Price Elasticity Can Work: Dropping Ebook Price To $1 Catapulted Year-Old Book Onto NYT Best Seller List
from the look-at-that dept
Last month, we wrote about continuing confusion by the major publishers about ebook pricing, and how many wanted to keep them artificially high, because they still think that’s the best way to maximize profits. However, in that post, we also noted that Rob Reid’s funny sci-fi novel about aliens wanting to destroy the earth over our copyright laws (they owe all the money in the world to the record labels because they’ve been infringing), was being price-tested for a while at $1. The book had been out for over a year, and apparently Random House was willing to do some price experimentation. The result? The book that came out 15 months earlier jumped back in the NY Times best seller list, coming in the 22nd spot on the ebook fiction list.
Of course, anyone who’s followed Gabe Newell at Valve knows all about how price elasticity works. Dropping your price significantly doesn’t always mean a decrease in revenues or profits — and can actually mean an increase due to significantly greater volume. So, again, this isn’t revolutionary, but it’s still quite amazing how resistant so many publishing companies are to this idea that selling for less might actually be a good idea. For all the talk about “devaluing the book,” who is actually going to complain if lower prices bring in both more readers and more money?
Filed Under: ebooks, price elasticity, rob reid, year zero
Companies: random house
Comments on “Price Elasticity Can Work: Dropping Ebook Price To $1 Catapulted Year-Old Book Onto NYT Best Seller List”
But what about the children?? 9-11?? The gays??
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I’m doing fine, thanks for asking.
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I’m having a hard time identifying if you fit into the first, the second or the third mention on Joe’s comment. I’d go with a gay child terrorist triple score (and wtf). /jk ;D
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You are a gay child, born in 9/11 (not to be confused with 7/11)?
I keep being stunned as to how few execs in charge of digital media seem to entirely fail to understand simple maths.
One pound from a million people makes you more than five pounds from a thousand people. This is NOT COMPLICATED.
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Yes it is.
You see, if it weren’t for those filthy pirates, they’ld be getting five pounds from a million people. So the ONLY solution is to keep the price at five pounds, get the 5000 pounds, and invest ten million pounds into developing a better, more foolproof DRM scheme, then complain to the government that piracy is bleeding them dry, and that copyright and anti-piracy laws need to be strenghtened.
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They system they learned worked with physical objects.
This is why they always treat digital like the physical counterparts.
They are unable to view the business in any other manner.
It used to be anyone who suggested these sorts of things was run out of the company.
Now they have entire departments to sort these things out, the problem is they are filled with people who are old school.
I am shocked they used such a recent title, and I have hope that we will see maybe a 13 month old title toyed with next to prove it wasn’t a fluke.
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This is a serious fallacy, as you have an infinite supply of digital goods with minimal additional cost (bandwidth ?).
That’s why the “lower cost, higher volume” model works so greatly.
“devaluing the books” – what a crap. What value are we talking about?
Price? Surely it dropped, but why is that matter when the profit still rise? (also, I don’t agree that paying more for something somehow create greater “value”. That maybe works for the fashion industry, but not books)
Intellectual Value? And how is that anyhow related to the price of the book? A free and good book is still valuable, while an expensive crap book is still crap.
…?
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And even the fashion industry has shown that ‘cheap’ copies drive sales and innovation.
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I often wonder how we would price products if we lived in a world where the internet had been invented before costly physical objects…
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Well, they’ve got the entire departments, but even if they aren’t old school themselves their bosses are, so any innovation in those departments gets quickly squashed before it can do any actual good.
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“They are unable to view the business in any other manner.”
No, they are UNWILLING to view the business in any other manner.
Price elasticity is not the whole story, you also need to keep reinventing that stuff so people keep spending, you don’t want a buck every ten years, you want the people who bought it to spend another buck again and again and again, you want to create a flow, a root system that will funnel all that pocket change into something big.
Here is an example.
http://www.kickstarter.com/projects/phantasmstudios/ghosts-n-goblins-demon-world
Ghost n’ Goblins is one of the golden age games that is well known to everyone, now people are trying to reinvent that for their kids so they can have something to share and have in common, is it happening not by the owner of that property but others that want it to make it happen, that money is not going to the original creator is going to the people who are doing the rework, I love the idea of reinventing that stuff but it will get in legal trouble soon, the actual owners of that property will do everything in their power to stop it and probably will not do the work themselves.
