Harlequeen Enterprises

Author Relationship

Harlequin needs to maintain a good publisher relationship with their authors; however, the threat of self-publication is a huge. Harlequin currently gives 5-10% royalties to authors on printed books and 25% royalties on e-books. In order for Harlequin to retain the number of authors Harlequin need to motivate them and maintain good relation with the authors.   

Decision Criteria

• To increase profit margin by 17.60% by 2017
• To retain 95% of Harlequins current author base every year till 2019
• To increase sales by _ by 2017
• To increase customer sales from e-book to __ 2017

Option 1: Tiered Loyalty Program

Harlequin needs to increase their promotion of books to its customers by offering an incentive loyalty programs to retain customers while increasing sales.

• Cost: The cost of lost revenues by offering free books and accounting for COGS is $1,342,806.  
• Benefit: With the tiered loyalty programs that ties into their current rewards program, revenues from increased sales of members buying books to increase their point’s revenue would be $1,613,822. The tiered setup will build customer loyalty and retention.
• Risk: Might not be able to reach these high revenues with the loyalty program or meet the break even of 3,956 book sales. Customers may not see the value of the tiered loyalty program. 
• Mitigation of Risk: Using the email of reward members, Harlequin can promote new books and reward offers to provide incentive to consumers to increase sales. To add value to customer for the new loyalty program Harlequin will need to explain the benefits and the exclusive offers provided with higher tier levels. 
• This option addresses critical issue: #2

Option 2: Pricing Strategy 

Our analysis shows that eBooks have elastic demand of 2.2(refer to exhibit), therefore we will be decreasing the price of eBooks to gain more sales (Techdirt, 2015). Reducing the prices of eBooks by 20% from $4.99 to $3.99 will increase the unit sold by 40% and we will have an incremental revenue of $67 million. Our analysis also shows demand for paperback romance fiction books is inelastic(Penn, 2011).Therefore, our price strategy will be to maintain the average price of $6.99 for paperback books since decreasing the price of paperback books will not increase the sales due to inelastic demand.

Cost: Cost of financial analysis annually $56,000

Benefit: Incremental revenue of $67,351,200 by changing the e-book price

Risk: Might not be able to increase the sale by reducing the price of eBooks. There is also a risk that people will switch from our print books to eBooks results in reduction of print book sales

Mitigation of Risk: Using the elasticity measure for the sale of the eBooks, reduction in price by 20% will provide a major incentive to the consumers to buy eBooks. EBooks industry annual growth is expected to be around 4% for the next 4 years which suggest that market is saturated for eBooks and there will be minimal consumers switching from print books to eBooks.

This option addresses critical issue #1

Option 3: Royalty Increase

For Harlequin to retain 95% of its current author base Harlequin needs to increase royalties from 25% to 35% to compete with the high royalties provided by the self-publishing industry.

Cost: Revenue decreases $32,589,920 after applying a 10% increase in royalty from 25%.

Benefit: Avoid the potential loss of $33,440,000 for authors leaving the company to do self-publishing for the higher royalty. Retain authors as it gives them a higher incentive to stay with the higher royalties with e-books.