Is Amazon reducing its discounts?

Is Amazon reducing its discounts?

This

New York Times article by David Streitfeld

is clearly getting people’s attention.

I’ve had a reader alert me to it in a private e-mail, and regular reader and commenter Lady Galaxy also linked me to it (thanks to both!).

The flashpoint summary: has Amazon started to reduce the discounts it offers on books?

The question requires a couple of responses.

First, is it true?

Second, what does it mean?

Let’s first clarify a bit about what the article says.

It is not talking about e-book prices…it’s talking about p-book (paperbook) prices.

Second, it cites “… scholarly and small-press books”, not the bestsellers.

Before we look at the evidence, let’s look at the big picture…that always makes the data points easier to understand.

Amazon has three core principles: price, selection, and service.

If anybody suggests something at Amazon, it has to support one or more of these…preferably all three.

That sounds simple, but very few companies have boiled it down so completely. Jeff Bezos has said that those three points are the same the world over…nobody in China says, “Can’t you charge me more for that, have fewer choices, and take longer getting it to me while treating me like a jerk?” ;)

In this case, we are clearly talking about the price leg of the stool.

“Price” doesn’t mean price everything as cheaply as possible…if it did, everything would be free (note: there are literally tens of thousands of free e-books at Amazon, but not p-books or other goods). It means, “Price it lower than your customers’ other sources for it.”

It’s about competition.

Amazon has fewer competitors than it used to have. Borders is gone. Barnes & Noble is reducing the number of stores it has. While some independent bookstores are thriving, many have closed…and those were the sorts of places that would have more of the small-press books in question.

Non-bookstore competitors, like Target or Costco, weren’t likely to carry the scholarly and small press books.

Amazon’s selection is better than a brick-and-mortar store. Amazon’s service is also arguably better, as far as many people are concerned. If you are a Prime member, you can likely get that scholarly book in two days with no shipping fee…that’s more convenient for many people than waiting to the weekend and going to the store. Young people  increasingly don’t own cars. Amazon (and other e-tailers) is, I think, one reason for that.

How about Customer Service beyond shipping?

While many of us still think of Customer Service the way it was twenty years ago, it just isn’t that way any more. Go into a bookstore, and try to get some employee to tell you which of the two books on 18th Century glassware is better. Go online, and see other customers’ reviews…and look inside the book, and see mainstream reviews (if any).

If Amazon wins on service and selection, tying on price might be okay. With fewer competitors, there are fewer places having sales…that also makes it easier.

So, Amazon reducing discounts as competition has reduced makes sense.

It’s also important to note that what we are talking about is discounts, not list prices. List prices are what the publishers say you “should” pay for the book…with p-books, Amazon can discount a book beyond that. It works very differently from e-books. With a p-book, Amazon buys the copy, and can then do what it wants, thanks to something called the First Sale Doctrine. The FSD often gets cited for individuals (it’s why you can sell your used copy of a book without getting permission from the publisher first), but it really came about because of a store discounting a book.

Let’s say the list price of a book is $20. Amazon buys copies of it from the publisher for $10 each. Amazon can then sell it for $20, $15, $10…or $5 (taking a loss) if it wants to do that.

Why would a company sell a book at a loss?

Primarily, to inspire other profitable sales in the future. If they take a loss on the first book in a series, and then make a profit on the next nine, that can be worth it.

However…

Small press and scholarly titles may not generate that many other sales. There aren’t going to be ten books in a series on “micro-economic price point pressures on goat cheese”. ;)

So, rationally, looking at an individual sale, it makes sense to me that Amazon would be reducing discounts. Remember, they have not been a particularly profitable company over time (some of you will know that’s an understatement). They have been, as Jeff Bezos put it, “buying market share”. Now that they have that market share, maybe it is time to make some profit.

Irrationally, the idea of Amazon cutting discounts might alarm people. I think, though, that, if Amazon is the only reasonable place to get something, so you don’t see that their prices are higher than anybody else’s, it won’t drive down sales much. If you want that obscure title, you want it. You want it at the best deal you can get…you probably don’t have a set discount amount which is a make or break. If the choice is that you can buy it from Amazon for $75 and have it in two days, or buy it from the publisher online for $75 and have it in three weeks (with a $5 shipping and handling charge, giving them your credit card information which Amazon already has, and not knowing the return policy very well), or perhaps driving fifty miles to buy one in a store (if they actually even have it when you get there), people will pick Amazon…even if it isn’t discounted to $60.

Now, another clear theme in the article is that publishers (and authors) are upset because Amazon isn’t discounting as much.

Wait a minute…didn’t we just go through that whole Agency Model debacle because publishers were upset that Amazon was discounting too much? Which is it, folks?

