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Wednesday, December 2, 2009

Theory of Business (TOB) - What is it? Explained with case study of Sassy Scrubs

The main problem areas that Doran focuses on are Money management and Planning. It would be interesting to reflect on how the lack of a well defined Theory of Business (TOB) must have affected Sassy Scrub's failure. Looking at the circumstances under which the company originated, it is hard to believe that it had a well formulated TOB. Analyzing various resources, the initial TOB (the current company has changed a lot in its outlook and services), might have been as follows -

  • Designing and producing fashionable scrub suits that is most comfortable for varied consumer segments (nurses, doctors, surgeons etc.) during their official working hours and on special occasions, focusing on “cottage industry model”. (Neal J., 2000)

A well defined TOB will focus on changing business environments (markets, customers, technology, financial conditions and society), company mission and core competencies required to meet the mission. Sassy Scrub's initial TOB has the following positive aspects -

  • It had identified the major market segment.

  • The main goal or mission i.e of producing fashionable and comfortable scrub suits is identified.

When it comes to adaptability to change and core competencies, the following drawbacks can be noted -

  • It had the necessary technology and creativity to produce goods, but lacked the management skills to run the business profitably.

  • Focus on too many directions without strong foundation in measuring, monitoring and controlling progress. Deviates from the initial goal of remaining as a cottage industry.

  • Most importantly, it lacked the business model which can adapt to constant changes in environments such as late receivables, reduced cash inflow, increased sales, growing customer base and thus multiplied requirements in new designs and appearance.

The following ideas might have been considered in the plan to setup a flexible TOB.

  • Set up plan for diversification into large scale industry from a cottage industry considering all aspects of management.This would have helped to tackle the unexpected growth rate.

  • Alternate sources for building company capital by alliances and contacts.

  • Establishing Just-in-Time manufacturing technology which is most suited for a medium sized manufacturing firm.


1.Neal J. (n.d.). Entrepreneur Cleaning Up by Making Medical Scrubs. Retrieved on April 07, 2007 from

SWOT -Puting myself back to when Peggy Piontkowski first created Sassy Scrubs. If she would have done a SWOT analysis, what might she have listed.....

Put myself back to when Peggy Piontkowski first created Sassy Scrubs. If she would have done a SWOT analysis, what might she have listed in each category (S, W, O, and T)?

Quoting from an internet resource, about the circumstances in which Piontkowski started Sassy scrubs - Her daughter wanted a better scrub suit for her nursing school and at that moment, Piontkowski had the whole company vision (Neal J., 2000). She was a stay-at-home mom due to disability from a surgery. She was creative and industrious. Considering these circumstances, she would have done a SWOT analysis as follows -


-Cutting edge technology support from NIIST's MEP (National Institute of Standards and Technology's Manufacturing Extension Partnership) program (Neal J., 2000) which will help her to develop unique printed/cotton scrubs and products that is 100% US made.
- Strong will power to bring in change and taking risk.
- Strong marketing skills.


- Lack of long range business plan, strategy and goal.
- Lack of sufficient knowledge, skills and resources to manage mass production and distribution.


- Unique product line (printed and cotton scrubs) will bring in quick brand name.
- Strong support for US products.
- Wide acceptance and support for small business owners, especially women.


- Possible copy of the product line by competitors.
- Lack of established supply chain network.
- Lack of industrial contacts, partnerships and alliances.

Considering rapid growth rate of the company and its inability to effectively manage and control money and unexpected business changes, there is relevance for a frequent SWOT analysis done. Lets go back to end of 1999 and see how the SWOT would have looked like -


-Introducing fresh concepts for producing fashionable apparels as and when a particular consumer segment wants it.
- Strong marketing skills.
- Knowledge and determination to sell products online.


- No strategic planning, thus going in too many directions.
- Single leader trying to manage everything who lacks skills to run the business
- No knowledge about numbers – Piontkowski doesn't know what's the financial situation of the company is at any point, its cash flow, expenses, inventory and accounts receivables.


- Build up of brand name and increased customer orders. This will lead to a steady business once the current constraints are taken care of.
- Wide usage of internet for online shopping will help the company to stay alive.
- Wide acceptance of Piontkowski's efforts throughout the industry will lead to possible take over, alliances and support.


-Late receivables, insufficient cash flow and thus increased inventory.
- Credit card debts and losing line of credit which closes all doors for financial support. Possible calls for bankruptcy and closing of retails stores.
- Lack of focus, again this is an after effect of lack of planning.

