Pricing strategy is an integrated discipline. It requires understanding the design of the game, the market, the competition and many other factors. If all those factors are taken into account then the full value of the game can be realized. Maximizing the value games can change markets, create new market leaders, benefit game developers, unlock new artistic possibilities and help create great games. That is a lot to claim for one part of a marketing strategy, but events in other industries have shown this to be true time after time.

	Some of the Elements of Pricing Strategy

Pricing strategy is an important but underappreciated part of game development; price can be a very powerful tool in marketing, and also in making more creative content possible. Technological change is making more creative pricing strategies possible, and the industry will benefit as they are adopted.

Experience in other industries and in the game industry itself shows that pricing strategy is one of the most powerful tools available to a publisher. Pricing is an equally powerful tool for developers if they think about it during the development process. If pricing strategy comes late in the development process opportunities to get the maximum benefit from good pricing strategy are lost to both publisher and developer.

Common Pricing Strategies

The most common pricing strategy is fixed price at point of sale. Most games are sold once at a retail location, or ordered through a website, the pricing strategy behind this is borrowed from book publishing, and it's hundreds of years old.

A variant on this strategy is start the price high and as the product gets older drop the price. This strategy can be extended all the way to eventually re-releasing a game as part of a bundle of games. In this way a game can be sold to both the people who are happy to pay $40 or $50 for a brand new game and later on it can be sold to people who will not pay that much but are willing to spend a few dollars on a game that is new to them. Sadly for most game developers this strategy only works well for games that are popular in the first place.

Beyond this there are many other pricing strategies, subscription pricing, rental, advertising, and even merchandising but they are targeted at certain game types, market segments or venues, and do not have the influence of fixed price at point of sale.

	Thou Shall Have No Other Pricing Strategy Than Mine

In 1708 this Bible was sold exactly the same way this copy of Madden Football was sold 300 years later. The model for pricing games was created for a different industry (book publishing) more than 300 years ago and it has fallen behind the times. In 1708 this Bible had to be printed by hand driven machinery, carried in a horse drawn wagon for at least a day, loaded on a ship to make a hazardous voyage to the New England colonies and travel further by boat, wagon and on foot to reach the buyer. Middlemen had to be paid in cash at the time of delivery; there were no credit cards and no 30-day billing or subscription service.

Content was cheap to develop and very expensive to deliver. A single price, single payment model was the only thing that made sense in the world of 1705. It made keeping track of the money and the inventory simple at a time when communication and distribution were very expensive.

In 2005 we have exactly the reverse situation. Content is expensive to develop and dirt cheap to deliver. But the pricing model we use most often has not changed since 1705, or perhaps since 1600. The model is old and because it does not take into account the changes in technology and distribution it commits the cardinal sin of bad pricing, it leaves money on the table.

By its nature the static price will be more than some customers will pay, but less than others, this is a problem with the strategy itself. Good research and the best marketing efforts cannot stop this from happening, though it can minimize the impact.

Because the transaction is finished and closed we can't sell the customer a follow on product or an expansion without marketing expense and other effort on the part of the publisher, and even worse we make the customer go through a purchase process all over again. This is a bigger problem for retail locations than Internet purchase, but either way it puts the onus of action on the customer, who has many demands on his time.

The finished transaction prevents us from using the value in the content to make money in creative ways. When a game is delivered to a store, or delivered to a customer by mail for play on a machine not connected to a network it is static like a book. The developer or publisher cannot make changes in what they are selling the customer, even if the customer asks for changes and expresses a willingness to pay for them.

In a game that is on a machine connected to the Internet we can change things, we can add, alter or unlock content. But if we are locked into a model where we charge the customer once for everything there is no reward for doing this. Our product is dynamic but our pricing is static. The one time fee actually prevents us from further development of the game, and it prevents the customer from buying more of something they like.

Developing innovative pricing is worth the effort. Price is very influential in business, and most of the really great business success stories have elements of pricing strategy in them. The first companies to develop a pricing strategy that integrates their games, changing technology and other factors will see great rewards.

Great Rewards

Ford and GM Build and Change an Industry with Price

In 1908 Henry Ford rolled out the first Model T car. Pricing strategy was an important part of Ford's concept for the car. Ford wanted to produce a car that most people could afford, when the car rolled out it cost $850, a reasonable price at the time. Ford's strategy was built around reducing production costs so that he could continue to gain market share by reducing the price of the car. This strategy worked brilliantly, the price of a model T would eventually drop to $300. The model T became famous, it became the first car to sell 1,000,000 units, it was a media phenomenon and it got millions of Americans driving their own car for the first time. By the time the last Model T rolled off the assembly line over 15 million had been built and it was the most popular car of all time until surpassed by the VW Beetle in the early 1970s.

Ford used price to grow the market, making automobiles available to millions of people who could never afford them when they cost $2,000 or more. He also used price as a competitive tool driving competitors into bankruptcy as his car dominated the market.

But Ford missed a cardinal rule of pricing:

If You Have One Price, It's The Wrong Price For Everyone.

Ford would not have agreed with the bold statement above. He wanted to build cheap transportation believing that was what people wanted and needed.

Ford's Model T is a great example of how design, production costs and price are closely related. Ford was designing to reduce production costs, among other things that meant he needed to use the fastest drying paint to move production along quickly. By 1914 Model Ts “come in any color you want, so long as it's black” because black dried fastest and pushed the price down. Ford's pricing strategy of one price for everyone was now the wrong price for anyone who wanted a car that was not black, because the pricing strategy forced Ford to offer the car in black only.

General Motors wanted to surpass Ford and become the number one car company. They did not believe “one price (and car) fits all” in fact it realized that Ford's strategy made Ford Motor Company vulnerable. To compete with Ford it developed a strategy eventually articulated as “A car for every purse and purpose.¹”

The management team at GM broke new ground in pricing strategy. They linked price, marketing, design and other factors in new ways. The developed a product for every market segment from Chevy to Cadillac, with a price aimed directly at the income level of the target market.

GM pioneered breaking the market into segments with a product and a price for each segment. Customers flocked to buy GM cars, cars which met their needs and appealed to their sense of style and taste at prices that were aimed at them. By 1927 GM surpassed Ford as the largest auto company in the World. Not only was it larger, it was far more profitable in large part because of its understanding of pricing strategy.