Sunday, December 23, 2012

Agency Pricing?

A discussion on a private mailing list reminded me that there seems to be some confusion about just what agency pricing is, and whether it benefits writers, and particularly indie writers. Some prominent folks in the industry seem to think that indie writers should want an agency model when they do business with their vendors.

I disagree, and I think the confict exists because some folks are confusing a couple of factors. From the POV of the NY publishers, agency pricing is about controlling the final sale price. They were actually making MORE money under the retail system than they were under agency. They didn't want e-book buyers to get used to low-priced e-books on Amazon, and they were willing to take a hit on their e-book profits to accomplish this.

Under the retail model, the vendor essentially buys however many units of a product, pays a certain price for them, then sells them at whatever retail price they want. That's what produces price competition between vendors, which is good from the consumers' POV -- the fact that some vendors are willing to accept less profit per unit sold in an attempt to sell more units, by undercutting the store up the street (or online). The manufacturer (publisher) still received the same amount of money per unit sold regardless of the actual retail price, even if the vendor chose to use that product as a loss leader, losing however much money on each sale to get customers to visit their store and hopefully spend more money on other items.

So suppose I publish a book and I'd like to sell it for $6.99. I want 70% of that as my wholesale price to the vendor, so I offer it to the vendor for $4.89. So long as the vendor pays me my $4.89 for each copy they sell, I literally do not give a damn how they price my book. They can sell it for $9.99, or for $12.99, or for $7.99, or for $0.99, or give it away for free if they want, so long as I get my $4.89 per unit they move. That's the retail model.

Under agency pricing, the book costs the same everywhere. Buyers have no particular reason to shop at Vendor X instead of Vendor Y, and no particular reason to buy a book this week instead of next month, because it's the same price now that it'll be next month; the price doesn't change. And if you're going through a NY publisher, that price is probably ridiculously high, so you're selling a lot fewer units; even though you're making more money per book, you're selling fewer books and have less money at the end of the quarter.

Agency pricing was about protecting the publishers and furthering their attempts to slow down adoption of e-books. That's it -- that's what the whole fuss was about. Agency pricing offers nothing to the indie writer. (And actually offers even less to the NY published writers, but anyway.)

Unfortunately, what we have now, particularly with Amazon, is the worst of both worlds. We can suggest a retail price, but the vendor can change that price whenever they want to (usually lowering it) and we get 70% (or 35%, or whatever percentage a particular vendor offers) of that actual retail price, which we don't control in the long term. All we can do is suggest a price and hope the actual sale price stays somewhere in that neighborhood.

The solution to this problem is NOT agency pricing, which petrifies the whole equation and sets up a bad situation for the buyers, our readers. The solution is a true retail model, where the vendor pays us $X for each sale they make, and then they decide how to price the item in their store, setting up promotions and sales and loss leaders as they choose. If they think $X is too high, they're welcome to decline to carry our product, and we can decide whether we want to adjust the price, or not. If we want to have some control over our own incomes, though, while maintaining a dynamic market that encourages sales, we don't want agency pricing -- we want retail pricing. We want to know that we're going to make a certain amount per sale (which benefits us) and that it's up to the vendors to fight it out amongst themselves in setting their retail prices (which benefits our readers, encouraging them to buy more books).

Agency pricing is about controlling the retail sale price. Wholesale pricing is about controlling the wholesale price. If I could control the wholesale price, I wouldn't care about controlling the retail price; let the vendor control that, so long as I get my desired wholesale price. Arguing that indie writers should fight to control the retail price is ignoring where our money actually comes from, which is the wholesale price.

Agency pricing only looks good compared with the twisted, non-wholesale model we have now, and if we consider only OUR needs, ignoring the needs of our readers. The wholesale model supports both our needs, while still giving the vendors reasonable flexibility to create their own pricing and sale strategies.



Charles Gramlich said...

I didn't really understand the difference before. Thanks for explaining. MOre food for thought today.

Angie said...

Charles -- welcome. More writers need to understand this stuff, because when we don't, we're much easier for the bigger players, both the publishers and the vendors, to manipulate.