Rafi Mohammed

Can Resale Price Maintenance Save the Book Industry?

Posted on May 5th, 2009 (0 Comments)

Jeffrey Trachtenberg recently wrote an interesting article on the pricing of “Da Vinci Code” author Dan Brown’s new book, “The Lost Symbol.” With 81 million copies of “The Da Vinci Code” in print worldwide, blockbuster demand is expected for this new book. With a list price of $28.95, there are already signs of an impending price war. Barnes and Noble announced that it will sell the book for $17.37 and offer a member’s price of $15.63 (available to those who pay $25 annually for membership). My bet is that you’ll see some retailers (e.g., Costco, Wal-Mart) offering the book for as low as $15. Publishers generally sell books to retailers at 50% of their list price - in this case, $14.50 – so there’s a slim margin associated with these rock bottom prices.

With such low prices, few consumers will accede to pay the full price commonly charged by small independent book stores. One such bookstore owner quoted in Mr. Trachtenberg’s article estimates that she’ll only sell 50 copies of “The Lost Symbol” in the first two weeks of its release.

Low prices, razor thin margins – this is all great for consumers, right? I’m not so sure. The answer to this question depends on what role small book stores play in developing a blockbuster. Simply put, how important is it to have knowledgeable book store employees recommending good books to creating the next Dan Brown? While I enjoy shopping at Costco, it only sells the most popular books and there’s no one around to suggest books that I might not know of, as one kind small bookstore owner did decades ago when she suggested reading a thriller by the then unknown, John Grisham.

If discount prices wipe out a critical component of building blockbuster books (independent book stores), are consumers really better off? Will big box stores pick up the slack by investing to market the next Dan Browns? Probably not. There are other loss leaders that can be used to bring customers in the door (“this week only: all Pepsi 2 liter products for 89 cents”).

If publishers believe that small independents are crucial to the future of their business, they can impose a minimum resale price. In other words, they can specify the minimum price that a retailer can sell a book for. Just to be clear, I’m not suggesting that the minimum price should be the full suggested retail one. In the case of “The Lost Symbol,” the minimum price could be $24.50. Wal-Mart can charge $24.50 and The Harvard Book Store can charge $28.95. While it is still financially advantageous to purchase from a big box that also sells gallon jugs of pickles for $2.99, this minimum price makes the playing field a little more even.

What’s interesting is that I bet discounters will be okay with this. They can still offer popular new releases at the lowest permissible price (say, 25% discount off retail) while also supporting the development of future big time authors who will bring customers in the door next year.

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