As Riggio Guns for Lower Prices, There’s No Sure Cure for Sticker Shock
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.”
