Cost vs. Perceived Value

Since I will be publishing several ebooks later this year, I’ve been following very closely the debates and suggestions about how to price ebooks. I read an interesting blog post on the topic yesterday, and I think the author is looking at the situation from an emotional perspective, not from the perspective of his potential market.

First, go read his post on “Why You Won’t Find My ebooks In the Bargain Basement”.

Done? Okay, here’s my thoughts, from both a customer point of view and an entrepreneurial point of view. I think this is important for you to consider when you price your own products or services.

Just in case you decided not to read his post, Hutchins says he will price his full-length novels at $9.99, and he has real issues with authors who price theirs at $.99 or $2.99.

Let’s look at this from a consumer point of view. I estimate it takes me about 5 hours to read an average-length novel. So, I can buy his book for $9.99, three books at $2.99 each (with a bit of money left over) or 10 books at $.99 each.

Admittedly, the quality of books at the lower price point vary widely. To make this a fair analysis, based on my experience, I will throw out (as unreadable) 1/3 to a 1/2 of the $.99 books, and I will probably read and enjoy all of the $2.99 books.

So do the math on my almost $10 “investment.” A $9.99 book will get me 5 hours of enjoyment. Three $2.99 books will get me 15 hours, and ten $.99 books will get me between 25 and 35.

Where’s the best value for my $10?

Am I saying I never buy books for $9.99 (or more)? No. I’ve been waiting for The Winds of War to come out as an ebook for years. I will buy it, even at $9.99. But I know the book, and I know I will re-read it many times, which makes its perceived value very high to me.

An author, however, can’t rely on that perception of value from every reader, so let’s look at it from an entrepreneur perspective. Assuming I am not a lone voice in the ebook reader wilderness (and I know I’m not), then there are probably lots of readers who feel as I do and would rather buy more, cheaper books. In fact, several people have done an analysis of the “best” price for an ebook to maximize revenue to the writer. Here’s just one article.

The conclusion always comes out somewhere between $2.99 and $4.99 as the price to maximize revenue. As an entrepreneur, isn’t maximizing revenue the goal?

Hutchins seems to take the approach that if readers aren’t willing to pay $9.99 for a quality book, then they can take their business elsewhere. (Actually, I’m being pretty nice in saying that. What he really said was kind of insulting to me as a consumer.) It’s okay. He can price his book however he likes.

But my advice to an entrepreneur will always be to maximize revenue. Hutchins seems to be making an emotional decision based on what he thinks his book is worth. If his readers agree, super for him. But the data strongly indicate that readers will go elsewhere, so I’d recommend he, and other authors, go with the data and price their books based on their potential readers’ emotions, not their own.

And if you sell something other than ebooks? I’d give the same advice. Don’t rely on your emotions for pricing decisions. Do some basic market research and listen to your customers.

Any other ebook readers/authors out there want to chime in to agree or disagree. Or entrepreneurs in other areas?

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