Example of the Demise of Cost-Plus Pricing: ebooks

E-books employ a pricing model far more sophisticated than a cost plus formula – instead pricing according to the way customers value the product.


Anyone that loves reading & books and has made the transition to ebooks has likely been disappointed by ebook pricing. You've given up this thing you love, the physical book, and the seller is clearly saving money (they don't have to print, bind, ship or deliver the book) but you're paying almost as much, sometimes more. It doesn't make any sense.

The people that sell books argue that production and delivery of a popular physical book is relatively small. In fact they'd like you to believe it is almost inconsequential, and that any related savings are really too small to have much appreciable affect on the price of ebooks.

In fairness it's likely true that the cost or producing physical versions of a popular book is likely less expensive than most consumers would guess – potentially less than $2 for paperbacks and under $4 for hardcovers.

OK, fair enough. There is however absolutely no disputing that the paperback still costs them more than the ebook version but, as shown above, the ebook is often priced higher than the paperback. Clearly any correlation between cost and price is tenuous at best.


But cost isn't the issue. Ebooks are priced using a model much more sophisticated than the cost-plus formula you likely learned about in school.

Instead ebooks use a kind of value-based pricing that explains this pricing perfectly. Vendors don't like to talk about it but they are now far more likely to base prices not on their costs but on your willingness to pay.

And, since ebooks offer some advantages over paperbacks, advantages customers are willing to pay for, sellers are happy to charge accordingly.

The link below will take you to an article that looks more at this kind of pricing model, why it is used and how it is more profitable than the traditional cost-plus model. And it will help you understand why ebooks cost as much or more than printed books.