Promo pricing is the act of lowering the price as an initial offer. IE: You are about to release your game so you offer a discount to the first people who buy it.
It is my belief that the majority of developers who do this don't actually understand what promo pricing is supposed to be used for, and because of that misuse this tool. So lets go over the theory of promo pricing, which is covered in the book.
Promotional pricing is used to enact trial for long term use. Perhaps a new toothpaste is released and you receive a 50% off coupon for it. Because of this extreme discount you purchase the toothpaste (and the company who produced it probably takes a loss on that). You like the toothpaste so much that you begin using it regularly, purchasing it at normal prices.
However, this model doesn't really work for trial games! It doesn't make any sense. It isn't a reusable product (unless you have a subscription or a LOT of games/sequels/expansions). The only thing you are doing is losing money.
Think of it this way: The people who are receiving the discount (first buyers) are the people who are MOST likely to pay MORE for a game. If anything, you should offer the game as MORE EXPENSIVE for the first months before lowering the price! (AKA: Price Skimming)
The numbers on this can be extremely misleading, and to a novice may be very... Convincing that their strategy worked.
In the above mentioned question that triggered this post the issue was during the promo stage their conversion rate was 3%. After the promotion ended it was .5%. The declaration was the promotion was a success and the question was "Should we switch back to the promotional price?"
There are TWO possible scenarios. The most likely scenario is the conversion rate was higher because there were a LOT of fans of their game waiting to buy. Fans that would have paid any price for it! Lowering the price probably didn't increase the sales nearly as much as it decreased the profit.
The second scenario, which could be happening simultaneously with the first, is that the lower price is actually a BETTER price than the final price: IE: it converts better at 14 dollars instead of 18 (Not just a higher % but enough more people to create a higher PROFIT as well). IF this is the case than there should have been no promo price to begin with, but instead just a final price of 14 dollars. This is NOT likely the case.
A side note to this. It has been found that IF a game is wanted enough the players will be willing to pay nearly ANY PRICE. When it comes to selling to existing fans, especially people who have been waiting a year to buy this game, don't sell yourself short.
The prime example was the study done on Unreal (the first one). The initial worry that 40 dollars was too much for a game was debunked when they learned the VAST MAJORITY of the players were purchasing new graphics cards JUST to play the game... Resulting in the spending of over 200 dollars to buy the game. It doesn't mean you can charge 200 bucks for your games, but don't be so afraid of price sensitivity when you are dealing with your hardcore fans! Certainly don't give them a discount without some ulterior motive.
-Joe, Practitioner of "evil" marketing