E-book pricing hinges on customer perception of value

As if in response to the last article’s dismissal of the $.99-$2.99 price point, O’Reilly Radar has a brief interview with Todd Sattersten of BizBookLab about the pricing issue.

Sattersten points out that the main issue at hand is consumer perception of value. Consumers see that everything else digital is cheaper than the physical equivalent, and think e-books vs. books should be the same way. He brings up the example of a print book that’s cheaper than an e-book, explaining “That creates a short circuit in customers’ brains. You don’t pay more for things that are more convenient. You pay less.”

And he addresses the issue of Amazon discounting, and attributes a motivation to Amazon that I hadn’t considered:

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.

He also points out a fundamental pricing disconnect between traditionally published e-books at $9.99 to $19.99 being sold in the same store as self-published 99-cent e-books. “The wide range of pricing destroys pricing power.”

He suggests that one way publishers might cope with the new lower price point is to shorten e-book length, and try serializing e-books the way some game companies are now experimenting with serializing their games, splitting them up across two or more 99-cent applications.

I’m not so sure that’s necessarily the best idea from the perspective of a book reader. Seems to me that kind of thing was tried a few years back in paperback with The Green Mile, and if it had been successful then we’d probably have seen more of that kind of thing. We haven’t yet. On the other hand, being able to pay 99 cents for a chunk of a book would allow people to find out cheaply whether they want to continue reading enough to buy the whole thing.

Still, it would be nice if publishers would try to streamline and reduce inefficiency and bring prices down that way. Getting rid of the antediluvian system of unsold returns would be one way to start. (Of course, given the choice between lowering prices and sucking up extra profit, I’m not too sure publishers can find their way around a price-demand curve, but that could just be me.)

19 Comments on E-book pricing hinges on customer perception of value

  1. “On the other hand, being able to pay 99 cents for a chunk of a book would allow people to find out cheaply whether they want to continue reading enough to buy the whole thing.”

    Isn’t that the whole point of the samples? What most people, including myself, just can’t wrap their heads around is the fact that there are no storage costs, printing costs , seconds and also no lending feature for those of us who are buying e-books so why should the cost be the same, or pretty close to the same price as a paper bound book. I understand that the authors have to make a living and that there are cost involved in scanning a book but to be honest that is a one off thing, unlike printing which can run into many editions. Also the fact that fewer resources are used to boot.

    I have paid good money for e-books with errors in them, whether they are punctuation, obvious spelling mistakes or in formatting. In those ways we are paying high prices for an e-book that is not edited properly. If those mistakes were found in paper copies the whole lot would be scrapped and never sold to the public due to the inferior quality, but as consumers of e-books we do have to put up with these issues and pay for it as well. Granted they are few in the scheme of things but still the point remains that consumers pay for an inferior product in this aspect and there isn’t much we can do about it.

  2. “You don’t pay more for things that are more convenient. You pay less.”

    Not so. Consumers pay premiums for more convenient products and services all the time. Ask any Starbucks customer.

    Paying less usually indicates you’re getting convenience at the sacrifice of quality. Ask any McDonald’s customer.

    Sattersten should have given a bit more thought to that analogy.

  3. I think the better analogy is ‘you don’t pay more for an ephemeral object than a physical one.’ Customers see the paper version selling for a certain amount, and don’t understand why a download which does not require ink, paper, shipping, warehousing etc. (and which can’t be loaned or re-sold, like the paper object can) should cost the same or more. That is where the short circuit in their brains is coming from, and justifiably so, in my opinion. Publishers can try to ‘explain’ this all they want to, the bottom line is, they are competing against common sense and that is going to be an uphill battle/

  4. It is really quite surreal reading comments like Mr Sattersten’s. His perception of how customers and consumers and how the marketplace should work is clearly bounded by the idea of fixing markets, ending competition and price fixing. The unfortunate thing is that his opinions are not unique among the big publishers.

    [blockquote]”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”[/blockquote]

    Yes indeed. Customers are well educated. They know digital is cheaper because it is. Big Publishers want to charge higher prices in order to make higher profits. It has nothing to do with costs.

    [blockquote]”That creates a short circuit in customers’ brains. You don’t pay more for things that are more convenient. You pay less.”[/blockquote]
    What a bizarre concept !

    [blockquote]”The wide range of pricing destroys pricing power.[/blockquote]
    Meaning ‘the wide range of pricing gives customers too much choice and the opportunity to buy cheaper’.

    [blockquote]”The biggest play for publishers in digital is to shorten book length.”[/blockquote]
    The most astonishing anti consumer suggestion I have heard in more than thirty years in business. This guy has no concept whatsoever of marketing or how to sell to the public.

