How should you price your mobile app?

The average prices for apps in the Apple App store have declined steadily. As of January 2016 the average price of an iOS gaming app was down to 0.57$ and the average price of other games and apps was only 1.02$. And if that price is not low enough, the majority of the 1.5 and 1.4 million apps available are free (Statista 2016).

Endless Apps

The availability of applications is almost endless

But even though applications are free, that does not mean they can’t bring in revenue for their creators. In 2014, 92% of gaming app revenue was generated through so called freemium apps, which are free apps with in-app purchases. Only 6.1% of revenue came from pre-paid gaming apps without in-app purchases (Statista 2014).

It is interesting to look at the different prices of the Top 50 Paid apps and to Top 50 Grossing apps in 2013.

“Would you think that the top grossing apps aim for low price and volume or high price and profits from each sale?”

Reality is that the top grossing apps go for high price and profits from each sale. While the average price of the 50 most popular apps was 12.5$ the average price for the 50 biggest grossing apps was 49.1$ – That’s 294% more expensive (Jury.me 2013)! But in this case, we’re not taking advertising revenue in count.

Top paid VS. Top grossing applications

Matzner (2011) suggest that the art of pricing apps is all about finding the right balance between what it costs to produce and maintain the application, and how much users are willing to pay for it. But you also have to think about possible revenue from in-app purchases and in-app advertising. He says a part of the decrease in app retail prices is the increase in competition – but a big part is also the availability of alternative revenue streams for developers. So rather than charge a flat fee up front, creators have spread the revenue generation across the entire app experience.

He says there are huge opportunities in in-app purchases, and that in-app advertising is a great way to generate ongoing revenue throughout the lifetime of your application. His conclusion is that giving an app away for free but loading it up with advertising can generate much more revenue than a paid app because many more users will download the free app.

The first step to determine a price should be to do competitive analysis, see how much similar apps are charging. Undercutting competitors could be an easy way to gain attention but if the app has advanced qualities you should still be able to charge more. One key is to fit the price with user expectations. Users expect certain quality for certain prices, and if they don’t feel they got their moneys worth they are quick to leave a negative comment.

Here are some well known high and low price marketing strategies (Iacobucci 2013) and how they fit in with the applications discussion:

Low price strategies

Loss leaders: Sell below cost or give for free to bring in customers who make in-app purchases or get revenue from ads.Market Penetration: Price low to attract volume early in the product life cycle to generate buzz and demand.

Nearly predatory: Price low enough to discourage competitors. This might not suit well in the application world because already you can get almost all kinds of apps for free.

High price strategies

Willingness to Pay: Determine customers willingness to pay and then price right below that point. Could work if you have a high quality application that offers advantages that other applications don’t have.

Market skimming: Price high for margins, not worrying about volume. This confirms with that the most grossing apps are those who are priced the highest.

Prestige or Status pricing: Pricing high for image appeal. This might not well work in the application world because users are quick to write their opinion about applications and if you don’t offer qualities that match your price customers will soon call your bluff and let potential users know of cheaper or free apps that offer the same quality.

High prices due to real quality differences or true rarity: This is a better reason for a high price in the application world and fits with the above discussion about the high price applications bringing in the biggest revenue.

Why you should give your app for free

Many consumer surveys have been made and they all point to the same conclusion: Even though most people don’t like seeing ad on smartphones and tablets, when they are faced with the choice between free apps with ads, or paying even less than a dollar for apps without ads, they overwhelmingly choose the free apps with the ads.

Free

In her blog, PhD Mary Ellen Gordon (2013) explored the preference for free content over contend free of ads by examining for years worth of pricing information for nearly 350.000 apps. She says that our choices of apps reveal our individual tolerance for advertising and how we feel about the trade-off between paying for content directly, or paying indirectly by agreeing to view ads. She says that in many cases apps are available in two forms: Free with ads, or paid with no ads (price is usually 0.99$ or 1.99$ to eliminate the ads. She states that consumers want free content more than they want to avoid ads or have the absolute highest quality content possible.

In app pricing experiments with the form of A/B/A testing different prices of the same apps the results were that there was an upward trend in the proportion of price tested apps that went from paid to free. She interpret it that many developers concluded that charging even just 0.99$ significantly reduced demand. Her conclusion is that ads in apps are here to stay. And that the main revenue stream from apps will come from ads, not purchases.

References

Gordon, M., E. 2013, The History of App Pricing, And why Most Apps Are Free, Flurry, retrieved 1 May 2016, < http://flurrymobile.tumblr.com/post/115189750715/the-history-of-app-pricing-and-why-most-apps-are>

Iacobucci, D 2013, MM4, 4th edn, South Western, Mason.

Jury.Me 2013, Understanding app store pricing – part 1. Jury.me, retrieved 1 May 2016, < http://jury.me/blog/2013/3/31/understanding-app-store-pricing-part-1>

Matzner, R. 2011, HOW TO: Determine the right price for your mobile app, Mashable Australia, retrieved 1 May 2016, < http://mashable.com/2011/08/17/price-mobile-app/#a.b5hTSiFsqH>

Statista 2016, Average prices for apps in the Apple App Store as of January 2016 (in U.S. Dollars), Statista, retrieved 1 May 2016, < http://www.statista.com/statistics/267346/average-apple-app-store-price-app>.

Statista 2014, Worldwide app category revenue distribution in the Apple App Store in February 2014, by business model, Statista, retrieved 1 May 2016, < http://www.statista.com/statistics/283753/apple-app-store-global-category-revenue-share-per-business-model/>.

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