competencies lie within the values that the co-founders shared since the inception of this company in 2002 aiding others through their business practices. With a business model that incorporates a for-pro*it approach with built-in social and environmental bene*its it

continued to delivered on its unique promise of being a triple-bottom line of pro*it, people and planet enterprise (Norton et al., 2012). As Helgesen explained, Were not a traditional company with an add-on cause component. Social and environmental responsibility is at the core of our business in our DNA. (Norton et al., 2012) The uniqueness of BWBs approach to business was unprecedented in the used books industry which led to interest in their risky venture of Creating a Better World, One Book at a Time. (Norton et al., 2012) Being one of the 88 founding Bene*it Corporations in 2007, they have displayed ongoing sustainability in these values that they hold through major improvements in their B Impact Reports as seen by comparing the 2008 and 2011 B Impact Report scores. [Workers: 24 (2008) to 31 (2011)] [Community: 32 (2008) to 51 (2011)] [Environment: 6 (2008) to 23 (2011)] [Governance: 9 (2008) to 17 (2011)]. Core competencies result when *irms learn to harmonise multiple practices intertwined with technologies. (Prahalad, 1993) Essentially, these harmonising practices lay the foundations for their competitive advantages and provide for the added value in the company. Kevin Jones, a board member believed the development of a proprietary inventory management system to be an increasing competitive advantage over other companies. (Norton et al., 2012) This system was unique to the bookselling industry at this time and drastically improved transparency and ef*iciency in the companys operations. However, costing over $2 million the technology was expensive and time consuming for a company at such a small scale. In addition to this technology, a competitive advantage lies in the social aspect of BWBs operations whereby it embodies Helgesens rallying cry to consumers, BWB rely on consumers voting with their dollars for a world in which every child has access to books and education. (Root, 2009) However, the *inancial perspective of BWB requires a pro*itable return in order to continue in their quest for their social mission of giving a certain percentage of their pro*its to the non-pro*it organisations that they are partnered with. However, this percentage number has decreased from 15% originally to 5-10% of revenue. This embodies the paradox in such a business model where social responsibility is given importance at the same level as *inancial growth. Whereby, the decision to donate to their non-pro*it partners is two-fold, where BWB stunts its own growth if they donate too much of their revenue and this in turn creates a lower valuation for the company which would hurt future growth and investment which would eventually lead to decreased future donations. Thereby the cycle occurs where *inding the right balance between donations and future investments has to be determined in order to remain true to their social cause of assisting children around the world in educating and providing them with books. Therefore, in order for BWBs core competencies and competitive advantages to remain sustainable in the future they need to remain true to this motto otherwise they risk both their partners and the credibility they hold in the industry as a social for-pro*it B Corporation.

Question 3: Amazons logistical pro*iciency has allowed the company to excel in the bookselling business. In an industry that generates a high-volume inventory with low-margins, size is what has seen this company achieve a greater competitive advantage. In 2010, the company occupied 11.8 million square feet of warehouse operations in North America, and 5.7 million internationally (Norton et al. 2012). These *igures illustrate the magnitude of the companys warehouse facilities, which at the time were almost six times greater than some of its competitors, namely, Boarders, Barnes & Noble. Access to large inventory enabled Amazon to overshadow smaller companies such as Better World Books (BWB) and dominate the online market for the sale of new and used books. As such, BWB was subjected to a pricing structure that ultimately undermined the brand and the companys social reputation. In order to combat BWBs social image, the company aimed to carve out a new identity (Norton et al. 2012) with the launch of their new website BetterWorldBooks.com in December 2006. As a result, BWB were able to sell directly to its consumers, eliminating the *ifteen percent commission it paid on average to Amazon. The launch of the new website implemented a pricing strategy that saw less *inancing on marketing overheads and more money spent on paid search advertising. Consumers who typed used books on search engine sites such as Google would now have the BWB advertisement appear at the top of their search results, ultimately heightening brand awareness. In addition, a key point of difference to its competitors was the companys commitment to free, reliable shipping (Norton et al. 2012); a strategy that was fundamental to its growth. Also, the company encouraged its customers to use eco-shipping. This sustainable approach produced a lower energy expended per package in comparison to other shipping companies and harnessed BWBs socially sustainable image. With the growth of the new website, BWB now faces challenges pertaining to its pricing structure. In order to sustain its competitive edge within the marketplace, it should adopt a dynamic pricing strategy that adjusts prices continually to meet the characteristics and needs for individual customers and situations. A study conducted by Xiong et al. (2013) found that dynamic pricing strategies effectively balance supply and demand over time in a rapid changing online environment. The advent of the Internet has affected pricing to a great extent. The *lexibility of the Internet allows online consumers to instantly and constantly adjusts prices on a wide range of goods based on demand dynamics. Dynamic pricing could offer many great advantages for BWB, both from a marketing point of view and as a means of monitoring and controlling inventories. A case in point is exempli*ied with catalogue retailers such as CableChick.com.au, who can change prices instantly according to changes in demand or costs, changing the prices for speci*ic items on a daily basis. Furthermore, Dell Computer uses dynamic pricing

