I think Jeff’s on to something:
While there's an odd aspect of race to the bottom that I'm not sure is entirely healthy for the iPhone app ecosystem, the idea that software should be priced low enough to pass the average user's "why not" threshold is a powerful one. Coding Horror: Software Pricing: Are We Doing It Wrong?
While there's an odd aspect of race to the bottom that I'm not sure is entirely healthy for the iPhone app ecosystem, the idea that software should be priced low enough to pass the average user's "why not" threshold is a powerful one.
Coding Horror: Software Pricing: Are We Doing It Wrong?
As usual, it’s a good, thought-provoking post from Jeff. He talks about a couple of games that were wildly successful at selling huge numbers of units after they lowered their prices... Which is the key concept that seems to be overlooked: Perceived Value™.
Jeff (like all of us in geekdom) seems to be thinking of finding the Perfect Price™, set it once and enjoy massive profitability. Unfortunately, marketing and economics don’t work that way because they overlap with the unpredictable, irrational “science” of human psychology. Like that country song chorus goes “... and people are crazy.”
Steam/Valve were wildly successful with these price cuts because the were able to LOWER their prices. If they started off at a lower price point, they might’ve front-loaded more sales on the curve, but they would not have the long, sustainable tail of moderate Half-Life or Left4Dead sales at the New Lower Price™ because they wouldn’t have the same perceived value to typical consumers.
People like Jeff and I who paid full price for L4D (the Reed Clan actually bought four copies at full price, but that’s a different problem) aren’t in the same buyer bucket as those people who got motivated when the price was reduced... and I doubt many game companies are going to be willing to start low and then go lower in the hopes of making more money without a lot more evidence than a table o’ speculative numbers.
Especially since the jury is still out on whether companies are going to win with the iPhone App Store’s race to the bottom strategy. Perhaps if the Xbox Live Arcade and Xbox Live Community Games starts producing some profitable companies built primarily on titles in those arenas, that might suggest starting low is the way to go.
My wallet wants him to be right, but I’m just sayin’...
There's also a similar effect at the top end. I've run into this while working on various software and services. If your prices are too low, the customer may think that there's a reason why it is so cheap, and have a negative view of your software. Within certain boundaries, the higher you price your product, the better people may react.