Transcript
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The Vale of TiersPromises and Pitfalls of Tier Pricing

SSP 29th Annual Meeting

San Francisco

Douglas LaFrenier

Director, Publication Sales & Market Development

American Institute of Physics

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Some caveats

• I am speaking from the perspective of scientific research journals, with a mature subscription base.

• All my sample data is from AIP journals alone.

• I don’t pretend to know all the issues for other types of publisher or even other science publishers.

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Pricing in the Print World

• With print, pricing was a simple function of costs, number of customers, and desired margins (profits).

• The “behavior” of the customer – the library and its patrons – had nothing to do with it.

• Scholarly publishers were much like hard-goods manufacturers in that sense.

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Pricing in the Print World, cont’d

• A “big” customer was one that subscribed to multiple copies. E.g., Princeton University for years had about 8 subscriptions to one AIP title, Applied Physics Letters.

• But for many specialized titles, there was essentially one copy for each institution. So, from the publisher’s point of view, MIT = Vassar = Arizona State.

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Online is a vastly different world.

SumOfArticleDw nls2005

0 10,0

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NA626465

10060329

MI114520

10011582

CO825792

NO799770

TO803278

GE790912

E 948124

10009359

10012580

93000625

10035092

TW392917

PE401250

10038858

10012806

AR166565

Top 100 AIP accounts range in downloads from 17,102 to 84,330.

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SumOfArticleDw nls20050 10

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But bottom 300 accounts have 1-10 downloads each. In fact, 33% of our accounts have zero usage.

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SumOfArticleDw nls20050 5,

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Acct 1

Acct 16

Acct 31

Acct 46

Acct 57

Acct 72

Acct 87

Acct 102

Acct 111

Acct 126

Acct 141

Acct 156

Acct 165

Acct 180

Acct 195

Acct 210

Acct 234

Acct 249

Acct 264

Acct 279

Acct 294

Acct 309

Acct 324

Acct 339

Acct 354

Selected mid-range accounts in each of AIP’s 6 tiers.

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Distribution of usage

0

10

20

30

40

50

60

0-99 100-500

501-1k

1k-5k

5k-10k

10k-50k

50k+

Ratio of accounts to downloads (2005 data)

% downloads% accts

• 50% of all downloads come from the top 4% of accounts.

• Only 4.7% of downloads come from the bottom 74% of accounts.

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Thus, the rationale for tier pricing.

• It’s a question of fairness:

– Should smaller institutions have to pay the same as bigger, research-heavy institutions?

• It’s a question of value:

– Since the value derived by the smaller institutions is so much less, aren’t they much more likely to cancel (raising prices for remaining subscribers)?

• So, the real purpose of tier pricing is not so much to “tax” the heavy users as to relieve the burden on the smaller users.

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Downloads are not everything.• Strict usage-based pricing is unlikely for several

reasons:– Utility-company-like pricing is appealing, but high-end

users would bust any library’s budget.

– We don’t 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.

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Problem #1

• Because there are more low-end users than high-end users, it’s very hard to minimize prices for smaller users without clobbering big users.

– In a revenue-neutral scenario, high-use accounts will have to pay a disproportionately high price increase.

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Scenario 1: Publisher has 1000 customers for a $500 journal and plans a 6% price increase. Each customer now pays $530 and publisher

revenue 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 Type No. % Incr. New price Revenue

T3 High users

100

T2 Med. Users

300 1.04 $520 $156,000

T1 Low Users

600 1.02 $510 $306,000

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Tier Type No. % Incr. New price Revenue

T3 High users

100 1.36 $680 $68,000

T2 Med. Users

300 1.04 $520 $156,000

T1 Low Users

600 1.02 $510 $306,000

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.

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• Is this why we don’t see the price-tiering phenomenon among commercial publishers?

– 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 commercial publishers have multiple disciplines, product lines, customer types.)

In any case, it’s best to move high-end users incrementally and avoid “sticker shock” in any one year.

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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

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Problem #3: The problem of the cusp

• In many schemes, especially using internal measures, there are no hard lines between tiers. An institution could easily fall just above or below a given threshold.

• Is the publisher prepared to handle an appeals process? To review other data, such as prior cancellations or budget conditions?

• This is made worse by . . .

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Problem 4: The problem of volatility

• Usage activity changes, with a potential yo-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 activity

has to hold for two years before we reassign a tier.

– The “significance rule”: Changes to our assigned “research activity index” have to exceed 20% to be considered significant.

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Problem #4: The problem of administration• You’re 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 up revenue, but the potential exists. Who validates?• For this reason, it’s very important to involve the library community in your process.

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Problem #6

• Who the heck knows what’s going on anymore? – With tiering, consortia licensing, multiple

product options, differing publisher policies (re archiving, for example), negotiation, etc., it is now impossible for one customer to compare prices with another.

– Is it therefore going to be harder for librarians to keep publishers honest?

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Problem #7

• And, of course, none of this has anything to do with actual pricing, that is, what prices a publisher establishes for each product and tier. The fairest tiering scheme in the world could still result in too-high prices.

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Thank You.

Questions? Comments?

Douglas LaFrenier, Director,

Publication Sales and Market Development

[email protected]