By Apoorva Chaturvedi, Rewati Bulusu and Priya Narayanan, IIM Kozhikode
India’s app market – B2C applications hosted on the Google and Apple appstores – has experienced a staggering growth from $0.7 Bn in 2017 to $3.3 Bn in 2023, catapulting it to the forefront of global app markets [1]. Indian users download apps 5X more than their U.S. counterparts, a trend fueled by the country’s low app development costs and robust technology expertise. This presents a golden opportunity for any B2C company to tap into a vast consumer base and grow. Yet, the modest average spend of $5 per user highlights lingering pricing challenges in this market.
India, a top market for app downloads, thus falls short in terms of in-app spending and is not among the top 10 countries. The pricing of products is a critical factor influencing this trend. As a fintech co-founder we interviewed pointed out, Pricing of the product is as important as the product itself. In the Indian app market, getting your pricing strategy right is not just about fitting into the customer’s mind, it’s about securing your business’s future. The urgency and significance of this cannot be overstated. In 2021, Zomato transitioned to a tiered pricing structure, “Zomato Pro Plus,” from a commission-based model on each order, increasing user retention and order
frequency, stronger relationships with restaurant partners, and developing a sustainable revenue stream.
Through extensive secondary research, in-depth interviews with founders, and detailed discussions with product managers across various B2C sectors in India, we examined the factors and the trends shaping these pricing decisions in the app ecosystem. What we find is not surprising, but reveals ways in which product managers could tackle the issue. New-age start-ups take years to achieve break-even, forget profitability. The idea is typically to sacrifice short-term profitability to build a sustainable business. A cost-plus pricing strategy is no longer the name of the game for many. Unlike traditional B2C products, the cost isn’t always directly related to the pricing. Instead, companies tend to retrofit the cost structure based on the final product price.
In a few instances, companies introducing new market categories find themselves without comparable products to use as pricing references. Their pricing strategies then become dynamic, shaped by the story they communicate to the market, competitors, and customers, effectively setting the standard in uncharted territory. For example, over the years, Uber has changed the theme of their narration – from service to marketplace, they created packages for
cars, with prices changing in real-time, according to the demand and supply – maintaining the laws of network effects.
Immense competition for customer attention and dynamic market conditions make defining the competition difficult. An ed-tech founder told us, “Anything that garners consumer (student) focus instead of on our product is a competition; even Netflix & YouTube are competition for us”. Likely, an immediate competition is not even a threat. While companies typically don’t calculate the costs associated with tracking each new metric they introduce, they do analyze these metrics to discover which features unexpectedly add value to the customer beyond the core offerings. This often reveals the law of unintended consequences, where features thought to be peripheral can significantly enhance user satisfaction and engagement.
Even a well-priced product may not thrive long-term without effective customer retention strategies, such as increasing the costs of switching to a competitor. B2C companies often face a critical choice—prioritise uniqueness or enhance switching costs. For example, Spotify excels in customer retention by anchoring your playlists within their service, making you think twice about the possibility of leaving the app. While there is no one-size-fits-all solution for pricing, companies can adopt various strategies based on two key factors: the lifecycle of the product and the dynamics of the target market. To effectively tailor their pricing, businesses must not only analyze metrics that extend beyond user actions but also ensure that these strategies lead to profitable unit economics.