Get rid of the game single pricing: Consumer surplus, long tail theory and free value added

This paper is a summary of a series of translation articles from May 2011 to November 2011, according to the game state, Gamesbrief. In the era of online games, the profit model of online games has two kinds of charging operation and free increment. In the era of mobile gaming, it seems that free value-added games have become the mainstream. Why?

1. The Art of pricing: income and consumer surplus

In the Internet has not yet become popular in the era, the game sold only one way: physical store. The cost of selling games through physical stores is high, not the cost of the game development, but the related royalties and marketing costs. For example, the development cost of Call of Duty: Modern Warfare 2 is $50 million, while production and marketing costs are as high as 150 million dollars.

There is a problem in the PC-era game pricing strategy: Game developers cannot price differentiated pricing for each user, but only a fixed price for all users. The price of a game is a few dollars to dozens of dollars, but a small number of players willing to pay a higher price for the game, in economics, this user is willing to pay the value of the actual purchase value between the part is called "consumer surplus."

As the following illustration shows, in the traditional pricing model, the user's demand curve is a straight line, suppliers for maximum gain, then should be in the price curve of the focus (a point) pricing, the red holding part of the figure is extremely profitable (price x demand), and the rectangle above and right triangle (B+C) is the consumer surplus.

If the seller can accurately divide the market, and for buyers with different needs and willingness to pay a different price (as shown in the figure to divide the market into 5 market segments, the price is A1, A2, A, A3 and A4), then the seller's earnings are enlarged to the shaded part. In extreme cases, if the seller can accurately know the price each user is willing to pay, then use the graph, the profit is the demand curve and coordinate the triangular part of the axis, at this time the seller's profits to achieve maximum.

However, due to the constraints of time, space, transportation, channel, cost and so on, in the PC era, this ideal extreme situation is impossible to achieve. But the advent of the internet has broken the limits of time and space, making differentiated pricing possible.

2. Long tail theory with whale players

The long tail theory, proposed by Wired editor Chris Anderson, argues that when the venues and channels for commodity storage flow are sufficiently broad, the cost of production is so steep that individuals can produce, and the cost of selling goods is drastically reduced, almost any previous Seemingly low demand for products, as long as there is a sale, people will buy. "Long tail" has also become the characteristics of the Internet economy.

The demand for games in the Internet age also presents a long tail. As shown in the picture above, most players want free games, and very few players are willing to extravagantly because they are crazy about the game. This part of the player we call "whale player" (also known as "renminbi player" in China). According to Inside Social games, "whale players" are those who spend more than 1000 dollars a year on virtual goods, and in general, the number of "whale players" is less than 10% in the game and may even account for 1% of the player. But they are the main source of game revenue.

In this case, some game companies choose the free value-added mode, first through free access to all potential customers, and then the pricing power to the user, so that those who have the willingness to pay the user through the IAP (application purchase) in accordance with the price they are willing to pay, so as to maximize the benefits. In fact, in the era of mobile gaming, even if some games choose to charge, they tend to opt for low-cost strategies (such as the "Endless Blades", where the big production game on the iOS platform is priced at only 5.99 dollars).

3. Game developers should pay more attention to the needs of "whale players"

Inside Social Games's report points out that once a "whale" player usually has a strong loyalty to a particular game, fewer players are spending a significant amount of money on two or more games. If a player is keen on a game, they will "invest" all the virtual money in the game. (as shown in the following figure)

Inside Social Games also said that "whale" players do not come in the same proportion from different regions. Gamers can make further divisions from sex, age and game tendencies. Like men, women are more likely to invest in social games, while players under the age of 25 are the mainstay of the game's high consumption group.

This chart means that it is difficult for developers to use a variety of games to allow the same player to pay at the same time. This requires developers to create more creative ideas for different groups of people in order to maximize value expansion.

4. How do developers maximize revenue for whale players?

While developers can reduce the threshold for users to enter at no cost, developers often need to get users at high prices before trying to push them to spend. If the user gets a high cost, then you need to ensure that the product:

encourages players to invite friends to participate in the game to reduce your actual CPA (the user gets the cost, which is Zynga's usual strategy). Remember that today's viral transmission is much more difficult than it used to be, and now we usually treat game invitations as spam. View each game as a marketing opportunity for other games (crossover promotion strategy). Appy, an independent developer, has made notable achievements here, though it is the core strategy of Zynga. Services such as Applifier can help independent developers broaden user coverage. Embed the built-in pay function, so that fans can be loyal to the game to spend.

Letting whale users (ie, the spendthrift players in the game) play with money in the game means that your users can get a higher return on their investment costs. iOS independent developers nimblebits and Snappy have benefited a lot from this. Epic's "Endless Blade" also adopted this strategy, and achieved remarkable results. Zynga, Bigpoint and Playfish are also advocates of the programme.

Therefore, game developers should get rid of single pricing, focus on improving the value of loyal fans of the game to promote their consumption.
Zen Feng @ Lei Feng Net