Sunday, September 21, 2014

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, 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.


  1. Great article. As a player, I wished you had discussed how you calculate or distribute prizes for different levels of attendance.

  2. I delegate event management to my manager, but I'll get some information on that. I know prize support is flatter, attracting a less competitive crowd.

  3. Pre-releases are pretty easy for prize support: Stores are provided one box of boosters gratis per 20 kits, so that comes out to 1.8 packs per attendee.

    If you stick to that like we do (1 pack guaranteed per attendee at the end, the rest proportionally split amongst the top 20% or so), it doesn't impact you margin at all. If you start adding on, at $80 or so a booster box, extra prize support decimates your margin pretty quickly. (Speaking of things many retailers are clearly not doing the math on...)

  4. Huge prizes are another thing that makes shop owners feel important and liked, even as they struggle to buy lunch.

  5. Exactly. It's also nice that distributors are competing with extra prize support. We gave out custom play mats with our logo from the last pre-release, thanks to ACD. We gave out the left over mats and Magic pin sets to the 4-0 winners this pre-release. There were about 20 sets of pins and we estimated they go for around $50 each.

    The other thing to absolutely not do is somehow keep the free packs and jigger your price to compensate. That pisses off customers.

  6. Yup. Because of the new store, we got ZERO pre-release and zero prize packs, we bought it all as 'growth'. It's a steep curve for new shops, which I am feeling pretty OK with actually.

  7. Oh, and the truth about being liked?

    When you fail, they will rattle your locked door and lament you've gone out of business for approximately 30 seconds before they figure out the location of the next store. 30 seconds.

    When you succeed? It was because you got lucky, because you knew a guy, because you're bad people, because you're secretly wealthy, because you overcharge. Never because you developed skills.

    That might sounds cynical, but it's truth.

  8. Coupled with the last post (make your money and run) it's been some interesting reading from a Magic Players perspective.
    Wholesale Box Prices that different levels of stores get seems openish information if you look around but I have NEVER seen the price of pre release kits discussed.

    I have seen quite a few different prize models and the one I like best is the fixed at 4 rounds and win a round win a booster. Only the 0-4's get nothing and even that could be easily remedied by a throw in.
    Works better if you are in the higher range on pricing and around the 30 player mark because that fits well with 4 rounds.

    That works out at 2 packs per person (gamers being gamers there won't be any draws) so only a little above the 1.8 supplied and is easy for people to understand.

    Benefits are that people will stay in the store and play. Hopefully your incidentals per person increase as you get very few drops and people stay for the entire event.

    I have participated in events where there was a flat 3 pack prizing (2 if you dropped) and it becomes too relaxed. It does reduce the pressure on judging staff but you end up with a lot of players having byes and not actually getting to play much and no carrot for doing well.
    The one pack gives that carrot while not being a big enough stake for people to get too upset about losing.

    At a fixed number of rounds you can tell people start AND finish times as well as what the prizes actually are rather than just a ~%

    You seem very bitter about the hobbyist owners which went over my head at first. Living in Australia and Korea prices there is not a huge variance in prices and prize support. It could be due to the business climate (less competitive and more comfortable in general) but is probably due to both countries having few distribution choices (Korean stores have 1).

    A Korean based American was complaining about the price and prize difference between here (Korea) and back at his local store run by his "friend" and I can completely understand your perspective now.
    His local store was a clear case of being run by a hobbyist.
    If you know what you are doing then you could make decent money from singles and flipping collections. The margins on singles used to be fairly sacred as over 50% between retailers but even that has joined the race downwards.

    A bad 6 months Magic wise and all of sudden you have to raise event prices at the same time the player base is unexcited....

  9. Great article. I really enjoy your posts and look forward to reading them. I like how you are educating people about the business side of the game industry. I don't know if there is a publisher out there that discloses their behind the scenes experiences but I would love to read that too.

  10. Fred Hicks does this often.