Pricing

Amazon and Walmart are in an all-out price war that is terrifying America’s biggest brands

31 March 2017

From Recode:

Last month, Walmart gathered some of America’s biggest household brands near its Arkansas headquarters for a tough talk. For years, Walmart had dominated the retail landscape on the back of its “Everyday Low Price” guarantee. But now, Walmart was too often getting beaten on price.

So company executives were there, in part, to reset expectations with Walmart’s suppliers — the consumer brands whose chips, sodas and diapers line the shelves of its Supercenters and its website.

Walmart wants to have the lowest price on 80 percent of its sales, according to a presentation the company made at the summit, which Recode reviewed.

To accomplish that, the brands that sell their goods through Walmart would have to cut their wholesale prices or make other cost adjustments to shave at least 15 percent off. In some cases, vendors say they would lose money on each sale if they met Walmart’s demands.

Brands that agree to play ball with Walmart could expect better distribution and more strategic help from the giant retailer. And to those that didn’t? Walmart said it would limit their distribution and create its own branded products to directly challenge its own suppliers.

“Once every three or four years, Walmart tells you to take the money you’re spending on [marketing] initiatives and invest it in lower prices,” said Jason Goldberg, the head of the commerce practice at SapientRazorfish, a digital agency that works with large brands and retailers. “They sweep all the chips off the table and drill you down on price.”

But this time around, Walmart’s renewed focus on its “Everyday Low Price” promise coincides with Amazon’s increased aggressiveness in its own pricing of the packaged goods that are found on supermarket shelves and are core to Walmart’s success, industry executives and consultants say.

The result in recent months has been a high-stakes race to the bottom between Walmart and Amazon that seems great for shoppers, but has consumer packaged goods brands feeling the pressure.

The pricing crackdown also comes in the wake of Walmart’s $3 billion acquisition of Jet.com and its CEO Marc Lore. Lore now runs Walmart.com and has said one of his mandates is to create new ways for the retailer to beat everyone else on price, including Amazon.

. . . .

One piece of the battle, executives say, is an Amazon algorithm that works to match or beat prices from other websites and stores. Former Amazon employees say it finds the lowest price per unit or per ounce for a given product — even if it’s in a huge bulk-size pack at Costco — and applies it across the same type of good on Amazon, even when the pack size is much smaller.

So let’s imagine Costco is selling a pack of 10 bags of Doritos for $10 — or $1 per bag. Amazon’s algorithm notes that one bag is $1 at Costco and, in turn, lowers the price on Amazon of a single bag of Doritos to $1.

That is a great deal for customers — something that is likely driving the decision at Amazon, where an obsession with customer value dominates its strategy.

But now, Amazon is selling individual items at Costco prices while not getting the same wholesale price that Costco enjoys. In short, it’s going to be really hard for Amazon to turn a profit on those goods.

When Walmart sees this, it freaks out on the supplier, industry executives say. And it doesn’t matter to Walmart that Amazon may not be getting the same wholesale price that retailers like Costco or other membership clubs receive. In other words, even if Amazon isn’t profiting from its extremely low prices, Walmart is still demanding the same bulk-rate discount applied to individual items.

. . . .

Unprofitable items are known inside Amazon as CRaP products — the acronym stands for “Can’t Realize a Profit.” And Amazon is not afraid to kick off big and small brands alike.

Case in point: On a Friday afternoon last month, all Pampers diapers sold by Amazon were unavailable on the site. Industry speculation was that Amazon may have kicked Pampers off the site as part of a negotiation over prices.

Neither Amazon nor Pampers parent company Procter & Gamble would comment on whether this was the case. But the bigger point may be that senior industry executives thought such a move was even a legitimate possibility.

. . . .

As Amazon Prime becomes a bigger part of Amazon’s business, Amazon ships more orders that consist of just one item. These orders can typically be tougher to make profitable than multi-item orders — a trend that could explain the renewed focus on profitability.

. . . .

The longest-term solution, however, is perhaps the most difficult: Reimagining how a product should be designed and packaged from the ground up, specifically for e-commerce sales. That often means cutting the weight of low-price goods since shipping costs tend to eat into a product’s profitability. (Amazon, in fact, is trying to capitalize on this potential shift by asking brands to reformulate their packaging to make it easier to ship — all done via Amazon, of course.)

