Deep discounting during Early Access - a logical strategy?

Since the launch of Folk Tale on Steam Early Access, I’ve been asked a number of times whether Folk Tale will be available at a deep discount in one of the sales during development, to which my answer has always been no. And there lies my quandary. Are we doing the right thing by postponing the opportunity until post-launch? I honestly do not know.

Several months ago having been asked the question, I added a section in the FAQ entitled ‘Have you considered participating in sales promotions’:

The idea of heavily discounting a product whose full value is yet to be established feels like giving away uncut crown jewels for a packet of peanuts, with a hint of desperation. We believe we have the ability to deliver an amazing game that will support a robust price.

With hindsight the full wording may be a little controversial, and several months on I should tone down some of the implications as my appreciation of possible justifications has grown.

If you were following the Steam Christmas Sale, you may have noticed a good number of Early Access games participating with discounts ranging from 33% to 66% off. Thanks to other developers who have publicly shared their sales data, we know that those participating in deep discounting will have enjoyed strong revenues. It’s a fantastic opportunity both for developers and players, of that there is no doubt. But my quandary lies in whether or not games that are still in development should be participating in deep discounting. Are we missing out on a golden goose opportunity, or will adopting a long-game plan provide the greater reward?

As a business, we have a long term goal to grow a multi-title studio. It’s our passion, and I hope it’s something we all want to be doing for the rest of our lives. Being our first game together as a team, I’m hoping that we can generate enough from Folk Tale to help fund our next title, and that means maximizing profit.

With the benefit of a degree in Economics, I know that the profit maximizing point is rarely the point at which output ( sales volume ) is maximized. In that instance we would give Folk Tale away for free, generating massive volume for no profit assuming no IAP ( which I despise ). So maximizing sales volume at any price cannot be the answer.

Instead, we could look at traditional pricing strategy - an approach that big publishers continue to use to this day. Games launch at full retail price, followed by a series of discounted sales promotions, and ultimately bundling into value packs. It’s a model designed to achieve maximum profit, and one that has worked for decades. But in the new era of crowdfunding and Early Access, do the principles apply to the new generation of independent developers?

The first justification for deep discounting during Early Access could be as simple as needing more development funding. It’s possible that the scope of a game is so vast that even with the spike in revenue that a launch month brings, it may still not be enough. This is where Kickstarter and Early Access diverge. With Kickstarter a developer has estimated how much the game will cost to develop and sets their funding target accordingly, which is only released once total pledges exceed the target. In the Kickstarter scenario, the game has been funded and should not require additional funding to complete development. But you only need to look at Early Access to discover titles that have passed Kickstarter funding targets but who participate in deep discounting. The justification in my mind is only valid where a) Early Access is used as a source of funding in lieu of a Kickstarter campaign, b) the Kickstarter campaign is explicitly to fund an early prototype and not the full game, or c) the developer has made a mistake in their initial cost estimate.

For developers having to raise additional funding through deep discounting, the decision to do so might have a cost in the form of long term customer loyalty. Whilst quality is probably the most significant long-term factor contributing to brand perception and reputation, how much of a role does loyalty play, especially if the studio wishes to return to crowdfunding in the future? Some backers may not be quite so quick to support a project knowing that they are paying a premium for that support and within a few months new backers would be offered the same entitlement for a fraction of the price. And that could introduce a risk in having to start the next game without full funding in place due to lower than anticipated initial support.

What about the benefit of being a regularly featured title? Not only does deep discounting swell the size of a game’s community thereby fueling activity and hype, it increases exposure to potential customers who may purchase in the future. It’s this effect that provides me with the greatest concern, and perhaps why we should be questioning not only traditional pricing strategy in the context of the paradigm shift that is happening in both game funding and development, but the greater role marketing now has to play. But again there is a cost to attracting players through price discounting. The same players may have been willing to pay more once the full value, scope and quality of the title is delivered.

So which is the best approach? I genuinely do not know. We don’t have the luxury of studying how much profit a game could have made under by following each approach. Comparing the performance of two different games is difficult because in almost all scenarios we would be comparing apples to oranges. The decision of which approach to follow remains a purely subjective decision based on what is at best, sketchy and incomplete data; and that leads us to constantly question - are we pursuing the best overall pricing strategy with Folk Tale? Thankfully the guys at Steam are very supportive and appreciate the need for the developer to make their own decisions.