From experience, Piontkowski discovered that creativity and ability to create scrubs alone is not sufficient but effective business management skills, most importantly, money management, is also necessary. She also discovered that strategic business planning has a great relevance in the midst of changing business environments. Based on this enlightenment, she should have considered performing SWOT analysis at least once in a year.

1. Sassy Scrubs. About Us (2007). Latest Retrieved April 07, 2007 from
2. Dickinson, C. J. (Nov 24, 2000) Some Retailers Trading Bricks for Clicks. CNY Business Journal. Retrieved on April 07, 2007 from
3. Neal J. (n.d.). Entrepreneur Cleaning Up by Making Medical Scrubs. Retrieved on April 07, 2007 from

(c) Deepesh Joseph, 2006-2008
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Assess Barnes and Noble's response to the substitution threat from Amazon. How did Amazon respond in turn, and to what net effect?

Barnes and Noble’s Response:

Barnes and Noble had started studying online business during late 1994. It was not in response of’s going online that they thought about doing online business. Their mission in starting online book retail was clear - To leverage Barnes & Noble brand name online. They soon realized the substitute threat from fully online retailer, They now worked on establishing the strategy that could be in par with or possibly outperform that of Amazon. The following were their actions in response to this move -

- As an initial step, On Jan 28 1997, they entered into alliance with AOL, becoming exclusive bookseller
- Formed alliance with Firefly to develop personalized book recommendation service with the vision of incorporating this feature in its web site.
- On March 13, 1997, established transaction oriented web site that enabled online book selling. On the same day, filed suit against Amazon, challenging its claim of “Earth’s biggest bookstore”.
- Established online business strategy to bring in incremental sales by providing easy access for people to buy books and by tapping international markets.
- Established separate company - Barnes & Noble .com - with separate COO to account for centralized scope on online business.
- Established high performance logistics network that could reduce delivery times to a greater extend and that can ship on the same day an order was placed.
- Necessary upgrade and enhancements were made to the “back-office” software systems to account for online business. The existing systems provided stable back-end for the front-end web site.
- Offered deep discounts up to 40% for best selling hand covers
- Enabled direct-from-warehouse pricing for its customers
- Implemented more scalable and sophisticated user personalization tools on the web site, notably, “collaborative filtering” that presented users with books selections based on previous similar user profiles.
- Entered into alliance with other web sites to provide mutual links and thus increase site traffic.

Amazon’s response:

Amazon responded to Barns & Noble’s growth as a competitor in the following manner -

- Doubled the amount of book titles
- Expanded best-seller discounts to 40%
- Increased sales associate's first time sales commission from 8% to 15%
- Developed user personalization tool in alliance with Firefly’s major competitor
- Eventually, increased discounts applied at various points during the competition, lead to slow pay back of Associate’s program, web site advertisement and back-end systems. It was expected to break even in 1999.

(c) Deepesh Joseph, 2006-2008
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Traditional bookselling and Online bookselling - Comparing a customer's willingness-to-pay

Traditional bookselling and Online bookselling - Comparing a customer's willingness-to-pay for books supplied in these two business models. (i.e. Do they expect to pay less online? Why? What else do they expect from each method?)

     The major differences between the customer’s willingness-to-pay in traditional bookselling and its online version can be analyzed on the basic dimensions such as - price, brand name and time & effort. Out of these, price is essentially the major deciding factor and the rest of them are relevant in the order they are listed. In the following table, I shall try to compare and analyze both models based on these dimensions.

Online book selling Traditional Book Selling

Price - Analyzing Related Factors

Mode of transaction: Since customers complete their own transaction, they expect and are entitled to receive direct-from-warehouse price. Customer is willing to pay less and expects cheaper price. There is no base for such expectation. He expects to pay as is listed.
Retailer competition: Retailers compete among themselves offering great discounts and special offers. Being aware of this, the customer expects to pay less. Not much effect due to the shift towards online book stores.
Shipping and Handling: Shipping and handling leads to increased price. Customer is aware of this additional charge and expects and agrees to pay so much more while completing the transaction. There is no shipping and handling costs. Customer enjoys freedom of being able to realize the transaction at the point when it is made.
Defects Identification: This refers to ability of the user to actually see and agree that the book is in good shape as per his expectations. There is no way to do this and the customer expects to pay less since he is not able to satisfy this requirement. This mostly applies to used books. This has no effect as the user can take the decision from the book store. This saves unnecessary worries of repacking or reshipping. He expects peace of mind and reliability.
Direct selling by Publisher and "Drop-Shipping": Many publishers have started opening online bookstores where they sell directly to customers. Also retailers (Amazon) tie up with wholesalers (Ingram) so that books are directly shipped to the customers from Ingram's warehouse. Leads to slash of re-shipping and repacking cost from the retailer which further reduces the price of the book. In such cases, customer expects fast delivery and lesser price for such deals. There is no scope for such a deal.
Price related Factors - Net Effect on willingness-to-pay : Customer expects to pay less in the case of online bookstore, as per above analysis.
Brand Name and Time & Effort
Band Name: Retailer brand name in the market is one of the deciding factors that the customer uses to decide whether to pay more or less. An online customer who searches more is mostly looking at the brand name on which he is willing to pay more. He would probably not buy the cheaper one but is willing to pay more on a branded one which gives him sense of reliability and high value. Search, decision and transaction happens mostly at the same time. The decision to opt the brand name is already done before the user goes to retail shop and he expects to get value for the price he is willing to pay.

