Pre-release Pricing

Today I publicly discuss the incredibly touchy subject of pricing. Not just any pricing, the pricing for Magic pre-releases. This is Magic pre-release weekend, one of several times of the year that equate to game retailer Black Friday. We've had three Khans of Tarkir events so far, and each hit capacity, perhaps for the first time since the super popular set, Return to Ravnica. The importance of pre-release money can't be underestimated. It's a huge event.

Pre-releases are special. There are few "products" as exclusive as a Magic pre-release, other examples being other exclusive Magic products. Yet retailers are all over the board on pricing, and many are in a race to the bottom. What's special about a pre-release is this: Every serious Magic player has to go.

When I say has to go, I mean they can't buy it online. Because it's a brick and mortar exclusive, a game retailer unicorn of sorts, we get to see customers who don't normally visit. We see the guy who comes in after each release and buys $100 worth of sleeves for the three cases he bought from racetothebottom.com, or the downright resentful customer who hates that we somehow still have a role in his Magic equation. So with what's essentially a captive audience, how do most retailers price their pre-release?

Magic pre-release pricing is all over the place, but it's not where you would think. At one end of the spectrum, a few are doing it at close to cost, hoping to make it up in Magic singles, or volume, or some other mythical crack addled equation. The baseline is about $25. At the other end of the spectrum is a flat $30. I don't know of anyone higher than that. In between is a dizzying array of value adds, such as early sign up discounts, included food, extra prize support, and in some cases, a combination of all of these which I honestly couldn't unravel. There is no MSRP on a pre-release, so it's interesting to see what individuals come up with, but for the most part, they didn't choose the obvious answer. I'll get to that.

The cost of the pre-release just went up in price. My guess is most game stores didn't even notice. This was a surprise to many retailers and it wasn't announced. In fact, many retailers had already sold pre-release spots at their original price before other retailers noticed this jump in price and alerted them. That was a bit irresponsible on Wizards of the Coasts part and my guess is it happened because they don't actually understand the calculus that goes into pre-release pricing. It's clear to me other retailers don't understand it as well, and most just do what others do or react to their local market. For their sake (really because I was curious), I made this handy chart:

The chart is helpful as a means to compare one price to another. For example a $30 pre-release makes roughly the same amount of money with 25 people as the $25 pre-release store makes with 35 people and the $23 pre-release store makes with 45. These are the kinds of equations smart retailers use all the time with pricing of things like Magic boxes. Yes, competitor, you sold 100 boxes at ten dollars over cost, but you still made less money than my 30 boxes at twenty over. If you're hitting capacity every time in your small store, you might especially consider supply and demand in this equation and bump up your pricing.

$20 pre-release stores don't even make it on this chart. They would need a whopping 62 participants to make the same amount of money as the $30 store makes with 25 participants.  This is a captive audience. This is a hotel room model, where every empty slot is a potential lost sales, either because its empty or because its full. We only have so many packs and so much space to pack people. There is a very tight supply and demand in these equations. So why lowball it? Why don't retailers discuss this stuff more often?

It mostly comes down to misplaced attitudes towards customer satisfaction and the need to be liked, especially with glorified hobbyists who start a store. And not having a chart showing you'll be just fine holding the line. As a business model, it's choosing to fail. Or worse, it's choosing to ignore all the things you need money for in a small business. It's not being able to afford furniture, fixtures and equipment and the staff necessary for a store. It's the stuff that keeps a small game store in "gamer pit" territory and keeps it from breaking out into the mainstream. The thing is, most retailers don't have the tools to understand this, both at this micro level and the overall macro level.

Lets talk margin for a minute. A game store has traditionally thrived at around a 50% margin. This is part history, part folklore, but it's how things used to be, back on the Earth that was. The reality nowadays is you're lucky if you can get an overall margin of 45%. In our tenth year, we've managed to bump that as high as 47%, but with a lot of higher margin used items that have trade offs in other areas, like slow turns.

I've written about how game stores are stuck between MSRP and a discount model that squeezes them on both ends, making the game trade a retail swamp of its own making. So why would the vast majority of game stores, with a captive audience with this one product, sell it below a 50% margin? At the average of $25, they're getting a 47% margin. $26.50 would be keystoning it for that 50% margin, and it wouldn't be crazy in this situation to go a bit higher.

We've been doing $30 in the past and decided to add a food component to our pre-release this time. It was more as a thank you to our loyal base, who have many other options, but I think it will be part of our equation going forward. My food budget is $3.50 per head to get to my $26.50 keystone number. If you were wondering why there's a $26.50 on the chart, this is why. I'll also mention there was nothing wrong with our $30 price point. Heck there's nothing wrong with $35, if you can do it, but I bet there's bacon involved.

If you're reading this as a Magic player and you're howling in anger, disgust and alarm, know this is an attempt to keep the doors open. Nobody is getting rich here. Nobody will ever even get well off in the game trade again, thanks to the steam releasing valve of the Internet and micro supplies of hot products. In fact, these are the kinds of events that keep many a game store's doors open. Now go find the best value out there for your pre-release, and make sure you include things like staff quality, cleanliness, and the likelihood that business will be there to keep your hobby growing for years to come. You want to play with passionate players. You want your game store owner staying up at night worrying about how to keep you perpetually entertained.