Columns The Economy of Happiness

I think not.
If you buy the cheap factory sausages you get 30% meat (from Brazilian cattle eating away on previous rain forest land) 30% fat, 39% water and 1 percent salt and artificial flavorings.
If you buy the expensive sausages you get 85% meat (from national farms), 14% fat and 1% salt and natural flavorings, herbs, etc.

I think the supermarket analogy in real life terms is better applied to describe a differentiated product choice so that people who give a hoot about the taste of their sausages (and can afford it) buy the expensive ones, while those who just eat sausages for the sake of stuffing something in their gob that is reasy and roasted can buy the cheap ones.

And I'd like to let the author know that cheap packaging does absolutely not deter the wealthy consumer. You will very often find that many belonging to the high class of society will only pick the expensive one over the cheap one when they want to profile themselves in case of guests, etc.
Middle class (yes I know class speak is a dead herring but it's yet the easiest labels to use) members will more often seek the "expensive" looking packaging to achieve a sense of wealth but this is again only on select products where it represents an emotional value.
Those constantly buying the cheapest and in bulk are primarily those on a tight budget where buying the expensive products represent a superfluous waste of money.

Since computer games (and all data for that matter) is immaterial you're literally faced with a fiscal controversy. Pricing something that anyone can duplicate without effort is undermined by the marketplace itself. So how do creators generate revenue?
Firstly one needs to figure in "Personal Relation". If your supposed customer cannot relate to the creator but only sees a mega-conglomerate then the value (utility) of the game might be high but there will be no relation and hence the otherwise customer will not relate to the fiscal (or real world) needs of the creator.
Now when talking relational psychology into business models things tend to get muddy very fast. Obviously But a way for digital distribution to work for both creator and user is to make sure that the sales point highlights the origin and honesty of the product while giving the user the ability to have his say in both price and communication with the creator.
Secondly: The buyers voice: In ye olde market place one would haggle (and you do it today with your carpenter etc.) and agree on a price that would equal a value to both parties. With set prices closed for argument you literally tell the possible buyer that if he doesn't agree on the price he should bugger off. This creates a situation of loyal and illoyal customers where the loyal ones (those who have great utility from the game) will buy the game no questions asked while the illoyal ones will turn around and go to your neighbor stall on the market and get a cheap but exact copy.

A very good example of taking advantage of the seller/buyer relationship while highlighting the need to support the creator is Magnatune.com. If you don't know what it is goo there immediately. It's a site where you buy music and you choose how much you wish to pay for the album. You are able to download the product without being handcuffed with DRM and other dis-trusting means. Margins are publicly shown so you also know how much the distributor and the creator makes from the sale. It is all very open and this is essentially what defines the concept. They know that if you wish to screw them over and copy their stuff then you are going to. So why bug the customers and scare away potential customers if you can go at it with a try to establish mutual trust and gains.
What makes the concept so strong is that a copy-site having ripped them off will not be able to offer same high service and they will easily be able to take them down through legal actions.
Now someone might go to thepiratebay to get a single or several albums and there's nothing they can do but even if they ran strict drm schemes and sued every one of their users there would still be copies of their music around to download for those who won't pay.

Lastly (on this suddenly lengthy post) there will always be those who are asshats and won't repay a favor. Be that a reach-around or helping your friend move house like he helped you. That's life. Distrusting the good apples because of a rotten few is the wrong way to it when trust is the foundation of ones business.
Anyways I know the author doesn't use DRM and my hat's off to that. Now comes the challenge of communicating the mutual gain of a buyer/seller relationship. While you sell your products tell the potential buyer about what he is supporting, let him know how bad or good you're doing, let him have a voice in pricing, let there be communication, be friendly

 

MrMonroe approach of start-high-priced, then keep reducing to get all the price demographics is a good idea, absent one detail: "newness" factors into utility significantly. It *shouldn't*, but for some reason the same game is perceived as worth less when it's older. This is likely a combination of 1) price competition with the second hand market, 2) the hype/buzz of a new, innovative, or really shiny game, and 3) consumer knowledge that prices drop over time.

