This is number three in our series explaining common mistakes made by companies launching virtual worlds.
In the first post we discussed the need for market (or rather user acquisition) budget and the target market range was explored in the second post.
Now the focus switches towards the monetization strategy – the pricing method that users will be encouraged to use.
Most virtual worlds targeting the KT&T marketplace opt for a monthly subscription pricing method – charge users a fixed monthly fee and provide them with enhanced/premium features. These premium items take the form of access to special areas, bundles of virtual goods, additional features and the like.
Worryingly, the pricing decision for a lot of virtual worlds and MMOs in the sector isn’t a decision at all. Instead, worlds just opt for a monthly subscription based on the following thinking:
- If it works for Club Penguin then it will work for us
- It provides parents with peace of mind – no unexpected charges
- Having a recurring monthly subscription is less hassle
You get the picture.
And in principle the arguments above are sound. And indeed, virtual worlds such as Moshi Monsters, Jumpstart, Club Penguin and Wizard 101 all have monthly subscriptions. But, these worlds have become ‘brands’ in the space helped a great deal by spending sizable amounts on user acquisition (see mistake number 1).
However, there’s a much bigger picture that many virtual worlds completely miss.
Firstly, switching costs.
What many virtual worlds do not realize is that users who are most likely to be monetized are already being monetized somewhere else, i.e. a competitor virtual world. In this instance, the new virtual world has to shift the user’s attention away from their existing world and move them to their world. It’s important to bear in mind that the propensity for KT&T to have monthly subscriptions in more than one world is virtually zero, due to the issue of switching costs and an unwillingness for parents to be paying for two at the same time.
Another issue is brand awareness and reputation.
When a new virtual world launches, brand awareness and more importantly brand reputation is zero. Nobody knows and nobody cares. Yet worlds think parents will willingly pull out their credit cards and commit to a monthly subscription. If only it was that easy.
A far better pricing strategy is using microtransactions (MTX) at lower price points than a typically monthly subscription (which, surprise surprise is usually $5.95). Allowing users to purchase a virtual currency (which can be used to buy all the elements that a typical monthly subscription offers in smaller chunks) makes the payment decision much easier for parents.
Not only is the paying amount lower (read: cheaper) but also less riskier than a monthly subscription. This neatly side-steps the concern parents have that their child will get bored playing in world X and move onto to another one (whilst still paying for the first).
Implementing lower -priced MTX has an additional benefit of widening the paying user catchment. In other words, for a lot of users, paying $6ish a month is simply not an option. Whereas paying as low as $1 for a ‘taste of the good life’ is much easier to swallow. You just have to look at the app market for evidence of this. By lowering the paying entry threshold you can go after those users that haven’t been monetized by other worlds.
The bottom line is that pushing users over the monetization line is about showing KT&T whats on the other side of the fence. If you have a great VW then users will want to stay as paying users – give them a really low hurdle to jump over, then focus on raising it once they’re over it.
As a closing PS, another point missed by many virtual worlds is that by having a monthly subscription – a take it or leave it fixed price for premium content, you’re actually setting the upper limit of what users can pay. This means that the really engaged paying power users that reside within KT&T worlds can’t get anymore out of their world over and above the monthly subscription level and benefits. This is a poor longer-term strategy.
PPS: KT&T virtual worlds and MMOs with virtual currency based MTX convert three times as many users as subscription-only worlds and have a monthly ARRPU on average 20% higher.
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