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It's a never-ending debate: On one hand, temporary discounts on IAP prices will generate a quick spike on revenue. On the other, if badly managed they can harm the baseline revenue.
To discount or not to discount? And how to do it to avoid issues? In this article we propose an answer, and share some tips on how to limit long term negative effects derived from running offers on IAP prices and other game content.
Short answer? Yes.
I believe that, in most games, running discounts on IAPs at it's a good idea because:
You will accelerate revenue that would've been generated eventually.
This is inherently good because it will secure that spending, even if some of those players then churn. And it also provides them extra incentive to keep on playing until they deplete their investment.
And given how competitive the current F2P market is, you need every single advantage you can to accelerate your player's return of investment. So that you can reinvest that money into buying users faster than your competition and escalate your business.
You will generate revenue that wouldn't have been made in any other way.
Since players may be convinced to make a purchase they were not expecting to, due to the sense of opportunity of getting a better deal (or the fear of losing it).
In general, long term non-paying users that there's just no way to convince to pay are free game for presenting them with the insanely aggressive offers, since you were not going to make any money from them anyway.
Sometimes your players will expect offers and discounts on your game.
No matter what you do, on some situations players will organically expect offers to happen. Therefore generating to some degree the don't spend until an offer effect.
A clear example of this are seasonal celebrations such as New Year's Eve, 4th July, or Black Friday... These are great moments to held offers as well because your game is likely to have an extra flow of users since the players will have more leisure time.
Potential negative effects
But before we all start running hyper-aggressive discounts of 90% off on all your currency packs, it's worth talking about the dangers it involved if you make mistakes.
The biggest risks of a badly managed discount strategy are:
It can teach players to avoid buying until the next good offer.
The players that generate most of the revenue are usually the ones that have been in the game for a long time already, and plan to remain for a long time too.
What this means is that paying users have more patience that what game developers running offers tend to think: So why would they buy something at the full price if they know that soon enough it is going to be a big discount on it?
Running aggressive discounts with high periodicity, in a predictable pattern and without no limitations is a common mistake that will provide great results short time.
But soon it will generate a situation where the game needs to run constant, aggressive offers to keep on generating any significant revenue at all.
What is even more problematic is that players will remember the history of the deals offered to them. And therefore ignore lower discounts as bad deals, and only have a feeling of opportunity when the offer is extremely aggressive, thus forcing you to lower prices even more.
Most games employ a wide range of strategies to avoid this issue. Among them the most popular and effective ones arejustifying their exceptionality under some special celebration as well as adding a purchase limit, or simply setting them up properly to avoid predictable patterns.
It can overflow the economy with valuables.
Remember that paying users are playing the long game here: If offered a valuable resource at a great discount, most of them won't hesitate on spending at a higher pace, knowing that it will save them money on the long term.
If the developer fails to deal properly with that increased flow of resources, this will a long term handicap on revenue generation because key groups of paying users will be sitting on piles of hard currency with not enough places to spend them.
And therefore, they will have no reason to buy IAP packs.
Not realizing this resource overflow can even be more dangerous: the developer may try to counter the low baseline revenues by running even more aggressive offers on a continuous cycle (because the offers will be less and less effective), thus injecting even more currency on the system and worsening the problem.
As a consequence, developers must monitor the balance of key resources on the inventory stocks, and offers should come together with mechanisms to drain the extra resources from the economy (like a demanding event, or maybe an attractive item offer where players can spend that extra currency...).
It can actually make you make less revenue.
Offers can generate what's called a hangover, which is a period where players limit their spending for whatever reason (having too much content, having went overboard on their spending so they need to save...).
This has to be carefully checked, because in some cases the loss generated by the hangover can exceed the profit. This is particularly dangerous on big offers.
It can devaluate the game content.
What I mean by devaluation is more than just players getting access to content at a lower price. Devaluation acts in several additional directions that are often overlooked:
First, devaluation also means a damage on the perceived of value of something.
In my previous article about IAPs we already mentioned that paying users pay because the value to an extreme degree a virtual item on a free game due to their love for the game. In other words, they pay because they think the product is worth the money.
Doing an offer is performing a small aggression against the relationship of value and price. Nevertheless, if done carefully the previous value status quo should remain unaffected, the offer being just an exceptionality, an opportunity.
But regularly running discounts over the same product can institute a new status quo instead. This means, permanently damaging the equivalence of money and value, and therefore making harder that the player pays at the same price.
For example, if you've a unit that costs 40€, but which is constantly being offered at 20€, eventually player's will feel that it isn't worth 40€, but 20 instead.
A second type of devaluation is decreasing the playable time of your content. Paying usually accelerates the progression of players (specially if they can use the money skip steps of the progression). And if your endgame players run out of content, their retention will start to suffer.
In competitive games with rotative meta, players reaching endgame content too quick can also force the developers to accelerate the release of new content, which may also make the players reluctant to spend because you decrease the usefulness time of the competitive content (Why should I buy the "most powerful unit"? It will be replaced next month...).
And last, even if you can shrug off all previous problems with the release of cheap new content, allowing your player access new playable content too fast also devaluates the novelty value of your content.
If the new content is just the same thing with bigger numbers (like in most RPGs), or has mechanics that are very similar to the ones that the player has already seen, you risk that the player starts to see the game as boring and repetitive faster.
Summarizing, all these issues are born from breaking the golden rule of discounts and offers: You should never provide enough to your players.
