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Tuesday, January 27, 2015

MTG Fate Reforged Release Post-Mortem

I'm always happy when there is a new Magic: the Gathering expansion released.  Even the ones that are not well received by the public sell very well out of the gate.  Dealers and players alike grouse about Born of the Gods and Dragon's Maze, but both set records at the time for daily revenue for us, and I'm sure we were not alone.  The difference was that neither set had "legs" for various reasons.  (I have to imagine that there being zero dragon cards in a set called "Dragon's Maze" was a disappointment to some number of players.)

We heard all about how Fate Reforged was going to be bad, and then as with those earlier releases, it has sold very well to start.  Will the set have "legs" this time?  Probably not like Khans did, but look at what Fate gave us:

  • A colorless planeswalker, Ugin, the Spirit Dragon, that goes into something like 96% of all Commander decks and may be viable in other formats as well;
  • Five low-cost Legends with three-color identities for Commander and Tiny Leaders;
  • Clear Standard "push" mythics* in the vein of Falkenrath Aristocrat or Voice of Resurgence, this time Warden of the First Tree, Monastery Mentor, and likely a few others as well;
  • Special basic lands for which the foils will be in demand;
  • Special promotional alternate-art cards from the Ugin's Fate packs;
  • "Money" uncommons in Valorous Stance and Reality Shift; and
  • Fetchlands at a rate of about 1.5 per box.

How different is that from Khans, really?  Not very different if you ask me.

At the same time, it's true that less Fate Reforged product will be purchased in the aggregate regardless of card quality because:

  • It is a small set and fewer total cards are needed to complete it;
  • It will be drafted one pack per player, but at least that will occur for two set cycles just as would occur for previous small sets; and
  • It was released during a slow retail season, late winter.

Our prerelease for Fate Reforged attracted 268 players, beating our previous record for Khans of 263 players.  We were allocated 340 packs for both events, but for Khans we were still using our practice of doubling the prize payout by consuming pre-release packs for prize product.  With that stifling our ability to grow and WOTC's new policy prohibiting most of how a store might monetize leftover promotional foils, we believed it was time to do something different.

For $28.99, tax included (so really about $26.50), players received their tournament entry, pre-release pack, two boosters worth of prize support (provided by WOTC), and a random draw from our $3,000 Prize Vault.  The Vault was valued at retail and contained several jackpots:

  • A Duel Decks Anthology; 
  • A Star Wars Xbox 360 complete in box;
  • A bevy of booster packs and starter decks ranging from foreign 4th Edition to foreign Khans of Tarkir; 
  • Assorted playmats;
  • Assorted sleeves;
  • Assorted promo cards (this made up the bulk of the Vault).

We did this patterning after Pat's Magic Place in Austin, Texas, who pioneered the Prize Vault concept.  However, upon listening to player feedback, we discovered that players who received sleeves or better were very happy, while players who received less than sleeves (for example, a booster pack of foreign M14) felt like they had essentially received nothing.  This is a fair reaction and it was what we were seeking to discover.

Dragons of Tarkir has its prerelease in March and we're going to contemplate how to proceed in terms of pricing and prizing/benefits.  We will not be repeating the Prize Vault again; we don't think it had any promotional impact or lasting impression and it created disappointment where no disappointment needed to exist.  Discovering that players liked getting sleeves was huge, though, because truly we recognize that players wish to sleeve their prerelease decks and only the thriftiest of players keep a spare set of sleeves ready to hand for this, so most have to buy.

Accordingly, we have a gamut of options ranging from simply charging $25.99 (MSRP) for the event and prizing the two boosters directly, to keeping it at $28.99 and providing a complimentary 50-pack of sleeves.  It has proven prohibitive in terms of labor to do much else differently with prizing, and we won't consume pre-release packs the way we used to, because that constrains our future allocations.

Price-sensitive players would certainly vote for the $25.99 option, but we haven't really been getting those players anyway, at least in general.  There are stores in town that, for reasons of their own, discount the prerelease, in some cases deeply.  As Gary Ray wrote, this is a terrible idea and is devaluing one of the few "get healthy" goods or services a game store has in its cupboard.  If we are offering the same value as the other guys but for more money, our prospects of a sellout rest entirely on us having a cleaner and more comfortable store that is more pleasant to play in (and, for players who live near us, location convenience).  We do have a clean and comfortable store, but I'd rather not depend on that factor exclusively.  You never want to put all your eggs in one basket.

The argument in favor of staying "premium" on both price and benefit is that we already had players accustomed to paying $30 for the event, since as far back as when we opened.  Clearly we have an audience that has already made the decision that a premium event is acceptable.  If we reduce the price now, what does it tell them about the value of what they purchased before?  I don't think this is a tremendously critical factor and I am leaning toward not worrying about it and just performing customer recovery if I become aware of any serious complaints, but it's a factor I want to make sure we have considered.

In terms of the release itself, we did something a little different with our case breaks.  Usually we try to open a grouping of consecutively-coded cases to ensure that we receive as even as possible a rare spread.  We simply want to make par on our outcomes -- the risk of a poor yield overrides the benefit of a good one.  However, with a small set like this, a "jagged" yield of rares is less of a problem, and we wanted to see if there was any truth to the rumors that the collation in fat packs and prerelease packs favored higher-value rares or mythics.  We opened the pack equivalent of just over three cases, essentially ~640-650 boosters.  This was a very low opening total for us; we opened 15 cases of Khans of Tarkir because that's the typical par rate for a complete foil set with mythics.  For Fate Reforged, our mythic yield was as follows:

  • 08 Ugin, the Spirit Dragon
  • 06 Monastery Mentor
  • 09 Soulfire Grand Master
  • 05 Temporal Trespass
  • 14 Torrent Elemental
  • 10 Brutal Hordechief
  • 06 Ghastly Conscription
  • 06 Shaman of the Great Hunt
  • 08 Warden of the First Tree
  • 08 Whisperwood Elemental

We totaled exactly 80 mythics, averaging 8 of each, and had two wide outliers in our five Temporal Trespasses and our fourteen (!) Torrent Elementals.  The rest were within normal statistical variation. This indicates that there is really no difference in the pack collation regardless of source (booster cases, fat packs, prerelease packs) as long as you're opening enough to smooth out the yield.

Opening our singles in that way preserved several cases of boosters, and we are seeing brisk business on box purchases regardless of the supposed underwhelm of Fate Reforged generally.  Despite "shorting this stock" and ordering low compared to Khans of Tarkir and being cut in allocation slightly by my distributors, I am loaded a bit higher on inventory than I would like to be.  I have about 100 boxes remaining after release weekend and I am assured not to sell through before terms become due on the portion of those not yet paid for.  I am confident that it will turn at an acceptable rate and put us in a good position not to have to restock for a while, while maintaining efficiency of margin, but fortunately I will have enough spare cash on hand after achieving efficiency overall to front the difference and collect it over the weeks that follow.  We sell boosters at MSRP and boxes at 20% off MSRP, making off-the-shelf booster box sales about $114.80, or ~$123 after tax.

