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App prices - a few pennies more wouldn't hurt

With the app market continuing to boom heading into 2013 it's high time to focus on the users, writes Annette Ehrhardt, senior director, Simon-Kucher & Partners.

Only 23% of respondents say they would never pay for an app

Only 23% of respondents say they would never pay for an app

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Over 700,000 apps have been sold - and that’s just in Apple’s AppStore, where an unbelievable 30 billion apps have been downloaded.

How do users handle apps? How much are they willing to pay? A recent study by consulting firm Simon-Kucher & Partners gives some answers - and advice - for app providers.

Seasoned app users continue to download


Be it smartphone or tablet app, for over 80% of users, downloading apps is commonplace. Instead of daily app shop visits, many users surf the store once or twice a month - very thoroughly -  then download several apps at once.

This downloading behaviour has normalised over the past year: 48% of respondents report that they haven’t changed how much they download. Forty percent, however, (significantly) increased their downloading, obviously more comfortable with their new gadgets. Download behaviour is expected to remain stable in forthcoming years.

Download behaviour in the last and next twelve months

Download behaviour is most heavily influenced by three factors; top app listings, app prices, and family and friends recommendations. These factors form two-thirds of the reasons why users download. Other factors, such as classic advertising, have minimal impact.

Apps are essentially typical internet 2.0 products: peer endorsement and constantly updated listings tell users what’s "in". And, let’s not forget, price is a natural barrier in download decisions.

Factors influencing app downloads

Ninety percent of users downloaded apps from the four categories of games, news, productivity (life’s daily little helpers) or social networks, and half of respondents already paid for an app.

Whether it’s a free download or an app purchase, respondents own more games apps than those from other categories - but use each games app less frequently. More games apps are downloaded for experimentation, while in other categories, users are satisfied with downloading only a few apps.

News is followed, for example, using just one or two favourite apps; and to communicate with friends, two social network apps are ample.

App usage per category

How much is an app worth?


Only 23% of respondents say they would never pay out for an app. In contrast, two-thirds would be willing to pay over one pound; 20% would even be open to paying over £5 - if the value lives up to the price. App developers shouldn’t be overly concerned; 45% of respondents feel that app prices are affordable for the value they offer. In other words, users feel they’re getting value for money.

User attitudes about app prices are one thing, but actual app spending is another. Users’ most expensive apps average around two pounds. The highest purchase, however, tops £70. On average, respondents pay one to £2 per app.

Most expensive apps ever purchased and the average spending per app

Sixty percent of respondents could imagine making an in-app purchase - and a good one-third had already downloaded one or more freemium apps. Freemium apps were often a free trial that turned into a paid/free basic version, complemented by a paid premium version. Ad-sponsored apps, in which users view ads during usage, are also widespread.

Willingness to pay and ideal price per app category


To determine the ideal app price, respondents indicated whether they would download a real app (Angry Birds, The Times, Voice Assistant, WhatsApp) at several suggested price points (between zero and £6.49). Unsurprisingly, willingness to pay for apps drops as the price rises.

What’s most interesting is how it drops. At 65p, approximately 85% would buy Angry Birds, but only 70% would buy The Times or WhatsApp. At a price of £1.59, the gap widens further: around 70% would buy Angry Birds or Voice Assistant, but only 50% would pay this price for The Times or WhatsApp.  10%-20% would still be willing to pay for these apps at £6.49.

Willingness to pay per category for various prices

App providers must pay attention to this decision making process. Depending on how many paying customers are gained per price point, revenues will fall or rise. Multiply the tested prices of each app with the share of buyers according to the study, and Angry Birds and WhatsApp would provide the highest revenue at a price of £1.59. The Voice Assistant, in contrast, would maximise revenues at a dearer £6.49 price tag. With The Times app, a price of £3.19 or £6.49 wouldn’t make a difference in revenue, but these prices would of course have considerable impact on downloads.

Revenue indicator per category at various prices

This example illustrates the tricky situation app providers face: on one hand, they must ensure that their apps are in the highest possible rankings of the top download charts. This is their primary way to ensure their apps get downloaded and endorsed by users.

That’s why low/no price may seem the optimum solution, but, on the other hand, providers won’t survive without earnings. Therefore, revenue must remain in focus and that’s where it may pay off to sell apps for a higher price to fewer users.

Freemium models offer a good solution, as they kill two birds with one stone: A free trial phase or basic version - combined with a paid version later - enables users to try apps for free.

This way, high rankings in top download lists can become a reality. For those users prepared to pay for apps, the paid version is an attractive offer - and providers are able to clinch the needed earnings.

Annette Ehrhardt, senior director at Simon-Kucher & Partners 

  

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