For Publishers, a New Customer?

January 5, 2012 § 5 Comments

There’s been a great deal of conversation in publishing circles recently about the decline of traditional distribution channels and the recognition that Readers (rather than Wholesalers and Retailers) must become Publishers’ customers. Among the reasons cited for this shift are the need to establish direct relationships for community building, data gathering, opportunities to cross-sell and up-sell, and, it’s hoped, improved margins resulting from the disintermediation of traditional middlemen and the elimination of their fees and expenses. The increasing market share of digital book sales has accelerated the call for this change.

Direct relationships with customers are great, whether in a traditional sales relationship or in some of the newer proposed business models (such as rentals and subscriptions), but Publishers shouldn’t underestimate the challenges associated with dealing directly with Reader/Customers.
The most obvious challenges are infrastructure-related. Most publishers lack both structure and expertise in the following:

  • Receiving, ingesting, processing and reporting on individual orders. Compared with a relative handful of orders from traditional channels (submitted – mostly – via systems that ‘talk’ directly with publishers’ systems, processing individual orders adds significant complexity;
  • What’s true about orders is also true of fulfillment. While publishers and distributors have a great depth of knowledge and experience in fulfilling (and accepting returns) for bulk orders, dealing with ‘onesies and twosies’ is more complicated, time-consuming and expensive;
  • An item most overlook when discussing direct-to-consumer models is customer service. Receiving and handling inquiries from thousands of individual customers is an entirely different sport from dealing with professional retailers and wholesalers.

There are others, but beyond the infrastructure issues there are economic matters to be considered:

  • What are the costs of acquiring a customer? If it costs, say, $20.00 in marketing expense (fully-loaded) to sell a $19.95 title, have we really accomplished anything? Magazine publishers have, for years, had sophisticated models to determine and measure such costs.
  • Related to the above, what is the value of the customer? If it costs $20.00 to acquire her, and she buys multiple products over time, then perhaps $20.00 is a bargain. Again, these things can be modeled at a relatively sophisticated level, but it’s not a skill-set most book publishers have in-house.
  • Another critical issue is pricing direct to consumer vis-à-vis traditional channels. While the ‘old’ distribution may be shrinking, it’s not going away anytime soon. What’s the optimal price for direct customers that maximizes income from them without (a) alienating the traditional trade and (b) cannibalizing sales from other channels? The goal after all, is to grow the pie, not merely to shift customers from one channel to another.

These are just a few considerations. There are others we can think of and we’re sure you can name still more. The punch line here is that developing new business models affects the entire organization and publishers who think all the way through the processes and people that need to be built and added before plowing ahead are much more likely to avoid pitfalls and ultimately to succeed.

§ 5 Responses to For Publishers, a New Customer?

  • It’s even worse than that. Refocusing a publishing company on the reader as customer also requires changing the company’s value network[^1].

    All of the assessments of value and worth, all of the priorities, all of the customs, traditions, unstated rules, habits, hiring practices, decision making processes, they all have been built up and developed in the context of a business to business firm (the retailer as the customer). Any change that threatens that relationship, even if it were necessary to the reader as customer relationship, is unlikely to be accepted. All judgements of value are, and will be, based on their primary customer.

    The better the company has been run the *harder* it will be to change it’s value network, most of its processes and values will be very efficient and thoroughly ingrained. The company will be filled with people who have internalised the priorities of the preexisting value network. And you can’t change the value network too fast, because retailers are still most publishing companies’s biggest clients.

    And the badly run publishing businesses don’t have the management talent to pull off the change either.

    Tricky.

    [^1]: http://en.wikipedia.org/wiki/Value_network

  • Don Linn says:

    We don’t disagree on the size of the challenge of making this transition and your point is an excellent one…perhaps the over-riding one. What we’re both saying is that this is not a trivial matter and any change must be approached holistically rather than as a discrete event. Where we may disagree is in your final sentence. While some publishing businesses are poorly managed, there are many with a wealth of management talent who are showing the ability to adapt to the new environment. But it’s hard…really hard.

  • Bob Mayer says:

    This is indeed an issue. Customer service is the key area that publishers have little experience in. The other issue is getting the author-reader relationship to be closer. The only thing separating authors from readers now is the Internet, not the bookstore. Book tours are expensive and a bit archaic. How can publishers support that relationship on the Internet?

    • Don Linn says:

      It’s a good question Bob and one that deserves more than a short reply as it impacts the entire marketing program for most books and authors. Publishers are still exploring what may be efficient ways to make the connection but after years of working solely through intermediaries it’s not an easy transition. For now, the best practices seem to be making sure the author’s books are easily discoverable and available, facilitating the author’s efforts in setting up a useful website and social media tools, and generally raising author profiles. Others will emerge as the market continues to develop.

      One question we’ve had for a while is (with a few exceptions for very high-profile authors) is how much ‘contact’ do readers want with authors and does that amount of contact mirror the amount authors want to have with readers. It’s unclear to us that casual (i.e., most) readers feel the need for much author interaction. If that’s the case, marketing dollars may be better spent elsewhere.

  • [...] to learn better how to market directly to consumers (readers) rather than to retailers. In For Publishers, a New Customer? , among other things, Linn calls on publishers to determine the actual cost of acquiring a new [...]

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