Challenges and Benefits of In-App Purchases

In-App Purchases offer business the opportunity to implement items or experiences that can either be bought once (non-consumables) or multiple times (consumables). They come with a set of challenges and benefits, which should be considered and strategized over before being implemented.

Freemium models have become the norm in App Stores, as they attract customers to download and experience an app before spending money on the premium or pro version of an app that grants customers access to exclusive features or items.

The Freemium model removes the chance of buyers remorse, which occurs when a customer pays for an app up front and then finds out that its not worth their time nor what they paid for, and leads to greater exposure and a larger customer base for your app, which results in more reviews. If your app is valuable enough, this will lead to the App Store giving you preferential treatment, by showing up in featured apps.

Converting users within this model is the greatest challenge that you will face, as your app must provide significant added value through consumables or non-consumables for consumers to spend money on your offering.

Higher conversion rates can be achieved by carrying out research and discovering the pain points of your app. An example of which is discovering where a customer could be given a faster or guaranteed way to succeed and placing an In-App Purchasable item or feature that provides this specific value. If the item or feature is something that can be used more than once to overcome a hurdle, you should consider making it a consumable, so that customers can buy it more than once.

According to research, a good conversion rate is between 2-5% of customers, for apps with a large customer base but consider higher conversion rates (up to 50%) fundamental for niche apps with a dedicated customer base.

Sources: HBR, Syncoria

In-App Purchases have demonstrated to boost engagement and brand loyalty, as customers have financially and personally invested in your app, making it difficult for them to switch to another competitor and/or walk away from all the value that they have paid for or earned.

The challenge that you will face is that the App Stores are full of Apps which will have an offering that is either identical or very similar to yours.

Identifying your target audience, creating In-App Purchase that offer a differentiated experience that is better and more rewarding for customers and marketing it to them will be fundamental to your success and will translate to a growth in your apps revenue.

Once you have brought them on, keeping the attention of a customer and retaining them will also prove challenging and must be resolved by providing an experience that has repeated, long term value and keeps a customer coming back for more.

Sources: Business of Apps, Syncoria

In-App Purchases are the best way to get a return on investment for all the hard work that was put into developing and launching your app, with In-App Purchases representing 54.8% of global App Store revenue.

They have demonstrated to provide a steady source of income, a valuable addition to In-App Ads and serve as a great monetization model. That said, given the highly saturated and competitive mobile app market, you will face the challenge of offering the right items to sell to customers at the right price.

For research on In-App Purchase pricing, or a revenue breakdown of App Stores. Please consult the article below.

The research also shows that In-App Purchases are challenging as they require a significant user base in order to be effective. This suggests that you will need one of these two:

• Provide significant value for free through a freemium model, to generate enough traffic to be able to win over ~2-5% of customers.
• Provide a differentiated freemium model within a hyper-niche category that brings in a small dedicated user that converts ~50% of your customer base.

Sources: HBR, Business of Apps

Apps make it easy to offer In-App Purchases at a discounted rate for periods of time and to promote these discounts to customers after in-app events; such as providing an ad for a discounted item that boosts health to a customer that has just failed to complete a level.

If successful, a benefit of using In-App Purchases is that they have a trusted, highly optimized check out process that enable one click check-out.

The challenge you will face is finding the right moments to show these ads to the customer, without annoying them or spamming them. We encouraging finding moments that create emotions in customers, as emotions have demonstrated to spread information, take action and make purchases.

Source: Contagious by Jonah Berger

Finally, a benefit of In-App Purchase is the security that comes with them.

As customers are paying through established platforms like the Apple App Store and the Google Play Store, you will not have to win a customers trust in order for them to make a payment.

Customers are also aware that they have a way to make a refund request through a trusted authority, in the event that your In-App Purchase does not meet expectation.

Read our business guide to get our latest market and customer research, perspective and recommendations on building Apple e-commerce apps that use In-App Purchases and Subscriptions.