There we have it!  On the overall, I think the Fate Reforged release cycle worked out well for us and that we didn't create a lot of unnecessary waste and loss.  I think we had some misallocation of labor and promotion with the Prize Vault, but that's easily enough solved by moving to a different promotional framework for the next event.  I'm glad I bet low on ordering totals, but still had good sales as a proportion of those, and I expect to bet considerably higher on Dragons of Tarkir, especially if the other five fetchlands appear in the set as expected.

*When mythic rares were first released, Mark Rosewater promised they would be splashy, epic things and not standard staples that players needed in order to stay competitive.  To this day his integrity is depleted in my mind because of how much that turned out to be empty spin.  For the Alara block, the rule held almost true -- Elspeth, Knight Errant turned into a four-of, but mostly the mythic rares in that block were indeed epic, splashy creatures and spells that didn't force players to chase them down in order to be competitive.  The Zendikar block then brought Lotus Cobra, Vengevine, and Jace, the Mind Sculptor, among others.  Yeah.  After that we saw Mox Opal, Liliana of the Veil, Geist of Saint Traft, Falkenrath Aristocrat, Brimaz, Archangel of Thune, and ugh, the worst offender... Voice of Resurgence.  Fate Reforged unfortunately makes this state of affairs permanent, as many of its mythic rares appear designed deliberately as Standard "push" cards.  Far be it from me to tell WOTC not to make money where they can... just don't try to tell us that's not what you're doing.

Tuesday, January 20, 2015

Our Organized Play Pre-Registration Case Study

DSG has our Fantasy Flight Store Championships coming up for Android: Netrunner, Star Wars X-Wing, 40K Conquest, and the Star Wars LCG this spring.  The event kits for these are sent with capacity for 32 players to get the exclusive promo cards or acrylics.  For most stores that would have a SC event, this is enough.  In fact, for our Star Wars LCG event, it will surely be.  But where we have active communities in the games, it is not enough.  We will easily go over on X-Wing and Conquest, and we might go over on Netrunner.

I'm playing in the Netrunner SC and I'll yield my promo to another player, because I don't use the FFG print-to-order cards in my decks, but that only gets us to a capacity of 33.  What will likely happen is that latecomers will get to have promo cards from Game Night kits, other promo material, or even possibly store credit or complimentary concessions instead of the SC promo.  There's nothing we can do to get a second X-Wing kit; FFG simply will not offer it.  We have room for 146 players for card games and about 60 for X-Wing.

Early in the process, we were asked if there would be pre-registration available so people could pay early and ensure they get the SC promos.  We pre-register for Magic prereleases and States events all the time, so obviously we could do the same thing: get a clipboard ready, get a sign-up sheet ready, and start taking payments.  However, that method has drawbacks.  Loss of the paper record could be a disaster.  Proof of payment taken is sometimes sketchy -- we have a staff initial spot on the sheets, but in busy times the staff may forget to tag it, and we have a player who swears they paid... if they paid in cash, we have to take their word for it.  There had to be a better way.

Last fall, we migrated away from Crystal Commerce and TCGPlayer for our web platform and used our point-of-sale system, Light Speed Retail, which has its own web application built-in and hosted by the publisher.  It's extremely limited for TCG singles compared to the focused and dedicated solutions Chedy Hampson and Dan McCarty are offering, but the back end of Light Speed is a mile ahead of anything CC and TCGP have.  This suited us fine as our singles sales in store were consistently more profitable and sustainable, and our online sales through eBay provide superior workflows and metrics.  And it dawned on me: Why could I not use Light Speed for the event pre-registration BOTH online and in-store?

There would have to be a SKU for each event, we knew that much.  Usually we take event payments on "categorical" SKUs, such as this one for our Standard MTG FNM event:
The SKU is used every single week.  There's no barcode; a staff member simply has to type "FNM" and it will show up on the pick-list when ringing it up, and it is priced so that sales tax brings it to five bucks smooth.  We have this set up for booster drafts, general constructed, FFG constructed, Pokemon, and a few others, but the total number of SKUs for events is less than 40, and half of them are duplicates except priced ~20% higher for players using store credit to enter.  (That's its own topic I should revisit at a later time here on the Pass.)

While it's possible for us to simply share SKUs like this through to the website, we realized this would not help pre-registration.  It does not differentiate by event.  Each event open to pre-registration would require its own SKU for this plan to work.  It would be prohibitive to offer pre-reg on every event we do because of the clerical workload (and it being overkill), so we decided we would configure the workflow so we could use it for FFG SCs; Regionals (if we get any, last year we got Star Wars LCG); Magic prereleases; Magic State Championships (we are running two this year); and Magic Preliminary Pro Tour Qualifiers.  Potentially other prestige events might arise for which this would be a sensible system to use.

I built custom SKUs for each event and stocked "inventory" of 32 slots for each:



The above is what it looks like from our side in Light Speed.  As you can see, several have already been purchased since yesterday when the system went "live."

The player registering sees this when they go to our website at dsgcw.com:

Not bad!  When they mouse over a given option, they see this:

Clicking through takes the player to the appropriate add-to-cart and purchase mechanism.  The $9.28 turns into $10.00 after sales tax.

The customer then pays, which on our website is currently limited to PayPal only for reasons unrelated to this particular situation.*  Once they pay, the system sends them a confirmation email, and we see both a PayPal email and an "ORDER PENDING" in our Light Speed system.  From there the order is processed exactly the same as when a player has an open tab in the store.  It gets saved as an invoice, their payment is applied to it, and it goes into the books like any other sale.  It's a snap.

The benefits of this system are becoming more and more apparent the further we tinker with it.  We can take pre-regs in the store and on the web and they are kept in the database record attached to the event SKU.  Players who want to pay in with cash, store credit, or a card swipe can still do so in-store.  The day before the event, or when the "inventory" of 32 slots sells out, we simply print out the player list in order.

For MTG prereleases where the players pick their colors, guilds, or clans in the order they signed up, this is especially nice because it provides an instantaneous reference of their place in line.  And best of all, that order remains correct even when we are mixing web pre-regs with in-store pre-regs!  Regardless of how a player paid in, their priority position is still guaranteed to be correct!

After the event is over, I can just make the SKU "non-current" in the system and it will no longer show up on pick lists or in records, except in completed invoices when running reports.  This should prevent instances where players are mistakenly enrolled in past events.

The system is not perfect:

  • Registering for our website forces the generation of a new customer account in the system, which we then have to merge manually with their in-person customer account if they already had one.  
  • Customers cannot currently pay on the web with store credit on their existing account, even after we merge the accounts.  Light Speed is aware of this problem as I have opened up a ticket for it.  
  • Some browsers have trouble with the website, even though I've taken steps to keep the website as simple as possible.  It's just part of the reality when you have a web app with functionality beyond basic hypertext markup.
  • It does not appear possible for a given product category, in this case Event Registration, to default to requiring no shipping method.  The customer is still able to select In-Store Pickup, which is free and of course gets the job done, but it's non-intuitive and we have already heard from customers asking why it costs ten bucks to ship their pre-reg via snail mail.
  • The available inventory displayed is not always consistent with orders taken, which I believe to be caused by carts not emptying immediately when a customer doesn't complete the order.  I am still exploring this as there is probably a setting in a config menu somewhere that I have overlooked that flushes abandoned carts more quickly.


