Economics

Hidden Retail Economics

I find the world of retail and bookselling economics fascinating. Doesn’t make for scintillating party conversations, but I digress. Below is a video that you should watch first as I have a few thoughts related to its content below the video. (If you cannot see the video in your newsletter feed, please visit the blog on our website where it is embedded.)

This particular video is a few years old, but many of the principles remain the same. While there may be a reduction in the practice of “slotting fees” (paying for shelf space in the store), there is still an ongoing form of it, even in the book retailing world. In many ways this “pay for positioning” has moved online.

You’ve read about Amazon ads or have personal experience with them. While not a slotting fee per se, the more you spend for a spot the greater the chance of that placement will be seen by the reader you are trying to reach. The same for Google ads, which unapologetically puts it this way on their own website:

“Google Ads runs an auction every single time it has an ad space available–on a search result, or on a blog, news site, or some other page. Each auction decides which ads will show at that moment in that space. Your bid puts you in the auction.”

Thus, the more you pay, the more likely your ad will be seen.

Next time you see an ad online, remember that it is highly likely that someone paid so that it would be seen by you, based on your search history, your purchasing history, and other sorts of data that rolls around, hidden behind the curtain.

Personal History

Back in the late 80s I was the national book buyer for a Christian bookstore chain. We were in the fledgling days of combining and leveraging our buying power with publishers. We created a Christmas catalog in which publishers could buy ad space. If they did so, I would then place orders with those publishers for all our stores in sufficient quantity to support the advertising. There were considerable negotiations for the fee the publisher would pay and the discount the publisher would give us based on the number of books we would buy. Considering that nothing was computerized in those days, it was a rather complicated process!

One publisher came to us, asking to buy “screen time” on the TVs in our video departments. They paid to have a sample of their kid’s video series run on a loop for a minimum of six hours per day during the Christmas season. That would be an example of a “slotting” or “positioning” fee. It worked really well because parents shopping in the store would park their kids in that section and afterward realize how good the product was and buy copies for family and friends. (The downside is that it drove the store staff buggy hearing the same songs over and over again!)

Back then it was also well known that Barnes & Noble and Borders would charge a publisher for “front of store” positioning and for “end cap” space.

Implications for Authors

If you are publishing with a major traditional publisher, you can be assured that this is nothing new to your publisher. They have been fighting for “positioning” for years and hopefully are doing the same for your books.

If you are publishing independently, you must fight these battles by yourself and use your own funds to underwrite the effort. You have considerable flexibility in changing the ads and experimenting to find what works and what doesn’t. But you are the entrepreneur doing the work and paying the bill.

I know of one couple who had a nonbook business selling on Amazon’s Marketplace, a wonderful “mom and pop” operation run out of their house. They did extremely well for many years until sales began to tail off due to other vendors paying more for the ad spaces (slotting fees).

They mentioned one case where a particular product retailed for $5. Their gross profit on that product was $4 because they bought it in bulk overseas for $1. They had a budget of $1.50 per unit sold for advertising space. (Are you following the math?) Suddenly, the price for that ad space increased to $2. Then to $3. And to their shock they found competitors willing to pay $4.50 per ad space for that $5 product.

Amazon and Google didn’t care. They were happy to collect the fees in the bidding wars. But my friends ended up selling their business to a larger company whose purchasing power allowed them to compete better in that arena and be profitable.

Educate Yourself

Never forget that publishing is a business. Sure, in our industry it is a business with a ministry purpose; but it is still a business. Videos like the one above and posts like this are my attempt to help us all have a better understanding of the business side of our Kingdom calling.

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