Maintain the sense of exceptionality on any offeror discount.
The main benefit of offers is that the player detect a sense of opportunity on them and pays, so you should make sure that players never take them for granted.
Does this mean that you can't run offers regularly? Not at all.
One way you can achieve that is by avoid discounting the hard currency per se, which means devaluation over everything on the economy, and rather focus only a random set of items: Offers are constant, but the player won't know when this specific item will be discounted, and it may take long.
Linking them to specific holidays and celebrations will partially contribute to it, but of course if you do discounts constantly, by itself alone the thematic mask won't avoid that players take them for granted.
Making use of targeting is also a great idea to present aggressive offers exclusively to audience that won't break the economy (like non-paying users), as well as tailor its value.
Protect the economy by avoiding players exploiting offers endlessly.
Limiting the amount of repeated purchases on offers will allow you to be very aggressive with the discount ratios without fear of generating an issue for the overall economy.
The easiest way to achieve this is by limiting how many times that an offer can be bought (daily deals of Brawl Stars can only bought once). A softer approach is adding an incremental price that rises with every purchase (like Zooba does).
If discounting hard currency, remember to sink it.
We already mentioned the risks involved on overflowing the economy with resources: without scarcity, what reasons do have players to buy?
For that reason, it's very important to monitor constantly the stocks of hard currency of the different profiles of paying users. This is a great practice even on games that don't run offers often.
If players start stocking currency, it may be an indicator that offer contents are not being drained for the system, or that some game reward is injecting an unexpected flow of resources on the economy which can endanger the scarcity.
Avoid panic offers
Many companies monitor revenue on an hourly basis, and are able to activate short term guerrilla offers if the revenues are significantly below the daily forecast.
Or launch a bunch of preset offers it they detect that whales or other segments of paying users are below the forecasted spending on a specific month.
Those can be great practices, but they can be dangerous too if offers are the button that always gets pressed whenever reality deviates from the forecast.
Rushed offers they can generate unexpected unbalances on the economy and end up generating bigger gaps on the forecast than the ones they were trying to solve. It can also ruin carefully planned events or new content releases.
These kind of actions should be taken without thinking on the rest of the monetization holistically. Due to that, I am personally a great fan of having a clear owner of the entire game economy and revenue. Someone who is in charge on handling the current revenue but also guaranteeing its ability to create more in the future.
If you're building a product management team, I would advise against having roles whose function is exclusively to create and run offers and will be evaluated based on how well the offers performed instead of an holistic view of the game economy performance and health. That is likely to end up in near sighted decisions.
Have a plan, follow it and iterate on it
Having solid forecasts and plans for extended periods (2-3 months) is a great way to make sure that whatever offers and discounts the game is running are properly synchronized with their sinks and located in sweetspots.
Like any other liveop, it is an excellent practice to review the actual performance of the offer versus the forecast, and adjust the model. Not only this will allow you to predict future revenue with more accuracy, but also you'll spot fluctuations that may indicate opportunities or risks.
Additionally, it will decrease the chances of abusing unexpected discounts and focus more on the carefully timed actions. Plans are tha natural predators of panic.
How to detect when offers are CAUSING DEVALUATION?
This is a particularly tricky topic and - in my opinion - is a conclusion that has to be reached by putting together several indicators on different points on the economy, rather than looking at a specific KPI.
Another point here is that you will not be able to know devaluation by asking paying users directly. In my experience, the perception of aggressiveness of a game monetization by engaged users is likely to range from "it's too expensive" to "it's ok but the game would be more profitable if it was cheaper". You'll have to go to the data
I think it's pretty reasonable to assume that offers need to be reviewed when you detect several of these indicators:
The same offer starts to return diminishing benefits, without the decrease being explainable by the fact that the game has less population.
The game can't generate significant revenues when not running offers. This is possibly the biggest indicator that the baseline has been very damaged and the game is now addicted to offers.
The hangover is becoming longer and stronger. Meaning the time of diminished revenues after a powerful offer or discount has been offered.
Hard Currency stocks of paying users are increasing and are way higher than the regular values, and the main source are IAP purchases.
How to fix a game that IS ADDICTED TO offers?
As we've seen before, running an aggressive schedule of discounts may force the game to keep on running them in order to make any money, accelerating the issues previously mentioned. So if you're on that trench already, how can you get out?
To be honest, I don't think there is a perfect method to solve this (or, if it exists, I don't know it), but here are my 2 cts.
A successful strategy I've successfully used in the past is to build new healthy sections of the economy and then try to progressively focus the monetization towards on those new, healthy areas.
For example, introducing a new currency and establish a value around it of being valuable and not present on offers. This resource could be only way to get the latest gameplay content or some other high value elements, thus quickly making the endgame revolve around its acquisition.
But what if the compromised parts of the economy are too core to make feasible that players ignore them (for example, if it's the Hard Currency)?
In that case, the opposite can be done as well: Build new sections of the endgame economy and then focus the unhealthy practices on them, progressively healing the more critical and permanent parts of the system.
Offers can be extremely profitable if done right, but it's extremely worth spend extra time making sure that they don't cause harm to future revenues.
The key learnings are that offers should never provide enough to players (so that the economy doesn't break), and that your players should never take offers for granted.
I hope you enjoyed this piece. It really took way longer than I expected to write because I had to deal with a spike of work (you know how it is!). I've a couple more articles on the oven so I hope they don't take as long. Until then, please stay safe and enjoy Black Friday!