Overall, I am extremely happy with our experiment with unified in-store and online event pre-registration in Light Speed Retail.  Given time to work out the rough edges, this could turn into an extremely efficient means of administration for organized play.

*Apparently later this spring, our credit card interchange key will be upgraded to use chip-and-pin, Apple Pay, Google Pay, and both card-present and card-not-present permissions.  At least, thus we are promised by Chase.  Once that happens, a customer will be able to pay by any of those means in-store and online.  Unfortunately, for now, our interchange key for in-store swipes is antiquated, like a bank draft on parchment in quill ink, and does not allow card-not-present transactions, meaning telephone or web orders.  We must instead take PayPal on the website.

Tuesday, January 13, 2015

Repost: The Four "F"s of Game Store Concessions

Greetings!

Today's post is another repost -- I promise that won't happen much more often, I've almost reposted all my previous published work at this point.  I wrote an article for GameHead about game store concessions. Much of it is still very pertinent so I'll just step aside and let the article speak for itself!

The Four "F"s of Game Store Concessions
by Michael Bahr
Originally published November 27, 2012

Once again we return to Rocky Mountain Gamesters (RMG) in remote northeastern Arizona, where Pete Proprietor has himself a dilemma. It's two-o'clock on a Sunday morning, and Pete is cleaning his store. Besides the obvious problem that he is not sleeping in bed at this point, Pete is frustrated at the labor/revenue imbalance he has noticed the past few busy weekends, and it has him on the verge of burnout.

On event nights, the trash barrels fill up quickly with massive soda cups from McDonald's, Jack in the Box, and Circle K. The HVAC purges the worst of the Gamer Stink from the air, but the odor from dozens of discarded fast food bags persists. As Pete vacuums the filthy carpet, he steps on a discarded wad of gum and mashes streams of rubbery pink into the tattered fabric. Errant French fries turn up decaying in forgotten corners, adding to the aroma. And the worst part of it all was that RMG had a full house for the tournament, but revenue after 6:00 pm consisted of virtually nothing beyond entry fees. To ensure an adequate supply of Magic: The Gathering and other allocated products, Pete has to offer enough organized play at RMG to meet the "Advanced" store requirements. After a few weekends cleaning up after his players for a pittance in revenue, Pete begins to see the arrival of his carefully cultivated player base not as the lifeblood of his store but as a descending horde of locusts.

By the title of the article, you already know what Pete is failing to do, and that is to present an effective offering of concessions. But before you smirk at Pete too viciously, you should know that it's not quite as simple as deciding to slide a vending machine into the back corner and buying a few boxes of candy bars at Costco. Execution of a concessions plan at a game store – a plan that will work and not merely be a shrinkage magnet and mess generator – is no trivial matter.

Fortunately, Pete Proprietor can follow four "F"s to get his concessions situation back under control and monetize the aspects of RMG's customer traffic pattern that are currently sitting fallow. Those "F"s are Facility, Fixtures, Flavor, and Fun. I will include some observations from what my own
store, Desert Sky Games, has tried and either kept or discarded.

FACILITY (Is This Building Zoned for Vats of Acid?)

Obstacles to a good concessions offering can exist in local laws, a game store's commercial lease, and the nature of surrounding businesses. A prudent entrepreneur will solve these issues before signing a lease. A store already locked into a lease may have little room to maneuver.

In the United States, at least, there is no locality where a person may set up shop and begin serving food with no governmental approval of any kind. At the bare minimum, state health departments license and inspect eateries; in most places, county and/or municipal licensing and inspection are also necessary. The most common licensing scheme for eateries categorizes them based on what sort of raw food handling is going to take place and what kind of segregation there is between employees cooking food and employees serving it. For a bare-bones game store seeking to sell prepackaged snacks and drinks and nothing else, as most do, there might not be any food service licensing required beyond the underlying certificate of occupancy or transaction privilege license. For a comprehensive offering featured cooked meals and alcoholic beverage service, multiple licenses for the establishment and food-handler's credential cards for the staff and managers may be mandatory. Running the tightrope between the two extremes, movie-theater-level concessions are usually permitted at a lesser licensing and compliance level than that for a full-service eatery. All such things have costs that the game store's budget must meet. Long before you ever fire a draft pod of eight, your store will need to have locked down all of these matters.

If you are leaning toward the "restaurant" option of fully prepared meals and/or alcohol, there is no way to teach what you need to know within the scope of this article; stop reading about games and go learn about restaurant enterprising. The remainder of this article will make the assumption that your game store is going to hew to the limitation of serving prepackaged food and drinks only, or exceeding them only in whatever minimal ways local laws may permit.

Owing mainly to bad landlord experiences during the decline of the 1980s arcade boom, many commercial building leases prohibit the use of coin-operated devices. This is a tremendous blow to a game store, which can monetize reasonably well from devices ranging from gumball and sticker machines (the latter retrofitted to contain TCG cards) to arcade video games to vending machines. In fact, snack vending machines are ideally configured to dispense TCG booster packs! The particulars of the vending world are discussed in the next section, but first and foremost a game store must ensure that its lease does not contain a prohibition or limitation on the use of such equipment on the premises. It matters little how good a vending machine is when the store is not allowed to operate one.

Finally, in terms of facility and location planning, a game store's concessions latitude will be affected to a great degree by what is nearby. If a convenience store is open three doors down, it would probably be best to avoid opening a game store in that location in the first place – but if that has already happened, it is likely that concessions will not work out. Gamers generally do not want to leave their ongoing game and are happy to pay a small premium for immediate refreshment, but not when the same can of caffeine is available cheaply from a store so close by that the game store's guest Wi-Fi still works the entire way over. It is somewhat more common for fast food or strip-mall restaurants to be located in the same shopping center. As long as the game store is not offering licensed food service, it is usually easy to coexist with these businesses. In general, their owners will be happy for the added custom and will exchange coupon offers with you, and the mutual promotion gives you a chance to engage the gaming hobby with customers of the restaurant who bring their families to see the game store after dinner as well. Desert Sky Games originally planned a location that had no restaurants for a mile in any direction, perfect for movie-theater-level concessions. However, DSG ended up in a location, better in other respects, surrounded by food peddlers of both the fast and slow variety. It no longer made sense to license up when our store could do almost as well with prepackaged concessions only.

