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Most of the revenue of mobile F2P games comes from selling hard currency IAP packs. The release of new content, liveops and other features may be the trigger of those purchases. But ultimately, players go and buy one of your main six IAP packs.
So its kind of paradoxical that designing and balancing them is a topic that gets little attention overall. This article aims to share a few key concepts, techniques and some ferengi tricks that I deal with when setting up or analyzing currency IAPs.
Disclaimer: It's all about learning faster
It's wrong to assume that the exact same IAP balancing and insights will work on any game, since the audience, their budgets and their purchasing habits might be completely different.
So when balancing IAPs (as well as any other element of the monetization), the key is not to have a set of secrets of the trade, but to have a methodology that allows you to build up new game specific knowledge fast.
During my career I've been involved with the economy for +10 free-to-play mobile titles, some targetting widely different genres and audiences. And whenever I entered in a new project, I would apply the following 3 steps to build knowledge:
1/ When in doubt, copy. Replicating your competitors will greatly limit your risk of making mistakes, at the cost of discarding the chance for radical improvement.
This may sound bad, but it's a great early trade-off when dealing with something that you're not familiar with. And specially when it comes to currency packs, where players are unlikely to value innovation...
2/ Benchmark and understand the decisions. Looking at the decisions that your competitors took and their history, if available, will help you understanding the key factors of the sector.
I also endorse talking to the fans directly and getting to know them. Their feedback is a necessary requirement to complement and fully understand any data.
3/ Always iterate and test things as fast as you can. Start ASAP to test stuff, aiming to solve problems or tackle opportunities. Or maybe challenge some of the assumptions to confirm that they're still true -- the rules may have changed!
There are methods to perform these expertiments without taking risks. Presenting new user cohorts with different balancings or using ABtest will limit any negative effects and make the analysis more reliable by allowing control groups.
The challenge is to choose which tests to prioritize, since each test may take some time to gather enough population to be conclusive, specially if it targets new game users. Sometimes it's easier to set on the change for a couple of weeks and see what happens...
During the article I'll talk about several concepts and general rules I've found based on my experience. And to be concise I won't be saying "at least that's what I think" all the time. But nothing is sacred. Let me know in the comments section if you think different : )
THE PSYCHOLOGY OF IN-APP PURCHASES
Same as with any other purchase, an IAP happens when the customer wants what is offered, and has the money to buy it. The specific characteristics of the customer will determine where the two bubbles below intersect, or if they do at all:
Who pays on a free game? The most engaged players
The Black Lotus is the most expensive card in Magic: The Gathering. It's has reached a price of +$150,000 on eBay. But my dad would never pay that much for it. He woudn't even pay $1. It's just a worthless piece of paper for him. He doesn't even like MTG.
This goes to show how extreme the distortion of the value of the same thing can be between two different people.
And when it comes to mobile games, it's even worse: Because at least a Magic card is physical. You can keep it on a showcase and even trade it for real cash. But buying an item that exists only inside a videogame? That sounds like the ultimate waste of money.
This goes to show why humans are generally highly biased against virtual items.
So this means that the people that buy on a F2P gameare the ones that love the game the most. They love it so much that they overcome this natural bias and they believe that a virtual item is worth real money. Even if it's only cosmetic change.
Since paying users are those are the most interested about the game, it also means that they will be proficient at identifying good and bad deals (specially if they've been playing for a while). So paying users will choose the course of action that grants them the most value for their money, rather than making irrational impulsive purchases.
Behavioral economists have explained for a long time that the bigger the spending, the more we're likely to use our System 2 of decision making thought (slow, efforful, logical, calculating, conscious...). Which means that your big spenders are even more unlikely to act by impulses.
Factors related to marketing and UX do boost slightly the purchases, but they're secondary factors (i.e: anchor prices, decoys, adding a time limit on the purchase to foster the fear of loss, using red colors and several other stuff we'll talk later...). It's important to keep them in mind, but they are just a small push, not the main game changer.
Supercell was famous for a while because their games had very few of these monetization UX features, and no discounts at all; and still they made billions. Clash of Clans players spent because they were extremely engaged, not because the UX tricked them into it.
How much money they spend? Depends a lot on the genre/audience.
At the industry we tend to classify paying users based on the amount spent, but there's a bit more to that. I estimate a 99% chance that you've seen a graph like the one below, and usually each name is followed by a number, representing how much the player has spent (Minnow = 1$, Dolphin = ~10$, etc...).
If you're perceptive enough, you may have noticed that the more these charts move away from the minnows, the more they disagree between each other on the exact amounts that represent meaningul player segmentations: On some charts a dolphin is 10$, in others maybe 20$; and the minimum spent to be called a whale may range from 200$ to 1000$...
One of the reasons why this happens is because the people doing the chart are taking in account some genres more than in others. In all genres there are different paying user profiles, but the relevance of each of the groups and the size of their bugdets changes dramatically: A whale of a casual game may spend less than a big dolphin of a 4X.