It’s both. :)

It’s nice to have Amazon to blame for how your company is doing, I’m sure. If Amazon discounts too little, you don’t sell as many books (hypothetically). It’s Amazon’s fault that you only sold fifteen copies instead of twenty, right? If they discount too much, it’s Amazon’s fault that people think books should be cheaper.

One clear difference here: companies that publish bestsellers are going to favor less discounting…the books are selling anyway. Companies that publish “prestige” titles need every single sale, and aren’t going to get it when their books get reviewed in People magazine.

Summing up this first part: I would expect Amazon to reduce discounts over time on some types of titles.

The other question: is this even actually happening?

The article gives you anecdotal reports from publishers, but notes that it is hard to figure out where prices have gone on Amazon. You can, by the way, see it on e-books at

http://www.ereaderiq.com/pricewatch/

That is one of the most valuable resources of any kind on the web. You can list books there, and they will track the prices for you, and send you an e-mail when the price drops an amount you specified…all for free! I highly recommend it.

In a

follow-up NYT article

Streitfeld mentions using

CamelCamelCamel

to check some prices.

I wasn’t aware of that site, but I like it! You can enter an Amazon product, and see a price graph over time.

I checked the top five of the

McFarland books at Amazon

McFarland fits the bill of the type of publisher being described here…and is one of my favorite publishers (I know, having a favorite publisher at all makes me a book geek). ;)

In all of the cases where there was data, the price now was not the lowest price there had been.

However, we didn’t just see a steady climb in prices over time. There were ups and downs, and the downs might be there for a short time…a sale, perhaps.

I’m going to guess that Amazon has reduced discounts on some p-books which don’t sell as well. I don’t see that as a crisis, though…I see it as an inevitable consequence of a less-diversified market. I don’t blame Amazon for that change, by the way. I do think that we’ll continue to see wild fluctuations and big discounts on e-books…now that the Agency Model is basically going away, that’s where the action is. As I’ve been saying for some time, p-books are going to become more of a luxury niche product eventually, with better quality, better service associated with it…and fewer discounts.

Does that mean you will sometimes pay more as a consumer for those books? Yes, that seems likely. We’ve been spoiled a bit by deep discounts, but if we want p-books to stick around when there is an e-book alternative, we are going to have to recognize that we might need to pay more for it. Not more at Amazon compared to other places…more overall.

What do you think? I’d love to hear it…feel free to let me and my readers know by commenting on this post.

Update: Bonus Deal: one of today’s Kindle Daily Deals is

Howl’s Moving Castle

by Diana Wynne Jones. It’s a popular and well-reviewed children’s book (4.7 out of 5 stars with 470 reviews) from 1986 which later became an Oscar-nominated movie. It’s $1.99 at time of writing, discounted from $7.99 (as always, check the price before clicking or tapping that Buy button).

This post by Bufo Calvin originally appeared in the I Love My Kindle blog.

About these ads

One Response to “Is Amazon reducing its discounts?”

  1. Edward Boyhan Says:

    Amazon is often perceived as a big bully. It seems that much of the evidence for this is anecdotal (the evidence in the NYT article is acknowledged to be anecdotal). I would also suggest that many who have negative opinions of Amazon are probably not frequent Amazon customers, and consequently have little or no experience with Amazon’s customer support policies. I suspect that many with negative impressions “discount” (:grin) this and assume that Amazon is more or less like every other retailer when it comes to customer service (i.e. it veers from mediocre to lousy).

    You have mentioned in the past that one big place beyond media where Amazon will become a big factor will be in staples like diapers, toilet paper, laundry soap, etc. I have recently been buying such products from Amazon. I can say that usually I can find a cheaper price at places like Sam’s Club, Costco, or BJ’s (some of this is due to the fact that many of the sellers of such things are 3rd party vendors — not Amazon itself — and that benefits such as “Prime” do not apply). However, I still prefer shopping for these kinds of items at Amazon primarily for two reasons: I don’t have to spend time travelling to a discount store (my time has a value too), and I can usually find packaging options (like extremely large sizes or muti-packs) that just aren’t available from bricks & mortar stores. Also even the 3p vendors tend to do a good job on delivery — usually beating their estimate. Bottom line: price may not be as important as one might think.

    Another point mentioned in the NYT article that resonates with me is the statement that Amazon might be using “big data” tools to optimize quantities sold versus price versus net revenue. Since they are dealing with pbooks, cost of goods sold (COGS) also factors in. If the retail price is $20, and Amazon pays $10 for it, presumably the publisher’s COGS is less than the $10 Amazon is paying for it. The publishers may also be doing “big data” analyses as well (I expect that soon this will become the standard de rigeur way that pricing is determined. I expect that we will then see frequent price adjustments (perhaps as frequent as daily) both at the retail and wholesale levels as this new technology is widely adopted.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


Follow

Get every new post delivered to your Inbox.

Join 1,309 other followers

%d bloggers like this: