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eBook Pricing Analysis

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  • LisaProject Gutenberg - Digital library comprised of books from the public domain at University of IllinoisGoal: Share literary works across the globehttp://archive.org/stream/ashorthistoryofe29801gut/29801-pdf#page/n0/mode/2uphttp://www.guardian.co.uk/books/2002/jan/03/ebooks.technologyhttp://www.nytimes.com/2011/05/20/technology/20amazon.html?_r=0
  • Katie
  • KatieAmazon built an early lead in the e-book marketThey devalued consumer's notion of what an eBook should costPublishers wanted competition to boost the whole categoryOther eBook publishers couldn’t compete in the marketplace because of Amazon’s pricinghttp://news.cnet.com/8301-1023_3-57412587-93/why-e-books-cost-so-much/
  • KatiePublishers don’t care that the end price to the consumer is higherThey would still rather get people to buy print because the margins are higherhttp://news.cnet.com/8301-1023_3-57412587-93/why-e-books-cost-so-much/
  • Katiehttp://news.cnet.com/8301-1023_3-57412592-93/whats-the-future-of-e-book-pricing/
  • Anniehttp://www.forbes.com/sites/jeremygreenfield/2012/08/27/are-consumers-sensitive-to-e-book-prices/http://www.digitalbookworld.com/2012/consumers-upset-and-confused-over-e-book-pricing/http://www.thedigitalshift.com/2012/03/ebooks/librarians-feel-sticker-shock-as-price-for-random-house-ebooks-rise-as-much-as-300-percent/
  • Annie
  • Anniewww.amazon.comwww.apple.comwww.audible.comwww.barnesandnoble.com
  • Anniewww.amazon.comwww.apple.comwww.audible.comwww.barnesandnoble.comExample prices given are for Fifty Shades of Grey based upon Amazon.com pricing 12/3/12.
  • Billiehttp://online.wsj.com/article/SB10000872396390443819404577635534214396076.htmlhttp://www.teleread.com/ebooks/e-book-pricing-hinges-on-customer-perception-of-value/http://www.pcworld.com/article/253593/some_publishers_quickly_settle_e_book_price_fixing_lawsuit.htmlApple/publishers claim that Amazon was engaging in “predatory” behavior through its $9.99 pricing strategy http://www.guardian.co.uk/books/2012/sep/07/ebook-price-fixing-judge-settlementArgument against Amazon- increased competition http://online.wsj.com/article/SB10001424052702303740704577527211023581798.htmlPublishers didn’t have much choice but to accept Amazon’s prices. They couldn’t just stay out of the e-book market (not realistic in today’s “digital age”)http://online.wsj.com/article/SB10001424052702303740704577527211023581798.htmlIllegal downloading is becoming a growing problem and often results from the consumers’ willingness to pay being below the current e-book prices. Consumers have more incentive to engage in e-book piracy when they do not feel that the price is justified by the costs. Amazon has dominated the e-book market and consumers have become used to the company’s $9.99 pricing strategy. Since this price point has become established in the e-book industry, it will be difficult to raise prices above this price point in the future. Consumers are not aware of the up-front costs associated with e-books. They focus on the low marginal costs and therefore do not feel that production costs are substantial enough to justify the current prices. Free eBooks are now being offered through libraries, which retailers will now face as part of their competition. With the availability of free library eBooks and their increasing compatibility with e-readers, it will be more difficult to incentivize consumers to rent or purchase eBooks. Given the numerous substitutes available (ex. paperbacks, library eBooks, audiobooks), consumers will tend to have a higher price elasticity and be more price sensitive. The question remains as to what is an appropriate anchor point. Paperback prices often range from $5 to $15 dollars, hardcovers average around $25 and audiobooks are priced at $12.99 to14.95. The different book formats make price comparisons difficult for consumers.
  • AnnieDifferentiation – 150% - $14.99 (to create a new industry price triggerpoint)PWYW – min. based upon authorNetflix - $8.99/month (1 book at a time/month), $14.99/month (2 at a time)A la Carte Rental - rent - $4.99 (30 days) then extend rental ($4.99) or buy ($3.99) or book expireshttp://www.teleread.com/ebooks/amazon-top-100-e-books-almost-2-50-cheaper-on-average-than-bn-top-100/
  • http://paidcontent.org/2011/11/02/419-the-truth-about-amazon-publishing/
  • KatieJust like eReaders are differentiqated though their ink screens, books for tablets should be differentiation through interactivityInteractivityRich Media
  • LisaSurvey reveals that 1 in every 3 who download eBooks on digital readers does so illegally and 25% of those who admitted to illegally downloading eBooks would continue to do so in the future. Book industry faces significant lost revenues due to e-book piracy. No publishers have filed a lawsuit yet.Ex - A self-published author has beaten names including Lee Child, James Patterson and Stieg Larsson to become the bestselling ebook author on Amazon.co.uk for the last three months of 2011.http://www.mediabistro.com/galleycat/one-out-of-every-three-readers-download-pirated-ebooks_b30723http://thehighlow.com/2011/05/will-e-books-become-the-next-napster/http://blog.smashwords.com/2010/02/most-popular-ebook-formats-revealed.htmlPie Chart Statistics – Smashblog, January 2010 survey“Can a ‘pay what you want’ pricing system work for digital media products retailing?” EuroMonitor, January 10, 2011http://www.guardian.co.uk/books/2012/feb/08/self-published-author-amazon-ebook
  • PWYW could be an attractive pricing model for an eBook retailer aiming to gain more market share. Switching costs - Not all eBook formats are compatible with all eBook readers. For example, Amazon’s Kindle readers do not support the ePub format and Barnes & Noble’s Nook readers do not support the Mobi format.No universal format aside from plain text.