Desert Sky Games allows customers to bring in dinners from outside the store, because for a relatively small inconvenience on our part for trash disposal, doing so makes our customers happy and keeps them on-site longer and exposed to both marketing and our own concessions monetization. After all, no dinner is complete without dessert! But Desert Sky Games prepared for this eventuality in a number of ways. First, trash barrels are ubiquitous in the gaming area. Second, automated air fresheners help address the environmental conditions. Third, rather than carpet, the floors are polished concrete. Though it can be expensive -- $3 to $5 per square foot – polished concrete is such a gigantic improvement over carpet that it should not be considered optional. It is possible to clean any food or drink mess from a concrete floor completely and hygienically in a way that even the best Scotchgarded carpets cannot avail. It is not subject to warping like hardwood flooring and it is impervious to damage that would destroy tile or linoleum, let alone carpeting. Fourth and finally, staff labor is allocated toward cleaning as necessary, a cost center that (we believe) returns its value in repeat visits from customers with high standards, a demographic that overlaps well with price-insensitivity.

FIXTURES (Press Button, Receive Bacon)

Just as purchasing is the name of the game in inventory management, fixtures are the name of the game in concessions logistics. Fortunately, the hobby gaming industry is very late to this particular game, which has been in full force and effect for the better part of a century – so long that there exist antique soda and cigarette vending machines – so most of these logistics are fairly well solved at this point. Any solution a game store adopts is turn-key, with the only variable being which particular key. Unfortunately, that longevity also means that most of the best means and equipment for concessions have become concentrated in the high-volume deployments like movie theaters, convenience stores, and hotels, leaving a high barrier to entry for comparatively small-scale players like us.

Vending machines are typical of this dichotomy. Dixie-Narco makes a "BevMax" glass-fronted vending machine with a delivery cup mechanism that can vend any size or shape of beverage, from the tiny Red Bull cans to the Gatorade fat plastic bottles to glass-bottled drinks to your standard soda and energy drink aluminums. The equipment accepts coins and bills and can be fitted with a credit card reader. It uses energy-sipping LED lighting and is a Tier-2 Energy-Star Compliant refrigerator. It is an absolute home run in every respect and would instantly set up a game store for a top-level concessions offering with relatively little labor required of the staff besides restocking. It is even rumored that the device periodically emits a fresh spritz of Calvin Klein's "Obsession For Men". The only problem with the BevMax plan is that it starts at over $5,000, plus local sales tax and freight delivery.

What, you mean your local game store can't just whip out five pounds large from the owner's back pocket? Not to worry. There is always Craigslist, where you can get a six-slot Pepsi vendor from 1978 for only $400 or so. It will weigh more than a Honda Civic, ruin any tile or linoleum floors below it, and use up more electricity than an aircraft carrier. Bottles? Nope, twelve-ounce cans are all you get, and modern cans with thinner aluminum will sometimes shred open in the vend mechanism. Bills or credit cards? Don't make me laugh – this beast accepts Washington quarters only, and if you insert a quarter that's a smidgen too dirty, the coin mech will jam and you won't make any sales until that one customer shows up who you pay to do your tech maintenance. Each old vendor is believed to be possessed by the angry wraith of a dead thief. But this vending machine, bad as it is, at least achieves the retail vending gold standard of being highly resistant to shrinkage. It may be an option for a game store that can do no better and wants an extra space heater in the room as a free bonus.

Of course, there is a way to get a brand-new, ultra-modern vending machine at no cost up-front, but it requires payment of the owner's immortal soul. That is to say, the beverage distributors typically offer contract placement of vending machines, but rather than the store owner collecting all revenue from the machines and being free to mitigate COGS through prudent purchasing, the distributors handle all restocking and all revenue collection and pay the owner a pittance of a commission on receipts. Despite the store being quartered (ha ha) out of so much revenue, a contract placement like this may be ideal for game stores that are run by a single owner/proprietor who has a small or nonexistent hired staff and only has so many hours in the day to devote personal labor to store operations.

Dealing with the beverage distributors isn't always a bad knock, though. The better deal for many game stores, and the deal Desert Sky Games chose, was to accept a glass-fronted merchandising refrigerator or "merchandiser" from the beverage distributors. A merchandiser, as seen in convenience stores, allows customers direct access to shelves or racks of beverages. Typically, merchandiser placement is free, but requires periodic minimum orders of product at a price not quite as low as the store owner could find elsewhere with some diligence. Other strings are attached: the store cannot place a competitor's beverages in a given distributor's merchandiser, there is a risk of shrinkage as customers must bring their purchases from the merchandiser to the till, and the game store must perform all restocking and rack-facing labor. That said, once the merchandisers are in place and the workflow mastered, revenues are very good. Desert Sky Games purchased one merchandiser outright from a local business wholesaler for $1,700. It is a brand-new Energy-Star-compliant fridge with a five-year warranty, and we can store whatever we want in it. PepsiCo (which includes Rockstar and Gatorade) and Kalil Bottling (the local provider for Monster, Seven-Up, and A&W brands) provided us with free merchandisers. Coca-Cola eventually offered one, but we declined it pending a need for that much volume, and we store our Coke and Dr Pepper drinks in our own merchandiser in the meanwhile.

Snack vending machines are simpler animals to tame. Most have no refrigeration, and a game store should avoid the ones that do, as ice cream is a disaster waiting to happen in a room full of high-dollar Magic cards and custom-painted 40K models. Any reasonably recent snack machine will have price customization per item feeder and can vend a popcorn bag or booster pack just as well as a Snickers bar. Shrinkage is better on vend than a shelved snack wall, at the cost of some lost versatility and added labor. Desert Sky Games, as of this writing, continues to assess the costs and benefits of buying a snack vendor and likely will do so at some point in the months ahead. For now, and with many game stores, a well-stocked snack shelf within eyeshot of the till is a solid option that offers good revenues against controllable costs. The main failure in snack concessions is to offer few or none at all.

FLAVOR (We Have Mountain Dew or Crab Juice)

Much like the Hollywood script-buying scene, an effective concessions offering is "the same, but different." The gamer demographic has heavy overlap with Asperger's Syndrome, which means there is no theoretical maximum stock of Dr Pepper that will adequately meet demand. Ever. Another fixation for those gamers hoping to watch their weight in between helpings of Funyuns is Diet Coke. Other mainstream drinks such as Mountain Dew, Monster, and Rockstar have their devoted drinkers, and it is folly for a game store owner arbitrarily to refuse to peddle a spender's preferred dope. Some gamers will refuse outright to drink anything other than the precise drink they always consume, and management must accept this reality and tailor inventory to suit it. Counter to all this, however, is a gamer attribute of natural curiosity and compulsion to explore the edges of what is known. Beverage distributors offer flavors on direct wholesale that are not stocked in grocery stores but only at convenience stores and specialty shops, such as Rockstar Recovery Grape, Mountain Dew Gamer Fuel, and Henry Weinhardt's Root Beer. These flavors sell well for Desert Sky Games despite being, by definition, drinks that a gamer usually cannot (conveniently) buy and keep at home. This can add to the specialness of the game store experience and creates a better-rounded concessions offering.

