Wednesday, March 2, 2011

Pearson's net pricing move: a lot more than meets the eye..

I've been thinking a little about Pearson Australia's move, scheduled for May 1, and I think it could well be a much larger initiative than one simply involving net pricing. I haven't talked to anyone at Pearson, least of all my good friend David, but I suspect this could be the first roll-out of the American model of textbook supply to Australia. In the US publishers supply campus booksellers on net pricing terms, but the effective discount off their list price (which exists in their systems but is not public) is around 20% to 25%.

There has always been the possibility, but up until now not really a probability, that the US supply model could come to Australia. Tertiary publishers and booksellers have always enjoyed a partnership relationship in Australia, which has been to both parties' advantage. In the US the relationship has always been adversarial, often ferociously so. Decades ago US campus booksellers opted to become willing participants in, and beneficiaries of, the commercially and nationally organised used book business, to the great detriment of new book sales. They effectively declared war on publishers. There has been no love lost ever since.

In Australia the used book situation has always been a fairly piddling business run by student associations on a campus by campus basis.

What has changed in Australia however, like everywhere else around the world, is that educational publishers are having to make huge investments in digital products and infrastructure, and are having to deal directly, and interactively, with students . The traditional textbook is becoming far less central to the educational process, to the point where it doesn't really matter whether it's bought or not. Thus the traditional textbook retail supply model is also becoming more marginal.

So if ever there was a time to change the Australian supply paradigm, and move more margin the publisher's way, it is now.

Pearson is probably thinking - rightly in my view - that they need the support of the Australian campus bookseller less than ever before.

Here's what may well happen May 1: net prices will not change, but Pearson's 'RRPs' may be reduced by 10% or so. Pearson is therefore able to negotiate adoptions with academics more successfully, and answer the charge that their prices haven't come down because of the strong dollar.

But they don't suffer any revenue or profitability decline by doing so. Just a bit of outrage from their legacy intermediaries, which they can fairly effectively steel themselves against.

It's the booksellers who will suffer the financial consequences. Their effective discount will be reduced from 33.3% to 25% or so.

The big problem booksellers will have is that most, if not all, tertiary publishers, particularly the Americans, will follow suit. They couldn't let Pearson take all the advantage alone. This is what happens when the dominant player makes a bold and unpopular move - the rest fold in behind, taking cover accordingly.

Perhaps I'm wrong, but somehow I doubt it. The time is ripe for such a move.


RachaelMc said...

Hi Peter - this is a bold and brave move indeed, and I actually applaud it. HOWEVER there has been no discussion or engagement with us as a customer. 1) There are system issues, we will need to re-program to take into account a net price model. This costs money and takes time. A little more notice would have been appreciated. 2) bibliographic data issues with them are already a nightmare. God help us in a net pricing world 3) electronic trading initiatives - I trust everything will work fine with Pacstream/Tedis/Thorpe (whatever they are called these days!) workflows. 4) extending on the last point, exactly what will they show on their own website re price, what will they put on Titlepage, bibliographic agencies etc. i.e. will they put a SUGGESTED price.

We are struggling to work with net pricing in the multimedia world but at least the distributors there give us a file with a suggested retail price. Will Pearson do the same to help with workflows and system issues? I doubt it.

So there is a lot some of us have to do to accomodate this move. As I said, it's brave, it's bold, it shows leadership BUT...some communication with customers in advance would be appreciated. We won't make the 1st May start-date and it's not as if we are an insignificant customer for them.

Anyway, I ramble. I'm sure you know where I'd go if I continued! Love your work - R

Anonymous said...

Could be good news for Pearson's competitors.

There is some support in academic circles for the services provided by the campus bookstores.

Some would be prepared to move to another similar textbook, to ensure the campus bookstore is able to provide the current level of service.

Anonymous said...

Pearson did not drop their rrp but for secondary textbooks but it seems they reduced the discount for booksellers from a maximum of 30% to max of 20% off rrp. This represents an increase of over 14%.

Pearson seem also to be signing up schools for full digital delivery across all subjects. Too bad if you are teaching an art course and have to use one of their tired old books instead of something up to date and relevant.