Thursday, November 30, 2023

Brands versus Games

I finished Dungeons & Dragons, Baldur's Gate 3 last night. I've played 322 hours of that game since May, compared to an average of 88 hours a year with friends around the table. I haven't watched a movie since starting this game and it has dominated my free time. It is an example of brand management, taking the game I love and managing it across various platforms with the hopes of turning that creativity into money. Wizards of the Coast's Q3 profits were up 99% because of BG3, along with other brand extensions, including Lord of the Rings Magic and Warhammer 40K Magic. Brand management is also at the heart of my professional problems. I shall elaborate.

I love games. Game designers are passionate about making games. Every successful company in this trade has found a balance between the passion of game design and the very difficult business of the game trade. Go through Shannon Applecline's history of role playing games and the same balancing act plays out, decade after decade. You can be passionate, but without business sense, you will fail. 

The problems occur when our beloved games are managed by large, corporate entities. These entities have passionate designers, at least at the moment of design, but the power in the company is with the executives, the brand managers. Brands must perform, more so than just smart business in the game trade. The game itself takes a back seat to the potential of the property.

Brands aim to extend, leverage, and exploit properties, previously known as games. Brands will take a rounding error like D&D, which we love, and coddle, protect and feed it just enough to maintain it in the public eye, in hopes of a more profitable brand venue. D&D is devalued, de-contented and sold at close to a loss for maximum peak public awareness. That's how you build a brand. It's also how you strangle a game.

This brand management sounds terrible, until you get a gem like Baldur's Gate 3. BG3 is successful brand management, which happily resulted in a great, creative game. It's the best video game I've ever played. It's a wonder of game design. It has made me better at tabletop D&D. It will occasionally fall on its face, but that's just game design pushing the limits, something tabletop D&D, intent on careful brand management, hasn't done in perhaps 20 years. 

You don't get creativity with place holder brands. With brand management comes vanilla brand self preservation. Real employees make money for the brand, while creatives are contractors, hired to write middle of the road, safe content, for when there's a need for the brand to maintain public awareness. It's pretty awful and the community takes up most of the slack in both creativity and on boarding players.

The modern game trade is dominated by brand management, not in the number of companies but in the percentage of sales by top publishers. We don't speculate so much about the content of the next Magic set as much as we do about how (not whether) Wizards of the Coast will manipulate supply.  We don't worry whether Asmodee will develop a great Star Wars CCG, because we know the fantastic designers will do a great job. Instead we worry how Asmodee's brand management will tank this game through various missteps that might keep that game relevant with consumers. I have no idea how popular Games Workshop's Warhammer 40K game actually is, only that my turn rates are fantastic due to short supply from tight allocations, under production, and channel strangulation. My metrics say it's a winner, so probably? Starvation can be mistaken for fitness. 

All of this has nothing to do with the actual quality of the game, only how corporations self perpetuate and maximize shareholder value. By the time a game player has achieved peak disillusionment, they are likely on to families and home ownership and other peaks of life's disillusions. This was stressed in a recent video by Matt Colville, who discusses brands versus games when it comes to D&D. As a store owner, I'm still here, selling these games, as a disillusioned brand champion, to the kids of the disillusioned. I shouldn't care, because the money is good, but as a player of games? It makes me sad and if dealing with the public hasn't crushed your soul, brand management certainly will give its all.

I am not guilt free in this charade. I embrace the brands just as hard as anyone. When 80% of my RPG sales come from 20% of my D&D product, I might still bring in a slew of indie RPGs, but who am I kidding? It's all about the D&D. I would love a miniatures game replacement for 40K or a CCG alternative to Magic. The truth is those brands are solid, even when the game falters, even when they load balance gender in D&D books rather than write progressive content. Brands can screw around and not find out, something small publishers can't get away with. 

Anyway, I shall now slink back to my corporate lair and prepare for my next D&D game, like the hypocrite I am. 

Monday, November 6, 2023

Demand Forecasting (Is a Lie)

My POS company, Lightspeed, is enamored with demand forecasting. They rolled it out as a test and have now made it a permanent part of the purchasing process. I'm going to explain why demand forecasting is a mistake and why it's dangerous for a buyer to rely on it. 

Demand Forecasting is based on some basic math. If you've ever watched a TV commercial on investing, they'll add the disclaimer, "Past performance is not indicative of future results." Demand forecasting is using past performance as a guide for you to spend money for future results. If demand forecasting used AI, or if it actually used some of your past seasonal data, it may have merit. Instead, it's using some basic math to say, you should really have 6 of these, because you sold 6 in the past. 

I'm going to explain this simply, as if you were a software developer at a point of sale company, this is not how buyers buy product. Product comes in hot and cools off over time. The fact I sold a bunch of new product, is no indication I'll continue at that pace. It's almost guaranteed this won't happen. A good demand forecasting program would understand a trend in sales.

