The break-even point for a Book-In-Time process cannot be measured in terms of time. Assuming the book can be manufactured to make a certain margin, there would be no need to sell a certain amount of books. The only cost that you could analyze using break-even would be the cost of the equipment needed to print on demand.
Assuming that a book company can sell a typical 300 page paperback book for $25, it would take close to one million books to break-even on the cost of all the equipment. However, this is based on two assumptions. The first is that the equipment purchased can help save space, building rents, and overall indirect overhead so that it would total 15% of the total publisher’s selling price of $13. The second assumption is that the company publishing the books with this equipment did not previously own any piece of the equipment in the process as part of another or current operation. If a company did only have to buy only certain pieces of the equipment, it would take a lot less time to break even.
The total US book market for a year is roughly 230 million. For a company to sell one million books in a year to cover the cost of equipment would be difficult, but not impossible. The book market is diluted and assuming the new book company could gain a market share of .25%, it would break-even. This, however, does not take into account certain large sections of book categories that could be tapped into.
Plan of ActionThe plan of action that should be followed is to have Xerox undertake the task of selling the Book-In-Time system of equipment to all potential buyers in the value chain. Some potential customers, such as commercial printers, already own some of the equipment necessary which would allow Xerox to sell more parts of the process than if they had to sell the whole process and all the equipment in one shot. Other potential buyers that do not own any equipment might show interest in purchasing the entire process so that they might be able to get into the book publishing market. This option overall would also more closely follow the current business model of Xerox. Three of the four business groups of Xerox make their revenue through the selling of equipment and the selling of processes. Xerox has proven process of being successful in this type of market.
AppendixCost Per Book – MSRP$2548% Margin paid to trade-12Publisher’s Selling Price$13Manuf. Cost per Book-6.920% – Royalties, Rights-2.615% – Overhead-1.95Final Profit1.55Total Cost of Equipment$1.5 MillionBreak Even 967,742Per Year in USPotential On Demand Conv.230,880,000Books Needed to Sell967,742% of market needed0.42%Does not include Mass Market paperbacks, religion, bookclub, and mail order markets
Xerox Case Study Analysis
The challenge facing Xerox and its management is complex, challenging and probably not unique. The company had been dependent on its highly trained sales force to turn a profit on their existing products and had not focused on new product opportunities until the development of its "Book In Time" product. This revolutionary product presented some new opportunities for the company. One of the significant advantages this product yielded was its costs. The Book-in-Time equipment allows for a publishing company to produce a 300-page book for $7, something which could have been previously reached only for lots larger than 1,000 copies. A significant decrease in publishing costs, given the fact that these cover up to 20 % (including the paper and binding the book), would create the possibility of an increased profit margin.
Another advantage that the Book-in-Time solution provided by Xerox is that is one of the most efficient solutions for publishing companies running on-demand, short-books. Clearly publishing and or printing companies that may have achieved economies of scale with large print runs would be threatened by the Book-in-Time solution that able to provide a significant cost-advantage on low print run books.
Furthermore, if we look at Table E, providing an analysis of the on demand conversion potential, several long-runs can be targeted by the equipment Xerox provides. Subscription references, for example, have a 100 % conversion potential (on the other hand, they only have 1 % of the overall market). College textbooks, the university press and professional textbooks all have a 50 % demand conversion potential.
So, in order to be able to estimate the market size for the Book-in-Time, one needs to take into consideration the conversion potential, in addition to the actual number of books. In this sense, we may estimate the on demand market to around 600.000 books per year.
Basically, Xerox has two separate options at this point, given the performances of the Book-in-Time and these were clearly expressed by the senior managers at Xerox.
The first option refers to sticking with what Xerox does best, printing and copying and delivering exclusively the product itself. This would mean selling the Book-in-Time equipment to all those elements of the value chain that may be interested, including publishers and book printers (see Appendix A for Break Even Analysis).
The main advantage such an option provides is the fact that it allows Xerox to operate on a market it fully knows and controls. As we have seen from the case study, Xerox has already gained an edge over IBM, the main competitor, and the invention and development of the Book-in-Time system will bring a new product on the market, an innovation that could significantly reduce the publishing costs, consolidating Xerox's position and market share.
The second advantage we may see in such an option is the fact that, as Steenburgh laid down the facts, this option provides a real synergy for the company, integrating several pieces into a significant system and allowing the company to gain more rather than operate them separately. It is important to note, however, that the solution provided by Xerox actually fits on a very specific niche, operating most efficiently only for run lengths of 1,000 and below. This would mean increased competition on the over 1,000 segment, with less competitiveness for Xerox.
The second option is much riskier and it involves entering the book production business. On the other hand, its potential is practically unlimited. The market for on-demand, short-run books is a market that exceeds the lifecycle of a normal book, providing numerous opportunities. Additionally, the book market itself is enormous: 50,000 new titles and 1.5 million repeat titles a year is a figure worth to be taken into consideration.
The main disadvantage in such an option is the fact that the competitors have already gained