Time & Effort:

Ease of access: Being able to access millions of titles without any physical effort of actually moving around in the store, is one of the advantages of online bookstores. Ability to review multiple titles at a time is another cool feature. Given these features and the excessive competition from online retail business, customer still expects to pay less.

Delivery time: Delivery time affects the customer's willingness to pay according to his urgency of need. Normally he expects to pay less considering the delayed time of delivery.

Ease of access: Compared to online stores, ease of access is very less, still there is no scope of reduced price. Customer might, instead, expect to have a library environment, author interview events, cafe facility while reading through etc.

Delivery time: There is no delayed time of delivery and doesn't affect customer's willingness-to-pay. He expects the item to be served at the point of transaction.

     Looking at current trends in online book selling and the intense competition, the customer can look forward to have more price cuts, decision power and get high valued service at low cost, time and effort.


1. Bianco, A. (n.d). Virtual Book Stores start to get Real. Business Week. Retrieved on April 14, 2007 from

2. MITSloan (Dec 6, 2004). Brand Still Matters Online. Retrieved on April 14, 2007 from

Separation of Stores and Online Operations for Barnes and Nobles: Was this a good idea?? What was its intent and did it work??

The case study of Barnes and Noble would show that they split their operations into existing traditional and online bookstore, during Spring 1997. As the history states, the intent was two fold -

Avoid paying taxes on online sales:

As far as avoiding sales tax is concerned, I think it was a good idea and it worked to introduce “deep” discounts on online sales. This works in the way that if a retailer ships an item out of state, there will be no sales tax. Also by separating the customer interaction (on the web site that can accessed from any part of the world) from the actual retailer operation, sales tax can be reduced to almost negligible. Its a win-win situation for both the company and the customer.

Take bold move towards innovating the new idea of online sales and create unique identity:

Barnes and Noble had started testing their innovative online business during late 1980’s by joint venture between Sears and IBM (, 2007). Moving forward with the strategic planning to establish a full fledged web site, they started selling books online on CompuServe and later collaborated with AOL to open online bookstore.
(, 2007). Also, joining hands with Firefly, they implemented the user personalization system. Till now, they had the necessary technical and marketing skills to go ahead and go live with their own web site in mid of May 1997. These developments shows that the efforts enabled them to attract alliances and joint ventures. By creating unique identity, they were able to concentrate on continuously improving the online business model under the new COO and think about seamlessly integrating the already established back-end retail Information Management system to support high transaction intrinsic and global nature of the web site. This should also be considered as a strategic move towards extensive marketing of ‘Barnes and Noble’ brand name through the global outreach provided by the web site.

In effect, both the intents worked as expected to remain competitive and innovative in the midst of vibrant markets and technology changes.

1. History. Latest retrieved from

(c) Deepesh Joseph, 2006-2007
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The Price Cut in Was this a good idea? What was its intent and did it work??

Price cuts are market strategies that companies introduce when they enter into competition. Barnes and Noble’s and’s case was no different. As seen from the case study, Barnes and Noble introduced deep discounts of 30% on hard-covers and 20% on paperbacks, same as that of, to pose direct threat to online sales. Responding to this, introduced price cuts of up to 40% on future best sellers and on selected titles. Applying these figures, from Exhibit 5, a best seller in Barnes and Noble was priced at $21.41 while it was only $18.92 in The intent of introducing price cuts in both the cases was to pose threat to each other by increasing customer base and sales.