  • BillieAmazon Prime’s Rental Service: The main issues were the short time limit and the limited selection of e-books. Picture from twitter.comBrainHive’s on-demand model is targeted to educational institutions. It allows for a much cheaper alternative to print textbooks and is an attractive option for students who only use textbooks for a limited period of time. The shift to digital textbooks can also prove to be beneficial for the publishers since it reduces the used book secondary market. Netflix model: Different subscription packages available. For example, consumers will be able to choose how manye-books that they want to hold at a time. Consumers can “return” an e-book in exchange for another. They will also have the option to buy e-books for an additional cost if it is one that the consumer wants to own. There will be no time limit for holding an e-book, which is a policy that consumers will value over traditional rental since many of them may read a book over an extended period of time. It is also beneficial for those consumers who are unable to finish a book within a short period of time and end up having to start over. This “Netflix” model targets high-volume readers. It is a way to price discriminate based on quantity. Consumers who read more eBooks will end up paying lower unit prices. The high-volume readers are more likely to be price sensitive because they are purchasing large volumes (e-book purchases make up a larger portion of income for avid readers)The infrequent readers will continue to purchase or rent a la carte. This model also helps to obscure the COGS since consumers are not paying at a per book price. Many consumers now are not aware of the large fixed costs and focus on the low marginal costs. However, by implementing a subscription model, the consumer is not focused on the per-book price and is less likely to perceive the subscription price as unfair. By allowing consumers to easily switch subscription plans, consumers can adapt to changes in their reading behavior (ex. some consumers may read more in the summer or based on their schedule).Publishers would receive a portion of subscription revenue based on number of rentals. Another trend that has emerged in recent years is that people don’t feel like they necessarily need to own books for a long period of time. This shift in consumer needs supports this subscription rental model. Radnora, Mary & Shrauger, Kristine Jo. Ebook Resource Sharing Models: Borrow, Buy, or Rent pages 155-161http://techland.time.com/2011/11/03/amazon-prime-free-kindle-e-book-rentals/http://betakit.com/2012/06/04/brain-hive-debuts-on-demand-digital-library-for-schools
  • BillieTheà la carte rental model is targeted to the periodic readers. The consumers have the option to buy the e-book after the rental period, which is geared towards consumers with strong preferences. The option to extend the rental period provides flexibility for the consumer. However, the rental extension and purchase option are priced in a way that induces the consumer to buy the e-book if they need to use the book for longer than 30 days or cannot finish the book within the 30 day time period. The rental models are an effective method for segmenting consumers based on reading behavior, particularly through purchase quantity. The models target both the high-volume readers as well as the periodic readers with inconsistent reading habits. Overall, we recommend to adopt the rental models over the other two alternatives. PWYW pricing may be profitable for very well known authors that have a loyal and established customer base. However, this strategy would be risky for unknown authors and major retailers. While differentiation through functionality could potentially be an effective strategy, it is currently not technologically feasible, and therefore, we feel that the rental pricing strategy provides the best opportunity in today’s market.
  • Lebert, Marie. (2009, August 26). A Short History of EBooks. NEF, University of Toronto. Retrieved on December 1, 2012 at http://archive.org/stream/ashorthistoryofe29801gut/29801-pdf#page/n0/mode/2up.

eBook Pricing Analysis eBook Pricing Analysis Presentation Transcript

  • Billie Alba Lisa Mahoney Katie MeyerAnnie Smith-Bova
  • History of eBooks  1971  First ebook, or electronic version of a printed book, created by Project Gutenberg 1989  10th eBook milestone 1990  First eBook display program, PC-Book, invented 1993  First website to sell eBooks, Bibliobytes, launched 1998  NuroMedia offers first handheld eBook reader 1999  American publisher, Simon & Schuster, becomes 1st publisher to offer titles in both print & eBook format 2011  eBook sales surpass print book sales according to Amazon
  • The eBook Industry  eBook Market Share eReader Market Share 5% 10% 18% Kindle Amazon NOOK 41% B&N Ipad 14%25% Apple 60% Android* Other 10% Other 17% *Android includes Kindle Fire
  • Wholesale Pricing• The publisher and the retailers split the revenue 50/50.• The retailer can choose to sell the book at any price.• Amazon was selling books at a loss to help boost sales of kindles.
