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Xiha Life lowers prices and revenue goes up
Xiha Life (www.xihalife.com) is a multi-lingual social network enjoying 1M+ monthly unique visitors and expanding rapidly.
XIha has been making revenue by selling casual games from their website (amongst other models). Recently they slashed their game pricing;
http://en.xihalife.com/b/webmaster/blog/new-game-pricing/
..to half or less than half of what it used to be (from 20 EUR to 7-10 EUR)
www.arcticstartup.com wrote about it here:
http://www.arcticstartup.com/2009/02/06/xiha-life-drops-prices-to-attrac...
..saying that "If you look at pricing on a larger scale - it doesn’t make much sense to try and sell casual games at 20-30 dollars"
And Xiha's case would seem to prove this; since making the change the average revenue Xiha gets from this source has gone above the average. Which can only mean that lower prices actually broaden the "market" and more consumers than ever before are buying the products.
It is just about as classical pricing strategy dilemma as anything could be; figuring out your optimal volume versus your optimal price tag is rarely a cakewalk. Questions like; would you business need 10K transactions at 10 EUR each? or 100K transactions at 1.2 EUR each? are really hard to work out in practice.
Consumer Internet services and online communities however offer an ideal experimental ground in this regard; they either love what you are doing, or hate it. Sometimes the response is lukewarm and you can't tell. What ever the case there is usually an immediate reaction to everything you do; the results being instantly visible in your business and key metrics.
Ilja Laurs (http://www.mobileattitudes.org/) the CEO GetJar in our Slush panel (http://tane.li/2008/panel-slush) really stressed the importance of having good metrics and KPI's in place from the beginning when you are building your online business. Very much agree with that; figuring out your KPIs early and building a culture of daily check on them is important and can help you make smarter decisions in situations where the visibility otherwise is near zero (which it almost always is with Startups).
Way to go Xiha Life!
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Hi. My name is Taneli Tikka. This is where I preach what I practice. I'm a
serial entrepreneur and a startup activist of sorts. People usually know me
from my past and present consumer Internet service projects: IRC-Galleria,
Dopplr, Muxlim, StarDoll, RunToShop, Vakuutuskone.com, and a bunch of other stuff. My
"proper" bio is behind this link. Glad to see you here, thanks for browsing
around.
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Economics
Mon, 2009-02-09 20:10 — Antti Vilpponen (not verified)If you think about it, it's a case of simple price elasticity. My guess is that the optimal price for an online game is around a few euros (3-6€).
This is purely based on my experience from the industry as the former sales director of Apaja.
The advantage with online games is that you can measure absolutely everything. This means that you can price your products optimaly after finding the correct price. With a large enough market you can do this relatively quickly as well.
Optimal price
Tue, 2009-02-10 13:25 — Jani Penttinen (not verified)Antti, you may be right that the optimal price could be even lower. Halving the price again would bring up other issues though, as the overhead of customer support and payment processing starts to take a major chunk of the potential earnings. A lower price point might be possible for a first party publisher.
I think for Western Europe and the USA, 7-10 euros works fine and lowering the price point (probably) would not have the same impact as going from 20 to 10 seems to have. The biggest issue for us now is getting visitors to make the first purchase. Once they buy once, they usually keep buying more quite regularly. For the most part, the challenge is not that the price is too high, it's that the visitor is either afraid or not comfortable paying something (or anything) online.
Going for the rest of the world... sure. A lower price point would surely be welcome. As an extreme example, in China the official price point of "real" boxed games from EA is around 6-7 euros. Microsoft is selling Windows to University students pretty much for the price of a blank DVD, just to get the used to buying rather than pirating. So yeah, asking the same for an online downloadable game is not easy... but having different price points in different countries is not easy either, not in the global world we live in.
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