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Ebook pricing power is undermined by perceived value

Wide ranging ebook pricing and deep print book discounts leave consumers scratching their heads.

Much discussion (and some dismay) surrounds the current upheaval in the ebook pricing model. As $0.99 ebooks sit “shelved” next to $19.99 ebooks (whose print counterparts might be discounted to $11.99), one of the larger issues surrounding the pricing problem is the perception of value from customers.

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Jane Litte at Dear Author argued in a recent post that value is based on the reader’s “willingness and ability to pay”:

Every reader has a different price they are willing and able to pay for a book. I believe that price represents the value a reader places on a book at the time of purchase. However, value can vary over the course of time from when the reader first becomes aware of the book to after the book is read, increasing and decreasing based on different variables. When readers speak about price, they are talking about the amount that they are willing and able to pay at the particular time that they are expressing the opinion about price. Willingness includes the measurement of time.

I asked Todd Sattersten, author and owner of BizBookLab, to chime in on the pricing issue. In an email interview, he argued that print book pricing actually is the larger contributing problem to the perceived value of ebooks (mainly, ala Amazon) and suggested that serialization might be the right model for ebooks.

How are customer perceptions of ebook value influenced?

Todd Sattersten: There is only one factor that matters right now — what print books cost. Customers compare ebooks to their paper-based ancestors, and they long ago concluded they should be cheaper because everything else in their digital lives is cheaper than their physical lives.

Publishers don’t want this to be true and, with the power to control ebook pricing through the agency arrangements, are pricing the vast majority of ebooks like they are print books. I co-wrote a book two years ago called “The 100 Best Business Books of All Time.” The hardcover retail price is $25.95. On Amazon, you can buy that version for $16.61 or a remaindered edition for $10.38, while the Kindle edition is $18.99. That creates a short circuit in customers’ brains. You don’t pay more for things that are more convenient. You pay less.

What’s interesting is that Amazon is actively discounting books in the 40% to 50% range, and in many cases putting the price of the print book very close to the price of the ebook. There can’t be any margin left at those prices. Amazon, having lost the ability to control ebook pricing, is saying to customers “ebooks and print books are the same.” This drives more people to ebooks (who doesn’t want to download their book now?), sells more Kindles, and further cements their place in publishing’s future — both provider of new and destroyer of old (what bookstore can compete with 49% off?). Also, notice how Amazon is redefining short writings with their Singles program. Fewer words, lower prices and, most importantly, a new (not very good) term to attach to the new value proposition.

Is there a disconnect between publishers and readers that’s influencing the developing price model?

Todd Sattersten: The biggest disconnect is that mainstream publishing’s $9.99 to $19.99 ebooks are now sitting next to Amanda Hocking and J.A. Konraths’ $0.99 ebooks. There was never that risk in the bookstore channel because of the cost of scaling atoms. The wide range of pricing destroys pricing power.

Are ebooks destined to be priced at $0.99?

Todd Sattersten: Yes, they already are. Is everything going to be $0.99? No.

What do publishers need to do to take control of the perceived value of ebooks?

Todd Sattersten: I am not sure we’ve figured out what the reader should get for $0.99.

The biggest play for publishers in digital is to shorten book length. Everyone will admit that books both in fiction and non-fiction are driven by a page count rather than what is the appropriate length for material. I would like to see more experiments with serialization on the fiction side and an “album” of chapters on the non-fiction.

Here is an example of what I mean from the app space: 1337 Game Design released a game app for the App Store called Dark Nebula. It was $0.99 and had a light narrative that pushed you into Episode 2. So, rather than putting a bazillion levels in a single $0.99 game, ala Angry Birds or Cut The Rope, they divided 35 levels across two $0.99 apps.

Adapt the product to match what pricing will support. Every other industry does it. Why not publishing?

Our biggest problem is that we keep hanging onto the idea of a book. The word itself is laden with 500 years of meaning. In my world, a book is made of paper, bound on one side and it does an awesome job of delivering words and images. We need some new terminology for electronic products so we can get more creative about what publishing creates and what we can offer readers.

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  • http://http:blog.stevelydford.com Steve Lydford

    I don’t expect all my ebooks for $0.99 but I do at least expect them to be cheaper than the print version.

    I am more than happy to pay for good content but how can an ebook, which costs next to nothing per copy to physically produce, cost more than (or even the same as) a printed version?

    It costs money to print and bind a book, package it, ship it to the distibutors, post it (most books online have free shipping which is obviously covered by the price) etc., whereas sending me a .pdf, .mobi etc. costs nothing.

    If it costs $5 to print, bind, package and send a book, then I don’t see why the ebook shouldn’t be $5 cheaper than the print version.

