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E-book pricing driving publishers to the wall?

October 7, 2010

In an article in the UK’s Independent today there is a doom-laden prophecy for the publishing industry: “the rise of online selling had for years threatened to put bookshops out of business. Now the e-book scramble threatens to do the same for publishers“. What’s this all about? Pricing and the consumer relationship – and the folly of relying on the book trade too much, rather than focusing on end-users.

For any business handing its core route to market to third parties, price leaves the area of value and becomes an implement to volume sales. Instead of pricing a book based on the value it contains, bookshops insist on pricing to price bands because, in the unproven mantra of sales people down the centuries, they “know” their customers. Certain products at the appropriate price point make it easier for bookshops to clear shelves.

But if books are to be produced in price bands, publishers immediately put pressure on themselves because everyone in the supply chain needs a cut. Yet publishers and the book trade have conditioned people to believe in price bands for books with the result that many books have become commoditised. Unlike in the supermarkets, where customers never know what price they’re being asked next, bookshops and retailers have conditioned readers to anticipate certain prices for certain books.

Now, as e-book platforms put more pressure on publishers, this conditioning is being pushed to new levels with pressure on e-book pricing to be made even lower to deliver volume. But what is the advantage of a low price strategy? Market penetration is clearly key, as is the need for the platform holders (e.g. Kindle, Sony Reader, Apple) to establish an early adopter number one position in the hope of creating the eponymous brand (a la Hoover).

One of my clients would argue that customers always set prices and therefore players like Amazon who recognise this will become the customer service provider of choice and therefore push prices down. This is certainly a key fact in the online environment today – what’s the best I can get for the lowest price? The e-reader producers are now claiming the customer-interface high ground and whatever profits are out there, they want for themselves and stuff the suppliers.

With cans of fizzy drink – the ultimate in ephemeral trash – now positioned between 50 pence and £1.00 (or more), is it right (in the customer’s mind) to offer a novel, or a business guide, or whatever, for £2.00? If it is, then publishers need to get out of that market – because many publishers do not have sufficient brand strength to guarantee the mass market required to deliver the revenues and profit required. As any publisher will tell you (when pressed) most of their books are average at best and poor at worst.

What choice do publishers of books now have? Hachette, it seems, have negotiated with Apple to “try to impose a flat price” to sell e-books at £6.50. I cannot see the sense in this; equally I am not sure customers will either. What does £6.50 become other than a standard commodity price? This is a dangerous game. Establish your brand value at £6.50 per item, whatever it is, and you devalue your offering to the level that it can only ever be negotiated on price. And price negotiation only ever goes in a downward direction from this point. Should a copy of Gawain and the Green Knight cost the same as the Oxford English Dictionary?

If held to, Hachette’s standard pricing is a public announcement of stentorian vacuity. For publishers to boast standard pricing models invites competition and pricing will only go down – not up. Now, of course, this benefits the consumer’s wallet in the short term but the long term damage will be huge for the publishing industry. Especially if the market ends up in the hands of a few e-reader providers who control and manage price strategy.

Indeed, to paraphrase the Daily Telegraph’s one-time review of a song recorded by football’s Paul Gascoigne, this move “has the lobotomised good-time quality that makes Chas ‘n’ Dave sound like Immanuel Kant

How will anyone be able to prove higher value if the customer reference benchmark is £6.50? Hachette appears to be inviting others to compete with them on price – and as we know, price wars create no winners in the end. A less harsh view would suggest that they instead are trying to create an online version of the now defunct Net Book Agreement – as hinted at in a recent move by publishers MacMillan. Yet, Hachette seems quite happy to move its brand down into the pic-n-mix section of Woolworths rather than offering us luxury chocolates of the type once made by Terry’s of York (before Kraft closed it down to move, er, down market).

The Independent’s view of the future for publishing in this environment is gloomy: “Who’ll be the first to charge for a money-based, author-reader relationship that dispenses with agent, publisher, retailer, editor, production department and glamorous publicity director?”

Who indeed? Book publishers still have a chance of survival – but only if they begin to realise that what they produce can no longer be sub-standard and average but offer real value which customers recognise, understand and are willing to pay for. Relying on retailers alone to set pricing and positioning has at long last been exposed as the folly it’s always been.

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