Online Gaming Store Lowers Prices 75%, Sees Sales Shoot Up 5500%

from the price elasticity dept

We were just talking about how some in the recording industry are realizing that raising prices on downloadable songs may have been a mistake (just as the book publishing world is pushing to raise ebook prices — despite a fair bit of evidence that people actually are expecting prices to go in the other direction). It’s as if they don’t understand price elasticity and how you can quite often maximize revenue by lowering price.

In the video game world, at least, they seem more open to this concept. Last year we wrote about Valve reporting on some numbers that showed the more they reduced the price, the greater the money they brought in. In the case of reducing the price by 75%, Valve found sales increased 1470%. Not bad! But apparently an online video gaming store in Sweden has them beat.

Rasmus Larsson points us to a report from an online gaming store that also reduced prices by 75% and saw sales increase by an astounding 5500% (Google translation from the original). A similar test, with a price decrease of 50% saw sales increase 533%. Interestingly, after each price decrease, the company put the price back up again and saw a (slight) sales increase at the higher price too. As the article notes “the price is marketing.”

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Comments on “Online Gaming Store Lowers Prices 75%, Sees Sales Shoot Up 5500%”

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57 Comments
Briansays:

Re: These stats align with my buying habits

Same here, I bought a ton of games I probably never would have known about as well as a few I had been keeping my eyes on for a while. It got me into a lot of new games which is awesome and I discovered some companies who’s future products I plan on purchasing as well. So in the end the reduction in price was a great thing all around.

“Interestingly, after each price decrease, the company put the price back up again and saw a (slight) sales increase at the higher price to.”

I think that last word should have been “too”.

But to the point, I’m sure that increase in sales at the original higher price level more than likely can be attributed to the dramatic increase in sales at the lower price, where those people told their friends about this awesome game. When the friends went to purchase it on recommendation, the price was higher, but they purchased it anyway because they had a personal recommendation that the game was good from someone they trust.

RDsays:

But...but...YOU CANT!!

But ….but Mike…you CANT do that! It CANT work, right? I mean, thats what EVERYONE says…lower the price and you destroy the VALUE! If its cheap, it will be perceived as not worth having. NO ONE WILL WANT TO BUY IF ITS NOT EXPENSIVE! You CANT spur sales by, uh, having a sale! Thats practically giving it away, and as you know, YOU CANT COMPETE WITH FREE!!

Now that I have cleared off all the standard shill/troll arguments, maybe we can discuss why this is a GOOD idea and works so well.

bigpicturesays:

Re: But...but...YOU CANT!!

Yes people have incomes and budgets. Yes people have some amount of planned purchases and a spend/value concept. That sort of maintains the spend status quo. When something of interest and of extreme perceived value comes along then they might blow their budget a bit to buy multiple items, or move a planned large purchase such as a car forward. But a lot of this is simply time displacement like Tivo, there is only so much money in the pocket like there are only so many hours in a day.

Enrico Suarvesays:

Re: Re: But...but...YOU CANT!!

True in a wider economic sense but not necessarily true for the vendors in question.

For example although we didn?t buy any games recently the travel agents at the bottom of our street had a sale, so my wife and I bought a last minute winter holiday to the same resort as our friends, we were definitely not planning on being able to make it this year as our finances are in a poor state.

If the holiday had not been cheap (by holiday standards) we would not have gone, the place would most likely have gone unsold.

To pay for this we are tightening our belts considerably, so the restaurant we often go to won?t see us for a while, we?ll probably buy more value brands in the supermarket etc.

The total amount of money we have to spend has not changed, but our priorities did as a result of the lower prices and I would guess the same is true of the online stores in question. End result, while their customers don?t magically get more money, the store does (often) see more of it.

Designerfxsays:

Re:

it’s a digital product. The cost of the game doesn’t change whether it’s free or otherwise. The cost of distribution is equally very minor.

I think you don’t understand digital distribution, antimike.

What are they going to drain the market of? Their own product? If this is an online game they have other ways to make more money in the long run (if set up to do so), and if it’s not an online game then the only cost is bandwidth, which is something they already pay/allocate for.

Big Alsays:

Re: Re:

No, cutting the MARGIN by 75% would require a 400% increase to break even. We can assume that, even with digital distribution, there is still some overhead (bandwidth, servers, wages etc), so cutting price by 75% and seeing a 5500% increase in sales still only (only? that’s a laugh) got them a 200 – 400% increase in revenue (which would probably equate to pure profit since the overheads would likely be fixed).

BBTsays:

Re: Re: You don't think . . .

oh yes, a shittier game should definitely price itself higher than the good games. That will really drive up their sales!

“Hmmmm…I can buy this best-selling critically acclaimed game for $10, or this no-name, unpopular game for $40. Well, I feel bad for those poor no-name developers and their need to recoup costs, so I’ll pay the $40.”

