This episode was originally published here
Podcast: Play in new window | Download | Embed
How much should a book cost? This may sound like a simple question, but your answer has a huge impact on how well your book sells. Get the price-point right, and your book has an edge. Get it wrong, and your book will fail. Price is so important it is one of the Five Ps of Marketing 101.
When pricing a book, there is a psychological phenomenon called “anchoring” that will give you the edge you need.
What is anchoring, and how can you use it to make your books profitable?
What is Anchoring?
What your book is compared to is a critical part of pricing your book. Marketing psychologists call this anchoring. Anchoring is what gives a number it’s meaning. Put another way, prices have no value without an anchor.
Is $80 a good price? It depends on what you’re buying and what the anchor price is. If that thing normally costs $100, it’s a deal. If the thing normally costs $50, it is a rip-off.
When people look at the price of your book, the price itself is only half the story. The other half of the story is what they compare your price to.
In the marketing and sales copy for your book, you can influence what readers compare your price to. Choosing an anchor for your book’s price is critical for making your book profitable.
Anchoring Determines Perceived Value
As a kid, I internally anchored all prices the $0.25 it cost me to play an arcade game. For $0.25 I could buy 1-5 minutes of entertainment. My buying decisions centered around the anchor of that $0.25 of gameplay.
Should I buy an action figure for $5 or spend that money on an arcade game? To decide, I would calculate how much fun the action figure would give me compared to the arcade game.
Now that I am an adult, my anchor is a two-hour movie. It costs about $25 to take my wife to a movie. That comes out to $12.50 per hour of entertainment.
When I’m making buying decisions about entertainment, I compare the cost to that hourly rate. The movie price is my universal anchor for all entertainment.
More commonly, people use category-specific anchors.
When I was a child, I compared every price to the arcade game. Now I compare only entertainment to the cost of a movie.
When people shop for a car, they compare the price to similar cars. In the same way, when readers shop for a book, they compare the book’s price to similar books.
With category-specific anchors, the other products in the same category anchor the price of the item under consideration.
The category you choose for your book determines how you price it. While $4.99 for a romance ebook may seem expensive, it feels like a bargain for a legal book.
Any Number Can Be an Anchor
Anchoring is a well-studied phenomenon.
In 1974, two well-known psychologists, Kahneman and Tversky, conducted a famous study on anchoring and wrote a paper called, “Judgment Under Uncertainty: Heuristics And Biases.”
Their goal was to research what kinds of numbers anchored, whether any number could be an anchor, and what the connection was.
Wheel of Fortune Experiment.
To learn about the connection between numbers and their anchor, the psychologists created a wheel-of-fortune type of wheel that displayed the numbers 1-100. It was rigged so it would land on either the number 10 or the number 60. After subjects spun the wheel, they were asked a completely unrelated question.
“Subjects were asked whether the percentage of U.N. membership accounted for by African countries was higher or lower than the number on the wheel. Afterward, the subjects were asked to give an estimate.
Tversky and Kahneman found that the anchoring value of the number on the wheel had a pronounced effect on the answers the subjects provided. When the wheel landed on 10, the average estimate given by the subjects was 25%. When the wheel landed on 60, the average estimate was 45%.
The random number had an “anchoring” effect, pulling subjects’ estimates closer to the number they were shown even though the number had zero correlation to the question.”
The people in the study knew the wheel had nothing to do with U.N. membership. And yet the number on the wheel stuck in their minds.
Tversky and Kahneman’s study has been reproduced repeatedly in many contexts, and their findings have been confirmed. Numbers have no meaning to humans without the context of anchoring.
How is anchoring used in the marketplace?
Anchoring is the reason Amazon displays the list price for the book with a slash through it. They sell more copies when they display the list price beside the lower price.
Anchoring is the reason stores at the mall are always having “sales.” If they intend to sell a shirt for $5., they will first price it at $25, then run a “sale” even though they never intended to sell the shirt for $25. The intended price was always $5, but since it’s marked down, consumers treat the shirt like it’s worth $25, and they are thrilled with the 80% “discount.”
Anchoring is why most prices end in 9. Marketers are anchoring to a higher number. A $9.99 item seems cheaper than a $10 item.
When Anchoring Goes Wrong
If you don’t plan your anchor price, other people will assign one, and that is almost always bad for you.
You can see this disaster taking place with software for phones.
When you buy software for your computer, it’s not uncommon to spend $50 per year for Microsoft Word or other programs, and people rarely complain about that price.
But for software on smartphones, $30 seems like a fortune. People lose their minds when they have to spend $10 on an app.
