Thursday, October 2, 2008

Market efficiency

Curious about the process of selling textbooks to university bookstores? The bookstore would like free shipping and unlimited return privileges. But the returned copies are rarely in new condition, so they’re usually now worthless, and we receive zero income for the destroyed inventory. So we make the bookstore pay for shipping and we limit return quantities.

To choose a recent example, a bookstore orders 9 copies of the book, and 2 months later decides to return 5 of them. We point out that our return policy limits the return quantity on their order to 3 copies after 30 days. And we get a cheerful reply:

Thanks for your prompt reply. I will return these copies, and have coded the title to restrict future orders. We'll let any instructors adopting the title in the future know that we have to short order your titles, and special order the balance due to the returns policy.

(We probably should have just listed this one as “special order only”, though we might not have even sold the four.)
In other words, they’re pissed off that we are only willing to throw out 3 additional copies of the book in order to sell them 6 copies at a discount. They feel we should throw out 5 additional copies of the book in order to sell them 4 copies at a discount. Underlyingly, they’re pissed off that publishers are no longer totally dependent on the bookstore. Their response to that situation is to encourage students to order their books through other sales channels, making the students less dependent on the bookstore as well.

I know I’m not supposed to send a reply saying “Sounds good!” But it does sound good. The current process of selling through university bookstores adds 35% to our printing costs due to returns. The only marketplace factor which costs us more is the used textbook market, which is largely driven by university bookstores. Our biggest economic risk is also university bookstores, because they declare bankruptcy in clusters (and when that happens, we are out 60 to 90 days of unpaid orders). If the university bookstores want to disintermediate themselves, that’s ok.

Our textbooks are $20 to $50, rather than $150 to $200. Higher prices improve the economics of selling to university bookstores, but I still don’t see how a supply chain with 50% waste is sustainable.

The biggest reason for a student to buy a textbook at the university bookstore is immediate access. That’s also the reason for university bookstores to order too many copies and return half of them. Universities could theoretically ask professors to choose their textbooks sooner, publicize the textbook details, and ask students to order all their textbooks a couple of weeks before the start of the semester. Or publishers could put the first couple of textbook chapters online, which would take care of students while they wait for their textbooks to arrive either through another sales channel or through the dreaded bookstore “special order.”

2 comments:

Vardibidian said...

Alternately, a University could fold textbook cost into tuition. A student registered for a class would get the text (as happens in high school). Profs would be pressured to keep costs below a certain level, but that already happens. Students who complain about paying, say, $750 per semester for texts would complain much less about tuition being $2000 a year higher plus all the texts you can eat. And the bookstore is told to get the hell out or pay some decent rent for a change.

If it wouldn't be an actual improvement over the status quo, it would be a wonderful threat for the U against the bookstore.

Thanks,
-V.

Michael said...

I like that idea. At least then the uncertainty (which is what leads to either returns or delays) is limited to how many students actually sign up for the class, rather than how many students decide to buy the book at all and through what sales channel. And wrapping costs into tuition has a lot of convenient side effects for students when the military or employer is covering tuition but not other expenses.