Encyclopædia Britannica, Inc Case Study

CHAPTER 1

INTRODUCTION

About Company

Encyclopædia Britannica, Inc., headquartered in Chicago, Illinois, is a leading

provider of learning and knowledge products. We're proud to be one of the world's most
trusted sources of information on every topic imaginable - from the origins of the universe to
current events and everything in between.
Get a glimpse of our company, products, and business opportunities here on our corporate
site to see how we're making it happen.

Britannica Products

Since the Encyclopædia Britannica's founding in 1768, Britannica editors have

gathered and organized information on thousands of topics for easy retrieval. More than 200
years later, Encyclopædia Britannica is still the standard by which other reference works are
judged. We invite you to explore this overview of Britannica products available for your
home, school, library, or corporation, or browse additional products for consumers at
Britannica Store. You can also become a distributor of Britannica products.

Print Products

• Encyclopedia Britannica Print Set—Comprehensive, authoritative information on

nearly every subject. Contributions from the world's leading experts, including many
Nobel Prize winners.

• Great Books of the Western World—From the ancient classics to the masterpieces of
the 20th century, this collection of 517 classics in 60 beautifully bound volumes is
color-coded into four subject categories: literature, history, philosophy, and science.
And since this edition includes works from 20th century authors, it's the most up-to-
date collection of the Great Books ever.

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Online Products

• Britannica.com—a search and directory site featuring Encyclopædia Britannica, the

Web's best sites, news, magazines and more. Britannica premium service provides
exclusive member access to the 32-volume Encyclopædia Britannica. Membership
also includes access to research tools, thousands of articles from respected magazines
and journals, and rich multimedia—all in an advertising-free environment.

• Britannica Online School Edition—a reference site for students and educators
synthesizing editorially reviewed websites and the Encyclopædia Britannica.
Britannica also offers a suite of web sites for schools, libraries, and institutions.

Software Products

• Britannica CD and Britannica DVD—the most comprehensive disc-based

encyclopedias in the English language.

Natural Language Products

• Encyclopædia Britannica's Natural Language Technology division, Britannica NLT,

is dedicated to creating technologies that enable users across the world to understand
information in English, as well as make it possible for English speakers to access,
understand, search and process information in other languages.

Problems :

1. Describe the marketing strategy and tactics of EBI as of 1990.

2. Why was EBI’s business model so successful for over 200 years?

3. How vulnerable was this model in the early 1990’s?

4. Should EBI respond to Microsoft’s moves? If so, how should EBI respond? Why?

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 CHAPTER 2

LITERATURE

Understanding strategies

Management control system is tools to implement strategies. Strategies are plants to achieve
organization goals. Strategies provide the broad contact widen which one can evaluate the
optimality of the element of management control system. Corporate.

a. Goals

Corporate goals are determined by the chief executive officer (CEO)

 Profitability

Profitability is usually the most important goal. One management’s

responsibilities its to arrive at the right balance between the two main sources
of financing: debt and equity. “Profitability” reverse to profits in the long run,
rather than in the current quarter or years.

 Maximizing shareholder value

Maximizing shareholder value probably reverse to the market price of the

corporation’s however, that achieving satisfactory profit is better way of
stating a corporation’s goal, for two reasons. First, management usually selects
the one it believes will increase profitability. Second, although optimizing
shareholder value maybe a merger goal, it is by no means the only goals for
most organization

 Risk

An organization’s pursuit profitability is affected by management’s

willingness to take risk.

 Multiple stakeholder approach

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 Organizations participated in three markets: the capital market, the product
market, and the factor market a firm raises funds in the capital market. The
firm sales its goods and services in the product market resources such as
human capital and row material in the factor market management control -

system should identified the goals for its of these group and develop scorecard
to track performance.

b. The concept of strategy

A strategy described the general direction in which an organization plants to move to

attain its goals. Strategy formulation is process that senior executive used to evaluate
a company’s strengths and weaknesses in light of the opportunity and threats present
in the environment and then to decide on strategies that fit the company’s core
competences with environmental opportunities strategies can be found at two levels:
Strategies for a whole organization, and strategies for business units within the
organization

c. Corporate-level strategy

Corporate strategy is about being in the right mix businesses, corporate strategy is
concerned more with their question of where to compete than with how to compete in
particular industries. At the corporate level, the issues are the definition of business in
which the form will participate and the deployment of resources among those
businesses a singular industry is operates in one line business. A related diversified
form operates in several industries and the business units benefit from a comment sets
of core competences. An unrelated business firm operate in business that are not
related to one another; the connection between business unit is purely financial

d. Business unit strategies

The corporate office of a diversified firm does not produce profit by it self; revenues
are generated and costs are incurred in the business units. The strategy of a business

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unit depends on two interrelated aspects: (1) its mission and (2) its competitive
advantage. The BCG’s approach in the following aspects:

1. BCG uses industry growth rate as a proxy for industry attractiveness.

2. BCG uses relative market share as a proxy for the business units current
competitive position. Value chain analysis seeks to determine where in the
company’s operations from design to distribution. For each value-added activity,
the key questions are these:

1. Can we reduce costs in this activity, holding value constant?

2.