Bottled water is essential. Wholesale is typically very cheap, so a store can sell bottled water inexpensively and still see tremendous volume from it. Dieters, gamers with younger children, women, and gamers with medical conditions may not be able or willing to consume soft drinks. Bottled water does not "keep" as long as most canned beverages, and so must be replenished. Desert Sky Games buys any time our reserve dwindles to less than half a dozen cases, not counting bottles already in the merchandiser.

On the opposite end of the spectrum, for those gamers needing a rush, beverage wholesalers now offer soft drinks made with cane sugar instead of corn syrup. The most common of these is "Mexican Coca-Cola," sold by the glass bottle from Costco, and a top seller everywhere it is introduced. Restaurant Depot ups the ante with Mexican Pepsi, Mexican Sprite, Mexican Fanta (which has to be experienced to be believed) and an assortment of fruit-flavored Spanish sugared sodas to boot. The grocery distribution channel now offers "Pepsi Throwback" and "Mountain Dew Throwback" to meet demand in this category, and this trend will likely continue.

With food concession flavors, once again the "same but different" guideline applies. Gamers eat products like Snickers because they taste great and seem fairly substantial, owing perhaps to the mild protein content of the peanuts. Stores often claim they are going to be the one that offers healthy and wholesome foods, but that never works and those items never sell. Not every food item in the store needs to be a sweet – plenty of gamers like salty/savory snacks as well – but it is pointless to push the health concept because there ain't no takers. As long as most of the mainstays are in stock – M&Ms, Snickers, Doritos, Reese's Peanut Butter Cups, and granola bars – the rest of the food shelf or snack vendor can be dedicated to somewhat more varied fare, from beef jerky to snack cakes. Feel free to experiment with this, and a grocery shelf is a good place to do it because their aisle of prepackaged snacks has much more to it than candy bars. That $1.75 bag of Swedish Fish or Happy Cola absolutely will sell for $2.69 on your shelf. Gamers prove over and over again that they care less about the dollar than about not wanting to leave their game in progress. Keep markups reasonable and customers will happily buy; push too hard and they will feel ripped off and will buy elsewhere.

One added bit is that Arizona has joined a few other states in allowing home-baked goods to be sold at retail under a Home Baking and Confectionery Product Preparation law. The law may or may not require registration of the source kitchen, depending on your locality. If your state has a home baking and confectionery law, it is worth your time to find a registered provider, because gamers buy cookies, brownies, cupcakes, donuts, and muffins much more enthusiastically than prepackaged chocolate or candy. For better or worse, freshness counts.

FUN (Here Comes a New Challenger!)

The concessions category wouldn't be complete without an entertainment offering. Opinions on game concessions at a game store span a wide gamut and are often very heated, with some resentful owners snorting "Never!" to the notion of a video game appearing in their hallowed sanctuary while others embrace gaming as a means to meet a need. Still others, such as Desert Sky Games, have ownership steeped in arcade history and hobbyism, and use game concessions as just another means to advance the overall agenda of delivering a gaming experience.

The major options in entertainment concessions are console gaming, PC LAN gaming, arcade gaming, redemption gaming, pinball, and tactile games (billiards/darts/shuffleboard).

We can dispose of three of those options right off: With dedicated arcades and amusement parks pushing redemption hard, that category doesn't have the math right now that works out for a game store, despite the underlying principle looking excellent. Who wouldn't want to have gamers spending $7.00 on skee-ball or token-toss to get enough tickets to buy a $3.99 booster pack or $4 ultimate rare Yu-Gi-Oh! card? This is likely a future category to watch. Tactile games are huge beyond huge in bars and pubs. Some game store owners will doggedly move forward with them regardless of what I say, but if you want experience-based advice, I recommend staying away. Two local shops, long since failed and closed, moved into billiards and darts and immediately attracted barfly- and biker-type customers. I love me a wicked hog as much as anyone else, but if the Hells Angels adopt your store for their own, you can kiss the more lucrative youth customer base goodbye once the neighborhood moms find out. Finally, PC gaming, a game store cash cow as recently as 2010, fell off a cliff toward the end of 2011 for reasons still not fully understood within the industry. Some combination of ubiquity, the advancement of mobile smartphone/tablet gaming, and staleness in the existing title offerings has dried up demand for PC gaming to a frightening degree and with alarming suddenness. I suggest avoiding PC gaming until this situation settles out.

Console gaming, as an option, has some immediate and strong advantages but important drawbacks. All of the equipment is readily available new or on a cheap used secondary market, including televisions. Virtually all of the newest and most demanded software is appearing first (and often only) in this channel. Gamers can and often do invest significant money in their own specialty controllers and accessories, opening up another revenue stream for the store. In fact, console gaming overall can be a store revenue category, though it typically requires a large amount of owner attention and staff labor, and must be entered definitively, not tentatively. Having said all that, console gaming as a concession requires considerable oversight and expense. The games do not enforce their own play privileges or timing. The equipment was designed for home consumer use, not public use, and breaks down early and often in a commercial environment. Finally, the end-user licensing agreements (EULAs) generally do not extend to commercial use. Chains like Howie's Game Shack pay volume licensing to offer console gaming alongside their PCs, and your store will have to do the same thing, absent "game rental" infrastructure, a cost center all its own. If a game store has a solid background in the console industry and a labor workflow that supports it, this can be an effective concession and possibly an effective revenue category. Product knowledge is less essential: learning the "rares" from a given console is less taxing than keeping up with the money cards from a given Magic: the Gathering expansion block.

Arcade gaming is almost all upside, assuming you can ever get good enough equipment into the store. This is, again, assuming the store's lease permits coin-op devices. Licensing is not an issue. Play privilege enforcement is not an issue. The equipment is built to last. The biggest problems remaining with arcade hardware are that it is crushingly expensive to buy brand new, the secondary market is small and difficult to navigate, and when repairs do come up, they require a reasonable but non-trivial amount of technical knowledge. I think I will need to write "the arcade game article for game store owners" at some point to reach this issue in truly useful depth, but for now there are five threshold concepts you need to know.

First and most importantly, avoid most multi-game machines. Most of these are hack jobs running MAME PCs or equivalent Chinese bootleg motherboards and are not only unlicensed but do not correctly coin up between game selections, making them acceptable for home use but not your store. Moreover, they are worthless on the secondary market so you cannot even readily resell them if your store closes or you decide to get rid of your arcades. By contrast, a domestic product called the ArcadeSD motherboard is a multi-game board that can run licensed ROMs, correctly coins up, and has the appropriate operator settings for real commercial use. There are also a few good manufactured multis, such as Class of 1981 (Ms. Pac-Man/Galaga), Namco Collection (Pac-Man/Dig Dug/Rally-X) and the all-time champ, SNK's Neo Geo MVS. Most of the time, you will get the best results from a cabinet running a single game that it is designed to run. Second, avoid older driving games. They are fun, but the steering assemblies break easily and repairing them is difficult. Pole Position is the worst offender here. Third, present different game options to maximize earnings. I suggest groups of four games that include one vintage game, one Street Fighter series game, one other fighter of any kind, and a Neo Geo. These are your arcade equivalents of covering Magic, Yu-Gi-Oh!, Pokemon, and WoW TCG (or miscellaneous) in the trading card game category. Fourth, just take quarters. It may be tempting to take tokens or swipe cards, but until you acquire some arcade industry expertise, you won't be prepared to deal with some of the extra overhead issues and costs that come alongside the efficiency and anti-theft benefits that tokens and swipe cards offer. Fifth, if an arcade game is 100% working, leave it alone. More problems than I can tell you about in this space have come from people trying to fix what isn't broken. Stick to those five starting principles and you'll be okay. And remember, this stuff isn't terribly expensive now. If you're paying eBay prices, you need to be getting very clean units in excellent working order.

