It’s official. Price is the only thing that publishers or retailers can think about right now*. It was foremost in everyone’s mind when the focus was on the positive and negative effects of $9.99. It is predominant again as I have my umpteenth phone call with a publisher about “the agency model” and publisher-set prices. This made the Digital Book World panel I sat on last week especially timely since a) it was all about price, b) it showed a number of strong points of view — reader, agent, publisher, retailer; and c) it forced me to make charts and graphs so I could have something to present. I’ve had a few requests to share these with the wider world, so I include them below, along with a few things we’re hoping publishers keep in mind as they contemplate the most significant shift in the business model since the introduction of returns in the 1930s.

The Current State of Pricing
Under the current model, we spend a great deal of time and margin turning publisher-provided prices into prices that consumers are willing to pay.

Here is what we get from publishers right now…

Here is what it turns into in purchases after we have discounted. (Note: these are trade fiction/nonfiction sales only.)

Notice the great many books being given to us at $20+ and the shocking few sold at that price. Here is how I’d generally describe these different regions of pricing geography today.

Some of this changes with agency. The $9.99 peak may shift northward and hopefully lose its margin-killing properties. Trade, mass and niche will hopefully be unchanged. But I suspect that the flat and featureless terrain north of $14.00, where so many ambitiously priced titles currently languish, will be unchanged as well.

As I said at Digital Book World, the part of this graph that doesn’t change under agency is consumer expectation. This is where the consumer, for better or worse, is currently predisposed to spend. And while you could argue that the $9.99 peak is self-fulfilling (”Of course sales at $9.99 are strong. That’s where all the good stuff is priced.”) this same price distribution has held reasonably true for us in non-US markets where $9.99 is not a dominant retailer-driven price point. We have plenty of titles priced over $13.00. They just sell much less often. So our hope is that publishers will proceed gently, with an understanding of current customer expectations.

As they proceed, we see some opportunities and a warning flag as well.

Opportunity: Dynamic Pricing
You, the publisher, roll out a new release at $14.99 and it sits there, unpurchased and unloved. What do you do? If you’re thinking like a retailer, you might lower that price. You’re a self-published author who is selling at $2.50 and your book starts to sell well. You might walk that price up and see what happens. There is tremendous possibility to be more responsive to consumers and to take advantage of the immediacy that comes with being able to reprice at the speed of metadata.

Opportunity: A Shorter New Release Window
There is an opportunity for a faster move through “new release pricing” ($12.99+) to “not-new pricing” (sub-$10). In our data, the large majority of sales for a new release title takes place in the first 120 days. Can we look forward to a more aggressive timeline for price reductions after we have filled early orders for the “Gotta read it now!” crowd and begin to serve those for whom price is more of a concern?

Caution: Publisher-set Prices Will Require Much More Collaboration, New Business Functions
Publishers have never done pricing without the safety net of retailers making adjustments to optimize consumer demand. Retailers spend a great deal of time on price analysis/optimization. As we work with publishers on agency, continuous review of price/purchase behaviour is going to be essential. Daily/weekly, not monthly/quarterly. We are going to be beefing up our reporting to help, but this is going to be a new business function for most publishers and a faster decision-cycle more akin to print inventory decisions than the leisurely process of setting publication price points at the beginning of each season. Get ready.

* If we’re very lucky, the next undiscovered Faulkner, Rowling or Eggers will not submit a manuscript in the next few months. The editor who would normally read those pages is tied up in meetings with agents debating digital royalties and that manuscript will be buried under a pile of agency model revenue projections.