Pricing iPhone Games

By Tommy Leung on 03/14/2010 in Games, Marketing

The average price of an iPhone game is less than $1.50. That buys very few things these days. You can’t get a cup of Starbucks coffee for $1.50. The iTunes Store culture is one of low prices. This precedent was set by Apple’s own pricing of music at $.99 a song. This is the price most App Store customers are accustomed to.

This might make sense for music where a CD traditionally cost $15 – $20 so the average price per song is about $.99. Take away the cost of producing CD’s, cases, and the label’s cut and the artist is probably better off. Games have traditionally had double digit prices depending on it’s platform and scale. PopCap sells Plants vs Zombies as a PC downloadable for $19.95. The same game on the App Store is $2.99.

When Super Monkey Ball was released on the iPhone, it came with a $9.99 price tag. It is now $3.99 and the price range for high quality premium games have settled to around $6.

While the low expected price of games on the App Store is a problem for game developers, there is little good in complaining about it. The initial rush to iPhone game development was spearheaded by hobbyists and small game companies that had low costs and seemingly infinite upside. Almost any game could have succeeded by just being available on the App Store. Times have changed and the pricing strategies have to change with it.

The $.99 price point is not going to work for 99% of game developers. The quality bar has been raised so high that it is impossible to break even at $.99. Losing money on every game you make is the fastest way to no longer be in the business of making games. The App Store is not exempt from traditional pricing strategies.

Virtually every pricing strategy that has ever been developed in marketing apply to the App Store as they do to the sale of all products and services.

Competitive Pricing

The simplest and most logical pricing strategy is competitive pricing. This means you are going to set a price similar to or exactly the same as competitors in the market. This has been the predominant strategy applied across the board in the App Store.

Smart marketers who use this strategy don’t apply it across the industry. You will notice that not every beer is priced the same or every shampoo, detergent, orange juice, deodorant, etc. This is because each product is not the same. There are some products that are virtually identical and in those cases, you either need to differentiate or you match prices. Generally speaking, when a customer has to choose from two identical products, price is going to be the determining factor.

Cost/Economy Pricing

Cost pricing is coming up with a price based on your cost to produce plus a suitable mark up. This is a strategy that generally ignores the prices set by competitors in the market and is derived solely based on the company’s cost structure and goals. If each product costs $5 to make and you want a $2 profit on each sale, you would set a price of $7.

Loss Leader

A loss leader is a product that sells at a loss to spur customers to buy other higher priced items. This is usually done to bring customers to a store hoping they will also buy other things. Big chain stores do this often in their circulars and usually only have a limited amount of the advertised product.

Penetration Pricing

Penetration pricing is usually used to break into a new market or gain market share. Prices are set lower to attract customers and then raised later once significant market share has been gained. This happens a lot in cable TV where companies offer a low price for 6 months and then changes to the regular price thereafter.

Premium Pricing

This is the general pricing strategy for high end luxury items. This is also the most desirable pricing strategy as it has the highest profit potential. It is also the hardest to achieve because the product needs to be seen as highly unique in the eyes of the consumers. This also happens to be the traditional pricing strategy for Apple. Their products are built with a unique design and experience that can command generally higher prices.

Price Skimming

Price skimming is the act of releasing a product at a relatively high price where only a small percent of the market is willing to afford it. This is usually because it is the only product of its kind at the time and competitors have not yet entered the market. Once more competitors offer the same or similar product, prices start to come down. This is the general pricing strategy in technology and electronic products like flat screen televisions.

Determining Price

There are literally tons of other pricing strategies and hybrids of each other. These are the basics for a general understanding of pricing. The best pricing strategy for the App Store is going to depend on the company and the products. EA’s pricing strategy is not going to be the same as a five man game company.

It would be safe to say that you do not want to price at $.99 as there is no where left to go after that and as more premium titles are released, $.99 is going to come to mean low quality. When you don’t know much about two similar products, the higher priced one is assumed to be the better one.

A pricing strategy should fit within an overall marketing strategy. It is impossible to come up with a good pricing strategy without knowing what the marketing goals are. Prices that are too high or too low can derail an entire marketing plan from achieving business objectives. Poor pricing can also make or break a business.

Luckily, in the App Store, prices can be easily and quickly changed. A poor price may not be terminal but, there are still lost profits at stake.

Know your product, marketing objectives, and then determine a price.

By Tommy Leung