CORP5066 – Business Model Generation

CORP5066 – Business Model Generation
Assignment Two
An analysis of Waterstone’s Business Model using the ‘Business Model Canvas’ (including
proposed modifications for future improvement).
FAO: Dr. Martin Beckinsale & Mr John Powell
P Number
Hand in Date:
2
Executive Summary
This report has evaluated Waterstone’s Business model, using Osterwalder’s Business
model canvas as a guide. To support guide findings, analysis of the company’s wider
environment has taken place, with focus placed on; market forces, key trends, industry
forces and macroeconomic forces. A SWOT analysis of the company’s overall business
has also been used. Findings suggest that the company adopts a platform based model,
whereby the exchange of physical products between consumer and authors / publishers
takes place through both brick-and-mortar stores and online platforms. The company
pursues a service-led strategy and places customer needs at the forefront of its operation.
Given findings, the report has offered proposed modifications that the organizations
business model could undertake. Within the report, it is argued that customer focus,
relationships and generated revenue could all be increased efficiently through the creation
of a company Vlog, delivered with the help of a popular BookTuber. To support the
proposal, Amit and Zott’s NICE Framework has been used.
Contents Page No.
Executive Summary…………………………………………………………………………………..2
Contents Page……………………………………………………………………………3
Introduction
– Report Hypotheses………………………………………………………………………………….4
– Business Model Canvas – An Introduction…………………………………………………..5
– Waterstone’s – A brief Introduction……………………………………………………………..6
Section 1
Business Model Canvas…………………………………………………………………………7-11
Section 2
Waterstone’s Business Model Type……………………………………………………………12
Business Model Environment……………………………………………………..13-14
Section 3
Business Model modification proposal…………………………………………………………15
Conclusion……………………………………………………………………………………………….16
References………………………………………………………………………………………….17-19
Appendices
– Appendix 1 – Business Model Canvas………………………………………………………20
– Appendix 2 – SWOT analysis…………………………………………………………………..21
– Appendix 3 – NICE Framework………………………………………………………………..22
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Introduction
Report Hypothesis
The purpose of this report is to investigate and analyze the Business model of a selected
case organization operating in today’s society. Analysis will centre on Alexander
Osterwalder and Yves Pigneur’s Business Model Canvas, a nine step, building block
process, and will focus on the UK’s best known book seller, Waterstone’s.
The report has been split into three stages, each addressing a desired assignment
requirement. Firstly, the report will analyze Waterstone’s current business model. To do
this the Business model canvas will be used. Secondly, the report will identify the type of
business model adopted by Waterstone’s, through which appropriate theory will be used.
Here, a SWOT analysis and Business environment analysis will be used to present
findings.
Sections one and two of the report will then be used to create a proposal outlining the
modifications that could take place in order to improve the case organizations current
business model. These modifications, it is hoped will enable the business to improve
market performance and thus, profit maximization. Within the third section of the report,
both the benefits and implications of this modification will be outlined. Findings will also be
supported by Amit and Zott’s NICE Framework. Once all above is complete, a conclusion
will be included to piece together all completed sections.
Business Model Canvas – An Introduction
The business model canvas is a strategic business management tool used to ‘describe the
rationale of how an organization creates, delivers, and captures value’ (Osterwalder and
Pigneur, 2010, p14). The canvas can be used to systematically analyze, question, design
or pivot a company’s business model, it acts as a simplified blue print for strategy
implementation and can arguably be used within any business, regardless of shape or
size. The model is built on nine building blocks (See appendix 1) which can then arguably
be split into two; cost-side (left) and value-side (right).
The one page blueprint identifies the crucial activities and challenges that the business
performs / deals with and how these relate to one another. By directing the business
model into nine key elements, strategists are able to identify opportunities, deal with
threats and develop new initiatives to increase efficiency. It can be argued that the tool is
used to support or facilitate business success, as it outlines key areas where both internal
and external improvements can be made.
