Response to Scott Wicks on Vendor Discounts Richard R Rowe 25 Apr 1996 17:20 UTC
Scott Wicks makes a number of cogent comments on the issue of vendor pricing and discounts. I am in substantial agreement with each of his points. As Scott points out, serials vendor pricing is comprised of a number of complex variables (publisher discounts, price of title, the mix of the list, prepayment). These are not easy to sort out, especially if one tries to compare one vendor's "price" with another. As a result there has always been a fair amount of mystery and confusion about serials vendor pricing. More openness about serials vendor pricing will clearly benefit libraries as a whole. Here are a few additional observations about serials vendor pricing which may be of interest. Some high-discount STM publishers provide agents discounts with the stipulation that no vendor service charge may be applied to those titles. Typically those titles generate more than enough discount to cover the vendor's expenses in servicing those titles. Some publishers provide no discounts at all. While an Elsevier title with a list price of $1,000, after a vendor discount of $50, generates $950 in revenue for Elsevier, an American Chemical Society title with a $1,000 list price has no vendor discount and thus generates $1,000 for ACS. Prices are not always what they seem and librarians have a right to be aware of such differences among publishers. Low-cost titles, even with relatively high service charges, often fail to generate enough revenue to cover the vendor's costs. A $50 title with a 5% discount and a 3% service charge adds up to $4. for the vendor. Thus the high-priced, high-discount titles tend to subsidize the lower-priced titles. Higher priced titles generally have fewer problems than low-priced titles and often are easier to service. Since such higher priced titles also tend to generate more revenue for the vendor, both in discount dollars and service charge dollars, they tend to be much more profitable for serials vendors than low-cost titles. Since traditional vendors typically have a discount and a service charge based on a percentage of the publisher's list price, these vendors benefit financially by high inflation in serials prices. As the price of the journal increases, their discount, service charge and profits tend to increase comparably. Another variable in the pricing equation is prepayment. Often agencies reduce service charges if libraries prepay. In many cases, the reduction in service charges is less than the interest earned on the prepayment funds. This "float" can be another source of profit for agencies. For these reasons we at RoweCom, as a new kind of serials subscription vendor, have chosen to pass on to our library clients all of the publisher discounts and to charge a flat transaction fee per title, regardless of the price of the serial. Additionally, our prepayment program allows the libraries to earn all the interest that their funds accrue. This approach significantly reduces the cross-title, and cross-publisher, subsidies and gives the librarian a straight-forward pricing system that is reasonable and easy to understand. Richard R. Rowe, Ph.D. President and CEO RoweCom http://www.rowe.com