Understanding Penetration Pricing and Premium Pricing of your ebook on Amazon

Book pricing on Amazon, novel pricing, competetive pricing, premium pricing

One of my daughters is a capable artist and headed to an undergraduate program in Medical Illustration soon. As an aside, she is getting smarter about posting her art to websites and beginning to think about how to charge for her work. I’ve recently had similar discussion with some other writers about how they price their novels. What is really being discussed here is “Penetration Pricing” vs. “Premium Pricing”. Based on my own experience, it sounds more complicated than you might first think, but it is really not that complex.

As a newbie writer, when I published my first novella, I priced it at $.99. It is only ~17K words, and I’m a newbie and started (like all of us) with zero reviews. In effect, what I was doing was “Penetration Pricing”: “Penetration strategies aim to attract buyers by offering lower prices on goods and services. While many new companies use this technique to draw attention away from their competition, penetration pricing does tend to result in an initial loss of income for the business. Over time, however, the increase in awareness can drive profits and help small businesses to stand out from the crowd. In the long run, after sufficiently penetrating a market, companies often wind up raising their prices to better reflect the state of their position within the market.” Quoted from this site.

Over time, as the reviews came in on my book and they were positive, and my “star rating” on Amazon was at 4.8 at one point, I raised the price to $1.49 (In two years I’ve only once run a promo and have never “pulsed” the price). In effect, after about 6 months, I switched to “Premium Pricing”: “With premium pricing, businesses set costs higher than their competitors. … Because customers need to perceive products as being worth the higher price tag, a business must work hard to create a value perception. Along with creating a high-quality product, owners should ensure their marketing efforts, the product’s packaging and the store’s décor all combine to support the premium price.

Part of why I wanted to write about this was because I heard a comment recently that setting a high price on your Kindle book signals a work is of higher quality.

This is not true. Pricing alone does not establish a perception of quality. This may be obvious to some, but a surprising number of writers and artist (it seems from talking with my daughter) believe in the “Labor Theory of Value” when it comes to their work, though they probably don’t know this economic principle by that name. That is, they believe that they should charge a price and get paid in accordance with how much work they put into their art.

LTV is the core of the Marxist economic doctrine. Obviously it did not (Soviet Union) and does not work. Unfortunately you can put in a lot of work but create a substandard product.

In the case of figuring out your ebook pricing on Amazon, if you want to ramp your sales and charge a premium, I suggest you need at least 4 of the following:

  • Your cover is award-winning quality
  • Your blurb is knock-out brilliant
  • At least 20 reviews (there is evidence that reviews don’t much matter until you have at least 20)
  • You have a 4.5 “star rating” (or higher)
  • You have multiple books and a loyal following

Of course, this discussion is divorced from traffic (the number of potential buyers who see a book on Amazon). To state the obvious, even if you have all these above, if you are not generating traffic to your book’s sales site on Amazon, your sales are going to be zero anyway. I’ve also written about generating traffic by optimizing your book’s keywords on Amazon. At any price, you need traffic — and lots of it — to ramp sales at any price.

Both Premium Pricing and Penetration Pricing are viable strategies for Amazon books, and how quickly one transitions from one to the other (or any of the other 4 strategies called out at the link) is dependent upon many things. But no matter the strategy, all the supporting pieces need to be in place for it to work.

Please share any other pricing experiences you have had, and what has worked best for you.

 

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Understanding Competetive and Premium Pricing of your ebook on on Amazon
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Understanding Competetive and Premium Pricing of your ebook on on Amazon
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When I launched my book, I did "Penetration Pricing". Over time, as the reviews came in and my "star rating" on Amazon was at 4.8, I raised the price to $1.49. In effect, after about 6 months, I switched to "Premium Pricing". Here is how I did it.
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Tiffany Writing
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2 thoughts on “Understanding Penetration Pricing and Premium Pricing of your ebook on Amazon”

  1. Allen — useful thoughts!

    I suppose penetration pricing is what I used to hear called a “loss leader” — you take an initial loss to build up your market. (Though it’s harder to identify what constitutes a “loss” when the investment is primarily time, which for a beginning author is hard to value.)

    Rick

    1. Hey, Rick! Yes, this writing stuff is a labor of love for the most part. 🙂 But getting the pricing right from the start can certainly help ramp sales and build a following.

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