@crisdresch

about online marketing

Pricing in Digital Publishing

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With all the changes going on in publishing, one of the most common questions asked is how much should publishers charge for content. Truth is that there is not right formula to figure that out. Cory Doctorow, when he talks about ebooks, says that you shouldn’t charge the highest price but you shouldn’t charge the lowest either.

But that doesn’t help us much right? So let’s look at some business models he presented during his talk.

Price Discrimination

You’ll never be able to please everyone. Even if you’ve got a very segmented audience, you’ll have to face different price behavior. For example, coffee lovers. Some will want to pay £5 for a cup of coffee, others will want to pay £1. But you cannot open a coffee shop and start asking people how much they are willing to pay for your coffee, right? Well, Radiohead did it back in 2007 when they released their album ‘In Rainbows’. You might have heard about it, they made more money from the downloads than from the offline sales from their previous album. And only a third of people who downloaded the album chose not to pay anything and get it for free.

In Radiohead’s case, they allowed the customers to choose how much they would pay for the album. This can be extremely dangerous. But you also have examples of businesses that set the price themselves, such as the airlines companies. As Cory mentioned, if you ask around when you’re in an airplane how much people paid for their tickets, you will be surprised. The prices can vary a lot. The airlines carefully handle that, since they know when and who is willing to pay more for the same service.

The issues. There are several issues with using the price discrimination model. One of the biggest is when customers who you’d expect to pay more, end up paying less. And example that Cory talked about, is iTunes. When they started charging $0.49 for the songs, they had a major increase in sales. They were making more profit, since more people were paying. But they decided not to drop the price from $0.99, because if they did, they would loose the audience who was willing to pay more. It gets tricky.

Elasticity of demand

The cheaper, the better. Well, that’s what some people would say. Usually the more you lower your prices, the more people will buy from you. So let’s get back to the airline businesses. Specially here in Europe, the business of low cost airlines is huge. They are known for having the cheaper prices, therefore they’re able to reach a broader audience.

The issues. We usually relate price with quality. The issue there is that your business might be perceived as cheap if you charge a very low price. But this has a lot to do with your segment, and your target audience. If you realize there’s a big demand in the market, and the most important, you’re able to charge a low price, go for it. An opportunity here is to start low and increase after you have a loyal base of customers. This is not easy, your product must be very good and your customers must be able to pay more for it.

Advertisement

We all know this one. This is what’s ‘saving’ most of the publishing business that still don’t charge for any of their content. Advertisement changes a lot depending on your business, it’s not simple to say whether you’d be successful with it or not. But most of the experts out there are saying that advertisement is not the answer. Rob Grimshaw, managing director of FT.com, says that “an advertising-only model is very difficult. Of new revenue streams, payment is one of the most obvious to look at”.

Freemium

I’m sure you’ve used this before, it’s all over the web. The business offers you some of their services for free, but charge you for advance features. Spotify is doing that beautifully. They have recently reacher 1 million paid subscribers, which is amazing. This is a smart way to identify your customers and create an established relationship with them, which will hopefully make it easier to turn them into paid users.

So, what is the answer?

There’s no right answer yet. First we need to understand why people would pay for content. The problem is that we haven’t figured out that yet. There’s so much available for free, and most readers don’t understand (or don’t care) about the quality. So right now we should be flexible – try new things, fail and try again.

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Written by Cristina Dresch

May 23, 2011 at 8:35 AM

Posted in Digital, Publishing

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