Thursday, December 03, 2009

Views on Futurebook Pricing

Can you remember when pricing was simple? The jacket stated the price and everyone understood what it was and the margin available. Unfortunately there were no price points so prices varied wildly and the ability of retailers to differentiate was suppressed by the NDA (Net Book Agreement). In our opinion, it was right to abolish the NBA, but unfortunately we believe its demise was badly handled.

When you release latent pressure it often explodes and becomes unpredictable in its outcome. This problem is exasperated when those who are responsible for managing it have little experience on which to draw on. As a result we often find it becomes a learning experience often with some hard lessons. The NDA released a wave of spiralling ‘discount offers’ which again took us overnight from price control to free fall. The opportunity to tie in other reforms such as firm sale and returns was sadly lost and therefore some would say that it was like negotiating the postal workers pay rise without tackling the issues of working practice.

We then had the calls for prices to be removed of jackets as this was seen to enforce the trading terms and disadvantage retailers from selling at any price. Some even thought they could raise the price!

We then had deep discount wars where some said publishers merely raised the price to compensate for the deeper discount given. This was coupled with new format sizes aimed at raising the price. Now we have Alexander Ross at the Bookseller's Futurebook conference stating that the RRP (Recommended Retail Price) is a stick used by retailers to beat publishers and should be abolished.

Some may say that many are merely playing to their audience and that the economics of publishing and the trade are only every discussed in narrow perspectives. The truth is that any change has a consequence and all too often these are not thought out. It is inappropriate and somewhat naïve to align the pricing issues in books to music or other media as these have long had clearer KPPs (known price points) and many different value chain issues that need to be taken into account. To consumers books are often a price guessing game where the only price you can be sure off is the price you pay. The RRP often is viewed with much sceptisim and could be said to be based on cost plus margin plus discount – in other words every way but loose. The discounting is now clearly mixing front, back and bargain to the point where the inbuilt balance and mechanisms start to fail.

Then we have digital pricing and the opportunity waiting to learn some more lessons the hard way. We have already seen the emergence of a potential price point and put your selves in the shoes of the consumer - what do you do when you know ebooks cost $10 and are presented with ones at $20? If we start to seperate digital from physical pricing we need to be very wary of the consequences. Again how does a consumer think when asked to pay $10 for and ebook and $26 for the physical book? Same content, presented the same way as text - only consumed differently.

Pricing has consequences; on relationships within channels and with authors, trading terms, consumer perceptions and much more. We once had a relatively simple structure, but we now have a complex one. There are now many new players who have both deep pockets and significant clout. The power shift is moving downstream from a publisher centric to a consumer centric market. Retail power is a consequence and is real today and can’t be put back on the box by removing RRP.

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