February 27, 2012

Why should the price of ebooks . . . be on the floor?


Given all the coverage of the feud between Amazon.com and the Independent Publishers Group (IPG) over Amazon’s demands for bigger discounts on ebooks, an Irish Times story by Declan Burke on pricing ebooks has a whole new resonance.

The story, headlined “Why should the price of ebooks . . . be on the floor?,”  begins with bestselling author Stuart Neville (The Ghosts of Belfast) complaining about the fact that the Kindle edition of his newest book, Stolen Souls, has been slapped with a “$9.99 boycott” by some angry readers. “I’m amazed that people are that cheap,” he says. “Do they think a year of my life is worth less than $9.99? Do they really believe that 10 to 12 hours of entertainment isn’t worth the equivalent cost of two or three coffees, or less than two beers?”

He adds, “I think it’s the sense of entitlement that bothers me,” he adds. “It’s particularly common with those who believe they have some sort of right to download music and movies for free.”

While Neville makes a great point about the general diminishment of the inherent value of books by such pricing demands, he also raises the point about how difficult it is to agree upon fair pricing for ebooks. Or, as the headline of the article puts it, “Why should the price of ebooks . . . be on the floor?”

As Burke speculates, the problem grew out of the fact that “many early adopters of ereaders such as the Kindle and the Sony Reader were already acquainted with the internet, and particularly comfortable with the idea that, on the web, most of your content is delivered for free.”

On the other hand, as another bestselling author, Arlene Hunt, tells him, “People who use ereaders tend to be avid readers, they are people who are selective about what they read. Readers still want quality, both in terms of story and product. Books for 99 cent might be a novelty now, but there’s an element of you-get-what-you-pay-for there.”

In a consideration of ebook pricing for Teleread, Paul Biba agrees:

I’ve talked to several dozen people about pricing, and there’s a general feeling that something is still worth what you pay for it. Most people think free or 99-cent books have little or no value and must be written by amateurs or desperate people. Sure, the John Locke’s and Amanda Hocking’s can make money because they have established names and can take a small chunk of a million books and still do fine. But too cheap can work against you, too.

Neither article seems to have a grasp on the actual costs involved in making ebooks — like most commentators who aren’t publishers, they assume not having to print the book means huge savings in the area of 30-40%, which is extremely high, and overlooks the fact that ebooks have costs of their own — but Biba includes some fascinating discussion about buyer psychology and the demands it puts on pricing:

There’s a ton of research available on price theory that is instructive. For example, we’ve all seen products priced at what are called “charm prices” or numbers slightly below an even number: $2.59, $2.79, $2.95, $2.98, or $2.99. Perhaps you’ve wondered what the psychological underpinnings were for the different decisions.

Kaushik Basu, chief economist to the government of India, performed game theory research which revealed that buyers’ decisions are not materially affected by the “cents” part of any purchase. He found that since people read numbers from left to right, a left-digit blindness effect causes us to not read the last two digits, so we mentally see $4.99 as $4.00. So, according to Basu, you might as well charge the maximum cents, i.e. $4.99 instead of $4.29 because there won’t be noticeably more buyers at the lower price anyway.

If something is priced below $10, people round downward between $1-$10, but as soon as the price tops $10, the rounding moves to $10-$20, and a whole different attitude sets in about relative value. With prices of $26.99 or $29.99, you’ll see no real difference in sales. Pop the price to $30.29 and suddenly the rounding is $30-$40, and there will be buyer resistance.

Then there’s the fact that not just pricing, but the quality of what’s available nowadays may be impacting concepts of value. As Biba observes: “The ease of being able to upload books for free to Amazon, B&N and others may actually be encouraging a lot of people who aren’t really writers at all and who can then afford to just stroke their vanity.” Their willingness to sell their wares at rock-bottom prices, and the flood of such books in the marketplace, dilute the concept of fair pricing, says Biba: “Serious writers would only benefit if some way can be found to discourage some of the awful hacks that upload material so badly written and conceived …”


Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House. Follow him on Twitter at @mobylives