  • Aaron

    From the article:
    “That creates a short circuit in customers’ brains. You don’t pay more for things that are more convenient. You pay less.”

    Following up on Steve’s comment, the issue is not about convenience, it’s about real costs. A digital copy carries marginal cost approaching zero. That is to say, it costs the publisher the same amount to publish a single e-book as it does to produce ten million of them. After the publisher covers their base, everything else is greed gravy.

    At least some consumers recognize this, and they call shenanigans.

  • http://www.carolynjewel.com Carolyn Jewel

    Huh. I agree with some of this, but a lot of the conclusions strike me as incorrect.

    they long ago concluded they should be cheaper because everything else in their digital lives is cheaper than their physical lives.

    Actually, no. People pay for convenience all the time. My cell phone as a device costs MORE than I ever paid for a land phone. And my cell service costs substantially more than my landline service. I pay 0 for broadcast TV and nearly $80/mo for cable (satellite).

    Despite the existence of .99 ebooks, eBooks priced higher ARE selling.

    Amazon, having lost the ability to control ebook pricing, is saying to customers “ebooks and print books are the same.”

    No, Amazon lost the ability to control eBook pricing when those ebooks come from the big 6. Amazon sets the parameters for eBook pricing for all other eBooks, including self-pubbed one. The indie author is, however, free to set almost any price.

    Anyone with an eReader can go to Amazon and see quite plainly that eBooks do NOT equal print books. It’s clear that authors of books from other than the big 6 are are finding a profitable price point.

    Readers are well aware of the limitations of eBooks (DRM, geo-restrictions, fragility of the purchase through device changes or failures, inability to lend, and limitations on number of re-downloads to name a few) They are right, in my opinion, to think paying the same for an eBook is unfair.

    The wide range of pricing destroys pricing power.

    I call baloney on this. A wide range of pricing is called a Free Market and means that vendors who overprice their product will have a hard time competing with vendor who don’t. The Big 6 are in the middle of a hard lesson in capitalism.

    There’s more I disagree with, but those are the highlights.

  • Thomas

    The problem of ebooks is availability in the first place. I can read it on a kindle or in iBooks or in… but I can’t just read it where I’d prefer. Since not only do not all stores have all books but I’m locking myself into their devices if I purchase ebooks from them (once a kindle always a kindle… or good bye books), there’s a hefty additional cost attached to ebooks. Paper books I can always read – ebooks will depend upon the availability of the device in 6 years. Unless of course the device manufacturer decides to just give up next week and there all the value goes away – as happened to Microsoft’s approach to music in the past.
    Then there’s of course the frustration that comes along with searching for ebooks. I personally don’t really care about the price as long as I can read what I like when I like. But what I like is extremely difficult to find because although the amount of available ebooks is always hyped, it’s insignificant, sorted strangely and difficult to search for. The perceived price goes up a lot if one has to put a lot of work into getting the book in the first place.

  • rick

    Aaron’s incorrect in assuming that the costs associated with the physical production and shipping are most of the cost of a book. They’re not. They’re ~20%. So, yes, ebooks should, on a cost basis, be about 20% cheaper.

    99cents isn’t a tenable price. Hocking and Konrath are outliers and arguing that an enire market will emulate people at one edge of the bell curve is poor reasoning.

    Too, the idea that 99 cents is some holy grail of a price is silly. Really, people? You’ll pay $2 to $5 for a cup of coffee that you will literally piss away, but a book that will provide hours and hours of entertainment isn’t worth that much?

  • http://www.toddsattersten.com Todd Sattersten

    Thanks for all the comments.

    Let me respond to a couple of things:

    Digital disrupts the entire supply chain. Print to digital drops the costs by 20% (as Rick said), but when an author goes direct to readers through Amazon or a Kickstarter project or an Etsy Store even more of those cost melt away. The mere ability for authors to reach readers directly is going to put pricing pressures on commercial publishers, but of a lower cost structure of the author/publisher.

    In response to Carolyn’s thoughts:

    I made a general statement about digital and would point to $8 streaming at Netflix, 99 cent apps, 2 cent/min international Skype calling to further make my point. The telco oligarchies distort the clear path to lower pricing but if we compared 80’s landlines to 10’s cellphone plans we would not be that far apart in inflation-adjusted dollars and the service is infinitely more convenient.

    Look at the Top 100 on Amazon and look at the price points that Amazon is setting for the print books. They are at 40+% off. These are insane, unsustainable prices that shows Amazon must be playing to a different game. My thesis is they are trying to demonstrate parity between the two products by putting the price they control as close to the price they can’t control. And as customers are shown that repeatedly over time and when given the choice, customers are going to buy Kindles and choose ebooks. This helps Amazon increase the installed based and guarantees margins.

