Friday, November 19, 2010

How Not to Price an e-book

Pricing is an inaccurate science, but necessary for businesses that deal with products and services. In setting a price, businesses need to look at what they are trying to accomplish. Maximizing volume? Maximizing revenue?

For many businesses, the real goal is to maximize profit, and that means walking a fine line between volume and price. If you set the price too low, you leave money on the table. If you set the price too high, volumes suffer and overall revenues go down.

Prices also need to consider the cost of goods that go into making the product – the higher the cost to build the product, the higher the price.

Pricing is not an exact science, but it’s not rocket science.


Nowhere is the market more confused over pricing models than in the book industry today. Disruptive technologies – e-books, mobile devices, internet distribution – are all contributing to massive change in the media world that appears to be confusing book publishers and causing irrational e-book pricing.

In the old days (by that I mean just a few years ago) hardcover books were released first and were priced higher than the trade paperbacks and mass market paperbacks that came later. It made sense. The hardcover books were more expensive to produce, and those who wanted the book fresh out of the gate were the consumers who were willing to pay more.

Enter the e-book.

The cost to produce an e-book version of an existing book is close to nothing. E-books can’t be placed on a bookshelf, and can’t be sold at a yard sale, yet some publishers seem to believe that the price for an e-book should be more than the paperback version.

Here’s one example; at the time of writing this article, Harlan Coben’s Caught, published by Penguin Publishing, is available on Amazon in paperback format for $9.99, yet the Kindle version is priced at $14.99.

All of the Amazon Kindle bestsellers are priced at $9.99 or below, except for those on the list that are not yet released in paperback. Some e-books are priced considerably lower. Consider Karen McQuestion’s A Scattered Life, which has been in the top ten Kindle bestsellers in recent weeks. The Kindle version of her book is priced at $2.99, a price point that surely contributed to the book’s success.

Author J.A. Konrath routinely prices e-books at $2.99. He has written extensively about his success on Amazon with his e-books (having sold more than 100,000 e-books), and has clearly demonstrated with his pricing strategy that e-books can and should be priced lower than print books.

While $2.99 may not be a magic number (many e-books have been sold at the $9.99 price point), the market dynamics have clearly shown that e-books should be priced lower than print books.

What’s your take? What should the price of an e-book be?

18 comments:

Kenneth H. Lee said...

This reminds me of the different pricing of vinyl albums vs 8-track tapes vs cassette tapes vs CDs.

If the intent is to get the reading masses to embrace a new format, it needs to be priced competitively and not more than what current formats are selling for.

I am not going to pay more for an e-book if I can get the paperback version at a lower cost, especially if I purchase from a discount store or the remainder rack.

It's been a long while since I've purchased books for pleasure reading, so I do not have a good idea of what prices are being charged by the various publishing houses for the various formats they produce.

I don't feel that there is a magic number that all e-books should sell for. I just feel that pricing for an e-book should be below what the print version sells for or what it would sell for if it were released in print.

I personally still like to handle a physical book and turn the pages, plus I don't have to worry that the battery on my reader will die on me when I have no access to power for recharging. Until the prices for e-books drop to a level where it makes it compelling to buy it over the print version, I will stick with print.

Colette said...

Kenneth, as always you make some very good points. It's interesting -- people used to say that they were waiting for the cost of the e-readers to go down... now that I have one, I am far more focused on the cost of the e-books. I'm with you -- if the paperback is less expensive I buy that.

Anon_e_mouse said...

An e-book is ephemeral; it requires a special device to read it, and when that device fails (as it assuredly will in a few years) the book will be gone. A real book, on the other hand, will (with proper care) be around for hundreds of years. Sitting within reach on my desktop is a three-volume set of Shakspere (yes, that's how it's spelled) that was given to my great-grandfather in 1887 on what (if I remember my family genealogy correctly) was his 21st birthday. On a shelf across the room is Hume's History of England in two volumes, as reprinted in 1767 (it was originally published in six volumes between 1754 and 1762; the 1767 edition was the paperback of its time, with fewer engravings and 5.5 point type). Next to it is a small volume by the Puritan minister Increase Mather entitled A Brief History of the Warr [sic] with the INDIANS in New-England, printed in Boston in late 1676, that was also passed down through my family. These books have been read by numerous people, and with care will be read by many more. They will not be lost in the flash of a silicon memory chip; they have a palpable feel that testifies to their age, and bear the signatures on the flyleaf of some of their former owners. Someday, they will carry my inscription as well, as I pass them on to a worthy recipient - one of my children or, perhaps, a grandchild. They are real.

Colette said...

Anon-e-mouse Thanks for the fabulous illustration of the added value a physical book can provide.

Karen Gowen said...

I really liked your analysis of this. I think what's happening is that publishers are trying to recoup their losses elsewhere by this unreasonable pricing of bestselling authors' ebooks. Once the market levels out and publishers are making money again, I believe we will see the ebook prices go down, even for new releases of bestselling authors. Right now they are pricing like this because they can, and because they need to.

