Tag Archives: book discounts

Should Books Be Discounted?

Should Books Be Discounted? Image from businessblog.winweb.com.

I had a call the other day from David Streitfeld, who often covers the publishing business for the New York Times. He wanted to know if Amazon was discounting the books that IPG distributes at a lesser rate than they used to. There has been widespread concern in the publishing community that Amazons’ game plan is to steeply discount everything until the competition is wiped out, at which point they could put prices way up and start coining money.

It is true that Amazon has discounted very aggressively, and has been content to accept a very low profit margin if this would mean a rapid increase in market share—which it has. If titles are now being discounted less, this might signal that Amazon is turning to Part Two of its strategy, the part where the prices start to go up. In the article that Streitfeld published in the NYT on the 4th of July, one of his sources expressed the view that the discounts were in fact decreasing, especially on independent press and scholarly titles, which would be disastrous for sales.

My take on this issue is quite different. I have no inside information whatsoever about Amazon’s game plan, but I know what I would be doing if I were in their position: I would be experimenting with discounts and mining the sales data to see what effect different levels of discounting would have on the sales of various kinds of books at each stage in their life cycles. Streitfeld quotes me as saying:

“‘They [Amazon] are wondering, “If we knock off only 10 percent as opposed to 35 percent, where do we come out ahead?”‘ Mr. Matthews said. ‘They don’t care how many books they sell. They want to know how many dollars they get.'”

My grammar is regrettable, but the idea is from Business 101: Find the place where the price and volume lines cross on the graph, the balance that yields the most dollars.

Many people are offended by the very idea of discounting books.  After all, books have a list price printed right on the jacket flap or back cover.  Almost no other products have the price printed on them during manufacture. Doesn’t this mean that, for books, the list price is somehow the right price? And aren’t discounted products usually cheap knockoffs of better things? Perhaps Amazon has done a disservice to the special stature of the book as a cultural icon; perhaps all this discounting has convinced many consumers that paying list price for a book means you are a bit of a chump, like the little old lady who pays full sticker price for a new car. Or, it may be that the book is not quite the cultural icon it used to be—for reasons that have little to do with discounting.

I will confess that I was a happier book buyer in the days before they were routinely discounted. The printed list price assured me that the title I wanted would cost the same in any bookstore, and that no one would get a better deal than I did. But perhaps a lower price justifies putting up with a little low-level anxiety of that kind.

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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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