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This article builds on my previous article about the evolution of IAP monetization. It gives more background information and context on annuities, and then goes through a basic set of considerations for annuity design. By the end of this article, you will have learned enough to design an annuity for an IAP-oriented game.
An annuity is a purchase of currencies or goods that is delivered over time (the “annuity payments”). The actual purchase is a lump sum, paid at the beginning of the annuity.
Here’s now an annuity is defined in http://www.gamasutra.com/blogs/IsaacKnowles/20160512/272484/Want_to_Increase_Your_FreetoPlay_Game_Revenue__Retention_Experiment_With_Virtual_Currency_Annuities.php
An annuity is just a sequence of payments that a person receives in exchange for an initial investment. Interest payments by a bank into a savings account are a common kind of annuity. Insurance companies usually offer another type of annuity where you pay a large sum now (say $100,000), and then receive a guaranteed amount – say $5,000 a year – for the rest of your life.
Annuities tend to split the population between more impulsive players and those players who value the currency items being sold, but can wait to receive them (in exchange for a discounted price). In short, annuities appeal to “planners” who are affluent and have good impulse control (these people often become “grinders” otherwise due to their ability to suppress their impulsive buying decisions).
They are, in essence, a form of price discrimination similar to coupons. Customer will put forth time and effort in order to get a lower price.
Customers who are very responsive to price changes — that is, customers with a very elastic demand — are likely to take time to find coupons that effectively lower the good’s price. On the other hand, customers less responsive to price changes because of their less elastic demand aren’t as likely to take the time to find coupons.
When you use coupons, you start by establishing a single price for the good. The price is then lower for customers possessing a coupon. So, customers not using a coupon pay the price P, while customers using the coupon pay the price P – C, where C represents the coupon’s value.
Annuities in games also have a very strong retention component. Much like daily login rewards, the presence of an annuity tends to encourage players to log in on a regular basis. And, of course, once the player is in the habit of playing daily, the player is much more likely to be a long-term player.
The “Gold Pass” in Creative Mobile’s Nitro Nation is an excellent example of an annuity.
Figure 1 The Gold Pass Delivers 30 Gold a Day for 30 Days
It’s a very straightforward design: it simply delivers 30 coins for 30 days. But there are two subtle points to note:
These two bullet points are interesting, and offer some hints about how to design annuities. Roughly: deliver a small amount of coins each day, but offer a fabulous exchange rate compared to the standard payment wall (so the player is getting a great bargain).
In the remainder of this article, we’ll expand on that and go deep into the design of annuities.
The basic structure of your annuity is driven by game design, gameplay considerations, and stylistic preferences.
Here are the basic design considerations we usually tell people to think through when they are adding annuities to their game.
In order for an annuity to be effective, it must simultaneously deliver enough value to be a compelling offer without significantly cannibalizing other purchases that might occur.
This means that once you’ve decided on a basic annuity design, you need to tune it using data. Note that because these are mostly data and gameplay questions, and the decisions underlying them were taken prior to adding an annuity, we do not have specific recommendations for them.
That said, here are six very important questions to ask yourself as you decide how many coins to include in an annuity:
The interesting thing about these questions is that they’re all logical, all fairly basic, and yet, taken as a whole, come very close to determining how much currency you should offer in your annuity.
Game monetization is becoming increasingly sophisticated. It’s no longer enough to offer various coin packs—you need to think about how the game is run, you need to think about different types of players, and you need to have a variety of highly differentiated offers that appeal to different types of players.
Annuities are an emerging best practice in free-to-play gaming. In this article, we gave background context, and how to think about them, and then described how to design an annuity that matches your game. The goal was simple: to take the guesswork out of annuity design (or, at least, to minimize it).
Think of this article as “Annuity Design 101”. By this point, you should have a very clear idea of how to add an annuity to your game. In a future article, we’ll cover more advanced aspects and psychological design considerations. But, like almost everything else, annuity design obeys an “80/20” rule – if you get started with the above design considerations, you’ll go far.