Nobody wins there, fans don’t get updates, new generations don’t get to experience that property because it is so old and not appealing for the current trends, the property owners don’t get any money, or new eyeballs or renewed interest and kill it slowly, letting it slip into the cold night.
Talking about publishing, Project Gutenberg launched their self publishing initiative.
http://self.gutenberg.org/
You don’t want to create an asset, you want to own the market, if you don’t do it, others sure will do it for ya.
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Actually, there is unlikely to be any legal trouble here as this model has been operating for 13 years now with the blessings of the original companies, as it has been found that, just as it is legal to reverse-engineer a garage-opening device, it is legal to reverse-engineer a game system. All that the people have to steer clear of is actual intellectual property (so names, etc.). You can’t copyright ideas or (roleplaying) processes!
Believe me, if this weren’t legal, Hasbro would have banhammered these game copies out of existence ages ago. Instead, it’s making their property more valuable, and they are even able to re-release old products for sale as they are suddenly ‘relevant’ again.
Legal ‘copying’ and open-source gaming have saved and revitalised the roleplaying industry, a lesson other creative industries should learn.
It’s mystifying to me that such a simple concept as “lower prices = more sales” can escape some people. Especially in an industry that was built on high marginal costs and regular second hand sales that bring nothing to the original publisher. You’d have thought that they’d jump at the chance to sell a $1 eBook to every reader rather than make a $4 physical sale from which they see only a fraction of profit and then only from a fraction of actual readers.
But, as indicated in previous articles, they seem to have conflated price and value. It’s a ridiculous notion that customers value a $10 digital file more than a $1 one, but it’s reality that far fewer people are willing to buy the former. Oh well, I have a backlog of reasonably priced eBooks to read, and as ever I’ll be here ready to buy their product if and when they ever offer it to me at a non-extortionate price. I can name 2 titles released this week alone where I’ve though “I’d like to read that but there’s no way in hell I’m paying that price for it”… Their loss, my money goes to their competitors.
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I simply refuse to buy any ebook that costs more than $2.50 simply because they are already profiting a shitload with that price. If the book is good enough I’ll buy sequels. And if I had the Humble Bundle option of paying whatever I’d even increase the amount paid in subsequent purchases (DRM is a deal breaker regardless of how much I like the author). There are plenty of problems with implementing my idea and the publishers are the culprit for most of the problems along with the resellers. First they refuse to let go of drm. Also they stab the authors in the back and give way too little from that money to the authors (and resellers such as Amazon also charge very unfair fees given their costs are virtually zero for a single download) so I’d be wary to increase my payment since much of it may end up in the pockets of these morons.
You see, there’s audience out there, there’s willingness to support the authors. But in the end they’ll keep whining about piracy instead of accepting the facts.
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I have a different ceiling price point (around ?3/$4 unless it’s something truly special) and for once I’m not totally opposed to the DRM here. It’s stupid and does nothing except cement Amazon’s dominance of the field (ironically only because the publishers demand it) but given that Amazon not only price very fairly to the consumer and have made an effort to make content accessible everywhere, it’s less odious than some other media. Add the fact that books to me have always been a “read once, then trade or give away” media,
I agree with your other points, but the sticking point is always going to be the major publishers here. Until they change their pricing, remove their instance on DRM, etc. the market is going to stay the same. Amazon, etc. are merely playing in the sandbox they built, if things are to change they have to build a new, fairer one. They’ve deliberately made all the same mistakes as the movie and music industries so far, let’s hope they start coping some of the right moves…
In the meantime, check out the offers already out there. As well as the usual legal non-DRM sources for books, there’s places that do Humble Bundle-style offers on a regular basis. Currently there’s one at http://storybundle.com/, I know of at least one more but I forget the name right now. I’ll update here if/when I remember it.
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Thanks for the tip! I wish there was something in my native language =/
Maybe I’ll start something.
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Don’t you find it ironic that the biggest e-book retailer is named after your river/jungle, but there’s nothing natively available?
