Pricing is weird
positech.co.uk
positech.co.uk
Paraphrased example: There was a newspaper selling three packages: Newspaper only - $40 Online only - $60 Online and newspaper - $60
There is no intelligent reason to select the "Online only" option, as for the exact same price you could get the print version as well.
However, when this professor did two polls in several of his (large lecture) classes. One group was given the three options, another group was given just two options, print or online. The group given three options, predictably, had 0% selecting online only, with (these numbers are from memory) 70% selecting both, and 30% selecting newspaper only.
The group that was given just the two options ended up dramatically preferring the cheaper option with the numbers essentially reversed, 30% choosing online and newspaper. (I looked for the talk to confirm the numbers but couldn't find it - I'd love if someone could point it out and get the correct numbers).
The idea was basically that you could have a throw-away option that actually GAVE MORE (perceived) VALUE and TOOK AWAY VALUE to other options.
This situation may not entirely apply to this example, but I wonder if what's going on is basically: Trying to increase the perceived value of the more expensive product by having a cheaper product right there, even though he acknowledges there is no additional value.
http://bookoutlines.pbworks.com/Predictably-Irrational
Plugging that into moreofit.com gives you an endless list of interesting consumer behavior articles:
http://www.moreofit.com/search/?q=http://bookoutlines.pbwork...
To my mind, that seems like this isn't a failure at all.
The number of people who go from pirates to $2.99 is dramatically outweighed by the people who go from $5.99 to $2.99. (Do the math; that's a net loss.)
The only way this works out for the developer if this scheme results is PR and raising awareness overall amongst people who are potential customers who wouldn't have known about the product anyway.
By the way, the next time someone on HN asks what "market segmentation" is or why product managers get paid money, this thread would be a good object lesson.
I think you're a smart guy and being disingenuous here, but I'll play along.
A market segment is a sub-set of a market made up of people or organizations with one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function.
source: http://en.wikipedia.org/wiki/Market_segmentation
If there are users who will pay 2.99 but not 5.99, this strategy can still capture their value today, but simply pricing at a higher price will not. You posit that people will pay much more than 5.99 for an expansion pack for this game and I don't think you're in any position to know that about this game.
I paid $2 for _The Incident_ on the iPhone. Don't me wrong, _The Incident_ is a work of art, but it does not provide the same kind of value as a title as this game does; I play it in 4 minute increments on the elevator at my office. I am not the only person who paid $2 for _The Incident_.
You're right, I don't play computer games (well, I play Starcraft 2 since I bought it for my son --- actually, I bought it twice, so I could play it multiplayer with him; want to guess how much I spent for that?). Maybe this game just sucks and is only worth $6. That's not the impression I got.
Extracting the most value from your customers is a challenge. Ideally since software has no real unit costs to the developer, you'd like to be able to sell the same software for every value from $500 down to $0 with each person paying the max they are willing. The problem is that you can't divine the amount each person would pay and have no way to manage this. I am saying he has his customers sorting themselves based on what they will pay on his behalf, and in theory he could get closer to the theoretical ideal that way.
It is true, there's no rational incentive (although maybe a desire to ensure the developer keeps working on a game you love almost qualifies) but it doesn't matter if using the guilt lever works on irrationality so long as it works, which if his numbers are real, it did to the extent that he sold two at 5.99 for every one at 2.99.
* Don't price things based on what they cost you unless you it's an ore or sorghum.
* Don't solicit customers that don't value your product.
* Don't demand that customers think carefully about which button to push to make a sale.
* Don't make the cheap option the first button users eyes cross.
You could probably go on to pick apart every sentence in the blog post (like his misunderstanding of the concept and purpose of a "sale") or the fact that his rationale sucks all possible incentive out of making his team more efficient at building and harnessing content for his game, but those are the big ones.
PS: if those stats are lying, that'll be the one smart thing he did with this page.
I just looked at the genius of guilt-based discriminant pricing, and was amazed it worked. (assuming honesty in reporting)
Think of it this way: Radiohead demonstrated that anything, even letting customers set their own price, is better than working with a major label. That doesn't mean letting customers set their own price is an economically sound move by itself.
Aside from that, patio11 is right - there's nothing good about this idea. If you can't immediately identify half a dozen horrible mistakes in this scheme, your first priority should be to do some reading on pricing.
1) Both prices are hideously underpriced. There is no difference whatsoever between $5.99 and $9.99 to anyone who has to type in a credit card, so repricing that would double post-fee revenues almost instantly.
2) You critically hit gamers -- who have the attention spans of ADHD squirrels hopped up on crystal meth -- with a wall of text just to get them to make a purchasing decision. You can check this with analytics, not one gamer in a hundred will actually read this argument.
3) The availability of software at $3 compromises any notion of it being valuable. You will not sell software to poor Africans. Do not price to be affordable to poor Africans. (If $6 is too expensive, $3 is not affordable anyway.)
4) Cost-based pricing. Don't mention it. Don't even think about it.
5) Sales work because they are scarce, time-limited events and they effectively segment customers who want the game today versus customers who want the game at the lowest possible price. Its a reverse auction, just like book publishing, AAA games ($60 ~ $70 on release day, $20 in a year), MMORPGs (pay for the box on release day, it will be free within a year), etc.
6) Showing your customers being penny-pinching lameos gives people social license to be penny-pinching lameos. It is like the broken window theory (evidence of anti-social behavior causes anti-social behavior), and you're breaking your own freaking window! If you wanted to highlight this, you would do something like I suggested for the Indie Game bundle here: http://news.ycombinator.com/item?id=1318841 -- give people options and highlight that the correct option is most popular without dwelling on how many people make the wrong choice.
This kind of "differential pricing by gentle emotional blackmail" approach seems to work for those who can establish more of a convincingly personal relationship with the customer. Or which at least on a broad economic scale feels like a relationship of equals.
As he points out, bigger orgs tend to fall back on the more traditional and distanced means of differential pricing (sales, selectively-targetted vouchers, student discounts etc)
It's just so hard to bet potentially thousands of dollars on it!
So doubling your price is only a valid strategy if people can't compare your price to similar products.
MoO II, while itself a fine game, left that legacy, and feels much closer to Civilization than to MoO.
Buildings on the planet were cumbersome - how to improve?
Btw a group of us have designed a MOO-like collectible card game, in beta test, pretty cool if I say so myself. 400 unique cards so far (Stellar Converter! Ion Pulse Cannon!), dozens of deck styles/ways to win.
MOO3 was just in shambles, I spent years on the message boards of that following the production, and the end result was.. crap. Some good ideas, totally botched implementation.
Sins of a Solar Empire has an excellent starmap and fleet control, but not customizable ships, and a static tech-tree.
Sword of the Stars was pretty good, but only somewhat customizable ships, and I remember it getting a bit of both fiddly and repetitive on larger maps. Random tech-tree was awesome. Should perhaps look at the latest expansions of that.
Sword of the Stars is annoying because tactical combat is half-broken - you can't pit fleet against fleet in any meaningful way. E.g. if they can beat 1 of your ships, then they can beat all of them (1 at a time).
It's almost as if they know damned well that their reasoning is wrong, and are just trying to milk as much as they can before the rest of the world catches up. Hey, wait a minute...
edit: I should warn you, though, Wells is likely bankrupt, along with FDIC. If you want to plunder my accounts, you should get to work before accounting fraud becomes illegal in this country.