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.