23 Jun Further research has suggested that pri
Further research has suggested that price is an important feature driving the appeal of digital book files. Will is trying to apply some earlier experiences in movie distribution to his digital book project. When movies were first released for general consumer distribution as videotapes, they were expensive—about $80 per title. When the price was lowered to $20 per title, evidence suggests that volume sales typically went up 600%. Of course, not everything stayed the same. In recent years, movie titles have been released more quickly following their showing in theaters, there have been more extra features on the DVDs because of greater storage capacity, and the format changed from videotape to disk. Some have hinted that although there are fewer blockbuster hits now, there are more titles appealing to a broader audience. Will is trying to find more evidence of the effect of price on volume demand, but this is all he has discovered so far.
Nevertheless, Will must determine a launch price for when he first introduces his digital titles to the market. He set up a website offering his small catalog of books. He set the price at $10 for a title on which copyright has lapsed and $15 for a title that includes a royalty fee. He is a little disappointed in his sales in the first 6 months of operation, having sold only 1,000 of the older books with a lapsed copyright and 2,000 of the newer books. Moreover, he is confused as to why he sold twice as many of the more expensive books. He wonders whether he should lower or raise prices to increase his revenues. What might he expect to happen to his volume sales if he does change prices? If he decides to increase or decrease prices, is it better to make a small change and observe the effects on quantity, or will customers more likely react to a change in price of at least $1 per title? If he changes his prices, will this have any effect on the prices charged by big-volume sellers for conventional hard-copy books?
While Will is pondering his pricing strategy, he visits a friend, Elsa Budley, who has had experience selling online. Elsa started an online business selling her artwork. Although her initial sales were a bit disappointing, she offered some shocking advice. She discovered that she sold more artwork when she raised her prices at the same time that she expanded her online advertising budget. Elsa thinks Wills key to success is to raise prices and sell more books!
Will senses that he is on the brink of great success with a proprietary technology that transforms the way people access books and other materials currently offered only in print. He is also on the verge of making some fundamental business mistakes, however, that could rob him of his success. He may be more successful if he observes some basic concepts included in the early part of this course.
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