A Retailer’s Take on Pricing

by Michael Tamblyn

In the early months of 2010, price seemed to be the only thing that publishers or retailers could think about as they contemplated the most significant shift in the business model since the introduction of returns in the 1930s. Price was foremost in everyone’s mind when the focus was on the positive and negative effects of Amazon’s $9.99 price for e-books. It was predominant again as major publishers and Apple came to terms about “the agency model” and publisher-set prices.

From a book retailer’s perspective, I see a few things publishers might keep in mind while wrestling with pricing in the e-book era.

The Current State of Pricing

Under the current model, we spend a great deal of time and margin turning publisher-provided e-book prices into prices that consumers are willing to pay.

Here is what we at Kobo get from publishers right now.

Here is what it turns into in purchases after we have discounted. (Note: these are trade fiction and nonfiction sales only.) Notice the many, many books being given to us priced at $20 and up and the shocking few sold at that price.

Here is how I’d generally describe these different regions of pricing geography today.

Some of this is apt to change with the agency model. The $9.99 peak may shift northward and lose its margin-killing properties. Sales of trade, mass, and niche titles will, I hope, be unchanged. But I suspect that the flat and featureless terrain north of $15, where so many ambitiously priced titles currently languish, will be unchanged as well, at least with regard to trade fiction and nonfiction.

The part of this graph that isn’t likely to change with the agency model is consumer expectations. This is where the consumer, for better or worse, is currently predisposed to spend.

You could argue that the $9.99 peak is self-fulfilling (“Of course sales at $9.99 are strong; that’s where all the good stuff is priced”), but this same price distribution has held reasonably true for us in non-U.S. markets where $9.99 is not a dominant retailer-driven price point. We have plenty of titles priced over $13. They just sell much less often.

So our hope is that publishers will proceed gently, with an understanding of current customer expectations.

Opportunities Ahead

We also hope publishers will take advantage of some new opportunities.

These include:

Dynamic pricing. You, the publisher, roll out a new release at $14.99 and it sits there, unpurchased and unloved. What do you do? If you’re thinking like a retailer, you might lower that price.

Or you’re a self-publisher whose book is selling at $6.95 and starting to sell well. You might walk that price up and see what happens.

There are tremendous possibilities in being more responsive to consumers and taking advantage of being able to reprice at the speed of metadata.

Shorter new-release windows. Publishers now have a chance to move faster through new-release pricing (say, $12.99 and up) to not-new pricing (say, less than $10).

Our data show that most sales for a newly released title take place in the first 120 days. Can we look forward to a more aggressive timeline for price reductions after we have filled early orders for the “Gotta read it now!” crowd and begun to serve customers for whom price is more of a concern?

A Warning Flag

Publisher-set prices will require much more collaboration with booksellers and entail the creation of new business functions for monitoring and adjusting prices on an ongoing basis.

Publishers have never done pricing without the safety net retailers provide by making adjustments to optimize consumer demand. Retailers spend a great deal of time on price analysis/optimization.

As we work with publishers using the agency model, continuous review of price/purchase behavior is going to be essential—daily/weekly, not monthly/quarterly.

We and other retailers are going to be beefing up our reporting to help. But this is going to be a new business function for most publishers, who will have to manage a decision cycle that’s much faster than the ones they are used to. Making pricing decisions today—and even more so tomorrow—is a process more akin to making print inventory decisions than to the leisurely process of setting publication price points at the beginning of each season.

We hope publishers are getting ready.

Michael Tamblyn is executive vice president for content, sales, and merchandising at Kobo, where he is responsible for sales, publisher and industry relations, content acquisition, and the merchandising experience across all Kobo’s Web and mobile services. He co-founded Canada’s first online bookstore, Bookshelf.ca, which was purchased by Indigo Books & Music in 1998, where he served as vice president of online operations. Most recently, he was the founding CEO of the supply-chain agency BookNet Canada, where he launched the national sales reporting service BNC SalesData and wrote the publishing technology call-to-arms, “Six Projects That Could Change Publishing for the Better.”