Excerpt

PRICE OPTIMIZATION

IN THE PREVIOUS chapter, we looked at what types of books sell in the highest volume as well as the different countries that Kobo performs best in for the average Kobo Writing Life author. That's a good base to have as we now examine ways you can optimize your global pricing in order to maximize your revenue earnings.

Before we talk about specifics, I wanted to remind you to keep something in mind. KWL and KDP allow you to control your price in multiple territories. So does a third party distribution platform like Draft2Digital.

If you look at the clause of your KWL contract, as well as the clause of your KDP contract (not to mention the clauses for Nook, Apple, etc), you'll see a very consistent clause or term across all of them.

You cannot have a lower price on any other retailer.

Thus, your pricing in USD, in CAD, etc., must be the same across all retail platforms.

Here's a quick look at the Kobo Writing Life Terms of Service that mentions this:

In SECTION 4 of the contract (as of the Sept 19, 2016 update, which is the one showing in the summer of 2018 as I write this), there is a line that reads:

"The SRP for your eBooks provided to Kobo must be less than or equal to the lowest price provided by you to any third party."

Kobo, like Amazon, and Apple and Barnes and Noble, have a clause that says your price can be higher on other platforms, but it cannot be lower. If it is lower, they reserve the right to manually adjust your price to match the lowest price.

Amazon is, the only company that aggressively pursues this using powerful auto-bots. But the contract you signed means you can't over-price your books on Kobo while making them cheap on Kindle.

If your price is $2.99 USD on Kindle, they, by contract, it should be $2.99 USD on Kobo. Otherwise you are in violation of the contract.

Thus, as I'm talking about different prices and different currencies in this section, keep in mind that you can and should make the same changes across all retailers. (With a few exceptions – Kindle doesn't allow for NZD pricing, whereas KWL and Draft2Digital do)

Price Should Be Active, Not Passive

The first thing to remember about pricing stems from advice I heard from Nathan Maharaj – Senior Director of Merchandising at Kobo – during an industry presentation he gave to publishers.

Nathan said that price is a verb, not a noun. Price is an action that we take, rather than a noun that we define.

He was referring to the importance of experimentation with price, of trying and testing different price points, and of understanding that pricing is a dynamic factor in a book's metadata.

Price is something that needs to be done strategically, not willy-nilly.

Authors and publishers put a great deal of effort into their book's cover design as well as into their synopsis or blurb in order to maximize the appeal to their target readers. But they need to put as much care and consideration into the price point that they choose.

Nathan went on to suggest the following three things that were important considerations when setting a price.

•Price Deliberately: Make sure that you have a plan related to your price and be prepared to measure the results of that plan.

•Price Responsively: Pay attention to the market and be prepared to react to changes as the market evolves.

•Price Often: Considering both the market changes as well as your pricing plans, remember that price isn't something you set and forget. You can change it.

The three points above aren't meant to suggest that you should be going in and changing your pricing every day. It is meant to help you reflect upon and consider the following when you think about price.

Think about what your regular price should be, based upon considerations like genre and country. But then also consider if you want to have a different launch price strategy, and for what purpose? Will you have a different front-list price and back-list price? Think about newly released digital movies that are priced really high, then, over time, how the price drops significantly. Yes, this is based on a physical distribution world, but consumers are used to that happening across other product lines. A new phone or new game system is priced higher when first released (unless there is a temporary, "buy-now" launch price to entice new consumers), and then the price typically slides down over time as it becomes a backlist product and newer products are now available. But, of course, that's one methodology. Perhaps your own pricing strategy involves very specific price points based on the number in a series you have, to create a funnel for readers.

Unless your goal is to move a lot of units and not earn a sustainable income on your eBook sales, the goal with pricing should usually involve maximizing your revenue.

The Basic Psychology of Price

We understand why products are priced at $0.99 instead of $1.00 — even though we all know better. Ninety-nine cents always feels like a better price that one dollar.

But why is that?

When consumers look at a price, they mentally round any price they see UP to the next dollar. So, when they see $1.00, they have already rounded up to $2.00 automatically. It happens almost subconsciously.

Thus, $0.99 feels like $1.00, whereas $1.00 feels more like $2.00.

It's a bit of a silly notion, but continued studies of customer price psychology demonstrate that is how our minds typically work.

Understanding and remember this becomes important once we start converting our prices into different currencies.

If you enter a price of $2.99 USD for your eBook, Kobo (and all the other major retailers) will use an automated price currency conversion to change the price to the local currency for different territories.

$2.99 USD might become $3.63 CAD (based on exchange rates typical in the summer of 2018 when I'm writing this)

Basic high school economics might tell you that as price increases, sales will decline. But remember, that, within certain price bands, there's that psychological factor in pricing.

When a consumer sees $3.63 CAD, they have already rounded up to $4.00 automatically in their mind.

Thus, manually over-writing the CAD price from $3.63 to $3.99, makes very little difference in a consumer's mind — and the extra margin you can make from rounding the prices up will more than make up for any drop in unit sales.

You might think that it's a mere $0.36. (Or, more realistically, 70% of $0.36, which is about $0.25)

But, with 100 copies sold, that difference is $25.

With 500 copies sold, that difference becomes $125.

With 1000 copies sold, that difference becomes $250.

And with 5000 copies sold, it's $1250.

Those pennies that you ignore can add up over time.

Isn't that extra change better in your pocket than left on the table?

Optimizing Prices in a Top-Selling Country

So how do you know what territories to optimize your price in and what territories to leave alone? Kobo Writing Life allows for optimization in 16 different currencies. That's a lot of work for a matter of pennies.

Considering your time and the energy spent on pricing strategies is also important; therefore, focusing on the territories where you are selling more might offer you the best return on your time investment.

As mentioned in the previous chapter and based on my own experience working with thousands of authors over the years, it was typical that anywhere from 60% to 75% of an author's Kobo sales would come from Canada and Australia.

So, what if that author enters a USD price and lets the systems do the auto-conversion to both USD and AUD?

Let's look at a book that is priced $3.99 USD using a May 2018 exchange rate for USD to CAD and AUD currencies.

The difference, per unit, isn't all that much. If you manually tweak your pricing, you would earn:

•44 cents more for each sale in Canada

•33 cents more for each sale in Australia

But let's see what happens when we match these new prices to actual unit sales.

Say, for example, that you sell 100 books. Based on my study of Kobo author sales in the past five years, I'm going to say that 50% of those books will be sold in Canada, 25% in Australia, and 18% in the USA.

Your earnings, in Canada, is suddenly almost $22 higher. In Australia, it's $9 higher. I'm not sure about you, but I'd rather have that $30 or so in my own pocket.

Considering the long-term effect on earnings. Sure, it's great to sell 100 copies of a book. But what does that extra income become when it is 500 units or 1000 units?

Are you willing to leave that extra "change" on the table, particularly on a retailer like Kobo, where a higher volume of sales outside the US tends to be the norm?