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Waterstone’s – A brief Introduction
Waterstone’s is a specialist bookshop, operating on the high street. Led by James Daunt,
(managing director), ‘the founder of the successful and highly regarded London
independent book seller James Daunt’ (Harrison, 2011), and under the ownership of
Russian billionaire Alexander Mamut, Waterstone’s is methodically fighting its way back
from near closure, a position the company found itself in, argues Daunt, because it ‘simply
lost sight of the old-fashioned art of bookselling; finding what the customer wants’ (Rankin,
2013).
Battling against the online force of Amazon, the low prices of supermarket chains, the
growth of popularity in computer games and ‘the sheer mass of information in the digital
space’ (Waterstone’s, 2016) coupled with the economic recession that hit the UK in 2008,
the London born book seller has faced an exponential decline in sales over the last ten
years, threatening to end the companies thirty four year reign as one of Britain’s most
loved stores.
As the ‘last remaining chain of specialist bookshops on the high street’ (Waterstone’s,
2016) the business is placing customer value at the forefront of its operation. Now
supported by publishers who once saw Waterstone’s as ‘the villain of the book world’
(Rankin, 2013), the book seller is pursuing a strategy of localism; an idea that will see
each store tailor its shelves to meet the desires and interests of its local shoppers. Daunt
argues that in order to compete, ‘bookshops need to reflect their customers; the local
demographic’ (Harrison, 2011).
To achieve this, the company has decentralized its sales operation and now counts on
‘local managers [to] make choices to suit local custom (Davidson, 2015). The company
has also removed planograms, meaning each store can now have, to some degree, its
own unique, community focused style. In line with this, the company has also adopted a
‘reactive buying process’ (Campbell, 2014), whereby orders for more books are made
once they begin to leave the shelves. This ensures optimum stock levels are maintained,
helping to reduce high stock holding costs. Waterstone’s newly focused business model is
truly aimed at and is driven by its customers.
It must also be noted that Waterstone’s offers both an online delivery service and a click
and collect service whereby customers can purchase online and collect in store within 24
hours. It’s online offering stands at almost ‘250,000 titles’ (Waterstone’s, 2016).
Section 1 – Waterstone’s – An Analysis
Within this section of the report, the business model canvas (Osterwalder and Pigneur),
has been used to analyze Waterstone’s current business model. Each of the nine building
blocks will be firstly defined and then used to highlight Waterstone’s overall operation.
See Appendix 1 for a complete Business Model Canvas of Waterstone’s Business model.
Customer Segment – Who are we creating Value for?
Customers are the heartbeat of any business and understanding their needs is integral to
achieving success. All business models therefore must center on the customer and their
needs / desires. It is vitally important that a business understands exactly who they aim to
serve and thus create value for. Because of this, customer segment identification is the
first of the nine building blocks to be analyzed.
Waterstones’ business model is clearly focused on a segmented market. A typical
Waterstone’s customer would arguably be middle to upper class, thirty plus, with a
reasonable amount of disposable income. Customers can, however range from parents
with ‘buggies and babies… to people in suits’. (Harrison, 2011).
With the store being undercut on price by both Amazon and big supermarket chains,
Waterstone’s targets book loving enthusiasts, with traditional values, seeking great
service, and a calming store atmosphere with knowledgeable, opinion offering staff.
Waterstone’s stores can be found in both large city centers and affluent suburban areas, a
factor which again highlights the retailers targeting of this market segment. This can be
further enhanced by the book sellers partnership with Paperchase, a high end, British,
innovative leading stationary brand. (Felsted, 2010).
Finally, it should also be noted that Waterstones’ segments its market based on location,
in the sense that each store tailors its product offering to suit local needs. This implies that
the businesses strategy and targeted audience is segmented at both the front (individual
store) and back (overall company) line of its operation.
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Value Proposition – How do we create value for the customer?
Customer Value can be defined as ‘the consumers overall assessment of the utility of a
product based on perceptions of what is received and what is given’ (Carvalho and Jonker,
2015). It is arguably a trade of between quality / benefits and cost.
The ‘value proposition is a central act that defines what a company does, and therefore
who a company is’ (Callan and Mara, 1997). It is the main factor in determining whether a
customer shops with one brand or another. To be effective it must satisfy a problem or
need and ultimately, it must offer some kind of benefit to the customer.
