
Quantity discounts on a virtual good: results of a massive pricing experiment - panic
http://www.pnas.org/content/113/27/7323.full
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numlocked
Holy moly this is interesting. I have a bunch of reactions:

1\. I always get wrapped around the axle on pricing discussions - will x
offset y? How will different groups react? I'm not crazy! It is hard and the
effects do sometimes totally offset. Radically changing your pricing may in
fact have absolutely no effect whatsoever. Whoa!

2\. I wish more companies would publish results like this and we didn't have
to rely on the occasional (though terrific!) academic study. I'm sure Amazon
runs experiments like this all the time.

3\. I feel genuinely bad about the mobile game industry and how these "high
value customers". Maybe I'm making a bad assumption but it seems unlikely
these folks are the idle rich spending their spare thousands on gold bars.

4\. There might be metrics in your business that are much harder to move than
you would think. Local maximums that might be very hard to change.

Terrific, terrific study. Kudos to King for this, at least.

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derefr
> Maybe I'm making a bad assumption but it seems unlikely these folks are the
> idle rich spending their spare thousands on gold bars.

Having worked at a mobile games company: they actually are! We were heavily
propped up by, among other things, Saudi oil tycoons trying to out-spend their
(equally-rich) friends in cash-shop items, for the sake of being on the team
with the highest power-level. We were effectively a virtual arms dealer
selling to both sides of each little status-war between these folks. We
considered them so important to our business-model that we took their likes
and dislikes heavily into account in deciding which new games to make.

~~~
teamonkey
I work in AAA and I've heard (anecdotally) that there are people who 'buy the
game'. That is, they buy every boxed edition on sale, every purchasable in-
game item, every game guide, the t-shirt, every other piece of tie-in
merchandise. They just buy the lot in one go, to the cost of $thousands.

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orasis
It looks like they only varied the quantity on a single price tier with no
adjustment to the prices themselves.

I'd be curious what sort of results they'd get by changing the price
tiers/anchors in conjunction with this kind of experiment.

For anyone that wants to do the latter kind of pricing experiment, I'm working
on an API and looking for feedback: [https://blog.improve.ai/make-more-money-
price-optimization-f...](https://blog.improve.ai/make-more-money-price-
optimization-for-in-app-purchases-8b544ec9c7c0#.r42nagpmm)

~~~
orasis
Also, I was just at Pocket Gamer Connects and there was a presentation on
using massive anchors (like 400 euro for the top tier) driving 3x revenue vs
more normal anchors.

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323454
Are you saying they observed something like if you sell 1 hot dog for 10
shmeckles and 10 hot dogs for 200 shmeckles, people buy more single hot dogs?

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orasis
No. The anchor tier was a slight discount on the primary currency with a huge
amount of some unique special currency. The 100 euro tier also had the unique
currency and the existence of the 400 euro tier drove purchases to the 100.

This was a hardcore MMO.

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caractacus
I wonder how the price changes were marketed and whether people already used
to playing Candy Crush knew the cost of gold bars and so had (permanently)
made their purchasing decision pre-promotion. "I know that Gold bars cost X,
it's not worth it to me. This new pop-up promoting gold bars to me is
unimportant, I shall dismiss it as in-game spam."

Also, this is very interesting: "this experiment suggests that some consumers
who would have made small purchases were discouraged from doing so when faced
with large-quantity discounts." In other words, a consumer wanting to buy one
gold bar observes a fixed price of X but when she sees that ten gold bars only
costs X*5, she is discouraged from purchasing only one, feeling that they are
being ripped off or unduly profited from.

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Tenoke
A very interesting and well-conducted experiment, although I wish they didnt
have the limitations they had (no lowering beyond the current 9% rate of
discount; no price changes in the < 100 bars quantities; less so - no two-part
tariff group).

I'd very much like to see more like it.

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kooshball
Super interesting.

> Subjects were randomized into one of the four possible price schedules, with
> a 20% probability of assignment to the standard discount or the radical
> discount and a 30% probability of being assigned to the enhanced discount or
> the deep discount.

Does anyone know why they would split the experiment group into
20%/30%/30%/20% instead of 25% each?

~~~
Dwolb
It might have to do with response rates.

If you feel response rates to your experiment are going to be low for a
certain group, you make the group bigger so you can have a more robust sample
in which to characterize respondents of that group.

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taspeotis
At the bottom of the page there is a "Full Text (PDF)" link. The formatting of
the PDF makes for easier reading, in my opinion.

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i2rohan
Can't seem to find it. Can you link it in your response?

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ufo
Looks like the PDF link only shows up if you have Javascript turned on

[http://www.pnas.org/content/113/27/7323.full.pdf](http://www.pnas.org/content/113/27/7323.full.pdf)

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scotty79
Then (more) moral thing to do would be to provide high volume price discounts
to shift the burden of financing a game from few "whales" to some more "medium
value customers".

Besides, this would allow medium value consumers enjoy game more because
they'd be having more paid features then before.

Whales are buying all they ever need (that's the only way I can explain them
paying less after volume discount) so their main gain would be paying less
money for that.

And company doesn't loose anything.

~~~
orasis
I'm just curious, but isn't having just the whales pay more "moral"? More
people get a huge amount of value for free.

~~~
scotty79
Some whales just have a lot of money and they like spending it and there's
nothing immoral in allowing them to spend huge amount of their money.

Some even have more money than they should have and you can make the case that
by taking the money from them you are actually helping them. Like the young
men in Saudi Arabia, who, if they didn't spend huge amounts of money and time
on your game would buy a fast car instead and with some good likelihood die in
it (car accidents are leading cause of death of young people in Saudi Arabia,
unlike anywhere else in the world).

But there's this other group of whales that makes it immoral. There are people
who are susceptible to addiction. They will spend on the game way more money
they can afford just because addictive loop of the game binds them bit too
much.

This is as if the games were like kind of "alcohol", mildly pleasant to lot of
people, very cheap, but cheap only because industry was selling it at such a
low margin that they couldn't support themselves unless fraction of people got
addicted to it and used it in amounts that's unhealthy for them spending all
of their money in the process. If you add to this that the industry is giving
away free samples on the off chance that some new people might get addicted,
you can see how that can be immoral.

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erikb
Let's calm the horses a little.

A) It is one study. Very likely not statistically relevant on its own.

B) It is a certain subset of the pricing world that was tested. It may not
apply to yours.

C) They themselves say "we found remarkably little impact on revenue". They
looked for something and didn't see it. It's like you sitting in the forrest
trying to see a boar. Just because you didn't see one doesn't mean there is
none. For instance, one reason they didn't see the expected results may be
that their experiment is not the right one, or that the tested population has
an exceptional variable they didn't know about.

~~~
forgetsusername
I think the intereting point is that the relationship isn't straight forward,
and the "industry standards" aren't necessarily optimal.

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blahi
The value in pricing analytics comes from finding ways to discriminate and/or
influence purchase planning, not from blindly optimizing your demand curve.

