Andy Bovingdon VP of Product Marketing at Bango, discusses pricing strategies for app developers considering carrier billing as a payment mechanism, and shares some invaluable learnings based on data and trends from their popular payment platform, to help maximise your app sales.
Carrier billing – charging a digital purchase to the phone bill – makes consumers five times more likely to complete an app store purchase than if they used a credit card. This drives a huge revenue boost to developers.
Bango processes millions of carrier billed payments for Google Play, Samsung GALAXY Apps, Microsoft Windows Phone Store, Firefox Marketplace and BlackBerry World. So what can we learn from the current spending trends and app purchasing behaviours? What should a developer consider when setting prices for their apps or in-app content?
Customer ability to spend
As with credit cards, spending changes depending on a consumer’s financial situation, but unlike with credit cards, it’s much easier for them to purchase using carrier billing, so they are more likely to impulse buy, with price playing a part in that decision.
The mobile account
The type of mobile account the customer has will impact how they pay.
1) Post pay – Contract customers always have money available on their operator account, so the customer can simply click to pay. That is unless they are using a corporate mobile account where charges may be blocked, so if you are selling business apps this is worth knowing.
2) Pre-pay – A consumer’s balance acts as an automatic spend limit. The amount on their balance varies by country, although balances are often low, so the higher the price, the more likely the purchase will fail due to insufficient funds. In countries with majority pre-pay accounts Bango typically sees around 17% of payments fail due to pre-pay limits being hit. However, we also see well over half of those failed payments successfully retried during the subsequent 24 hours.
80% of revenue comes from the top 20% of subscribers’
This is absolutely vital understanding:
Bango shows that the very top 0.1% of app store customers normally spend up to $500 USD in a single month.
The next 20% of customers provide the bulk of the revenue, accounting for around 80% of spend. Most of these people happily spend between $20 USD and $100 USD per month on products in the app store or from in-app content. These are the best, most loyal customers.
The remaining 80% of customers are casual or infrequent spenders, paying between $0.01 USD and $20 USD per month, typically accounting for around 20% of spend. Many make only one purchase without returning.
[youtube=https://www.youtube.com/watch?v=x4T9pgSUjwc&w=400&align=right&rel=0]Andy Speaks to MEFTV at MWC 2015
Don’t price too low
In understanding customers spend patterns it is important to understand how much things cost today and what people are prepared to spend. Over the last few years we have seen three pricing trends.
The first is towards higher prices, with many more apps commanding a $2.99 – $5.99 price. Consumers recognize that good apps cost more. Average transaction values vary between $4 and $4.50.
The second is where traditionally high cost items that sell for hundreds of dollars, such as Microsoft Office or Adobe Photoshop, have been re-structured and are now available for low monthly subscriptions (typically between $5 and $10 per month), which are well within carrier billing limits.
The third trend is the well-known “freemium” model. Traditionally in-app content has been priced low but Bango now sees the majority of the top selling apps bundling multiple in-app purchases as “value packs” or selling blocks of in-app currency. This has had the effect of significantly increasing price points.
Clash of Clans by Supercell is a good example and one of the highest earning apps in the market today. The app is free, with in-app purchases to help players build villages and arm their clans more quickly. Players purchase “Gems”, in one of five different volumes:
- A Pile of Gems, at $4.99 for 500 Gems – cheapest
- A Bag of Gems is $9.99 for 1,200 Gems
- A Sack of Gems is $19.99 for 2,500 Gems
- A Box of Gems is $49.99 for 6,500 Gems
- And a Chest of Gems at $99.99 for 14,000 Gems – most expensive but best value
Counterintuitively, the Pile of Gems at $4.99 is not the most popular, highest selling option – that honour falls to the $9.99 Bag of Gems. And with the top three Gem products costing $19.99 and above, it’s easy to see how the more loyal Clash of Clans players can spend significant amounts each month.
The following graph reveals common price points for some of the popular app stores (converted to US dollars). Note that the third most popular price point is $17.99. Bango even sees payments for products costing in excess of $100 USD. Remember, don’t price too low!
Spend limits – one size does not fit all
The best customer is one that spends lots, never over spends, and reliably pays their bill. However, there will always be a small number of customers that over spend, building a large bill for a variety of reasons. A common media narrative concerns unauthorized child spend, but Bango’s data reveals that this is a relatively small problem: Only one in 4,000 app store purchases are ever queried, of which less than a quarter are reported as unauthorized child spend – that’s roughly one in 16,000 purchases.
To help combat overspending many operators and app stores impose spending limits and some more regulated markets even mandate spending limits, for example with PhonepayPlus in the UK. As a result, monthly, daily or individual spend limits are typically configured, within the operator’s billing system or by the Bango Payment Platform.
A developer should understand what these limits are for each country. For example selling a $19.99 Sack of Gems from Clash of Clans is very likely to fail if the operator has set a $20 monthly spend limit.
Five key learnings to maximize your earnings
1) One size does not fit all, and there are many variables that will impact sales. Use product options and prices that meet each customer type. For example, offer value bundles such as the packs of gems offered by Clash of Clans.
2) Don’t assume that free or low cost is best – remember that in some cases $9.99 may give you higher overall earnings than $4.99 from a smaller number of customers. Volume may not be the answer.
VP Product Marketing
3) Understand the local markets; find out the spending limits and price point sweet spots. Know the balance of pre-pay and post-pay mobile customers. Where pre-pay is more popular, what is the typical top up value?
4) App stores and operators need to be smart with spend limits and risk. A limit set too low may be more damaging than one set too high, creating unnecessary customer care issues.
5) Measure, adapt, market and apply; analyse who is buying which products at what price. Look at similar products and their price points. Then plan to market and apply what you learn. Don’t just sit back post launch and expect the sales to flow.