The Price is Right?

It appears that Christmas has certainly come early. This weekend UK TV adverts featured a 75% off the recommended retail price (RRP) of some front list titles by W H Smiths. Shop windows are plastered with sales signs and 50% off offers are commonplace. Last week Amazon launched their MP3 music downloads at an amazing £3 an album and 59p a track offer and track which many believe is unsustainable or being used as a loss leader.

Since the demise of the NBA (national Net Book Agreement) the UK retailers have certainly used their new freedom to such an extent that leads some to question whether this has been to the detriment of the industry. In some cases the term ‘dump bin’ has never been truer. So today when we want to genuinely discount to stimulate demand we have a problem and consumer value perception goes into meltdown.

Publisher have controlled RRP and used it to manage their margin and facilitate deep discounting. The result is often a RRP that matches many of the titles – fiction. Those who opposed the removal of the RRP from the jacket now have to consider if keeping it is now merely fueling the spiral of madness. Authors now see special sales, book club deals and three for two as good for selling volume and questionable in terms of earnings.

In the 80s UK major DIY retailer B&Q found itself threatened by a new challenge – a discount war with its competitor Texas Homecare. In these days a 20% discount was unheard of, but in response we raised the bar. One weekend many parts of the country were literally brought to a standstill when we gave 25% discount. The objective was to stop the discount war, not fuel it. The following Monday the desired outcome was achieved when the board meeting was interrupted by a call requesting a stop to deep discounting. The exercise taught us that only some 200 of our lines had any consumer price point recognition and that there was little sensitivity to the remaining 50,000 SKUs. As a result we adopted a strategy based on ‘everyday low pricing across all lines’.

Today book pricing has many challenges not just discounting. The lack of price points makes it hard for consumers to understand value but the greater the discounting the more the RRP becomes a joke and unbelievable to the consumer. ‘Three for two’ and ‘buy one get one at 50%’ may look good and sell books but devalue books and raise the consumer expectation of a discount. Today we also have the fledgling ebook and an even greater challenge of aligning prices between physical and digital formats, plus the tax is only allied to the digital rendition. In the eyes of the consumer digital means cheaper if not free. Look at music, look at the new Google offer on public domain, and look at the questionable madness of the in copyright but out of print algorithm - ‘using original price, page count, pub date, category or genre, and possibly other data. Pricing bands will be tested to maximize the income for different kinds of books, and adjustments will be made accordingly to these "default" prices. The Registry will consult on these algorithms and oversee categorical pricing changes.’

So do we price ebooks at discount below a meaningless price that has been artificially inflated to accommodate physical pricing? How do we price ebooks rentals?

The one thing we must recognize is that the consumer is not dumb. No inventory, no postage, no print production has to be cheaper that physical. To say that digitization cost huge sums and has to be funded by higher prices doesn’t wash. After all ,Google is doing it for free on public domain, Amazon has a ebook price point and perhaps publishers should have fixed the roof when the sun was shinning not waited until it rained.