Imperfect substitutes

One of the driving factors in setting prices is understanding the issue of substitutes. If there are four kinds of bottled water and one is half the price of the others, guess which will generate all the sales? They are quite close to perfect substitutes, so take the cheap one.

Even though all the movies at the multiplex cost $12 a seat, you can't often substitute one for another to save money. You don't go to Mall Cop merely because it's $2 less. Movies aren't commodities, and the substitutes aren't perfect at all.

Last year, I asked a photographer to license a photo for a project. The photographer asked for too much—he had every right to, it was his photo after all, and if I wanted that photo, I had to pay him. But the thing is, I didn't need 'that' photo, I just needed 'a' photo. The available substitute was imperfect but acceptable.

The reason that ebook prices are less important than in many other industries is that the substitutes for Makers or In Search of Excellence are quite imperfect--if you want to know what that book said, the only way to really know is to read it. 

Your job then, isn't to merely set your price low enough to keep people from seeking substitutes. It's to create a product or service unique or connected or noteworthy enough that the other choices are ever more imperfect.