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March 2, 2010

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War of words and discounts in 'chaotic pricing competition'

LI Xuyang is stocking up on books. He has bought five heavily discounted, recently published books online in the past month, far more than his usual purchase of 10 books every four or five weeks.

The 24-year-old sales person and his friends wanted to buy now at a good price before a new publishing regulation limiting discounts kicks in.

So far, it hasn't been enforced but it has kicked up a huge controversy over book pricing, huge discounts (some as high as 70 percent online) and what's reasonable.

"It's understandable that buyers always want cheaper prices. But it is also true that chaotic pricing competition will harm everyone in the chain - the publisher, the distributor, the bookstores and finally the readers," says Richard Chen, who has worked in book distribution for 10 years.

The new "Regulation on Fair Trade in Books" was issued on January 8.

Its most controversial provision limits discounts on the online sale of new books (those printed within a year) to no more than 15 percent. No discounts are allowed in stand-alone stores; books must be sold at their original price. There are four exceptions.

So far, it hasn't been enforced. Most online sites are still offering the same low prices (often 30 percent off or more) with free delivery. Original book prices are in the range of US$20-30.

China's two biggest online stores, Dangdang ( and Joyo (, have both announced they would not change their prices and would wait for more detailed rules and clarification of the regulation.

When salesman Li made his recent purchases of six new books from Joyo, all were discounted by an average 27 percent.

"It's great that they didn't follow the regulation. I'm so used to all these discounts that I can't imagine buying a book at the original price. After all, most books were overpriced in the first place," says Li.

Discount furor

Many readers agree with Li.

The main forces behind the regulation are the Publishers Association of China, the Books and Periodicals Distribution Association of China and the China Xinhua Bookstore Association. The regulation is the result of two years of industry-wide discussion about publication, distribution and sale in stand-alone and online stores.

The controversy concerns the limits on discounts.

The regulation aims to end chaotic pricing and overpricing in the disorderly book market.

It stipulates that all new books must be sold at their stated price for the first year after the publication date in all stores. An exception provides for a maximum 15-percent discount online.

The other three exceptions - in each case 15 percent is the maximum - are group bidding, membership discount in stand-alone stores, approved book exhibitions and sales during approved holidays and big events.

Most state-owned bookstores sell new books at original prices except for membership discounts, but small bookstores and online book sellers often discount as much as 70 percent.

According to a survey from the Books and Periodicals Association of China, the sales revenue of online sites represents more than 10 percent of the book retail market. Online sales are just getting started and the survey predicts an increase of 2 to 3 percent a year. This has reduced profits of publishers, distributors and sellers by an average 5 percent.

The regulation does not contain a clear enforcement mechanism or specify fees and other sanctions for violations.

It only says that violators will not be eligible for national awards. It "suggests" that publishers and book distributors should stop doing business with them.

The chief secretary of the Publishers Association of China, Huang Guorong, said at a recent press conference that readers have misinterpreted the regulation, which is intended to protect their rights.

It is intended to prevent publishers from overpricing their books, which in turn leads to drastic discounts, and to restore reasonable original pricing, said Huang.

But many readers consider the big discounts and pricing competition a better way to return the prices to its reasonable level.

"If those small stores and online sites can sell at 70-percent-off prices, this means the books are totally overpriced, aren't they?" says reader Li. "So if the pricing competition continues, the books have to go back to their reasonable price levels one day."

Perception gap?

Chen, the veteran book distributor, considers the polar-opposite opinions between book market people and readers the result of a perception gap.

He understands that readers want low prices, but says: "The whole industry is facing huge challenges now. It's difficult to publish a book, distribute one, sell one and get the money back."

Publishers and stores are gradually turning to "less risky" books such as textbooks, study materials and practical booklets, he adds.

Chen explains the chain in the market. Publishers often sell books to large distributors like Chen at 55 to 65 percent of the printed prices, which leaves publishers with 5 to 15 percent profit.

Distributors like Chen make 5- to 10-percent profits. So the bookstores usually get the book at 65-70 percent of the printed prices, so they cannot give big discounts. Furthermore, taking overhead and other costs into account, most stand-alone bookstores can't afford a discount of more than 15 percent.

Chen's worries are not exaggerated.

Lin Fangdi, 42, works in a small no-name street-side bookstore in Hongkou District. Her boss tells her to pack the textbooks and additional materials in the front because "they are the only ones that really sell."

Half of the books in the store are study materials, while another 30 percent are cook books, health-related books and travel guides.

"I don't even buy books for my son from our store. Even with the employee's discount of 20 percent off, it's still more expensive than buying online," says Lin.


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