Friday, November 12, 2010

Pricing in an Age of Parity

Old habits die hard in the book trade in Australia, but some habits to do with the way publishers have long priced imported titles are going to have to radically change if customers are going to be lured back into buying from Australian booksellers rather than Amazon or The Book Depository.

There are three issues:

1. Pricing way out of kilter with TODAY'S exchange rates.
2. Price points that lock in uncompetitive markups.
3. Infrequent price changes.

Bookbuyers are aggressively responding to the current parity paradigm by buying from overseas-based online retailers, and this is one of the principal reasons retail booksellers are really struggling at the moment. Conditions have rarely been worse. Consumers have gone way beyond the ROBO phenomenon (research online, buy offline) that's been with us for the last decade or so. Now it's just BO - buy online. There's no need to even research it, just do it. The ingrained expectation is that, even if the local bookseller has it in stock, the price will be way over the top.

This mindset can be broken, but only if publishers take radical action along the following lines:

- Price to current FX realities, not some dated average over the previous year or, god help us, decade. That means using parity for US titles and around 62p for UK titles, not just for forthcoming titles, but all titles currently being sold.

- Abolish pricing up to the closest traditional price point - $26.95; $29.95; $32.95; $35.00; $49.95; etc. There is too wide a gap between these points, and too many customers are dropping off on the way up. This was not much of an issue in times past, but it is today.

- Change prices frequently according to FX movements up or down. It's time to let go of the traditional three month's advance notice to retailers, and rarely, if ever, changing the backlist. Systems and protocols have to change. Monthly adjustments across the board should be the norm.

The golden rule on pricing should be: Today's exchange rate plus 10% plus GST. Thus a 13.00 pound UK title becomes A$25.37. Rounded up to the nearest 95c point, it becomes $25.95. A US$26.95 book becomes A$32.61, which becomes $32.95.

The reason for the 10% markup prior to the addition of the 10% GST? To build in a hedge for exchange volatility. Pricing at one rate and actually paying your overseas supplier at a possibly disadvantageous rate three or more months later can be a real problem for importers. Hence the hedge. The Australian dollar climbs via the stairs and falls via the lift well, as they say!

And what about freight? Here's another golden rule: booksellers pay freight when they import directly, not publishers. Publishers have it built into their intercompany or agency trading arrangements. In other words longer discounts or their equivalent are built in to recognise the additional impost of shipping to Australia.

So George Bush's just released Decision Points should be available in Australia for A$42.95, not $59.95 as advertised! The US price is US$35.00. Do the math!

And all those 13.00 pound UK titles, such as Philip Kerr's new one, Field Grey, should be $25.95, not $32.95 as it is. And Howard Jacobson's The Finkler Question (TPB edition) should be $25.95, not $32.99 as it is.

Pressure needs to be put on publishers to be far more responsive to today's competitive realities. And here is precisely where the ABA needs to step up. Real leadership is called for.

Don't hold your breath!


Tim Coronel said...

what about the pricing for local titles? Isn't part of the argument for the price-points that they're not unresonable for locally-origintated books and that (more to the point) publishers don't want to create two-tiered pricing where O/S-originated books are 'cheap' (er) and local ones 'expensive' (albeit realistically costed)?

Peter Donoughue said...

It has always been the case in Australia that imported and local titles have been priced similarly, but what has changed quite frequently has been what subsidises what at the margin level.

In the early 70's when I started in publishing, and when the dollar was way stronger than it is now (around 1.25), imported titles subsidised local ones. When the dollar weakened over time, particularly when it hovered around 50-60c for quite a few years, it worked the other way.

So there's been quite a difference in margins one way or the other.

However, now, in the online age, we find ourselves in an unsustainable situation. Imported titles can't subsidise any more or they'll be bought around. Consumers aren't putting up with it.

So the nexus simply has to be broken. But let's not panic. Consumers WILL pay more for local titles - about 20-25% more I would suggest - and by definition they can't be bought around.

So an imported trade paperback of 350 pages can be $25.95 but a similar local one $29.95. Nothing at all wrong with that. There will be some downward pressure on the prices of local titles - that is natural. Not $32.95, but $29.95.

Believe me the industry won't collapse!

Someone in charge of pricing fulfillment (though not pricing policy) said...

Though as you know, in the HE business, pricing needs to be fixed across a semester period at minimum - so more vulnerability to currency fluctuation within that half year period, if publishers price too tightly to current exchange rates.
Other than that, nail on the head as usual, but while publishing is dominated by big corporates with an eye on their own GM rather than the general health of the industry, not much will change. As units sales decline, unit revenue keeps going up to compensate... this isn't going to have a happy ending for people who care about a local industry.

Anonymous said...

In charge of pricing fulfillment, but not pricing policy, I was trying to say!