Since early popular apps like Facebook and email were free, people anchored to the free app. Even though apps are expensive to develop and maintain, consumers started to believe software for phones should be free.
It is difficult for developers to create inexpensive, quality phone software. If they can’t sell the app, it usually means they’re selling the data they collect from users. There is always a cost, and someone always pays for the app. If you’re not paying for it, advertisers or data brokers are.
For authors, it is difficult to make money if the anchor price for your book is a free book. People are comparing prices, and there’s not much room for you to make a profit.
Most books have an anchoring problem. Instead of being anchored to a $350 college textbook, they are anchored to a free ebook.
Indie authors are in a race to the bottom in terms of pricing. As Seth Godin says, “The problem with a race to the bottom is you might win, or worse come in second.”
If you have the cheapest book, there are some big advantages. A certain kind of reader has a worldview that always prompts them to buy the cheapest option. You don’t have to market to this segment of consumers because they’ll always choose the lowest price.
More and more readers are anchoring book prices to a $0 book. The more this happens, the harder it will be for authors to make a living.
How to Anchor Your Book’s Price on Purpose
Classic Anchoring Methods:
Have a higher list price for your book.
A $9.99 book discounted to $4.99 feels like a better deal than a $4.99 book always sold for $4.99. Most traditional publishers take this approach. They list the book at a higher price than they intend to sell it.
If you are indie published, this happens with your paperback book all the time and without your consent. Amazon will fiddle with price as their algorithm tries to find the optimal price.
Get a lot of reviews.
A $4.99 book with 50 reviews seems better than a $4.99 book with only four reviews. Of course, this is irrational, and yet people connect the value of the book to the number of reviews because we anchor to unrelated numbers. Even people who know the science behind anchoring are still influenced by it because it is so powerful.
One way to change the anchor for your book and get away with a premium price is to create a limited-edition signed and numbered hardback priced at $100.
Change the venue.
The place a customer purchases a book impacts how much they spend. People have no problem spending $20 or $30 for a book on Kickstarter. I recently spent $100 for signed and numbered hardback on Kickstarter.
The place consumers purchase a book impacts what they expect to spend.
If people buy a book online, they expect to get a discount. When an author sells signed copies at the back of the room after a speaking engagement, customers expect to pay full price. On Kickstarter, people expect to pay a premium of $20 or $30. I recently spent $100 on a Kickstarter book.
Put large numbers on your book.
For example, “10,000 copies sold” will make the $8.99 price feel cheaper. There are many ways to put credibility on your book. From an anchoring perspective, it doesn’t matter what the number is, as long as it’s a big number.
Fiction Anchoring Methods
Compare to the cost of your book to more expensive entertainment.
In your marketing copy, you might say, “This entertaining read is cheaper than going to a movie and a lot more fun!”
Compare your book to the cost of a vacation.
Your marketing copy might read, “Strap on your sandals because this $20 novel will feel like a vacation to Hawaii.” Your book must deliver on that promise, but it is possible. I’ve read $20 books that have felt like an adventure in outer space without the expense of a spaceship.
Nonfiction Anchoring Methods:
Sometimes novelists can adapt these methods creatively, but the following methods tend to work better for nonfiction authors.
Compare to your consulting rate.
If you’re a lawyer and you’ve written a book about law, you can compare to your consulting rate by saying, “I normally charge $150 per hour for consulting, but this book includes 10 hours of my consulting advice for only $20.” By implication, your book is worth $1500, but you are selling it for a fraction of that cost.
Compare to other ways of learning the same information.
People forget that books are an economical means of entertainment and education. Many business consultants charge $300 per hour, but they sell their books for $15.
The Personal MBA (Affiliate Link) is a great example of this. A Master’s degree in business costs $50,000. A $15 book with most of the same information is a bargain. Based on reviews and its ongoing popularity, it appears The Personal MBA: Master the Art of Business is delivering on that promise.
Compare to the cost of hiring someone to do it for you.
“Hiring a contractor to renovate your bathroom would cost $10,000, but this $20 book will show you a stress-free way to do it yourself for only $500.” Learn how to do it yourself and save money.
Compare to the value your book delivers.
“What price would you pay for a better relationship with your children? $500? $1000? This book will help you connect with your children to improve the relationship, and it only costs $20.
When you choose your anchors, you can make your customers feel good about the price they’re going to pay. If you don’t purposefully choose your anchors, other people will choose for you, and that will be bad for your sales.
Warning: Price Signals Value
We can’t talk about pricing strategy without talking about value signaling.
Different people have different worldviews when it comes to money. Not every kind of customer wants the cheapest option.
