Guest Column: Book Pricing: Rein in the Aggression
What is a book worth?
That question took on new meaning in 2012. The form of the book itself came under scrutiny after the U.S. Department of Justice filed a lawsuit in April against Apple and five major publishers. Using phrases such as "revolutionary change," "dramatic explosion in sales," "a variety of benefits" and "considerably cheaper to produce," the government drew a clear distinction between ebooks and their print counterparts.
But print books still represent a significant store of value and opportunity for publishers and retailers. We would like to devote this article to them and their value, and leave ebook pricing aside. Taking a further step back, we would like to approach the question "What is a book worth?" by providing some insights into where readers buy their print books nowadays and why they choose one channel over another.
Our conclusions rely on a comprehensive study that our firm, Simon-Kucher & Partners, conducted earlier this year to understand how American consumers shop for 13 popular categories of products, including print books. Over 1,000 consumers provided feedback on why they buy online, why they buy in stores, whether they expect to buy more online in the future and how bricks-and-mortar retailers could potentially win back committed online buyers.
Three conclusions in particular—all supported by the study—challenge long-held beliefs about the importance of price in the book business, especially the conventional wisdom that a product sold online must be a better deal (read: must be cheaper) than the same product purchased in a traditional store.
1. Convenience is just as important as price—if not more so—when a reader decides to buy a book online.
2. The more consumers buy books online, the less important price is to them.
3. Aggressive price competition will not bring online consumers back to bricks-and-mortar stores.
No one denies that price matters and that low prices have an intrinsic appeal. U.S. consumers have now had more than a decade of intensive "training" from Amazon and Barnes & Noble. Amazon even makes its devotion to lower prices unequivocally clear in its filings with the Securities and Exchange Commission when it states, "We strive to offer our customers the lowest prices possible."
Nonetheless, both publishers and retailers need to keep in mind that people shift their business online for many reasons other than price. The idea that pricing is the runaway driving force behind online book buying—with convenience a distant second—is simply not true.
When asked to pick one reason why they generally buy books online rather than in stores, some 24 percent of respondents chose lower prices. That was the highest total across all factors. But we found it fascinating that 76 percent of online book buyers did not put price at the top of their list. For the heavier book buyers, price ranked first for just 14 percent of respondents, followed by the convenience-related factors of better product selection and 24/7 shopping, each at 12 percent.
When we zoom in on readers who expect to increase their book buying online over the next 12 months, a similar pattern emerges. Allowed to select multiple motivations, only 56 percent of the respondents even chose "lower prices" at all, placing that factor second behind 24/7 shopping at 61 percent.
For the most avid online book buyers, price dropped to third on the list at 50 percent, trailing 24/7 shopping and the online shopping experience, each at 53 percent.
That means that 44 percent of respondents overall, and fully one half of the most active online shoppers, did not select "lower prices" as a motivation at all, even when they saw the option in front of them.
But shopping online is only part of the story. Many book buyers still eschew the online world in favor of the bookstore. Barnes & Noble reported that core comparable bookstore sales (which exclude NOOK sales) increased by 7.6 percent in its latest fiscal quarter (ending July 28, 2012).
Granted, 67 percent of the respondents in our study said that online is their usual channel of choice when they plan to buy a new book, versus just 17 percent who said they would usually plan to buy a new book in a traditional store. The remaining 16 percent are "in play" and usually include a store visit in their decision-making. Why do consumers still buy books in stores, or at least keep the option open? Their top motivations are that they can get the product right away (31 percent of respondents) and the social experience of going to the store (21 percent of respondents).
A critical question for bookstores, then, is how to woo back readers for whom online shopping has become the primary option, and how they might ensure that the "in play" consumers walk out of the store as buyers, not browsers.
Book buyers were pretty clear that lower prices are not the answer. Allowed to select multiple motivations, only 13 percent of respondents selected "lower prices than online" as something that would lure them back into bookstores. Gift cards (37 percent) and better selection (36 percent) exerted a much stronger pull. Gifts cards are a form of restricted currency; you can spend the money only in one place. In theory, lower prices may tempt a book buyer to visit a store. Having a gift card forces them to. We infer that such selective promotions would prove much more effective than sweeping price cuts, than the kind of "price matching" Target and Best Buy have announced, and than an all-out price war.
We infer from the relatively high "better selection" response rate that book buyers want greater depth or a better curated selection on the specialty shelves or in the specialized departments of the traditional bookstores. Obviously, a bricks-and-mortar bookstore can never match an online bookstore one-to-one in the area of "selection." But there is a big, if subtle, difference between "better selection" and having nearly every book ever published.
So what is a book worth?
Obviously we can't apply our conclusions to a genre or individual title. But our overarching message for the book business is that book buyers still seek out convenience, service and fun. You don't need to bribe them with aggressively low prices. BB
Andre Weber is a partner at Simon-Kucher & Partners and is based in the firm's New York office. He has over a decade of experience in pricing for media and entertainment. Kyle Poyar is a consultant in the firm's Boston office and supports the firm's media and entertainment practice. The full results of Simon-Kucher & Partners 2012 study of consumer shopping behavior will be available shortly as an e-book.