Discounts do not increase profitability for video games, says study

Discounts tied to buying large quantities of virtual goods have little impact on profitability and do not increase the number of customers making purchases, a new study has found.

The findings came from an experiment of more than 14 million players of mobile games by King Digital Entertainment, the maker of Candy Crush Saga, researchers from the University of Chicago in the US and Erasmus University in Netherlands said.

For the study, researchers offered a range of quantity discounts on virtual goods, which players buy for use within a video game.

Researchers 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.

Analysis of players' responses to the discounts show that quantity discounts had virtually no effect on the share of players making a purchase, researchers said.

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, they said.

The net result was no impact on revenues or profit.

Data suggests some consumers who would have made small purchases were discouraged from doing so when faced with large quantity discounts.

Researchers said their findings challenge traditional theoretical thinking on quantity discounts, particularly that such practise increase company profitability.

The findings were published in the journal Proceedings of the National Academy of Sciences.