How do we determine the price of a product? As any bright eyed marketing major can tell you it is NOT “cost of production plus a reasonable markup” but rather “whatever the market will bear”. Whatever the customer will pay for it. The purpose of this article is not to delve into the very long rabbit whole of how to determine a price but to examine the broad scope of how fundamental marketing theories are/are not applied to the video game industry. I argue that we have only seen the tip of the iceberg when it comes to experimentation and optimization of the business model of video gaming.
There are two main categories that monetization programs derive from. The first is games as a product. I think we are all familiar with going out and purchasing a game at a retail store for $60. Each game is produced and marketed to sell as many retail units as possible. A successful game sells more units. The second monetization model is games as a service. While most of us are familiar with modern examples such as paying a monthly subscription, however, this model actually started at the beginning of gaming. Remember plugging quarters into the arcade machines? Now we have emerging models such as micro transactions and advertising that are entering the picture, either on their own or as part of a hybrid business model.
Great; we have some different business models that can be mixed and matched depending on my target audience and type of game you are producing. That still doesn’t determine what digits that ends up behind that all important dollar sign. How do we determine the price of a product again? Whatever the market will pay…
I assume that readers of this blog are interested in the business of videogames and keep current on the trends and developments of the industry but I do think it is relevant to talk a little bit about two games in particular; Elder Scrolls Online and Star Citizen.
Elder Scrolls Online – I won’t make my opinion of this game secret but it still teaches us something important. This game is low quality and lacks content. It is riddled with game breaking bugs and doesn’t deliver on its promises of delivering a genre defining series to an open multiplayer world. I think it is a glorious failure of a game. It does, however, have players that have paid a great deal of money to play. $80 special edition coupled with a $15 a month fee brings the total above $100 for many players. It was a game priced to make its money up front (because of lack of confidence that people would stay subscribed) and people were happy to buy it.
Star Citizen. This game has turned some heads and shaken things up quite a bit, especially for a game that hasn’t even launched. It has broken records as the number one highest funded project ever on kickstarter where it crowdfunded over $6,000,000 of its original $200,000. We are actually here to talk about this – a spaceship. Details about the game don’t really matter right now. What we are here to think about is the fact that this start-up of a studio had an idea for a game where it sells digital property for prices that are unheard of in the industry and people bought it. A lot of people bought it. This is a sign for change in the industry.
We live in a society where there are ‘rich-people things’ for almost any product or service you can imagine. Where someone might eat Kraft Dinner someone else is eating a fillet minion. I might drive a Honda Civic, where you might drive a Lamborghini. What happens when a rich person wants to play a rich video game on their yacht? We simply don’t have a real good comparison to draw here and I think that’s where some opportunity might lie (pcmasterrace aside).
I don’t have the magical crystal ball to answer all the questions that we have. I simply hope to get the readers of this blog thinking about something we might have taken for granted. So the next time you head to your retail store to pick up ‘Call of Duty: Again 3’ ask yourself why $60? If games (even on the same platform) are a differentiated product then shouldn’t they have vastly different costs? Does the market consider DLC as an optional extra, or another $X dollars to spend before getting the game? How do we determine the price of a product again?