  • Agency Pricing• Publishers set the competitive price - $12.99• Publishers get a standard 70% - $9.09• They get less money with this model because of the discount list price• This created eBook competition• Companies like Amazon, Apple and B&N were now forced to compete on user experience not price
  • Anti-trust Lawsuit  Spring 2012 Conspiracy to limit competition for the pricing of e-books No retailer could set a price below Apple’s price HarperCollins, Hachette and Simon & Schuster settled with the DOJ  Apple, Penguin & Macmillan did not Retailers will again be allowed to discount the price of e- books – only good for 2 years – then the publishers can renegotiate Discounting retailers are no longer permitted to take a loss on the book – they are restricted to breaking even
  • Pricing Analysis Relationships of Complementary Products  Devices (Kindle, Nook, iPad)  Apps (Kindle, iBooks)Relationships of Substitute Products  Library eBooks  Printed books  Audiobooks (Amazon Whispersync, Audible)
  • Comparison of Publishing Costs E-Book  Printed Book  author advance,  author advance,  Publishing Staff  Publishing Staff   editing  editing Conversion Price:  copy-editing  copy-editing $.20-$.90/page  proofreading  proofreading  cover and interior design  cover and interior design  illustrations  illustrations  marketing efforts  marketing efforts  sales kit  sales kit  publicity  publicity  PrintingTotal Cost Savings: 10% vs.  MaterialsPrinted Book  Shipping
  • ComplementsProduct  PricingApps (Kindle Reader/iBooks) FreeKindle/Fire/HD $69/$159/$199Nook /Nook HD $199/$269iPad mini/iPad 2/iPad retina $329/$399/$499display**16 GB Wi-Fi models priced
  • SubstitutesFormat Price Library eBook FreePaperback $6.99eBook (Kindle) $9.99 $14.95/book (limit 1Audible Audiobooks book/month)Hardcover $18.68Amazon Whispersync $ 12.99 with purchase of Kindle(audiobooks) ebook ($22.98)Audiobook CD $31.50
  • Pricing Problems  Price Fixing Illegal downloads Consumer perception of value  Amazon’s lost leader strategy set consumer’s reference price artificially low  COGS awareness  Free Library eBooks  Paperback Prices – Substitute Awareness Effect  Wide range of prices – no consistent anchoring
  • Solutions via Targeted Market SegmentationSegment the Market  technical applications Differentiation based upon Functionality  Travel books, textbooks, nonfiction, children’s books, textbooks, etc. authors with cult followings Pay What You Wish  With a % donation to a Charity voracious readers “Bookoo”  All you can eat rental readers with strong preferences, periodic readers À La Carte Rental  Pay on-demand, option to buy  Loyalty Discount
  • Proposed Prices  $8.94 $4.99 Average $14.99 $12.00A La Carte Barnes & Average 2 eBook Single Noble Bookoo eBook eBook Paperback Unlimited rental Price Book Price Rental $6.91 $8.99 $14.99 $25.00 Average 1 eBook Hyper Average Amazon Bookoo Rich Hardcover eBook Unlimited Format Book Price Price Rental eBook
  • Premium Pricing  Differentiation based upon Functionality  $14.99 and up to purchase  Not available for rental  Travel books, textbooks, nonfiction, children’s books, etc.  Demonstrative Advertising
  • Pay What You Wish PWYW  Why?  1 in 3 people download eBooks illegally Recommended for authors with strong fan bases Set minimum price to cover costs  Entice consumers to pay higher prices  Include a message from/about the author  Option to give portion of sales to charity  Average cost is $2.27 Offer Bundling for series, upcoming releases
  • PWYW Advantages  Payment model will likely capture sales from otherwise illegal pirating & increase sales volume  May lead to lower margins Attractive for retailers who desire greater market share  May help offset consumer switching costs if consumer decides to switch eReaders Most Popular eBook Formats 7% 4% PDF 8% EPUB 35% 9% MOBI TXT 22% 15% LRF
  • Subscription Model  eBook Rentals – “Bookoo”  $8.99 for 1 eBook out at a time  $14.99 for 2 books out at a time  $6.00 for each additional book at a time  No limit on the number of books/month Similar services:  Amazon Prime – 1 free rental at a time  Restricted titles  BrainHive – K-12 on-demand  $1 rentals, 3000 titles
  • À La Carte Rental  $4.99 for 30 day rental  After 30 days:  $4.99 to extend another 30 day rental  $5.00 to buy Loyalty Discount  After 10 rentals, 11th rental is 50% off Helpful for unknown authors Readers with a strong preference who read books once
  • Questions?