21st July 2011
So yesterday saw the release of Apple’s latest iteration of their OS X family, Lion. Aside from the fact that this release is download only from the Mac App store, one of the major selling points is it’s low price, just £20.99 in the UK. Also, following on from all of Apple’s recent operating systems there is only one domestic version to choose from.
Before the release of Microsoft’s last operating system, Windows 7, I had hoped that they might have simplified their line up and reduced prices in order to make stepping on board the Windows train slightly easier. But does price and choice really affect the sale of software?
- Home Premium
When it comes to choice we all know that for most domestic customers Professional and Ultimate are beyond their requirements, but do the customers know that? There’s an interesting study into how customers react to choice, specifically a wide range of choices, in which the following was proven:
When customers were presented with a huge selection of brands of a certain item, fewer customers bought the item than when fewer brands were displayed. The wide selection led to a paralysis of choice – the customers could not decide which brand to choose. As a result, they went away without choosing any.
Now three versions of Windows 7 isn’t exactly massive choice, but when you consider there are also three upgrade versions this presents are rather interesting set of choices to the user, now it’s fair to say a technically minded customer wouldn’t have a problem selecting the version they want, but what about the average user?
Before the launch of Windows 7, Microsoft announced the UK pricing as follows, upgrade prices in brackets:
- Home Premium: £149.99 (£79.99)
- Professional: £219.99 (£189.99)
- Ultimate: £229.99 (£199.99)
Their cheapest offering was £150 for a full version, whether this is considered cheap or not is subjective, as is value for money. However in recent times we’ve seen a rise in low cost software and it’s been proven lowering the cost of software can increase sales, thus increasing revenue vs normal sales of a high cost unit.
Valve (creators of the Steam platform) ran an experiement where they asked are games too expensive?, they reduced the price of a game in the hope that it would lead to increased sales. Not only did sales increase but so did revenue:
Discounting games does not only increase unit sales–it increases actual revenues. During the 16-day sale window over the holidays, third-parties were given a choice as to how severely they would discount their games. Those that discounted their games by 10 percent saw a 35% uptick in sales–that’s dollars, not units. A 25 percent discount meant a 245 percent increase in sales. Dropping the price by 50 percent meant a sales increase of 320 percent. And a 75 percent decrease in the price point generated a 1,470 percent increase in sales.
Low cost software isn’t restricted to the gaming community either, look at applications in both the Mac App Store and the iOS App Store, millions of people were happy to chance a dollar (less than a pound) on the Angry Birds game and that’s claimed to be one of the most profitable games in history.
Could this work for operating systems too? Mac OS X Lion is available for only £20.99 in the UK, less than most of the software that needs it to run! Not too scientifically Lion hit the top paid app spot on the Mac App Store pretty quickly.
Disclaimer: I know Lion is only available to Snow Leopard users at present, and a USB option will be available in August to others at a cost £55, granted twice as expensive as the download only version.
Considering (as of this post) that in the last year Windows has lost over 3% of it’s market share compared to a 0.3% increase against Mac and a 2.5% increase for iOS platforms, I think Microsoft will have to do something to slow down / reverse it’s market share decline, would changing it’s strategy with regards to choice and price work? I think it would, I cannot help but think a simple proposition would give them a strong product to pitch to customers.
We’ll just have to for the Windows 8 release in 2012 to see exactly what approach Microsoft will take.
What are your thoughts on the matter, is reducing price and choice a good thing? Who are the winners and losers of this type of strategy? I’d love to hear your opinions in the comments below.