Rafi Mohammed

When is Old Really Old (Low Price) and When is Old Really Vintage (Higher Price)?

Posted on April 25th, 2007 (1 Comments)

Over the years I’ve had the good fortune to work on fascinating pricing projects with companies that produce content (e.g., music, film, books). And what’s interesting is that these companies share the same fallacy in how they think about their products’ value. They feel “old equals discount.” And what results from this thinking…(everyone in chorus)… “Hidden Profits!”

On the front page of the D section of today’s New York Times, a large and colorful ad proudly announces that the national bestselling book “Stumbling on Happiness” is in paperback “at last.” Hallelujah…I can sleep better knowing this day has finally arrived! The notion of releasing a high priced hardback version and then after a period of time offering a discounted paperback is a classic combination differential pricing and versioning strategy. Given demand for a product, sell high to readers that value the book and discount the book later to entice book buyers with lower valuations. Makes sense right?

Here’s the problem: from a value perspective, over time “old” doesn’t necessarily mean “discount.” Consider John Grisham’s breakout book “The Firm.” Published in 1991, this book spent 47 weeks on the New York Times bestseller list. And while Grisham has gone on to write several bestselling books, “The Firm” remains a classic. Grisham’s publisher followed the traditional hardback to paperback differential pricing strategy. Today, if I want to buy “The Firm,” I can only get it in paperback ($7.99 or $9).

Publishers need to understand that the composition of people demanding a product changes over time. My bet is that today, demand for “The Firm” comes from customers that have recently learned about the book. These consumers may have just read Grisham’s latest thriller and want to buy his other books or been exposed to Grisham from his recent Lifetime Achievement Award at the Galaxy British Awards. Heck…some interested customers may not have been even born when the book was published. Can we agree that consumers today are different than those interested in buying “The Firm” in the early 90’s? So…why are publishers setting prices that were designed to entice lower value customers from the early 90’s? My point is that over time, the composition of buyers change. If I were a publisher, I’d take the discounted paperback off the market after a year or so and replace it with a higher priced (nicer looking) paperback to better profit from new demand.

The notion of changing prices to capitalize on different demand is also relevant to the music industry. Greatest hits CDs are rarely top sellers…if I own all of my favorite artist’s (Jimmy Buffett) CDs, why would I buy his greatest hits package (unless there are new songs/versions)? Since demand is expected to be less than blockbuster, record companies often set lower prices for greatest hits CDs. For example, James Taylor’s latest release is priced at $18.98 while his outstanding Greatest Hits is priced at $11.98. The segment of customers that purchase Mr. Taylor’s Greatest Hits is different than those that buy his latest release (a compilation of Christmas songs). My bet is that his record company can price at par or even at a premium to these “entry level greatest hits” fans for the convenience (and cost savings) of receiving all of James Taylor’s best songs on one CD.

So for content providers, let me riff on Bob Dylan’s famous song title “The Times are A-Changin” by humbly adding “Your Demand Curve is A-Changin…So Your Price Should be A-Changin.” Much like wine, some content becomes vintage over time.

Add Comment
Send to Friend
Email Signup
RSS Feed

Readers' Comments on This Blog Entry

From Bill Taylor on May 4th, 2007
So, in this vein, what did you think of the "lord of the Rings" pricing. Standard DVD followed by an extended version several months later? Bill