Research by P.K. Kannan
publishing industry is going through a major transitional period
as it tries to come to terms with the Web as a delivery platform
for content. How can publishers keep their digital content from
cannibalizing the market for printed material yet still provide
new options to customers?
P.K. Kannan, Harvey Sanders Associate Professor of Marketing,
helped the National Academies Press (NAP) develop a strategy
that would maximize the revenue from both its traditional and
new media offerings. Kannan and study co-author Sanjay Jain,
from Texas A&M University, worked with Barbara Kline Pope of
the NAP on a study that resulted in a new pricing model for
the NAP’s printed and online content. The paper based on the
study won the coveted INFORMS Society for Marketing Science
Practice Prize competition in October 2007.
One option the organization considered was to continue to
sell printed material, but to distribute the PDFs online for
free to meet one of NAP’s goals to disseminate scientific knowledge
widely. But Kannan found that this option would effectively
cut the organization’s revenue in half.
Customer purchase data was gathered from NAP’s Web site based
on an online experiment. The study examined the choices made
by more than 1,000 customers over a three-week period. The study
focused on customers who showed interest in purchasing a book.
Customers who had a printed book in their shopping carts and
who pressed the checkout button were randomly intercepted with
an offer for a PDF format of the title in their shopping cart.
These customers were given information on the quality of the
PDF, a clickable button to view the sample PDF, download time,
and the price of the PDF format in U.S. dollars.
One in four customers who were browsing a book title were
also intercepted at random after perusing five pages of content
and presented with details of the PDF in the same way.
PDF prices were set at six levels relative to the price of
the printed version of books, at 110 percent, 100 percent, 75
percent, 50 percent, 25 percent, and free. If a customer didn’t
choose a PDF format at the initial price level that was displayed,
it was dropped to a lower level and the offer was repeated.
Rather than viewing differing forms of content as substitutes
for each other, consumers sometimes viewed different forms of
content as imperfect substitutes or even complements to one
another. The degree to which a customer viewed the print edition
of a book and its online PDF as substitutes or complements varied
from customer to customer.
Using data from the study, the authors created a model using
an innovative measurement technology to determine customer preferences
for the various forms of content and recommend various pricing
strategies by controlling for the marketing mix and introduction
of new titles.
One result was surprising. “We found that many customers
would pay more for the PDF than they would pay for the printed
book,” says Kannan. “You can’t make generalizations about what
consumers want. And you have to be creative as you think about
ways of providing value and extracting consumer surplus.”
Kannan applied that creativity to the NAP’s pricing problem
by bundling its content in a variety of different ways to take
advantage of differing consumers’ needs and desires. “If you
can come up with a bundle option and price it appropriately,
many people will end up buying the bundle rather than just buying
either the printed book or the PDF version of the book,” says
This was a winning strategy for the NAP, which implemented
Kannan’s recommendations. In the two years that followed, Kannan
continued to gather data on the sale of books and PDFs on the
NAP Web site. The NAP was able to charge higher prices for printed
books in the presence of PDF versions of the same books, resulting
in higher revenues. PDF sales also increased from 7 percent
to 13.6 percent, which led the NAP to increase the prices of
PDFs relative to printed books. NAP plans to continue to implement
policy changes using suggestions derived from the model.
The music industry, which has struggled with the impact of
digital content on traditional CD sales, could benefit from
re-examining its pricing models in light of this research. Consumers
are already effectively unbundling content by purchasing just
one or two songs from an album rather than the entire album.
Kannan says, though, that it’s possible the music industry could
bundle content in a way that would be attractive to users and
would expand the market.
Kannan’s study was funded in part by a grant from the Mellon
Foundation. “Pricing Digital Content: A Model and Application
for the National Academies Press” is forthcoming from Marketing
Science. For more information about this research, contact