BARNES & NOBLE COLLEGE BOOKSTORES

Power Struggle and Conflict in the Textbook Ghannel

Amberly Knight, a senior marketing major, had been

working as an intern in the university,s Office of Business
Affairs for only two weeks when she was presented
with
quite a challenging assignment. She had just returned
from a meeting with the vice president for Business AG
fairs in which she learned of a potential conflict between
the B&N College booksto
hing.
The vice president asked
alvsis
of the conflict and propo
B&N College (a unit of Barnes & Noble, the world,s
largest bookseller) operates the only official bookstore
for

the university and is contractually obligated to stock all

course textbooks and materials. Consequently, professors
are required to submit all textbook requests to the
book_
store. The conflict began last month when McGraw_Hill

implemented a new return policy. McGraw_Hill would

unsold textbooks returned by
rred to as a "resrocking fe c', in the
ew,

5-percent fee was to be assessed

against only those bookstores that failed to keep their re_
turns below an established level of I 5 percent. prior to
this

time
to re

abru

circumstances beyond its control, the bookstore also felt

it could not possibly predict textbook demand with any
real accuracy. In addition, the bookstore's policy is to
place textbook orders early enough ,o ..r..rr" having the
textbooks on the shelf for the first day of class instead of

waiting just weeks before the first day of classes when en_
rollment figures are most stable. Thus, according to the
bookstore, substantial returns will always exist.

McGraw-Hill immediately rebutted by sending its

own letter to professors explaining why its new policy
was, indeed, justified. The publisher claimed rhat B&N
College failed to manage inventories adequately. Accord-

ing to McGraw-Hill's own statistics, the majority of book_

stores in its distribution channel have return levels below
20 percent. The B&N College chain, on the other hand,
has an average return rate of 34 percent, with the most
recent academic year return rate a whopping 5l percent
at Arnberly's university. The concept of the ,,restocking
fee" was also apparently not a new revelation, McGraw_
Hill claims it allowed the bookstores several years to solve
their inventory problems before actually implementing
the.revised return policy.
McGraw-Hill was unq.mpathetic to the bookstore,s
alleged difficulty of estimating inventory needs. The pub_
lisher virtually guarantees delivery of textbooks ro sr.ores
spel receipt of an order. Thus,
in McGraw-Hill's opinion, there is no need to carry such
large inventories at lhe retail level, especially since an es_
in just five working da;zs

tr:r l0 pulucut of pUbllefer,u' opcratilg c,sts

arise directly from processing returned books. From
McGraw-Hill's perspective, B&N College bookstores, in

tinratr^d

suggested that McGraw-Hill already factors the cosr

of re_
turns inro rhe prices of its textbooks. Thus thc rcstocking
fee would simply be an incremenhl charge aclrjed to
the already bloared prices of college textb-ooks. Ciring

J-r

quantities of new textbooks simply as

plcnty on hand i[ Lasc ilut errough
able.
5Crv

570

Case

Barnes & Noble College Bookstores

Amberly was determined to write a thorough analyand to find an acceptable solution to the conflict; however, she was not quite sure she fully understood the
situation. Amberly intuitively felt the issue was a distribusis

tion channel conflict and decided she needed ro examine the textbook industry to gain an understanding of
the industry's typical channel structure. That evening,
armed with her marketing channels textbook, Amberly
walked to the library to begin her research.

The College Textbook Industry

Total publishers' net sales ofcollege textbooks were over
$1.6 billion in 1994, representing approximately 19 percent of all book sales,t According to the Association of
American Publishers and the National Association of
College Stores, 66 percent ofevery dollar spent by a colIege student on a textbook is received by the publisher.
The university professor who authors the textbook normally receives 10 percent of sales as royalty, while the
freight and shipping companies who move the books to
the campus bookstores command an averagb of 3 percent of every sales dollar. For an on-campus bookstore,
an additional 6 percent is given to the college or university for use in either academic programs or student activities. The remaining 15 percent belongs to the bookstore
with the majority going for employee salaries and benefits. A qpical allocation of the retail price of a new college textbook is illustrated in Exhibit 1.