  5. Funny how the big publishers never want to announce how much care goes into their editing, fact-checking, proofreading and formatting, and therefore they’re providing a much better product and so people should be willing to pay much more for it.

    It’s always, “this is how much we expect to be paid… hey! Howcome all you people are stealing our customers by lowballing the market! Don’t you know we can’t make a living on those wages!”

  6. @Elfwreck: True. Publishers shot themselves in the foot when they refused to acknowledge (or demonstrate) the convenience, quality, ease of use and desirability of ebooks… if they had, they’d have more of a leg to stand on when asking for premium prices.

  7. What publishers need to do is add value to ebooks to bring them to parity with p-books, like the ability for an ebook buyer to be able to resell an ebook ( or resell the usage license to an ebook since you don’t actually “own” it. )

  8. Hi Chris

    Really interesting article. I’ve read quite a bit about this recently and it’s a topic which seems to emote opposite responses.

    On one hand, it makes sense for Indie Authors to offer a low price for their work, but this in itself devalues the work they’ve put into writing, editing and presenting their eBooks. In fact, lower prices perhaps devalue the Market and set readers expectations unreasonably low.

    On the other hand I just can’t get my head around paying more than $10 for an eBook, which the traditional industry is keen to keep releasing at.

    Yes the cost to physically create and distribute an eBook is inherently lower than a hard copy, but all the rest of the labour is equal.

    With this in mind there must be a middle ground. For Indie Authors perhaps it’s about building a readership – charging less for older work, and more for newer – that is loyal (and through the Internet they can find readers easier than before with little or no PR budget). For traditional publishing it’s a difficult one, with Amazon setting the rules and loss leading it’s hard to see how they can continue to keep eBook prices artificially high (they need to settle to help readers understand what an eBook costs).

    Anyway, just some thoughts. Enjoyed your post.

    Adam Charles
    http://www.iWriteReadRate.com

  9. Hi Chris

    Really interesting article. I’ve read quite a bit about this recently and it’s a topic which seems to emote opposite responses.

    On one hand, it makes sense for Indie Authors to offer a low price for their work, but this in itself devalues the work they’ve put into writing, editing and presenting their eBooks. In fact, lower prices perhaps devalue the Market and set readers expectations unreasonably low.

    On the other hand I just can’t get my head around paying more than $10 for an eBook, which the traditional industry is keen to keep releasing at.

    Yes the cost to physically create and distribute an eBook is inherently lower than a hard copy, but all the rest of the labour is equal.

    With this in mind there must be a middle ground. For Indie Authors perhaps it’s about building a readership – charging less for older work, and more for newer – that is loyal (and through the Internet they can find readers easier than before with little or no PR budget). For traditional publishing it’s a difficult one, with Amazon setting the rules and loss leading it’s hard to see how they can continue to keep eBook prices artificially high (they need to settle to help readers understand what an eBook costs).

    Anyway, just some thoughts. Enjoyed your post.

    Adam Charles
    iWriteReadRate.com

  10. Andy is right. Publishers need to think about how they can increase the perceived value of ebooks. But, as far as I can tell, they are only thinking about how they can lock them down, limit their uses and control the prices. This mentality will not endear them to consumers.

    For example, they could put a system in place that will allow transfer or resell of ebooks. They could work with the various hardware vendors to allow ebooks to be transfered to a different device format. They could actually work to embrace the digital nature of the ebook and add a ton of links, editorial content, author connectivity and so forth.

    These are just a few ideas off the top of my head. I’m sure there are many other ways to add value. But publishers have shown zero interest in adding value. They seem to want to subtract value, bank the savings from the all digital process and then ram home high prices.

  11. this in itself devalues the work they’ve put into writing, editing and presenting their eBooks. In fact, lower prices perhaps devalue the Market and set readers expectations unreasonably low.

    How much work do you think goes into a song, with 4-5 instruments that have to be bought or rented, a singer, lyric creation, music creation, arrangement, and recording effort? Plus all the time it takes to learn to perform, and the practice time for that particular song–Shouldn’t all that work be worth more than a dollar?

    Should six-minute songs cost more than three-minute songs? Should the ones with difficult musical twists cost more?

    The value of ebooks is whatever the public will pay for them. Pbooks have marginal costs; the more are sold, the more someone is paying to produce them. The proper price is “as high as the market will bear to keep marginal costs as low as possible.” Ebooks’ marginal costs are effectively zero (how much does a commercial ISP charge for 1mb of bandwidth?); the proper price is “as low as it can be and still get the number of sales to reach the desired profit level.”

  12. Sorry about the [blockquotes above] … I thought it still worked :-)

    “to offer a low price for their work, but this in itself devalues the work they’ve put into writing, editing and presenting their eBooks. In fact, lower prices perhaps devalue the Market and set readers expectations unreasonably low.”