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You’d like to read the book but won’t pay the price. Doesn’t that mean you don’t value the book at the price they’re selling it?
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You’d like to read the book but won’t pay the price. Doesn’t that mean you don’t value the book at the price they’re selling it?
Not to answer for Ninja, but I would answer yes.
But then again, I bought the book (both in physical and in electronic form) for full price. It is an awesome book, and well worth the price. It and Ready Player One are the most recent books I’ve read that I enjoyed and would pay full price for.
However, there are quite a few books in my wishlist that I’d like to read, but am not willing to pay the price they are asking for an intangible item that can, theoretically (but not in practice,) be taken away from me if the vendor/publisher decides that they don’t want me to own the book any more. (And interestingly enough, some of those books I have read before, in physical form, and would like to add to my collection of e-books so I can read them again in my chosen format.)
I would say this sort of thing does ‘devalue’ the book, but actually increases the value of the author.
Larger readership, increased exposure… these are things that have significant potential value.
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Hey who is important here? The publishing companies or the authors!
O Apple, look hither!
I wish Apple’s ethos would permit price elasticity. Valve runs sales midweek and weekends, over the holidays, and sometimes daily (why not hourly??). As a result, I purchase FAR more games from Valve than from Apple whose strategy of “we are premium and thus never do sales” puts a sour taste in my mouth when I know all too well that digital can be sold for nothing. Valve gets it right: sales drive me to buy from them more ?> I use their service more ?> I tend to buy more products, even at higher prices.
Valve also uses price elasticity to build their community, and actively encourage that community to interact with each other in many ways that Apple’s App Store does not. The result? A loyal base of gamers who encourage their gamer friends to also use Steam… which means more purchases on Steam. Smart guys, those Valve people. If Apple ever did what Valve does, I might switch my game purchasing to Apple.
Sometimes I think Gabe Newell was the best thing to ever come out of Microsoft.
Re: O Apple, look hither!
Valve runs sales midweek and weekends, over the holidays, and sometimes daily (why not hourly??).
Anecdotal but relevant, I spend most of my money on GoG during sales (and often spend quite a bit more than I should.) I pick up games all the time, either that I really want to play or that I had in the past and would like to play again, but won’t run on my environment (there is a lot of stuff that just won’t run properly on Wine/Linux/DOSBOX from the original Windows9x CDs, but runs perfectly fine from GoG.) But when there is a sale, I’ll tend to pick up games I never would have purchased full price for.
I’d be interested in seeing someone do a serious study on how much more they spend during a sale versus during normal prices, since know I am not alone.
Re: O Apple, look hither!
Apple do run sales, promotions, freebies, etc. on software (as opposed to hardware, which they never do) but as I understand it that’s more at Apple’s discretion than any of their suppliers.
A shame given their walled garden approach, but that’s what you get if you buy into that system, and Apple aren’t going to change their minds while they’re making so much profit from their existing approach. Bear in mind that for all their success in other areas, Apple are still primarily a hardware manufacturer so they won’t be treating software in the same way Valve does.
There are limits
This only works if the price is above the incremental cost of each sale. The cost to publish an ebook is probably several cents per copy (including hosting costs and transaction costs), so they would not be able to go much lower.
Jerry Pournelle has said that he has found pricing between $3 and $4 gets him the best results on the Kindle store. He has electronic rights to his backlist and is putting the books up himself.
I guess it depends on your market, somewhat. Like most “rules” of economic theory, price elastacity doesn’t apply uniformly everywhere. You complain about Apple’s “luxury item” pricing, but they are sitting on a $150 billion cash pile because of it. Do you ever see one of their stores without people in it? I work in academic publishing, and pricing has fairly minimal affect on sales, at least for some books. They sell to the people who really want them, and the people who don’t won’t buy at any price. Most of the time we’re doing well just to make back our costs. I’ve worked in publishing for 25 years and now I work in ebook production, so I can say that some of what you say is true–publishing as an industry has always been slow to adapt to technological change and executives don’t want to change their business models. They know that most books have fairly limited sales and just lowering prices is in most cases not going to change that. They know it works to some degree–more people buy paperbacks than hardcover, because they cost less. Remember mass-market paperbacks? That used to be a fairly profitable business before Safeway killed it back in the 90s. paperbacks used to be relatively cheap, and some books could sell millions. But most didn’t, even at the cheap prices. And only certain categories of books could be profitably published that way.