Colette said...

Karen, thanks for your take on this. I wonder though, as traditional publishers play a lesser role, and more work is self-published, if there won't be an even bigger gap between the big house e-books and all others. It's going to be fascinating to watch.

Steveinpok said...

It seems a natural progression that e-book editions should be priced lower than whatever the currently available hardcopy sells for, in progression the hardcover, the trade, then the mass market paper editions. One more important issue here is the price-elasticity of the e-book: if 100,000 can be sold for 3 bucks, could the same or close to that volume have been sold for $4 or even $5. It seems that $10 is the current price threshold for e-books where there appears to be little buyer resistance. Personally, e-readers have no interest to me, though some of my progeny think they can't live without them. Bah Humbug! And, as usual Anon_e_mouse's contributions (with whom I agree, in this case) are not only incisive but also entertaining and educational.

Meg at the Members Lounge said...

Colette, being a Kindle and reader of the hardcover, I've noticed that difference too. I've been chomping at the bit for some books in the Kindle format, but found the $14.99 price tag a little ridiculous and just waited it out. It will be interesting to see how this market trends and adapts to the growing number of Kindle and e-book readers!

Colette said...

Steveinpok, I'm not sure I think of e-books as lower on the 'food chain' than mass market paperback, but I honestly can't see a reason why they should cost more. The fact that they are so inexpensive to produce (no paper, no physical production cost) and distribute (noone has to load it on a truck) changes the picture. Some of that increased profit should go to the writer, some to the consumer. Until e-books provide 'extra' value (think links inside books that take you elsewhere, or interactive books that are game-like) there's no added value. The price elasticity question is one I've thought about alot. The biggest testcase on this that I have seen is JA Konrath -- and it seems he thinks 2.99 is a magic number to drive (much) higher volumes than he'd otherwise see for the same book. Of course, whether the book is written by a top name author or not would certainly make a difference. What this technology does though is create a new space for those of us who aren't famous authors to play.

Meg, I always check the prices on all formats now -- and usually choose to go with the lowest priced format.

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KarenG said...

Colette, I believe we'll see a huge gap between the indies, the small press releases and the big guys. Gradually the gap will lessen as bestseller sales are affected. If they are. It's up to the consumer.

Colette said...

Karen, I agree -- the consumers have a lot of say in this new world.

Steveinpok said...

No disagreement with your remarks, Ms. M. particularly for new or marginal authors. However I personally know of 3 friends who are currently self-publishing in HC. Here's why - they are portable - they take copies to events where folks with common interests can buy them and get them signed to boot. Here's another question: Do e-books expand the market that is now the domain of "books". Will more people read published stuff as a result of digital distribution? My first thought is probably not. But then.......

Colette said...

Steveinpok - your question about the markets is a really interesting one. I have heard some say that the e-book market and the physical book market are distinctly separate. I disagree. I think right now the markets are overlapped and we'll see a gradual shift towards more e-reading. That said, I don't expect physical books to go away. There are some things (like reference, cookbooks, manuals) that are just better in hardcopy.

Those self-publishing will likely do well if they do both the e-book and the physical book -- depending of course on what the content is.

Peter Crawshaw said...

UK very similar to US. I set up Lovereading.co.uk and we have done some reader research that showed 87% of readers expected an ebook to be cheaper than the printed version. So with the agency model coming on board at Amazon and Apple it will be interesting to see how publishers respond

It was reported in The Bookseller http://www.thebookseller.com/in-depth/feature/100814-survey-says—.html and here is the salient text.

What is crystal clear from the research is that publishers have to tackle the perception of e-book pricing. For the moment at least, UK publishers seem adamant that digital books should be in line with hardback prices. This has led to some circumstances that must be perplexing to the consumer. The print version of Dan Brown's The Lost Symbol has been available for under £10 at many outlets and as low as £4.99 on Amazon and Asda. Yet the e-book was selling for £15.19. Looking at the data in this survey, publishers either need to convince the public why they should pay a premium for e-books, or pricing needs to be adjusted: a whopping 87% of respondents expect e-books to cost less than printed books.
This is not new, and has even chimed with research that Crawshaw did more than a decade ago. He says: "When the first e-book reader, The Rocket e-Book, was produced in 1998, I did research that showed that for e-books to be successful they needed to be 25% to 50% of the price of the physical equivalent and I am glad to see that the UK reading public's view has remained unchanged. And if publishers put themselves in readers' shoes for one second they would see the light as well."

Colette said...

Peter, thanks for sharing the view from the UK. It does indeed sound very similar. It really is a question of value.

Liz Fichera said...

I agree with you completely that e-books should be priced competitively (e.g. lower than a hardcover). That said, they do not cost nothing to produce. The same goes into making it publishable as any other book--editing, cover art, marketing, etc. But I agree that they should be priced less than an actual old-fashioned :-) book. Over time, they will, especially when people won't buy their books.

Colette said...

Liz, thanks for clarifying the cost question. You are correct. I was thinking in terms of 'hard' costs versus 'soft' costs.