    And book publishing is certainly a free market, as free as it has been in years. Everyone has the ability to price their product wherever they like. I just believe that the flood of lower priced alternatives is going to make it difficult to maintain $10-$20 price points on ebook and rather than fight it, create new packages of content like a set of products that allow the same spending over a period of time. There are a ton of ways to go about it. It could also mean providing good/better/best pricing which is being used extensively in the music industry to satisfy different price points on the demand curve for an artist’s material.

    And finally to Thomas point – we are just getting started. Publishers are still converting backlist and finding what we want to still hard. Reading it where we want is even harder unless you commit to a platform. ePub has yet to become the ubiquitous mp3-like file format for publishing.

  • Jim Klein

    Is a “remaindered edition” the same as 2nd hand? If a 2nd hand book costs $10.38 then someone can spend $10.38, read the book and be left with a 2nd hand book worth $10.38 which can be given away or sold. And they don’t need to tie up their money in fancy hardware before they’re allowed to read the book. So the more convenient option already is the cheaper option.

    Read and re-sell 2nd hand books, use the savings to retire early. There’s nothing more convenient than not having to get out of bed in the mornings!

  • http://www.iwritereadrate.com Adam iWriteReadRate

    Hi Jenn. Thanks for the post – really interesting.

    There’s a great deal being written and discussed about eBook pricing at the minute. There’s so many different models out there, and some are really quite complicated.

    I think for Indie Authors it is important not to undervalue your hard work, but to set a fair price that you’re happy with. There seems to be some discussion around whether $0.99 devalues your work – an interesting point.

    An interesting idea I read about recently was where an Indie Author prices earlier work lower and more recent work at a higher price. Definitely worth considering.

    Personally I think around the $2.99-$3.99 is a fair price for a well written, edited, and presented eBook.

    All the best

    Adam
    iWriteReadRate.com

  • http://dearauthor.com/ Jane

    What I hear readers say, once you really start to engage them, (and this is something I am going to post about on Sunday) is that a) they do believe you should pay less for something that is more convenient but b) they can do less with their ebooks than they can with their print books.

    Used book stores are a big part of my readers lives. The used book store is not a part of the digital book paradigm. Thus, readers are not willing to pay as much when their digital books don’t have the same utility as their print books. As print book purchase can equal a read + a contribution toward a second read though used book store/sale/trade/swap/share.

    The digital book has a lot less utility and therefore the value has decreased for the reader.

  • http://www.chasingtherunnershigh.com Ray Charbonneau

    HarperCollins, by placing a cap (26) on the number of times a library can lend a book, is telling us what they think reading an ebook should be worth. The answer — about $1.15. As a writer/publisher, I’ve adjusted my prices accordingly.

    http://y42k.wordpress.com/2011/03/21/harpercollins-tells-us-what-ebooks-are-really-worth/

  • http://www.selfpublishersonlineconference.com James Byrd

    When you are talking about pricing for e-books versus print books, I think it is important to include fiction versus non-fiction in the equation.

    Fiction is virtually disposable, so it has a lower value for most readers. I keep maybe 1 in 100 print fiction books I read. Most are just donated to the library when I’m done with them. The less I spend on fiction the better.

    I think most fiction is going to end up at $2.99 or less, with first books of a series at $0.99 to make it an impulse buy and overcome the reluctance of a reader to try a new author. Amanda Hocking is (or was) doing this with her Trylle series.

    On the other hand, I think non-fiction can hold the price line a little higher because the books usually have reference value.

    I for one will never buy a non-fiction book I care about having around for reference in e-book format unless the book itself has a short shelf life (as most tech books do). I don’t want to take the chance that I will lose access to the book in the future because of some change in device or formatting standards. Having your books effectively “in the cloud” only makes matters worse.

  • http://www.selfpublishersonlineconference.com James Byrd

    When you are talking about pricing for e-books versus print books, I think it is important to include fiction versus non-fiction in the equation.

    Fiction is virtually disposable, so it has a lower value for most readers. I keep maybe 1 in 100 print fiction books I read. Most are just donated to the library when I’m done with them. The less I spend on fiction the better.

    I think most fiction is going to end up at $2.99 or less, with first books of a series at $0.99 to make it an impulse buy and overcome the reluctance of a reader to try a new author. Amanda Hocking is (or was) doing this with her Trylle series.

    On the other hand, I think non-fiction can hold the price line a little higher because the books usually have reference value.

