Why Regional Pricing Remains Crucial in Game Distribution

A visit to a local supermarket in Amsterdam reveals that a one-kilogram pack of rice can cost anywhere between €1.79 ($2) and €4.99 ($5.50), whereas in Argentina's capital, a similar product starts at around 400 Pesos or $1. This disparity in prices is largely due to factors such as disposable income, production costs, distribution costs, and demand and supply levels, which are all taken into account when determining regional prices. This concept is often referred to as purchasing power parity. The Economist's Big Mac Index is a well-known tool used to measure purchasing power parity by tracking the local price of a McDonald's Big Mac and comparing it to the price in other countries. As of July 2023, the Euro was overvalued by 4.3% in raw data and 15.5% in GDP-adjusted terms against the US dollar, while the Argentine peso was overvalued by 33% in GDP-adjusted terms, likely due to the country's high inflation and currency devaluation. A similar logic applies to digital products and services, such as those offered by Netflix and Spotify, which adjust their prices according to regional purchasing power. During my time at BoaCompra (now PagSeguro), we worked with Valve to introduce local pricing and catalogs for several countries in Latin America, including Argentina and Brazil. We advised implementing a pricing strategy that took into account the local economic conditions, which proved successful initially but became cumbersome to maintain over time. Since then, the world has undergone significant changes, particularly with regards to currency devaluation in countries like Argentina and Turkey. Valve has struggled with this issue for years, and the current solution is far from ideal. As Rob Fahey noted in his opinion piece on GamesIndustry.biz, the recent adjustment to switch off local currency support and adjust pricing to US dollar-denominated values has led to price increases of up to 4,298%. This approach is misguided, as it fails to address the root cause of the issue. Simply increasing prices is not a viable solution to the problem of digital games and platforms being easily accessible via VPNs or resellers misreporting sales. The gaming industry can learn from the strategies employed in other areas of the digital media spectrum. For instance, Spotify analyzes the country or region of issuance of a user's payment method alongside their access details (IP) and adjusts their account accordingly or locks them from purchasing from a different region. Netflix requires users to provide valid tax IDs or other local parameters to access regional pricing and offers, while free-to-play MMOs like Garena's FreeFire allow for globally accessible keys at a higher price and limit lower-priced keys to specific servers and regions. In order to effectively cater to local gamers and extract reasonable value, publishers must work with strong partners that enable third-party distribution partnerships. Regional partners and local heroes are best equipped to understand how to present products and deals to their audiences, reach target groups with promotions using the right channels, and provide local payment methods that local users can pay with and at the right cost-benefit. By partnering with these local experts, publishers can generate much-needed additional revenue streams without cannibalizing other markets. In light of Valve's recent move, it is essential for publishers to diversify their distribution channels.