Brad Wardell's views about technology, politics, religion, world affairs, and all sorts of politically incorrect topics.
Figuring out how much to price your product or service
Published on January 6, 2004 By Draginol In Business

Price points are one of the most challenging things in business to come up with.  At what point does something become too expensive for your target audience? It is something we wrestle with constantly. Raising the price decreases the number of buyers but not at a steady rate. The challenge is always figuring out the highest price you can sell for while maintaining the relatively biggest user base.

Sometimes pricing things too low can hurt you. People assume that a product or service is of low quality if it isn't within a certain price range.  So coming up with a good price is always a real challenge.

Over the years we've found these price points to be relatively strong:

$6.95, $8.95, $9.95, $14.95, $19.95, $24.95, $29.95, $34.95, $39.95, $44.95, $49.95, $69.95, $89.95, $99.95, $129, $149, $179, $249, $299, $499.

But not all of these price points are equally good. And their strength changes from product to product.

For example, Object Desktop, our company's primary product, is priced at $49.95.  We would prefer to have it at $69.95 but we believe that the user base would collapse.  $49.95 is something people will buy without too much worry.  At $69.95 it enters a different realm. The only reason we've been able to stay at $49.95 is because our user base has been so helpful in helping out on our forums with other users who have questions. Otherwise we'd either have to drop features or raise the price.

A more pressing one is our upcoming expansion pack for Galactic Civilizations.  We originally envisioned it being $19.95. That is a great impulse buy price point. The problem is that it's not likely to be widely distributed which changes the target demographic considerably.  So we've been playing around with raising the price to $24.95 or even $29.95.  But that price may actually decrease sales to the point where we actually generate less revenue as a result. So we're still agonizing on that.

The reason you always see .95 or .99 by things is because people, particular males, don't pay as much attention to the cents portion. Moreover, males are more likely to round down for some reason than females. Which is why you'll hear some guy say "Yea, it was like 20 bucks" with the wife correcting "It's $30" when the actual amount was $24.95 or $29.95.  But it's hard to say if that's still the case, that was from research back in the 50s and 60s and shoppers are much more savvy. 

We usually just go by our own gut reactions. Anything under $10 is basically "free". At that point it's more a matter of dealing with the obnoxiousness of on-line stores as well as factoring in whether what I'm buying is is "worth" the amount they're asking.  I'd feel stupid paying $9.95 for Q-tips. Same on skins. For some reason $9.95 on an icon package or suite seems just a tad too high. Yet $8.95 is fine even though it's only $1 less. So a lot of time you have to play it by ear.

I decided to write this article because I just couldn't find any good information or studies on the net about price points. The 19.95 to 24.95 difference is a big one for instance that many struggle with.

Feel free to share your thoughts and experiences.

 


Comments
on Jan 06, 2004
Speaking of Galactic Civilizations what kind of video card is GalCiv 2 going to require?
Looking at the dev blog I see lots of talk of pixel shader stuff.
Will that mean it won't run on dx 7.0 cards (geforce2, geforce4 mx, ati 7500)?
Also it looks like it's going to require loads of texture memory >32mb card?
on Jan 06, 2004
The word "expansion pack" with gamers makes them feel that they are not getting their money's worth, even if in many cases you are, because the word 'expansion' seems to lend to the idea that it is a bunch of extra stuff that they didn't have time to put into the original but there is no actual tremendous amount of work being done here---just a little profit taking by the developers. Sort of the "whatever we have left lying around the office we will put into an expansion pack" mentality. Since this is actually reinforced by many developers, that reinforces the mentality that it is not a 'worthwhile' buy, but that one should wait until it is a 'deal' buy. anything in the teens is a 'deal buy' but when the number becomes a '2' it becomes a different matter. It's like paying double for something.

It can be done, but it takes something compelling to buy the word 'expansion'. Which is why they are most often bundled with the original game or other stuff with the word 'platinum'. There has to be some sort of gimmick or visual idea to grab a hold of besides the word 'expansion'.

Or give them two of something. Find two low cost things and bundle them together. That is another way to get around the 2 factor. Because in the mind of a male, if I am getting 2 things in the twenty or thirty dollar range, then it is really in the teens each and in my mind that makes it a 'deal' buy. Like Galciv Expansion and Some other game you have for 29.95-39.95.

Its funny how the mind works...............
on Jan 07, 2004
Expansion packs are pretty standard stuff in the game industry at this point. We're not out to change the world here, we just want to put out an expansion pack and price it right.
on Jan 07, 2004
The way I look at it: You are going to have your hard core group who is going to pay the price no matter what it is, the group that is not going to purchase it at all, and those of us who are undecided. For me, at $19.95, it's a no-brainer. Go pick it up. I don't even think about it (and was pleasantly surprised when the price was listed). At $24.95, I'm going to pause, but probably pick it up. At $29.95, I'm passing (short term). Yes, I'll probably get the itch and pick it up.....eventually, but there will be many people who will pass permanently.
on Jan 07, 2004
I agree with Brackard. I love GalCiv but my playing of it has dropped off significantly. Since the expansion pack with add some new stuff and improve things here and there I would certainly pick it up for $19.95 However, since it is not a new game or a new paradigm I would balk as it goes higher than that. Why, I dunno. It is not because I do not have the money. More of a value thing I guess.
on Jan 07, 2004
I think that the expansion is worth the 24.95 price because stardock does good work and always puts in lots of real extras. For me, I would pay the 24.95 on top of my drengin.net because of my relationship with stardock and the game. And the truth is, you are not selling to the casual gamer but to a very narrow bandwith of specific gamers. People in our market will look at the features more and compare the prices more and we are not very likely to make impulse decisions so much.

If you are looking to extend the value of the game to existing users, then price it at 24.95. If you are looking to expand the base of those who play the game other than existing gamers then price it at 19.95. I think you are in the position to do it either way and make an impact because of the kind of the game it is and the general intelligence of the market you are selling to.
on Jan 08, 2004
I was thinking about this a bit more on the way home last night, and it mirrors a bit of what Tytan just said. Like Tytan, I think it really depends on who you're marketing this to. For instance, if you're marketing this to new players, the $19.95 for the expansion pack + $29.99 for the game (what you can get it for from Best Buy for example) is the same price as a typical brand new game. ($50). By pushing the expansion higher, you've entered the $50+ taboo territory. However, if you're looking at just the current user base, then I don't think you'd see a significant dropoff from the $19.95 price.

You've obviously had to do some kind of research on this already. You know how many units you've sold, you have a rough idea on how many hard core players you have (unique hits to the gal civ web site, or unique submissions to the metaverse in a given time frame for example). You also know what your development costs are (or should be). If based on your initial numbers you can cover costs with the $19.95 price, the real question (to me) is whether you a) take the ‘sure’ thing of an extra $5/unit and move on, or risk the chance that the lower price may bring you additional customers of both the original product as well as the expansion that may ultimately lead to a higher sales/profit.
on Jan 08, 2004
I think you also have to look at just what the expansion does. In the GalCiv case, it adds a whole additional dimension to the game with the inclusion of scenario and campaign play. This is a major change from the open ended start at A and end at B gameplay originally wrought in the game. With the inclusion of map, scenario and campaign editors I think it is worthy at $24.95. However being a long time Drengin Net user I don't have to worry much.

I don't think it would be too unrealistic to market the expansion at $24.95, while looking at a possible bundle package at $44.95 or $49.95.

There have been many expansion packs that have delivered next to nothing, those that deliver a broken product (think CivIII PTW) and some that have been phenominal.
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