:)says:

400% increase sales = 100% old price sales levels.

It seems all of those experiences did increase profits by 10 times.

5500/4=1375% or 13x more sales if you was to sell at the old price.

McDonalds and Seven Eleven both use dinamic stocking to attend their clients, they know exactly what sells and for how much and new supplies are ordered by the sales analyses.

Maybe an anologue to that would be realtime node(region) price analyses, you can have different prices for different people in different regions in different times and see what makes sense

The Anti-Mikesays:

Re: 400% increase sales = 100% old price sales levels.

13x more sales, yes, but not 13x more profits. a cut in price by 50 or 75% often means you have just tossed your profits out the window and have sunk into paying people to take stuff away.

If they could cut their price by 75% and still be profitable, they were probably charged about 75% too much before.

As the AC mention, the financial info would be much more useful than percentages.

RDsays:

Re: Re: 400% increase sales = 100% old price sales levels. - More genius from the TAMTard

“13x more sales, yes, but not 13x more profits. a cut in price by 50 or 75% often means you have just tossed your profits out the window and have sunk into paying people to take stuff away.”

You just REFUSE to accept that there is ANY other way to do things but what Big Media has to offer.

Once again, you are raising specious arguments. (that means, false, misleading, not applicable)

This article is about (get ready, big flashing neon caps coming):

ONLINE

GAMING

STORE

This means, there is NEAR ZERO marginal cost involved. Once again, its an INFINITE GOOD (something you REFUSE to understand the mechanics of). Storage space and bandwidth, which are DIRT CHEAP bordering on NEAR ZERO cost, are all that is needed. Oh sure, there is a little overhead in the transaction (web site, CC payment) but again, thats pretty marginal. It is NOWHERE NEAR what this would be if it was a traditional, physical product (the only kind you seem to understand or accept as valid) that would have to be made out of SCARCE PHYSICAL GOODS (see the difference yet?), shipped to a store, deal with returns, etc.

Try to understand the topic and issues before you post, it will make you look better in the long run, instead of like a child who has to take AUTOMATIC EXCEPTION at everything just because.

The Anti-Mikesays:

Re: Re: Re: 400% increase sales = 100% old price sales levels. - More genius from the TAMTard

RD, as always you manage to be a moron.

If the product was dirt cheap to start with and they prices it so high that nobody was buying, that was their own problem.

Try to understand the topic and issues before you post, it will make you look better in the long run, instead of like a child who has to take AUTOMATIC EXCEPTION at everything just because.

I understand the topic. The question is: Is it profitable? If it is still profitable with a 75% lower price, then they were likely 75% overpriced.

But again, it is a question of numbers. What is the overhead per transaction (including things like CC processing, back office accounting, and all those other actual marginal costs per transaction). It’s one of the odd things you learn when you actually run a business, that the product is only part of the cost, not the whole cost. Each transaction creates it’s own costs.

So all the percentage numbers and all that are nice, but the question remains: at 75% less, was it still bottom line profitable? If so, was their retail price 75% too high?

I am not taking exception, I am saying there is a lack of information (and everyone else is just guess and tossing numbers about without really knowing).

The only thing scarce in this discussion is your brain cells. Perhaps you want to learn to read what I post before you go off on me? Dumbass!

RDsays:

Re: Re: Re: Re: 400% increase sales = 100% old price sales levels. - More genius from the TAMTard

“RD, as always you manage to be a moron.”

Ah, the “always respect/never make personal attacks” TAMhole.

“If the product was dirt cheap to start with and they prices it so high that nobody was buying, that was their own problem.”

This sentence makes no sense.

“Try to understand the topic and issues before you post, it will make you look better in the long run, instead of like a child who has to take AUTOMATIC EXCEPTION at everything just because.

I understand the topic. The question is: Is it profitable? If it is still profitable with a 75% lower price, then they were likely 75% overpriced.”

Maybe, but why are you arguing this? You ALWAYS argue in FAVOR of maximum prices, because otherwise you are “devaluing” the product. The ONLY reason you are SUDDENLY taking the opposite stance is because you want to “get” Mike and everyone, so you need to pick a fight.

“But again, it is a question of numbers. What is the overhead per transaction (including things like CC processing, back office accounting, and all those other actual marginal costs per transaction). It’s one of the odd things you learn when you actually run a business, that the product is only part of the cost, not the whole cost. Each transaction creates it’s own costs.”

I addressed this. Try to read. And I have run a business, so I know all about these issues. They ARE costs, but here we are talking about an ONLINE GAME STORE. The overhead is MINIMAL compared to, say, a retail store. And transactional costs are VERY small compared to revenue for an online operation like this.

“So all the percentage numbers and all that are nice, but the question remains: at 75% less, was it still bottom line profitable? If so, was their retail price 75% too high?”