I saved pinball machines for last because they are like arcade games except that noise and repair tend to be the biggest problems with them. Pinball still has hardcore devotees far and wide among gamers and avid players will make a point of spending money if you have a great "pin" operating in your store. Pinball machines tend to be loud, even when their sound effects volume is kept low, due to the normal course of mechanical parts clacking and striking during play. Also, virtually any part of a pinball machine that matters contains a moving part, and moving parts mean breakdowns. Brand new pinball machines shipped right out of the box, such as 2010's Avatar, 2011's TRON Legacy, and the new Marvel Avengers pin, come with no warranty. That should tell you something. Unless you know how or your store has a person available to serve as a tech, avoid pins because you'll never keep up with the constant small stream of equipment fixes that come up. But if you can handle pins, definitely consider bringing them in.

Wrap-Up

So what happened to Rocky Mountain Gamesters? Again, all is not lost. Pete Proprietor has some homework to do, but the resources he needs to manage his concessions situation are out there. With phone calls to his local Coke and Pepsi distributors, he can have a solution for sure on soft drinks – since Pete runs RMG on his own, it probably makes sense for him to get vending machines on a contract placement. Costco will deliver snacks at a 10% premium over shelf wholesale, which in Pete's case is worth the added price. Pete's lease restricts coin-operated device usage to landlord approval, so he may have to convince his landlord that allowing some vending machines and clean arcade games into the store would put him on better footing to be able to pay his rent on time. His local Craigslist has a Marvel Vs. Capcom, a Neo Geo MVS-4, and a Namco Collection available for less than a grand in total. If he has a good relationship with his landlord, Pete will hopefully get the go-ahead to bring them in… and he can sweeten the pot if necessary by offering to pay out of pocket for the carpet removal and concrete polish, which is a bullet that he will simply have to bite. There is a light at the end of the tunnel, though, and Pete will finally better monetize his increasingly popular organized play offerings!

Hopefully, your Friendly Local Game Store gets ahead of the game and learns from RMG's mistakes!

Original article:
http://www.gamehead.com/article/1965/four-fs-game-store-concessions

Tuesday, January 6, 2015

Repost: The Discounting Dilemma Game Stores Face

The first question of the year comes from Miguel in Chandler, AZ, who asks why DSGCW doesn't offer discounts on its products.  Okay, actually, that question is from me.  But it's something we are asked relatively frequently.

In fact, DSGCW does offer discounts.  What we don't do is discount things all the time, or offer standing discounts on entire product lines or to particular people or groups, with a couple of exceptions.  I wrote an article explaining the business case for discounting in the hobby game industry for Ben Drago's excellent GameHead.com website a couple years ago, and with GameHead on indefinite hiatus it seems like a great opportunity to republish the article here.  The original link will follow.

The one updated bit of commentary I'll offer is this: In the article, I discuss all tabletop game and comic stores as falling under the boutique model, which I recognize is too narrow on my part.  Not all tabletop game or comic stores are boutiques.  Some follow a different framework model, which in a previous article here on the Backstage Pass I described as the Shoebox and the Bowling Alley.  In either case, however, it holds true that neither of them operate in a manner that makes indiscriminate volume discounting work.  The closest would be the Bowling Alley, which can discount on products as long as it is making hay on event participation and concessions, a challenge all its own.

The Discounting Dilemma Game Stores Face
by Michael Bahr
originally published October 9, 2012

I have been a stakeholder in several game stores over the years, some failed and some successful.  So far, my current endeavor, Desert Sky Games in Gilbert, Arizona, is off to a great start.  But my first plate appearance in the game store business came in Mesa, Arizona in 1998, when I opened the Wizard’s Tower Gaming Center – and I grounded out.  Wizard’s Tower failed because of discounting more than any other factor.

With Wizard’s Tower, I planned to compete on price with the other local game stores and become the Costco – or at least the Walgreens – of hobby gaming.  I relentlessly discounted product in order to accelerate turnover and pump up gross sales.  It worked as designed, after a fashion: I built tremendous sales velocity and an enthusiastic clientele.  And why wouldn’t they be enthusiastic?  We are only human, and of course we all want to get shiny things and pay less for them.  Amazon and eBay weren’t factors yet, and my primary competition was Atomic Comics, seven miles away.  The coast was as clear as it realistically could be.

You can probably guess what happened.  Wizard’s Tower only made it seven months, while Atomic Comics lasted until 2011, and even then its closure was for non-sales reasons.  Wizard’s Tower had only an 18-month lease, which is extremely short by retail standards, but I was so mired in debt from the store’s brief tenure that I had to declare Chapter 7 bankruptcy.

I made plenty of other first-attempt mistakes with Wizard’s Tower, as it was woefully under-capitalized, not built out, located in a light-box strip mall, and so forth, but none of that mattered as much as discounting.  Wizard’s Tower moved a lot of money and a lot of product every week, but its profit margin was too thin to keep operating, even though I had no staff to pay and collected only a subsistence-level wage for myself.  I discounted too much, too often, and too deeply, and gave away the revenue that should have been my store’s lifeblood.

My story is not unique.  Game store owners grapple with the discount question on a regular basis, not the least reason being that there are some customers who constantly importune them for price breaks, haggling as though every Friendly Local Game Store door also bore a sign reading "Not A Real Store, More Like A Flea Market!" (Game store owners are not doing themselves any favors when most of them allow their stores to fall into a state of uncleanliness and disrepair resembling that of a flea market). Hagglers keep at it no matter how many times they are told "no" because it works. Eventually, many owners tire of it and give in. It never occurs to them that this is so dangerous because it is not a two-way street. The store won’t be able to charge, you know, a little extra over MSRP to help pay the bills, just by nagging the customer back every once in a while. The customer will leave and buy somewhere else, and the store is left empty-handed.