3.

2. Can we increase value in this activity, holding cost constant?

3. Can we reduce assets in this activity, holding cost and revenue constant?

4. Most importantly, can we do (1), (2), and (3) simultaneously?

The value chain helps the firm to understand the entire value delivery system, not just
the portion of the value chain in which it participates.

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 CHAPTER 3

SOLUTION TO CASE STUDY

1. Describe the marketing strategy and tactics of EBI as of 1990.

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 Throughout the nineteenth century and into the twentieth, when the company was
purchased by Americans and moved to the U.S., EBI continued to enhance its reputation as
the premier source of knowledge. The company maintained, “Our brand represents material
you know is authoritative and trustworthy.” The company recruited notable scientists and
scholars, including Thomas Malthus, Sigmund Freud, and Marie Curie, to contribute. It
expounded upon such cutting-edge topics as taboos, anarchism, ether, and Darwin’s theory of
evolution. As demand mushroomed, it hired a permanent editorial staff and began printing—
and updating—annually. In 1943 William Benton, founder of ad agency Benton and Bowles,
took the helm as publisher and board chairman. He extended the company’s global reach and
expanded its product line, acquiring in the process Compton’s Encyclopedia and dictionary
publisher G. & C. Merriam.
Encyclopaedia Britannica products were traditionally sold door to door to consumers
by a staff of independent contract salespeople. Although direct home sales by a highly
motivated sales staff still accounted for a majority of sales, in the late 1970’s disbanded the
company’s door-to-door sales force and its in-home presentations; tried marketing CDs
through direct mail; and slashed the online subscription fee, first to $150 per year then to $85
a year. Only 11,000 subscribers signed on.
In May 1997 the company announced it would drop the suggested retail price of
Britannica CD 97 to $150 and offer CD purchasers an online subscription for an additional
$50.

In spring 1999, EBI proclaimed to the world that it would launch a new Internet
service at www.britannica.com. EBI executives considered the following five pricing models
on the Internet.

• Subscription based pricing: Charge an annual fee for unlimited access.

• Metered pricing: Charge based on time spent using the Enclopedia.

• Fee for services: Charge for any research or special reports requested.

• Product line pricing: Base product is free but charge subscription fee for the advanced
product(s).

• Bundle pricing: Offer a lower price when multiple items are bundled together.

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Upon evaluating various options, EBI provided access to the entire text and graphics
of Encyclopædia Britannica absolutely free of charge. The site also offered a selective search
engine targeting high-quality web sites.

The company planned to earn revenues from advertising, including sponsorships for
topical features called “Spotlights,” and a percentage of goods sold through ecommerce. The
new strategy required hiring an advertising sales force, the first in the company’s history. In
1999, its total work force, including the advertising sales force, was about 350.4

The site was launched with considerable fanfare in late October 1999 EBI installed
high-speed web servers and concentrated on growing its electronic strategy. Unlike EBI’s
subscription service, which tapped the 231-year old archives and was marketed primarily to
schools and libraries, the new Web site targeted Internet users more broadly, and included
links to more than 150,000 approved Web sites. EBI also began negotiations with partners to
furnish information and services to the site – such potential partners included Amazon.com
and bn.com.

EBI planned to tap two additional revenue streams: a percentage of goods sold
through e-commerce, such as books on a subject highlighted on the site, and sponsorships
offered for special displays, such as a salute to women in history. The company’s products
included: (1) Britannica CD and Britannica DVD - comprehensive disc-based encyclopedias
in the English language, (2) Encyclopædia Britannica in print (for $1,250) - CD and yearbook
included at no charge, (3) Britannica.com - a free search and directory service that included
the complete, updated Encyclopædia Britannica, combined with selected Web sites,
magazines, and book citations, and (4) Encyclopædia Britannica Online (www.eb.com), an
on-line subscription service at a price of $85.00 per year - a reference site for students,
educators, and parents synthesizing editorially reviewed Web sites and the Encyclopædia
Britannica.

