Rafi Mohammed

Abra Cadabra: How Harry Potter's Retail Profits Disappeared into Thin Air

Posted on July 16th, 2007 (2 Comments)

This week is going to be Harry Potter mania! With the series having already sold more than 350 million copies worldwide, this Friday’s release of “Harry Potter and the Deathly Hallows” (at midnight) all but guarantees this weekend will be the biggest in bookselling history. So…with cash registers cha-chinging at full tilt, why aren’t book retailers going to make a profit?

First off, let’s discuss the publisher’s versioning strategy. Two Harry Potter versions are being sold: a regular and deluxe edition. The regular edition’s list price is $34.99, with Amazon.com discounting it to $17.99. The deluxe edition (new art work, foil stamped slip case, etc.) is being offered for $65 ($39 on Amazon). This classic versioning strategy offers readers that highly value the book the option to pay a premium for more bells and whistles. This versioning strategy has been successful: my diehard Harry Potter friends didn’t give a second thought about buying the deluxe edition and it appears Amazon is sold out of this version.

Given the tremendous demand and profit potential, why did Jeff Bezos (Amazon’s CEO) decide to set such low Harry Potter book prices and launch a price war? Because he had to…with millions of frenzied readers itching to know what characters die – fans want the book as soon as possible. One drawback of buying from Amazon is orders have to be placed in advance (orders must be placed before Tuesday, July 17 for guaranteed delivery on Saturday, July 21 by 7:00 PM). To bolster its ambition of being “the place” to purchase books, Amazon had to give Harry Potter fans a reason to plan their purchase in advance. And you know my favorite way to motivate consumers…discount price! So Amazon chopped Harry’s price to $17.99 plus threw in a $5 discount coupon for a $20 or more purchase in August.

Amazon’s pricing strategy effectively destroyed the chances for retailers to profit from this bookselling mega-event. Echoing the sentiment of rivals, Simon Fox, an executive at Waterstones (the U.K.’s leading bookseller) commented: “because it is such a high-profile book, by not being price competitive on that single title you set a perception that you are highly priced.” Bezos acknowledges that even with over 1.5 million preorders, Amazon won’t make any money off Harry Potter and is laying his hopes that customers will buy other products as well (do you think this is realistic?).

As a result of intense competition, whether or not Amazon offers the best deal comes down to how buyers value the $5 coupon. To ensure your book arrives on release day, Amazon is imposing a $3.99 shipping fee, for a total price of $21.98. Costco will deliver the book to your door on Saturday for $21.47. You can also pick up a copy at Borders or Barnes & Noble stores for 40% off the list price, $20.99. These brick and mortar retailers typically discount bestsellers by 30%, so they’ve tossed in an extra 10%.

This intense discounting is understandable. And consumers obviously benefit from low prices. But for me, it’s painful to see so much value destroyed. What do you think?

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Readers' Comments on This Blog Entry

From Robertob on July 16th, 2007
I do agree with you, Rafi. I pre-ordered the book; and I wouldn't have objected to pay it at full price - and many persons like me -. The funny thing is that this is another case of self-inflicted pain caused by the distribution channel. It would be interesting to know how much of this pain goes down to the publisher, how much he had to discount to get the book out to Amazon and the big guys. Hopefully nothing, zero, zip.
From Donna Fedor on July 17th, 2007
Many of the local book shops have big events planned so events like HP will bring alot of people to the retail stores vs going thru Amazon. HP fans will want to participate in the midnight or next day parties at the book shops. I will be out oif the country but if I was here, I'd be at the local Santa Cruz book seller probably paying a higher price so I can enjoy the event!!