Price
and Prejudice
As
Riggio Guns for Lower Prices, There's No Sure Cure for
Sticker Shock
FROM PUBLISHING
TRENDS (JUNE 2002)
Pantyhose,
Len Riggio once said, lecturing publishers on the finer
price points for L’eggs, sell blissfully at $6.99. But
books are not leggings. And if publishers think $6.99
is a good price for the upscale products in bookstores,
they’re hosed. Moreover, he said, books priced at $21.95
would sell more copies more profitably at $19.95, no
question about it. “Lower prices mean higher sales,”
the Barnes & Noble chairman told the Association
of American Publishers in a gauntlet-flinging address
a couple years ago. “Look,” he added, “$20.95, $21.95,
$22.45, $6.45, and $7.45 are not price points — they
are abominations.” Well, the book biz is getting buzzed
again, as Riggio has rumbled in recent weeks about list
pricing that’s either sky-high or off-the-mark. Publishers
willing to price their books in line with his precepts,
he has hinted, may get special perks, including prominent
store placement, sticker discounts, and bumped-up book
orders. While no one in the industry (including Riggio’s
own underlings) has quite figured out what those precepts
are, everyone has taken note that pricing remains a
highly charged flashpoint for booksellers and their
patrons.
“Publishers
have slipped biographies and cookbooks up to $35, and
the public has noticed,” says Gayle Shanks at
Changing Hands Bookstore in Tempe, AZ. “We sold
the John Adams for $35, but I think we would
have sold twice as many at $30.” Even for trade paperbacks,
and especially for the top-priced hardcovers, she reports,
customers are balking. “People will tell me, ‘I heard
great things about this book, but I think I’m going
to wait until it comes out in paperback. I just can’t
pay $27.’ Every time I’m on the floor that happens.
It’s a regular dialogue we have with our customers.”
Slippery
Slopes of Demand
For
years, as Riggio pointed out, publishers have had little
objective data about the slippery slopes of consumer
demand. But there is some evidence, PT has found,
to support these widespread hunches that book prices
are simply too high. In hardcover adult fiction, according
to Bookscan figures, unit sales of books with
publishers’ retail prices in the $16 to $19.99 range
have shown a 39% increase in the last year, making it
the fastest growing price segment for this category.
That suggests a stronger demand for titles in the lower
price bracket. This pattern has not held true for other
categories, however. Sales of hardcover adult nonfiction
in the $25 to $34.99 range are up 23% (probably due
to expensive bestsellers such as John Adams and
Phillip McGraw’s Self Matters, at $25).
And in children’s hardcover there are sharp declines
in all price ranges, but large increases in children’s
paperback (thank Harry Potter).
However you parse the figures, closer attention to price
would pay off handsomely in sales, observers say. “The
basic truism of economics is that demand curves slope
down,” says Virginia Postrel, New York Times
economic columnist and author of The Future and its
Enemies. “If you charge less for something you will
sell more of it.” The key to riding the curve, she says,
is mapping consumer behavior. “There’s a big difference
between $22 and $19.95. And it’s more than two dollars
and five cents. Those psychological price points, as
irrational as they are, are well established in the
marketing experience of countless industries, and there’s
no reason for book publishers not to take advantage
of that wisdom.” Postrel also points out that publishers
may price books based on what it costs to produce them,
including overhead and editorial expenses in addition
to printing costs. “That’s a huge Economics 101 error,”
she says. “Once the book is written, edited, and at
the printer, the editor’s time is completely irrelevant
to the question of what an additional copy of that book
costs. So is the rent. Publishers may overprice because
they have an inflated view of what the cost of a copy
is.”
Of course, you’ve gotta share the blame. “Book pricing
is where it is today largely because of the chain stores,”
says Chuck Robinson of Village Books in
Bellingham, Washington, “and the decision they made
in regard to discounting.” Cut-throat price wars led
publishers to inflate list prices, runs this argument,
fully anticipating that the consumer would pay a discounted
price. The price clubs also played a part in seducing
publishers into artificially increasing their retail
prices, with the knowledge that the consumer would be
paying little more than 50% of that. (As the Wall
Street Journal noted recently, Costco alone
took 28% of the first printing of a Patricia Cornwell
novel.) But now that many retailers have pulled back
on discounts — though Amazon’s latest gambit
is 30% off books priced $15 or more — the consumer is
reeling from a fresh case of sticker shock. Just ask
Ed Morrow at Northshire Bookstore in Vermont,
who regularly sees customers buy one book now instead
of two or three, agonizing over which one that will
be. And that includes trade paperbacks, which average
$12 to $15 in his store.
