Thu, 4 Apr, 2019
Why are books so expensive in Australia?
In 2009, in the midst of the rancorous parallel importation debate the Productivity Commission undertook a thorough examination of book prices in Australia compared to comparable prices in the US and the UK. It was by far the best and most comprehensive analysis ever undertaken (which, by the way, didn’t stop the Australian Society of Authors judging it as “guesswork” and the Australian Publishers Association condemning it as “worthless”).
The Commission found that “the RRPs [recommended retail prices] of matched editions in Australia were on average 9 per cent higher than the RRPs of like editions in the UK, and 35 per cent higher than the RRPs of like editions in the US”. For the cheapest editions, mass-market paperbacks generally, the prices were 13 per cent higher and 50 per cent higher respectively.
Five years later, have things changed? The short answer is yes, very definitely, but it took three to four years to happen. Since the Aussie dollar achieved parity and above with the US dollar in 2011, and the highest rate against the pound in 28 years, most publishers have been shocked into adjusting their pricing practices. It finally sank in that they were losing at least 15-20 per cent of their market to overseas online suppliers Amazon and The Book Depository.
Until around 2012 the great majority of Australian-based publishers who imported US and UK titles used formulaic pricing practices way out of kilter with then current exchange rates. They were not responsive, and with parallel importation restrictions in place, were under no pressure to be responsive, to competitive pressures of any substance.
They also locked in retail “price points” that invariably pushed the formula-derived price up another couple of dollars. And they hardly ever changed those prices, except upwards, when changed exchange rate realities demanded it. It wasn’t until the hefty strengthening of the dollar after the GFC plunge in 2008, and consumers’ discovery of online alternatives, that publishers finally awoke from their comfortable slumber. But it was too late, of course. The consumers had flown. Their ingrained expectation was that, even if the local bookseller had it in stock, the price would be way over the top.
I had been preaching (and practising) for years that there was a golden rule in import pricing that publishers must follow if they wanted to keep faith with the consumer:
today’s exchange rate, plus 10 per cent, plus GST, then round up or down to the nearest 95 or 99 cents.
The reason for the 10 per cent mark-up prior to the addition of the 10 per cent GST? To build in a hedge for exchange volatility. Pricing at one rate and paying your overseas supplier at a possible disadvantageous rate three or more months later can be a real problem for importers. Hence the hedge.
As everyone knows, the Australian dollar climbs via the stairs and falls via the lift well. (But whether this hedge can be sustained if the dollar continues to strengthen is doubtful).
But what about freight, you ask, especially these days when air freight is the norm? Well, here’s another golden rule on importing:
booksellers pay freight; publishers don’t.
Publishers have that cost built into their intercompany or agency trading arrangements. More generous terms than their sister companies in other parts or the world are standard to recognise the additional impost of shipping to Australia.
For decades the great majority of importing publishers in Australia ignored these rules and kept in place increasingly unjustifiable markups as the dollar strengthened. Their conundrum was this:
revenues are falling but lowering prices would just worsen the situation and put profit targets and bonuses at risk.
There was no economic philosophy and no customer focus, much less basic business integrity. Opportunism had become the playbook. The local subsidiary company was creaming the loyal local book buyer while the parent company was selling to Amazon anyway. So the global corporation couldn’t lose.
It is my sense that things over the last two years have changed considerably for the better. Of course there are still some rogues, but most publishers today seem to be pricing pretty competitively on most of their titles.
Let’s take some recent examples, chosen at random. I list the US or UK price, the Australian price, the A$ price according to my formula above, and my value rating (using the FX rates US$0.94 and £0.55p):
Hillary Clinton, Hard Choices: US$35.00; A$39.99; A$44.99 (five stars!)
Thomas Piketty, Capital in the 21st Century: US$39.95; A$59.95; A$51.95 (two stars)
Michael Lewis, Flash Boys: US$27.95; A$39.99;A$35.95 (three stars)
Edward St Aubyn, Lost For Words: £12.99; A$34.99; A$28.99 (one star)
George Saunders, Tenth of December: £14.99; A$29.99; A$32.95 (five stars!)
The most egregious rip-off I could find in a recent morning spent perusing the shelves at Readings was US Senator Elizabeth Warren’s A Fighting Chance, which is priced at A$47.95 but should be no more than A$35.95. In the US it’s US$28.00.
Speaking of Readings, like many retailers it is having to discount many titles to make them more competitive for their customers. This is doing the job that publishers should be doing in the first place. Of course they are also competing with aggressive local online retailers such as Booktopia and Bookworld.
The booksellers are losing margin they can barely afford. The customers are getting a good deal.
Another striking feature of today’s pricing landscape has to do with locally published titles or editions. The days of the universal A$32.95 Trade Paperback (TPB) are over, with the majority at A$29.99 or lower, and there is absolutely no relation between number of pages and price.
Janette Turner Hospital’s beautifully produced The Claimant has 609 pages, and at A$29.99 is the same price as the local cheaply produced 259-page edition of Glenn Greenwald’s No Place to Hide.
Hardbacks, though, are making a comeback. One can only be cynical and observe that publishers are extracting another A$10-A$15.00 from the customer to cover the extra dollar or two in printing and binding.
Malcolm Fraser’s Dangerous Allies is an outrageous A$49.95 for its 372 black and white pages, and Tim Winton’s 419-page Eyrie is a completely-unjustified $49.50.
Compare these two to Eleanor Catton’s The Luminaries (832 pages; Trade Paperback; A$29.99) and Christos Tsiolkas’s Barracuda (516 pages; Trade Paperback; $32.99); and compare them to the luscious A$50.00 cookery titles Australian publishers do so well.
Too many publishers are too frequently upping prices to afford big discounts to department stores such as Big W, which now own a third of the market, but in doing that they are really hammering bookloving customers of the quality independents. It’s rotten, miserable and unfair.
In summary, book prices in Australia are far more reasonable than they’ve been for decades. “Pricing to formula” has given way to “pricing to Amazon” on imports, and the pricing of local titles and editions is pretty competitive given the value you get.
You just have to be careful of the rogues and outliers, and offer up a prayer for the booksellers.
Written by Peter Donoughue, Sessional lecturer in the Master of Communication, University of Melbourne. Republished with permission of The Conversation.