The App Pricing Paradox: Too Much Value for Too Little Money

NEW YORK--(BUSINESS WIRE)--More than half of consumers believe that apps are not expensive, according to a new survey by Simon-Kucher & Partners, the world’s largest pricing consulting firm. App makers have muddied the water – they have trained consumers to expect low prices – resulting in limited profits despite lots of value. But all is not lost for apps.

“The music industry made a bold move on the assumption that people would pay more, and it worked wonderfully. App makers are not pioneers in convincing consumers to pay for content. They need to learn from what’s worked and act accordingly.”

“Apps today are stuck where music was a few years ago and newspapers were until recently,” argues Andre Weber, partner at Simon-Kucher. “The music industry made a bold move on the assumption that people would pay more, and it worked wonderfully. App makers are not pioneers in convincing consumers to pay for content. They need to learn from what’s worked and act accordingly.”

The survey by Simon-Kucher & Partners – a global marketing and strategy consultancy specializing in pricing – investigated which apps consumers want, how much consumers will pay for apps and how app makers can turn apps into cash.

A few years ago the music industry was nervous about what would happen to sales if single prices went beyond $0.99; today nearly all top singles sell for $1.29. Similarly, a large majority of consumers in Simon-Kucher’s survey believe that $1.99 or more per month is an acceptable price to pay for an app – far higher than most app makers charge today. The figure was highest for streaming video, followed by games, and magazines.

The rise of tablets: blessing for the app industry

The rise of tablets is good news for app makers because people are willing to pay a premium to put content on premium devices.

Kyle Poyar, senior consultant at Simon-Kucher, commented: “If you buy an expensive new TV, you’re willing to spend the extra money on HD and premium cable. We’re seeing the same thing happen with tablets and apps. The question is - why aren’t app makers capitalizing on this extra value?”

Tablet owners on average download more apps than smartphone owners, according to the survey. Tablet owners are also more likely to be paying for apps today. Three-quarters of tablet owners and more than half of smartphone owners have already paid for an app despite the abundance of free and freemium apps on the market.

Games and publications were the most popular categories of apps on tablets. The average tablet owner downloaded nine games and four publications. If publishers price their apps at parity or sell them as an upgrade to print, they will create a tremendous revenue opportunity. If they price too aggressively, though, they may end up making much less money than they do today.

Looking ahead: Is freemium the industry’s salvation?

App makers have hailed freemium pricing as a best of both worlds strategy. Half of the consumers Simon-Kucher surveyed rank price as the most important factor they weigh when choosing which apps to download; the other half choose value. Freemium apps promise to attract the price-focused consumers while still earning money from the value-focused ones. Such apps have been popular with consumers as well: more than two-thirds say they’ve downloaded a freemium app.

Ellen Kan, consultant at Simon-Kucher, cautions app makers against overly relying on freemium to turn a profit. “Freemium isn’t the industry’s salvation,” she warns. “It takes a long time to upgrade free users to the paid product and app makers need to strike a better balance between free and paid offerings. It needs more time and management attention to get right.”

About the Simon-Kucher & Partners 2013 US Apps and Digital Content Study:

The Simon-Kucher & Partners 2013 Apps and Digital Content Study surveyed 1,000 US consumers. The survey examined consumer spending habits when downloading or purchasing apps.

Please find the full study results on our website by clicking here or contact Kelly Moloney (details below) to request a copy.

Study authors:

Andre Weber is a Partner in the New York office at worldwide strategy consultancy Simon-Kucher & Partners. He heads the firm’s U.S. Telecommunications & Media Competence Center.

Kyle Poyar is a Senior Consultant and Ellen Kan is a Consultant in the Boston office at Simon-Kucher & Partners.

To arrange interviews with the study authors, please contact Kelly Moloney (details below).

About Simon-Kucher & Partners, Strategy & Marketing Consultants:

Simon-Kucher & Partners is a global consulting firm with 660 professionals in 25 offices worldwide focusing on Smart Profit Growth^SM. Founded in 1985, the company has 28 years of experience providing strategy and marketing consulting and is regarded as the world’s leading pricing advisor.