Pricing for Value Falls Apart in ebooks

ebook_IconI have written at length on pricing as a customer driven strategy, as a share of value created  and the factors that bring down the value. The methods and levers I described work if you have control over pricing in your value chain and if you have direct connection to your customers.

In eBook publishing, especially for independent authors, the readers are not your customers but are owned by the platform (the channels like Amazon). You depend on the channel to get access to its customer base and when you do that you yield pricing control to the channel. Out goes all the principled value based pricing. Now the pricing is set by the channel’s goal to maximize profits and not yours.

When you sell your ebook through Amazon Kindle you get to set the price but within the small range carved out for you that is unrelated to value of your content. Your content is treated as substitutable commodity and not measured on unique value created for the readers.

Take a look at this chart on Amazon Kindle pricing


You have the option of two royalty rates that come with their own pricing restrictions. If you are attracted to higher percentage of 70% your  amount is limited to $7. If you are attracted to the highest possible royalty amount of $70 and set a price of $200 you are limited by the volume at that price point.

With these price fences you are most likely to price the book between $0.99 and $9.99.

  1. There is no point in pricing it between $9.99 and $20 as you only increase the price to customers (and revenue to Amazon) with no upside and possibly downside volume. 35% royalty on $10-$19.99 is less than or equal to 70% royalty on $9.99.
  2. Beyond $20 most sales volumes fall as the reference price for even hardcover books is set around $20.
  3. If you price it at $200 your volumes are going to be so small that you are better off building your own marketing and sales channel than depend on Amazon for distribution. And you get to keep more than $70 of the $200 price.

Is there a way to set price differently in this case? Break your book into multiple parts and price them in the $2.99-$9.99 range. If it indeed adds unique value and not substitutable fiction you will get better pricing control.But that is still a simplistic solution. There really is no better way or value based pricing in ebooks.

Now you know how I priced my Groupon book.


Your Mileage May Vary – Going Grubhub?

Does adding Grubhub to your restaurant channel mix help or hurt?

If the answer is anything other than, “I don’t know. Let us start with customers, business objectives and alternatives”,  it is wrong. There is one such categorical answer in recent Bloomberg Businessweek article.

The article quotes one case study, a restaurant that used to hire Seamless (now acquired by Grubhub) as sales channel found its margins go up despite smaller sales.

On its first night without Seamless (Aug. 16, a Saturday), Muñoz says Luz took $669 worth of delivery orders. That’s down about 16 percent from the $800 in orders the restaurant typically received on Saturday nights when using Seamless and GrubHub, another online delivery service that recently merged with Seamless. Instead of losing 14 percent of the total to commissions, though, Luz paid only $16 for credit card processing and other ordering-related fees, meaning the restaurant netted $653—just 4 percent off the $680 it would have made with the help of Seamless and GrubHub.

They use the word margin to refer to net amount they get to keep after transaction and channel charges.  Sites like Seamless and Grubhub create value by bringing in sales that restaurants would not have realized through other channels. They get their share of that value created by charging 10-14% commission.

As I wrote before, restaurants should be happy to pay this as long as they are making profit on each GrubHub transaction and it is new sale they would not have had otherwise.

Let us take this specific case of Luz restaurant. It appears from the numbers they have the wherewithal to generate $669 (average?) sales through their own gumption. What Seamless did for them is simply redirect $669 through its website and only added $131 worth of new sales.

If that is the case it does not make sense for the restaurant to pay 14% on $669 – sales they would have had without any help from Seamless.    Given these numbers it appears Seamless share is $112 from a mere $131 worth of sales.  The restaurant should have done this math before signing up for Seamless or explored its sales channel alternatives.

On the other hand if a restaurant has $200 in takeout revenue and Seamless increased it to $800. Then at 14% commission, Seamless share of value is $112 from $600 new sales they created. A far better number for some restaurants.

The answer for your restaurant is not a simple yes or not based on the extreme stories you see but starting with your customers, business objectives and channel economics. Do not rush to sign up or ignore Grubhub based on popular news stories.

Here is a much bigger question that even large enterprises grapple with – compensating sales team on repeat revenue.  It makes perfect sense to compensate the sales channel for acquiring new sales. But once you got that customer, aren’t they your customers? Should the sales channel be compensated for repeat revenue from the same customer? Especially at the same 14% level?