Demand forecasting is also not supply forecasting. The system has no idea how to calculate these variables:

  • Seasonal Stock. Am I going into or coming out of a busy season? A good demand forecasting system could look back over a year and perhaps know. 
  • Safety Stock. The Fantasy Flight Games solution to out of stock situations is to always have more on hand. A POS system doesn't know what stock is safety stock. This is stock to have on hand to avoid outages, because reasons.
  • Flash Stock. Much of our sales in this trade includes items that come out hot and peter down to slower sales very quickly, like collectible card games. Understanding that I will not have sales levels of days 1-30 of a Magic release in days 31-60 should be part of demand forecasting.
  • Space. There is often no consideration for space available in demand forecasting. My demand forecasting POS suggested I order 50 cases of Mexican Coke, based on past sales. Where the hell am I going to put 50 cases of Coke? Getting it weekly makes a lot more sense than a 30 day supply.
  • Budget. Of course, the biggest problem with demand forecasting is it will suggest you obtain an optimal stock level, without knowing your budget. It doesn't integrate with an Open to Buy spreadsheet. It doesn't know you're saving up for a big release.
So did I try demand forecasting? I did! I realized demand forecasting is a perfect representation of what I should have ordered a month ago. Demand forecasting is a look back, a score card for your previous purchasing. Until it has artificial intelligence involved, where it can look at larger periods of your sales, and perhaps work its way into the Internet to provide intelligence, it's really more of a gimmick. If it had AI, it would be amazing. Imagine a system that could do that! Instead we get some basic formulas using limited data that look backwards instead of forwards.

Don't get suckered into demand forecasting. It would be like using a self driving car that only had cameras in the back. If you're using Lightspeed, I suggest you open a ticket and tell them to get rid of this clutter.

Wednesday, November 1, 2023

Magic Pricing Experiment

While sitting in my RV in Mexico, I came upon an idea that probably wouldn't have occurred to me, if I were closer to my store. What if I took this pretty much dead, Magic product from 2020-2022 and sold it at market prices? It wasn't selling at all and was starting to clog up my inventory reports. The stuff was dead, so why not try? What did I have to lose?

Market prices for a lot of this stuff range from well below cost to slightly over cost. Putting it on sale, in store only, would hopefully get it off my reports and perhaps bring in some extra cash that I wasn't realizing. My big hope was flippers would take notice, buy my Magic, and re-sell it online; something we should be doing ourselves. I have three people who watch my online store for discount Warhammer product and they buy it up within minutes of the listing.

The results after several months of this Magic pricing experiment were not great. Sure, it moved enough to get that product off my dead inventory reports, but not enough to make much of a dent in the supply. Worse, it tended to skew my numbers. 

If you've ever had a great sales month and your bank account is empty, it's probably an issue with margin. When Pokemon was on fire and sold well over keystone, I would stare at the income statement and not understand what was happening. Where did this money come from? We are accustomed to a pretty static margin, and adjust that up or down and we've been transported to a different universe.

What I think happened was I was diverting strong margin sales into poor margin sales. I was taking my best product line in the store and deciding not to make any money selling it. Is it possible I wouldn't have had sales otherwise? Sure, and with a true experiment with a control store, maybe we would have found out. At this point, I will be happy knowing all Magic sales have a reasonable margin.

No flippers took interest in my cheap Magic, although the customers at the lowest economic tier tended to buy a pack or two here and there. We put some booster boxes out on the counter at below cost, and the reception was lukewarm. The fire sale price of Magic is probably about half of the market price. Since we were already losing money, I didn't really want to just make a bonfire in the parking lot.

Then Wizards of the Coast announced a consolidation, a combining of Draft and Set booster packs into Play boosters. For stores, there are far too many SKUs and too many chances to get things wrong. This is just one small example, but it did promise to take two confusing, similar products, and combine them into one. Here's the important part, the Play boosters will likely be priced like Set boosters. Why does this matter? This inflationary move makes older product look more attractive.

If the going rate for a booster pack is now $5-6, Magic draft boosters, especially, have just become about 20% more attractive in the long run. It will take some time for this to be noticed, and time is what these COVID era sets need to regain some value. We'll start seeing Play boosters next year. 

My decision this week was to be informed by market prices, but not driven by them. I went through, and with the exception of Commander Masters and some truly dead Jumpstart releases, set my Magic prices at a margin I was comfortable with. My goal was around 30-35% and I mostly achieved that. A lot of sets didn't change, but the deep discounted COVID sets had an overnight price increase that was pretty substantial.

Two things happened. First, I started selling boxes at that new price and second, I was accused, by others, of price gouging. Yes, if you have been following market prices, selling at a loss and hoping to making it up in volume, there will be those who accuse you of gauging for attempting to get 30-35% off a product. It's not that they have even the foggiest idea of what I paid for it, only that it was cheap before and now it's not. They could have bought me out, but they were happy to make micro purchases well into the future.

To be clear, I don't expect these now sustainably priced packs to sell well, or maybe even at all. I am willing to relegate them to museum product. You can see them up on the shelf, perhaps buy a pack or two out of curiosity, but I generally don't care if it takes years to sell them, provided I have stability in my numbers. There's probably $15,000 worth of product like this, down by about 40% from the beginning of the year. 

I fully expect my dead product to return to the grave and show up like a zombie on my inventory reports. I have resolved that this is my fate. I am buried in the manure of COVID era Magic, and only time will convert that product into rich soil. With the help of inflation through WOTC, of course. Customers will be happy to buy your Magic at below cost (on their schedule), up until the day they chain up your front door.