everything you wanted to ask a retailer about pricing but your legal department was afraid to ask -...

Everything You Wanted to Ask a Retailer About eBook Pricing But Your Legal Department Was Afraid To Ask

The First and Probably Last Tech Forum Presentation by:Ryan James O’Sullivan of Rakuten Kobo

RJO rynet ryanosull

About Me Hi, I’m Ryan James O’Sullivan I work for Rakuten Kobo, your favouirte eBook retailer (RIGHT?) I’m currently the Director of Content Analytics responsible for

Pricing, Sales & Promotions Optimization and Publisher Analytics

Previously the Director of Online Supply Chain @ Indigo I’ve been selling books in some way shape or form for 18 years I’m a bit of a geek OK, I’M A LOT OF A GEEK. Like I will crush you in Mario Kart,

Settlers of Catan and League of Legends right now Also a huge sports fan! Play and watch baseball (go Jays!), and

soccer (go United!)

rosullivan@kobo.com

Goal for TodayAs we continue to transition to an agency price model I want to share Kobo’s 6 years of experience in pricing eBooks with publishers

I want you all to walk away from here today as pricing experts

Topics Microeconomics 101 Price and the Customer Bucking the Life Cycle Other Learnings

I hope you enjoyed the humour of my introduction because it was all a distraction tactic as going forward this presentation is going to be an economics primer and contain lots of graphs and stuff

But we had fun there right?

One simple questionWhat is the optimal price for my book?

Microeconomics 101*

* With apologies to any actual economists in the room

What is Price?“Price is the amount of money that has to be paid to acquire a given product. Insofar as the amount people are prepared to pay for a product represents its value.”- Encyclopedia Britannica

What is a Demand Curve?

Elasticity“Price Elasticity of Demand is a measure used in economics to the show responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price”Wikipedia

Elasticity and the Demand Curve

Elasticity and the Demand Curve

Image courtesy of Economics Tuition Singapore

Profit Motive & Profit Maximization“The Profit Motive is the motivation of firms that operate so as to maximize their profits. Mainstream microeconomic theory posits that the ultimate goal of a business is to make money”Wikipedia

“Profit Maximization is the process by which a firm determines the price and output level that returns the greatest profit”Wikipedia

Optimal Price Example

Optimal Price Example

Optimal Price Example

Opt

imal

Pro

fit

What is the Optimal Price?The Optimal Price is the price where you will make the most the most long term revenue

OR

Optimal Price is the point on the demand curve where Units * Price is greatest

Well that was easy…

But how?

That was a lot… so here’s the bat flip (my happy place)

Or maybe you like kittens…

Or my team is partial to otters

Price and the Customer

Usually We Talk About Price Like This

Or We Talk About Genres…

Price Actually Looks Like This

Jill’s Purchasing Habits

Jill’s Price Preference by Genre

Jill’s Self Pub Preference

Jill’s Publishing Age Preference

Some things we learn from Jill… She’s a value oriented customer, until she’s not She buys self pub, but only when they are cheap. Does she

have a content preference or is she being under served by traditionally published works in her preferred price point?

There are a set group of authors she will pay virtually any price for

But more importantly…The price has to be oriented to the potential customer of your book, and you need to utilize a diverse range of data points to segment your customers.

Segmenting Your Customers

Segmentation Characteristics Genre Preference Price Preference Promotional Preference Competitive Risk Publication Age Preference And on and on…

So Instead of This…

We Look at This…

* Romance Segmented Users

And we learn some interesting things…

* Romance Segmented Users

Non Existent

Self pub owns the romance value customer

Price and the CustomerWhen pricing the book do not think about your comparable book, think of your customer.

Joey Bats

Kittens

Otters

Bucking the Life Cycle

WarningThe following slides may depress you if you are in any way shape or form involved in the creation, sales or distribution of books

Books on the whole have 3 or 4 potential sales outcomes over time

Meet your book’s fate…

Slope Hill Stairs

Remember Elasticity?

Elasticity of Demand for eBooks

All things being equal eBooks are highly inelastic, even more so when in the backlist

BUT

There’s hope – Visibility & Promotions

The key is experimentation

Example 1 – Peak Attention Pop

800% Increase over First

Week$1 Price

Drop

800% increase in sales over week 1 (traditional peak)44.% increase in LTV of book vs previous book from author150% increase in readership vs previous book from author

Example 2 – Active Experimentation

16 price drop events through 52 weeks24% incremental net sales driven by those events

You want to slow the slope

>

Conversion is King

Conversion is King

Conversion =

Views /

Purchases

Views

Purchase

Bucking the Life CyclePrice is a single point in time.

A robust Pricing Strategy requires many prices with continual experimentation and adjustment

Joey Bats

Kittens

Otters

Other Learnings

Price Ceilings are Real

Retailers Discount For a Reason

Sales Data Isn’t Enough

So what is the optimal price? Maximizes long term revenue. Oriented to the potential customer segment of your book Any given Price should be part of a robust Pricing Strategy

that continually experiments and adjusts

Thank you