Sunday, April 10, 2011

Time Value of Books

Dan Ariely, a behavioral economists, asks why we are so fixated on the price of a book.
Think about it this way — if you were going to spend 10 hours with a book, do you really care if it costs $3 more? Shouldn’t you happily pay $0.30 more per hour of reading if the quality of the book was slightly higher or the experience was slightly better? Personally my more pressing problem is time, and if someone could assure me a better, even slightly better experience, I would pay a substantial amount more
Books pricing is likely to mimic music pricing. Consumers don't consider utility of music when they pay $0.99 at iTunes, even though that $0.99 may create hours of listening pleasure. That's because they don't know in advance how much they'll listen to one song or another. Even if they've heard a song before their purchase, they don't know the durability of the tune or if another more popular tune will dominate their personal "air time."

The same holds true with books. Consumers don't know whether they'll read an entire book, or put it down because it's boring or because a better book comes along. Since new bound books have been priced within a tight range, consumers don't feel they're taking a larger risk on one book or another based on price. With eBooks, though, pricing is unsettled. Risk-averse consumers may prefer buying a lot of $0.99 books that are "best sellers" because a few will be good and the cost of the losers is not significant.

DRM systems can ask consumers to pay more as they use a digital product more. Try-and-buy is a simple example of that idea. In music, advertising-based radio has been the traditional "try" part of try-and-buy. In story telling, the author can hook the consumer at a cliffhanger, then ask for the money. However, the complexity of different DRM and payment systems works against initial uptake.

Publishers who want to charge high eBook prices need to think about more than gross margins. As Ariely points out, time is a valuable commodity for the consumers. If consumers are viewed as risk-averse, and time and money are scarce, fairly priced products with consistent quality will sell. But don't expect eBook prices to mimic bound book prices just the margins are nice.

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