So, you are a Freemium Game Developer and you have spent months in designing your game, the mechanics, the levels, the revenue model and so on. After launch you spent another few months rigorously analyzing user data to optimize the game design for Engagement, Retention and Monetization to end up in the current state of an Engaging, Monetizing freemium game. Regularly you analyze the game data, go through the health metrics, analyze the revenues but you never really have to see what country the revenue is coming from. It’s always majorly US, with little bit from UK, Australia and Canada with a few sprinkles from Western Europe. Familiar story?
Why is it that you are able to get the same levels of Engagement and Retention from the Developing world but not the same percentage of payers and pretty much no monetization at all?
The problem is that all currencies are not created equal, some are more valuable than others. A $100 bill, when converted at the exchange rate, will buy you more stuff in India or China or Mexico or Romania and so on, than it would in the United States. So a Dollar has more purchasing power in these countries than in the United States at the international exchange rate. And that is where the concept of Purchasing Power Parity (PPP) is born.
Every year, the World bank takes out a list of PPP conversion factors where they estimate the amount of any country’s local currency required to buy the same amount of goods that $1 would buy you in the US. For example, India’s PPP conversion factor is around Rs. 17 but the current exchange rate is Rs. 60. So, Rs. 17 would buy you the same amount of goods in India as $1 (or Rs. 60) would buy you in the United States. That is less than 1/3rd of the exchange rate!
Therefore, when we price a $1 IAP in the US at the same price in India, in terms of purchasing power, we are effectively asking them to pay $3.5 (60 divided by 17)! If you went through the whole list on the World Bank website, you would notice that in every developing country, it’s the same case of the Dollar being overvalued in term of the exchange rate.
So, in March, I decided to run an experiment on our Facebook app where I would manually set the prices of IAPs in all of Facebook’s supported currencies according to the PPP conversion factors of that country. This is what I did:-
- Created a Google Spreadsheet listing all of Facebook’s supported currencies.
- Picked up the PPP conversion factors from the World Bank website for the listed currencies and put them in the spreadsheet.
- Put the price of a single unit of in-game currency (Facebook multiplies this price to calculate price of any amount of in-game currency) according to the PPP conversion factors.
- Rounded off and edited prices according to the Psychological Pricing strategy.
- Uploaded single unit local prices to Facebook for them to go live.
I should note here that after making the prices live, we didn't run any sort of acquisition campaigns or anything in the countries where we had changed the prices. All user-base remained the same and before and the new users that came in came from the same channels and at the same rate as before.
Here are the results of pricing according to PPP (For countries wherever prices got reduced) comparing two time intervals 1st November, 2013 to 28th February, 2014 and 1st March, 2014 to 30th June, 2014 :-
- Number of Transactions increased by 1100%
- Revenue from these countries increased by 400%
The revenue still might not be very significant when compared to the US but for a little amount of effort, you can increase your overall revenue by 10% at-least. This revenue might mean the ability to hire an extra developer for smaller companies which is quite huge for a small studio.
We will now be testing the same approach on Google Play with prices going live in the current update. Would be exciting to see the results. That said, it would be even more exciting to see the results of this strategy if a bigger publisher with a lot more volume would test it out as volumes for us are pretty low. I am sure everyone who adopts this strategy would be able to increase their revenues in the developing world and some might then find it worthwhile to acquire users in these geographies as well, LTVs permitting.
PPP for IAPs will be different from the PPP for common goods as calculated by World Bank. It’s however a good start and through Experimentation, Analysis and Optimization, PPP for IAP can be calculated.
- PPP factor will change as the culture of spending money in Freemium games develops. As people become more comfortable spending in games, spending will be more and more people will spend.
- Revenue in July has been even higher as we have done paid acquisition and have been able to run ROI+ campaigns in Eastern Europe.
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This is a copy of the same article published by the author on Medium.