This article is for studios wondering about how to determine the optimal price for their game. It will be a question of demonstrating why and how to maximize income by setting the right price. Then we will see two joint approaches: that of perceived value and that of market price analysis. Then we will note the impact of promotions on price and we will finish with the concept of 5P Marketing. This should give you a good overview of the methods and factors to consider, or at least serve as an introductory reading for further research on the subject.
(The free-to-play model with microtransaction is a possibility to consider, but the business model and gameplay is completely different and will be explained in another article.)
Maximize your revenue
First of all, you could legitimately ask what has to be gained by trying to set an optimal price. The first answer could be the following one: a price too low could induce your game to be low-quality while a price too high can create deception. The second answer lies halfway between marketing and economics: “the optimal price will maximize your game’s revenue”.
In microeconomics, the concept of elasticity refers to how much demand grows when price falls, or conversely, how much demand falls when price rises. To illustrate the concept, let’s take the example of a game that we want to sell for $100, but for which only one person would be willing to pay that price. So we could say that the total revenue would be $100. Then suppose we drop that price to $1 and 50,000 people are now, so we could conclude that total revenue would now be $50,000. Maximization probably lies between these two extremes. To continue the example, after doing research and analysis, let’s say that we determine the optimal price is $12 and that 15,000 potential people would buy it at that price for a total revenue of $180,000. We could conclude in this scenario that the revenue maximization takes place at $12 because below or above this price, you would make less revenu.
Great, but how did we get to that exact $12?! With a mix of the two methods explained in the next two paragraphs.
Before proceeding with the purchase of a game, the buyer reviews its monetary risk compared to what her potential gain. In other words, out of all his wishlist of games that he would like to buy, she will prioritize the game that will bring her the most value for the price paid. What do we define by “value”? For a video game, the factors that can affect the perception of value could be:
- Artistic quality
- Number of features
- Number of hours of play
- Multiplayer or not
- Originality of the game
- Evolution of the game over time (updates, patches, fixes, dlc)
Kenkichi Nomura, chief financial officer at Capcom is explaining well, in this article, his vision about the price based on the perceived value of customers: “We believe game software’s price should be determined by how much money consumers are willing to pay for the quality, not by how much money we spend to make that game”. This concept is often used for digital products since there is no marginal cost to produce one unit (no raw material) unlike the usually positive marginal cost for physical goods. Take for example a game which, after its release, gets a significant amount of comments and reviews mentioning: “Woah! What an amazing game. I would have paid four times its price and I would have been just as satisfied!” For those who read the comments before making a purchase, you know very well, like me, that this situation happens frequently, and that a price that is too high will also be mentioned. If your game is already launched and got some reviews, remember that it is useful to analyze the feedback with a perceived value perspective in order to make a price correction if required. However, if your game isn’t launched, it might not be easy to determine without data what will be the perceived value of the game. This brings us to a second method that combines well with this one, the market prices approach.
Market Prices Approach
This is probably the best approach to start with. It consists of analyzing market prices for games of the same genre and of similar quality. It can be tedious to do this search manually, yes, but so insightful! And after all, there are tools that can make your job easier. The first tool we can recommend is VGInsight and has been created precisely to help indie developers understand their market. When you register, you can have a 7 days of free trial (no credit card information required). A second tool could be steamspy which is more consumer-oriented than studio-oriented, but can still be useful and is totally free. Let’s say you’re creating a retro-futuristic JRPG. Look for similar games, having one or both characteristics. Filter in order of date to take the most recent. Filter by studio type, if you want to exclude AAAs. Filter to keep the games you find of similar quality. Try to find about twenty, then you will have a better idea of the prices in your market.
Impact of promotions
It is possible to add a certain additional percentage to compensate for the many seasonal promotions if the studio plans to participate. For example, let’s say a studio is hesitating between a price of $15 or $18 for its game. If the company does not intend to provide discounts during the entire year, the first option of $15 would surely be the most adequate in our opinion. If the studio plans to participate in promotions on a fairly regular basis, then it might be a good idea to set the price at $18, assuming that the average sales will be lower than $18.
Price is part of the Marketing Mix
We could conclude about the fact that the price that you will determine for your game is a part of Marketing Mix (5Ps): Product, Place, Price, Promotion, and People. Even with a perfect price, if other aspects are neglected, the game won’t sell. If you are thinking of doing a market price analysis, you might also consider doing a more comprehensive marketing plan, as this pricing planning and research would be a part of this plan. It is closely related and would help you to understand the 4 other crucial aspects of your game success.
If you want to take your indie game campaign further, Empowered.gg can also provide personalized help. We run a video game consulting service. No matter what type of game you’re developing and willing to market, we are ready to offer our expertise. Our strategy is based on extensive research and analysis into the indie-game landscape. If you want customized advice or feedback for your plan or its execution, or if you simply need more information about getting started, feel free to drop us a message below.