237 valeof tiersssp_june07dl

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  • 1. The Vale of TiersPromises and Pitfalls of Tier PricingSSP 29th Annual MeetingSan FranciscoDouglas LaFrenierDirector, Publication Sales & Market Development American Institute of Physics

2. Some caveats I am speaking from the perspective ofscientific research journals, with a maturesubscription base. All my sample data is from AIP journalsalone. I dont pretend to know all the issues forother types of publisher or even otherscience publishers. 3. Pricing in the Print World With print, pricing was a simple function ofcosts, number of customers, and desiredmargins (profits). The behavior of the customer thelibrary and its patrons had nothing to dowith it. Scholarly publishers were much like hard-goods manufacturers in that sense. 4. Pricing in the Print World, contd A big customer was one that subscribedto multiple copies. E.g., PrincetonUniversity for years had about 8subscriptions to one AIP title, AppliedPhysics Letters. But for many specialized titles, there wasessentially one copy for each institution.So, from the publishers point of view, MIT= Vassar = Arizona State. 5. Online is a vastly different world. SumOfArticleDw nls200510,00030,00050,00070,000 20,000 40,000 60,000 80,00090,000 0 1001298596002161NA62646510060329 M I114520 10011582CO825792NO799770TO803278GE790912 E 94812410009359 100125809300062510035092TW392917PE4012501003885810012806AR166565 Top 100 AIP accounts range in downloads from 17,102 to 84,330. 6. SumOfArticleDw nls2005 10,000 30,000 50,000 70,00020,00040,00060,00080,000 90,0000 10012985NA6240310046766PE32625010002258CO82579297005409CA143559100665561000422310037588 10064191100800101026758310279292AT724122DR06600IN189369TE804019But bottom 300 accounts have 1-10 downloads each. In fact, 33% ofour accounts have zero usage. 7. SumOfArticleDw nls200510,000 15,00020,000 25,00030,000 35,000 40,00045,000 50,00055,000 60,00065,000 70,00075,000 80,00085,0005,0000 Acct 1 Acct 16 Acct 31 Acct 46 Acct 57 Acct 72 Acct 87Acct 102 Acct 111Acct 126 Acct 141Acct 156Acct 165Acct 180Acct 195Acct 210A cct 234A cct 249A cct 264Acct 279A cct 294A cct 309A cct 324A cct 339Acct 354Selected mid-range accounts in each of AIPs 6 tiers. 8. Distribution of usage Ratio of accounts to downloads (2005 data) 60 50 40 30 % downloads 20% accts 1000-99 100- 501- 1k-5k- 10k- 50k+ 500 1k 5k10k 50k 50% of all downloads come from the top 4% of accounts. Only 4.7% of downloads come from the bottom 74% of accounts. 9. Thus, the rationale for tier pricing. Its a question of fairness: Should smaller institutions have to pay the same as bigger, research-heavy institutions? Its a question of value: Since the value derived by the smaller institutions is so much less, arent they much more likely to cancel (raising prices for remaining subscribers)? So, the real purpose of tier pricing is not somuch to tax the heavy users as to relieve theburden on the smaller users. 10. Downloads are not everything. Strict usage-based pricing is unlikely for severalreasons: Utility-company-like pricing is appealing, but high-end users would bust any librarys budget. We dont want to discourage usage, see limits imposed by the institution, etc. There can be plenty of usage without downloads e.g., read abstracts free, search database, use current-awareness tools. Other measures might include authorship,subscriptions, research activity, membership,size, GDP, academic v. corporate, etc. 11. Problem #1 Because there are more low-end usersthan high-end users, its very hard tominimize prices for smaller users withoutclobbering big users. In a revenue-neutral scenario, high-useaccounts will have to pay a disproportionatelyhigh price increase. 12. Scenario 1: Publisher has 1000 customers for a $500 journal and plansa 6% price increase. Each customer now pays $530 and publisherrevenue is $530,000.Scenario 2: Publisher establishes 3 tiers, plans a 2% and 4% increase for lower users, and still expects $530,000 in revenue.Tier TypeNo. % Incr. New price RevenueT3 High100 usersT2 Med.300 1.04$520$156,000 UsersT1 Low 600 1.02$510$306,000 Users 13. TierTypeNo. % Incr. New price RevenueT3High100 1.36$680 $68,000usersT2Med.300 1.04$520 $156,000UsersT1Low 600 1.02$510 $306,000Users For the same revenue, T3 must contribute $68,000, resulting in a 36% price increase for high users! The problem would be worse if one wanted to actually reduce prices for low-end users. 14. Is this why we dont see the price-tieringphenomenon among commercialpublishers? The total bill is just too big. High users can perhaps pay a one-time 20%increase on $20k package, but not on a$2MM package. (Bigger problem is likely that commercialpublishers have multiple disciplines, productlines, customer types.)In any case, its best to move high-end usersincrementally and avoid sticker shock in any oneyear. 15. Problem #2: How to Tier? External measures Carnegie Mellon, JISC but no direct foreign equivalents Descriptive: Universities with PhDs, Liberal Arts Colleges, Two-year Colleges, Corporations, etc. sometimes size-based as well Size-based (but need to define what FTEs are counted) Research productivity (as defined by article output) Internal measures Downloads (and other activity?) Authorship, membership Subscriptions Intrinsic metrics of each journal, e.g., impact factor 16. Problem #3: The problem of the cusp In many schemes, especially usinginternal measures, there are no hard linesbetween tiers. An institution could easilyfall just above or below a given threshold. Is the publisher prepared to handle anappeals process? To review other data,such as prior cancellations or budgetconditions? This is made worse by . . . 17. Problem 4: The problem of volatility Usage activity changes, with a potentialyo-yo effect on institutions near the cusp.No one wants to be re-tiered every year. AIP has adopted two strategies for this: The two-year rule: Any change in activityhas to hold for two years before we reassign atier. The significance rule: Changes to ourassigned research activity index have toexceed 20% to be considered significant. 18. Problem #4: The problem of administration Youre in for it now. This is a lot of work! Research, planning, validating,communicating, responding . . .Problem #5: Transparency and trust Publishers should not use tiering to jack uprevenue, but the potential exists. Who validates? For this reason, its very important to involvethe library community in your process. 19. Problem #6 Who the heck knows whats going onanymore? With tiering, consortia licensing, multipleproduct options, differing publisher policies (rearchiving, for example), negotiation, etc., it isnow impossible for one customer to compareprices with another. Is it therefore going to be harder for librariansto keep publishers honest? 20. Problem #7 And, of course, none of this has anythingto do with actual pricing, that is, whatprices a publisher establishes for eachproduct and tier. The fairest tieringscheme in the world could still result intoo-high prices. 21. Thank You.Questions? Comments? Douglas LaFrenier, Director,Publication Sales and Market Developmentdlafrenier@aip.org