I think it's important to remember that when we discuss
'the race to the bottom', we're talking about it in the past tense. The race to the bottom happened six years ago when Indies undercut the prevailing $15.99 traditionally published e-book price by lowering their own prices, not to be competitive through careful analysis, but simply as low as Amazon would allow, which happened to be 99 cents. If they could have lowered them to a nickel, they would have done that too. The reason the $2.99 price point is seen as having the best ROI is because that's the lowest price available for the 70% return. So the data centers around that artificial equilibrium point. Again, if the 70% return rate was available at $1.49, then that would be the most lucrative price point.
These are all artificial constructs, which is why traditional publishing was railing so hard against us. We, the collective Indie 'we', managed to undervalue the entire publishing industry, destroying careers and century-old processes that really did support a broad foundation of literature, such as financing long-term non-fiction explorations or nurturing up and coming mid-list authors.
Tragedy of the CommonsBy the time KU2.0 came along, Indies couldn't lower their prices any further, so they began assembling massive box sets for the same 99 cents, effectively offering an even lower per page price, which continued to devalue literature.
It's clear what happened and when - and even why, however, I think that discussion is better left to academia at this point. Like it or not, we're in a new paradigm now, as are all creatives: writers, musicians, painters, etc.
Readers are conditioned to super-cheap books. As noted up-thread, we've drastically reduced the price of traditionally published books as well. Now, it's become a self-fulfilling prophecy, a snake chasing its own tale. To compete, we must lower our prices, which reinforces the consumer expectation that books should be cheap. Streaming et al has done the same thing to the music industry. I don't think records like The Dark Side of the Moon or Sgt. Peppers could ever happen now.
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With all of that said, the free book (creative product) strategy is here to stay and it definitely works, how well depends on how successful the publisher is at leveraging it.
I think the discussion needs to be re-framed, not as a race to the bottom (because we're already on the bottom), but how to elevate the inherent value of our brands. I think the best way to do this is to think of our books as monopolies as opposed to fungible widgets. Yes, they are one voice in the maelstrom of entertainment options, but they can also be unique voices, unique in a way that no other entertainment choice can satisfy, be it character or prose or story. No one else tells the stories I tell, and no one else tells stories like I do. How unique I am when compared to other writers is up for debate, but that doesn't change the focus of the strategy.
This is why I am so against writing to market. By definition, it cannot be unique or original or have anything meaningful to say. If you are writing unique characters and stories, or exploring difficult themes, then you're not writing to market, even if you think you are. WTM is all about fulfilling expectations, not about introducing new ones.
I think the way forward is going to be some form of hyper-differentiation branding, and because so many people have become creatives, and really good ones at that, it's going to take some serious chops to make it even then. I got disgusted with the whole pay-to-play click-ad thing last year and have stopped promoting and publishing altogether while I try to figure out how to leverage my brand. Sometimes the solution is throwing money at the problem, sometimes the solution requires a completely different approach.
I'm not having much fun with the current crop of entertainment options out there, be it television, books, movies or music. Everything at the top, the 'bestsellers' so to speak, is stale and empty-headed, soulless plastic rehashes of everything that ever worked before. I think, to use a sports analogy, that rather than swinging for the fences with every book, we should focus on base hits, building up a reputation for a specific niche (target market) that defines our brand, which may be a recognized genre, or some other creative segmentation strategy.
The point being, that instead of playing the commodity game, find your place in a niche market (or markets), where you can raise your prices appreciably and still be competitive.
You know, in my humble opinion and all that.