And this has implications for which type of IAP pricings must be promoted:
Summarizing, when it comes to IAP packs...
The paying users are the ones that are more engaged. Almost without exceptions, the amount of money spent represents their degree of engagement. You can check that by looking at their average daily time spent playing.
Players buy IAPs using rational criteria. For the most part, they are not impulse purchases. Paying users will choose the course of action that grants them the most in-game value for their money, and avoid the bad deals.
The general profile of the audience will determine their general budget. This is heavily influenced by the genre and theme (i.e. Infinite Runners attract kids and they will spend less than middle-aged 4X Strategy players...).
OFF-TOPIC PROPOSAL: ANIMALS AS MONTHLY SPENDING?
In my experience, the general standard is to classify paying user categories (minnow, dolphin, whale...) based on lifetime amount spent ingame. But this raises several questions for me:
A dolphin that has reached "whale-level investment" by repeatedly spending 10$ monthly over the course of the last 2 years... is really a whale?
Definitively sounds like a radically different profile than a whale that reached that status by buying several 100$ packs in one month.
A whale that is still in the game hasn't spent for 3 months... is really a whale anymore? What if now it's purchase behavior has changed and it spends like a smaller spending profile (not a common thing, but still...)
Ultimately, the current classification seems unneficient, as it requires additional KPIs to understand critical behaviors (i.e. average whale spending on the last month, amount of dolphins that spent the last month...).
I think it would be more efficient to separate paying user categories in two different metrics: "payer category, amount spent on the last 30 days" (alive animals) and "payer category, amount spent lifetime" (historical animals). That would allow to easily detect fluctuations on the monetization (payers slowing down their purchases at a certain point) and generate more meaningful insights.
THE ANATHOMY OF THE SIX PACK
The 6-pack model is the standard on mobile F2P because six is a low enough number to be manageable by players, but still allows meaningful choices and comparison between prices...
And probably also because it's always been done that way.
Which packs are the real deal and why?
Not all of the packs have the same relevance. Out of the six, the ones that are really important are the lowest, and then one in the middle, and the highest.
Let's take a look at them:
The lowest sets the minimum investment that a paying user can make, and therefore will likely be the most sold one in terms of quantity of purchases.
Despite it sells a lot, it doesn't tend make a lot of money and it doesn't attract the player that buys over and over, which prefers more advantageous packs.
So if this pack it's your top monetizer, you may want to review your whole IAP setup, because there's definitively something weird.
In particular, this pack should not be very valuable for genres that are oriented to high ARPPU players (such as RPG, 4X Strategy or Simulation...).
In theory, this pack acts as conversion point, but this is not always the truth.
Making an user spend for the first time is the one of the hardest challenges, and when players have spent once it's way easier that they do it again, and they pay a bigger amount next time.
So when it comes to conversion, a lot of games use time limited offers or single-time purchaseoffers instead, which have additional incentives for the player that is reluctant to pay on a free game (time pressure, offering a better deal...).
In those cases, their lowest pack actually works more as a decoy to make both the conversion offer more attractive, or to attract players that already payed in the past to a higher pricepoint.
One in the middle, which usually either the 3rd or the 4th one, and the price usually ranges between 9.99$ to 19.99$ (like we said, it depends on the game genre and audience). This pack targets both dolphins and minnows that are growing into a bigger spending profile.
The middle pack price it's usually not very successful as a conversion point.
But it's quite effective as a reconversion price since it's enough money to deliver good value to the player, but still within the range that in can be purchased regularly without being too taxing to the player's budget.
The biggest. Despite not being high on the number of sales, tends to be the top monetizer pack, specially on games focused primarily on whales. Its price tends to range between 79.99$ to 99.99$, with this latest amount being the most used one.
Of course, this pack is exclusively purchased by whales. Spending so much on a free game can be shocking, but it shouldn't if we consider that buying the most expensive pack is the most effective way to spend money on game content.
Why? Because the biggest pack offers the lowest price per 1 unit of currency (which is also known as gift ratio because it's as if the devs were adding more currency as a gift in the pack).
The biggest pack always has the biggest incentive because it's more beneficial for the developer. The main reason for that is that the biggest pack accelerates the generation of revenue from the player.
Over time, a player could potentially reach the same LTV through smaller sized purchases. But there's the risk that the player would churn from the game halfway through, interrupting the process.
So by making them buy more expensive packs, they'll have a faster progression to the break even point where they cover their acquisition cost (the money you had to spend to make them install your game) and start becoming profitable.
As minor reasons, it gives an extra incentive to big spenders to buy, because they'll see that what they're getting is even a better deal (since it's a huge gift ratio).
And it guarantees that the player will remain in the game until the currency is spent, since churning from the game would mean that the player would lose that investment. (This is true for all packs, but because it's the biggest, it will take longer to spend it all and more pain if you leave it unspent.)
Like we just saw, the gift ratio is one of the most important tools (if not the main tool) to incentivize your players to buy bigger packs is the gift ratio.
