Famous Last Words: The Tricky Business of Setting Prices
After much hype and media buzz, Amazon.com released the first generation Kindle e-reader on Nov. 19, 2007, for $399. It reportedly sold out within 5.5 hours. I wanted one badly, but the thing was 1) untested in the marketplace and 2) pricey.
The following May, I saw a presentation by Jeff Bezos at BookExpo America in Los Angeles. Bezos had a Kindle, as did three or four Amazon employees. But only two were available for inspection at the Amazon booth. Amazon couldn't keep it in stock.
The Kindle was hot, and I was hooked. In addition, as I recall, the price had dropped to $299. I bought one in 2008 as a birthday present to myself, and as of this writing, I have bought 48 books for my Kindle. I adore it!
In the years since Kindle was launched, Amazon, which claims to own 70 percent to 80 percent of the e-reader market, is mixing it up in a marketing mêlée with Apple's iPad, the Sony Reader, Barnes & Noble's Nook and others. Amazon has dropped the price to a minuscule $139.
Should I have waited until the price came down, as it does with most electronic gadgetry? Nah. I had the joy of reading roughly $1,200 worth of books (the hardcover cost) for around $400 (Kindle cost) and I did not have the damned things cluttering up my 16-foot-wide Philadelphia row house.
The Perception of Value
What is curious is that book publishers operate in a 19th century mindset and do not know what to make of e-readers. I heard some TV commentators talking about the book "Game Change"—a riveting saga of the 2008 election. I immediately shopped the Kindle store and discovered the publisher had kept the title from e-publishers, fearing they would cannibalize sales of the hardcover edition. Did the publisher really think a guy who spent $299 for an e-reader was going to spend $27.99 on a clunky hardcover book and schlepp it around the house, or on an airplane or cruise ship? I found another book to purchase.
Incidentally, a Kindle order is a one-off sale; it's either in my Kindle or in the private electronic library that Amazon maintains for me. I can't resell or give it away. Six months later, my brother-in-law gave me his old copy of "Game Change," which I read and then left with the folks at The Book Trader in Philadelphia, who would sell it to somebody else. My brother-in-law's copy will have been read by at least three different people.
Book publishers also have their knickers in a twist over the low price of e-books—averaging $9.99. A book is worth more than that, they argue. No it isn't, because it is no longer a book—no paper, no printing, no binding, no shipping, no shipping back to the publisher and no reshipping to a landfill. (Forty percent of all hardcover books are returned—destroying profitability and turning the book publishing industry into a train wreck.) This one-pound thing has been reduced to a blip of electricity and $9.99 would be gorgeously profitable split three ways: $3.33 each for author, publisher and bookseller, with zero cost of goods sold.
So what is the secret of setting prices? Put yourself inside the head of the buyer. Think how he thinks. Feel what he feels. What would you pay for this thing? Would a premium or two sweeten the deal for you?
"The right offer should be so attractive," said the great direct marketing genius Claude Hopkins, "that only a lunatic would say 'no.' "
Denny Hatch is a freelance direct marketing consultant and copywriter, and author of the email newsletter, Denny Hatch's Business Common Sense. Visit him at www.businesscommonsense.com or www.dennyhatch.com, or contact him via email at firstname.lastname@example.org.