Thursday, June 2, 2011

Lady Gaga's Online Pricing Lessons

Born This Way [+Digital Booklet]

The entertainment industry is making the transition from a scarcity model (a few copies of a work at a high price) to a ubiquity model (copies everywhere for cheap or free).

The music industry is leading the way.

In case you missed the news, Amazon ran a $0.99 special on Lady Gaga's most recent album, Born This Way. Amazon ran the promo as a way to increase users of its new cloud music service. Indeed, the album sold 440,000 copies, and Amazon probably paid about $5 to Lady Gaga for each new cloud music user they signed up.

Many more people were willing to pay full price after the Amazon promotion:
Gaga's massive first-week sales, however, suggest there is still room for album sales--if the artist is popular enough. While offering the album for only 99 cents on Amazon might've boosted her sales, it's clear that consumers were willing to pay more: About 700,000 copies of Born This Way were sold at full price.
What does this say about $0.99 pricing? For one thing, buyers may perceive value in bundling songs inot an album. For another, artists need to consider bundled and unbundled products as tools in their marketing plan.

Consider unit sales of various music formats. Here's a chart that shows sales of CDs, downloaded singles and downloaded albums.


Clearly, downloaded singles are where the unit volume action is.

Similarly in books, the online market has boosted sales of short stories and novelas, two forms that had lost their way in the paper distribution model. Short stories sold well only when bundled with other writing, either in a magazine or in an anthology. Novelas were hit and miss. But ebook sales are mimicking aspects of online music sales: low-priced short-form has a larger unit market in the online world than in the physical world.

The Lady Gaga experiment suggests that writers can still sell long-form works at a higher price than individual short stories. Short story writers should consider using bundling as a way to increase sales of less popular short stories. Bundling options include collections from individual writers and theme-based collections from multiple writers. Likewise, novel writers should consider serialization, excerpts, and other ways to break up larger works into less expensive units. This will generate higher unit volume sales and attract a larger pool of potential buyers to the entire novel.

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