Want to eliminate price sensitivity, why don’t we make it free

imagesSmart phone apps are a phenomenal business in the current day and the top grossing apps are free. In 2014, the big players are gaming apps and the top ten are grossing anywhere from $73,000 to $984,000 per day. (news.com.au 2014)

Revenue streams come from Freemium upsells (having a second version of the app that you pay for) in-app purchases and advertising in which global mobile app revenues amounted to US$41 Billion in 2015. (statista.com, 2015)

The romantic notion of taking on this industry will come with high costs if you want to take on the big players. Forbes Magazine estimates that 71% of the revenue comes from around only 50 companies and 25% of the Estimated gross revenue of US$5 Million per day is attributed to development costs. (Rhodes, 2015)

Pricing Objectives

Most apps that we see are free to purchase although we are still required to confirm the purchase. The price range does not spread too far past $4.99. App developer Carter Thomas, has stated that their pricing strategy includes both free and paid apps. They develop a free app to leverage against free download numbers.

Paid apps can be considered meeting survival or profit orientated pricing objectives to cover costs and/or target return. Carter Thomas claim that a paid app priced at $0.99 returns a little less than free apps but returns 10% of the download numbers. The pricing objective to a free app would meet the sales orientated category where you are maximising market share by measure of downloads. That said, it would be a classic example of market skimming although it would apply to apps in general.

Demand

It would be fair to say that numbers sited above, indicate that inelastic demand is evident when it comes to smart phone apps. The fact that there is not a lot of consumer involvement in a free app, the price sensitivity can be quite important at the front end purchase when it comes to priced apps. Most priced apps are priced with a bias of “prices ending in 99” and an app can be purchased for a very cost effective rate

Costs, Competitor pricing and Pricing Strategy

App development costs are a major factor and the more intuitive the app the higher chance of viral status. The attempt to launch an app with very little up front costs would run at a risk of not meeting the quality of the next substitute. Jeffery Hughes would advise that enhancements like better graphics, tutorials, after sales service and or support, customer service and links to social media including rewards would be costs that you would need to consider to maximise your return.

To cover the number of variable costs in this exercise, it would need to be seriously considered how far you could take a priced app with the presence of competitor pricing pressure or how much of a risk you would take with a free app. Pricing pressure at least is not an expensive task to research as your main data source is the app store.

A specialised app for a select closed market app would lead to a high end Pricing Strategy as the value will be seen by the user at any price as is the requirement to stay in touch with ongoing developments. Middle ground and costs based strategy would dominate pricing choices from the budding app developer.

It always comes back to the decision to make it a priced (very low priced) or free app.

Matthew Copeland Student ID 214225603

References

Market Research Worldwide mobile app revenues 2015-2020

http://www.statista.com/statistics/269025/worldwide-mobile-app-revenue-forecast/

Article – How do Free apps make money Sept 2015

http://savvyapps.com/blog/how-do-free-apps-make-money

Article – This is how much money free apps actually make Feb 2014

http://www.news.com.au/technology/gadgets/this-is-how-much-money-free-apps-actually-make/story-fn6vihic-1226825724686

Article – 5 ways free apps make money Carter Thomas

http://www.bluecloudsolutions.com/blog/5-ways-free-apps-money/#

eBook – iPhone and iPad Apps Marketing: Secrets to Selling Your iPhone and iPad Apps

link to google books

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