Product Pricing in a Zero Marginal Cost Distribution Environment

Jarrod Drysdale on digital product pricing:

Our strategies were very different. Sacha wrote a book and priced it relative to the cost of other books, which is the strategy just about everyone follows. Instead of that, I wrote a book and priced it based on the value it provides.

Choosing a pricing strategy based on competition is a natural approach, but also a flawed one. Price competition implies scarcity—supply and demand market forces. There is no scarcity for ebooks because digital files are replicated practically for free.

Seth Godin has mentioned this before: there seems to be a ‘race to the bottom’ effect with a lot of eBooks, but many are doing fairly well with pricing way above the competition if they are in a market with scarce competition. Of course this is nothing new – small supply relative to demand results in a above market price.

If you not planning on growing a business or establishing a brand (including your own ‘personal brand’ – your value in the marketplace) then selling a one-off book (or any sort of digital content) by estimating the intersection of supply and demand curves might work.

However, every product has some of auxiliary asset whose value is increased or decreased depending on a product is priced, designed and released.

Mailing list growth. Establishment of a respected voice in a niche market or field. Growth of enthusiastic fans. Possibility of a future acquisition.

All of these intangible assets are not easily valued because in most cases they are dependent on the future. However, they have a real value and possible growth in any of these assets can effect the short term pricing of a product or service. I think this is what makes digital good pricing challenging – why some books are on sale for $3.99, some free, and some less that 150 pages and $50. I don’t think there is ever going to be any one model that works – when you can slice and dice pricing into many different facets the possibilities are endless.