Question
On what basis does a book publisher decide the selling price of a book they've just published?
Answer
At this stage in the maturity of the book industry, one factor dominates among the many mentioned by John Rose, "established or acceptable price range for book category."
The industry is dominated more by ritual than anything else. Wholesalers get a 55% discount. Authors get 10% royalty on what the publisher gets (so if a $20 book is mainly sold to wholesalers, the author gets 0.1*0.55*$20 = $1.1). The industry also has the weird practice of "returns" (retailers sell on consignment and return unsold copies which are often recycled). This makes for long accounting cycles to close the books on wholesale orders, huge amounts of costs tied up in inventory, etc. The net result is that publishers often have no real idea how profitable a given book is. Other factors that muddy the industry's ability to determine the actual profitability of individual titles is that publishers and retailers are forced to place bets to decide which books to visibly promote in
prominent bookshelves etc.
So the cover price reflects a sort of superstitious publisher sense of what the potential profitability of a particular kind of book is, based on murky effects of returns and inventory across an entire catalog, since there are a lot of shared costs across titles.
Retailers will turn down titles rather than risk messing with the tried-and-tested (and currently failing) formula.
Given this messiness, most publishers appear to rely on tradition rather than upfront financial analysis to set the price of the book. This tendency is reinforced by the fact that customers are used to paying a certain fixed price for a given kind of book, irrespective of actual content quality.
Obviously this whole setup is completely stupid today. Thanks to print-on-demand, the Kindle and the emergence of Amazon as a dominant retail channel, you can easily cut out the entire mess and sell direct. No returns, no inventory costs, etc. Regular retailers will refuse to stock your book if you don't offer the 55% wholesale discount and returns. But the physical retail channel is so useless for most authors these days (unless you get prime shelf space) that increasingly small and self-publishers are giving up on that channel entirely and selling via what are known as short discounts (less than 55%) and not accepting returns. Under these conditions, most bookstores will refuse your book. Fortunately, Amazon will still carry the book. So the strategy is basically to sacrifice physical retail and optimize for Amazon. The risk is that Amazon can (and does) rewrite the rules of the game in unpredictable ways.
Surprisingly though, pricing strategies for paper books still reflect the offset-wholesale-retail structure, even if you are actually using the print-on-demand/direct to Amazon route. This is because of reader expectations.
Where a lot of pricing experimentation is going on is in eBooks. Amazon has created a really weird playing field, where publisher royalties fall steeply from 70% to 35% if you cross the $9.99 boundary. This means that if you want to price above $9.99, you need to price at at least $20 to see additional margins, but that would represent a huge jump on the demand curve. The result is that a lot of publishers simply choose the $9.99 price.
But there is a lot of experimentation going on at the low end (people pricing things in the $0.99 to $5 range). This is below the lowest end pricing paper books can reach (mass market paperbacks), so buyers have no real anchors or expectations. Smart people are figuring out how to make tons of money by experimenting in this price range.
The elephant in the room with regard to pricing is, and will continue to be, Amazon. If they remove the $9.99 breakpoint, ebooks will start to seriously dominate pricing psychology across the market.
The industry is dominated more by ritual than anything else. Wholesalers get a 55% discount. Authors get 10% royalty on what the publisher gets (so if a $20 book is mainly sold to wholesalers, the author gets 0.1*0.55*$20 = $1.1). The industry also has the weird practice of "returns" (retailers sell on consignment and return unsold copies which are often recycled). This makes for long accounting cycles to close the books on wholesale orders, huge amounts of costs tied up in inventory, etc. The net result is that publishers often have no real idea how profitable a given book is. Other factors that muddy the industry's ability to determine the actual profitability of individual titles is that publishers and retailers are forced to place bets to decide which books to visibly promote in
prominent bookshelves etc.
So the cover price reflects a sort of superstitious publisher sense of what the potential profitability of a particular kind of book is, based on murky effects of returns and inventory across an entire catalog, since there are a lot of shared costs across titles.
Retailers will turn down titles rather than risk messing with the tried-and-tested (and currently failing) formula.
Given this messiness, most publishers appear to rely on tradition rather than upfront financial analysis to set the price of the book. This tendency is reinforced by the fact that customers are used to paying a certain fixed price for a given kind of book, irrespective of actual content quality.
Obviously this whole setup is completely stupid today. Thanks to print-on-demand, the Kindle and the emergence of Amazon as a dominant retail channel, you can easily cut out the entire mess and sell direct. No returns, no inventory costs, etc. Regular retailers will refuse to stock your book if you don't offer the 55% wholesale discount and returns. But the physical retail channel is so useless for most authors these days (unless you get prime shelf space) that increasingly small and self-publishers are giving up on that channel entirely and selling via what are known as short discounts (less than 55%) and not accepting returns. Under these conditions, most bookstores will refuse your book. Fortunately, Amazon will still carry the book. So the strategy is basically to sacrifice physical retail and optimize for Amazon. The risk is that Amazon can (and does) rewrite the rules of the game in unpredictable ways.
Surprisingly though, pricing strategies for paper books still reflect the offset-wholesale-retail structure, even if you are actually using the print-on-demand/direct to Amazon route. This is because of reader expectations.
Where a lot of pricing experimentation is going on is in eBooks. Amazon has created a really weird playing field, where publisher royalties fall steeply from 70% to 35% if you cross the $9.99 boundary. This means that if you want to price above $9.99, you need to price at at least $20 to see additional margins, but that would represent a huge jump on the demand curve. The result is that a lot of publishers simply choose the $9.99 price.
But there is a lot of experimentation going on at the low end (people pricing things in the $0.99 to $5 range). This is below the lowest end pricing paper books can reach (mass market paperbacks), so buyers have no real anchors or expectations. Smart people are figuring out how to make tons of money by experimenting in this price range.
The elephant in the room with regard to pricing is, and will continue to be, Amazon. If they remove the $9.99 breakpoint, ebooks will start to seriously dominate pricing psychology across the market.