A value proposition ‘creates value for a customer segment through a distinct mix of
elements catering to that segments needs’ (Osterwalder and Pigneur, 2010, p23). In
Waterstones’ case, these elements include; performance, brand / status, accessibility and
through the decentralization of its stores the book seller arguably provides customization
to its customer segment (store offerings tailored to local desires).
Performance
 Specialist bookstore offering customer’s insight and knowledge of 1000,s of titles
authors and genres – knowledgeable and attentive staff.
 Rewards loyalty – stamp cards whereby customers are given x amount off a
purchase after so many transactions.
 Provides a place for book lovers to relax, read, and enjoy hot and cold food and
drink.
Brand / Status
 Last remaining high street bookstore – historic appeal.
 Nationally recognized – British appeal.
 High end, high quality, trusted store.
Accessibility

Channels – How do we reach our customers?
Channels; communication, distribution and sales, form a company’s interaction with its
customers. This sub-section is concerned with how Waterstone’s communicates and
interacts with its customers. Waterstone’s adopts a direct, in-house multi-channel
approach in its attempt to present its value proposition to customers. The use of its
knowledge bearing, service-led, brick-and-mortar stores alongside its online platform to
sell goods highlights this.
The company also holds partnerships with Alibris –‘a leader in used and collectible books,
music and movies’ (Waterstone’s, 2016) within its marketplace operation, runs an affiliate
programme through ‘Affiliate Windows’ and uses relations with some of the country’s major
retailers (Tesco and Boots) to have Waterstone’s gift cards stored on their shelves.
Customer Relationships – What relationship do you wish to hold with customers?
Waterstone’s pursues the building of personal relationships with its customers, achieved
through both point-of-sale and customer browsing interactions between book loving
customers and attentive, knowledge bearing staff. Much of Waterstone’s success stems
from its service-led operation, encompassing highly ‘literate staff who themselves love
reading…This enables staff to provide the knowledge and attentiveness that form the
basis of an emphatic and personalized customer experience’ (Biddulph, 2015). These
relationships are further enhanced by the book seller’s ambition for its stores to represent
local needs.
As previously mentioned, Waterstone’s looks to build relations further by rewarding
customer loyalty. This is achieved through the operating of a ‘stamp loyalty card’ whereby
customers are given x amount of their 10th purchase.
Waterstone’s utilizes ‘communities to become more involved with customers / prospects
and to facilitate connections between community members’ (Osterwalder and Pigneur,
2010, p29). A review section allows customers to review books, of which there experience
is shared online.
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Revenue Streams – How does the company generate money?
Revenue streams are the building block that represents the cash a company generates
from its customers. Cash generation is arguably determined by the success and accuracy
of the company’s value proposition.
Waterstone’s generates revenue streams through fixed ‘menu’ pricing, asset sales. The
company also generates revenue through selling Paperchase goods and housing Costa
Coffee branches within some of its stores.
Key Resources – What does our value proposition require?
Key resources are required for a business’s value proposition to be offered. These
resources enable the business to meet customer needs, build relationships and in turn
generate revenue.
Waterstone’s key resource is in fact its Brick-and-Mortar stores (physical) and its serviceled, enthusiastic staff (human), a feature that its main competitor Amazon simply cannot
compete with. The company also gains from its intellectual resource; its brand.
Key Activities – What activities are required to offer the value proposition?
Key activities are ‘the crucial things the business needs to do to deliver on its propositions
and make the rest of the business work’ (Cowan, 2013). Waterstone’s is a platform from
which authors and publishers can gain access to market and sell their work. The book
seller works with Random House, Hachette, Harper Collins, Pan Macmillan and Penguin
publishers to provide customers with the latest and most in-demand products. The
company’s online operation has also intensified given the rise in e-book demand / sales
and also the desire by customers for convenience.
In order to offer customers a unique, relaxed service, Cafés have been incorporated in
many of the company’s stores across the country. Daunt wishes to incorporate simplicity
into the businesses operation by creating ‘just nice little book shops with a café’ (Flood,
2014).
Key Partnerships – Who enables the business to work?
