How Waterstones turned the tables on Amazon. A look at Waterstones’ positioning and differentiation strategy

by | Jan 8, 2021

This week we’ll have a look at one of my favourite companies: UK based bookseller Waterstones. More specifically we’ll see how their CEO faced off stiff competition from Amazon. How they identified a gap in the market and repositioned the business to compete.

By listening to his customers he differentiated the business away from his main competitor. A poorly served segment of ‘book shopper’ customers is now Waterstones core customer and has changed the company’s future.

Waterstones is not a startup, but the lesson it has to offer is one that many startups, especially startup marketers, can learn from.

 

How was Waterstones initially positioned?

Tim Waterstone started Waterstones in 1982 with money he received from recently having been made redundant. To this day it is largely a physical bookshop, although it has an online presence too. The company expanded massively in the following years. It grew its physical retail footprint until it was sold several times over during the next two decades (1993 to 2011). 

Waterstones grew rapidly due to its clean design and wide range of stock. Prices were low compared to other physical stores. Waterstones was comfortably positioned in the market. Until eCommerce stores and Amazon entered the UK.

In 2011 Russian oligarch Alexander Mamut bought the company through his fund. James Daunt then joined the company. At the time he was an experienced bookseller who ran his own chain of six bookshops in London. As the MD, James took over a company that was suffering from the onslaught of Amazon and other online booksellers. The online model undercut physical bookstores’ prices substantially. There was also the looming threat (since largely dispelled) of ebooks disrupting physical bookselling.

 

A repositioning and differentiation exercise

Despite the mistakes, the arrival of James Daunt also heralded a turning of the tides for the company. It ushered in an era of refocusing on who their customers are and how the company should compete for market share.

Daunt brought in public WiFi to all stores. Click & Collect services were introduced for customers to order online and collect the books in-store (sometimes in as little as two hours). Waterstones even partnered with Amazon to sell Kindle eBook readers in their stores. Undoubtedly, Waterstones were getting a juicy commission with each sale. But longer term this move proved to be damaging as it encouraged customers to buy their books in digital format from Amazon, rather than from Waterstones. 

In 2012 the bookseller reported that it had lost £37.3 million. It was closing its weakest performing stores to reduce its cost base. By 2014 it had narrowed this loss to just £3.8 million. In 2015 it recorded its first operating profit (£5.4 million) since the takeover years earlier. 

However, cost-cutting wasn’t the driver that returned the company back to profitability. The company had long neglected the main reason why physical bookshops still existed. This reason turned out to be Amazon’s weakness and became the cornerstone of Waterstones’ new strategy.

 

Waterstones rediscovers its customers

We’re going to have a look at what I’ll label as “browsability” (yes, surprisingly this is a word). Browsability is “the state of being browsable”. Is it fun to browse through the bookshelves? Are browsers discovering books they’ve not heard of but are excited to discover? Browsability prior to James Daunt’s arrival was poor. Too many boring and irrelevant books were littering the shelves.

Waterstones made a decent chunk of revenue from publishers dictating to the bookseller which books to display on its most prominent shelves. It was a way for publishers to push their expected bestsellers across their distribution partners (book stores and online booksellers). But the problem was they would often push the same books across all their partners which created a pretty uniform look and feel across most of Waterstones’ stores.

 

Differentiation #1: Empowering local tastes

Although it was painful to axe this revenue stream, Daunt gave control over what would books would be displayed in the most prominent positions back to local store owners. These could then customise that shelf space to local tastes. 

Daunt realised that on an aggregated level, the average customer may all be 35-40 year olds living a middle class lifestyle. But when you look at it on a store level, customers in affluent neighbourhoods have very different tastes to what sold well in an airport book shop. 

Most importantly giving control back to store managers increased browsability. Daunt listened to his customers and recognised that book shoppers got a kick out of discovering new books in-store. And store managers talk to customers every day, so they are on the front foot as to what their interests are. It is something that Amazon can never replicate despite trying their best with their recommendation engine (“Customers who bought this book also bought…”).

 

Differentiation #2: Making the stores ‘browsable’

To further increase browsability, Daunt also removed legal textbooks, technical guides, reference books from the shelves. In return, he stocked more books that customers were delighted to discover which led to an increase in sales.

Daunt successfully repositioned Waterstones stores from offering a boilerplate selection of books to a highly curated offering that was individual to each local branch. It doesn’t matter that Waterstones are not offering the best price. What matters is that customers can rely on having a fun time browsing and coming away with a book they were not expecting to find. Knowing that you might find something that excites you provides a high that is tied to walking into a Waterstones branch.

Positioning map. How Waterstones differentiated itself from Amazon.

How repositioned itself to enrich their customers’ lives

Waterstones repositioned itself from a no-mans land where it ranged between boring uniformity in its book offering and little price advantage, to where it could compete with its competitors. The company unlocked value by differentiating itself from its main competition and discovered browsability as its competitive advantage.

Several years later Waterstones is still going strong, albeit impacted by the ongoing pandemic. Daunt has recently joined Barnes and Noble in the US where he is expected to replicate his success. Undoubtedly he will make it a success if he continues to focus on the advantages a physical location has over online competition.

 

What lessons does this repositioning hold for marketers?

Often we fall into a trap of trying to compete on price. However, only one company can be the cheapest, so the other competitors are better off differentiating themselves on another axes. Waterstones did this successfully by focusing on customers whose needs were not being served by Amazon. 

How have you positioned your business?

Have you looked at positioning your business against your competitors on a positioning map (see above)?

Is there a gap in the market where customers needs are not being met?

 

Other links

  • I love this story of how Databox repositioned itself from struggling to serve analysts in larger corporations to pivoting towards serving smaller businesses. It helped that it introduced a freemium model. That way its new customer base could explore the value that the company offered without having to sign up.
  • This is a really helpful article on how to go about positioning. It’s almost a step by step guide to help you through the basics of how to think about positioning.

 

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