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Like most “rules” of economic theory, price elastacity doesn’t apply uniformly everywhere. I work in academic publishing, and pricing has fairly minimal affect on sales, at least for some books.
There’s little price elasticity there because it’s not a competitive market. The students have no choice but to buy the book the professor requires, whatever the price.
They know that most books have fairly limited sales and just lowering prices is in most cases not going to change that.
Do you have a reference for this claim?
Remember mass-market paperbacks? That used to be a fairly profitable business before Safeway killed it back in the 90s.
How did Safeway kill the mass-market paperback business? And where are all these paperbacks coming from that I still see if the market is dead?
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“The students have no choice but to buy the book the professor requires, whatever the price.”
Plus, of course, not only do most not shop around for alternative titles but most people don’t continue to buy such books after they graduate. So, it’s a restricted market within which price is one of the least important factors people use to determine what to buy and when.
I suspect his experiences would prove to be the exception, not the rule.
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Safeway changed the way mass-market books are distributed. There used to be a large number of small local jobbers that handled delivering paperbacks into places like supermarkets and drugstores. In the early 90s, Safeway decided they wanted to buy all the books for their whole chain from one supplier. This lead to massive consolidation in the supply chain. This lead to a reduction in the number of “slots” available for books. Instead of the local distributors figuring out what would sell in each store, every store in the chain would have the same books. Then they decided that instead of having 100 titles in a rack with 100 slots, they’d have 10 slots for the top ten. The result is that far fewer books are published in mass-market paperback, and the ones that are sell less, except for a few big bestsellers. Fortunately, it’s not my problem any more; I left that business a long time ago.
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Fortunately, it’s not my problem any more; I left that business a long time ago.
So did Safeway. ;D
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“You complain about Apple’s “luxury item” pricing, but they are sitting on a $150 billion cash pile because of it.”
No, they’re sitting on a $150 billion cash pile because they consistently offered their customers something that they valued enough to pay the asking price for. If you don’t offer your customer something they value, they won’t give you their money.
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Value has elasticity as well. In the case of Apple, they profit heavily by inflating people’s perceived value of their products. The same goes with fashion, which is MacCruiskeen’s point about luxury pricing.
Just like price, value has a base point as well. For price, it’s the marginal unit cost of the item; for value, it’s the item’s utility–value the item’s basic function provides the buyer. That’s the minimum from the buyer’s prospective that must be met in order to make the translation, just as unit cost is the sellers minimum. Also, both buyer and seller want to get as much as possible in the transaction while giving as little as possible. However, utility has more flexibility in value than money, giving the seller an advantage over the buyer. The buyer can make the item appear to have greater utility than it actually has, or has some additional value beyond the item’s basic function.
For instance, a pair of jeans has a unit cost for the seller and a basic function for the buyer. Neither will agree to the transaction if these basic conditions are not met. However, the buyer can use less durable material to lower cost, while still creating the same perceived utility for the buyer, or add inexpensive modifications like style or decoration to create a higher perceived value beyond the pant’s actual utility.
Just like fashion, Apple’s profits depend heavily inflating people’s perceived value of their products. Look at the iPhone. It’s basically just a touchscreen computer, and there’s now no shortage of similar touchscreen computers that sell for much less. However, Apple wants to make more money while paying as little as possible for the extra profit, so they trout figures like Siri or their App Store. These add little to nothing to the unit cost, and depending on how well they work may add little to nothing the actual utility of the device, but they nonetheless create the perception of greater utility to the buyer. Apple then leverages other intangible aspects such as aesthetics and public brand perception to create the illusion that the device has higher value beyond its actual utility.
The reality is that digital sales, when as low as this and what Valve do, really just creates alot of opportunity buyers who never actually consume the media. I’ve lost count how many video games I’ve bought on sale but never played.
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I’m… not seeing a downside here. The seller/creator gets paid where they might otherwise not have, the buyer gets something they may or may not play/read/listen to in the future, and if they don’t get around to the purchased item in the future for whatever reason… oh well?