Specifically, I suspect there are people that will be missed because when the game finally drops to a price they're willing to pay, it's become old and uninteresting.

Digital distribution messes up the whole formula. There is no second hand market to compete with, as a digital purchase is non-transferable.

When it comes to granularity of pay-for-what-you-use, there may be a good analogy in toll roads. People dislike paying to drive on a certain road, but the alternative is higher tax for everybody, whether or not they drive on the road.

I think the only way to split up a game without pissing people off is by the actual game content - episodes, single vs multi, etc. Paying individually for graphic settings or other features (voice, etc) is icky.

 

How about something not Joe at all?

 

Average Avery?

 

Good article, interesting notion.

MrMonroe: Your second and fourth paragraphs (the largest ones) are petty, and make no valid points. You call the column nonsense and unreasonable, but then proceed to say pretty much the same things as the column (albeit in a different manner with a great many more words).

You're right in that some pirates would never pay, however those who pirate because they cannot afford games might if the price were lowered, as would those who pirate because they believe the price is too high (a common opinion in Australia - games cost about twice as much on average as in the US).

I think the article is suggesting more immediate price differentiation then the traditional approach you have detailed. Someone who has pirated a game because of the above reasons is unlikely to buy the game later from the bargain bin when the price would then (normally) better reflect its utility to them - because they've already finished it.

 

Ordinary Olivia.

 

Regular Richard?
Typical Tim?
Humdrum Harry?

 

One solution would be to adapt the payment scheme used by MMORPGs like WoW. Distribute games for free then charge a subscription. That way, "utility" is taken into account and people pay for how much of a game they actually use. It could also help stem piracy as people can only play when logged into a gamer account (like XBox Live).

 

If different versions were offered then the price of the full game would go up to compensate for the low price of the lower end versions. This is a terrible idea. I usually was a few moths to pick up a game anyways. The price generally drops 30-40% and any major bugs are worked out by then. I rarely pay $50 for a game anymore.

I think what Valve does with Steam is awesome. EA needs to ditch EA Link and jump on the Steam bandwagon. Some of the deals they do on the weekends are really good.

 

Except Valve don't want to be the industry leader with Steam and EA and many other publishers are unhappy with the percentages that Valve ask for on the Steam platform.

 

Im inclined to agree with Lockinvar's analysis of MrMunroe's reply - your argument doesn't differ substantially from that of the author of the original article - an article which I thought was excellent (im a student studying economics at the moment, and its very refreshing to see analysis which is applied everywhere else in the economy applied here).

In particular, this paragraph of MrMunroe's was particularly flawed in its analysis:

This is not a useful comparison. Vegans or vegetarians (among whom I count myself) will never eat meat, whether it costs a large amount of money or is completely free. If however I count myself a meat eater, but get my meat by breaking into the butchers and stealing my bacon because I love it SO much but cant or wont pay for it that is an entirely different matter. If it were offered for free, or was sold for a price I could afford, then I wouldn't steal it; if there was sufficient security around the butchers then I wouldn't either. A very similiar choice faces games producers when they price their product to the market.

A better analogy is that of train travel and railcards. The train companies effectively differentiate exactly the same product (a train ticket between say London and Edinburgh) through the use of railcards (student, OAP, armed forces, family, etc). They sell the same product to different customers at different prices, according to what they are prepared to pay - and crucially, people dont complain about it - it is accepted that certain groups of consumers should be entitled to pay less (even if the rail companies make more money of this arrangement). This is called price differentiation, and it happens everywhere, all the time.

Cliff Harris's suggestion is a good one. If it were possible to release a game that was graphically impaired in some way - or if several different versions of the same game were released (say Crysis released but with a much older engine that looked less pretty but ran well on older machines) then it may well be more profitable in the long run - a wider range of audiences could be targeted. With an easy upgrade option - say a unique downloadable patch which changed its underlying engine to its current one (i have no idea of the technical feasibility of this, btw) consumers would benefit even more. Different aspects of the game could be applied in a similiar fashion - I have little use for the multiplayer feature on Deus Ex for example, and would never use it, but the single player aspect is worth far more to me.