Again, you miss the salient point. Its not about whether its “too high” (your lame attempt to draw out an argument that doesnt exist in this example) but did their REVENUE (and profit) INCREASE significantly when they LOWERED the price? In this case, it did, a LOT. Not only did it increase, they made MORE MONEY than they did at the higher price.

“I am not taking exception, I am saying there is a lack of information (and everyone else is just guess and tossing numbers about without really knowing).”

Well, thats easy to say as a hedge so you dont have to debate the relevant points. OF COURSE there is more info, we cant know the ENTIRE scope of EACH example like this. Any given example, we cant know EVERY detail of their costs, revenue, etc all the way to the penny. You really need to stop with the “I’m RIGHT but when there is a challenge to my argument, there must be ‘more to it'” way of debating, it makes you look like you cant hold up your end of the discussion.

“The only thing scarce in this discussion is your brain cells. Perhaps you want to learn to read what I post before you go off on me? Dumbass!”

I did read, but your evaluation was incomplete. I pointed out where and how it was incomplete. It’s not MY fault you keep intentionally ignoring the POINT of the discussion and trying to sidetrack it with minutae and minor points.

:)says:

Re: Re: Re: Re: 400% increase sales = 100% old price sales levels. - More genius from the TAMTard

So all the percentage numbers and all that are nice, but the question remains: at 75% less, was it still bottom line profitable? If so, was their retail price 75% too high?

Automation of sales, inventory, management and database:

http://open.mitija.com/blueerp/
http://openerp.com/

__________________________________________________________

On-line payment fees:

http://checkout.google.com/support/sell/bin/answer.py?answer=89800
https://www.paypal.com/cgi-bin/webscr?cmd=_display-receiving-fees-outside

2.9% + 0.30 per transaction LoL

http://en.wikipedia.org/wiki/List_of_on-line_payment_service_providers

__________________________________________________________

http://en.wikipedia.org/wiki/Paradox_Interactive

Price of the games.
http://www.gamersgate.com/DD-EU3COM/europa-universalis-iii-complete

Assuming a high 50% for the website they are using to sell they still get 6x more sales than before

http://www.paradoxplaza.com/games

ps: they do appear to have a dynamic pricing going on.
If the site is accessed by different countries the price seems to change, when I first got there the price was 28 euros now on another proxy is 20 euros or it was my luck.

In the end it doesn’t matter, the important part is that with a 75% price reduction they got 2 to 13 times more sales any manager who doesn’t know how to make money out of increase sales is a moron and should not be employed.

DocMenachsays:

Re: Re: 400% increase sales = 100% old price sales levels.

13x more sales, yes, but not 13x more profits. a cut in price by 50 or 75% often means you have just tossed your profits out the window and have sunk into paying people to take stuff away.

Wrong again. You are still thinking about it as if it a scarce good, in which the average cost per unit is the same regardless of how many you produce. With a non-scarce good which is distributed digitally (such as is the case with this example) your average cost per unit decreases dramatically as you sell more because your marginal cost is zero. So you are not “tossing your profits”, you are making more profits.

Once again you show your failure to grasp scarce vs non-scarce goods.

minijedimastersays:

Re: Re: 400% increase sales = 100% old price sales levels.

A basic illustration on numbers related to this case. Take them as they are, trust me I’m no math geek or economist by any stretch.

Say the game’s original cost is $40 and they average selling 1000 “digital units” per day on the weekends. Also lets assume they run this “fire sale” over the weekend(Fri, Sat, Sun) as many of these companies do, such as Steam or Impulse etc.

$401000=$40,000×3(days)=$120,000 in revenue for that weekend on that game. Now, slash the price by 75%…So $40-75%=$10. 1000×5.5(5500%)=5500 of “units” sold per day for the sale increase. $105500=$55,000×3(days)=$165,000 in sales on the same game over the same time period.

So if I’m calculating that correct that’s an increase of about 28% in total revenue. As was mentioned the cost of an infinite good distributed digitally is MUCH smaller than a physical good and will not change no matter what the price is set at. So the choice is easy, sell the product at a significantly lower price point and make more money overall and get it in the hands of many more people for recommendations and word of mouth advertising for all your future products, or just keep ripping your customers for some “magic” profit margin. In other words… do I want to bring in $40,000/day in revenues off this product or $55,000/day?

If someone much smarter than me wishes to make sure my math is correct please feel free, I apologize if something is wrong.

DocMenachsays:

Re: Re: Re: 400% increase sales = 100% old price sales levels.