They already knew this, actually. It’s the reason why books are published in hardback form first, and paperback form around a year or so later. The costs to the publisher are about the same in both cases; hardback books are not priced higher due to materials, but instead so as to make more money from the people who must have it now, rather than wait a year for the price to drop.
Unfortunately for the publishers, the public has misunderstood book pricing as to actually have something to do with the materials used; this means that they think ebooks, being intangible, ought to be really cheap. Publishers, though, want them to be expensive enough, at least initially, to not threaten the ‘expensive now, cheaper later’ model.
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I’m no expert on modern production but there most certainly was a correlation between materials and price at one point. That’s why the “pulp” novels were referred to as such – they used dirt cheap, poor quality wood pulp paper and thus the resulting book was much cheaper.
According to Wikipedia, at least, this trend tends to continue, although I’m not sure how much “marginally” actually means:
“Hardcover books are often printed on acid-free paper, and are much more durable than paperbacks, which have flexible, easily damaged paper covers. Hardcover books are also marginally more costly to manufacture and are usually much more expensive.”
http://en.wikipedia.org/wiki/Hardcover
Where can I read more about this?
Not about the importance of pricing per say, but how that can be used in conjunction with other ideas to become a successful author. 99 cents by itself doesn’t do much good when you’re a brand new author trying to break the ice. At that phase, no one knows about you and no one has a reason to care.
I know Hugh Howey is one of the classic examples, but he actually just got lucky. After he published the first part of Wool, he wandered off and forgot about it, doing nothing whatsoever to promote it. Several months later he came back and found that his book hadn’t fallen into total obscurity, but that a group of people had stumbled upon it, given it rave reviews, and were asking where the rest was. He’s a rare case of someone who barely has to work for success.
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“99 cents by itself doesn’t do much good when you’re a brand new author trying to break the ice. At that phase, no one knows about you and no one has a reason to care.”
I don’t think anyone says that price alone is the road to success. Of course you usually have to do a lot more to compete. But, there’s definitely a price point where people will take more chances. 99c is low enough for an impulse buy for many people, even if they don’t know the author, whereas higher prices will make people think much more about what they’re buying.
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Yeah, and it’s sensible because it costs WAY less to produce a digital book than it does a physical one. But I’m looking for the rest of the pieces to the puzzle of success.
It is, admittedly, likely that they vary too much from person to person and genre to genre for any one formula to be worth considering in general. But there’s got to be, say, ebook reading circles that could be good for the promotion of new authors.
Re: Where can I read more about this?
If you’re interested in seeing how things such as length, price, and even title size can affect ebook sales, check out the following, it’s a study that Smashwords put together, tracking sales through their service for a year, with some interesting, and hopefully helpful, data.
http://blog.smashwords.com/2013/05/new-smashwords-survey-helps-authors.html
Forbes had a good piece about book pricing and what Authors get from publishers.
http://www.forbes.com/sites/davidvinjamuri/2012/08/15/publishing-is-broken-were-drowning-in-indie-books-and-thats-a-good-thing/4/
So why is it $5.99 on the PlayStore?
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Presumably because the special offer has ended. The Kindle version is back to $10.13 on Amazon.
That’s the problem with stories about successful offers like this – by the time the results can be reported on, the opportunity to take part might have ended. Hopefully Random House will reconsider, as that’s definitely outside of the acceptable price range for eBook purchases for many.
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Over $10 for an ebook… these publishers really are idiots.
Yes the sale caused a massive uptick in it’s popularity and sales, but to assume that most, or even a decent amount of people will be willing to pay 150% paperback cost for an ebook, rather than see the price, and pass… I really wish more sellers of digital goods would realize that reality doesn’t work that way, no matter how much they wish otherwise.
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In fairness, that price is still cheaper than the physical paperback (going from this page, at the time of writing it’s $11.98: http://www.amazon.com/Year-Zero-Novel-Rob-Reid/dp/0345534514/).
But yeah, I know I’d see that, maybe add to a wish list if I was really interested, then move on to a competing book that’s more reasonably priced. I sure as hell would never pay that much for an eBook, and a change of 10x the price from one week to the next really indicates that something’s wrong with their thinking processes here.
