Co-op, Advertising Allowances, Free Freight, and other Examples of Discount Creep

Co-op used to be a bookseller’s charge to a book publisher or distributor to purchase special treatment for a particular title. “Give me $3000 and I will put your title on the new and notable table in 300 stores.” This evolved into something entirely different: “Give us 4% of your last-year sales with us for co-op and we will do wonderful but unspecified marketing things for you. Otherwise we will take down all of your eBooks.” A fixed percentage fee for co-op unconnected to any particular benefit looks, to a man riding by on a horse, a lot like additional discount by another name.

The old form of co-op practiced by bricks-and–mortar bookstores actually increased sales of particular titles. You could tell this sort of co-op was a real marketing program because booksellers would not take it for just any title. These fees were a way of allocating especially productive display space in the store: end caps, special tables, front-of-store displays, dumps, next to cash-wrap displays. A successful store needed to move a lot of product through these special display spaces, and they were not about to waste them on titles that would not work.

In the early days Amazon developed many special marketing programs for which it wanted to charge participating publishers. (An example is BXGY: if you buy title X and also our suggested title Y we will give you a special discount on the two together.) If publishers or distributors were willing to pay a percentage of last-years sales in addition to the standard discount, they could choose from a cafeteria of special programs. But the price of these programs went up almost every year; and the programs themselves became steadily less defined, less relevant to particular marketing concerns, and almost certainly less effective, supposing they ever did have much effect.

Free freight, the idea that a publisher or distributor pays the cost of shipping books from a warehouse to a bookstore, has been around for many years, but it has been limited for the most part to indie booksellers and other smaller customers. Giving the small customers a break on freight has made sense because the big customers, the chains, wholesalers, and big box stores, are shipped by truck rather than UPS or FedEx, which drastically reduces their shipping costs; and if they do in some cases need small shipments, their high shipping volume has allowed them to negotiate very favorable rates with the carriers. Freight for a small bookshop can easily be above 15% of the invoice amount for a carton of books. For a truck shipment the freight will be pennies a copy. Now, of course, some wholesalers are starting to insist on free freight. Why? Are they bringing something new to the table? No. It is just the 800 lb gorilla making another appearance.

So it would seem that some versions of co-op fees, advertising allowances, and free freight are just demands for increased discount pretending to be something else. But in fact these semantic maneuvers have some important not-so-obvious consequences for publishers and distributors in addition to the obvious hits on their profitability.

These less obvious consequences will be the subject of the next post to this blog.

Curt Matthews
CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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