The International Division used a number of methods on the national and local level
to obtain sales leads for the direct sales forces of subsidiaries. Management identified three

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types of these activities: (1) advertising, which was conducted on a national level through the
various media to encourage response from potential consumers; (2) over the counter selling,
which took place in high traffic locations like shopping malls, train stations and amusement
parks to take advantage of “walkups”; and (3) “effort business”, which involved leads and/or
sales that salespeople created on their own without company support programs. The division
Vice President of Marketing spent a considerable amount of her time traveling to plan,
implement, and coordinate this part of the marketing program.

Management used a “Source of Order Report” to summarize and review the

marketing activities which each subsidiary used to generate sales leads. The use of these
tactics changed from country to country depending on trade tradition, custom, legality,
interest, and other factors. The report was a complete listing of all of the tools that were used
to generate leads for sales representatives. It represented the firm’s effort in stimulating
demand for the product line.

The sales field organization was backed by extensive public relations, national
advertising on television and in print, special offers to groups, and direct mail programs
which generated inquiries as sales leads. In a third-party program, mailings were made over
the name of firms like American Express to reach potential customers at relatively high
income levels. Prices in the product line in the United States were established in the Chicago
office.

A key selling point was the product’s upscale cachet. Persuading many parents to
invest in Encyclopaedia Britannica’ s voluminous storehouse of knowledge. Many parents
believes that they provide encyclopedia at home, they have given the advantage of knowledge
is important for their children in school and in life. This indicates that the EBI has a strong
brand image in the society. In addition, 32 other EBI device successfully become an
inspiration or a standard encyclopedia in the world, which means the EBI has been a market
leader that is able to determine marketplace quality standards.

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2. Why was EBI’s business model so successful for more than 200 years?

More than 200 years, EBI was done a business with many ways such as they moved door
to door, talking with individuals and families, persuading them to invest in Encyclopedia
Britannica’s voluminous storehouse of knowledge. A key selling point was the product’s
upscale cachet. Many parents believed having the books in their homes would give their
children an advantage in school and in life. So EBI has a brand image which is the brand
image is very strong. In other ways, EBI also supported by a good marketing strategy. In
1981, EBI entered the digital age; EBI offered an electronic version to business users of
Lexis-Nexis, an information retrieval service of Mead Dara Central. EBI declined to offer
this version to any non-business users, specifically, any schools, libraries or individuals that
(were) subscribes to the Mead Corp. subsidiary’s retrieval services”. EBI always adjust with
consumer need and market demand, when the development of technology increase, EBI do
innovation for example make a new product which is the product is more efficient and
effective than competitor’s product. EBI’s product has a uniqueness than other. The
uniqueness is one of EBI’s characteristic. In addition, 32 other EBI device successfully
become an inspiration or a standard encyclopedia in the world, which means the EBI has
been a market leader that is able to determine marketplace quality standards. That’s why
EBI’s business model so successful for more than 200 years.

3. How vulnerable was this model in the early 1990’s?

In our opinion Encyclopedia Britanica face a vulnerable moment. Because during the
early 1990’s, the software giant Microsoft decided to enter the encyclopedia market. In
industrial analysis there are five forces model. This is called the treat of new entry. In the
other hand evidence has suggested that Britannica was dysfunctional and rarely used by
younger generations of students (R. Brown, personal interview, September 27, 2000; D.
Skinner, personal interview, July 2000; see also, Rayport, 1995; Stross, 1996). Microsoft
enters Encyclopedia Market as a new entry of competitors. Microsoft licensed material from
Funk & Wagnalls Encyclopedia which sold its sets in supermarkets, added some public-
domain content, and released it on CD-ROM in 1993. However it proposed an alternative
value: better search capabilities, portability, entertaining media features, and was much less -

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expensive. Those alternative value propositions and Microsoft’s aggressive marketing
strategy and distribution power contributed in making Encarta one of the most widely
recognizable electronic encyclopedia brands.

Secondly, the bargaining power of customers. Because the product, called Encarta,
sold for less than $100. Many computer manufacturers simply gave it to buyers of their
computer. Arguably Encarta did not have the deep information of Britannica. Number of
buyers will continue decrease cause of Microsoft sell similar product with low price than
Britannica.

4. Should EBI respond to Microsoft’s moves? If so, how should EBI respond?
Why?

When doing their business activity, each company must be having many competitors.
Sometimes, the competitors are doing some similar strategy with the company to
influence the market, such as have a similar product, doing the same marketing
strategy, targeting a same market segmentation, etc. Some companies doing their
business activity just like a competition by release many advertisements continually
for marketing or promotion strategy. Nowadays, the promotion war is very common,
for example in Indonesia we have Campina and Walls, Telkomsel and Indosat, Giant
and Hypermart, and so on.