None of this eliminates the problem of the free rider, or pirate, who drives up the cost of the game for the rest of us, but it does help reduce his or her effect, as the numbers of people willing to pay for a game increases with the number of different price options available.

Jixie

 

Grumpy Mr Martin

 

But it is a digital distribution method. There is no real cost. Sure they make a little less per game, but they still have stores and EA Link (not that anyone ever really uses it). It really is a win win situation. Plus the packages offered mean lower overall prices on games. Which means lots more sales.

I love Steam. I am much more likely to buy a game on Steam than in a store. I hate having to put a disc in to play a game. I hate having to find all my games and cd-keys when ever I do a fresh install of Windows. Steam solves all of this and adds more features on top.

 

Very true, but there's no reason that we need to use Steam as the download/auth service to get the same effect. Online games at least could have a username and password that's tied to what you used when you purchased the game (and that's easy to make transparent to the user after the first use); offline counterparts might require a one-off authentication to the server the first time. Would it get cracked? Sure, but that's true of every game on the marketplace, so I don't see what the difference there is.

 

If there were a way to make sure that the 'difference' paid in technical aspects would be the difference between what you paid initially *and whatever the retail price of the game is when you decide to upgrade,* then maybe some people would go for it. But if I pay $20 for the low-res version when the game is $50, the game falls to $25, and I have to pay $30 instead of $5 when I upgrade... I'm not saying that would necessarily happen - it seems like a surefire way to generate bad PR for yourself - but do keep in mind it's just based on the honor system...

Divvying up singleplayer and multiplayer is an excellent idea. In some games I might focus on the singleplayer campaign before I want to get my hands dirty with people who are much better than me (cover from fire and myself have a rocky relationship). In others I might want to test out how the game works in an empty multiplayer map before I touch the standard campaign. Other times still I might be headed to a LAN where there's an unfamiliar game being played, and I would be happy to pay $15 or $20 for the multiplayer portion on its own. The list goes on.

Paying for decorative content (content that does NOT affect gameplay) is another fine idea. And frankly it's one that I expected Blizzard to hit on a long time ago.


As far as gameplay-affecting content goes... If I buy a magazine (still a content-creation business model, mind you) and I'm running low on time to actually browse the articles, I still wouldn't go for paying for a cut-down version with just pictures and graphics and then go back to the same newsstand later to buy a separate packet that had all the text in it, or the other way around. In much the same way, paying extra for in-game content itself (like horse armor) seems relatively greedy to me. I paid for the content - for the creations of the game designers that they intended to fully flesh out their world. Especially in a sandbox game like Oblivion, having extra items you have to pay for seems to many of us like they've cheated us out of some of their vision.

It might be doable - or at least it might ease the pain a little - if there were a way to obtain the content in-game as well. It doesn't have to be easy, mind you. Put in some crazy hard quest to let people get their horse armor, or they can pay a quid or two for it. That way the people who are crazy about the game get an extra quest (and the feeling of having earned their horse armor legitimately), and the people who just want the damn horse armor just get their damn horse armor.

Granted what that would most likely spawn is complaints from the people who actually went and did the quest (their choice, mind you). That could be alleviated with, say, a more decorative pattern on the 'legitimate' armor? More detailed inlays, something like that? Slightly different color scheme? Different name? Something that gives the 'legitimate' set that little egotistical edge over the buyers, at any rate. That would have to vary from item to item, game to game.


- Diosjenin -

 

I'm sorry you think I was being "petty." For the record, I called the examples he used "nonsense" and "not reasonable." The column itself (by which I mean his intent and his thesis) is merely fallacious and, IMO, self-defeating.

The premise of this column was that since people are willing to pay different amounts for the same product, why not charge them accordingly? The reason is that it makes no sense to have different prices for different people like this. Products are not sold like that when your marketplace has a lot of transparency in the transactions. If you're actually on the car lot bargaining for a used car, then someone who has more utility for a particular model is likely to pay more. If you have an auction, people with more utility pay more. If you sell sausage to supermarkets, or games to players or to Gamestop, etc., you get the same price at one time, because the guy who's next in line for the exact same product says "hey, why did that guy only have to pay $5?" You can't very well tell him, "well, he's going to have less fun with it than you and he's a cheapskate to boot."

