iPhone apps are underpriced

Six years ago, two separate studies, one by McKinsey & Company, another by A.T. Kearney, demonstrated how increasing price by 1 percent had the biggest effect on net income compared with similar improvements in reducing fixed and variable costs, and increasing sales volume.

This suggested that the products and services of the businesses surveyed were underpriced and further showed how effective pricing is as a strategic activity compared with other activities like cost cutting. Today, I can’t help but be reminded of these results every time I flick through the top grossing iPhone apps in the app store.

Why are most of the apps in this list not like the majority of those out there, free or priced at less than €1 / $1? Well free apps are never going to make any money. That’s obvious, right? You wouldn’t think so with some people. But if cheap pricing was a good money-making strategy, the top-grossing list should be full of cheap apps. But it’s not, because it’s not. iPhone apps are underpriced and businesses smart enough to purposefully price them are laughing all the way to the bank.

This is applicable beyond the app store: most web apps are underpriced too. Think about the effect a 1 percent increase in price would have on your sales, then think about the effect it would have on your bottom line! Would Basecamp, for example, really see a significant drop in sign-ups if they increased their prices by 1 percent?

I think not. But would Jason and David quickly realise they need to upgrade their company cars?. I think so!