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13.07.11 | Alan Giles

Last month Bertelsmann announced the closure of its Direct Group, having sold off the British, American and French book clubs—with further disposals likely.

This type of book club first became popular in the 1930s, and as recently as 1998 accounted for 24% of the UK book market. Sheltered by a carve-out from the Net Book Agreement (NBA), book clubs exploited their unique ability to offer discounts on new titles. Customers were captured by offering extraordinary deals on high-priced coffee table and reference titles, and were then trapped by a combination of a mandatory purchasing requirement and—even worse—the infamous inertia selling "negative response" system. If you didn’t act quickly to cancel or change the "Book of the Month" it arrived anyway. Most customers couldn’t be bothered to re-package and return it.

Customer acquisition and retention were the key focus of book clubs. A former head of BCA (Book Club Associates) advised me to persist in my efforts to resign, but each new attempt was met with an even more attractive offer to stay. Meanwhile, publishers comforted themselves by concluding that sales to book clubs could be viewed on a marginal costing basis, under the dubious premise that book clubs were reaching a part of the market not accessed by other channels (the same fallacy that subsequently underpinned discounts offered to supermarkets and direct book operators).

The writing was on the wall for book clubs when the NBA collapsed. Bertelsmann, which dominated this field internationally, unsurprisingly fought hard in many markets for the continuation of retail price maintenance. But with that battle lost in some key markets, and the arrival of Amazon as a low-cost, highly efficient channel, it’s easy to see why Bertelsmann has been divesting book clubs. In most territories club membership is shrinking, and has become dominated by an older customer base.

But in other areas of traditional catalogue business, the previous market leaders have successfully translated their business models into the online era. Littlewoods’ old mail-order business, Shop Direct, has successfully reinvented itself as very.co.uk. Argos has leveraged its legacy of systems and catalogue know-how to become Britain’s most admired multichannel retailer.

With e-books growing rapidly, some of the conditions under which book clubs once flourished are returning. Subscription models seem likely to grow in importance. Some would argue that the agency pricing model looks a bit like retail price maintenance: the marginal cost of distributing additional copies is close to zero, and the ability to acquire and retain customers—and sweat that asset while you have them—seems paramount.

The BCA is nowhere near the force it was, but it still has some 250,000 members. New owners the Webb Group appear to have the right skill set, and with private equity backing, it sees value in the business. Did Bertelsmann, uncharacteristically, exit too early?