The idea that people will purchase more if offered a volume discount doesn’t pan out, according to a study of 14 million players of mobile games by King Digital Entertainment, maker of Candy Crush Saga.
King’s games for smart phones, tablets, and other devices are free to users. The company generates revenue through in-game purchases such as gold bars, which can be redeemed to advance more quickly through a game.
Traditionally, King has used a simple pricing strategy with minimal discounts for buying large quantities of gold bars.
For the study, economists from the University of Chicago designed a series of quantity discounts, which were offered to different groups of customers for a three-month period.
In the most extreme intervention, players were offered a more than 60 percent discount for intermediate-size purchases and a more than 70 percent discount for large-size purchases.
How players responded to the discounts:
- Quantity discounts had virtually no effect on the share of players making a purchase.
- Customers who made small and infrequent purchases tended to spend more when offered the largest quantity discounts, while customers who were already large buyers tended to spend less.
- The net result was no impact on revenues or profit.
- Data suggest some consumers who would have made small purchases were discouraged from doing so when faced with large quantity discounts.
The researchers say their findings challenge traditional theoretical thinking on quantity discounts, particularly that such practices increase company profitability. The experiment came at essentially no cost to King, requiring a minimal number of employee hours to execute.
The results of the study by University of Chicago economists Steven Levitt and John List are published in the Proceedings of the National Academy of Sciences. Coauthors of the paper are Susanne Neckermann of Erasmus University and David Nelson of King.
Source: University of Chicago
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