Psychology of iPhone Pricing

When I started in this business 12 years ago, there was tried-and-true consumer price points: $9.99, $19.99, $29.99, $49.99, $99.99. Only a few apps — Microsoft Office, Adobe Photo suites come to mind — were able to price above those levels. Anything under $19.99 was considered an impulse buy and anything above $49.99 was considered professional quality.

This never was in the mobile/smartphone/PDA world. In this world pricing seemed to break down as $10, $15, $20, $29.99, and $39.99. Only the rare app was able to get more. We charged $59.99 for powerOne Finance but bundled both the Palm OS and Windows Mobile version together for that price. If we had been in the old model of consumer pricing, we would have been between $100 and $200 (with slightly different presentation and functionality). Impulse buy was anything less than $15; professional apps were at $29.99 and above.

Now those prices have morphed again, at least for iPhone. For whatever reason — first products in the AppStore, lack of trials, single purchasing location, Apple’s devious plan, natural laws of commoditization, Chris Anderson (just kidding) — all pricing have depressed even further. It seems that the new scale is $0.99, $1.99, $2.99, $3.99 and $4.99. Only the rare app can charge more.

The interesting thing to me is that the mentality hasn’t changed. Now, $0.99 is an impulse buy and $4.99 denotes professional quality.

Case in point: In April, a competitor was at $5.99 then $4.99 then $3.99. Never really impacted FastFigures’ sales, but we could never catch up with him, either. For a week, he went free. When he went free our sales shot through the roof. When he came back to the paid side at $3.99 he made no headway. It didn’t impact my sales at all (I was way ahead of him in Top Paid) and the same was true when he dropped to $0.99. He sold a lot more, catapulted above me in Top Paid, but it didn’t impact my sales. Only when he went back to $3.99 did my sales start to fall off as I was clearly losing units to him and he was able to stay ahead of me in Top Paid.

One conclusion: Top Paid position has a clear impact on sales. I think most people try the 1) cheapest and 2) first found product that they were looking for.

Price, though, also impacts sales. So where’s this cut-off point that attracts the alternative, professional customer we were looking for? Is the connotation that anything under $0.99 is a throw-away app? Or is that point $1.99 or $2.99? Clearly, $3.99 has a different connotation but I’m curious if that “professional level” actually falls in somewhere lower.

Or is my entire theory flawed, and the reality is that software is diving toward $0 price points, as my Building an iPhone Business surmises? I can definitely say the market is shifting. And I don’t believe, unlike other developers, that it’s Apple’s fault. I think they are just accelerating the curve.

6 thoughts on “Psychology of iPhone Pricing

  1. While I’ll give you that price points on the iPhone are lower than those on the shelves in Fry’s, I don’t think there’s a trend toward zero.

    I’m not seeing that trend in the Productivity category, where 15 of the top 50 paid apps are going for more than five dollars despite strong head-to-head competition. 22 of the 50 cost $4.99 or more. For example, LogMeIn Ignition, #10 at $29.99, competes with Jaadu VNC, #34 at $24.99. And this is despite Apple’s ranking by unit sales. If they ranked by revenues, you’d find that over half cost more than five dollars.

    Our own most popular app (Air Sharing Pro) costs $9.99. We’ve just introduced another (Informed RN Pocket Guide) at $19.99. Now, granted, the RN Pocket Guide is half the price of its paper forebear, but I don’t think we’ll need to lower the price. And if everybody reading this buys a copy, that will help support my theory.

    Sorry, went all slick and markety there for a second!

    Bottom line though: I believe the trend toward free is a baseless figment of the blogospheric aether.

  2. Apple’s customers may have been conditioned by the iTunes store $0.99 universal price point.

    Also note the shift in langauge, from application or shareware to ‘app’. Apps are now throwaway entertainment similarly to music tracks.

  3. Elia,

    Very interesting and relevant blog. Agree with your thoughts. I come from an enterprise application world of building products over years and have recently moved to selling mobile technology services to organizations. I have been contemplating and reading how real top class enterprise solutions which solve problems can be clubbed together with consumer games,productivity tools and priced so low. I hope the market moves towards paying real value for applications, such as yours and they are more easily discovered.

    Look forward to your future articles on how you think it might happen.

    Raghu (Jayaraman Raghuraman)

  4. Love the post. I almost never buy “free” apps. Most of them from my experience suck. The only major example I can find of a great free app is the Google search app and Admit One The move app. For me $4.99 is breakpoint. If something costs more than $4.99 I really think an evaluate whether or not I need it. Less than $4.99 I buy it and take it for a spin.

  5. Pingback: Why $9.99 works, ShortCovers gets it « Kindle Review – Kindle 2 Review, Books

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