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Monday, June 6, 2016

Good Game, Bad Product

The problem at the core of the industry's struggles in the board game category right now is value protection.  Publishers who do nothing to protect the value of their brand find that the race to the bottom online with pricing-bots is difficult to prevent.  When this happens, tactically and strategically, it can make even a good game into a bad product at brick-and-mortar retail in the hobby game trade.

The example I am going to call out today is Machi Koro by IDW Games.  (There are many like this out there, but this is the one I thought would make a clear example; be assured that my picking IDW does not absolve the many other egregious offenders.)  Machi Koro is a city-building game with fundamentally the Settlers of Catan game mechanics.  Die rolls allocate resources, which to some giveth and to some taketh away.  It's reasonably fun, and at times frustrating, and it plays differently based on player count, which adds longevity.  By all objective measures the content stands up, and there is consistent player demand for it.  Machi Koro should be an "evergreen."  But Machi Koro is instead a bad product, and here is why.

The MSRP for Machi Koro is $29.99.  (Not the fictitious $20 "MSRP" that Amazon indicates.)  My best distributor cost for this is around $15.  As you can see in the photo above, the public can readily buy Machi Koro for less than a dollar over my bottom cost, and have it shipped free to their door within two hours.  And don't tell me "but they have to have Amazon Prime."  Everyone has Amazon Prime.  You can just keep rolling free trials one after the next if you have more time than money to jump the hoops.  That $15.89 is the first-party Amazon price, not a third-party dumper, so that product is coming directly from the publisher.

Where is the value proposition for me to offer my customers in this equation?  There is not one.  In fact, I come out the worse in every scenario:

1. I price at MSRP.  Visitor picks it up, sees price tag, pulls out their phone, tap tap tap, sees that I'm charging "double what it's worth!", mutters, "This place is a rip-off!"  Walks out the door.  Will never come back.  That visitor will assume that everything in the store must be priced double what it's worth, in their perception.  My store has instantly become of no value to him or her.  Any money I spent in advertising and promotion to gain that customer is lost.  Repeat this negative customer experience (NCE) enough times and you have a store that will fail to accrue a customer base, and will ultimately close, if that store's intention is to be a board game retailer.

2. I price-match it.  I make less than $1 per unit net, which means I'm way in the negative on overhead.  This is a positive customer experience (PCE) but I will still ultimately go bankrupt and close doing this.

3. I simply don't carry it.  Visitors who want it may ask for it, or not.  If they don't ask, they simply leave disappointed (an NCE) and assume DSG is "just a Magic store."  If they do ask, I will have to tell them "no," initiating a NCE.  They may ask or we may offer to special-order it.  However, once they hear the price and delivery time, even if I offer a small discount for the inconvenience, it does not stand up to 49% off, free delivery to their doorstep in two hours.  I cannot achieve any part of that equation and stay in business.  They will be polite and say "no thanks," but it's an NCE and the internal perception is not much better than for the visitor at MSRP.  Everything in the store must be overpriced, they conclude.  They may or may not be back.  Often they won't.  Repeat this NCE ad nauseam and you have a store that will fail to accrue a customer base, and will ultimately close.

4.  I price-match with a publisher exclusion limiting the discount to ~25%.  This is basically gruel, it's the compromised mixture of the worst aspects of every other option and it results in an outcome that's mostly worse than them just ordering it from Amazon for 49% off list and having it at their doorstep before they get home from the errands that brought them out my way.  I did this for a while and on balance found that the NCE was too pronounced to balance what little PCE might accrue.  Making matters worse, changing prices meant added labor, added logistics, slowdown at the register, and inconsistent bookkeeping.  In practice, the model turned negative and I had to stop or else lose money and lose customers and ultimately close.

I have said before, even while price-matching and turning dials as I do, that pricing board game merchandise at MSRP is the best practice in our industry.  It is impossible to avoid losing a certain number of sales in doing this, but the negatives are mostly known, customers are mostly already conscious of the model's limits, those who have chosen to purchase online are pretty much already committed to that, and you don't get a whole lot of visits from people who genuinely think you're being jerks by not offering basement price in-store.  And you get the added benefit of making a PCE sometimes when a customer who can easily afford the difference (or doesn't care about the price) comes in and wants that game for their evening's dinner party.

