Friday, April 11, 2008

Price vs. Margin

I'm all about talking margin, mostly in preserving the traditional margin or doing away with the game industry concept of discounts altogether. Let's look at some definitions. The discount is the same thing as the margin. If my cost for a $100 game is $53, then my discount is 47% and my margin is also 47%. My cost is 53%. This is alien to most retailers in the world. If this is confusing to you, don't feel bad, most non-game retailers find it odd too.

All other retailers have a cost (which they call the price). You don't get to tell them the final price, you tell them their cost. If you sell them that item for $53, they will charge what they want, probably $106 to get the industry proven, traditional "keystone" markup, with costs equal to to the amount marked up. If they're paying shipping, they'll mark it up another 5% to cover that cost. Print a price of $100 on that item and they'll tell you where you can stick your game. Start talking discounts and margins and they look at you funny; that's their job. If as a manufacturer, you don't think your product can survive in the marketplace at $110, then maybe you should find a place to cut your costs, rather than shifting that burden to them.

As big a problem as this might seem, manufacturers and distributors in the industry are not concerned with discounts and costs, they're concerned with rising prices. High prices are scary because they're somewhat transparent. People simply stop buying as many games or stop buying altogether. There's also this perceived threat that the higher the price of an item, the more likely people will shop online. This is certainly true with electronics and cars, both of which have online sales twice the average.

Most games are not going up in price, however. Collectible card games, for example, set a ceiling of around $4/pack about 18 months ago. This is set by Wizards of the Coast with their pricing for Magic. It's the baseline and if you drift beyond this price point, you risk incurring the wrath of very price sensitive customers. Miniatures are pretty stable, again with a price increase on many models by Games Workshop about 18 months ago. Price increases from them this year could have been enormous, but they're limiting it to their starter boxes (from $55 to $60), something that won't effect core players. Role-playing games are a bargain. Board games are the only category that are seeing alarming price increases.

I'm much more comfortable with the price problem than the margin problem. Shrinking my margin means I have to somehow make my business more efficient by say 4-10%. This is during a time when inflation appears to be around 5%+. It's easy for manufacturers and distributors to just say "Let the chips fall where they may." If this breaks retail stores, so be it. Perhaps we have too many (not that we know what that number is). Perhaps the future of game retail is online with lower costs (not that we know what the sales are now or if they're rising or falling).

However, when the issue is price, everything is reversed. I can be the one saying let the chips fall where they may. Don't want to buy boardgames at $80 each? I can sell you miniatures or role-playing games or I can transform that section into samurai swords or remote controlled robots. I don't want to do that, but I'll do it to save my business. It's now the market forces that drive the situation, not insidious business decisions by an industry that doesn't think things through.


  1. Dohhh - rayyy - fahh - sohhh!

    (that's me, the choir...)

  2. You overstate your case a bit when you say "all other retailers." Games aren't the only products to have an MSRP. Books have it printed on the cover. Video games don't have it on the cover, but they have one just the same, and every customer knows what it is. Try to sell a video game that has an MSRP of $60 for $70 and see how far you get.

    A lot of other stuff has a defacto MSRP due to the manufacturer selling direct to the customer through a website. Unless game companies stop doing that, it won't matter much whether or not they stick a price on the box.

    Most products that I interact with that lack an MSRP are either low margin items like food or high ticket items like furniture and electronics where if I go to the manufacturer's website they don't give me a price, they give me a list of dealers.

    Mind you, I don't think that this changes your conclusions. Manufacturers dealing with rising costs by squeezing the middle men is counter-productive unless they feel they don't need the middle men, and you did a good job of pointing out the probable results of such a strategy.

  3. Yes, I was on a tirade before my morning coffee kicked in.

  4. LOL, it's a good tirade, and if you look at some of those other MSRP items I mentioned, they have things going for them that games don't. For example, unsold books can be returned.

    As a customer, I like MSRP, and I dislike it when there isn't one. That said, if game companies need to raise the wholesale cost of their games by X dollars to stay in business, then they need to raise the MSRP by 2X dollars. That's just common business sense.

    Unless they think they can do without the middle men, in which case they shouldn't even offer a wholesale cost and only sell direct to customers.

    As a customer it pisses me off that the manufacturers are doing what they're doing because I don't really want to buy samurai swords from BDG. I want to buy games from BDG, but I can't ask you to continue to sell something you can't make a profit on.