It represents how much extra currency is given on each of the packs, which ultimately means a discount on the price of 1 unit of currency compared with the cheapest pack (that has 0% gift ratio).
Examining the gift ratios is a great way to know which paying user categories is a game targetting primarily. Comparing it with similar games shows how aggressively they are willing to devaluate their ingame currency to push for player spending.
Unfortunately, checking the gift ratios of a single game is not very revealing about the relationships between the different packs of the same game.
A good way to evidentiate these differences for analysis is to compare the increment of the gift ratio versus the previous pack, which in my experience tells a lot about the actual intentions of the pack structure.
TIP: USE THE UI to HIGHLIGHT USEFUL INFO
Even if players are going to take logical decisions, they are unlikely to grab a calculator and do the math.
As a dev, you want that they are able to make the most informed decision possible. Especially because the info will tell them that they should spend more to get more value out of their money. You can help them by adding some helpful info on the pack.
Decoys, anchors & other ferengi tricks
If only a few packs are the ones generating monetization, why there are more?
Some are there just to act as decoys and anchor prices to make the rest look more attractive. Or maybe to create loss aversion to push players to avoid missing the best deals. Here's some examples of that:
If you want to know more about these cognitive biases and how to exploit them for fun and profit, check out Dan Ariely's Predictably Irrational. Or Daniel Kahneman's Thinking, Fast and Slow if you fancy academic works.
Both are really great reads. But always remember that when it comes to triggering purchases, these are just secondary factors compared to the game being fun and players genuinely loving it.
Cognitive hocus pocus are easy to apply if you know them and I'd definitively suggest you to spend time on them. But they will only bring small revenue increments, they're not the thing that will carry your game from the bottom to the top grossing positions.
SHOULD I PRESENT DIFFERENT IAP PRICES PER COUNTRY?
The theory here is to change the prices of IAPs to adapt to the purchasing power of each territory. Because a citizen in Spain won't be able or willing to spend the same for it as a citizen in the Switzerland.
This sounds good on paper, and try it out if you think it might increase your revenue. But based on my experience, I would say that in general it doesn't work, because:
You'll lower the revenue coming from the high spending users of those territories. I consider it's unlikely that marginally raising the conversion will compensate a drop of revenue from higher spenders of the territory.
A potential solution on this would be not to touch the price of the higher packs, and increase the amount of currency to keep the volume discounts, etc.
The second reason is it will make the system harder to maintain, specially when dealing with things like setting up discount offers. It also means a lot of time to setup and particularly to analyze each and everyone of the territories.
And ultimately, some of your players may even switch their region settings or VPN their way to the place where get the most value out of their money.
This may sound as an unlikely risk, but a significant amount of whales will, specially if your game involves a strong comunity.
Ultimately, maybe you don't need to spend millions on a space pen: A simpler option to achieve similar results is to run preset offers a bit more often in certain territories.
SHOULD I PRESENT DIFFERENT IAP PRICES FOR DIFFERENT USERS?
This is a similar idea to the previous one, but should in theory protect you against some of the issues: You don't lose the income from high spenders because they wont see this special range of prices, and players can't switch.
The first thing is that if your game has a strong and active community, I recommend you not to even try it. You're going to have to deal with a lot of pissed of players, because they will share the information and be very pissed.
And don't expect them to see it as we're making the game cheaper for some people. They'll see it as you're making it more expensive for the most engaged players.
Same as in the previous topic, I feel it's way easier to introduce a set of preset offers targetting exclusively lower spending players.
That way you will be able include additional hooks which will be more effective at convincing players that are less willing to spend.
3 THINGS YOU CAN TRY ASAP TO BOOST YOUR IAP REVENUE
I wanted to end the article with something actionable, so here we go:
1/ Try any of the UX ideas mentioned earlier. I know I said that they will only provide a small improvement, but it comes with very few risks and development costs so it's definitively worth it!
2/ Add social incentives and rewards to buying a pack. Paying users always try to get the best value for their money. But sometimes that's not just a higher discount. Sometimes the best value is to get the respect and admiration of their peers.
The things to keep in mind here is to keep under control the rewards (each purchase may reward A LOT of people) and provide visibility to the person making the purchase: That player deserves getting a praise from their mates for being so generous ; )
3/ Experiment with the price of your lowest IAP pack. Comparing among different games, this pack is the one that shows the greater diversity of prices. Try lowering it to 0.99$, raising it up to 3.99$ or even removing it completely, and see what happens.
While it possibly won't be a game changer, you may get a meaningful revenue boost from your minnows. Of course, you'll have to check what happens with the conversion and, ultimately, the average LTV... maybe the tradeoff isn't good on the long term.
Thanks for reading!
I hope you enjoyed the article as much as I enjoyed writing it. It took me longer than usual to finish because I had way too many design gigs this month @[email protected]
If you liked it stay tuned because I expect to release on a regular basis a bunch of shorter articles to tackle specific topics regarding IAPs which went out of the scope of this one!