    I am still trying to contort my brain to try to figure where this kind of thinking comes from, and the only thing I can think of is that it is simply the fact that authors have traditionally seen their titles on shelves for $15 – $30, and now feel deflated … It is so irrational and financially naive. I also wonder if the big publishers have been stroking their egos on this line for so long they are brain washed.

  13. Logan Kennelly // March 23, 2011 at 11:29 pm //

    Howard, writers have traditionally not seen their work on the shelves at all. When they have been so fortunate, the price was closer to $6. My memory is not fantastic, but I think the current price point on paperbacks crept in about 10 years ago.

    And the perceived-value argument is an excellent one. We, as customers, always want it for cheaper. We oftentimes pay more, especially when there is a connection between the seller and the buyer, but, in general, if something is sold for $20, we’re much happier to buy it at $15. Some of these disrupting forces can be bad for the industry, and I completely understand why Kohl’s has high prices with frequent sales/coupons and Amazon has a ubiquitous 30% discount where they can get away with it.

    But Redbox $1 rentals is the reason I don’t rent movies online for $4. I also don’t buy digital movies at $15 when I can get the DVD for $8.

    Now volume, the loss of the used market, and reduced distribution costs help with electronic sales, but publishers should be worried about the reduction in perceived value. They should be worried about the potential for electronic sales to diminish traditional sales past the point of critical mass. However, it is frustrating as a customer to see anti-competitive tactics and high prices drive me away from the product that I want.

  14. When I started BooksForABuck.com, I decided that I’d offer affordable prices…at a time when many small publishers were charging what I saw as high prices for eBooks. That said, I agree with the article that (a) whether a price is ‘high’ or not depends on customer perception and (b) customers generally think they should get a markdown if they’ve spent a bunch of money on a reader. Still, there’s a difference between thinking they should get something for less than $19.99 or whatever the going hardback price is, and thinking they should get it for 99 cents. Customer perception isn’t a fixed thing. Many publishers believe (as I do) that eBooks offer greater value than their paper equivalent. Whether this means higher prices depends, obviously, on the publisher. I stick with affordable, but I certainly don’t believe that 99 cents is something that we should carve in stone.

    Rob Preece
    Publisher

  15. Logan Kennelly // March 23, 2011 at 11:59 pm //

    As far as I am concerned, $6 is reasonable and $4 is cheap. The real cost of reading is the 10–20 hours I am going to put into the book, and justifying that to myself is the hard … especially on an unknown author.

  16. The irony is, in their fear that Amazon was setting customer expectations at $9.99, the publishers with their agency pricing may have engendered a backlash where customers now want ebooks even cheaper. I was actually quite happy paying $9.99 for new releases, though I would be unwilling to pay it for something that’s out in MMPB, and even before agency pricing, I had paid more than $9.99 for books that I knew I wanted to read. But agency pricing was annoying enough that now I’m more reluctant to pay more than $9.99 even on books I know I want.

    When Amazon was setting the price, I could be reasonably certain that over time, the price would drop, and so I could choose to pay a premium for early access or wait and pay less later, but either way, I was unlikely to pay more than the paper edition. When the publisher sets the price, I don’t know this at all, because ample evidence suggests otherwise.

    So, I’m not looking for something for free. I’m looking for value for my money. I’d like a market that makes some sense, where I understand what I’m paying for. And ideally, I’d like to be treated with some respect as a customer.

  17. “What’s interesting is that Amazon is actively discounting [print] 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. … This drives more people to ebooks (who doesn’t want to download their book now?), sells more Kindles…”

    Wait, so Amazon is discounting print books, in order to drive sales of e-books? Does anyone else see Sattersten’s rationale as incongruous? If Amazon wanted to sell more e-books (at the expense of print book sales), wouldn’t they leave print book prices high and not discount them at all, making the e-books look like much better deals in comparison?

  18. Brian/AnemicOak // March 24, 2011 at 10:01 am //

    I agree David, Amazon discounting print books heavily isn’t helping the Kindle. Their site is full of discussion board comments and one star reviews from people complaining when the street price of a hardcover and the Kindle price are close. Lots of folks who are saying screw it and going back to print books feeling let down by $12-$15+ agency prices.

  19. David, while intellectually it may seem ‘incongrous’, I can almost guarantee Amazon doesn’t think there’s a ‘problem’ at all. Amazon most likely looks at it as if they win both ways. Either way, they get the sale. That’s all that matters to the huge retailers. The margin on any particular unit doesn’t matter as long as people keep coming back to THEM.

    Of course, Amazon wants to make the most margin possible, but that’s not their top priority. On the other side, the ONLY WAY publishers make money is the margin on their BOOKS. Publishers don’t make money on shampoo and diapers.

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