Steam Pricing Strategies

Steam uses the same pricing strategies as its brick and mortar competitor Best Buy. They use a fixed pricing strategy. The strategy is very apparent and easy to spot just by looking at the store's homepage. They have all of the aspects of fixed pricing including markups, bundling, and promotional pricing. First off for most consumer products there is a huge markup and for video games, movies, and music. The markup comes from the desire for profits and to offset the production costs.

With video and computer games it is just like every other product. The difference between computer (what steam sells) and video games (what Best Buy and Xbox Live Market Place sells) is that video games are based on a cross-subsides system. Sony and Microsoft spend a lot of money to develop, produce, and perfect their gaming consoles. The production of these platforms comes at a great expense more then they sell for. Where companies make their money back is in the sale of the actual video game. The game while it does take money and time for development of a game, it is being sold on a DVD, which cost about thirty cents. This is not the case for Steam because there is no connection between the computer manufacturers and game developers aside from Microsoft.

The markup exhibited on Steam is the standard retail price and is disproportionate to the production cost and is mainly done to allow for profits. Since all Steam really sells is data the only fixed cost that would come from this would be bandwidth. They could sell the products at any price but probably choose not to upset the predetermined market. You can tell products were marketed up later on in their life. For example look at the total cost of this bundle then the price. Before the bundle was created all these products were market up.

Steam also uses bundling to sell products. They bundle old games together with new one and try and sell them off in groups. They usually bundle based on developer selling packages will several games one company has made. Of course Steam also uses promotional pricing to induce purchases when games go on sale. Left 4 Dead at one point was 25 dollars with additional discount for bulk orders. Right now the game is $49.99 on the home page.

While Steam does have the fixed pricing strategy that most retail companies employ they also have elements of free pricing strategies. Valve the company that owns and created Steam does not charge for the actual download of the program. The program itself is free but acts as a storefront as well as the launching application for the games. They also provide free downloads in the form of demo games, videos, trailers, and game modifications. Demos give steam the ability to act like freemium web software or services. Because Steam is free it emulates the two tiered paying program, the program and demos are free while full games still cost money.

What is so efficient for Valve is that Steam doesn't have to distribute any kind of physical property. They have the ability to just send the products they sell over the internet in the form of data. This means they don't have deal with traditional retail problems like storage. Since the digital content is distributed at low cost to many people it has almost no marginal cost.

The specific prices for Steam's products are the same as any traditional retail store. When a game comes out for the Personal Computer platform the standard retail price is $49.99 plus tax. Right now Steam is selling the newest wave and the most successful games at the price of $49.99. FEAR 2, Wanted: Weapons of Fate, Empire: Total War, Left 4 Dead, and Tom Clancy's HAWX are currently being sold on the homepage for the original release price. These games are at their peak price and will only sell for less as time goes on unless they become wildly popular. Previously mentioned Left 4 Dead exhibited popularity and retained its original price.

Pricing for video and computer games changes over time. The games start high and then over time the cost goes down. The life cycle for games on Steam is different then traditional retail. Older games that are long gone from the shelves of Best Buy and GameStop are being sold for 10 to 20 dollars on Steam. Old games from 1999 are being sold because of the amount of popularity they had. Games like Mirror's Edge and Dark Sector, being sold on the home page, were both originally $49.99. Since they weren't tremendously popular and they now cost $19.99 and $39.99. Game prices lower over time but really popular games can keep prices high. Unlike Wal-Mart who lowers prices to clear out old inventory Steam follows the market, keeps old titles at low prices, does promotions, and changes prices for reasons that not include saving space and keeping fixed costs low. Again Steam is free to download as well as numerous demos, videos, and mods.

Since Steam's pricing strategies are pretty much the same as other brick and mortar retailers they would have about the same amount of success. The real draw for Steam users is the ability to play their games on any computer with the Steam client in any location with an internet connection. Their success does not have to be as much as a retail location however because of a lack of the fixed costs most retail locations have to deal with. With over 1.8 million users on Steam they have a captive audience they can sell to without competition. The amount of data that can be gathered through Steam is another thing that could make is profitable on its own. http://store.steampowered.com/stats/