Is Amazon using Pre-order levels as a tool in negotiating higher margins from publishers ?

Posted on May 24, 2014 by aviyer2010

An article in the Wall Street Journal on May 23, 2014 (http://online.wsj.com/news/articles/SB10001424052702303749904579580052135901452?mg=reno64-wsj) titled “Amazon-Hachette Dispute Heats Up”, describes a complaint that no pre-orders for books by J L Rowling at Amazon.com’s website were being taken, while other sites continue to sell the books. A lower pre-order level by Amazon would delay book availability to customers and thus hurt the buzz and possible overall sales. The publisher claims that the dispute is centered around Amazon seeking a greater margin from e-books, claiming that the publisher has lower costs for e-books. Will Amazon’s strategy to reduce book access to customers hurt Amazon or Hachette or the consumers ? Given the recent ruling permitting publishers to set prices and retailers to negotiate discounts, will such tactics make the publishers worse off (given that Amazon was key to the dissolution of Apple’s contracts that provided a fixed rate)?

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This entry was posted in Ecommerce, Operations Management, Supply Chain Issues and tagged Amazon, availability, books, Consumers, Coordination, Cost, margin, pre-orders, publishers, Supply Chain. Bookmark the permalink.

21 Responses to Is Amazon using Pre-order levels as a tool in negotiating higher margins from publishers ?

Allison @ The Book Wheel says:

May 24, 2014 at 7:08 pm

Whether or not it works, readers and authors are mad and have taken Twitter by storm with the #ReadHachette campaign. It’ll be interesting to see how it all unfolds.

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Vivek Kaimal says:

August 28, 2015 at 1:18 pm

It is a case of Amazon exerting it’s buyer power! And it has considerable power. As long as other publishers don’t jump on board with Hachette, I don’t think it will hurt Amazon much. Yes, the publishers are definitely worse off.

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deepakregu says:

August 28, 2015 at 1:43 pm

From the perspective of the consumers, Amazon’s strategy to play a hard ball for e-books margins will not have a major long term impact, because ultimately publishers would yield considering Amazon’s hold on the e-comm platform and hence it would rule out their presence in a major retail channel. However, the publishers are not very worse off as giving up the margin slightly can be offset against the revenue growth by sustainable volumes through their availability in the Amazon channel.

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Sarath Suresh says:

August 28, 2015 at 1:43 pm

The dispute is definitely going to adversely affect Amazon and and the consumers.Through this Amazon is trying to squeeze in more profits without thinking long term as to the profits it can make through high quantity sales.An e-commerce consumer is a very shaky guy.One of the strategies adopted by most sites is not to let the customer visit the competitive website.Here by not letting the books available,even the loyal customers of Amazon are being forced to move out to other sites and if they find better deals and convenience there, a customer shift is inevitable and Amazon will slowly start losing the customer base.This not only affects Amazon but also the consumers who had put their trust on Amazon for buying products.The portrayal of Amazon as someone who is trying to make use of the situation might not give Amazon a good reputation in the minds of many retailers who might have been thinking of partnering with Amazon resulting in a huge loss in prospective sales.

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Rohit Singh says:

August 28, 2015 at 6:32 pm

Its Amazon’s display of power and has left publishers at a loss. Until they stand together, Amazon is not going to lose much

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Rupesh Kumar says:

August 28, 2015 at 8:57 pm

I think the move taken by Amazon is not long term and it cannot be sustainable. Amazon may earn high profits in the short term but ultimately it will loose volume sales which will decrease the revenue and hence profit. Taking such a move will shift the consumer base from Amazon to other websites and retailers which will affect Amazon. Consumers will not be very affected as they can switch from Amazon to other retailers easily.

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Mehul Raina says:

August 28, 2015 at 11:21 pm

Today Amazon is become a big player worldwide. There is no denying this fact. It will be difficult to keep the beast under check in its cage. One day it was bound to flex its muscles. I believe publishers in this case are worse off as they will have to squeeze their margins. Some sort of legislations in this regard which fixes the margins for publishers to a base level should be set up in order to protect their interests.

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Qidi Cao says:

September 1, 2015 at 2:11 pm

In my opinion, this move will hurt Amazon. Amazon is famous for its big collection of all the products and its cheap price. If Amazon do not take pre-order of books and do not sell the books, their customer will go to other cites and find what they want. Although E-book does has lower costs for publishers and greater margins, there are quite a lot customers still want hard copy of books.

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Trey Christner says:

September 1, 2015 at 6:37 pm

I believe Amazon’s strategy to reduce book access to customers will hurt Amazon. E-book accessibility on tablets and kindles is increasing in popularity, but many consumers are reluctant to change and still want hard copy books. Now that retailers can negotiate discounts, publishers will be worse off. The competition is high to offer the lowest prices from the publishers point of view.

