The Subsidising Price Ladder
Sell superfans a premium object so you can sell everyone else the cheap one — and own the customer relationship while you do it.
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 7
- Confidence
- 90%
Around 2012-2014 Amazon disabled the ability to buy all Macmillan books during a contract dispute — including Sanderson's, since Tor is a Macmillan subsidiary. He read it as a structural signal: for all of publishing history the real customer had been the bookstore, and Tom Doherty's old adage was to get ten copies on the shelf even if only one sells, because the shelf itself is the advertisement. That world was gone; the market was now Amazon, which controlled ebooks, owned Audible, and was coming to control print. One party could end his career. He studied what music, film and independent comics were doing — his friend Howard Tayler gave his webcomic away free and sold print editions — and identified the pattern: a range of price points, where a high-end object superfans buy to display subsidises a cheap product everyone can afford. He took it to the publisher: bundle ebook and audiobook with hardcovers, sell leatherbounds at $100 rather than $250, upsell merchandise. They declined, with reasons he considers real but not insurmountable — bookstores cannot sell merchandise, cannot carry expensive editions they might not shift, and a 250-copy leatherbound run had been a mess. After failing to move even Macmillan's CEO, he heard his mother's voice: do it yourself. Dragonsteel took the leatherbound rights back for free and set out to Amazon-proof the company via direct-to-consumer.
Origin
The trigger was Amazon switching off purchasing for all Macmillan titles during a pricing dispute, which showed Sanderson that a single company could end his career. The response was shaped by his accountant mother's entrepreneurial training and by watching independent creators like Howard Tayler monetise free work.
Core principles
- 01When a single intermediary can switch off your entire income, that is a structural risk, not a commercial disagreement.
- 02A high-end product bought by superfans subsidises a cheap product that reaches everyone else.
- 03Everyone is better served by a range of price points, because each buyer self-selects into what they want.
- 04The premium tier must be priced for real demand, not for the intermediary's fear of unsold inventory.
- 05Products your distributor structurally cannot sell are exactly the ones to take direct.
- 06Adjacent industries — music, film, independent comics — have usually already solved your problem.
- 07Subscription products should have a declared end, because open-ended ones run out of quality and resent the customer.
How to run it
- 1
Name your single point of failure
Identify who can unilaterally stop customers buying from you. For Sanderson it was Amazon, which by then controlled ebooks, owned Audible as the growth segment, and was moving on print.
Pro tip A previous smaller incident — Borders declining an Alcatraz title while Barnes & Noble carried it — was survivable precisely because there were two parties.
Watch out The dispute that reveals the dependency is usually not about you and will not be resolved in your favour.
- 2
Study adjacent industries
Look at what music, film and independent creators are doing about the same problem. Sanderson explicitly asked what his independent comics friends were doing when facing free-or-near-free digital distribution.
Pro tip Howard Tayler gave the comic away free and made a living from print editions — the model transferred directly.
- 3
Design the full ladder
Build tiers from a premium display object down to the cheapest possible access, and let buyers self-select. Sanderson's principle is that the expensive thing subsidises the cheap thing, so everybody ends up better served.
Pro tip He also learned to price the premium tier to real demand: the publisher's $250 leatherbound should have been $100.
Watch out Skipping the cheap end turns the ladder into a superfan tax rather than a subsidy.
- 4
Ask the incumbent first, and record the refusal
Take the proposal to your distributor and let them say no. Sanderson pitched bundles, merchandise and cheaper leatherbounds through numerous calls including with Macmillan's CEO, and made no inroads.
Pro tip Their stated reasons tell you exactly which products they structurally cannot sell — that is your list.
Watch out Do not read a structural incapacity as bad faith; Sanderson credits their reasoning even while overruling it.
- 5
Take back the rights they cannot use
Request the rights to the products they have just told you they cannot sell. Sanderson asked for the leatherbound rights and was told they were free — the publisher could do nothing with them.
Pro tip Rights that are worthless inside their distribution model are often free to acquire.
- 6
Build direct fulfilment as a real capability
Stand up manufacturing, warehousing and shipping. Sanderson's first employee was his sister-in-law Becky doing shipping from remaindered stock in the garage, and the operation grew into a warehouse he compares to the end of Raiders of the Lost Ark.
Pro tip Split the org so someone else owns operations — Sanderson runs creative, his wife Emily runs business, HR, accounting and operations.
Watch out Direct sales without fulfilment capacity converts demand into refunds.
- 7
Cap recurring products deliberately
If you add a subscription, declare its end. Sanderson disliked subscription boxes because open-ended incentives stretch the good items out and run out of steam, so he specified four books and eight boxes across one year and then stopped.
Pro tip A $40 monthly price point was high enough to make genuinely good objects rather than filler.
Watch out Asking people to subscribe indefinitely eventually leaves them with crap they did not want.
In the wild
The publisher had printed 250 copies of a Wheel of Time leatherbound and struggled to sell them, because fans did not know where to find them and bookstores would not carry something that expensive on speculation. Sanderson took the rights back for free, told his team he wanted to sell 10,000, was talked to 5,000 — and sold 50,000 of the first one. Initial print runs are now 50,000, and every signed copy sells instantly.
→ Demand was roughly 200 times what the incumbent channel could express, and the only change was selling direct at $100-$250 instead of through bookstores at $250.
The campaign offered an entry tier of ebook plus audiobook at about $15 per book, roughly $60 for all four. At the top, four premium hardcover editions at a $55 price point sold for $40, plus eight monthly swag boxes at $40 each — just under $500 total. Sanderson expected broad take-up across tiers; almost nobody bought the lower ones. The two biggest tiers were the everything tier and the all-the-books tier.
→ The premium tiers carried the campaign while the cheap tier remained available for anyone who wanted it, which is exactly the subsidy the model predicts.
Common mistakes
Treating platform dependence as a commercial issue
Sanderson's earlier experience with Borders declining a title was survivable because Barnes & Noble carried it. Once one party controls the whole channel, the same event is existential. The difference is structural, not commercial.
Letting the distributor's constraints set your price
The $250 leatherbound was priced for a channel that could not sell it at all. Sanderson's $100 point plus direct sales unlocked demand the incumbent had concluded did not exist.
Open-ended subscriptions
Sanderson's objection to the late-2010s subscription box craze is that the incentive to retain forever makes companies ration good items and eventually ship filler. A fixed run of eight excellent boxes ends on a high and preserves trust.
Is it for you?
Best for
Creators with a devoted audience, a distributor that refuses premium or direct products, and the capital to build fulfilment.
Not ideal for
Early creators without a superfan base or the operational capacity to manufacture, warehouse and ship physical goods.
From the transcript
“one was having something really high-end that the super fans could buy to display to show off”
“if you have the really expensive thing that subsidizes the really cheap product”
“we are going to try to Amazon proof ourselves that means we are going to direct sale”
“they sold 250 copies I want to sell 10,000 right well we started five I want to sell 5,000 we ended up selling 50,000”
From the episode
#794: Brandon Sanderson on Building a Fiction Empire, Creating $40M+ Kickstarter Campaigns, Unbreakable Habits, The Art of World-Building, and The Science of Magic Systems