Distimo analyzes the impact of price changes on download volumes, revenue

A new report by Distimo finds that dropping the price of an iPhone app increased revenue by 95 percent three days after the price drop, while lowering the price of an iPad app increased revenue by 51 percent. Distimo’s debuted its analytics product AppIQ in October 2012, which allows its customers to see how many downloads and how much money almost any Android or iOS app makes, aiding in the pricing strategy process most mobile app developers deal with.

Distimo said that the effect of a price drop on revenue is significant, amplifying the longer iPhone and iPad apps remain on sale in the Apple App Store. Seven days after a price drop, revenue increased by 159 percent for iPhone apps, and by 71 percent for iPad apps. Distimo also cited increased revenue from one-off fees and in-app purchases as contributors to the increase in revenue in the long run.

On the other hand, when the price of an iPhone app was increased, download volumes fell 46 percent over five days, with download volumes dropping by 57 percent on iPad. Dropping the price of an app not only effects revenue, it effects downloads. Dropping the price of an iPhone app increased downloads by 1665 percent five days after the price drop, while lowering the price of an iPad app increased downloads by 871 percent.

Distimo then took a look at price elasticity, a number that stands for the change in revenue caused by a one percent price change. The Dutch firm found that iPhone apps show the lowest price elasticity on revenue, meaning that revenue reacted most heavily on any price change of a particular app in the Apple App Store. A one percent price drop for an iPhone app led to a 1.2 percent increase in revenue within five days. On iPad, price elasticity is -0.07 percent, indicating that a one percent price drop caused a 0.7 percent increase in revenue.

After noting that 850 apps for iPhone and 930 apps for iPad changed its prices at least once in the Apple App Store in December 2012, Distimo discovered that the majority of price changes fall within the $1 to $3 range, with the largest price changes occurring on iPad apps where 20 percent of all price changes moved the needle more than $4 in the Apple App Store.

The effects of price changes on download volumes and revenue for apps in the Apple App Store is similar on Google Play. However, Distimo said the effect in the app store for Android devices was less powerful compared to the Apple App Store. Distimo cited the higher difficulty to reach the top of the Google Play charts as the explanation for the difference between the two stores. Distimo also listed the top 10 iPhone and iPad apps that benefited from price drops by revenue, in which the majority of apps on both lists were games.

All the data from this report came from the Apple App Store for iPhone and iPad during December 2012, in the 10 largest countries consisting of Australia, Canada, France, Germany, Italy, Japan, Korea, Russia, the U.K. and the U.S. This report is only based on mobile apps that have reached the top 400 overall and had at least one price change in the month of December last year. Also, keep in mind that all this data was collected in December, a time when the holidays dramatically boost app downloads as noted by Fiksu, Flurry and others.

Distimo will host a free webinar on the impact of price changes subject, which this report analyzed, on Feb. 7 at 5:00 p.m. CET. For those interested, register here.