by Phil Ollila, Chief Content Officer of Ingram Content Group
What are effective e-book pricing strategies in today’s book business? Based on trends we observe at Ingram Content Group from both publishers and readers, we think about three general segments for e-books: entertainment value, education value and marketing value.
Most trade e-books generally fit into the entertainment value segment. The hard part for publishers is determining how to price the entertainment value of a book versus other alternatives. Thankfully, because of the industry’s experience with trade paper, mass market and hardcover books, the book business has largely established what the market will bear in terms of entertainment value for each of these three physical formats.
The recent change in agency pricing has apparently resulted in an increase in the price of bestsellers, in some cases near parity with the discounted price of hardcovers. The data indicate that this trend, especially with frontlist, is possibly creating a shift by consumers to physical from “e” when the prices are at or near parity. Our numbers show us that while the e-book trade business grew about 10 percent last year, the bestseller business for trade paper and hardcovers also grew. We believe that some of the print book increases are a result of customers switching back to print formats because the pricing differential is narrow between “e” and physical, leading us to surmise that the print format may indeed be a better way to be entertained, or as we like to call it “read.”
E-book pricing in the education value segment is primarily a question of learning platforms. Our own VitalSource, an education technology and digital solutions company for academia, along with major education publishers, recently issued a report that concludes sales are down in physical textbooks for a couple reasons:
- The overall decline in enrollments in higher education leading to lower book sales.
- The inroads of “e” learning on overall sales.
What we know from the report—and experience—is that the market is very sensitive to price. The report indicated that 65 percent of students had decided against buying a textbook. Yet more than 90 percent of students and faculty felt not having the textbook would impact final grades. Another interesting component to the data suggests that when students get ready to buy class materials and have platform choices, they are comparing digital rental to print rental prices. We have yet to see that students are willing to pay a material premium for the benefits of digital textbooks. The data suggests that digital rental pricing needs to be at or below print rental for student choice sales to accelerate.
It is entirely possible that one of the challenges facing major education publishers is the lower barriers to “e” learning access versus physical book access. We think that more complex education subjects will carry higher prices, and higher interactive value for educators and students, and that the content will come from more players. That said, costs for “e” publishing can be high as publishers add interactive components and have the ability to update texts more frequently.
Another aspect to e-book pricing in the education realm is publishers introducing sales into enrollment models. In this model, publishers that are motivated by lower sales yields for new textbooks provide institutions with significantly lower digital pricing in return for delivery to 100 percent of all students in a course or program. While this model is still new to the education/technology community, we anticipate it driving much of the growth in digital textbooks. In the meantime, publishers are moving aggressively to Courseware, custom adaptive applications with more interactivity, personalized learning. Top publishers are already realizing half or more of their revenues from digital course materials.
To Ingram, one of the most interesting places “e” will expand is in the education market. Since education carries different values than the entertainment “e” segment, there may be more pricing experimentation in the long run with the education segment versus the entertainment segment.
The third segment of e-book pricing strategy is really about marketing: creating buzz for a book, a series or a platform. Marketing “e” product tends to migrate towards free, or close to free. Once a publisher convinces a consumer, through utilizing strong metadata, book descriptions and persuasive marketing campaigns that its book is a must have, an e-book at a $1.99 price point could increase by several dollars. Again, the consumer must be convinced of the purchase.
Beyond a lower price point, expect to see the use of “free items” competing with publishers’ attempts to get paid for the education or entertainment value of their books and content. We expect that excerpts, teasers and subscription tests will come to own a lot of what traditional publishers are doing in the “free space,” and they’ll likely compete head to head on cheap e-books with self-publishers who may not have the same profit motive.
The key for publishers trying to run a self-sustaining company is how they can use marketing at low price points to create future demand at higher prices. Until then, publishers should exercise creativity and experiment with pricing, since with e-books there’s no peeling a sticker off the back of the book when you want to change a price. One of the most used features of distribution on our CoreSource platform are price changes, which shows us that there is a high level of price experimentation happening in the market.
Consider these when setting retail prices for e-books.
- The “entertainment reader” has probably already made her format decision. Readers have a pretty good idea about the format they want. If the reader chooses an e-book, the choice to go with digital is not largely influenced by price, especially when comparisons are close to physical prices. An additional dollar or two for the latest novel will not impact a consumer’s buying decision. Loyalty trumps pricing in this particular sector of e-books. This of course is less true for promotional e-books, but seems to be true for established authors, series and publishers.
- Prices seem to be elastic, especially at lower price points. We’ve seen prices for many low-priced e-books increase in small dollar amounts, but by large percentages ($1.99 versus $2.99). Publishers that provide good metadata, book descriptions and strong marketing campaigns convince the consumer that she needs the book, and the price becomes less of a factor.
- Be aware of the comparisons. When an e-book is new to the market, especially when it can be compared in the market with a hardcover, price it close to the discounted hardcover price to capture the people who will pay for the entertainment value, such as fans of an author. Then, consider dropping the price at the same time as the paperback becomes available.
The “e” market for books is at an interesting place. Prices are increasing on the title level, sales continue to rise, and some transfer back to print seems to be taking place. As a result of price change flexibility, versus changing prices in physical formats, more price adaptations are taking place and publishers are fast learning the true value of their content.