What Value Does Bit Create in the Distribution Value Chain for Books?

1) What value does BIT create in the distribution value chain for books?

a) Break down the costs and profit margins of a typical 300 page book printed using BIT

Please see exhibit 1-A

b) How does BIT help publishers?

Publishers shifted focus from building relationships with authors and tailoring manuscripts to cutting costs and analyzing profit and loss statement. 85% of the overall U.S book publishing market was controlled by the top 12 book publishers. There was much criticism regarding quality and diversity of materials published. This led to an increasing role for smaller presses to publish works that did not have enormous sales potential. BIT is a just in time system where publishers can customize the number of book runs they would like to establish. This added flexibility will help reduce the cost of inventory and returned books. With BIT, these publishers could publish these works since the costs using BIT were so small at $6.90 per book.

c) How does BIT help the distributors and retailers?

Wholesaler's net margins were very low at one to two percent with inventory turns of only four to five made it difficult to make money. BIT technology allowed publishers to print out of print titles to the wholesalers for a cheap price in which wholesalers could sell to retailers and make a profit. 75% of market share for retailers were made up of the top four retail chains. Independent retailers fared far worse than the superstores with pretax net margins of 3 to 5 % and inventory turns around two. Online retailing was also on the rise along with the growth of the superstores. Amazon was able to eliminate retailer margins and they could offer discounts of 20 to 30%. Shipping was paid by customer which helped cut cost.

2) What are the two primary options available to Xerox for selling/using the BIT technology? Discuss each option and the pros and cons of each in a table.

Option 1 for Xerox was selling the BIT system of equipment to all potential buyers in the value chain, from publishers and book printers to retailers with the possibility that customers could ease into the production of operations by buying system components first.

Pros Cons

Many commercial printers already owned many parts of the BIT system so they could buy the other parts and it would be cheaper than buying the whole system.

Integration of parts into the BIT system and then adding software and services would take time and money.

Everyone in the value chain has the opportunity to purchase the BIT system which would allow everyone in the value chain to print the books they want at a price of $6.90 per book.

Offering the BIT to all channels may upset customers in other channels since they have to opportunity to take some of their profit some channels may change to competitors.

Would create a synergy with products already owned by customers by creating software and services to integrate.

A change in the distribution of a channel may be changed with the new technology.

Xerox already has an established sales