Your math is incorrect. 5500%= 55 times as many, not 5.5 times as many. So you are of by a decimal point. So to correct your math (consistent use of commas in your numbers makes them easier to read):
$401,000=$40,000×3(days)=$120,000 in revenue for that weekend on that game. Now, slash the price by 75%…So $40-75%=$10. 1,000×55(5500%)=55,000 of “units” sold per day for the sale increase. $1055,000=$550,000×3(days)=$1,650,000 in sales on the same game over the same time period.
$1,650,000 vs $120,000 Quite a large difference

Rasmussays:

Re: Re: Re: 400% increase sales = 100% old price sales levels.

Actually your math is wrong. 5500% means you have to multiply with 55 not 5.5

So they would sell for $1,650,000 over the fire sale weekend. Which means they increased total revenue 1375% not 28%

This means they brought in the same money over one weekend that would have taken them 12.75 weekends to do normally. And after the firesale the regular sales was continuously up 200%. So they brought in $240,000 instead of $120,000 each weekend after the firesale.

ARsays:

Bad math ?

OK this is my attempt at math so that even TAM can understand.

Say it cost a company $20,000 to create and post 1 copy of a game on their server. They project that they will sell 5000 copies (downloads) at $20 each download in one year.

5000 x $20 = $100000 projected gross revenue
$100000 – $20,000(cost) = $80,000 net profit

If sales level off at 3000 dl’s after 6 months. 3000 x $20 = $60,000 gross
Corporate would see that as a loss of $20,000 gross, even though its actually a net profit of $40,000 so far.

If they then cut the price 50% to $10 they would then need to sell 4000 copies to make up the difference, because there is no additional production outlay for that 1 copy.
4000 x 10 = $40,000.

with the price drop sales increased 400%. Meaning they sold 12,000 copies at $10.

3000 + 400% = 12,000
12,000 x $10 = $120,000 in new gross revenue.
$120,000 + $60,000(initial gross) = $180,000 total gross
$180,000 – $20,000(initial cost) = $160,000 net porfit

Thats $80,000 over the initial projected net profit.

So TAM how would lowering the price cut into the profits when it actually doubled them?

The Anti-Mikesays:

Re: Bad math ?

Well, first things first, you forgot that every transaction has costs. Accounting, CC discount, handling, tracking, yadda, yadda. Add in some server time,some bandwidth, etc. Adding a whole bunch of sales does not always mean a whole bunch more money.

Further, there is the question of cost. If they paid a flat fee for the games, then things might work out. But if the games are licensed or have a unit cost (effective marginal costs), adding sales may not be the best way to do, depending on what that number is.

Example, if something costs you $1 per unit, plus another $1 for accounting, selling it for $5 makes you a $3 profit. Dropping the price by 75% to $1.25 would get you a whole bunch more sales, but you would no longer be profitable.

You see, you are making assumptions of a flat cost structure, and no other overhead. It isn’t clear that they have flat cost structures (most retail businesses don’t), and overhead moves as you add unit sales.

Without the actual numbers, there is no way to tell what is what. Percentages don’t tell the story.

no doubtsays:

AllofMp3 example

I used AllofMp3 when they were up and spent more on music with them in 6 months, than I spent in the previous 5 years plus the years since they were shut down. I love music and I will buy it but I can’t bring myself to pay the ridiculous itunes type prices. I believe if the price is right (10 to 15 cents per song max), the market for selling music would be many times what it is today.

kenobisays:

hmive m i bought 10 games from the holiday sale

ive had steam for over 5 years and ive only bought 3 games but during the holidays i bought 10 more.. not only did steam make money.. so did tiger direct,, i noticed i needed a new video card and hard drive and new power supply to play them… steam sold me games that i would of probably of never bought in the first place.. its digital means its downloaded from steam.. no returns just your isp’s bandwith.. and there bandwith.. no boxing i say they made a good profit. a very good profit.. im waiting on another sell so i can buy some more games.. people quit trolling and fighting the profit was big and quit doing your math because your off by millions

ts.atomicsays:

The same concept works with taxation...

Tax more and you raise the price of business, making it painful to do business, invest or hire. So, tax revenues fall as business flatlines or decreases.

Tax less and you decrease the price of doing business, which frees up money for investment and hiring. So, tax revenues go up (as business increases).

Lower prices sell more units; lower taxes grow more businesses. Raised prices sell fewer units; raised taxes grow fewer businesses.

As simple as this truth is, it is amazing that there are businesses (and governments like the US, among others) that still refuse to accept it.

cramsays:

Late to the party…I just read through what the Paradox Interactive CEO had to say. The 5500% rise was only over a weekend sale, and no numbers are available, so it really doesn’t provide much insight. How many copies was the company selling per day on an average? And when they went back to the original price, sales were up 100%.

Now, why didn’t they stick to the 75% discounted price? Is that what the CEO means when he says price is marketing? Keep a steady price and keep offering massive discounts every now and then, instead of slashing prices permanently.

Perhaps they think it isn’t sustainable…in the longer run, they are better off offering a reasonable price and having such fire sales once in a way. Web hosting companies do it all the time.

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