Making Sense of Premium Currency

A major component of monetization in F2P games is the use of premium currency: A resource that can only be bought with real money. It's a system that consumers hate and developers love. 

Understanding why and how to best approach it is vital for anyone going into the F2P business and using monetization tactics.

The Exchange Game:

The concept of premium currency first started with the arrival of the Xbox and Xbox Live. Instead of spending real money directly to buy content on XBLA, Microsoft required the consumer to essentially exchange their real money for Xbox Live Points.

While the exchange of real money for premium currency doesn't seem that important, however there are several facts and psychological conditioning at work that annoys core gamers.

First and perhaps the biggest point is that the exchange for premium currency is one way in most cases: Meaning that once you buy the premium currency or earn it, there's no way to convert that back to real money to spend elsewhere.

There is only one major example that lets you go back and forth with premium currency and real cash and that is the MMO Eve Online, but the business model and design are way too big and complex for us to go into in this post. The reason why most developers don't allow for cross exchange is that they don't want to be giving their customers back their money.

Similar to casinos, the casino prefers it when the house wins and that brings up another point. There is that psychological conditioning at work once someone starts spending money; it becomes easier to convince that person to continue spending it.

Here, the spending of premium currency doesn't give you the monetary value.

The point of premium currency is twofold, first to give the consumer a false sense of wealth.  Saying that you have one million dollars is different than having one million dollars in premium currency. But the consumer still gets that thrill of owning that currency and spending it on in game bonuses. That gratification of getting something unique or hard to find works just as well in a F2P game as it does in the real world.

When you're spending premium currency, you are technically spending real money but the perception is different for the consumer. It's a lot easier to rationalize spending 100 gold stars as opposed to spending $5.00 of real money.

This storefront makes it harder to determine the cost of spending money as the exchange rate is on a separate page.

The other point and one that developers like is that they control both the currency exchange and the pricing of content in their games. This makes every F2P game separate and prevents a game from stepping on the toes of another game.

It's a popular business tactic to make most micro transactions just above the denominations that the developers are selling premium currency for.  For example:  100 gold stars equals $1, the developer will then price the content at 120 gold stars. The reason is simple, they want the consumer to spend more than what the item they want costs so they'll have currency left over. This makes it more likely that they'll spend money in the future.

As you can see, premium currency is a boon for developers but not so much for the general consumer and this makes it hard to sell the concept to core gamers. But there are a few steps you can take to mitigate the negatives of premium currency.

Clear Purchases:

Obviously the big decision you can make is to allow for two-way exchanges like in Eve Online.  But this can only work if the game has an actual economy beyond just a F2P store. Which chances are most of you reading this are going to be aiming just for a storefront with micro transactions.

First thing you need to decide on is a currency exchange rate: How much does the lowest denomination of your premium currency will cost for real money? From there you can then decide what the rest of your denominations will be while keeping to this standard. While you can't raise the value after release, you can of course have sales where buying currency or the content can be cheaper for a set period of time.

With Candy Crush Saga, the developers make it clear how much each denomination is and offers a discount on bulk spending.

Another point and a good sales tactic is to lower the cost of buying bulk premium currency. If $1 gets you 100 gold stars then $5 will get you 570 gold stars. This kind of bulk discount is a useful sales tactic seen in other markets and can be used here.

For developers who don't have options for setting up sales in their game, there are many third party platforms that can assist you in that regard. Some examples would be being able to set the type of sale, frequency and amount. Other third party companies may even help you with planning and having sales for your game or content if you are not sure how to do that on your own. 

Lastly, to avoid confusion when buying or spending premium currency, the player should always be made aware of the real money cost to that transaction. In today's world where we are hearing stories of kids running up credit cards on social games to the shock of their parents, you do not want your game to be mentioned on the news.

Premium currency depending on who you talk to can be a necessary evil or just evil and it's important to weigh the pros and cons of how it will work for your game.

(Reprinted from the Xsolla.com Blog)