I am publishing a collection of short stories as an e-book. Continuing a series from last week, I’m trying to work through the relevant pricing issues and set a price for that content.
Assume for the moment you know beyond a shadow of a doubt that at least one person will buy your book no matter what the price is. What price would you set?
Unfortunately, history suggests a shifting relationship between price and demand (sales), meaning you may not always be able to employ this pricing strategy. As a fallback, it can help to imagine how the relationship between price and sales might play out for your product, given multiple variables. Unfortunately, doing so usually involves a great deal of market research, lots of wild guessing, and facility with a spreadsheet that I don’t have.
One thing I can say about the relationship between the price of my short story collection and sales of my short story collection is that my ability to maximize profit is not a pressing concern. To whatever extent I might be able to squeeze a few more dollars out of the market by endlessly worrying about price, I’m confident the variance between that maximum profit and the average profit is going to be fairly small, simply because the total number of people interested in the product will be small.
Thus liberated by my own limited appeal, it still seems valid to assume that setting a lower price will move more copies, while pricing the content at higher levels will decrease the number of people who buy the e-book. This is obviously why people advocate for the free/freemium pricing model: it promises that the price of your product will not negatively affect demand.
Because I’m also concerned with profit, however, the free/freemium model is a non-starter. Giving content away may produce (or protect) the greatest amount of demand for a product, but it also guarantees no (direct) profit: infinite sales x $0 = $0. Even assuming that a price of $1 would shrink demand to only a single sale, that price would still come out ahead of the free/freemium mode in terms of profit: 1 measly sale x $1 = $1.
Now, if the free/freemium model really did entice an infinite (or overwhelming) number of readers (I’m hesitant to call them customers), that still might be the way to go — and particularly so if you wanted to join the speaking tour as a free/freemium guru. While you would show no direct profit from the publication of your content, at some point all those interested eyeballs would get Oprah’s attention, or the attention of the marketing department at a LargeCorporation (TM), at which point you could try to make money on the back end by trading in your celebrity.
The bet I’m making when I reject the free/freemium model is that the size of the potential market for my work will not precipitously decrease as a result of doing so. As consumers I think we are completely conditioned to view the decision to spend money as the main (if not only) barrier to a product’s success, to the point that we subconsciously equate a sales price of $0 with infinite demand. But that’s not actually the case.
Even if everything we wanted in life was free, some products would do better than others because of their quality, their utility or their simplicity. Books (including self-help books), however wonderful, fail the utility test in most instances, and particularly so when compared with basic necessities such as food and shelter.
But that’s not the main reason why I believe demand does not go through the roof when content is given away. I don’t dispute the idea that giving content away increases demand relative to charging for the same product. The relevant question for me concerns the difference between the size of those two markets, and the more I learn about the book business the more I tend to think the difference is fairly small. Specifically, the number of people who have the time and inclination to view my work is always going to be a small number, and that’s going to remain true even if my content is unencumbered by a purchase price.
The reason I think the addition of a purchase price won’t deter the majority of people from considering my work is because keen interest in content is one of the factors that defines the potential market. Put another way: anyone already motivated enough to check out my short story collection (for whatever reason) is probably not going to be deterred solely on the basis of some relatively small cost. By the same token, I think anyone unwilling to consider my work because it costs a few dollars is probably unlikely to consider the work even if I give it away.
The idea that free content necessarily opens demand beyond those who would be willing to pay for it may be the biggest fallacy of the free/freemium model. For example, if you told me the local landfill was giving away mulch I would elect to skip the giveaway on the grounds that I have no need for mulch. While similar examples don’t hold for diamonds and hundred-dollar bills, I think they probably hold for almost anything with a limited or negligible resale value.
Free tomatoes by the box? Well, as anyone who’s accepted such an offer can tell you, it’s a deal you’ll only accept once without a dedicated plan for immediately putting those tomatoes to work. Check any cooking or recipe forum and you’ll find post after post from hysterical people who gladly accepted bulk produce even though they have no idea what to do with it. “Got any recipes for 52 lbs of leeks?” “My neighbor just gave me four bushels of perfectly-ripe peaches! Help!!!”
In a previous post on DRM I talked about this same dynamic in the reverse. To whatever extent content piracy may be rampant, the commitment any individual pirate has to make in order to digest stolen books is so high I doubt whether most stolen e-book content is ever effectively consumed. If not — if the average pirate is so lazy as to not even bother reading what they steal — then proportionately less effort needs to be expended in trying to stop consumer piracy. Likewise, if the average consumer of free e-books never digests the full content, pricing works to entice such marginally-interested readers seems a mistake.
As noted recently I think it would be difficult if not impossible for me to collect useful data about how book price affects demand in the aggregate, to say nothing of sifting through numbers looking for products comparable to my short story collection in genre, page count, cover art, etc., etc. Even if I did find a duplicate to compare my own content to, I’d still have to guess how any change in price might affect demand. This strongly suggests that I should just skip all that data-collection frustration and jump ahead to the educated-guessing stage, which brings me back to my original point.
The goal in all this pricing business is not sales, but profit. Even if I assume that a higher price equals a decrease in demand, and (for the sake of simplicity) that the rate of change is fairly constant, it’s still almost impossible to say anything useful about how to price an individual product without actually testing prices in the marketplace. In fact, as noted here, I think even the publishing pros are guessing when they initially price an e-book — notwithstanding the industry’s concerted efforts to price content at a level that protects traditional overhead. (On the subject of pricing alone, Wikipedia includes a helpful list of twenty-five questions involved in pricing. In the absence of a formal education in economics, this further convinces me that a well-reasoned guess is the way to go.)
There is one thing, however, that I’m absolute sure of now. If an increase in price creates a consistent decrease in demand, then in terms of total profit I don’t have to worry what the high end of the price range should be for my short story collection. (In a previous post I guestimated that the right price range for my content was between $4 and $10.)
For example: if a per-copy price of $5 = 100 buyers, and a per-copy price of $10 = 50 buyers, then my gross profit is $500 in either case, but my readership at the lower price point is twice as big. (Yes, these are insanely optimistic examples. I like to live large in my dreams.) In such a scenario it seems blindingly obvious that I should go with the $5 price because I would end up with twice as many readers while making the same amount of money.
The question, obviously, is where this all breaks down on the low end of the price range. We know that a price of $0 doesn’t keep pace, but what about $1? If a per-copy price of $1 = 500 buyers, then I would still be making the same profit, but I would have ten times as many buyers/readers as I would have at the $10 price point. Would a per-copy price of $0.10 bring in the same amount of money, but bump my market size up to 5,000 buyers/readers? Could I get 50,000 readers by charging a penny for each sale?
The good news is that the range of prices I need to consider keeps shrinking. The bad news is that I’m running out of ways to differentiate between the remaining prices in a meaningful way. I still have no idea what the demand for my stories will be, or how it might vary between, say, a $1 price point and a $5 price point. (Fortunately, others have been writing recently about e-book prices as well. For more on how a lower price helps drive demand while maintaining profits, see here and here by Jake Konrath, and here by Brian O’Leary.)
I honestly do feel as if I’m honing in on a good answer to my pricing question. I’m also glad that a lower price seems to confer a real benefit (greater demand) while not necessarily diminishing profit. I still think my final price will involve a fair amount of guesswork, particularly because the marketplace is so new and undefined, but that’s part of the fun. As already noted, I have no expectation that these short stories will make me rich, and that’s making me much more comfortable with all the uncertainty.
— Mark Barrett