We can easily derive at whether this was a good idea or not, from thier financials. For Barnes and Noble, the market valuation did a positive climb after mid May 1997, when it launched the deep discounts. Whereas for, it can be seen that there was a fall in the same during the mid of May 1997. even though it introduced more discounts. The reason for this fall in market valuation can be explained from Exhibit 7 which shows negative ratios of Operating costs and Net Income (huge values during 1997) that slowly break even by 1999 (1.58 and 2.0 respectively). So, from the above analysis, Price cut was successful in the case Barnes and Noble’s to increase its market valuation, whereas it turned out to be not so beneficial for Amazon since the huge price cuts and increased Operating costs did not break even. It was a good idea for both the companies as far as remaining competitive. Yes, it worked for Barnes and Noble, where as it turned out to be a financial burden for

Considering substitution threats, our US Post Office is faced with a serious threat from email and online banking. Their proposed solution is to .....

Considering substitution threats, our US Post Office is faced with a serious threat from email and online banking. Their proposed solution is to raise the price of first class mail again. What do you think of that strategy? Have they all but given up? Is it their only recourse? What happens next?

Considering the widespread use of email and online banking and the increased competition from fellow players such as UPS and FedEx has attributed to a steep decline in USPS business. Another reason that has lead to increased burden on the quasi-government organization is its wastage of money on sports-sponsorships and its inability to reduce labor costs even though they invested huge amounts on fancy automatic mail sorting equipment (Ryan S., 2004, March 10.).

All these events forces USPS to work on price hikes to remain financially stable. Increase in gas price or inflation, probably, is not the root cause for the price hikes. If it was, we could have seen the same in the history, almost constantly. The introduction of the ‘Forever’ stamps is an example that indirectly proves this (USPS, 2007, March 26). The consumers can use these stamps at 41 cents, forever, irrespective of the price cuts.

Given any situation, the price hikes is not at all a good strategy. Price hikes is not the only solution to improve or aid its financials. Instead, USPS need to consider organizational improvements, leveraging its current e-commerce capabilities, cutting down of labor costs and unnecessary spending on ads and commercials and sponsorship activities, which will retain huge capital and will reduce the operational costs to a greater extend. They really do not require extensive advertisement, since they already has the monopoly over first class mail service with full government support.

To retain its credibility, USPS need to work in these lines and make sure that its labor costs are kept under control. If not, and they continue with price hikes, soon, competitors will take advantage of the situation and will be succumbed to pressure by email and other online convenience services.


1. Ryan S. (2004, March, 10). Going Postal. Retrieved April 27, 2007 from

2. USPS. (2007, March, 26). Nation gets sneak peek of the forever stamp. Retrieved April 27, 2007 from

Amazon Vs Barnes and Nobles - How both companies differ in online book selling business

Since 2000, the competition between and has become intense with the entrance of competitors such as Borders and Books-A-Million Inc. Currently, as per the last traded values - 60.60 & 40.77 (Yahoo! Finance, 2007, April 27) and customer ratings - 97% & 92% (, 2007, April 27) , Amazon is ranked #1 in online bookselling. The best tool to analyze how the battle went on till now, is the last traded chart available for the entire company history at Yahoo! Finance.

The chart is as follows for Barnes and Noble -

The chart is as follows for -

Comparing the two charts, its evident that B & N was constantly trying to keep up with Amazon’s high market values and there was constant falls where it took time to come up with a competitive alternative or introduce the same technique that Amazon has already implemented. Amazon on the other hand was constantly improving its market share, expect for the time of recession during 2001. When we come to the end of 2003, the situation is interesting as B & N picks up, denoting introduction of new functionality to their web site as major enhancements. Amazon on the other hand, has a constant increase in traded value till now and continues as the leader. Right now, the technology innovation is almost stable and the graph looks stable in both cases.

Amazon’s game plan is to become a mass Internet marketer that sells a variety of products, not only books. Looking at B & N’s current web site (, its quite interesting that it is tuning its systems towards this trend too, by selling other products such as toys and such. This looks like deviating from its stated TOB that concentrates on selling books. Thus, looking at the history and current trends, it is evident that Amazon is the leader who initiates all major innovations and is likely to continue its trend creating substitution threats (William, 2007). Possibility is also there for Barnes and Noble to emerge as the leader, if they concentrate fully on books and when mainstream book consumers come online.

Mutual Funds and company stocks are unique product domain that is not so ubiquitous as books. The amount of individual knowledge required to market, sell and consume these products is very significant when compared to books. Such web sites will make more money by marketing these single product offering. Whereas, in the case of online selling of books, the competition is so high that companies can only make considerable profit if they utilize the e-commerce medium to implement innovation streams and try to stay ahead of others, like Amazon.

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7. Williams C. (2007). Management: Innovation and Change (4th ed., ch. 7, p. 204-210). Thomson South Western