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237 valeof tiersssp_june07dl

  1. The Vale of Tiers Promises and Pitfalls of Tier Pricing SSP 29th Annual Meeting San Francisco Douglas LaFrenier Director, Publication Sales & Market Development American Institute of Physics
  2. 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.
  3. 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.
  4. 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.
  5. Online is a vastly different world. SumOfArticleDw nls2005 10,000 30,000 50,000 70,000 20,000 40,000 60,000 80,000 90,000 0 10012985 96002161 NA626465 10060329 M I114520 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.
  6. SumOfArticleDw nls2005 10,000 30,000 50,000 70,000 20,000 40,000 60,000 80,000 90,000 0 10012985 NA62403 10046766 PE326250 10002258 CO825792 97005409 CA143559 10066556 10004223 10037588 10064191 10080010 10267583 10279292 AT724122 DR06600 IN189369 TE804019 But bottom 300 accounts have 1-10 downloads each. In fact, 33% of our accounts have zero usage.
  7. SumOfArticleDw nls2005 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 5,000 0 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 A cct 234 A cct 249 A cct 264 Acct 279 A cct 294 A cct 309 A cct 324 A cct 339 Acct 354 Selected mid-range accounts in each of AIP’s 6 tiers.
  8. Distribution of usage Ratio of accounts to downloads (2005 data) 60 50 40 30 % downloads 20 % accts 10 0 0-99 100- 501- 1k- 5k- 10k- 50k+ 500 1k 5k 10k 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. • 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.
  10. 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.
  11. 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.
  12. 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 100 users T2 Med. 300 1.04 $520 $156,000 Users T1 Low 600 1.02 $510 $306,000 Users
  13. Tier Type No. % Incr. New price Revenue T3 High 100 1.36 $680 $68,000 users T2 Med. 300 1.04 $520 $156,000 Users T1 Low 600 1.02 $510 $306,000 Users 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 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.
  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 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 . . .
  17. 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.
  18. 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.
  19. 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?
  20. 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.
  21. Thank You. Questions? Comments? Douglas LaFrenier, Director, Publication Sales and Market Development