To pass this kind of threat, the companies have to implement a good business strategy
which can raise a strong image to the customers, so they will have a good position in
the market. But the implementation of this strategy is not as easy as the theory said. In
the process, many important decisions and many big risks should be taken to increase
the company’s value in the market.

This condition is also faced by Encyclopaedia Britannica. Inc (EBI). After doing their
business for more than 200 years, in 1990’s EBI meets their strongest competitor:

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 Microsoft. As a giant software company, Microsoft tried to enter each potential
market that can increase their business profit. Microsoft’s decision to enter the
encyclopedia market was get a positive response from the customers. It proved by the
number of their customers in 1990’s which almost same as the number of EBI’s
customers in the same time.

These are some differences between Encyclopaedia Britannica. Inc and Microsoft:

Encyclopaedia Britannica,Inc. Microsoft

Survive more than 200 years Less than 200 years
Have sensitiveness in market demand and Have sensitiveness in technological
technology transformation
Sold in schools and libraries Sold in supermarkets and public mall
Have an image as the first and the oldest Have an image as a giant technology
owner of encyclopedia company company which produced many high
technology gadgets and programs
Focused to released their products on More focused to released their products on
books and CD-ROM CD-ROM than books
Preserve the tradition of scholarly Promotes a unified reference model with
electronic encyclopedia that promotes a the Encarta Suits, and also provides the
combination of united reference and means for tools to function apart from
educational software. Encarta in other applications.
Start from $750 Sold for less than $100

Based on the table above, EBI has more weaknesses than Microsoft. Some weaknesses
are about marketing strategy, price, and company’s technology. The difference range
between EBI and Microsoft become bigger and higher. If this condition continually
condition continually happened, it’s possible that Microsoft will win the competition. To
pass this condition, EBI have to respond to Microsoft’s moves and take a big movement.
There are actions that EBI should do:

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1. Research product and added new content

Time by time, the customer’s needs are more complex. This condition supported by high
technology transformation. EBI must try to knowing what the customer’s needs and
combine that with the latest technology transformation which can make human life easier.

Besides, EBI also have to add new contents to their products. It will make EBI’s product
more unique and complete.

2. Intensive marketing activity

To dominate the market, EBI should have a good a good marketing strategy. EBI can do
their marketing activity by release advertisements. The advertisement must not the large
or the expensive one, but the important things the advertisements must be attractive and
unique. Besides, EBI can advertise their advertisements in many area that customer’s can
look it easily, such as in park, supermarket, playground, mall, website, blog, etc.

3. Built network with other company

As a giant company, it’s hard to win the competition with Microsoft. As we know, EBI is
not bigger than Microsoft. To solve this problem, EBI can build a network with other
company and make project together (collaboration). By work together with other
company, EBI will have many advantages (more equity, more ideas, higher technology,
lower price, etc) and their opportunity to dominate the market become bigger.

5. What control system would you recommended for EBI so that the company can
understand the potential for transforming it business model?

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 Encyclopedia Britannica,Inc is company that have goals like the other company,
Encyclopedia Britannica,Inc always develop product, in the beginning 1768, they publish
“Dictionary of Arts and Sciences” not far after this, the product sold out quickly, and in 1981
EBI entered digital age, when it offered an electronic version to business users of lexis-nexis.
And finally in 1989 the company moved further into the electronic age when its published
Compton Encyclopedia on CD with the target audience are school and libraries.

With that expansion EBI certainly must have control system in their company, so the
company can understand the potential for transforming its business model. And I will give
some recommend for EBI.

I think now EBI is a big company that also have many customers, so I think its more
better if EBI used business level strategy in their company. Because business level strategy is
a strategy that more focus in their product and business level strategy only have one business
with many product inside. To make a control system, maybe we can see the company
activities, we can control with determine standard of efficient and effective in company, can

called effective if the company can fulfill all the purpose of company include get high profit,
or can reach a larger market share. And called efficient if the company can use the resources
efficiently and with by minimizing resource can get the goals; more important is resources
used have to produce the bigger output than input.

Control system also able to arrange the relation between input and output.
Management is responsible to optimum relationship between input and output, control
focused on using the minimum input necessary to produce the required output according to
the correct specification and quality standard, at the time request and in the quantities desired.
Control system also can increase sales revenue.

Control also used in supervise the budget, if the revenue is bigger than the expense, its
means the operational of company is good.

Because the company not only have one goals that is profit, so the company must also
control about the others goals, that is Britannica,inc must to get the good image in the market,

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the way is Britannica always update the encyclopedia catalog in digital age, so public can
know about the new catalog.

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