How do book clubs work?

November 18, 2005 9:06 AM

From a publisher's point of view, what are the economic advantages of a "get 3 for $1.00" book (or CD) club -- where you unload items cheap, but make buyers agree to buy at full-price later on? Is this a net loss for the seller?

Any insight on this marketing strategy much appreciated. I'm familiar with the strategy of bulk orders that manipulate bestseller sales figures -- but unclear whether this fits into it. Does it increase sales of certain items that people wouldn't otherwise buy?

posted by johngoren to work & money (11 comments total)

You have to remember that there's a lot of markup on these items. With most book and CD clubs, however, you're cutting out a couple layers of middlemen and dealing directly with a publisher or distributor. Also, most book contracts stipulate a lower royalty for copies sold through book clubs (not sure for music, but might be the same thing). So, they're definitely making money in the end -- they wouldn't offer you the deal if they weren't. They are probably making close to the same amount of money as they would on retail sales, in fact.

It's a form of price discrimination -- making different kinds of buyers pay different prices, kind of like outlet malls. You can get a significantly better price if you're willing to jump through the hoops, or pay a higher price if you want the convenience of shopping in a store. The idea of price discrimination is there are a certain number of people who would not buy something at $15 but would buy it at $10, so you find a way to sell to those people at the lower price while simultaneously selling the same item at the higher price to those willing to pay it. For example, a lot of the people in CD clubs are students, who tend to buy a lot of music, and they will jump through the hoops to get the lower price. You can sell them more (and since you're making nearly the same per unit, make a lot more money) through the CD club. However, a lawyer, say, has plenty of disposable income and won't jump through the hoops to save $5 a disc on the ten CDs he buys each year, it just wouldn't be worth his time, so you successfully wrangle $15 out of him, or even $20.
posted by kindall at 9:15 AM on November 18, 2005

These are loss leaders to get you into the agreement to buy more later on.

I only know for books, but these book clubs could be paying as little as 10-30% of the marked price when they buy the book from the publishers.

So the "$1 for 3 book" deal is a loss of perhaps $9 (assuming $10 per book discounted by 70%).

But if you then go on to only buy another 3 books at $10, that they only paid at max $3 each for, they make back $7 x 3 = $21. If you buy books from them at anything close to full price, they're well in profit.
posted by selton at 9:16 AM on November 18, 2005

These "clubs"--especially the CD clubs like BMG--often do their own manufacturing. BMG, for instance, purchases the master recordings from its own subsidiaries, then makes their own printing run of discs and liner notes, often at substantially lower cost. I believe some of the book clubs do the same by buying limited publishing rights.

Their costs, then, are basically: rights, printing, direct marketing, and royalties. A much more efficient machine.
posted by deadfather at 9:21 AM on November 18, 2005

kindall's answer is spot-on. if you're asking because you're looking for one not to get screwed over by, quality paper back (www.qpb.com) gets a big star from me - at the time I got books from them it was $1 each for 3 books if you bought one more full-price within the year, which could be bought at half-off if they were all bought at the same time. S&H was not ridiculously overpriced, delivery was timely, selection good, and no, they weren't all paperback. (I'm very happy with the $1 full-size hardcover Joy of Cooking, in particular.)
posted by whatzit at 9:23 AM on November 18, 2005

Because people are too lazy/uncaring to cancel the later books. Sell one and the seller probably comes out ahead overall. Also some people are not that lazy, but are much more likely to "buy" a book that is already paid for and on their doorstep, rather than one that they have to go to the bookstore to buy.
posted by smackfu at 9:34 AM on November 18, 2005

Similar to the "zero interest" deals at computer and furniture outlets, where the company loses money (or just breaks even) if you meet the base requirements of the deal but make off like bandits on the few fat fish they hook in the long term.

Companies make money on long-term, return clients. People who sign up for book/CD deals tend to buy more, and more often. Sure, you'll attract a great many cherry pickers, taking your loss leaders and running, but they're a one--and-done proposition. If one in ten are hardcore purchasers, they'll more than make up for the other 90%.

With the NI/NP deals, most people pay them off on time, so it's a wash. But the few that don't, those that miss paying off the principal before the term is up (and there are many of them in the pay-by-credit crowd), more than make up for it.
posted by GhostintheMachine at 9:55 AM on November 18, 2005

They make $ by selling you a substandard product

I f!@#$ hate the book clubs. When I was younger, I signed up for one of these clubs.
The books I got were not the same books I would have gotten at a store or online. They sized all the books the same which is not so bad in itself. That also meant, the finish and edges were the same for all the books (getting worse). But the worst part was that the pages were not bound to the spine! They were glued on. WTF, I thought I was getting a real hardcover, not some lame ass paperback dressed up as the real thing.

I returned the books and cancelled ASAP. Please let me know if this still holds true today. If still true, don't do it.
posted by MrMulan at 10:01 AM on November 18, 2005

They charge huge fines for all the people that take the free/cheap stuff and don't keep the deal to buy more later.
posted by furiousxgeorge at 10:10 AM on November 18, 2005

It's called shipping and handling.

I belong to book-of-the-month (bomc.com) (signed up under Bookspan, actually; please note that Bookspan didn't require accepting or rejecting main selections; I still don't have to send cards back or anything), and I was glad to get the books, but then I noticed how much I was paying for S&H. I wait to buy books when they have free shipping and handling deals.

Unlike MrMulan, I have never had low-quality books. The books I have purchased have been just as good as books from Amazon or from regular bookstores.

I would say I fall into GhostintheMachine's "hardcore user." I've been a member of bomc for about four years now and buy four or five books a year, or sometimes more. As I said, though, I wait for those free S&H deals. *shrugs* I could probably pay less, buying used or on Amazon, but I also like that I don't have to pay for the books until I receive them.
posted by cass at 10:40 AM on November 18, 2005

They're banking on the fact that you have to actively cancel your subscription, and a lot of people don't do that.
posted by easternblot at 1:58 PM on November 18, 2005

See here.

The author says its a combination of getting you hooked, getting you on shipping and handling charges, cross-selling your name and paying reduced royalties on club sales.
posted by Opposite George at 5:19 PM on November 18, 2005