From author Edward W. Robertson on Failure Ahoy! Adventures in Digital Publishing:
I want to look at pricing, and present an ass-backwards case: that it may make more sense to price your oldest, least popular books the highest—and your new books the lowest.
Traditionally, a book is priced highest when it’s brand new. Part of this is due to the formats of a new release itself, which begin with expensive hardcovers and later move on to less expensive paperbacks, but this is frequently how ebooks are treated, too.
. . . .
There’s no difference in production costs for an ebook sold today and a copy of that same ebook sold on the day the title came out. So why does it cost less now than when it was new?
The answer is demand. When an author puts out a new book, there is a high level of fan demand for that title. Everyone knows you’ll be able to get it for cheaper later. But so long as the price is semi-reasonable, readers don’t care about shelling out a few extra dollars in exchange for having the specific book they want now. And publishers are happy to take advantage of that demand by setting initial prices higher.
Why reduce price of that same ebook format later? I don’t get invited to sit around a lot of Big Publishing House marketing meetings, but the probable answer is obvious. As demand wanes, you cut price, hoping to lure in new readers. Especially the segments of the market that are more price-sensitive. Over time, as a book steps down the pricing staircase, it drops below the purchase threshold of several different markets, garnering new purchases at every step of the way. Eventually, once the higher-paying markets are exhausted and demand settles down to a trickle, you slot the book into a low price—one that minimizes readers’ resistance to purchase, but isn’t so low that it devalues the author and/or the publisher’s entire catalogue.
. . . .
When a new book is released on Amazon—and the other stores, too, but Amazon is the one I’m most familiar with, and the one I believe does this best—its resulting sales aren’t just about the pent-up demand waiting for it. Instead, Amazon’s bots process its initial sales, then actively promotes that title to other customers likely to purchase it.
This is largely black box stuff accomplished through emails and on-site recommendations, so it’s hard to capture hard data on these processes. But I’m guessing Amazon’s system is a lot like Netflix, where people who watched/enjoyed Movie A, B, and C will be recommended Movie D, which other people who enjoyed A-C also watched and liked. Amazon has their own version of this front and center, the “alsobot” recommendations on every single product page.
So a new book comes out. Its fans buy it. And then the mighty Algorithm kicks in, recommending the book to potential customers. The people it recommends the book to are (probably) determined by taste-constellations, i.e. the people Amazon’s system thinks are most likely to buy it. And the volume of those recommendations is determined by the volume of outside sales—anything not initially generated by Amazon itself.
. . . .
The next question raises itself: What price point will make you the most money? Specifically, what is the best price to maximize visibility (and thus sales) without losing out on too much money in other areas, such as the initial fanbase who’ll happily pay higher prices, or by dropping into an unfavorable royalty rate?
. . . .
But let’s say you can convert 1 out of every 20 purchases into core fans, people who’ll happily sign up for your mailing list/Facebook page/blog so you can reach them directly when the next book is out. At $2.99, you’ve added 50 core readers. At $0.99, you’ve added 100. Your next book will have twice as many purchases to impress the recommendation algos with than if you’d launched the previous book at $2.99. Multiply by as many books as you intend to write in the series.
. . . .
I think there’s a pretty crazy case for punting new books out the door at $3.99, max. Even if you’re an indie and you don’t charge much to begin with—few of us go higher than $4.99—just a small initial discount could pay off.
Whatever the case, applying traditional frontlist prices to new releases maximizes earnings from preexisting fans, but drastically reduces your ability to create new fans. Not just over the long-term, but during the short-term recommendation-driven visibility Amazon will grant you as a new release.
That by itself is a strong argument for inverting the traditional pricing structure. On top of that, you’re actually rewarding your existing fans for their loyalty by charging them less than the book’s eventual list price. Treat your readers well, and they’re more likely to stick around for the future. Yay, a lasting career.
. . . .
But there comes a point when a book has essentially lost all visibility on Amazon. It isn’t on any bestseller lists. It’s buried on the popularity lists. It may be in some alsobots, but mostly of books that aren’t selling anything, either. Amazon is sending few if any recommendation emails about it (which it will do for all books, it’s just more aggressive about new releases).
Meanwhile, a bargain price no longer matters, because no one else is seeing the book to take advantage of an impulse-purchase price. The only people seeing it are those who want it enough to search for it specifically. If your new release has earned you a reader who loves you enough to go hop through the rest of your unrelated catalogue, they’re not likely to blink if that book costs a dollar or two more than the popular stuff.
In practice, then, you might launch at $0.99 and gradually raise to $2.99-3.99 as you exhaust your visibility. Or launch at $2.99 and later move up to $4.99 as sales dwindle to the few who are ignoring the 2,000,000 other ebooks on Amazon to hunt down yours.