Some people want the most expensive option. Others want the best value. While this varies between personalities, it also varies between categories. A person who buys the cheapest computer may buy the most expensive car because it is the safest vehicle for their family.
Someone else will buy the cheapest car and the most expensive, high-quality computer.
Three Strategies for Pricing
In most markets, there are three strategies for pricing.
- Quality: The best
- Value: Most bang for the buck
- Price: The cheapest option
The Toyota company has products for every kind of buyer. For their quality buyers, they offer the Lexus. For their value customers, they have Toyotas. For the customer seeking the lowest price, they offer used Toyotas.
Most people are searching for the best value, so many business owners shoot for the value strategy. But offering the highest quality for the least money is the hardest strategy to execute successfully.
Why? Because the decisions are harder.
For example, how much should you spend on your book cover and editing?
Quality Strategy: Hire the best cover designers and editors regardless of how expensive they are.
Low-Price Strategy: Use a cheap or free cover template, and swap editing with an author friend.
Value Strategy: All the decisions get harder because you are constantly trying to balance cost and quality. Should you spend more on editing or cover design? It requires more expertise, research, and ingenuity.
You will also face the most direct competition in the value category, and that compounds the challenges posed by all the decisions.
Everyone is trying to be the value player. Few people have the courage to be the most expensive or the cheapest. Being different seems risky.
When to price your book higher than the competition.
Having the most expensive book in your category signals quality. But this strategy demands that every aspect of your book screams “Quality!” If the only quality piece of your book is your $1,000 cover design, don’t be fooled into believing it will justify premium pricing.
If you want to charge a premium price and make the quality strategy work, you’ll need a high-quality cover, stellar editing, high ratings, and excellent reviews.
Most traditionally published books have higher prices on Amazon because publishers are trying to signal quality.
While the average price for an indie ebook is $3.99-5.99 depending on the category, a traditionally published ebook is typically priced between $4.99-$12.99. It’s not uncommon for traditional ebooks to be priced higher than the print book because publishers strive to signal quality and exclusivity.
Some traditional publishers spend $2000 or more on a cover design. They work with top artists, designers, and photographers through multiple iterations, and it may cost upwards of $10,000.
When to price your book below the competition.
Some readers always choose the cheapest option, and if your book has the lowest price, these readers will choose it.
To make money with cheap books, you must write a lot of them. What you can’t achieve with the price, you can make up in volume. If you’ve written 100 books and earn one dollar per book, and if each title sells 100 copies per month, you’ll be able to pay your bills.
To make the low-price strategy work, you can also find other ways to earn money in addition to selling your books.
Have you wondered why big-screen smart TVs are so cheap these days? It’s because they track your viewing habits and sell your data to advertisers. Selling that data is far more profitable for them than selling you a TV.
These companies may even be able to sell you the TV at a loss or a break-even price because they know they’ll make up the difference by renting movies to you and selling your data.
Some novelists use this loss strategy by pricing the first book in a series at $0. They make up the loss on the sales of book two in the series. If you have a ten-book book series, offering the first book free is a highly effective strategy.
Some nonfiction authors give away their books for free or sell them at a deep discount to promote more expensive products (like a course) or services (like legal counsel). The book becomes an expensive business card that leads to the sale of a more profitable product.
Pricing your book requires you to be strategic. Pick your price and your anchor on purpose. Each of these strategies can be profitable. The key is to chose a sustainable strategy for you and your book. The right strategy will help you sell more books, make more money, and make a bigger difference in the world.
Novel Marketing Mastermind Groups
Would you like me to personally help you achieve your publishing goals? I have worked with thousands of authors from beginners to New York Times bestsellers, and I can help you go further in your career faster. In my Novel Marketing Mastermind groups, you’ll get personalized, interactive training and encouragement from a small group of other masterminds and me. Once you join an Author Media Mastermind Group, you’ll get access to the Mastermind Slack Channel and our monthly live video coaching session.
Peter DeHaan author of 52 Churches
Peter and his wife visited a different Christian Church every Sunday for a year. This book is their story. Discover more about Jesus’s church, the people who go there, and just how vast our practices and worship are.
You can become a Novel Marketing Patron here.
If you can’t afford to become a patron, but still want to help the show, you can! Just share this episode in a Facebook group of authors who you think would benefit.
I remember watching the last launch of the space shuttle back in 2011. I was working out of a coworking space at the time. Someone projected the footage onto the wall, and we all watched the last shuttle take off into space.
Nine years later, I watched the Dragon 9 launch with my family. Mercy sat on my lap and babbled at the computer. It is amazing what we can do when we work together.
The post How to Price Your Book Using Marketing Psychology appeared first on Author Media.