Originally posted: 4/20/2010 at http://blogs.msdn.com/b/orville/archive/2010/04/20/phone-app-pricing-beyond-0-99.aspx
As a buyer of phone apps this is a blog post that I may one day regret but it is worth writing. I have often wondered why most phone applications sell for $0.99 or less including free. There are probably several reasons for this but my feeling is that most developers just follow the common price of other apps. Developers who create compelling apps should be able have profitable marketplace success so they can build even more successful apps. I know that a lot of apps are free to get broad distribution and are funded by ads. Ad-supported business model is a good one but I want to provide alternative pricing strategy for developers to consider. In this post I will write about a different way to set a price for apps.
Let’s start with the issues with some common pricing strategies. Some of the most common pricing strategies that I have heard of include matching the competition and “cost-plus.” Both of these options have faults. Matching the price of the competition does not reflect the value of your app. If the competition has a better app no one will purchase your app at the sane price. However, if you have a better app it will not get as much money as it could have gotten and will also leave the impression of being of similar quality to the competition. Cost plus some “fixed return percentage” as a pricing strategy is not driven by customer value and could result in an overly expensive price. Phone app development is primarily has fixed costs and would require a clairvoyant sense of how many apps will be sold to correctly determine the return percentage.
When setting a price for an app one should focus on the value it provides customers. Even if the developer’s focus is not on making a lot of money it is still important to understand how customers will value their app if it is going to be successful. There are a few steps for determining the value of the app to customers:
- Identify your customer. This sounds obvious but it is important to recognize who will buy the app. Note that there can be more than one customer group, all with their own needs.
- Assess the app’s value to customers. Do some customers find more value in your app than others? Are there a few things you can do to make your app more appealing?
- What takes away value from your app? External factors will impact how valuable your app is to customers. Availability of substitutes, learning curve, alternatives to spending more time on the phone, etc.
When these 3 steps are combined you have a better estimate of how much you should charge for your app. As an example, we will use an imaginary game “Foo.” Foo is enjoyed by both casual and hardcore gamers. Hardcore gamers are willing to pay for advanced levels while casual gamers are not. For the casual gamers they can get a trial version while the hardcore gamers will pay for a more advanced game. Sometimes the phone app may be free but there is a cost for a service that powers it.
Even though this is a basic introduction to pricing strategy I hope this helps you determine the right price for your app.
Talk to you soon,
Orville | Twitter: @orville_m