Pricing strategy in video game industry Essay

Video Gaming industry has gone dramatic changes when more and more digital platforms emerge and improved technology in portable devices, mainly in social games(Facebook, Myspace) and mobile games. 27% of US online population play at least one game on social network, and Facebook gaming revenue hit $1. 32 billion in U. S market in 20111. Also, as more than more people have smart phone especially apple’s iOS devices, gaming application becomes more and more popular in mobile market(72% game applications on iTune)2. There are traditional console game players such as EA, Activision, Nintendo and Ubisoft in this industry, also there are leading company in the social game area such as Zynga in the market. Traditionally, console games are sold in retail stores with $39. 99 to $59. 99 retail price for the whole disc content. Hard-core games such as Call of Duty(Activision), Assassin’s Creed(Ubisoft) and etc. usually price at $59. 99 while casual titles such as Nintendo wii games price around 30$. Usually the pricing approach for these console game companies is the industry standard – means every player in this market follows the same rule as the same price. It can be considered as based on cost structure because of the long time of development (18 to 36 months), money-consuming game development cost and all kinds of add-on cost (packaging, marketing and third-party licensing etc. )3 They also only have two months’ shelf time as the game lunch. Because of the high entry barrier in the console game industry and high brand perception among customers, several main competitors dominate the market. The console game price does not differentiate too much among these players. However, as facebook’s extreme success leads to people’s behavior change to be more â€Å"social† associated, a plenty of small companies start to enter into social gaming market and undergo blast growth speed such as Zynga. Zynga’s pricing strategy is â€Å"Free-to-Play† and charging in-game micro-transaction items such as virtual gift or buildings. The free-to-play concept is not new in this industry because plenty of Korean online game companies such as Nexon, NcSoft already using this business model while traditional online games use subscription model ($15. 99 per month) such as World of WarCraft(Blizzard) and EVE Online(CCP Games). As the internet bandwidth improvement and more internet users in US(250 million)4, online games and social games represent strong growth trend comparing to traditional console games. And as users have more options in â€Å"free† games rather than premium games, more and more companies enter into this industry by offering products for free with micro-transaction options. Zynga’s most popular title â€Å"CityVille† has over 70 million monthly active users while best selling single console game Call of Duty(Activision) has 14 million copies sold in US market. Facing the competition of Facebook games with free to play concept and high growth potential of online game market, some of the traditional package-good game companies start to offer cross-platform Facebook game titles to increase their competency in the market such as EA, Sony and Ubisoft. Their main strategy is to develop Facebook companion games(Free to Play) to featured console game title. Those companions games not only offer free-to-play game content but also allow users to unlock items in the main console game such as Dragon Age Legend(EA). They intend to leverage their brand awareness in the gaming industry, acquire more users to play main games and increase monetization channel to increase revenue. EA responded very quickly in this digital trend by doing aggressive acquisitions for popular facebook or mobile game studios. However, a lot of other traditional console game companies react very slow (Ubisoft, Sony) or refuse to change (Nintendo). Most of console game companies conduct a conservative strategy and will develop several social games(much shorter develop time) to make trial because overall the console retail sales revenue is much higher than that in social and mobile market. Others are not capable of following this fast-paced digital step and suffered loss (THQ laid off 200 employees in 2011 because of decreasing sales in retail products). Most customers that play hard-core video console games generally are not satisfied with the â€Å"free-to-play† social companion games because of lower quality of overall game content and totally different game play with main games. A low quality companion product of Facebook platform will damage the company’s reputation in this industry for new users. However, since the users profile between hardcore players (average 29 years old male) and social players (average 35 years old female) are so different with very few overlap, it makes these console game companies indifferent to the failure of Facebook product. Online game market, on the other hand, the free to play options have a big impact to customers’ options. For example, World of Warcraft ( Most popular Massive Multiplayer Role Playing game, 12million users with $15. 99 monthly subscription fee) lost 600,000 users since 2008 while RuneScape(Jagex) (free-to-play game with subscription options at $5) has 150 million registered users and over 10 million active users. Blizzard responded to the competition since 2011 on â€Å"free to Play† options until level 20 in the game. Another game Lord of the Rings switched from subscription model to free to play model and saw double revenue and 400% user growth immediately. I would suggest the pricing decision maker in video game industry to look at customer, company capability, product feature, customer and competitors’ issues. Company – Analyze company’s positioning in terms of digital trend in the industry and focus on the products with higher profit margins – Analyze company’s cost structure and allocate reasonable resources on other platform product development based on financial forecast Product. – Since console game products have fixed price in the retail stores, figure out other possible channels for monetization such as digital add-on contents, special side-product package etc. – Decide possible virtual buying items based on the game mechanics and gamers motivation (self-expression, social status and social network) Distributor – Corporate and form good relationship with retail distributors for more resources on shelf presence and brand promotion Customer. – Deliver social companion games with high-quality contents to enhance main game – Deliver social games that directly target Facebook users – Promote company brand and establish community to highly engage with users Competitor – Learn from competitors on the digital content development – Expand to other country that competitors did not focus. Resources: 1. www. bizreport. com/2011/07/2011-social-gaming-revenues-to-exceed-1billion. html 2. http://mashable. com/2011/07/13/mobile-gaming-trends/ http://www. businessinsider. com/getting-into-the-mobile-gaming-game-2011-7.