Whatever your strategy, you need to pay a “strategy tax.”
I wrote this article about the cost of strategic shifts for DBW in March 2015. Read the full article at Digital Book World.
Whatever your strategy, you need to pay a “strategy tax.”
That’s the name I give to the cost you’ll end up paying to support your business strategy.
Take Amazon. It has a hands-off strategy. Amazon doesn’t want to pay staff to answer phones; it wants publishers to be self-service. We don’t phone them or meet with them to discuss new titles or promotional proposals. Instead, we log on to Vendor Central or upload our ONIX feeds and ebooks via FTP.
We don’t negotiate with Amazon, either; we either click to accept terms or we don’t deal with them at all. And in return for publishers going along with this approach, Amazon has created tools for us to interact with them programmatically, remotely, automatically, efficiently.
Amazon’s “strategy tax”? Building and maintaining a decent, automated technical infrastructure that gives publishers the IT tools to distribute their titles to Amazon customers.
Like all forms of overhead, every company aims to keep its strategy tax as low as possible, and sometimes it shows. Most publishers have spent frustrated hours trying to get hold of a real person to ask why an EPUB file is stuck at “In Progress” on PublishToKindle with no error message. It recently took me four weeks to get a Vendor Central support call answered, and the issue still isn’t resolved. And the problems aren’t confined to suppliers; from a customer’s point of view, some of Amazon’s product recommendations are frankly bizarre.
A strategy tax left unpaid the first time around gets collected soon enough. The cost of not building a decent set of tools means more support tickets, more complaints, more perplexed customers—more knock-on costs throughout the business.
None of this is just to take a gratuitous jab at Amazon. It points up a real challenge for publishers and retailers of all sizes seeking to operate at scale in the digital marketplace. Keeping the requisite systems and programs functioning at the levels needed to do so is often an expensive, unending, organizationally challenging job.
But more than just the cost of doing business, paying enough strategy tax serves as a sort of social contract between companies: We’ll agree to do business your way, Amazon, if you provide us with the infrastructure to make it work.
At the other end of the spectrum, imagine a little independent bookshop. It prides itself on personal service. When you go in, a knowledgeable person is there to make thoughtful recommendations, and they answer emails and online queries with the same personal touch. The store gift-wraps books ordered from its website and encloses a handwritten note of thanks. The strategy tax for this business is to pay for a sufficient, high-caliber staff, make good on its promises to customers and take the margin hit on higher-quality packaging and first-class shipping.
Since strategy tax, in other words, is the toll a business must pay in order to set the terms of commerce, it also lays the foundation for a company’s brand identity—plus its brand integrity. Once your brand starts to make promises, you’ve committed to an unspoken contract with the people you interact with, whether they’re suppliers or customers. Sure, you can renege on this agreement. But it won’t do your brand any good.
If you’re thinking of changing your strategic direction, consider the strategy tax of your new approach. If you’re a retailer and your current method is to pile it high and sell it cheap—the discount model—but you have aspirations to turn your brand into more of a high-value proposition, then you’ll have to figure out how to fund the necessary changes.
It’s not just about paying to develop new branding. It’s not even about affording a new storefront, whether virtual or physical. The real costs are in lost sales and lost customers as you move from selling the low-cost, high-margin stock that you’re known for to the high-cost, low-margin range that you’ll have to introduce from scratch to a whole new customer base. And you’ll have to cover the additional staffing, training, service provisions and all the associated costs of making good on your new strategic promises.
If you change your strategic direction, you have to change the entire underpinnings of your business. Think of your business as an iceberg. The bit that pokes out the top, which everyone sees, is tiny compared to the vast infrastructure beneath. You can’t move the peak without a very good plan for shifting the underwater bulk it rests upon.
As publishers look more closely at selling books direct from their websites, all these strategy-tax–related decisions pile up, and they can be daunting.
You will already be considering the costs of building the website in the first place, the costs of transaction charges from credit card companies and the costs of shipping and delivery. But there’s also customer service. Will you need to provide a tracking service? Will you store customers’ account information and if so, what about the costs of properly maintaining personal data in line with legislation? Will you have to invest in writing copy to cement your position as the leader in your genre? Will your authors support you in that, and can you pay them for their work? And so on.
Amazon is powerful enough to be more or less inured to the effects of any problems its partners or customers experience as a result of its strategy tax deficit. Few companies are equally resilient, but few companies have so great a share of the weight of their industries on their own shoulders.
That means publishers planning strategic shifts can do so with the effects scrutinized under a less public glare. It’s nevertheless essential for publishers to calibrate the cost of strategic changes and resources to understand—before it’s too late—whether those shifts will leave the brand unscathed and the P&L in the black.