Dynamic Pricing and Ebooks
Today’s feature article at Publishing Perspectives is an interview with Rafi Mohammed about pricing, specifically about the “1% windfall” (increase prices by 1% make $$$$) and “dynamic pricing” for books. Here are a couple choice excerpts:
PP: Author Cory Doctorow has framed this debate as price elasticity versus price discrimination, with Amazon believing that lower prices create more demand and publishers holding on to the belief that differing products released over time maximizes profit. Does this properly characterize the actions these companies have taken?
RM: I disagree with Cory on both accounts. On the Amazon side, price elasticity is about choosing the right price to make the most profit. Amazon has been choosing to sell e-books at a loss for some time. That decision indicates to me a different strategy. Could it be about the profitability of selling devices and taking a loss on the content? Maybe it is about capturing market share while the e-reader market in its infancy and creating lock-in with consumers?
On the publisher side, price discrimination doesn’t exactly describe the choices they are making either. Price discrimination implies that prices fall over time as perceived value of the product falls and the choice by several publishers to create a second window for e-books, their most profitable product, after the release of the hardcover, doesn’t match up. There are again other motives at play. Windowing e-books protects hardcover sales and the retailers that depend on them.
PP: Digital distribution creates a variety of new opportunities for how products can be priced including the price of free. What sort of experimentation should publishers be considering?
Dynamic pricing is the biggest opportunity for publishers. For example, if a new release catches on, the price of the book should be increased. I am not suggesting doubling the price, but adding one or two dollars to the retail price creates a huge impact on the profitability of that title. Hospitality managers change the price of the rooms at their hotels constants to match current demand. Publishers should consider the same.
Yeah, I’ll bet that would be a breeze. And that readers would totally love watching prices fluctuate based on how many times they see someone reading a book on the subway. You could join a book club and pay $2 more for a title than you would’ve had said book club never existed. Dynamic pricing would be a lot simpler with ebooks, especially those sold directly from publisher to reader, but I get a headache just thinking about implementing something like this with print books, bookstores, and wholesalers with constantly fluctuating prices. And looking to the hospitality industry as an example of what publishers should do made me vomit a little bit in my mouth. Next thing you know we’ll all be aping the airline industry and charging extra for the cover or page numbers or some such thing . . .