Competition in traditional and digital markets: a comparative analysis

Traditional and Digital Markets

The book retailing industry defines the differences between traditional and digital markets and continues to be a catalyst of innovation for both. Of the two, the digital or online markets for book retailing and e-commerce far outpace traditional book retailing market growth and profitability. Digital or online book retailing is expected to grow at a 10.5% compound annual growth rate through 2015, while traditional bookstores are expected to only see a 3% growth in the same period. Profits from e-commerce book sakes in 2010 are projected to be $2.2B with bookstores generating $33M. The barriers to entry in e-commerce are very small compared to those of entering the traditional book retailing market. The intent of this analysis is to evaluate the differences in traditional and digital or e-commerce-based book retailers.

Analysis of Traditional and Digital Markets

In evaluating the differences between traditional and digital markets, Dr. Michael Porter's value chain model is invaluable in putting each industry into context (Porter, Millar, 1985). This model defines the underlying support activities that each functional area needs to contribute to profitability (Porter, Millar, 1985). The differences between traditional and digital markets in book retailing are very significant and lead to a completely different value chain for each. Over the last twenty years, many studies have been completed about why e-commerce bookstores continue to outpace their traditional counterparts. The conclusion is that online stores have the ability to generate greater customer loyalty over time, creating more unique and personalized shopping experiences for online customers and offering greater variety of books as well (Shih, Fang, 2005).

Because of these factors being taken into account, the online market has gone through much more rapid market consolidation over time, as is shown in the analysis of competitors in Figure 1.

Figure 1: Market Shares of e-Commerce book Retailers