Organizational Strategy

The Penny Book Explained

Mark Mulkeen

Amazon

“The other day on Amazon I was searching for a book and some used ones were listed for as low as one cent. Can I really pay just a penny for a book on Amazon?”

Amazon charges shipping fees that usually bring the grand total to about $4.00, so no, unfortunately that penny you found on the street will not be enough. However, $4.00 for a copyrighted book is still a tremendous bargain for most shoppers. This also helps to answer the question of how sellers make a profit off of these penny books.

“So how is money made off this cheap of a sale?”

Jeff Bezos, CEO of Amazon, named his company after the famous and vast South American river, and the name is apt when considering the way independent merchants sell on the website. Many of the listings on Amazon are actually from independent vendors. In these cases, Amazon serves simply as a marketplace through which smaller merchants can sell to a larger audience. If a small seller and a buyer are far away from each other, Amazon is the “river” through which the seller’s goods can travel to the buyer. From the $4.00 sale, Amazon takes fees for connecting the buyer to the seller, often referred to as “river fees.” That leaves the individual seller with $2.65, but he or she still has to ship the book himself or herself. The cheapest option (USPS Media Mail) generally leaves the merchant with a profit of mere cents. Although this may not seem effective, there are some merchants who will sell this way.

“Wait a minute, I’m a Prime Member, so shouldn’t I receive free shipping?”

A more effective way to make a profit is for sellers to use Fulfillment by Amazon (FBA) where the individual seller pays about 40 dollars per month to have Amazon distribution centers hold their inventory and make shipments for them. Instead of listing at a penny, FBA sellers price their books at $4.00 because Amazon Prime members receive free shipping on FBA purchases. With the free shipping, an Amazon Prime member ends up paying the same amount he or she would for a penny book that has to be shipped by the individual merchant. Amazon still takes river fees from the sale and charges additional fees for handling the shipping, but at the end the individual seller usually ends up making a profit between $0.50 and $1.00, still not a huge return, but still more profitable than an individual merchant shipping him or herself.

“Wow, so it seems that a lot of booksellers are running their business model off of pretty low profits per sale?”

Not every penny seller is listing this way as the main facet of his or her business model. Many booksellers simply see it as an inventory control method. Obviously, books this cheap sell fast, so it is often more efficient for sellers to make quick, small profits by unloading books that won’t sell for higher so they can acquire more valuable books to have in their inventory.

“Alright, but how did the prices become this low?”

The price gauging, in this particular case, is the result of a surplus of suppliers in one location. Amazon.com is a vast river, but it has become such a popular place to shop online (especially for books), that many book listings have become overcrowded with many sellers in one place trying to get you to buy the same product. When this happens, the buyer is empowered and can dictate the price, and in these cases the buyer can dictate it all the way down to the lowest price possible.

“So what does this all mean for the future of books?”

Each is entitled to their own opinion in regards to the implications the penny book will have on writing, publishing and selling in the future, and that opinion will probably vary based off an individual’s position within the book distribution market. The penny book phenomenon can be seen as both a positive result of the Internet marketplace or a negative one. There are some vendors that do turn this into a profitable business model, or at least an efficient aspect of theirs. For others, the prices for certain books have been driven so low that is hard for a profit to be made on some of the books in their inventory. I, however, am quite optimistic about the decline in book prices, as it essentially results in greater public access to knowledge, which leads to a more informed and cultured population, the cornerstone of a successful and righteous society.

“Books may be more accessible, but it seems like this would create less incentive to write. Will this take away from the quality of writing in the future?”

It is up for debate, but it is important to remember that these penny sales are for used books. These penny merchants are not publishers, and authors are not signing publishing deals where they make mere cents on each book. Instead, this is further distribution of books that have already been bought at least once. If anything, the author now has an even wider audience, creating further incentive for you and me to write the next classic.


Sources

http://www.skipmcgrath.com/articles/amazon-penny-books.shtml

http://online.wsj.com/news/articles/SB111531791858825958

https://pittbusinessreview.files.wordpress.com/2014/09/514e7-earns2bamazon_kara.jpg

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