Waterstone’s uses ‘optimization and economy of scale partnerships’ to source its products
and also increase sales. The book seller ‘buys from all major book distributors in the UK’
(Waterstone’s, 2016) as well as two major wholesalers; Gardners and Bertrams. Gardners
for example, are used as a source of supply, whom Waterstone’s will work with, rather
than independent publishers.
Waterstone’s also uses an affiliate programme to increase sales, as well as using major
retailers to stock gift cards.
Cost Structure – What costs will be incurred in using this business model?
Waterstone’s costs are fixed; products, rent, utilities, distribution etc.
The company places value creation ahead of the cost implications. This is arguably down
to the under cutting of price by Amazon and Supermarkets that Waterstone’s simply
cannot compete with.
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Section 2 – Waterstone’s Business Model Type
Business models concentrate on value creation. A business model ‘is the method of doing
business by which a company can sustain itself – that is, generate revenue’ (Rappa, 2010).
Having analyzed Waterstone’s business model it can be argued that the high street book
seller operates through a closed platform.
A platform is a business model ‘that creates value by facilitating exchanges between two
or more interdependent groups’ (Moazed, 2015) which in Waterstone’s case is the
exchange of physical products between consumers and authors or publishers. This
exchange takes place through brick-and-mortar stores and online platforms.
It must also be noted that ‘Waterstone’s marketplace’ also acts as a proprietary platform
through which customers can purchase ‘more than 120 million items stocked by
independent sellers from 45 countries around the world’ (Waterstone’s marketplace,
2016). Thus, it links independent sellers with consumers through a controlled platform, of
which competing firms (such as Amazon) cannot access. Working with independent sellers
enables Waterstone’s to provide a wider product offering to its customers.
According to Rappa’s ‘Business Model Typologies, Waterstone’s online service also fits
into two other categorize; Merchant and Affiliate.
 Merchant = Retailers of goods or services through either virtual or click and Mortar
applications.
 Affiliate = Offers ‘financial incentives to affiliated partner sites’ (Rappa, 2010). The
idea here is that affiliates are rewarded financially for each visit they generate to the
principle company’s (Waterstone’s) website. Waterstone’s offers ‘up to 4%
commission on completed sales from traffic’ (Waterstone’s, 2016) generated by its
affiliates.
Business Model Environment
To better understand Waterstone’s Business model, it is important to evaluate / analyze
the macro-environment within which the business operates. The business model
environment tool can help company’s ‘map their environment’s forces in a structured and
tangible way’ (Amarsy, 2015).
The four key environment factors are: Market forces, key trends, Industry forces and
Macroeconomic forces.
(Amarsy, 2015).
Systematically assessing the company’s business environment is completed to outline
‘potentially disruptive threats or to seize opportunities that can improve or reinvent’
(Amarsy, 2015) the company’s current business model. Understanding the environment
within which the company operates also helps to outline key company strengths and
weaknesses. A SWOT analysis can therefore be conducted to support findings (See
appendix 2).
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Waterstone’s Business model environment
Market Forces:

Key Trends:

intellectual staff.
Industry Forces:

Macro-economic forces:

Section 3 – Proposed modifications.
For Waterstone’s to survive and continue making economic gains; ‘the chain is finally
approaching breakeven after years of red ink’ (Davidson, 2015), it must look to improve
both its online presence and its ability to attract younger shoppers. One way in which this
can be achieved is through the bookseller teaming up with well known ‘BookTubers’, some
of whom ‘rack up millions of views’ (Kozlowski, 2015) and running its own Vlog. The Vlog
would see book enthusiasts discuss genres, authors and titles online, as well as advertise
featured products (books and stationary). The Vlog could also include links to
Waterstone’s website whereby customers can purchase goods directly. Subscribers could
also be rewarded with promotions throughout the year. (See Appendix 3 –
‘complementary’s’).