I honestly don't believe this is true. If you are willing to copy it without paying, that's why you do it. The difference between $50 and $0 is effectually the same as the difference between $100 and $0.

This is fine. But recognize that you're selling distinctly different products in this case. You can't package a game differently and expect people to pay more for it if they are more excited about it. You can include extra stuff as pithy as a book of concept art and call it the "collector's edition," but that's still a different product.

What I'm really worried about here is that Cliff is actually listening to the pirates when they complain about prices. Let me be clear: they are rationalizing behavior they know to be wrong. Lowering the price of your product will not entice them in significant numbers, because you can never make it $0. You might make them feel guilty, and a very few might feel so guilty that they buy a copy, but you will never recoup your losses this way, because you will have lost revenue from those people who would have paid more.

Now, if the author is actually talking about a scheme like the one he proposes for CoD4, then you run into a different problem. People who pirate complain that the game isn't worth $50. If you could make a cheaper copy that removed a proportionally appropriate number of features, what are they going to say when the product is of proportionally equal quality respective to price than the original? Won't the cheaper, less "good" game have the same limitations in their mind? Can you reach people with older kit this way? Yes. Can you reach a few people who don't want to play for single or multiplayer content? Yes. Can you reach pirates trying to justify their unlicensed use of your game this way? I doubt it. It's a reasonable pricing scheme to attract some very particular market niches. Is there really a way to get people who don't think a game is worth it to buy by paying less? Honestly, no, not reasonably, because if someone else is getting an equivalent product for less, I'm not going to be willing to pay full price.

 

This is self-contradictory. You indicate correctly that they charge based on a universal acceptance that some people should have to pay less, but also based on what they are actually prepared to pay, which is not true. Some students are rich, some are not. Some need to get to a family funeral, some are on holiday. They all pay the same price. It has nothing to do with utility. Essentially, unless you are bargaining for the price of the product, utility does not enter into the equation except when the producer estimates what the optimum price will be.

This is my point. Sure, you can sell different products for different amounts of cash, but you can't differentiate by simple utility of the same product as Cliff suggests at the beginning of the article. Further, you won't make inroads on people pirating the game because they think it costs too much considering how good it is by reducing the quality of the game relative to price, which is what Cliff's final suggestion is. You can open up markets of people who wouldn't otherwise play the game, but not markets of people who are playing without paying. I think the guy is pandering to a group of people who are, in the end calculation, lost customers from the start. The reduction in price that it would take to get most pirates on board to buy the game would effectively bankrupt you because of the lost revenue from legitimate customers willing to pay what the game is actually worth.

 

I've taken to renting games now. It's on my lovefilm thing, they have their own list and even if I keep one for a month it's still only cost me £3.50. Doesn't work for PC games, but that's PC games problem as far as I'm concerned. I'll get a big title like GTA4, to get it sooner, but those will probably become few and far between as time goes on.
If Steam offered a rental service then I would go with that. But I don't even want to think about the problems with having 10 different download services installed on my PC, so I'm not going to entertain the idea of doing that when every single publisher has it's own software. I just won't get whatever they are peddling.
PC games have too much messing about with them, driver updates, drm, licence keys, installs, 'no dvd' hacking, directx updates, game updates, updating software updates, visual settings fiddling, not being to loan to your friends, not being able to sell it on, port forwarding, trying to fix frame rate issues, game saves and folders scattered across the hard drive, register reminders, email spam as a result of registering, logging in, trying to remember a login password, your profile being deleted because you haven't played this month... so I just don't care any more. It's not worth it.

 

I think the biggest issue here isn't the matter of price differentiation... that alone is a complex issue with essentially psychological constraints. The biggest point being missed here, is that we are discussing an 'entertainment' product.

These 'products' are inherently different from a utility product (e.g. Food), or a luxury product (e.g. iPhone). Classes of products instill different behaviors on their purchasers. The means, and reasons purchasers decide on what to pay when, differs wildly between them.