Link to the rest at Recode

Amazon Is Quietly Eliminating List Prices

12 January 2017

From The New York Times:

In a major shift for online commerce, Amazon is quietly changing how it entices people to buy.

The retailer built a reputation and hit $100 billion in annual revenue by offering deals. The first thing a potential customer saw was a bargain: how much an item was reduced from its list price.

Now, in many cases, Amazon has dropped any mention of a list price. There is just one price. Take it or leave it.

The new approach comes as discounts both online and offline have become the subject of dozens of consumer lawsuits for being much less than they seem. It is also occurring while Amazon is in the middle of an ambitious multiyear shift from a store selling one product at a time to a full-fledged ecosystem. Amazon wants to be so deeply embedded in a customer’s life that buying happens as naturally as breathing, and nearly as often.

. . . .

“When Amazon began 21 years ago, the strategy was to lose on every sale but make it up on volume,” said Larry Compeau, a Clarkson University professor of consumer studies. “It was building for the future, and the future has arrived. Amazon doesn’t have to seduce customers with a deal because they’re going to buy anyway.”

Or so Amazon hopes. Digital stores live by Alec Baldwin’s maxim in “Glengarry Glen Ross”: “Always be closing.” The retailer has been experimenting with another method of closing a sale. It tells the potential buyer what the price used to be on Amazon.

. . . .

“We’ve been conditioned to buy only when things are on sale,” said Bonnie Patten, executive director of TruthInAdvertising.org, a consumer information site. “As a result, what many retailers have done is make sure everything is always on sale. Which means nothing is ever on sale.”

Amazon has both benefited from that conditioning as well as encouraged it, which is most likely why it is changing cautiously. It began eliminating list prices about two months ago, pricing specialists say, both on products it sold itself and those sold by other merchants on its site. The retailer did not return multiple requests for comment.

“Our data suggests that list prices are going away,” said Guru Hariharan, chief executive of Boomerang Commerce, a retail analytics firm. Last spring, Boomerang compiled a list for The New York Times of 100 pet food products that Amazon said it was selling at a discount to a list price. Only about half of them still say that.

“Amazon is a data-driven company with very few sacred cows,” Mr. Hariharan said. “At the very least, it is conducting a storewide test about whether it should change its pricing strategy.”

Link to the rest at The New York Times and thanks to Allen for the tip.

How Indie Authors Should Price a Book for Optimal Success

21 November 2016

From Digital Book World:

Sometimes the simplest thing you can do to give your book a boost is play around with the pricing.

It’s one thing to have a book, but it’s quite another to have one that actually sells.

. . . .

Consider the ebook. In general, I find that most traditional publishers don’t know how to price an ebook. I’ll see ebooks priced at $9.99 and up, which is a deterrent for most readers. As you build your marketing plan, keep in mind that ebooks should not be priced equal to their print counterparts. Even pricing them within a dollar or two of a $14.95 book is too high.

I have talked to the folks at KDP (Kindle Direct Publishing) about this, and they’ve told me that their “sweet spot” for pricing (in terms of what they see gets the most traction on their site) is pricing between $2.99 and $5.99. Now while these numbers might horrify you, keep in mind that deciding to price your book to suit your market will actually help encourage a buy, rather than discourage it.

Price rotation. Now this is where the pricing strategy really gets interesting. When was the last time you changed the price of your book on Amazon? And I’m not talking about a price drop for an ebook promo; I’m talking about playing with your pricing.

So, for example, I cited the price range of $2.99 to $5.99, and while you may disagree with it, why not give it a shot for a week or so? Changing your book price can help spike your exposure on Amazon, because it triggers Amazon’s internal algorithm. Sometimes I work with authors who will shift their book pricing regularly, from $5.99 down to $2.99 down to $1.99 and then back up again. I would, however, be careful about doing this too much. You don’t want to be shuffling your book price two or three times in a week.

Take a page from physical stores and how they run their sales. If you go into a department store, there is always something on sale, but never the same item priced differently three different times in a week. Ideally, I’d look at playing with how you price your book once a month—more if you’re running an ebook promo that you’re advertising, which I’ll cover in a minute.

. . . .

Price promos. Whenever you do a downward price rotation, be sure to let your potential readers know you’re running a sale. If you have a super fan group, whether it’s a Facebook group or an email list, be sure to give them a heads up, too. Whenever I reduce a price on a print or ebook, I always, always do a promo, even if it’s just a small one, to let folks know I’m running a sale.

