Wednesday, July 22, 2009

The Price Is Right

We walked around Adsa (WalMart UK) this week. Denim jeans £3 and designer denims for £14, hardback and paper books, that are both current and fighting for sales in every other bookstore offered at 50% off. We can now buy most popular CDs between £5 and £8 and yet we still refer to this as ‘rip off Britian’.

The reality is that players such as the supermarkets have driven out production and supply chain waste and moved from production based, to market and demand driven costing. The physical manufacturing, distribution and replenishment processes have been squeezed and yesterday’s prices now look a total rip off.

Amazon and the chains have broken the price of books as it relates to the list price, but not necessarily as it relates to cost. Book prices have dropped but jacket prices have often increased to compensate.

Enter the ebook. We have written many times on the issue of pricing ebooks and the price alignment with other formats. The reality is that in a demand and market driven environment and especially one where one digital book looks the same as any other, a price point will happen. Music, DVD and other media markets may have their anomalies, but in the main, price points still prevail irrespective of the production cost.

So when Sourcebooks recently decided to withhold the release of the ebook, so it didn’t impact the hardback sales, we ask once again – is it

Amazon is creating an eBook price point of $9.99 that, irrespective of your position, is likely to stick. Ask Apple about iTunes and their infamous $0.99 price point. The challenge is not how to continue to confuse consumers and fight price points but how the market can make such a move work and still reward the author.

When we look at some of the significant business model changes that are happening today, we realize that we must be flexible and even prepared to burn the model altogether. For example, look at Spotify music streaming service, which still pays royalties but is ‘free’ at consumption. Look at how network carriers have created bundles of services and in doing so have effectively cut the cost to their customers.

We still have not found the answer to the potential digital rent for free from a library versus digital pay to buy retail models.

The one person we must continue to reward is the creator. Interestingly there appears little reason why they can’t be paid more frequently, if not in real time for their digital sales.

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