Monday, April 21, 2008

Amazon.com and Book Pricing

Mike Shatzkin of The Idea Logical Company asked if I would like to post the following article. He also has another in the wings which I will put up on Wednesday.

Amazon stirred two controversies in the past couple of weeks. A lot of attention was paid to the one concerning print-on-demand, where they did an arm-twist to get publishers who use the capability to set their books up at BookSurge, even if they were already set up someplace else, most likely Lightning. I have expressed my concern on behalf of publishers about that policy which, although characterized as a mere attempt to be customer-friendly, should be a matter of great concern to Amazon's suppliers.

The second controversy, however, is a bit more complicated and, to my way of thinking, Amazon's position is considerably more justifiable. That was Amazon's suggestion that they will interpret the price at which a publisher sells directly as the "real" retail price, on which discounts to them should be based. This recalled for me a 10-year old industry conversation and, in doing so, showed me the sense in Amazon's position.

In the 1990s, the suggestion that retail prices should come off the books became pretty vociferous. Bernie Rath, then the pioneering (and publishers and big retailers would say, "troublemaking") Executive Director of the American Booksellers Association was among those making the case. In a nutshell, Rath and some very sophisticated and successful booksellers made the argument that it was a mistake to "cap" the retailer's margin with a printed price, above which they then obviously could not charge. The argument was that retailers in every other field adjusted their prices to the neighborhood, reflecting both the cost of real estate and the local community's ability to pay. By limiting booksellers' margins, publishers were, in effect, limiting the number of outlets that could sell their books.

At that time, there were two "most popular" arguments against the idea. One was that booksellers, by and large, benefited from the prices being on the books. It saved them the effort and cost of stickering prices themselves; it relieved them of the responsibility for prices in the eyes of their customers, who could clearly see the price was printed before the bookseller got the book; and it dramatized any discounting the bookseller cared to do. Because book clubs were a more important component of a publisher's sales at that time, they represented another constituency that supported the printed price because it emphasized their own cut-price offers. And booksellers could live with that discounting because book club membership was constricting; it was not about buying what you want when you wanted it.

At the time, I often made a third argument, which I believed was the most important even if it wasn't the most ubiquitous. Publishers have always been willing to sell any book they publish to any consumer who asks for it. At the time, it was absolutely routine that those sales would be made at the full publisher's retail price, plus some charge for postage and handling. In that way, publishers respected the reality that some of their books might not be widely available (remember, even after there was an Amazon, there was a period before most people had regular internet access and a comfort level about using it), but avoided "competing" with their retailers.

I pointed out that this practice meant there really IS a publisher's price, so the question narrowed to whether it would be revealed to the consumer on the book, or not. And the retailer who decided to sell the book at a price higher than the publisher's price -- which, even at the time seemed more of an imaginary than real opportunity -- would be taking the risk that his/her customers would soon know they had been gouged because either they or somebody else might let them know what the publisher's price actually was.

How times have changed. And two aspects of this equation have really changed with it.

First of all, no bookseller today would anticipate being able to sell a book at higher than the publisher's retail price. There are already consumers walking around bookstores with handheld computers checking prices online while they shop in the store. And, as we all know, prices online are never going to be higher than publisher's suggested retail, whether printed on the book or not.

But, secondly, many publishers now sell to consumers aggressively through their web sites, and price offers are part of the effort. So while the old bookseller arguments for taking the prices off the books are no longer valid, neither is my rejoinder. Time has passed both arguments by.

But Amazon is making a good argument here, and it is one that B&N and other retailers, and, by extension, all wholesalers, will likely join them in pressing on publishers. The price printed on the book really means nothing if the publisher doesn't sell at that price. All it becomes, then, is a basis on which to establish prices to intermediary customers; it is no longer a meaningful price to the consumer, "suggested" or otherwise. And if the longtime industry convention that prices to intermediary customers is pegged to the price charged (presumably by the publisher) to the consumer, then the discounts should be calculated from the publisher's consumer selling price.

We have not heard the last of this argument. Publishers selling direct to consumers better be thinking this through very carefully.


Mike can be reached at mike (at) idealog.com.

3 comments:

Brian said...

I think there is a link between the opening example (Amazon's expectation that POD publishers use BookSurge) and the emerging problem with retail pricing on publishers' web sites.

In both cases, tools that provide consumers with improved awareness and discovery have prompted companies at various points along the publishing value chain to test ways to capture more of the overall value. Whether with BookSurge or direct selling, the "traditional" roles have blurred. In both cases, it also feels as if Amazon is using its position to increase its share of the overall pie. Understandable, and as Mike points out, valid in the argument against direct selling, but worrisome when your retailer is making moves to become your printer, as well.

E-Reads said...

Mike Shatzkin's discussion about book pricing is right on the mark. But lest anyone think this is all theory, a recent skirmish in England brings the matter into sharp focus. When Penguin UK sold books directly from its website at a price lower than Amazon's, there was speculation on just how Amazon might retaliate. Here's what the correspondent said:

"There are fears that Amazon may retaliate by regarding a publisher’s online price as the recommended retail price and applying its trading terms to that. If a publisher discounts a £20 book to £15 online and Amazon has a contract for a 50 per cent discount on the full price, Amazon would pay the company £7.50 instead of £10. Publishers say that this would be unfair and could ultimately drive up prices."

As publishers begin to focus on direct sales as a possible profit source, we're going to see more elbows thrown, just as Mike Shatzkin's piece suggests.

Richard Curtis

Ewan said...

Without contributing my own perspective I am glad to find this article that opens up the problems facing publishers. If you are interested in book pricing or the ways in which the industry could be restructured (especially in the UK), I would really appreciate it if you took the time to fill out my poll. It's for my dissertation, I'm trying to find out more about public perceptions of the price structure. It will take seconds. Thankyou in advance.
http://www.oneminutepoll.com/OneMinutePoll/OneMinuteSurvey.aspx?SID=-2147480567