By practicing good inventory management, in my store I discover that products like Machi Koro end up turning more slowly (or not at all) and are usually thin or one-unit at shelf level if they appear at all.  They are the first to go when the store needs more space.  Meanwhile, board games that have some publisher-based value protection are a better value proposition at retail and thus I can carry them without constantly initiating NCEs.  This results in a stratified offering where my board game category basically runs heavy on Asmodee, Fantasy Flight, Days of Wonder, Mayfair, and HABA.  Then I get some amount of positive traction out of the publishers that run low price points, like Renegade, Steve Jackson, Looney Labs, Brotherwise, and so on.  The result is a line-up with big gaping holes in it where other entire game lines should exist.  They aren't there, because they simply don't sell, and never will at MSRP because it's so much more than the online price.  And, these games in general sold poorly even under the price-matching because years of being the cheapest has made Amazon the vendor for those products to which customers turn first.  I can continue to sink blood and treasure into those products the way I have done for years, and it just creates NCEs and loses me business.

Better that I should turn to safe havens.  In board games I named the diligent publishers above.  In miniatures and CMGs, WizKids, Games Workshop, and Steamforged Games protect their brand value and it works.  All of their lines are healthy for me.  Comics in first print are not a price-sensitive category, so that works.  Video games and TCG singles are secondary-market categories, so they have their own challenges that aren't analogous to the board game value problem.  Keeping to the healthy product lines is what keeps me in business and keeps my mortgage paid and my children fed.

Unfortunately, right now that means disappointing visitors who just want to play a good game, because in that particular case, the good game may happen to be a bad product.

4 comments:

  1. I agree with everything you said, but you missed out on option #5, which is the best way for you to proceed.

    "5. Don't carry the game, and when a customer asks for it, tell them why. Be honest and say that amazon offers it for far less than I can, so I do not stock the game. Take it a step farther and show them how to order it on their smartphone. You have no sale, true, but you have a solid PCE, and for many customers (not all though) you have established a level of trust. Some will look around and buy something to reward you. Some will take option 3b, placing a special order with you. Its the healthiest way of managing the problem, though in no ways ideal.

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    1. That's an approach I like because it's honest and forthright, and I think I would use this as the owner making a one-to-one customer engagement.

      The difficulty in this is that it doesn't scale. There's no really good way to teach staff how to explain that without having them worry that they're going to say something that costs the store a sale. It puts them in a really difficult spot. They work hard to develop customer rapport and an owner won't want to short-circuit that.

      There's probably a way out there, and it might be as simple as waiting it out, for the customer base to become so broadly aware of the online prices of a product type that they already kind of assume it, and you can then just nod. :) Thanks for the reply!

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  2. Michael,
    reviewing the product on Amazon, I don't see the publisher offering the product directly. I see a large number of other vendors, including Amazon themselves, racing to the bottom, but not he publisher. Am I missing something? I'm not sure it changes the math in any way. As long as they fail to establish and enforce a minimum advertised price there are not many compelling reasons for a store to carry it.

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    1. Paul, the listing states "Ships from and sold by Amazon.com" and if you select to see the seller options, you'll see one of them is just Amazon direct and not a fulfilling third party. That listing is getting the product directly from the publisher, or from a publisher consolidator such as PSI or Impressions.

      Sometimes a third party will undercut the Amazon listing by a bit, as was the case earlier today, where "Mattman247" went 40 cents under. After a while, if that listing does not sell, the Amazon pricing-bot will adjust the direct listing down to be the cheapest listing. This is why the pricing-bots are such dangerous things, and why publishers controlling who has access to product is such a big deal. Amazon is content to be the cheapest by mere pennies. They want to make money too. But they won't be undersold, so when everyone is dumping, their first-party price comes down as well, automatically.

      Publishers that control the value of their products, such as Games Workshop, don't have this problem. Others, like the Asmodee North America companies (Fantasy Flight, Days of Wonder, etc) are seeing near-zero dumping of products released after April 1st, when their new policies took effect.

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