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President’s Message:
Pricing Problems and Possibilities

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Here’s the gist of a story that appeared in The New York Times back in December: Barnes & Noble wants deeper discounts. They want this so that (a) they can give further discounts to customers (who are reportedly appalled at the rising price of books) and (b) so they can make more money.

Well, I’m all for everybody making more money, and I’m all for books being so affordable that people just want to read all the time. But I can’t help but relate this demand from an industry giant to my own humble experience.

Once upon a time, my company sold directly to a modest number of retailers at a 40% discount. Period. We priced our books at a multiple of manufacturing costs–six or seven times paper, printing, and binding, if I remember correctly–so that it all worked out. The retailer got its margin, we got ours. We weren’t getting rich, but then this isn’t that kind of business.

Next, in order to reach more retailers, we found a distributor who wanted a hefty percentage of sales. Not that they didn’t earn it–they paid sales commissions, warehoused, shipped, billed, and collected. We raised our prices to accommodate the distributor’s fees, made less money per unit sold, but sold more books. So it still worked.

 

The Start of the Nada Syndrome

 

Then the superstore phenomenon began. Whatever we priced our books at, the big players wanted to sell for less. And they wanted deeper discounts from us to allow for that. And, of course, volume would make it ChecOK. And then there were returns, which jumped from 10 or 12% to 20% or more some seasons.

 

You can do the math on the hypothetical $10 book. The chain gets a 50% discount (at the low end), leaving $5. The distributor gets, say, 30% of the net sale, so now there’s only $3.50 left. If you owe the author a 10% royalty on net receipts, you’re down to $3. You’ve already spent $1.50 to manufacture, if you were very thrifty, and you’ve paid some shipping and some staff and some overhead and maybe even yourself. What’s left? Nada. What can you do? Raise the price of your book. So the public is appalled by the price of books, the chains want to discount to boost sales, and so it goes.

 

A New Look at Net Pricing

When the PMA Returns Report came out last spring, with its call for publishers to adopt net pricing, I shrank from the idea. But the more I think about it, the more sense it makes.

If you haven’t read the returns report, look for it on the PMA Web site or order a hard copy by calling the PMA office. The report is free for members and $25 for nonmembers.

Imagine a world in which you sold your books for exactly as much as you needed to cover costs and make a profit. A world in which chains, wholesalers, independents, whoever, bought books from you at that price, and then marked it up to suit their own needs. And marked the price down instead of returning the book if it didn’t sell. There’s some charm in that, don’t you think?

 

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