Standard pricing schemes for these products are based upon the tenets of 'class of product', 'nature of customer', and 'market conditions'. However, 'entertainment' products are generally of an entirely different beast. This is because they mess with the tenets 'nature of customer', and 'market conditions'. Generally, these factors are fixed in product design and marketing.

However, computer entertainment software, such as games, are infinitely flexible in these regards. Play experience can be changed to 'fit' a particular audience (e.g. Bible thumping Southern Baptists can be mitigated by toning down violent and bloody graphics, Horror movie enthusiasts can be appeased by offering more). This infinite modification can twist the producers of the product into an 'infinite' appeasement sprial (i.e. How to please everyone...).

This messes with the idea of 'nature of customer' simply because the customer can be 'multiple' target audiences. Huge swaths of customer base, which will have wildly differing opinions and reasons as to why or when, they will purchase something. These may vary wildly, and be completely incompatible given your means of distribution.

The key here, is to 'pick' a target audience. Determine which audience is your target market. Who do you want to purchase your game, and why. Without this, you have little basis as to determine the psychological semantics for purchasing rights, and thus, any conclusion you make in regards to your assumptions will be off, often times, at your own financial peril (e.g. selling air-conditioners to Eskimos).

Once you've decided on which 'target(s)' you want to hit, you can then start to amass a 'purchasing psychology' of said audience. You can then, through generally complex means, pick a price based upon that audience.

If you're attempting to sell your game to 'everyone+dog', you're going to have a problem, simply because pricing for such a large sample will have huge variations as to price targets. In the end, you would pick a price which will relate to a bell-curve distribution, which given said distribution, will equate to 50% paying to much, and 50% paying too little. There is no real way around this. It's simple fact.

You *can* go the route of infinite customization, to target the product to differing markets, but at that point, you're essentially creating N products, for N target audiences. Resolving to the 1-to-1 correlation stated previously. Even though this may be simple to do, doesn't make it necessarily the smart, or most profitable alternative. Simply because you have a 'fixed' cost poured into the finished product. You can make the game only once, and those development costs are fixed by the time of release/production. As a result, you need to recoup those development costs from 'all' of the purchasers to the point at which you break even.

The problem then becomes:

A. Even though only a small percentage of your audience may utilize the 'luxury' components of your product customization, you have gone through the development process of producing such content, and thus have driven up your product costs. At that point, either you have to charge everyone a 'higher' price to offset losses from the minimal percentage of luxury purchases, or drive up the luxury purchase prices to a point where they are self-sufficient, which may be an impossibility given the fickleness of the consumer (e.g. $10 for armor for a Horse).

B. Produce only one product, at the peril of missing out on islands of customers which may have been willing to pad your bottom line more.

These are the 'choices' you must make. Risk vs. Reward. There is no perfect solution for this.

The other way 'entertainment' class products screw up standard pricing mechanics is in their 'market conditions'. Games have varying market conditions based upon the audience they are targeted to. For instance, games targeted to middle class consumers, will have problems during lean/recession era times as they are considered an 'entertainment' product, and are often eschewed in lieu of the need for purchasing utility goods. Note: although there is an often stated mantra regarding movie going goes up during recession periods, these are niche opportunities. Although ONE particular entertainment category goes up, others are drastically reduced, and as an average across the industry, buyer percentage goes down overall (they may see more movies, but buy less CD's/tapes/games).

Market conditions for your product are twisted by your target audience, while most other product classes are fixed based upon the 'perceived value' and/or necessity to the consumer. These pricing conditions are intertwined in the case of entertainment products, and so can't be carefully separated.

There are however, some 'interesting' experiments being done in the entertainment categories that may offer some additional insight into your consumer, and add to the overall behavior mechanics of customers as a whole.

1. Customer balanced pricing - This is being done for some music vendors. The 'pay as much as you want/afford'. Where this works effectively, is by doing two things: (1) Using a highly specific targeted product, you can discern the price that your target audience is willing to pay by sheer interaction. (2) Given 'classes' of related products, you can discern overall market mechanics within a short time-frame directly, as opposed to long term historical market studies. This likely won't work well for anything other than small easy-to-produce games, or else require a significant cache of disposable cash, to produce valued content with the intention of gathering information, as opposed to producing a definitive profit.