Unlike the fragmented U.S. trade and mass market,

publishing sectors, college educational publishing has remained concentrated in the hands of a few large publishers as a result ofseveral factors unique to educational pub-

lishing. The volume of college textbooks produced is

substantially smaller than trade and mass-market books.
While the per-unit cost of a book decreases with increase d
print run size, only the largest and best established publishers are able to shoulder the burden of small volume
per-unit costs associated with most textbook runs.
Cost of production, however, is not the only barrier
to entry in the college textbook market. According to the
Association of American Publishers, the college sector
experiences one of the highest return rates in the pub-

lishing industry-bookstores typiczlly return to the

publishers approximately 23 percent of all new textbooks
for full refund.2 Once again, only the largest publishers
are able to sustain the subsequent price reductions necessary to sell the returned textbooks in the secondary
marketplace,
Textbook returns are primarily caused by inaccuracies in predicting college enrollment levels, a task made
more difficult over the past decade by two demographicrelated factors. Enrollments at many U.S. colleges and
universities have been declining in recent years, with the
college-age population falling about 2 percent per year
since 1983.5 Although enrollments are predicted to grow
once again in the near future, accurately predicting the
number of students needing textbooks from year to year
and semester to semester still remains open to substantial

Breakdown of the Price of a New 56() Textbook*

*Note; Based on statistics provided by the Association ofAmerican Publishers and the National Association ofCollege Stores.

)Stand.ard.

{l

Pou"s Industty Suraeys: Med,ia,luly 20, f995,

pp. M26-M33.

,Ibid.
3lbid.

t/r
DiscussionQuestions 571

error. For example, the recent trend of greater numbers

of nontraditional students in college is compounding the

problem. The enrollment of nontraditional students is

highly dependent upon economic conditions, as either
the unemployed return to school to acquire new skills, or
individuals with extra money return part-time to complete their old degree or begin a new one.
The traditionally high prices of college textbooks,
combined with changing economic conditions, has engendered a strong market for the sale and purchase of

used textbooks. Bookstores tlpically repurchase used

textbooks from students at the close of each semester for
prices substantially lower than those at which the textbooks were originally sold. The bookstore then resells
the textbooks at an average discount of 25 percent off
the retail prices of identical new textbooks. Even with the
discount, bookstores make a substantial profit, typically
much higher than the profit earned on the sale of a new
textbook. Not only are bookstores repurchasing used
textbooks, but independent used-book wholesalers buy
used textbooks directly from students, then resell them
to college bookstores. Currently, sales ofused textbooks
account for 20 to 40 percent of total college textbook
sales and can virtually eliminate the demand for a textbook edition within two to three years of its first publication.a Used-book wholesalers, however, do not accept any
returns ofunsold books from bookstores.

The Textbook Ghannel

With the knowledge she gained from her research,
Amberly was able to sketch the relevant channel of

distribution for textbooks for the university. McGraw-HiII

and other publishers sit at the top of channel and sell
new textbooks directly to the university's B&N College
bookstore, as well as to other independent college bookstores that have recently opened near the campus, Professors play a somewhat facilitating role in the channel's
operation by determining which textbooks will be selected for a course. In addition, since one of the retail
outlets is a campus bookstore, the university's Office of
Business Affairs has some input into the management of
the channel. At the retail level, the bookstores then sell
the books directly to students. For used books, the usedbook wholesalers, along with the bookstores and studentto-student sales, comprise the secondary channel structure for textbooks.
Amberly felt satisfied with her depiction of the channel structure, until she remembered that B&N College
operates its own used book wholesaling division. In addition, she recalled a recent trend at many colleges and
universities to out-source the bookstore funclion to retailers such as B&N College instead of running the bookstore in-house.

Discussion Questions
1,

What environmental factors are contributing to

the conflict between B&N College and
McGraw-Hill?

2.
3.

Discuss the balance of power

has the advantage?

in the channel. Who

What causes of channel conflict can you identi$r

within the channel?

4.

What solution might you recommend to Amberly

as a potential avenue for consideration?