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Rahul Srinivas Sucharitha says:

September 2, 2015 at 11:35 am

Amazon’s current strategy of introducing low costing E-books will definitely reduce the profit margins of the Hachette. By buying the e-books which are easily available, the customers gain instant access and user-friendliness. Amazon has introduced e-book readers which aid the e-books thereby gaining access to the tech business as well. Since, the people of today are more tech savvy, and don’t use paper and hence books, the publishers will suffer.

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Ryan P. Case says:

September 2, 2015 at 1:11 pm

Of course they are… it allows for better forecasting of customer demand, forecasting stocking levels, regional locations of demand, and negotiating margins outside of their supply chain (publishers, printing companies, retailers, etc). Publishers will have to decide between the Amazon empire or their competition. Customers will complain if their titles are not carried and Amazon will most likely prevail at getting the publishers to give in to their negotiated margins.

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Greg Nichter says:

September 2, 2015 at 8:52 pm

Overall I think this hurts consumers the most. The limit set on pre-orders creates a deadweight loss in the market, meaning less physical copies for consumers and higher prices. Although Amazon makes higher margins on e-books, there are still many consumers who prefer not to read electronic copies, or who do not own an e-reader. Amazon needs to be careful about the sensitivity of its customers, and should consider selling more pre-orders to keep publishers and consumers happy.

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Joe Mista says:

September 3, 2015 at 11:48 am

This whole move definitley seems to put the strain on the end customer in this case. Amazon is know for their massive selection and availability so it would appear that this move may hurt them. On the other hand this will force the publishers to do whatever necessary to make sure their books make it for sale with Amazon. Either way the customer will get their desired book, how they get it will be determined in the end by Amazon. The supply and demand argument seems a bit invalid in that the forecasted demand will be throught the roof, so availability won’t be a problem.

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Xiaofan Li says:

September 4, 2015 at 3:23 pm

Amazon won’t be deeply affected however publisher, authors and customers will be hurt in the end. This intentionally no pre-order behaviour definitely reduces the profit margins of the Hachette. And authors who sign a contract with Hachette also bear the loss from Amazon not advertising for their books. Customers cost more on books published by Hachette too. But Amazon should take into considerate if Hachette was nettled thus cooperate with other e-books platforms like Apple with low margin.

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Christian Lehr says:

September 4, 2015 at 11:36 pm

In the short run it will hurt all parties concerned. Amazon, Hachette and the authors because of a loss in bock sales and lot of the consumers because of difficulties to get the bock. In the long run, Amazon will win the power game, resulting in higher margins and an overcompensation of its actual losses. The one who suffers is essentially Hachette Book Group as it is depending on the Amazon bock sells.

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Juechen Xia says:

September 7, 2015 at 8:11 pm

I think Amazon won’t hurt much. As a platform, Amazon attract customer to purchase books. As the customers are accustomed to rely on Amazon E-book, they will always seek books in Amazon, thus, Hachette lose chance to earn more.
The primary advantage of pre-order is that publishers can predict sales volume more effectively, which may bring chance to make more profit. If Amazon and publisher coordinate well, it will be a win-win situation.

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Xiaowei Shao says:

September 7, 2015 at 9:52 pm

The market demand will give us an answer. If it is the time that most of the Jk Rowling fans get used to reading e-books, this will hurt no one. However, if customers wants a paper version, Amazon would lose sales and the publishers’ situation would be worse.

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Cheng Zhang says:

September 8, 2015 at 5:22 pm

The strategy have limited influence on Amazon. I think for a huge company like Amazon, every strategy and decision made is under deep consideration. The reason why they take the risk of losing the market is that Amazon is confident with it’s dominant position in e-book market. Amazon knows that publishers are willing to supply e-books with lower margin since Amazon has hundreds of millions of users. Amazon is showing its strong bargain power in this case.

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Kevin Morrisroe says:

September 9, 2015 at 4:19 pm

I feel the only group hurting with this is the publishers. Clearly Amazon has done their research and analysis and believes they will be better off not doing pre-orders and the customer can go somewhere else to pre-order the books. The publishers however, will have to succumb to Amazon’s bargaining power and and will be supplying more e-books with lower margin.

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Manish Singh says:

September 18, 2015 at 1:25 pm

E-books are growing trends where most of the future sales are concentrated. Amazon is an e-com platform and most of its customers are internet users who like to read e-books – for example, Amazon’s Kindle, which has a major chunk of e-book readers. Hachette as the publisher is reasonable about its standpoint but Amazon is where negotiation power lies. However,the conflict between Amazon and Hachette is clearly a result of lack of co-ordination,none of them has holistic approach towards the issue.Their focus is narrow only on the individual market segment not the entire market pie as a whole – which is more likely to grow by their coordination.

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Kairui Jia says:

October 7, 2015 at 9:24 pm

In my view, Amazon has no intention to implement pre-order service. Since it will delivery books from publishers directly to the customers, it doesn’t need to predict future demand. And it has nothing to do with the book print, thus there is no incentive for Amazon to provide pre-order service. On the contrary, pre-order may lead a peak in delivery. As any fluctuation of delivy is harmful to Amazon, it won’t offer pre-order service without benefit from outside.

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