Turning a Business Model Upside Down - 1

Included in the mailing was a rejection slip that gave the following choices: (1) Don't ship anything. (2) Ship the Main Selection plus the following alternate(s) and/or merchandise. (3) Ship the following alternates only.

A member who wanted the main selection did nothing, and the book (or two books that made up a dual selection) would be shipped automatically.

If you didn't get instructions into the mail by the deadline, you got the main selection whether you wanted it or not.

Forecasting
For years the club operated on the premise that 70% of the members would accept the main selection. When the club had 150,000 members, the print order for main selections was routinely 115,000 copies.

The Sweepstakes Miracle
My predecessor was Andy Svenson, a veteran marketer out of Doubleday, Weekly Reader, and Fuller & Dees. Svenson determined that the way to build the club was with an "Everybody Wins!" sweepstakes—a grand prize of $100,000, lesser prizes of cash and cars, and, for everyone who entered, a spice cookbook as a consolation prize.

The sweeps promotions were a huge success—adding 200,000 new members to the existing 150,000—and Svenson was a hero to Meredith management. With 70% of 350,000 members expected to accept the main selection, the print orders were upped to 265,000 copies.

A Sobering Experience
The traditional book club business model depends on a contract whereby I pay the publisher a royalty. I acquire books one of two ways: buy them at cost from the publisher's inventory, or send lower-cost paper and binding materials to the printer. In the second method, once the publisher's print run was finished, my economy paper would be fed into the press and then bound for an additional print run for me. The publisher made money two ways: royalties on books sold to customers that never visit a bookstore, and a per-title savings on each book because of the vastly increased print run.

It took a while for me to understand the monthly reports, but one set of numbers jumped out: unsold books. When I suggested to management that print orders be dramatically cut, the answer was no. Large print orders kept the cost per title low so each copy sold made a bigger profit.

This was especially true of the Better Homes and Gardens cookbooks—the 8 1/2" by 11", full-color cookbooks known as "flats" that were sold for $2.95 on racks in retailers all over America.

Trouble was, a dual main selection—two cheapo BH&G books for $2.95 ($5.90 total selling price) plus shipping—didn't make money for me. I made money on $10 and $15 titles from other publishers. But six times a year I was required to buy 530,000 BH&G flats and sell them at a loss because corporate in Des Moines was making money on the deal two ways: (1) I was buying books wholesale from them just like any other retailer. (2) The cost per book was far lower than if my print order were not included, which meant the profit per book was higher for the Des Moines crowd. To put it bluntly, my little business was being roundly screwed by Meredith corporate in Des Moines.