In my previous article—BattleCorps, Archive Content, Game Aids and Sales—I discussed some of the many ways we could rejuvenate the BattleCorps site into a positive revenue generator using already-published product and a minimal expenditure of resources. In this article, I want to spend a little time discussing the pros and cons of discounted sales and how it could benefit BattleCorps.
In a (relatively) recent study by KISSmetrics they found that product discounts of 75% increased sales by 1470% and revenue gain of 548%. The study, which examined the sale of the Left 4 Dead video game, may seem like an impossible jump if laterally compared to BattleTech PDF products, but by digging a little deeper there’s an applicable connection worth studying.
On a weekend in February 2009, Valve had a sale on the Left 4 Dead game. Historically speaking Valve rarely ran sales of any kind, as they believed that too many price changes confuse and anger customers. But this sale was wildly successful.
Valve had multiple sales over the holiday season. Their sales figures (as released by Valve) for these sale(s) were as follows:
10% sale = 35% increase in sales
25% sale = 245% increase in sales
50% sale = 320% increase in sales
75% sale = 1470% increase in sales
One Hacker News commenter figured the revenue increase broke down as follows:
10% cut = 22% increase in revenue
25% cut = 159% increase in revenue
50% cut = 110% increase in revenue
75% cut = 293% increase in revenue
Valve’s Left 4 Dead sale led to a combined 584% increase in revenue! That is a pretty amazing revenue increase over the life of a holiday sales program.
So lets talk about some of the takeaway. For one, it’s clear that discounts increase sales; this has been well established. And while BattleTech PDFs aren’t video games, they are an existing digital product. This means the overhead for the product is zero—its cost has already been paid. With BattleTech’s well-established back catalog of digital products we can squeeze new revenue from PDF gems languishing in digital purgatory. Gems, that are just waiting to be plucked and sent to discount heaven.
However, we need to proceed with caution before we discount. There can be a downside to discounting too much or even once. If we discount only once, know that customers will ask for more. Apple is a company that—famously—rarely discounts their products. Even if they do, it’s typically not well publicized.
There’s also the obvious disadvantage for brands that discount—customers will shop with you only when you have discounts. Take Kohl’s for example. A company like Kohl’s is always running a promotional discount. In many ways they almost have to run constant discounts. It should be noted, however, that many of their customers shop at the store because they see the posted discount, even if the discounted price is equal to the full retail price of a retail store like Target or Walmart.
Meanwhile, other companies offer discounts at seemingly random intervals. In this scenario, customers are more likely to shop only when they get a discount. They might “wait” until you have another sale. If the customers that “wait” for a sale account for a large portion of your market this type of discount-oriented conversion can have a significant negative impact on revenue generation. The other big issue with discounts is that customers may ask for them even when we’re not running any. This can happen with brands that run discounts and those that don’t.
So how do we avoid some of these pitfalls with the BattleTech PDF catalog? Well, we play to the catalog’s strengths. Namely, we run sales on the back PDF catalog only, and we run it all the time.
Why? For starters, in addition to the products already having been paid for, PDFs have a traditionally higher ROI in comparison to print. By manipulating the discount price of the PDFs we’re still earning a higher percentage of net profit AFTER discount. Remember, unlike traditional products the sale of all digital products become net profit after their expenses are paid. (There is no on-going cost for the sale of digital products unless you include the running costs of hosting, selling and storing the digital product—which should really count to your business’s operating costs to begin with and not a product’s cost.) So if a PDF costs $1,000 to make and is sold for $4.99, after 200 PDF sales the product has recouped its costs. All future sales are net profit.
But we’re not really discussing the cost of a digital product are we? No, we’re not, but the fixed costs for most digital products make them the perfect avenue for an ongoing sales program.
What we’re really talking about is a way to generate revenue after a product’s sale power and shelf life has “expired.” Meaning, when a new product—digital or otherwise—is released for sale it has a certain amount of full retail sale power that will drive customer sales and entice customers to purchase at full MSRP. Generally speaking, the longer this “new” product “sits” on the shelf it will begin to depreciate in value, and depending on the product type the depreciation will coincide with a downturn in sales.
However, there is a cyclical nature to devaluation that businesses take advantage of—even rely on—that generates revenue thanks to different buyer-types.
Take the car sales cycle for example. Automobile makers will release a new model at the end of every year. The new models command the highest prices, but begin to lose value as the year edges closer to the release of the following year’s new model. Even if the car is brand new, never been used, it will depreciate and continue to depreciate in value once the next year’s model is released to the market. Yet, despite the depreciation in value, carmakers can see great end of year sales. Why? Because the very driver of the devaluation—new models being released—appeals to a certain type of buyer.
So lets talk about buyers. There are five types of buyers.
1. Innovators
The smallest group of early buyers are the innovators. They read journals and magazines extensively, are more frequently exposed to innovative ideas, and are the “techies” of the marketplace, being willing to experiment with anything new. They have a high degree of self-confidence and are turned on by new widgets representing the latest technology. They are also the smallest group of potential buyers, representing only 2 percent of most markets.
2. Adopters
The next group is the early adopters. This group represents true opinion leaders who set examples by their decisions. They are respected change agents and are willing to try a new product if it will significantly improve their lifestyle or allow a quantum improvement for their business. They need to understand the benefits and will seek out references from other satisfied users before making a purchase. They typically represent about 15 percent of the market.
3. Early majority
The next group is the early majority. This group is slower to try new products, entering into the market only after their peers have actively embraced the product. They are far more pragmatic and less technology-driven than the previous groups. They are looking for modest productivity improvement, and they care about the longevity and reputation of the company providing the product. They usually represent 39 percent of the market.
