SD Pricing strategy and the software industry in the download era

No, this is not a rant...

from Stardock Forums

So, I purchased FE when it first came out at full price, and about a month later it was discounted by about 32%.

Over the past week I've received 2 promotional emails from SD, one offering certain programs for $10, and another offering a 10% discount if I take a survey.

First, it seems like this agressive discounting cheapens the brand. After I saw two promotions in a week from SD, I was reminded of those promotions my wife is constanly receiving from those discount clothing stores, where they try any and every gimick to get customers into the store.

I don't understand this pricing strategy/discount promotion. As a consumer, I now know that I just have to wait a month or so to get a substantial discount on SD games. And if I'm inclined to purchase Fences, Blinds, etc, again just wait it out. It has the potential of making consumers focus on price rather than quailty, and possibly bring to mind the value they are receiving. And then there is the possible resentment (bad will) by discounting the product after the loyal customers paid full price. After all, every day that I sign into Steam, an offer(s) pop up on deep discounted software.

Food manufacturers can get away with two tier pricing by  putting two different labels on the same product. For example, sell a can of soup at Whole Foods for a high price, and switch the label and sell it to a mainstream supermarket for a lower price. But SW coomapies can't do that without long term consequences (e.g. selling the game for $40 to fan boys and $27 to everyone else). the fanboys will start to get miffed after a while.

Is this the new normal? I remember with Civ4, retailers were asking (and getting) full price for it easily three years after it's release, and SD slashed FE's price a mere month after it's release...

I guess it's all about finding the ideal price point, for a different range of consumers. That is, which price generates the right balance that results in the greatest volume and returns the highest margins. If you price too high, volume suffers, and too low and margins decline.  But if you "train" customers to wait , then the software companies will be the losers, because in the end, games are a luxury. Heck, as nice as they are programs like Fences and Blinds are "nice to have" but not necessary. And playing these pricing games will turn people off.

Just my 2 cents.

 

 

16,269 views 3 replies
Reply #1 from Sins Forums Top

I guess it's all about finding the ideal price point, for a different range of consumers. That is, which price generates the right balance that results in the greatest volume and returns the highest margins. If you price too high, volume suffers, and too low and margins decline.  But if you "train" customers to wait , then the software companies will be the losers, because in the end, games are a luxury. Heck, as nice as they are programs like Fences and Blinds are "nice to have" but not necessary. And playing these pricing games will turn people off.
End of quote

That's a fundamental idea of economics and business. Every good has an "Optimum Price" on which you'll get the most profit. Set the price higher than that point and enough people will refuse to buy it that your profit goes down. Set it below that point and the additional sales you get will not overcome the lower margins.

 

Digital Distribution is particularly interesting because unlike physical goods it requires virtually no ramp up costs to create additional products. Thus it makes sense to approach the market in pieces, by selling to gamers who always want the latest at the high price, then progressively lowering the price to attract additional buyers after the hardcore modern ones have moved on. While they could be harmed by the sales addiction the issue JCPennys is struggling with, Pennys has to deal with the additional cost of keeping its stores stocked. With digital distributions, margins are not as important because once you've made enough to cover your development costs, the rest is pure profit. Even a game that costed $1Billion to produce could be sold for $1 and make a huge profit if everyone on the planet bought it.

Reply #2 from Elemental Forums Top

Honestly, with Steam, you can a discount with most games after a month.  Some big AAA games are the exception, but it's not that uncommon, and those sales make their companies huge amounts of bucks.  I am sure they use the sales techniques that work, and then if they don't work, they adjust.  

Galactic Civilizations IV
Reply #3 from WinCustomize Forums Top

I think the $10 apps mailer was simply listing the apps we sell for $10.  I don't think there were any being discounted to $10.