Free apps: The "lite" and "free" demos are a great idea. Anyone selling an app over a buck should do it, especially if you're building a game. Hello, anyone remember Doom? I'd also price to zero with a first effort from an unknown company. This is what we're going to do with superpixel's first app. It's a casual, silly toy, with a surprise inside. I don't think it's worth a lot of money, and it's more important to me to show other developers and designers that I know what the hell I'm talking about. Much like you might pay to post a resume, I'm willing to sink the cost of development if it becomes a calling card to woo partners in our efforts.
Other free apps should involve tech demos, hobbyist efforts, silly stuff that wouldn't get sold otherwise, or interfaces to web apps and services (like Facebook, Reddit, etc.) or extensions of desktop apps (but not always). Oh, and if you have ads in your app, you probably shouldn't charge for it as well. I want to avoid ads, but we'll see.
$.99 apps: Toys, simple 1-screen helper apps and basic tools. I think we're to a point where voice recording apps can all be priced at this point and compete on features. Stuff like snowglobes and other non-game fun items are easily sold at this pricepoint.
$1.99 apps: Casual games, more robust tools (but not full-featured tools), or extensions of web services that add significant value (I would pay $1.99 for the Zenbe to-do app, because it adds local caching of data and excellent sync services).
$2.99 and up to $9.99: This is the sweet spot! You're likely to make money here. But you have to deliver a bullet-list of features and/or repeat value (in terms of games that means lots of replay capabilities). Perfect example: Fastlane. There are a lot of tracks and cars to unlock, and several game modes to explore when you've beat all the tracks and unlocked the cars.
More than $9.99: Specialized, niche apps. I'm considering pricing our first paid application, possibly something to do with magic, above ten bucks. Why? For one thing, we'll be catering to a niche. For another, it's typical in the magic biz to price high to avoid people ruining the secret. And finally, we'll be splitting the money with a well-known magician and I want to make sure everyone is duly compensated. When you see how much value we're packing in the thing, I think it'll be worth it.
Ultimately I think people are dropping to $.99 because they want to zip to the top of the charts. It's a lot like the web boom during the late 90's, early part of this century -- lose money for mindspace. People are doing this because they either don't understand what "real" marketing is (hint: it ain't hoping Apple will feature your app) or they don't see the value in it. Is it worth a $10,000 ad campaign to promote your app? Well, if it costs more than $.99, yeah, it probably is... if you do it right!
With superpixel we're going to play the long game. When you see posts on a blog that make it to digg months after publication, you learn to trust the big cloud brain and realize that the right apps will find their audience. Just give it time. But think it through so you aren't waiting for the world to beat a path to your door -- that means start planning your marketing as you build your app.
Afterthought: Note that I'm taking this from a boostrap & indie dev POV, not someone who would be running a division at EA or even Omni. I recognize that there are myriad business decisions and design decisions and resource decisions that influence the price of an app. So this is my opinion based on what I think the "average" buyer would do.
Would you buy a whoopee cushion for $4.99?
one man's journey into creating gibblybits