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Amazon pricing of e-books under threat

November 2, 2010

There’s been an interesting development recently from Amazon: they’ve entered into an “agency model” agreement  for their Kindle product with Hachette, Penguin and HarperCollins. This despite previous claims that it would fight for the right to set its own prices.

From a value pricing perspective this is a good thing. For publishers to remain credible guardians of brand, they need to manage brand perception and this must include price. Amazon’s approach, on the other hand, has been to use price to create its own brand, irrespective of the brands of those whose products it is selling. For Amazon, the producers’ brands are less relevant than their own.

As can be seen in the wider world at large, luxury brands survive even the deepest recessions. Why? Because they manage their brands very tightly indeed. Look at the luxury watch market, for example, and you’ll see that any online watch store not “officially certified” by the watchmaker suddenly becomes questionable – causing pre-purchase cognitive dissonance, not to mention post-purchase. Luxury goods makers know full well that brand equity is maintained by scrupulous focus on brand perception, execution and delivery. No-one can sell their goods “on the cheap”. Margins are too important for that.

Yet publishers in many spheres have failed to grasp brand strategy and price management. Many indeed are too small to fight the big retailers and lack the resources to develop and understand their brands. Book publishing, indeed, can be like a hamster’s wheel: endless pursuit of money just to stand still and break even. Publishers in this zone have little time for “fancy dan” issues like brand strategy.

But publishers with good brand equity know well the position they take. Look at Cambridge University Press which has ” reported its eighth successive year of growth in its annual report for the year to 30 April 2010, despite a turbulent global economy. The report shows that sales of books and journals published by the Press increased by 11.5 per cent to £201.1 million, and that overall revenues have grown by 3.3 per cent, to £213.3 million.” You can guarantee that CUP don’t run their business on a hamster’s wheel, oh no.

Some publishers may well say that “we’re not CUP and never will be”. Well that’s up to them – ignore brand in your marketing mix and you’ll never be relevant. If you don’t want to grow, then don’t have a recognised position. If you don’t want customer loyalty, then don’t have a consistent brand ethic. If you want to be subsumed in a retailer’s price-point obsessed world, then don’t have a brand.

And then get picked off by the retail chains, only too eager to sell your books and e-books at a price that suits them, rather than you.

So let’s return to Amazon’s agency price deal – the story doesn’t really end there but has a twist in the tale. Yes, Amazon’s deal with Penguin, Hachette and HarperCollins enables these companies to maintain their brands and value position more effectively in the more volatile e-book space. Yet Amazon itself refuses to lie down by posting next to these publishers’ e-books the term “this price was set by the publisher“.  Oh dear…

In so doing, Amazon takes the consumer’s mind away from the value contained within the book which is surely the wrong tactic. Amazon’s success has been built on selling good brands at a lower price and with excellent customer service but with their nose out of joint they wish to somehow create an issue between the publisher and the reader with subtle “knocking copy”.

Selling with bad grace never helped anyone and for the first time we may be seeing a crack in Amazon’s brand, a model targeting book-retailing hegemony now starting to unravel as an industry flexes its branding muscles.

I commenting on this, we are not arguing for a return to price control and price fixing of course. But brand, pricing and positioning are surely the responsibility of the brand owner and not the retailer. Amazon continues to provide an excellent route to market for these publishers (and one from which publishers can learn a great deal if they want to survive). But to remain relevant publishers need to take a more active involvement in your own brand equity by managing their pricing and positioning through their sales channels more effectively. Hachette, Penguin and HarperCollins are leading the way.

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