“The App Store (which sells application for iPhone and iTouch) is a great business model for Apple, of course, which holds a global distribution network, integrated, with no storage costs or purchases from suppliers software (Apple surrenders a percentage of amounts paid by buyers).
It is also a great platform for vendors of application: distribution and financial management is done by Apple, and there is many tools to know almost in real time where and how sales happens.
But Apple locks some of the information (how many competing apps sold, the level of overall sales), despite some boastful ads (2 billion downloads in 2 years, 1 500 000 downloads for the best selling apps …).
There is currently no verified models, each one launched their apps into the market a little groping, by changing its pricing practice and its strategy days after days.
A key question that arises is the use of free application, to attract consumers and then switch to full versions, paid. The other issue is the level of price elasticity with respect to what the consumer is willing to pay.
In response, the analogy of the Hypermarket, the Nescafé and China seems to be the best way to understand how this market works.
From my perspective, the Apple Store (80 000 references) is a large hypermarket. With shelves and products inside. The consumer comes through the door of the App Store, and then visits the various departments: Games, Business, Comics, Books, Education ….
At the entrance of each department, at the head of the shelves, the Best Sellers. In the department, we find first the good sellers. And after, the low sellers. The more sales declines, the more they go to the bottom of the shelves.
An Hypermarket in China. Why China? There consuming is very recent. And our Chinese friends are like all of us in the Apple Store.
We are just walking there, we look, we discover, we buy a little. We take our time reading labels in the products. By discovering a whole bunch of stuff that we did not know before. Or things that we knew, but presented differently packaged. And many promotion girls, so pretty, giving us for free to test and to taste new food.
And Nescafe? Coffee is a new product in China, which is marked by high statut level. I drink coffee, I am modern, as an American. Furthermore it is expensive, I can afford. And coffee is both virile and gives good health, it makes walking neurons more efficiently. Nescafe is experiencing a strong success in China, thanks to a very important advertising investment and a massive presence of facilitators in the stores to promote coffe.
You are therefore in a hypermarket in Shanghai in the aisle which passes the department of coffee. At the department entrance, a nice promotion girl of the Nescafe brand, white shirt, red vest, black skirt : she awaits behind his booth.
You walk past her, she offers a smile to taste a cup. If you have a bit hungry, time, or you’re stingy, you will take the cup and drink. That’s all. And you will buy the brand you want and maybe even ground coffee.
If you are already a consumer of Nescafe (and you’re hungry, thirsty …), you take the cup. You will find it’s nice from your brand to give you a small unexpected gift, and to share with others my brand, and this gives you self-value (self-enhancement: “My brand gives gift to everyone, it’s really a nice brand, my brand”). Maybe you will think that there is not so much coffee at home and you will buy one. And if it was on the shopping list … you would have bought anyway.
You do not like coffee: zero.
You did not even saw the promoter.
You are a Chinese countryman which has just arrived in town.
You learn plenty, you’ve never seen so many things, strange things which you had no idea. Yet it is written in Chinese, yet you do not understand well. You see the girl with her cup, coffee is written. What’s the coffee? Something for long-nose, certainly, it must be disgusting, it’s complicated, what’s the point? So complicated that you dare not even get close to the girl, you’re afraid of being thought a fool.
You get back into your construction camp, where 15 of your mates housed during construction. One of your neighbors offers you a of coffee, but before explaining you how to drink it, when, and why it’s good, and even it gives status! When you will hit your pay, you will buy it, and bring it back to the village, to show that you are not anymore a peasant.
If by cons you tasted the coffee offered by the demonstrator, because she was pretty, you would immediately spat out: “Bouah, what’s that thing wich stinks vomit? Another devilish long-nose thing ! ” And returned to barracks you have told your friend: “You drink this yucky stuff you? I tasted, it’s not for me!”
Nescafe is relatively expensive for a Chinese, but because it’s a good product and well done. There are now Chinese brands, although cheaper, certainly not so good (the consumer thinks as it’s cheaper, it’s worst). Nestlé can sell much cheaper, but they will have no longer the ressources to do so much communication. And the margin will decline dramatically (this is not a linear curve).
All this applies perfectly to the App Store: to offer a free testing it’s a good strategy, if the apps is a simple and know concept (a racing game), and if there is a strong competitive environment. Communication will help with offering consumers little more (tips, tutorial,…)
For a product more complicate, new for the consumer: it will not work, there is even a risk to kill the product by a negative buzz.
Having a low price is necessary if it is a staple stuff, with great competition. If the apps has some interesting functions or marketing differences, then the consumer will be willing to pay the price.
And the consumer will be a product ambassador, as he has paid a “good” price an application that he will use it, and being it’s own demonstrator.”