If an iPhone application developer wants to charge more than $0.99 for an application, he should be concerned about signal risk. Every time I see an application "on sale" for $0.99 when it is usually more expensive, I wonder if the developer has fully considered what future profits they are giving away by signaling their discounting intentions to the market. While the incremental $0.99 sales are incrementally profitable (probably), the discounting action will train many other customers (current and prospective) to delay their purchase to receive a similar discount. When sales volume drops after the sale, the developer will probably fall back on the incentive strategy to pump volume back up.
Was the discounting ever necessary?
Maybe, but probably not. The temporary increase in profits will probably not counterbalance the future lost profit that will result from customers changing their purchasing habits. The only way that I can see this strategy working out is if the developer is consistent and unapologetic. But, is your goal to take advantage of less informed customers that eventually will become upset about your pricing habits? It's much better to build pricing power out of customer satisfaction than ignorance. The Internet can't keep pricing secrets! It's better to expect that your customers are well informed (or will be) and focus your time on selling something that they truly value.
How do you protect yourself from discounting shrapnel?
Unfortunately, all iPhone developers are impacted each time any iPhone developer runs a temporary sale. And, like it or not, those bad incentive strategies are here to stay. So, it is reasonable to assume that customers will believe that all iPhone developers will eventually run a sale and will delay purchases accordingly. Heck, the #1 productivity app in the App Store right now is AppSniper, an application that watches for discounting actions so that customers can purchase the applications that they want at the lowest possible price! The customers that you want are smart - plan for that.
The only strategy that will work in the long term is to maintain pricing discipline (don't run temporary discounts, except for in a few special cases). You need to build that pricing discipline into your brand essence and market it aggressively. Customers HATE to feel like they've been taken advantage of. You need to make a promise that you won't run temporary discounts and they won't pay more than they have to for the app at the current price. If you build pricing integrity into your brand and communicate well, most customers will not delay their purchases and you will optimize your profits over the long run.
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