Game Design, Programming and running a one-man games business…

The deep discount era is over

cliffski

A short while ago, steam introduced refunds, with the somewhat bizarre idea that a legitimate reason for a discount is ‘its on sale cheaper now’. People rejoiced, but one side effect of this was to screw up the old system of one-day ‘flash’ sales. A lot of people get confused as to the real reason behind quick ‘one day’ and ‘flash’ sales. People sometimes think its purely to introduce a ‘false’ sense of urgency and encourage impulse buys, but the real reason is very different.

The holy grail of economics is per-user pricing. If you make a game, it has a different value for every potential customer, based on their fandom, their desire for new games, their income, their mood and so on. In an ideal world, the price always matches the value. Unfortunately, people get very upset when they discover that everyone has paid a different price, except in flights and hotel bookings where somehow we accept it.

Anyway… companies normally do their best to maximize income in this way by ‘market segmentation’. That basically means getting the rich to pay more and letting the poor pay less. This happens all the time. Movies are cheaper during the day (for retired people and students have less money and yet are free this time). Movies also offer ‘premier’ seats that cost 5% more to make but cost 40% more.  Restaurants sometimes have ‘meal deals’ with coupons in cheap magazines or on ‘discount coupon’ websites, so people who don’t care where they dine can get a better deal than the wealthier spur-of-the-moment diners.

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Steam flash sales did this too. Some people are too busy (have jobs, just don’t care about discounts much) to check steam EVERY day during a sale to see what is cheap. They often miss one-day or flash sales, but they don’t care. A game is $5 instead of $7, who cares? On the other hand the super-time-rich and cash-poor students will happily check a website every day to save $2. Thus…everyone is a winner, the poor pay less, rich pay more, devs earn more.

The current steam refund system kills that. The flash sale now always lasts at least two weeks, meaning that level of price discrimination is unavailable. The existence of shady/illegal grey-market re-sellers has exactly the same impact. Refunds & grey market means less price-discrimination and less deep discounts.

So if you think the current steam discounts are less generous that’s why. Don’t blame us, its just economics and maths. And where steam leads, others follow, so I conclude that the days of deep discounts are over.

10 thoughts on The deep discount era is over

  1. But even if you can refund your game to get it cheaper if you don’t check the steam store every day you would still miss the deal so the only real difference should be people buying the game at the start of the sale, then don’t play it and check the store on a daily basis to see if the game they bought got a bigger discount. On the old steam sale system you could buy the games you wanted that didn’t get a flash deal at the end of the sale and if steam flash sales were reimplimented there wouldn’t be a difference in what the customer gains between buying the game and not playing it before the end of the sale and waiting until the last day of the sale. The same is even more true with the 8 hour deals. The real reason why the deep discounts have stopped is because Valve isn’t doing flash sales anymore but it’s not impossible (and presumably not far less profitable) for them to do it again.

  2. Also this is kind of unrelated but i was thinking about something the other day that you might know Cliff. How important is it to be selling your games at many digital stores so people can get their games at the store they like?

  3. I’m not following you there, either. Doing a refund based on a sale is only possible if you a) haven’t actually played the game (enough) before the sale, and b) you bought it before the sale; and for the flash sale, you also have to catch it to profit from it. Thus, it’s not a two-week extension of the sale at all. If you do a flash sale, you might lose a portion of the money you earned in the two weeks before the sale, but my impression was that flash sales create earnings far in excess of what you’d normally make in two weeks; they also “spread the game around” so that friends of the people who bought it will buy the game after the flash sale, and they are not eligible for the reduced price; the refund system doesn’t impact that at all.

    What the refund system does for you is to get people who think “I’m not buying yet, it might be on sale tomorrow” to put their money down now, while they’re still motivated to (impulse) buy, instead of putting the purchase off and maybe not buying at all. As a customer, I can buy a game now even if I don’t intend to play it right now because I have the freedom to reconsider — and meanwhile, you have my money and will keep it if inertia takes over.

    The policy helps indies because I can also return really crappy games with no questions asked, so that helps me try out games that I’m on the fence about.

    And of course it prevents people from buying Indies from off Steam (e.g. Steam key “flea markets”) since if they buy Steam keys elsewhere, they are not eligible for Steam refunds.

    I have done 3 refunds so far:

    1) Bought a game, started it up, saw how well the DLC was integrated, returned the game and bought the package that included the DLC (on Steam). That saved me slightly more than 1€. I probably wouldn’t have bought the DLC at all because on it’s own, I wouldn’t have thought it worth it (i.e. the combined price would have exceeded what I was willing to pay).

    2) Got my money back on a crappy adventure game that was really a compiled 32kB batch file

    3) Returned a game 2 days after buying it because it was cheaper elsewhere, where I rebought it. (I haven’t actually played it yet.)

    4) I was Steam-chatting with afriend about a game in a current bundle; I bought it on Steam then, but he wanted to give me the key from his bundle. I tried to get a refund on the Steam game, but for some reason it didn’t go through.

  4. What exactly constitutes a “deep discount”? I’d still consider 66-75% discounts as “deep” even if there are no 8 hour flash sales at even lower prices. While certain titles aren’t being discounted as much as in the past, overall little has changed in my opinion. Plenty of older AAA games are still available for under $5 and many low budget indie titles are selling for pennies. Steam Daily/Weekend/Week Long deals will continue with big discounts. Humble Bundle and others will continue to offer game bundles for next to nothing to those who are unwilling/unable to pay a “fair price” for the games and don’t care to make a “reasonable” charitable donation.

    Yes, PC games in particular, often sell for ridiculously cheap prices when on sale. However, I don’t see most of those discounts disappearing without massive price collusion within the industry itself.

    Eliminating deep discounts doesn’t put more dollars in consumers’ pockets. Higher prices mean fewer games bought and likely higher piracy rates. The PC gaming $ pie may actually shrink as other forms of entertainment look more affordable in comparison.

    As it is now many people are buying large numbers games that they realistically won’t have a chance to complete (or even start) in their lifetimes. Taking away the occasional big discounts risks losing a substantial number of “game collectors” that are buying a product despite the fact they may never find time to enjoy it. Whether that risk can become reality, I have no way of knowing. It would be interesting to know if GSB bucking the trend of big discounts will be considered a financial success or setback during this Steam sale.

  5. Hi Cliffski,

    We have just finished December sales with lots of good games with 50-75% discounts. I have spend like 47 USD for 11 good games (plus DLC) – that’s still like 5 USD per game.

    I haven’t done any math, but I just don’t see anything like end of deep discounts. Do you have any excel/data to support that?

    1. I think you will still get 50%, even 75%, but the reasoning behind 90% discounts seems to be far weaker now. I don’t have firm data on this, and we are only at the start of the post-refund system steam sales, so it will be interesting to watch the 2016 spring or summer sales.

  6. I’m happier to have refunds available. I’ve used Steam refunds 3 times now and the savings from not getting stuck with broken games is way more than I ever got from the deep discounts.

    1. Alien JD: Right on point man. I have used the refund 3 times as well and only because the game was really really bad or wouldn’t start. Yet, right before the sale, I bought 3 DLC for an older game that I knew would be on sale soon, and I didn’t ask to get the cheaper price on it.

      I tend to think of the refund policy as a really useful thing to have and don’t want the community to abuse it. Cliff may be right about the economics behind the flash sales impact, but I’d rather have the refund policy than another 5% discount.

        1. Nah Cliff, I think your point comes across well (as usual) and I think it’s an astute observation that makes sense. They stopped the flash sales for some reason(s), right?

          I find it fascinating and didn’t think you were against it at all.

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