to achieve real-time balancing of supply and demand for computer components. These strategies can be further applied to BWB by raising prices on components in short supply and dropping prices for oversupplied items. Question 4: Before exploring the strategies Better World Books (BWB) can implement to complete the full circle (Norton et al., 2012), it is imperative to understand exactly what completing the full circle actually means. This term is used by the BWB VP of Marketing, John Ujda, to describe strategies that the company employs to further engage and link the book donors and the book buyers together. Duo strategies, physical evidence and people are proposed in order to answer the fundamental question of how to increase engagement within the network of book donors, BWB, and buyers. Physical retail stores was a consideration BWB had kept in their minds, but prevented from being actionable because of the *inancial sacri*ice that entailed. However the potential for BWB is that such a strategy will generate a greater *low of customers, reiterated by research conducted by (Kau, et all 2003 pg 141), showing that 47% of consumers aged 16-35 utilise the internet to purchase goods, whilst only 25% of consumers aged 35+ do so. The second issue is that insuf*icient people know about BWB. Thirdly, even if they do know BWB exists, they do not tend to donate books. Hence, a physical store is more than another channel, it can represent and symbolise what a company stands for. (A.E Kirby, A.M Kent 2010 pg 433). By having a store, there will be higher in*lux of customers that will buy books there, awareness of BWB will increase, create positive publicity, and *inally, because of the added convenience, people will donate more books as well. People is another core strategy BWB can used to further the relationship with both the donors and buyers. First of all , (J.Barney, P. Wright, Pg 3) argues that people are the faces of the *irm, again representing the eco-green *irm BWB represents and communicating that to their target market. By training/employing staff so they remain goal driven, passionate, and have the correct competencies, it will help excel the *irm in terms of one, maintaining relationships with current partner and negotiating with new ones, and two, to act as ambassadors to the cause and spread word of mouth and be a catalyst to awareness. It is important to keep the *low of books consistent to ensure survival, a speci*ic example of this being the fact that supplies from Universities is declining. At the same time, by having the right people, new links can be created , increasing suppliers, and also connect these procurements onto sellers who might not even know of this company, hence completing the full circle. By investing in higher quality human resource and eventually encapsulating that into a physical retail store, an icon of BWB will be conjured, effectively connecting all parties involved, and completing the full circle that John Udja *irst proposed.

Question 5: In todays present society, growing consumer awareness and favorability of social responsibility has sparked a change in the way *irms operate. With this in consideration, Better World Books (BWB) not just for pro*it mission and business model enables and constrain its potential as a business. BWBs mission facilitates its potential by effectively capturing, creating and highlighting the well being of society as it aims to convert donated books into *inancial resources that could be used to do good. (Norton et al., 2012). This evidently re*lects Corporate Social Responsibility (CSR), which addresses the actions that go beyond the interests of the *irm, and above the level that is required by law (McWilliams, A., & Siegel, D. (2001). BWBs business model operates under the B Corporation concept, also known as a bene*it corporation (Norton et al., 2012). B Corps are voluntary aliases available to for-pro*it companies to demonstrate their commitment to a dual mission of making pro*its and promoting social good (Reiser, 2011). Initially, BWBs business model inhibited its potential, broadly operating as a backroom operation, whereby BWB saw using other online retailers a great advantage as they allowed these websites to bring customers to them. Yet, because BWB used other online retailers to distribute and sell its books, its social mission and the brand in its entirety, became obscure to customers. However, the company saw a potential in a niche strategy to compete directly with Amazon (Norton et al., 2012), where it launched its own branded website BetterWorldBooks.com, allowing it to eliminate signi*icant costs, for example, paying commission to Amazon.com. Likewise, launching its own website also enabled BWB to differentiate its identity and establish a reputation as a for-pro*it social venture, in comparison to those of their industry competitiors In the near future, BWB should retain its status as a for-pro*it social venture. With the surge in social-mission branding, the dual mission of for-pro*it and promoting social good supports CSR and encouraging socially responsible behaviour (Reiser, 2011). Both these practices have become increasingly important in consumers minds, and will continue to become an important success factor for *irms (Snider, Hill & Martin, 2003). Pro*it maximization, although not a key objective of BWB, still remains important as it assists BWB in generating an adequate level of pro*it to fund for investments and logistics such as the proprietary inventory management, which aided in building competitive advantage. More importantly, the ability for BWB to continually operate within the social and environmental expectations of society allows it to create customer satisfaction, generate brand equity, and brand loyalty (Luo & Bhattacharya, 2006).

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