Not All (e)Books Are Created Equal

By Annette Ehrhardt

Not All (e)Books Are Created Equal by Annette Ehrhardt

Strategies for pricing your e-books.

There’s no doubt about it: The printed word is still holy. Although Amazon reports selling more Kindle e-books than traditional books, print books are still the dominating force behind publishing sales—and will continue to be so. It seems that many readers value the printed word more than the digital word. So why do so many publishers price their e-books based on the print price? Is this wise?

Print price minus x% is a common formula for pricing e-books. After all, such a pragmatic approach makes sense considering the fact that you don’t have the costs of printing, storing and transporting books. But is the print price the right starting point? How high is “x”? Do e-books really deserve a lower price tag than printed books? And the looming question: What’s the best e-book price for a seller to survive in a dynamic market, to cover the costs of developing content and to optimize profits?

What’s Decisive: The Book’s Value

Ideally, the price for a product equals the value it provides customers—in other words, the price reflects the willingness to pay. A printed book’s value is determined primarily by its content, but also by factors such as the author, paper quality, font size, length; for non-fiction it’s also the number and quality of graphics, etc. The costs represent only the minimum price; the margin varies according to the book (group) and competitive situation.

In reality, however, these value factors are used only rarely to systematically set the price: The length (and thereby paper and print costs) has the biggest influence on the book price. With this approach, the price might just also match the reader’s willingness to pay (if the publisher is lucky). Making matters worse, publishers rarely take into consideration how a price adjustment of even $1 can negatively or positively affect volume, revenue and profits. Following the logic of value-oriented and profit-optimal pricing, using the print price as the starting point for e-book pricing makes very little sense.

But let’s assume that print pricing does focus on value, and that the prices are profit-optimal. Would you then be able to derive a profit-optimal e-book price from the print price? As with print books, the content and the author are the main value drivers of e-book sales. Yet you can’t ignore the value of an e-book’s immediate availability, the weightlessness, the ability to bookmark or change font sizes, the search and edit functions, and many other features such as bonus material and interactive animations.

These value factors present a clear picture: No e-book is created equal. You have to differentiate between text e-books (pure content), and enhanced or enriched e-books with added features (with greater value). Digital textbooks, for example, may very well offer the reader more value than the traditional print version. The interactive elements, such as vocabulary trainers, can make digital books much more valuable to readers than print. The discrepancies in value (“x”) between print books and e-books can be negative, zero or positive. In other words, the e-book’s value may even be higher than the value of the printed book.

Regardless of whether their content is pure or enriched, e-books have yet to achieve mass-market status. E-book readers are so-called “early adopters” whose interest in technical gadgets is as big as their wallet size—they can afford to buy an e-reader or iPad. This group is generally not very price sensitive, and you’d be hard pressed to find many penny-pinching customers who buy e-books today. The “early adopters” also tend to look at the value of an e-book differently than the average buyer: Saving time, greater mobility and higher technological innovation are more important—and thus more valuable—for this group. When setting the price for e-books, publishers are well advised to focus on the willingness of this small target group of customers to pay, and not on what the mass market is willing to spend.

Value-Oriented Pricing:

The Highest Profit Potential

Ultimately, not much argues in favor of pricing e-books based on the formula of “print price minus x.” E-books are individual products with their own target group, and thus deserve to be priced separately. Still, you have to be careful which approach you choose: The classic cost-plus approach won’t get you the right price. But value-oriented pricing will, given you can determine what kind of value your e-book (or e-book category) offers your target group, and translate this into the right price. This may not be the easiest approach—but it definitely offers the highest profit potential.

Annette Ehrhardt (annette.ehrhardt@simon-kucher.com) is a Senior Director at global consulting firm Simon-Kucher & Partners (which is regarded as the world’s leading pricing advisor) in Zurich, and an expert in the media and telecommunication sectors. She is the joint leader of the firm’s European business in the media sector.

There's no doubt about it: The printed word is still holy. Although Amazon reports selling more Kindle e-books than traditional books, print books are still the dominating force behind publishing sales—and will continue to be so. It seems that many readers value the printed word more than the digital word. So why do so many publishers price their e-books based on the print price? Is this wise?

Print price minus x% is a common formula for pricing e-books. After all, such a pragmatic approach makes sense considering the fact that you don't have the costs of printing, storing and transporting books. But is the print price the right starting point? How high is "x"? Do e-books really deserve a lower price tag than printed books? And the looming question: What's the best e-book price for a seller to survive in a dynamic market, to cover the costs of developing content and to optimize profits?

What's Decisive: The Book's Value

Ideally, the price for a product equals the value it provides customers-in other words, the price reflects the willingness to pay. A printed book's value is determined primarily by its content, but also by factors such as the author, paper quality, font size, length; for non-fiction it's also the number and quality of graphics, etc. The costs represent only the minimum price; the margin varies according to the book (group) and competitive situation.

In reality, however, these value factors are used only rarely to systematically set the price: The length (and thereby paper and print costs) has the biggest influence on the book price. With this approach, the price might just also match the reader's willingness to pay (if the publisher is lucky). Making matters worse, publishers rarely take into consideration how a price adjustment of even $1 can negatively or positively affect volume, revenue and profits. Following the logic of value-oriented and profit-optimal pricing, using the print price as the starting point for e-book pricing makes very little sense.