2. Episodic purchasing - Rather than the 'all you can eat' method. The product is broken into segments, and sold individually over time. This is actually a variation on the 'sequel' methodology, however, rather than produce additional content after the fact, the additional content is pre-made or made on-the-fly. This allows the producer to potentially vary the product prices over time, based upon the initial uptake, and continued customer interest. This is working well for some venues, but can be difficult to pull off, given that you need the 'episodes' to be produced in a manner in which is spaced well enough for the customer/player so that you are always keeping them salivating for the next episode (too long and they forget, too short and they'll delay purchase until their done with the first).

3. Tiered pricing - This is generally used when the market can be controlled explicitly, allowing the producer to isolate which customers see the product, when, and how (e.g. Distribution rights for DVDs to different publishers across different country markets, given the 'region' control mandates).

4. Timed pricing - The product is sold at differing prices over the 'lifetime' of the product. Example, a game is sold initially at $40, then 3 months later, discounted to $30, then 3 months after that, discounted to $20, et all. This is a costly approach, simply because most traditional game distribution mechanics require initial purchase quantities, which are all at the higher cost. The retailer is left holding the bag for any fashioned profit, and as a result, may purchase less of the initial product if they think it won't sell well initially. However, if you couple this with direct selling, such as via Steam or other in-house mechanics (e.g. Greenhouse, Sony Play, etc.) you can extend your product target audience over a much longer period of time, allowing for islands of customers to drift into your product category, which you may have otherwise missed.

Will games be able to use these or other 'creative' means? Who knows? But they are all things to consider.

The real key, is what do you 'want' to achieve, and what do you have to achieve it with? If you have ONE product you can produce, given a limited initial development budget, then likely your best approach is to nail a particular target audience, and then gun for it full bore, tailoring the pricing and the product to match.

If you have multiple products you can produce off of a given source base, then it is best likely to shoot for as many targets as you can get away with, but still orientate the product around the most profitable categories you can easily work with.

The discussion regarding 'pirates' is useful information, but generally immaterial to the real question at hand. This is because even though these individuals 'may' be a consumer, the fact is, they have already classified themselves as a 'non-consumer'. They already have the product, or have shown that they are willing to steal the product.

This is different heavily, from those that purchase the product, and then use the 'crack' or 'pirate' copy to play. These are actual consumers, who are generally disgusted with the DRM or other controls woven into the anti-piracy of a product, and chose to do so. Either way they are still a consumer, where the Pirate never is/was or likely will be.

Can you price a product that switches a 'pirate' into a 'consumer'? No. Simply because of a simple classification. Pirates are so, only because they have already stolen the product. Why bother purchasing it then? Some may do so out of sheer respect, but they are such as infinitely small percentage that it is non-profitable to target them. As a result, no means will prevent a pirate from really stealing the game, no matter the 'perceived' cost. Given anything that's free, individuals will horde it regardless of the 'utility' or perceived value. So to gun for pirates as your possible consumers, is like trying to gun for an auto thief as a car manufacturer.

The only information you can glean from pirates, is generally the level at which a 'consumer' would be willing to put up with whatever DRM/Anti-Piracy mechanism at that given moment. If the pirates are touting the 'ease of use' or 'usability' of their pirated copy as a reason for having it, then you can be fairly assured that your DRM model is probably too restrictive. Loosening it wouldn't prevent the piracy, but it *would* reduce customer frustration, and thus make a happier customer, which generally equals additional product sales (NEVER discount the power of popular opinion/word of mouth - See Windows Vista debacle).

The key to take away here, is to recognize that:

1. You have limited resources as a producer. How do you best utilize those resources to create an entertainment product with the highest perceived value to your target customer

2. Realize that you can't please everyone everytime. Pick a target, and gun for it (e.g. Nintendo Wii)

From there, you'll be able to determine how best to price your product. Without those basic tenents, any variation you attempt to utilize may end up being merely novel, and not profitable.

 

Generic Gene