Price Sensitivity

With gas prices higher than they’ve ever been (and the obvious consumer discontent associated) it got me thinking about the threshold that exists for price increases. Gas is obviously a commodity that people need to get around, but at what point do people get so frustrated with the cost that they look to alternative forms of transportation? In some cases high prices are bearable and not worth the additional effort necessary to change a daily routine. However; there has to be a threshold at which people decide enough is enough. In most cases that threshold will probably be dependent on the cost of switching to a different brand or in this example, method of transportation.

Often publishing companies that operate on a subscription model battle with the best approach to annual price increases. As a product’s readership decreases the price needs to increase to maintain consistent revenues. But at what point will the customers that purchase the product look for an alternative because the cost of the product is simply no longer worth the value they receive in return?

The Van Westendorp Price Sensitivity Meter is an approach to researching pricing that asks the following 4 key questions to set a range within which people will continue to purchase the product in question:

1) At what price do you begin to think a product is too expensive to consider?
2) At what price do you think a product is so inexpensive that you would question the quality and not consider it?
3) At what price do you think a product is getting expensive, but would still consider it?
4) At what price do you think the product is a bargain?

In the digital age, one thing publishers have struggled with is putting a value on “content”.    Most consumers expect that the cost of a book be significantly less on a tablet because there are no costs associated with a physical product.   By implementing a Van Westendorp Study, you can more effectively use customer feedback to set prices in the range that optimizes sales and keeps customers satisfied.

Justifying the Price of an E-Book

I read an article today which suggested consumers are upset that e-books would be priced anywhere near the price of a hard copy.  Part of the argument was that publishers no longer had to spend money to put a physical product together.

“Consumers see unfairness in publishers pricing of e-books compared to physical books when they subtract out the raw materials, printing, binding, and shipping of e-books. It’s hard to make an argument against such obvious conclusions, and publishers have not done a very good job of making such an argument.”

While I can understand how this might be a person’s initial reaction, we must not lose sight of the fact that a book’s real value has never been in the material with which it was made.  For a publisher to mass produce a book, production costs are admittedly low.  I have never gone to a book store because I really wanted to get my hands on paper and a hard cover, though.  I have; however, purchased books for the unique stories and perspective that they provide.

It is the content that will always be the most valuable piece of a book, whether it is online or not.

Different tools will continue to enhance the way we view and absorb information, but the content will always be the focal point of a publisher’s offering.  Strong content justifies a fair price and the fact that it is now being made available online should not reduce its value.  In fact, search functionality and the transportability of an e-book might even justify a higher price point.

The consumer perception of a book’s value is more likely to be affected by the huge amounts of free content being made available online today.  While some publishers might use this as justification that price decreases are necessary, I’m a strong believer that value should be measured by what a product provides beyond alternative options.  Generally, a publisher can provide a more comprehensive product at greater convenience than information a consumer can find online.

Advancements in technology and online navigation; however, are rapidly changing the way publishers do business.  Going forward, the publishing industry will need to continue to find ways to provide additional value to consumers to ensure they justify current standards for pricing.