Teri Babcock posted the following comment on the last article I wrote in this series and I asked her for permission to move it to the front page. Thanks, Teri, for permission to use it here.
Teri’s comment is spot on the money in many ways, at least from my opinion. So even through I hate talking about pricing of e-books, it is an important topic for indie writers and Teri’s great comment really hits home. 
And, of course, I will make some comments after his post as well.
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Teri…
Went over to the Kindle boards, remembered why I don’t go there. A lot of people arguing with the pricing of short stories above 99 cents. And I thought again about the professionals I’ve heard speak about pricing goods and services. I thought about one of them in particular who consults with people to maximize their incomes, and what he would say about selling books.
He doesn’t work in the publishing industry, and he doesn’t have a pre-existing mindset about where book prices should be. He would base their price on a number of factors, one of the important ones being ‘perceived value to the consumer’. He would look at how much people will pay for other things of similar value, and price similarly.
He would also look at ways to increase the perceived value, so he could charge more.
He would look at all the short stories and say ‘It takes 15 minutes to read? And it was fun? Okay. charge 5 bucks.” And when writers squacked in horror, he would say “Starbucks sells fancy coffees for $5 that take 15 minutes to drink. They sell millions every day. Did you enjoy the story as much as the coffee? Yes? Well, no problem.”
And the writers would come back with “but there was actual substance in the coffee… cream and coffee beans and sugar…” and the he would respond with “yeah, and if I really like the story, I can read it again. I can’t drink the coffee again. I can lend the story to my friends. I can’t say to my friends, ‘gee you should taste this coffee, it was really good, you can try it when I’m done with it.’
He would tell you that it is not good practice to set anything, no matter how ‘small’, at regular price at the very bottom of the price structure.
The bottom price should be reserved for sales exclusively, and used only in an integrated, strategic way to give you more sales traction and build your brand.
If people said “oh, well I’m new, and I don’t have name recognition so I have to sell cheap to make sales” he’d say, no. Set the price you want to regularly sell at. From that price have sales, or other promotions that give an incentive to the consumer to try your new stuff. You’re telling the consumer that you know they are taking a bit of a risk on a new, unknown quantity, so a price break makes it more appealing. Once they’ve tried your stuff, then they know if the regular price is worth it to them.
You are always educating the consumer as to what your product is worth. The regular price will come to be perceived as its true value. You don’t want to set that too low. You steal from the consumer the thrill of getting a deal, you steal from yourself the flexibility to build and expand your brand appropriately.
And some writers would say “well, I’m pricing my stuff low because, in addition to my being a new writer, I think it is not quite as good as some of the more established authors.”
He would say “Don’t sell it unless it’s good. Do you think I’m going to be grateful that you took and wasted 15 minutes of my time and only charged me a dollar? My time is valuable. I’d pay $5 to have my 15 minutes back.
Do you think when I started as an accountant I told people ‘this isn’t my best work, so I’m going to give you a discount’? No. I did my best work, I gave them a price break from my regular rates – and told them I was doing this – as an incentive to try someone new, while I built my business. As my reputation grew, I didn’t need to do that anymore. And everyone knew what my regular rates were. With my reputation, I was able to support further price increases.”
The big difference between people paying $5 for a fancy coffee every day, and balking at paying $5 for a short story is this: consumer expectation. Starbucks has been training consumers to pay a high mark-up for their coffee for a long time. Consumers might grumble occasionally, but they still show up every day and pay $5. The writing e-market has been doing the reverse, because it is now a market of the commons, and the majority of the commons have no experience with marketing and sales.
The first and last tool of the unsophisticated sales-person is always to reduce the price. Like a chain-saw, price reduction is a powerful tool, but if it is not used carefully you can cut your own leg off.
I’m sure this finance guy would set his bottom price for stories at 2.99. He would not give up the 70% profit margin by dropping below that. If he perceived a need to set a sale price below that, he’d probably just make it completely free, rather than setting it at 99 cents, since there is so little profit at that price point anyway. And for a limited
time. There’s good reason Amazon sets the KDP Select free limit to 5 days.
Anyway, unlike the squackers, this guy makes his money making other people money. And I’m sure he would agree with Dean’s pricing… and say he hasn’t gone far enough yet.
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Dean here… Thanks, Teri. Wonderful and clear and spot-on-the-money from a business perspective.
And I think you are right, I haven’t gone far enough yet. Right from the start I argued with all the talk from all the places about discounting books too low and for no reason. And now, because of that start, it’s going to take indie publishing years to recover the public mindset of that 99 cent price.
And it is a mindset we caused by the early adaptors being so eager to make sales and give their books away for no sound business reason.
As I have said over and over and over, every writer and indie publisher is different. My hope is that an indie publisher will make a clear decision as to where to price their books. Clear and thought through from the perspective of history and business.
Just a little publishing business perspective.
In publishing there are (and have always been in one fashion or another) three areas of book selling. High end, mass, and discount. 95% of all books (in history) were sold in the middle end, the mass area where consumers got used to paying a certain price for a mass market paperback, a different price for a trade paperback, and yet a higher, but normal price for a hardback.
The high end books (in history) were the signed collector’s editions with added content and art.
The discount publishers (in history) published directly to the front discount shelves of big bookstores or discount mall stores. If a regular mass book got to those shelves or into a ten cent bin in the front of a store, it was because it didn’t sell and the store wanted to get ride of it.
Readers expect all three levels. Even with the new electronic distribution. They expect the middle prices to be the good books. They expect the very expensive books to have added content. They expect the discount books to be either poorly done or not wanted.
It’s called “perceived value” as Teri mentioned and it has been a major factor in publishing for centuries.
When you, as an indie publisher, decide to price your novel to 99 cents, you are shouting to readers over and over that your book is not wanted and has no value and is just being moved out.
If you price your electronic novel from the $4.99 to $7.99 range, you are telling your customers and readers the book has value and is a normal traditional book.
If you price your book electronically over $12.99, you better have added content or a demand like a bestseller with a million fans who want to read it now.
Nothing has changed in publishing, folks. Electronic is just a new delivery system that allowed writers to take control and get directly to readers. If you decide to indie publish, understand the business of publishing enough to at least tell the readers (with your price) that your book has value.
Now, go ahead and shout at me, but realize I will not put nasty comments through. Discussion is fine, anger you can take to another blog or to the Kindle Boards.
And thanks once again, Teri, for the great comment.
