Rafi Mohammed

Book Publishers...It's Time to Adopt the NetFlix Pricing Model

Posted on September 18th, 2008 (5 Comments)

The age old problem for textbook publishers is that once you sell a textbook, a student can later resell it on the used book market. This resale cuts the textbook publisher out of the profits from selling another copy to a future student next semester. A professor friend of mine estimates that roughly 40% of his students purchase used books for his popular economics class.

I did a little research on the used book market and the numbers were surprising. A popular textbook retailing for $100 is being bought back by used book stores for $31. So in essence, a student who paid $100 for the book pays $69 to “rent” it for the semester. The used book store in turn resells the book for $55.

The fact that there’s a thriving resale textbook market out there clearly demonstrates that some students prefer to rent their books. Instead of ignoring this market, publishers need to embrace their customers’ pricing preferences. There’s profit to be made by serving both the rental and purchase market.

Publishers ought to consider adopting the Netflix pricing model for their textbooks. For say 50% of the list price, students can rent a book for the semester. At the end of the semester, students simply return it to the publisher on campus or via mail.

This is a win-win proposition for both students and book publishers. For books with a $100 price tag, students can rent their books for $50, which is less than it costs to buy a new copy and resell it to a used book store (net cost = $69) or buy a used copy ($55). Publishers win by continuing to profit from the value of their textbooks.

Just to be clear, I’m not advocating that publishers stop selling books – many students want to keep the books they learned on. I’m suggesting that publishers offer students the option to buy or rent. This new pricing mechanism enables publishers to benefit from the resale market.

Additionally, publishers could offer a variety of options such as renting a new hardcover, used hardcover, or new one-time use paperback (which would be destroyed when returned) at different rental prices. Offering these different pricing plans could also be a selling point to professors to select a publisher’s books – “we offer your students a variety of pricing options that are better than what rival publishers provide.” The only companies who lose with this new pricing strategy are those who are buying used books from students at a paltry 31% of list price.

My sincere thanks to my good friend (and economists’ economist) Patrick DeGraba for this help with this blog.

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Readers' Comments on This Blog Entry

From Steve on September 18th, 2008
I couldn't agree more. I'm not sure how many "rentals" these books go through, but it has to be enough to make this a win win for everybody (except the second hand book sellers). It's less a pricing strategy than a whole different way of looking at the college book business. It would catch on in a heartbeat.
From mike on September 22nd, 2008
I agree with you completelety. In college money was very tight. The students would lvoe it. In todays economy everybody is trying to save money and this practice would work.
From Reuben Swartz on September 24th, 2008
Great idea. I'm shocked that there isn't a college student making a killing at this. I hope you get a cut!
From Kevin on September 25th, 2008
The catch here would be enforcement. The rental store would have to have some leverage on the students in order to guarantee that the students would return the rented book. Otherwise, the students would never return the rented book, or might even try to sell it at another used book store.
From Rafi M on September 30th, 2008
Good point Kevin. A deposit or credit card on file can be ways to ensure that students return their books. Thanks for taking the time to read and comment on this blog.