Cost-Plus Pricing: It Can't Explain The Price Of E-Books
Jul 04, 2016
It's clear it costs less to distribute e-books than printed books, so why do e-books cost as much or more if price is determined by a cost-plus formula?
Ebooks are interesting. They clearly cost less to produce and distribute than e-books (no printing, binding, shipping, etc.) but, as shown here, they often cost as much or more than the printed version. If price is a function of cost, as dictated by the traditional cost-plus formula most of us are familiar with, shouldn't they be cheaper?
The people that sell books now argue that it actually costs very little to produce and distribute books – less than $4 for a hardcover and less than $2 for a paperback. This is probably less than most consumers would expect and, if true, would explain why discounts on ebooks aren't as big as readers might hope.
But... ebooks are clearly cheaper than paperbacks, but (as shown above) the ebook costs more. If the retail price is based on the cost this makes no sense.
The reality is that the sellers are using a kind of value-based pricing, something nobody likes to admit to. In this kind of pricing model prices are based not on costs, but on what customers are willing to pay.
Lower costs only equal lower prices if the seller uses a cost-plus formula in which price is a function of cost.
Ebooks offer some significant advantages over paperbacks (instant delivery, less clutter, greater convenience) and consumers have proven willing to pay a premium for these advantages. And the retailer is happy to charge a premium for them.
This willingness to pay more is the reason ebooks often cost as much or more than printed versions of the same content.
Multiple paths to the same destination can seem user-friendly but, more often that not, it complicates decision making and necessitates more questions.
This article is fascinating because it so clearly misses the mark. Despite what the author says the cost of travel is cheaper today, thanks to unbundling.
Even in business-to-business selling the ways costs are presented can lead smart owners to make bad decisions.
Airport car services use a well designed hurdle as part of a price discrimination strategy that limits discounts to only the most price sensitive buyers.
The flower business has much in common with the restaurant business (often more than with other retail) and florists can benefit from foodservice research.
The underlying concept of diminishing marginal utility is easy to understand but the vagueness of the term makes the definition easy to forget.
New content on how florists can use advanced pricing strategies to increase the volume and profitability of their event business is coming to the GLFE and WUMFA Annual Conventions in 2015.
It was a pleasure to attend and participate in the FSFA convention in Weston Florida and meet the amazing volunteers that put it all together. people that attended the session on how advanced pricing techniques can be used to increase sales and profitability in retail floral.
I'll be presenting a Beyond Cost Plus session on new approaches to pricing and quoting events at the 2014 FSFA Annual Convention.
A personal example of very different reactions to the same product at the same price but expressed using two different pricing models.