Those owners who do the research or learn at trade shows like GAMA are smart enough to avoid the worst of the discounting pitfalls, usually by swearing off discounting outright as they would a friend’s invitation to join an MLM scheme.  Swearing off discounting entirely is a better answer than doing the opposite, but it leaves the store vulnerable to both the rack and the vise of inventory management: stockouts, which can cause customers to defect to a competitor or buy online; and overstocks, which tie up the store’s money in merchandise that isn’t moving.  The owners who won’t discount often fail to attract volunteer organized play support as well, which inhibits the growth of the store’s player community. Discounting, carefully implemented, can be a solution to these problems, but if taken too far, a game store risks selling its seed corn.  And some aspiring game store owners, not having learned the lesson I learned from Wizard’s Tower, may still think the discount volume model is viable.

Below, I will explain three reasons why discounting in general is unhealthy for game stores.  Then, I will explain the five very specific circumstances in which discounting works very well for game stores and turns a potential hazard into a net positive, and why.  Some of the following is set forth in general terms in Sarah Petty’s Worth Every Penny and Paco Underhill’s Why We Buy: The Science of Shopping, two books that should be mandatory reading for anyone considering operating a game store.  For this article, I am adapting Petty’s and Underhill’s principles to the peculiar circumstances of the hobby gaming industry.

THREE REASONS NOT TO DISCOUNT

1. It’s Not That Kind of Store – Literally

First and foremost, a hobby gaming store is not a department or warehouse store, and for reasons beyond the scope of this article, probably never can be.  Not even Star City Games is operating the way Costco does; if anything, SCG is this industry’s scaled-down long-tail analogue of Amazon.  The fundamental retail model the entire hobby gaming industry is oriented toward is properly called a boutique.  A boutique vends niche products to a customer base seeking out those products specifically, and typically does so in a low-overhead, low-stock, often owner-operated environment.  Staff expertise and organized play, as well as niche product selection in and of itself, add value.  A volume retailer achieves profit through economy of scale and volume disposal of essential goods, and discounts to assure itself of market share and continual customer traffic, all using master-planned processes and lowest-common-denominator labor.  Convenience, competitive pricing, and virtually assured stock availability add value.  From the ground up, the structural, financial, and logistical organization of the volume retailer is fundamentally different from that of the boutique.  Costco makes profit in volume even when a margin is razor-thin.  Your friendly local game store cannot.

2. Customers Smell Panic, Endangering the Brand

America loves a winner, and the typical deep discount stinks of a need for liquid cash in a hurry, giving the impression that your game store is in trouble and is a loser.  This means a panic sale devalues the brand overall, and the brand is a big part of what makes a friendly local game store stand out in its market and attract buyers.  Nobody wants to become invested in a cause that’s not long for this world, unless they are a cultist or an NHL hockey fan.  Even worse, a sale having nothing to do with a panic scenario is still dangerous because the discounted value that attaches to your products on a promotional basis becomes the "real" value of those products in the minds of your customers, so good luck making any sales when you put the prices back to "normal."  To put it another way: Is the customer who found your store and used a $20 Groupon to buy the $49.99 Ascension: Shuffling of the Thousand ever going to spend the $45-$50 MSRP each for more board games?  Unlikely.
Which, by the way, don’t ever promote through Groupon.  Just don’t.  Trust me on this one.

3. Customers Learn to Shop the Sale

On a visceral level, a shopper likes the idea of gaining a Thing at a price less than what that Thing is worth.  Through habit, shoppers become inured to the relative merits of the underlying products, and become mentally conditioned to buy whatever is on sale and refrain from a purchase entirely otherwise.   Major volume retailers tailor their operations to this and spend untold amounts of labor to rotate sales among stock to normalize quantities on hand and clear out items that might otherwise expire or are going to be replaced by newer promotions.  Have you noticed that the "summer movie blockbuster" cans of Coca-Cola are nowhere to be seen now, while the "NFL Football" cans are everywhere?  Back in May, they stocked infinity million cases of soda at every grocery store on the continent.  How could they possibly have sold through it all?  Rotating sales on a continuous basis, that’s how.  All those dirt-cheap Independence Day and Labor Day soda sales cleared that stock out.  There is nothing like this in the hobby gaming industry because game stores sell niche products, collectibles, and almost universally non-perishable goods, much of which stays in stock perpetually on a long-tail basis.  Game store concessions, where present, are in such limited quantities that "restocking from the back" is sufficient to keep them current.  If your game store customers get used to sales and learn to shop the sale, over time you’ll move fewer and fewer items that aren’t on sale and virtually never reach full margin on your gross.  If the net profit of a game store is around 7% to 9% of gross sales, you can see that even a mild recurring sale of 10%, given time to infect the entire inventory base, could wipe out all of a store’s profit.

Given the three main reasons not to discount, it is easy to see a tri-factor litmus test emerging: a discount that a game store offers must work within the business structure in place, must not damage the brand, and must not discourage customers from normal purchasing by training them only to "shop the sale."  Fortunately, there are seven discounting methods that pass this litmus test that a boutique store can use in a prudent and effective manner.  Of those seven ways, five apply to hobby gaming stores (The two that do not translate to the hobby gaming industry are training discounts, such as having a cosmetology student cut your hair, and business-to-business pseudo-barter, mainly applicable to vendors of bespoke or artisan goods who need raw materials to craft into inventory).  There is one additional way that boutique stores can discount without hazard, but it is a corner case based on different circumstances.  I will address it last.

FIVE WAYS TO MAKE DISCOUNTING WORK

1. Bulk/Bundling

Offering discounts on products bundled together or bought in bulk is an acceptable form of discounting because it meets all three criteria by a comfortable margin.  A hobby gaming store can sell a complete box of booster packs, for example, at a slight discount from the MSRP of every individual pack in that box.  Acquisition of a booster box is easy through the industry’s normal distribution channels. No store will be seen as desperate unless the discount is too steep.  But most importantly, this discount works psychologically.  Customers understand why they are getting the discount: because they are agreeing to spend money at a certain threshold, generally more than a casual impulse purchase, offering the retailer a cash flow boost and some logistical economy of scale.  It’s not charity; both retailer and customer are accruing a benefit.  Customers understand why they can’t just have this discount on everything they buy: because items purchased a la carte do not offer the retailer a high ticket total or logistical cost reduction.  And, importantly, customers understand that the only thing they have to do to qualify for this discount again is take advantage of another bulk or bundle offer or, if none is posted, make one up and see if the store owner is receptive.  

For example, Desert Sky Games does not discount on board games such as Dominion, but if someone asked me if they could buy the entire Dominion series for $375 cash, a ~15% discount from the total MSRP of around ~$430, I would be strongly inclined to accept that offer.  The buyer is offering me a big ticket and logistical efficiency – I can restock all nine Dominion SKUs with a single phone call – and in return, all the buyer asks of me is a one-time price break.  Fifteen percent is higher than most discount offers I might devise on my own, but unless I thought I was going to have a sudden sales run on Dominion before I could get a restock, the risk of this deal backfiring on me is close to zero.

