How do you set a price of something that has zero variable cost (it costs nothing to make copies and distribute them to the customers) and a limited set of customers? Well, that’s online media: newspapers, magazines, music, video, and books that are distributed over the Internet. Once made, each copy costs the company practically zero.
Classic marketing taught four P’s: product, places, promotion, and prices. First have the right things to sell, then choose where to sell them (or the channels to distribute them), then seduce customers for wanting, last extract money from those customers. Companies used to control all four. In modern societies, no longer. Now, for online media, the distributors and and product makers are in battle over the prices.
With the arrival of iPad, book publishers are now revolving against Amazon that insisted on selling eBooks at $10, whatever the price of the paper equivalent. Since Kindle has dominated the eReader market, publishers did not have any bargaining power. Apple’s iPad changed that balance and Amazon reluctantly yielded some power to the publishers. In this case, the arrival of stiff competition actually result in the increase of prices.
For anything, there is an “impulse buy” price. I am willing to pay “retail” for newspapers and magazines online. I routinely pay $10 for a paperback and will so for a copy on my iPod. For movies, I can accept $2 for titles that I will “give it a try” and $5 for a “must see.” For music, $1 is too much for me to “throw away” if I don’t like the song. As such, I buy only when I have heard it from somewhere else, for free. That can be radio, TV, or friends.
Beyond the impulse price range, I go through a relatively simple process:
- How much they want for it?
- Can I negotiate for a better price? If no or not worth the effort, skip the next step.
- Negotiate. This may be a jousting with the vendor or a search on the net.
- Am I OK with the price? Is it worth the money or can I afford it? If no. I am not buying. If yes, money exchanges hands and I have the thing.
Apple and Amazon took the simplistic approach. Every songs or books will be the same price and it will be at the impulse level. I am on the publishers’ side that pricing should be more sophisticated and they should have more say in this matter.
That said, the publishers are moving toward the wrong direction to raise prices. They knew, like music and movies, that each title has a limited set of customers and wanted to optimize their profit by charging more. Book readers are furious about this. I expect electronic books to cost at 25% to 50% of their paper equivalent. I believe both the authors and the publishers will still have the same profit at that level. Until that day, I am not spending $500 for an eBook reader and another $15 for each book.
At the center of 4 Ps is a C, the customer. Many compete for our money and attention. Publishers, heed our preferences or perish.