The Wal-Mart Strategy

Online content is pretty much free to distribute (not in the sense of piracy, but in the sense of no Shipping and Handling fees). But some things (Music, Games) are being charged at near retail prices, anyways.

So what happens if we slash prices? This.

It's about the game company Valve and their online distribution program (Steam). It's kind of hard to read through a guy's "Liveblog" so I'll just pull out the highlights (after the jump)

News spreads fast.

users apparently respond to pricing discounts within five minutes.

And it's pretty effective. These figures are in regards to the game Left 4 Dead.

Last weekend's sale resulted in a 3000% increase over relatively flat numbers. It sold more last weekend than when it launched the game. Valve beat its launch sales. Also, it snagged a 1600% increase in new customers to Steam over the baseline.

Here's the breakdown of the price cuts of their experiment.

10% sale = 35% increase in sales (real $, not units shipped)
25% sale = 245% increase in sales
50% sale = 320% increase in sales
75% sale = 1470% increase in sales

At 75% off, they are making 15% more money than they were at full price.

The math in that last one seems questionable to me, but in any case, they're all impressive.

It helps that the game had already sold, and it was well regarded as an awesome game. Also, there's no way this works if the game was ORIGINALLY that cheap. But to breathe new life into the product and jump-start the product life cycle again? I'd say it's pretty effective.