Video games and variable pricing models

Despite some recent troubles, Nintendo President Satoru Iwata has predicted that Wii Sports Resort, Wii Fit Plus, and New Super Mario Bros. Wii could each sell 10 million copies this fiscal year. Considering estimates that more than 2 million copies of Wii Sports Resort have already sold, the company should be able to achieve those targets without too much difficulty.

What's less clear is if Nintendo can maintain margins to meet sales goals, or if it will resort to dropping prices to hit the big numbers.

Nintendo has consistently introduced good games and interesting accessories and kept both at price points that feel acceptable to pay even in the down economy.

But Nintendo's pricing strategy won't necessarily continue to work as consoles like the Xbox 360 move heavily into digital distribution, allowing for on-demand, variable pricing that can easily shift sales in real time.

The new Xbox 360 Games On Demand service is set to launch on Tuesday and will offer a library of downloadable older-title games. The big issue is not about consumer acceptance, but of disk space--as most players don't have the available hard drive room to accommodate a huge number of new games.

Assuming the hardware catches up to the offerings, one can see why this is a good idea. Microsoft can effectively sell dead (or dying) titles at the same price as retailers can at a theoretically higher margin.

This sliding scale of pricing is a tactic that's been employed very successfully on Apple's App Store, where developers can set prices and fluctuate according to days of the week or other criteria they define to sell more product or increase margins.

Meanwhile, enterprise software sales instead thrive on the ability to discount software in one-off and/or scheduled incidents, which creates an average/mean/median sale price that eventually looks similar to the variegated pricing attempts that we see in consumer products.

And in light of the fact that nearly all, if not all software can be delivered electronically I have to wonder why more enterprise companies aren't taking advantage of variable pricing strategies to reduce their cost of sales and have more control over the buying process.

I suppose one of the big reasons why not to do such a thing in an automated fashion is because big software companies like Oracle sell not just the software license, but also service and maintenance contracts when they engage with customers. And customers have been trained to buy more than they really need--especially in the form of maintenance contracts.

While Microsoft is following Apple's lead in consumer application pricing for the Xbox 360, I hope it realizes that there is an opportunity to address the way that it prices its other products like Windows and Office as well.

Follow me on Twitter @daveofdoom.

[gsmiller88]

What is it with Microsoft's obsession with variable pricing?

[EvanSei]

ah the good thing that will make you mad! The apple app store has this variable price deal and I can't tell you how many times I have got an app for $5 or so and the next day it goes down to $1.99 oh that makes me mad! but on the other hand I have waited that extra day and got the $5 app for $1.99 oh that feels great! so anyways if this is how they are going to do video games it will become a game in itself to hit the days right for the best price.... this is going to be fun!

[Bakkster]

And somehow not a single mention of Steam, who is already using a sliding price model for digital distribution to great effect. Somebody's late to the party.

[SteveW928]

These companies seem to be always searching for some kind of 'magic bullet' of marketing to peddle their wares. In reality, it is actually quite simple: make a good product that people need/want and sell it at a reasonable price. The magic of Apple's App Store isn't variable pricing, but lots of great little apps that people want/need offered at a reasonable price.

The problem in the video game industry is that many titles aren't worth the prices being asked, if even the trip to the store to pick them up. The sales were based off marketing hype to kids with way too much cash to spend. Now that that cash is drying up, kids need to actually think about what games will be fun to play, not just what is popular this week (quite literally... many of the titles were bought and dumped within a week or two). Developers who actually put time and effort into creating compelling titles are having little problems selling them, even at $50 or $60 a pop.

Microsoft's problem in the software industry is that they don't really have either good titles or good prices. If you are going to force me to buy a copy of Word, for example, to ensure compatibility alongside the word processor I really use, I certainly don't want to pay hundreds of dollars to do so. Wasting as little $ as possible in that situation makes the sales at least slightly more attractive. That is a much different market driver though than a product that is actually wanted. It is kind of like the difference between going to buy that new set of golf clubs vs. going to the dentist to pay for a root canal.

[daverosenberg]

You make an interesting point--that pay for play should be part of the model. Just let me pay for a little while and not force people to pay up front fee.

[KCFalcon59]

The problem Micro$oft will have with their games on demand is the exorbitant pricing on old games. They already have games for $30.00 and $20.00 that should cost around $10.00 and $5.00. I won't be buying a game for that high a cost when I can get the physical disk at half the price locally.

[Inconnux]

I buy all my PC games through steam now. Steam games are convenient, allow unlimited installs and the DRM is not intrusive like certain (securom) other DRM schemes that are put on 'store bought' games.