Oh, and you know the best part? There’s numerous hardcover copies currently selling there for around $1.50. Even if you don’t get free Prime shipping, the hardcover is being sold for less than half the eBook price including shipping. In a perfectly legal manner that makes exactly $0 for the publisher, and which their own pricing policy has just made more attractive than the one that gets them income.
These people still have a lot to learn.
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A $2 difference, for an ebook that’s likely packed with DRM and therefor not a purchase, only a (revokable) license. That’s a steal alright, but not in the customer’s favor.
Yeah, it’s no wonder lots of publishers hate the mere existence of a second-hand market so much, as it provides a legal, viable way for people to buy what they are selling, at more sane prices, while providing competition in pricing, making it so the options aren’t limited to ‘pay their asking price’ or ‘go without’, adding ‘get it from someone else for cheaper’.
And the best/worst part? It is entirely their fault, with the advent of ebooks they could decimate used book sales, by pricing low enough that S&H would make the used copies cost more, something along the lines of 2.99-3.99. Less than they’re getting now, but no manufacture costs, no shipping costs, minimal storage and electricity costs… ebooks could be an insanely profitable opportunity for publishers, if they would only realize how to properly capitalize on the new options in pricing and selling, and weren’t so terrified of ‘cannibalizing’ physical book sales.
This guys book is awesome and its the first thing I’ve read in years.
I saw the words aliens, copyright, and music amd just knew I had to check it out.
Thnx TD!!
Threat from digital
I think all publishing houses are afraid they are irrelevant in today’s electronic world and are clawing at keeping themselves relevant, even at the cost of alienating their customer bases. They used to provide valuable services, like book binding, printing, distribution. Now that those items are moot, their only input is editing and barrier to entry for new writers. If they didn’t exist, just think of the flood of poorly written, poorly edited bad plotlines that would permeate the book market. If that happened, then they’d be just like TV.
Re: Threat from digital
Having read more slush than is healthy for one lifetime, I do not have to imagine this. In fact, unless you’ve been exposed to it, it’s hard to imagine just how bad it can be. It’s not just bad writing and plots. Think about the worst things you’ve seen in Internet comment threads and forums. The stuff that makes you question someone’s sanity. Now imagine that at book-length. Now imagine 20 or 30 of those arriving on your desk every fucking day.
I actually tried an experiment like this with the two e-books I sell off my website. Formerly I was selling them for $4.99 apiece, and I sold about 4 total per day. After I dropped the price of one of one of the books to $1.99 (I left the other one at $4.99 as a control) I was selling about 3-4 per day. So the effect wasn’t that big in my case, and it didn’t quite make as much money. Right now I’m trying it with a $2.99 price.
This is another story like those about lottery winners. yes, it happens. To a tiny minority of people/writers.
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This is another story like those about lottery winners. yes, it happens. To a tiny minority of people/writers.
So you’re saying it’s an anomaly?
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Which part are you complaining about? Getting on to the NYT bestseller list, or the idea that lower prices can encourage sales? Because if you’re trying to argue that it’s pure luck that led to a book selling more copies at $1 than it did at $10, I’m not sure what to tell you.
If, on the other hand, you think that the article is saying that any author can get on to the NYT list just by lowering their prices, I don’t think you understood the point being argued. Price is a factor in success – something that some major publishers have been scared of experimenting with lest they “devalue” their product. This example shows that’s probably not the case. That is all that’s being said. There’s no magic bullet to give you that kind of success, but altering prices to meet the demands of the market should be a no-brainer.
Good luck with your own novels, though. It’s always nice to see an actual author commenting on these discussions, even though sadly your work doesn’t appear to be to my personal taste. Hopefully someone here can find something to enjoy.
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You mean like how the system already worked?
Did you figure that all out by yourself?
i agree in principle, but pushing the prices down won’t hurt startup publishers that don’t have the financial muscle to compete with $1 price tags? let’s not forget that one weapon in monopolies arsenal is to artificially bring down the prices to squeeze the outcomers out of the market, although in the case of digital publishing we have to consider the significantly lower marginal cost of production