Sunday, November 8, 2009

Another Look at the ABA's Pricing Proposition

Malcolm Neil, ABA CEO, has kindly clarified for me how he envisages the Canadian price control mechanism working in the Australian context.

In summary, if a bookseller calculates, on any given day, that the RRP set by the publisher is more than 10% above the price of the overseas edition (excluding GST), then the bookseller can freely import.

In other words, publishers would have parallel importation protection under the law, but that protection would be subject to a continuing test, based solely on price.

As much as I admire Malcolm, one of the trade's gentlemen and a good friend, I feel obliged to say that this is, frankly, unworkable, and will end up being counter-productive to bookseller interests.

Let's tease out the practicalities:

- Publishers set their prices months in advance of publication, for obvious marketing reasons, and they cannot keep changing them based on daily exchange rate fluctuations. Very few systems can handle that, particularly retailer systems. In fact retailers get quite annoyed at frequent price changes, particularly price decreases. It plays havoc with good inwards receipting, account reconciliations, returns processing, etc.

- Yet the ABA is asking for the right to test the legitimacy of those prices on a daily basis.

- Because of the impossible challenge set publishers in such an environment, recommended retail prices will soon be abandoned and net pricing become standard industry practice. Thus the law will be rendered obsolete very quickly.

- Publishers would accept the 10% markup challenge, but they would tighten their trading terms with booksellers as a result. Thus the booksellers will lose out as they have nowhere else to go. This whole debate is not just about lowering prices to consumers - although that's the ultimate point. It's also about lowering wholesale prices to booksellers by allowing them to source offshore to their competitive advantage. Booksellers would be denied this critical benefit of real reform.

- Quite likely, faced with a margin squeeze, booksellers will mark prices up, beyond RRPs, just as Red Group Retail are doing now. So where will that leave the spirit of the legislation?

The ABA is trying to engineer an open market by the back door, and it won't work. Pricing controls, whether direct or indirect, simply don't work. What works is competition.

Had the ABA opted to honor their history and support the open market from day one, as they should have, then they would not find themselves in this awful half-way house quandary. An open market would oblige publishers to earn bookseller loyalty in the usual old-fashioned way, by excellence in all facets of their business including pricing, servicing, and responsive trading terms.

The ABA's price control system will simply antagonise publishers, even those who genuinely want to play the game fairly and responsibly. And it will work against booksellers' real interests.

Where's the sense in that?

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