    I for one will never buy a non-fiction book I care about having around for reference in e-book format unless the book itself has a short shelf life (as most tech books do). I don’t want to take the chance that I will lose access to the book in the future because of some change in device or formatting standards. Having your books effectively “in the cloud” only makes matters worse.

  • http://nrwilliams.blogspot.com/ N. R. Williams

    The reality of this is, if you are an unknown author, you must price your book where people will find it. Many readers are not looking beyond .99. There are many other issues that must be addressed as well.
    Nancy
    N. R. Williams, The Treasures of Carmelidrium.

  • Caleb

    I think the implications considered with the shortening of books is an interesting proposal.

    I enjoy the convenience of digital reading, however what holds me back is the inability to give, sell, or lend the books I read, as well as being locked into a format that I may not be able to use in the future.

    Sharing of books is a very important part of the reading experience.

  • TD

    One thing that CONTINUALLY gets left out of the equation is the nature of publishing. E-publishers are bigger greedheads than you guys realize.

    The reason books get pulped so quickly is that publishers are required to pay tax on inventoried copies. In the old days, they weren’t. This meant that many books could, in essence, stay in print forever, slowly selling and building a market in a pre-Net world. With a few editing and teaching jobs, it was much easier for writers to write more or less full-time and make a survivable living.

    E-publishers also don’t have to deal with the single biggest bugbear of publishing, the return. If Borders buys a Sarah Palin biography for 60% off and fails to sell it, it may return the biography to the publisher for the price it paid, usually within 6 weeks-3 months or so. This is a substantial hit to publisher profit as millions of books are returned and then pulped or resold as “bargain books”, typically by the pound.

    So ebooks can be kept forever without tax. And they are not returnable as a matter of course. Add this to the low cost of production, and you’ve got a (temporary) license to print money.

    I expect this will come to a crashing halt. 99 cent books generally suck if you’re a real reader, which I am. (Give me Nabokov and Rushdie and Amis, not some crap about a lovesick vampire.) There’s still value in top-caliber editorial curating, in other words. But it’s just not as much value as the publishers want, and may not be enough to enable them to continue to operate. And many, many, many people don’t have my reading standards, and they’re probably the real market. Finally, people don’t have time to read as much as they like. This is going to squeeze big-6 prices inexorably downward.

  • http://ebmv.iobyte.com Dan Lubart

    Despite what many ‘want’ to have happen, there has been a clear trend over the past few months of increasing numbers of premium-priced ebooks on the Kindle Bestseller List.

    You can see this readily in the chart on this blog post http://ebmv.blogspot.com/

    The number of $10+ eBooks jumped on March 1 when Random House went agency and repriced a large number of titles from $9.99 to $12.99. What noone expected was that the number of $10+ titles would continue to increase, from around 30 on 2/28 to 40 on 4/25.

    It appears that as the value shoppers gravitate towards the ever-increasing choices in the sub-$3 range, the remaining segment of buyers are, as a group, less price sensitive and more willing to pay $12.99 for an eBook. In fact, the price band that has suffered the most is the $8-$9.99 one. While we may question how Amazon sets their sales rankings, one thing we can probably agree on is there is almost certainly no hidden agenda to make the more expensive eBook rank higher and thus become more visible to buyers at the expense of the books they are responsible for pricing.

    So while there are many voices grumbling about paying $12.99 to $14.99 for new releases by top authors, many more (probably including some of those grumbling) are buying at those prices.

  • Robert

    It is the artificial price levels that publishers are putting on ebook prices that is stopping me from investing in this technology. I am an avid reader and technically saucy so the idea of eBooks is extremely appealing. If I jump into this I would want to duplicate my extensive paper library to an electronic one just like I shelved all my CDs in favor of MP3 files.

    The difference between music and ebooks is that I can purchase low cost CDs and make my own files. With books there is legacy digital formats so the publisher controls everything.

    If I want the 13th book in my favorite series I am ok with paying full hardcover price. What I object to is paying more than paperback prices to back fill book 1-12. Paying $20-25 for a new ebook is fine but paying $10 for a book that has been out for 20 years is insulting.

  • http://www.mlvwrites.com Monica

    Every conversation I’ve seen about the pricing of e-books or print editions doesn’t take into consideration what the costs of writing and editing are. With eBooks, there are other costs that the reader doesn’t see: layout, testing, distribution, retail, etc. That’s not a tangible cost, ergo, it’s hard to assess the value. Some of those costs are new and separate from what goes into a regular book, too.

    eBooks are still only 20% of the market. However, the market is glutted with self-published eBooks and titles you wouldn’t find at a bookstore. This market is still new enough that there is more room for experimentation provided an author/publisher can make their book known in a flooded market.