The Vlog would be easy to create as the platform already exists. Waterstones currently
has a YouTube channel, though subscription figures are poor with a mere 7,248
individuals signed up. (As of 18:15pm on 10/05/16). (YouTube, 2016). Business model
innovation, ‘relies on recombining the existing resources of a firm and its partner’s, and
does not require significant investment’ (Amit and Zott, 2010). Though innovative, the
proposal is not Blue Ocean and therefore development and application costs will be low,
enabling the store to continue investment in its Brick-and-mortar operation. ‘Waterstone’s
full-year losses have narrowed after investment from its new owners and a deeper range
of books helped boost sales’ (Tugby, 2016).
The Vlog would act as another channel to customers, BookTubers influence; ‘Vloggers
and bloggers are huge influences on their internet-hooked audience’ (Deo, 2015) could
potentially increase footfall, and the inclusion of advertisement would potentially generate
higher levels of revenue for the British book seller.
See Appendix 3 for a detailed NICE Framework (Amat and Zott, 2010) on how the
incorporation of a Vlog could influence Waterstones business model.
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Conclusion
This report has evaluated Waterstone’s Business model, using Osterwalder’s business
model canvas as a guide for analysis. The company adopts a platform model, whereby
customers and writers / publishers are joined through the companies Brick-and-mortar or
online service stores.
Analysis has found that the company pursues a service-led strategy, whereby customer
needs are placed at the forefront of its focus. Under the watchful eye of James Daunt, MD,
the company is looking to return to the ‘old-fashioned art of bookselling: finding out what
the customer wants’ (Rankin, 2013). Through a decentralized purchasing strategy and the
removal of planograms the book seller is attempting to localize its operation, handing the
initiative to store managers, who interact daily with customers.
It is clear to see, given the significant improvement in sales, that the company’s strategy is
working. However to improve company performance further, the modification offered;
introduction of a company Vlog, used to promote books and generate revenue through
advertisement is a viable and financially rewarding option. The influence today of
BookTubers could potentially increase footfall for the company both in-store and through
its website and focusing efforts towards an online platform is arguably the only way
forward when attempting to reach younger demographics.
Word Count: 2,624 (excluding references).
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Appendices
Appendix 1 – Business Model Canvas – Waterstone’s
Appendix 2 – SWOT Analysis – Waterstone’s Business Model
Strengths
– Last remaining high street book seller.
– Holds strong rapport with loyal customer base.
– Support from Publishers.
– Service – enthusiastic workforce.
– Access to wide range of products – furthered by ‘Waterstone’s marketplace’.
Weakness
– Cannot match low prices offered by competitors (Amazon and Tesco).
– Minimal online presence.
– Long tail stock management.
– Small stock holding – once stock is gone takes time to replenish.
Opportunity
– Increase online presence – looked to purchase ‘Blinkbox’ from Tesco.
– Take advantage of plateaued e-book / kindle sales.
– Improve brick-and-mortar offering.
– Increase delivery options – order in store for home delivery for example.
Threats
– Low prices offered by competitors.
– Increase customer focus on online reading sources.
– Customer demographic is ageing – Younger generations more focused online.
– Growing power of other entertainment sources; TV, Gaming, Music and the Web.
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Appendix 3 – NICE Framework (Amat and Zott, 2010) for Waterstone’s Vlog.
Novelty
– Waterstone’s customer-focused approach cannot be matched by its closest competitors.
– Customer focused ‘Vlog’ from a book seller would see partnership formed with popular
BookTubers.
– Focus on younger demographic.
– Book seller incorporates advertisement into its operation.
Lock-in
– Vlog would further relationship built between brand and customer – take it home.
– Include link to assist purchasing – simplified for customer.
– Offering of discounted products, speedier service (delivery) or seasonal offers could be
offered to those customers choosing to subscribe to the channel / vlog.
Complementaries
– Subscribing to channel could provide other services for customers to take advantage of.
(Promotions and links to other products through advertisement).
– Vlogger could promote stationary or other items in relation to books such as reading
lights, book covers and book marks (deals could be offered to subscribers).
Efficiency
– Vlog would promote Waterstone’s products.
– Links to discussed products on Waterstone’s site could potentially increase sales.
– Providing advertisement space on vlog could increase revenue streams.
– Advertisement would only be allowed for goods / services that link (loosely) to reading /
books.

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