Link to the rest at Digital Book World

How the Film Industry Could Change Book Publishing

27 October 2016

From Digital Book World:

Since 2005, multiple business models have been flourishing in the Scandinavian ebook market. With Storytel’s acquisition of its Danish rival subscription service provider Mofibo earlier this year, the large Northern European player is leading the way for the next generation of subscription services in the book industry.

However, as seen in the music industry, streaming subscription services equal lower margins per consumed product. So the question becomes, are lower margins per sold book inevitable?

. . . .

Everyone is familiar with Spotify and its business model, which leaves very little to the record labels and the artists themselves. If the book publishing industry were to adopt this as a standard for selling content, the revenue stream would shrink significantly. On the other hand, the film industry has not suffered as much through the digital transformation. So what can we learn from film?

Generally, the first step in the industry’s revenue stream is the movie theater. Here, movies run at a premium per person for a period ranging from a week to many months relative to general customer interest. When movies finish their theater run, they are made available for purchase, and a month later made available for rental. At this point, some movies tend to make it onto subscription services like Netflix. This flow might not be optimal for consumers, as they prefer to receive content right away, but it ensures a potential revenue stream for the value chain of movie production.

The book industry could learn from this and do the same. Prior to the advent of subscription services, we had not had a natural structure that allowed the industry to formalize multiple price points. With the introduction of subscription services, however, this has changed, opening up new ways of structuring the revenue streams in ways similar to the film industry.

It’s important to keep the customers hungry at every price point. Adding to that, it does not make sense to give away titles to subscription services if customers would have purchased the product at a premium.

. . . .

Initial offering: Sell at a high initial price and only at premium locations.

Discounted offering: After three months, books can be sold as paperbacks and the publisher can introduce discount promotions. The books can now be sold at low premium venues like supermarkets.

Long tail: After six months, books can be added to subscription and rental services, as well as made available to libraries.

Link to the rest at Digital Book World and thanks to Jan for the tip.

Vistaar is trying to solve the e-book pricing problem

26 October 2016

From GoodEreader:

Major publishers have all reported declining e-book revenue over the past two years. The main problem is that the average price per title has increased from $9.99 to $17.99 for a mainstream bestseller. This has resulted in the paperback being significantly more affordable than the digital edition and readers are gravitatating back to print.  The biggest issue facing publishers is how to make the price of an e-book dynamic, so when the paperback comes out, the price of the e-book price comes down. Vistaar is hoping to solve this problem with their drive optimized price management software to react faster to the latest market trends and effectively scale the price via algorithms.

Bryan Glass the Director of Business Development at Vistaar explained the premise of their technology to Good e-Reader “Vistaar provides pricing software called Market Price Optimization (MPO). MPO prices every title at the right price at the right time. This is accomplished through Vistaar’s pricing framework; Opportunity Driven Price Management.  We start with business rules framework to ensure alignment with strategy and a science based recommendation as a starting point. We provide visual aids and readily available data for decision making as well as a prescriptive opportunity identification to help focus on pricing opportunities. MPO uses self-correcting methodology that ‘learns’ over time and provides continuous price change monitoring & prescriptive course correction.

“Vistaar provides pricing software called Market Price Optimization (MPO). MPO prices every title at the right price at the right time. This is accomplished through Vistaar’s pricing framework; Opportunity Driven Price Management.  We start with business rules framework to ensure alignment with strategy and a science based recommendation as a starting point.”

. . . .

In late October Vistaar established a relationship with Open Road Integrated Media to give their e-book portfolio an advantage by making sure their prices remain competitive.  Matthew Shatz, senior vice president for sales & business development at Open Road commented, “We are at the forefront of innovation in publishing and we are looking for ways to improve our ability to operate in an increasingly dynamic market. With our large e-Book catalog, Vistaar’s technology will enable us to be more market and data driven in our pricing approach and in turn increase sales for our authors and our partners. In Vistaar, we have an ideal partner with proven technology, team and pricing expertise. We’re very pleased to partner with them on this strategic initiative.”

. . . .

“The Open Road deal involves e-books initially with the intention of adding print books at a later date. They wanted to start with digital first since they felt it would make them most impact and then tackle print books later. Our pricing software can handle both physical and digital, it’s a matter of where you want to start, pick an area that makes the most impact or go with a big bang approach.”

