The Digital Imperative – can publishers avoid the commoditisation of their products?
Is the book publishing world imploding at a rate of knots? Just as the book trade has done for many years, so Amazon now seeks to do apparently: sell books at neighbourhood price points rather than reflect product value. What was deluxe becomes debris, we might say – books will lose their status and, with it, their prices and their profitability.
It’s not easy out there! As this article in the New York Review of Books by Jason Epstein points out, “what matters is Amazon’s attempt to force publishers to conform to the digital imperative by resisting prices that include traditional publishing costs. This is more than a conflict between Amazon and publishers. It is a vivid expression of how the logic of a radical new and more efficient technology impels institutional change.”
There’s no doubt that publishers’ prices have in the past (and, by fossilisation, continue to this day) reflected internal costs rather than value to end reader. Consequently, most publishers require inordinate (and often unsubstantiated) sales volumes to create often tiny margins. Price in publishing is not therefore a reflection of value, rather it is an aspirational descriptor: sell enough books at £9.99 and publish 200 other similar books in the same year and we might – just might – cover our costs and make a profit for the year.
Amazon is trying to exploit this. In commoditising books into attractive price-point purchases, it seeks brand hegemony by consistent low price and an easy-to-use market standard “device”, the Kindle. But who ever said that a book should be £9.99 or £19.99? Who ever said to a customer that the cost of buying a book actually reflects the effort gone into producing it?
No-one sells cars or electricity or financial services this way. Yet publishers – probably because the industry attracts literary folk with literary morals – feel some kind of guilt when it comes to price. Many are unhappy to charge the right price for their publications because the price neighbourhood – bookstores and digital retailers – identifies their value in price bands.
Some publishers have sought to get around the pressure imposed upon them by Amazon by developing the “agency model” to protect their margins. In the US, these publishers have got into trouble because this measure is viewed almost like the old UK Net Book Agreement: a way of leveraging profit via a cartel of like-minded companies.
Both models – the Amazon commoditised price point and the agency model – both centre around publisher costs. Amazon wants to drive costs down (or at least this is how it spins its apparently altruistic ethos), the agency model publishers want to keep publishers “in the game” by preserving margins.
But now – and probably about time too I would say – publishers need to understand product and brand value. When pricing consultants enter the world of publishing, they are confronted by a wall of negativity: “we can’t do what you say because the trade won’t let us”. So what makes the publishing business any different from wire makers, motorcycle manufacturers or turners of briar pipes?
As Robert Dolan and Hermann Simon state in Power Pricing, “Price is the economic sacrifice a customer makes to acquire a product or a service. The customer always compares this sacrifice with his perception of the product’s value. Price and value are the cornerstones of every economic transaction“.
So for publishers, the issue is stark. In the New York Review of Books article, the authors state “E-books have been aggressively marketed for five or six years in the United States. Yet despite rapidly acquiring market share they show no sign of displacing actual books, with which they will comfortably coexist in the digital future.”
If I reflect on Dolan and Simon I’d add that if publishers really want to own their future they need to understand what drives consumer perception of their offering. This means they need to deliver quality and satisfaction. It also means that the consumer needs to know who they are, what they do, why they do it, and why they are good at it.
Only then will publishers have a chance of defining value and profitability in a market which others seek to commoditise.