The Psychology of pricing

From: Michael Martinez <Michael_at_xenite.org>
Date: Fri 29 Sep 2000 15:11:59 -0500

NEVEN PRASNIKAR <artplus_at_artplus.hr> WROTE:
> My company is about to launch some advertising
> specialties line of product based on software
> productivity tools. We're going to offer some
> customized and cobranded software products through
> affiliate network and were thinking about 50/50 revenue
> split with our affiliates...

TO WHICH GEORG BIRGMANN <g.birgmann_at_netway.at> REPLIED:
> However, I do not know what software You sell (will
> look at Your website later today!), but if You can
> afford to pay affiliates 50%, it looks like Your
> profit margin is incredible, and therefor: Don_t You
> think You could do something about Your pricing
> policy? Lowering Your product price may have some
> effect on sales numbers!

I'd like to start a new discussion based on an idea you
touch on here. That is the psychology of pricing.

I've been following eBook discussions in various
forums. Talk about one of those armchair industries
where everyone has an opinion! Electronic publishing
has been around at least since Project Gutenberg
started its free etext library of public domain works
on a Xerox server around 1970. And yet we're still
trying to figure out all the rules.

It has been proposed by some science fiction and
fantasy authors that eBooks are priced TOO LOW, and
yet most seem to sell for no more than a few dollars.
When I surveyed ePublisher sites this spring, many were
selling books for about $5.00 a piece.

An eBook is not exactly a low-cost production item.
That is, a full-service ePublisher must still edit and
typeset the eBook, design a cover and artwork (or at
least a cover), and set up some sort of promotional
campaign. Nonetheless, eliminating the cost of paper
production and distribution saves the ePublisher a lot
of money. Hence, a lot of people have been able to
start their own ePublishing houses without major
financial backing. But they have also been pricing
their eBooks toward the low end.

Now major traditional publishers are moving into the
marketplace, in part because Stephen King has proven
that eBooks can be successfully marketed (though the
last time I checked, he was either just breaking even
or losing money). King has been selling an old,
previously unpublished novel on a chapter-by-chapter
basis. He has been using the honor system. As long as
75% of the people who download a chapter pay $1.00,
he'll publish the next chapter. He's moved along
fairly well, though I've been too busy lately to see
where he stands today.

Nonetheless, it's been calculated in at least one media
story that King will end up charging about $16.00 for
the eBook, if all chapters are published (and $15.00
even if no one pays for the last chapter).

King has some major clout. There is no doubt about
that. But his method, even if it's not adopted by the
industry, may prove that eBooks ARE underpriced. At
least, those published by known writers.

As a consumer I hate to think that things on the
Internet should be priced higher, but in discussing
possible revenue sources with a company the other day,
I told them I wish Amazon would raise its prices. If
they are floundering on profitability, raising their
prices might be just the thing they need to do. They
HAVE the name recognition. They have the
associate/affiliate network. People like me are not
going to drop our Amazon links just because the
company increases product price to stay afloat. If
Amazon tanks, I'm going to have to replace those links
with another program, and as I've stated previously,
I'm very reluctant to replace them with anything else
right now because of past experiences.

But has the business community underestimated the
pricing range that the Internet economy will support?
Where does it say that pricing has to be superlow on
the Internet, who wrote that law, and on what research
did they base it?

I'm aware of price elasticity, but I know that eBook
prices can easily swell to $15.00 and remain
competitive with the hardback industry. The real
obstacle to widespread acceptance of eBooks appears to
be the ease with which they are read. Electronic
displays are not as easy on the eyes as paper print.
Microsoft has apparently introduced a technology which
alleviates much of that problem.

Software has always, in my humble opinion as a
programmer with more than 20 years experience, been
overpriced. But people still pay for it. I think the
software industry has shown that products which would
be profitable at considerably lower prices will still
sell in the electronic markets.

And the reason seems to be the perception of value.
People don't want to buy "cheap" merchandise, even
when it's electronic. They don't mind DISCOUNTED
merchandise, but "cheap" stuff only seems to outsell
established brands when you get up into hundreds or
thousands of dollars (or the equivalent).

Science Fiction and Fantasy
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Received on Fri Sep 29 2000 - 15:11:59 CDT