. . . .

“With Open Road they paid for the SaaS software license subscription fee upfront, we don’t get a cut of their sales as part of the license fee.”

Link to the rest at GoodEreader

Print and ebook revenue down as Amazon slashes prices

1 October 2016

From TechCrunch:

It’s good news and bad news for the publishing industry. The good news is that print revenue was up 3.4 percent in April, primarily in trade paperbacks, with some solid grown in young adult print and religious titles. The bad news is that revenue is down 4.3 percent year-to-date with a 7 percent loss in April compared to 2015. Further, ebook sales were down 22.7% compared to last year. In short, the publishers’ push towards paper is working but for all the wrong reasons.

Revenue is down in ebooks because Amazon, using their mercantile might, has been aggressively selling paperbacks and hardbacks after publishers took away their power to control ebook pricing. Now ebook prices are way up and print prices are way down, a situation that eats into the publishers’ physical distribution models and guts their ebook sales.

Book pundits all over the web are blaming Amazon for its habit of aggressively pricing hardbacks and paperbacks after losing control of ebook pricing.

. . . .

Publishers got what they wanted: they wrested control over their ebooks from Amazon. But Amazon is faster, smarter, and more reckless than the Big 5 and is quite happy to ruin their business model to sell a few more copies – and force their hand. In the end, publishing is doing itself no favors by trying to beat their biggest distributor and the numbers are backing that up.

Link to the rest at TechCrunch and thanks to Dave for the tip.

eBook pricing resembles three dimensional chess

6 September 2016

From veteran publishing consultant Mike Shatzkin:

The current round of reporting from major publishers contains some danger signs. Their ebook sales are declining (in dollars and even more dramatically in units) in an ebook market that is probably not declining. The “good” news for the publishers is that print sales are pretty much holding their own, or even growing. And profits are being maintained, which is probably the most important metric in their board rooms. But the bad news is that total revenues are down. And print sales have been buoyed by the consumer excitement for adult coloring books(now spreading to adult “activity” books), so the combined results for many author-driven titles don’t necessarily reflect growth and total unit sales of print plus digital for many titles are almost certainly falling behind expectations

In a complicated marketplace with large unknowns around indie authors and indie books, particularly those that are Amazon-only, it is hard to be definitive about what the cause of this is. (Author Earnings does yeoman work trying to put the two overlapping markets in context.) Certainly, barriers to entry have come down and there are many more books in the marketplace competing for readers that don’t come from the companies the publishers think they’re competing against. But the publishers’ “success” in establishing agency pricing — where the price they set is the price the consumer pays — combined with Amazon’s decision to “respect” agency (at first with no choice but subsequently, after contracts were renegotiated, with apparent enthusiasm) and offer no pricing relief from their share of the book’s sales revenue is almost certainly a major component of the emerging problem.

Amazon doesn’t need big publisher books to offer lots of pricing bargains to their Kindle shoppers; they have tens of thousands of indie-published books (many of which are exclusive to them) and a growing number of Amazon-published books, that are offered at prices far below where the big houses price their offerings. That probably explains why Amazon can see its Kindle sales are rising while publishers are universally reporting that their sales for digital texts, including Kindle, are falling.

. . . .

This is putting agency publishers in a very uncomfortable place. It has been an article of faith for the past few years that there is revenue to unlock from ebook sales if only the pricing could be better understood. Just a bit more revenue per unit times all those ebook sales units is a very enticing prospect for publishers. After the agency settlements liberated publishers from the price limitations Apple had originally insisted on, the immediate tendency was for publishers to push ebook prices even higher.

And since ebooks are sold in a less price-competitive market than we had before agency, Amazon can devote its marketing dollars to cutting prices on the print editions. This undercuts the publishers’ intention to support a diverse (and store-based) retail network and, at the same time, often embarrasses them by making the print book price (set by Amazon) lower than the ebook price (which Amazon makes very clear was set by the publisher).

. . . .

It is maintained by many people that there has been a reduction in the rate of surprise breakout books over the past few years because of this pricing as well. This perception would be explained by the fact that price attracts readers to try new authors, and so the new rising talent would more frequently come from the lower-priced indies. Higher ebook prices reduce the speed with which a book can catch on in the marketplace. It feels like there is a consensus in the big houses now that it is harder to create the “surprise” breakouts. (This is a very difficult thing to actually measure.) The “Girl on the Train” phenomenon is always unpredictable, but big publishers still could count on it coming along often enough to keep the sales revenue trend line rising. That doesn’t seem to be the case anymore.

