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In a win for micropayments, World of Goo, a top 10 PC game for January this year and popular seller on WiiWare, the Wii game store, was sold in an experiment to see what people would pay for their popular game by giving them the option to choose what to pay for the game.

The “Pay-What-You-Want” sale marked the 1 year release of the game, so admittedly the game was not at the peak of the sales cycle and was likely in the hands of the users who really wanted the software. Also important is that the publisher reports piracy of the game close to 90%. Even so, the experiment provides some insight into pricing models for games and possibly content sold online.

What did people pay when they had the chance? 57,000 people paid an average of $2.03 for the game during the promotion. That’s a quick $110,000+ sales for a one week experiment, but that doesn’t tell the whole story.

Due to transaction fees, all sales less than $0.30 meant that the publisher received nothing from the sale. Since nearly 17,000 people paid $0.01, with another 6500 paying from $0.02 to $0.99, it’s likely at least one-third or more of sales were unprofitable.

The publisher also took a survey to determine why people were paying what they paid. The largest responses fell into two categories: paying what buyers could afford and supporting the model. More specifically, nearly 23% of respondents said that they chose the “price” they paid based on what they could afford, and just over 22% paid just to support the pay-what-you-want model. More importantly, only a touch over 5% responded that they paid what they thought the game was worth. Twice as many or 11% reported that they were “cheap bastards”, at least they were honest.

The sales figures, piracy rate, and survey lead me to a few obvious and non-obvious take aways:

1. Buyers appreciated the option to choose what to pay, so much so that any mental transaction costs of paying $0.01 were overcome.

2. The price users are willing to pay to has much less to do with perceived value than affordability.

3. Sales experiments, even a year after a game release, can lead to a healthy bump in revenue when done right.

This suggests to me (feel free to argue with me on this) that the $0.99 and $1.99 micropayment sized price points for apps on the Apple App Store and others may be driving huge sales simply because of affordability. If I’m right, where is your $0.99 app?

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In tough times companies are forced to make difficult decisions. Sometimes they make wrong ones. Best Buy made an epically dunderheaded one this week when it announced via email that affiliate commissions for two of its best selling product lines was being dropped from 1% to .25%. A quarter of a percent is insulting to anyone you refer to as a partner. The backlash on boards like ABestWeb.com has already built up as professional affiliates wonder how such a big player could display such a lapse in judgment.

Anatomy of a Bad Decision
Corporations are prone to knee jerk reactions. Especially in crisis situations or tough times. When it comes to cutting costs often the cutting is done by those not directly involved in day-to-day affairs.

In this case you can almost imagine the thought process: We are practically giving away commissions to affiliates on items that would sell anyways! Why don’t we cut the commission rate and increase our profit margin?

A bad decision is made even easier by the fact the Affiliate Channel is often a nebulous component to most corporations’ online marketing strategy. Difficult to understand, easy to undervalue, corporate advertisers often make the mistake of treating the channel with a “set and forget” mentality or deliver campaigns to affiliates with the expectation they will accommodate last minute promotions which should have been planned well in advance. Many such advertisers also make the assumption that affiliates will not make business decisions of their own and simply take whatever leftovers are handed to them.

Real Troubles
In Q3 of this year Best Buy reported that profits dropped 77% year over year. According to the report 4,000 employees at its headquarters were offered buyout packages in an effort to cut costs. The report also quoted Chief Executive Brad Anderson as saying,

“We believe that there has been a dramatic and potentially long-lasting change in consumer behavior as people adjust to the new realities of the marketplace. We also believe that customers will continue to reward those retailers who understand their needs and desires, and offer relevant solutions at fair prices.”

Obviously the company is taking serious steps to make themselves more profitable. While I genuinely wish the best for their employees, cutting the commission percentages on a few top selling items will not make or break the company. It will however sour relationships with affiliates.

It’s an Affiliate’s Marketplace
Anderson is right that customers will continue to reward retailers who understand their needs. So will affiliates.

Best Buy runs their affiliate program with Commission Junction. According to numbers released by CJ comparing same store retail sales, network wide CJ affiliates averaged 73% growth on Black Friday and 39% growth on Cyber Monday year over year. Impressive numbers when compared to comScore posting of overall online sales during the same time period.

Presumably sales were good for the Best Buy affiliate program as well. The email explaining the commission cuts seems to support that stating:

“The Best Buy affiliate sales force has exceeded our expectations during these trying economic times. These important contributions are greatly appreciated. This commission reduction originates strictly out of economic necessity in a growingly price-sensitive marketplace.”

According to Yahoo Tech News the Wii is the top selling item this holiday season. Laptops are another hot commodity. Many other merchants sell both including Buy.com, Amazon, Wal-Mart, and Target. All of whom are competing with Best Buy for the same customer.

As an affiliate you have a choice. Are you going to stay loyal to Best Buy and refer your valuable traffic to them for .25%? Odds are you are going to send the traffic to a merchant who is offering better commission on those same items. Whatesmore, as an affiliate it is just as simple to send all of your traffic to a competitor instead of attempting to redirect traffic for those few items whose commission you are being low balled on.

Gut Check
It would be one thing if Best Buy was withdrawing ads from areas that have a poor ROAS.

Because of their footprint it is doubtful that Best Buy will suddenly pull back from television or print ads, nor should they be expected to do so. The stores that provide jobs to the approximately 150,000 employees are obviously their bread and butter. But surely if they are pulling back from the affiliate channel due to a “growlingly price-sensitive marketplace” they are also pulling back from CPM buys online. As typical with corporations more comfortable with offline campaigns than online campaigns, this doesn’t seem to be the case you can still see them in remnant media placements.

So the affiliate channel, the one that creates the most return for the advertiser’s dollar is the one Best Buy has chosen to cut. It’s expeditious to cut revenue to a channel you don’t understand in order to create higher profitability on items you feel you will sell anyways.

The fact is in these tough times affiliates are sensitive as well. The professional ones will send their business to merchants who are truly interested in cultivating a partnership. Only time will tell what a dent .25% will put in Best Buy’s affiliate program and their overall sales.

Read more:
Best Buy Gives Affiliates a Slap in the Face

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