There are those who’d like to banish list prices outright.
“The real issue is that the publishers shouldn’t be
pricing at all,” says Larry Abramoff, owner of
Tatnuck Bookseller in Worcester, MA. “Who knows
better how to price for my customers than I do? Some
bean-counter says this book is costing us this much,
so we should price it at this amount.” Abramoff believes
more price flexibility would make a big difference.
“I would like to take the 20% of our inventory that’s
most commonly price sensitive, and lower the price on
that. I would like to take the other 80% and make up
the difference on that. Publishers should get out of
the pricing business altogether.” (That thought is shared
overseas, regarding the euro rollout — see related article.)
Others counter that pricing has its merits. “It’s a
boon to our industry that we are allowed to have these
publishers’ prices, which serve as a benchmark for all
of the discounting that takes place,” says Mike Shatzkin
of The Idea Logical Company. “If there were not
a publisher’s price, it would make people less certain
that the price they’re being charged is a fair price.
And anything that contributes to uncertainty reduces
sales.”
The
Margin Maelstrom
Publishers
are obviously caught in the maelstrom of margin requirements
and marketplace pressures. You may recall that in the
’90s, when Phil Pfeffer was installed as president
of Random House, he railed against an industry
in which, counterintuitively, the price of the product
got cheaper only when it began to sell. But some are
responding to Riggio’s mantra. Walker Publisher
George Gibson says that while he’s always priced
carefully, Riggio has made him even more conscientious.
Lusitania by Diana Preston, for instance,
clocks in at 528 pages, and was slated for $30. Bowing
to price pressure, they cut it to $28 (though Riggio
would likely prefer it dropped to $25). Then there’s
Sterling, which does no P&Ls on its
titles, according to EVP Charles Nurnberg, who
evaluates a manuscript and uses his instinct to eyeball
the price. He then calls in his production staff and
tells them to bring in the package at the chosen price.
Nurnberg keeps a wary eye on his competition, however,
and average prices are $24.95 in cloth and $12.95 to
$14.95 in paper.
Some prices, on the other hand, are sailing south, and
fast. J.P. Leventhal, of Black Dog & Leventhal,
reports that dropping prices in the bargain business
have quashed margins. (Borders’ average bargain
price last year was $8 retail — queried about its pricing
policy, a Borders spokesperson brushed off the idea
that the chain might follow Riggio’s lead, instead touting
its new category management initiative.) As Leventhal’s
average retail price is $3 lower this year than last,
he’s aiming his business more toward the trade territory,
where margins are at least slightly better than in bargain-land.
Elsewhere, Motorbooks switched from a category-based
system to one that publishes into channels, says CEO
Rich Freese. In essence, there are three Motorbooks
customers: the gung-ho “gearheads” who are not price
sensitive; the general bookstore reader, who can pay
when the book and price are right; and the value- and
impulse-driven mass merchandise channels. Motorbooks
prepares publishing plans by month, channel, and category,
with the mass merch channel getting lower price points,
usually with repurposed material and somewhat lower
production values.
In the audio world, Eileen Hutton, President
of the Audio Publishers Association, says consumer
demand is exploding for unabridged products, driving
sales into the higher price range. Jean M. Auel’s
The Shelters of Stone, for instance, sprawls
over 20 tapes and goes for $59.95. However, audio is
also seeing a trend toward bargain-basement pricing,
with titles re-released in “paperback” a year after
publication and sold abridged for $7.99 to $12.99. “If
we could sell audio for the same price as the hardcover
book, we would sell a lot more volume,” she says. The
industry is hoping to do just that, with digital MP3
CD players in car audio systems, which are expected
in the 2006 model year. MP3 compression can fit 20 hours
of audio on one CD.
Unfortunately, there’s no similar silver bullet to bring
down the prices of books. “Prices seem to be creeping
up a dollar a year,” says Changing Hands’ Shanks. “The
buying public is very cognizant of those creeping prices.
They notice. A $20 hardcover novel would sell a hell
of a lot better than one priced at $25 or $26. The publishers
would make more money, and we would make more money.
I feel that for the first time we can be on the same
side as Len Riggio. I can certainly agree with him.”
©2002
Publishing Trends