High ebook prices — and high means “high relative to lots of other ebooks available in the market” — will only work with the consumer when the book is “highly branded”, meaning already a bestseller or by an author that is well-known. And word-of-mouth, the mysterious phenomenon that every publisher counts on to make books big, is lubricated by low prices and seriously handicapped by high prices. If a friend says “read this” and the price is low, it can be an automatic purchase. Not so much if the price makes you stop and think.

. . . .

An unpleasant underlying reality seems inescapable: revenues for publishers and authors will be going down on a per-unit basis. This can most simply be attributed to the oldest law there is: the law of supply and demand. Digital change means a lot more book titles are available to any consumer to choose from at any time. Demand can’t possibly rise as fast and, in fact, based on competition from other media through devices people carry with them every day, might even fall (if it hasn’t already). So publishers are facing one set of challenges with their high ebook prices; they’ll create another set if they lower them.

But, unfortunately, lower them they almost certainly must. With more data, we may learn that developing new authors absolutely requires it, particularly in fiction.

Link to the rest at The Shatzkin Files

PRH Still Doesn’t Like the Subscription eBook Model (The Fools!)

26 August 2016

From The Digital Reader:

Penguin Random House has in the past denied that readers want an ebook subscription service.

What with Kindle Unlimited now paying authors and publishers more than the Nook Store, and possibly even more than Kobo or Google, that excuse was getting a little thin, but recently PRH changed its tune.

The global CEO of Penguin Random House, Markus Dohle, was speaking at the Global Top 50 Publishing Summit at Beijing International Book Fair in China earlier this week . According to The Bookseller, Dohle said that:

PRH had not signed its titles up for any subscription services, such as Amazon’s Kindle Unlimited, Mofibo or Scribd, because the ‘all you can eat’ models threaten to “devalue” intellectual property (IP) at a time when most authors can barely afford to earn a living.

In the US, Dohle said 40% of the readership accounted for 85% of publishers’ revenue, so “heavy readers” switching to subscription models would have a “huge impact” on the industry.

He explained that the industry’s existing publishing model, successful for over 500 years, was “robust” and “not broken at all”, and argued that subscription models were “not in the reader’s mindset”. If they became popular, they would ultimately lead to “lower prices” and “a huge devaluation of IP”, Dohle said.

“A la carte is not broken […] I don’t see us supporting subscription models, because we just don’t need it,” he said. “Somehow we have to protect the measure of our intellectual property. Take an e-book for $12, that’s entertainment for 15 to 30 hours. That’s a fair deal compared with a movie and other media formats. I think we have a very robust pricing model in the market and subscription would just change the whole dynamic.”

Link to the rest at The Digital Reader

PG says this is wrong on so many levels (several of which are discussed in the OP), but PG has to mention one because he’s heard it so many times before from European publishing executives.

The value of a product or service is determined by the customer, not the seller.

If the customer will pay $10 for a product, that’s the product’s value. If the seller prices a product at $15 because that’s the true value in the seller’s mind, but the customer is only willing to pay $10, the product’s value is still $10.

Perhaps it’s partially a consequence of minimum book pricing laws in some European countries where the publisher sets the retail price, but, unless a customer is forced to purchase an item at a specific price (hello, college textbooks), in a free market the customer determines the value.

If a price is too high, the customer will simply not buy a product. (PG will note that readers in countries with fixed-price book laws regularly utilize a variety of technical means to disguise their physical location so they can purchase books online at lower prices.)

The idea behind the “devaluing” argument is that customers can be easily manipulated by simply charging higher prices. PG believes this is an elite executive’s ignorant view of the proletariat’s “mindset” and the epitome of stupid short-term thinking. Heaven forfend that the serfs ever hear of a lower price for anything. Prices must always go up and never go down.

If a customer, even a “heavy reader”,  enjoys reading books, but books cost more than the customer is willing to pay, the customer will respond in any number of ways — borrowing, buying used, finding something else to do that is also enjoyable and costs less, etc., etc., etc. No consumer is obligated to remain a heavy reader.

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