4. Late majority
Next is the late majority. This group makes its purchases late in the cycle, often after the innovators and early adapters have moved on to new product forms. They wait until prices fall and the product has become the universally accepted solution. They are most concerned with low cost and customer support, and they rely on the mass media for purchasing information. They represent another 39 percent of the market.
5. Excessive traditionalists
Finally come the laggards, who are excessive traditionalists. They wait until price has bottomed out, competition is intense, and the product has become an absolute need. They tend to purchase products the other groups would consider obsolete. If they are in the approval cycle for new products in a business, they will try to block the purchase of products the other groups might buy. Luckily, they represent only 5 percent of any market.
Accordingly, carmakers focus their new model (read: product) marketing—and consequently—see most of their early- and mid-year sales by appealing to the innovators, adopters and early majority when they focus on the latest car model. However, by mid-year, potential customers in those three groups have already purchased or passed on the car. However, by offering discounts and marketing for the already-devaluing current car model as the year closes out and the next newest car model comes around, carmakers can sell to late majority buyers even while preparing for and selling to next year’s innovators, adopters and early majority.
By using the same correlation between value depreciation and buyer type we can use cyclical sales discounts of the back catalog to generate revenue from all buyer types—not just new product adopters.
Back catalog PDFs are also a great way to pull additional revenue while extending the brand’s reach. For example, Sacha Greif wrote an eBook on UI design. His case study was featured on Jason Cohen’s blog. Greif did his due diligence on pricing and ultimately settled on:
Normal Edition: $5.99
Deluxe Edition: $12.99
At book launch, Greif gave a discount of around 50% on both the normal and deluxe edition. This made the price for the normal edition $2.99 and the deluxe edition $5.99. Greif submitted the book to Hacker News, and at its peak, it achieved 2nd place and garnered 22,000 visits in one day. The book sold 1,476 copies and earned $6,663 in revenue in the first 48 hours. Why was this pricing such a success? One Hacker News commenter notes:
“For me the pricing model is perfect for something like this. $2.99? That’s right in my ‘don’t even think about it’ impulse range. $5.99 for additional features? I’m already paying $2.99. It’s not much more AND I get more stuff. Bravo!”
The big takeaway here is that by closely tying the low-end pricing to the high-end may increase signups for the high-end. In salesmanship, there’s something called suggestive selling. If the customer is buying a product, let’s say a cell phone, the salesman may suggest the customer also purchase a car charger to go along with the phone. The customer’s internal dialogue may track along these lines:
“Well I’m paying $550 for this new phone. What’s the big deal? It’s only another $30. Plus, I’ll get to charge my phone on the go. Yeah, let’s buy it.”
And they utter:
“Okay, I’ll take it.”
And just like that the store earned another $30 simply by suggesting another product. Suggesting only the car charger (without any other purchase) may decrease the chances of earning a sale. It’s all about perspective. The $30 itself may seem expensive for a car charger, but when placed next to the excitement and price tag of a new phone, it’s almost a no-brainer.
The above eBook case study isn’t exactly the same as suggestive selling, but they are pretty similar. It’s like the salesman saying:
“Instead of buying the normal edition of my book for $2.99, why not get the deluxe edition for $3 more? It comes with much more content.”
The customer thinks:
“I’m interested in this book and think I could learn from it. The normal edition is $2.99, so what’s another $3? I’ll get the best edition since it’s only a few dollars more.”
So when formulating our pricing for BattleCorps products and creating a discount sales program lets take a moment to think: “If we discount the existing back catalog in relation to new products we can use a discount gap in relation to the higher-priced, newly released product to suggestive sell new sales.” This offers BattleCorps a combination of ways to generate revenue through existing product and help drive the sale of new product.
For example, the current cost of a new Turning Point is $4.99. BattleCorps could sell a single Turning Point for $4.99 or one new Turning Point and one catalog Turning Point for $6.99. If the customer is given the choice of back catalog Turning Point, the likelihood of purchase is extremely high. Moreover, the additional $2.00 per purchase is applied to the cost of the new Turning Point. Meaning, the new Turning Point product recoups its cost quicker by utilizing existing product to pay for itself.
Other discount programs would include the creation of stand-alone product anthologies. For example, BattleCorps could combine three same-era catalog Turning Points into a single book with a competitive sale price of $6.99. This hits the semi-sweet 50% sales discount mark, represents a new product in the product catalog and sells for pure net profit. We can also use this type of discount product to upsell new product as it’s released, or as a suggestive sell companion to help customer’s make purchase decisions.
Continuing in the same vein, one discount program that has sustainable sale power, brand awareness and expansion opportunities is to sell combo- and discount- PDF Core Rulebook packages. Consider for a moment selling the Total Warfare book at full price, but combining it with TacOps at a 75% discount. Or, selling TacOps with a 50% discount and one or more of the aforementioned catalog Turning Point anthologies in a combo package. Would new, returning or current players purchase these discounted products? Absolutely. And while this type of discount may dissuade some customers from purchasing the Core Rulebooks without a discount present, this type of sale could be run quarterly as a support campaign to other year-round back catalog sales. In this fashion we could help these sidelined customers from waiting to purchase product: By waiting too long they won’t be able to capitalize on the other revolving sales.
To expand on the idea further, BattleTech could use the quarterly Core Rulebook discounts and build a dedicated “new player drive” campaign around their sale to increase the BattleTech customer/player base. In this example the primary driver of a Core Rulebook sale is to expand the customer/player base, and while the revenue generated by the sale is great, getting a new, returning or current player hooked on the game line is the real goal of the sale. The future revenue generated from a player-base expansion will more than make up for the discounted rulebook.
Honestly, the opportunities for permanent, special and market expansion sales are endless.
In my next article, I’ll talk about some great product upselling techniques we could apply to the existing and future BattleCorps shop site.