Many stores discount by bulk or bundling whether they realize it or not.  Does your store hold Magic: The Gathering booster drafts for, say, $15 per head, with prize support to round out a booster box?  That sale is a bundle deal.  For that $15, the buyer gets about five booster packs at less than MSRP and judge-supported organized play services, and in return for that discount the buyer agrees to enter a competition in which three of those packs are consumed to provide his play materials, most of which he can keep afterward, and the rest are pooled with those bought by the other entrants for distribution to the players based on the outcome.  The store gains the value of sales velocity and volume, and also gains the value of a participant in organized play, which mutually attracts other participants who want a chance to play the game and test their mettle against their peers.  The buyer gets the entertainment and event benefits and a price break to boot.  Win-win.  No wonder booster drafts are so popular!

A caution: This is not a good tool for deep discounts, and it is not a tool suited merely for turning over volume.  Given the quantity of product that is tied up in a bulk or bundle deal, the raw math of how much margin you are sacrificing should be straightforward.  Every time I see a box flipper on eBay selling in-print MTG for less than ~$100 per box, I know I am looking at someone who is failing to use this tool properly, who has painted themselves into a corner with overstock or debt, or who is operating in such tremendous volume that the cost of goods is lower.  Above all, a bulk/bundle sale should not be allowed to cannibalize a sale that could have been made at MSRP.

2. Prepaid Pre-Orders

This discounting tool helps solve the stockout problem.  A prepaid pre-order discount happens when a customer wants Game X and it is not on the shelf, and the shopkeep offers to order it for the customer at $39.99 paid up front, rather than charging the $49.99 MSRP.  This is a very generous 20% off MSRP, but that is because the value prospect for the store is very high in this case: The store accomplishes immediate profit over cost-of-goods-sold in advance of the sale, and on top of that generally makes a happy customer, which stimulates future sales.  The customer, of course, gets a steep discount, which from his or her perspective more than makes up for the inconvenience of not being able to take home their niche game on the spot.

Offering discounts on prepaid pre-orders is such a clear and obvious win-win scenario, and it staggers me that many retailers are unwilling to do it, and moreso because the reason for their reluctance can often be chalked up to simple sloth.  It is a bother for many game store owners to break their routine to place a special order, and thus many of them simply opt not to do it.  Even more egregious is that a store with a proper software infrastructure in place, which means Microsoft RMS for Windows or Light Speed Retail for OS X, has at its disposal a tool that should make the placement and tracking of special orders trivially easy.  At Desert Sky Games, we use Light Speed, which allows you to quote the sale and take payment, but then leaves the payment unapplied to the invoice with the SKU in a "back-ordered" status until delivery.  Then, the order arrives, the shopkeep adds it to inventory, and the item is allocated to that invoice, at which time payment can be applied and the invoice can finally be closed.  The software does all the work except placing the order itself, and, depending on whether the distributor accepts a software-generated purchase order, it can even do that.  Honestly, if this is too much of a "bother," maybe the retail business isn’t for you.

Let’s check the litmus test.  Is a boutique set up to be able to place and fulfill special orders?  This is the very essence of what a boutique is structured to do.  Will it damage the brand?  Quite the opposite: it should improve the brand’s standing in the eyes of at least one customer – and, if that customer is vocal within his or her social circles, potentially many more.  Does it train the customer to shop the sale?  Not at all.  Like with the bulk/bundle discount, the customer knows why the discount is being offered (as an apology for the store being out of stock on the product the customer wanted to buy), the customer knows why the discount isn’t universal (because many products are in stock and the customer can buy those immediately), and the customer knows exactly which circumstances must arise for the discount to become available again (a stockout on an item that is still in print). 

3. Clearance/Ding-and-Dent

This discounting tool helps solve the overstock problem.  Inevitably, a game store accumulates badly shelf-worn merchandise and stock of discontinued games that, whatever their quality or lack thereof, have not sold.  Usually more significant damage to merchandise is compensated by distributors if reported right away, so obviously management should stay on top of that, but in this case we’re referring to products that have dented boxes, books that have been handled enough by browsers that their pages are no longer crisp and clean, and heavily played trading card game singles (or, for that matter, most used games, if your store sells any).  For discontinued games, if the store is not planning to restock, the cost of goods shifts from a replacement threshold to recoupment income.  The sunk-money fallacy teaches that there is no longer any point in attempting to "protect" the wholesale amount originally spent for the product; that money is spent and gone, it won’t be spent again, and it is thus no longer tied to the amount on the product’s price tag.  From the store’s point of view, the only goal remaining is to get as much money for that product as possible.  Charging too much will result in the item rotting away on the shelf, while charging too little forfeits potential revenue.  The desired balancing point is the highest possible price that is still sufficiently low that a buyer will find it attractive.  Usually, an eBay auction finds this balancing point organically, or a point close to it before shipping charges come into play.

In both cases, this discount passes the three litmus test factors, but only just.  A boutique is perfectly capable of selling clearance or ding-and-dent product on a price exception basis.  Doing so does not dilute the brand because customers have long since accepted clearance sales and scratch-and-dent departments as part and parcel of the retail world – in examples such as IKEA, customers aggressively shop the scratch-and-dent section of the store for bargains, to no discernible extent of cannibalization from the store’s standard product offerings.  Finally, the danger point with this type of discounting: it can, if handled coarsely, train customers to shop the sale.  Clearancing and ding-and-dent should be removed to a separate area of the store from normal products, or if possible sequestered to a time-limited periodic event, to prevent customers from getting into the mindset of seeking such items first.  It is true that there exist some customers who are bargain hunters to the core and are only interested in your blowout rack, or as we call it at DSG, "The Bazaar."  That is not cause for concern, as the offering then becomes an attraction enticing them to visit your store when they might not have done so otherwise. Customers come in endless varieties.  The greater concern comes from The Bazaar growing to such a share of your store’s sales that it takes a bite out of normal margin sales of new product.  After your wares make a brief run in The Bazaar, I recommend blowing out such material on eBay, and if that’s still not feasible (such as for large collections of out-of-print TCG commons), donate them and take the tax write-off.  Make sure your customer understands why the discount is being offered (because the item is discontinued and won’t be supported going forward, or is no longer in like-new condition), understands why the discount is not universal (because most of what you sell IS supported and minty fresh), and understands that no given product is guaranteed to be discounted in that way in the future, so they are better off buying new if they really want the best experience now, with no compromises.

4. Quid Pro Quo

This discounting tool helps solve the problem of attracting sufficient volunteer organized play support.  This discount is generally not across-the-board but is limited to a given product line.  The retailer may extend the discount also to concessions, because the sales bump that comes from customers having a good experience with a happy volunteer tends to outweigh the marginal extra cost for drinks and snacks for one person.  If the tournament judge decides to quit, however, the store is not caught in the lurch.  The store does not immediately have to contact the Federal Judge Guild and hire another judge.  Someone on the staff can step in until another volunteer arises, or in the worst case, a more experienced judge may work for direct compensation.  By contrast, a tailor of bespoke suits who had a pseudo-barter arrangement with a cotton vendor would be dead in the water without the material supply, so that would be a different discounting scenario.
This discount is not likely to be a daily concern for most game stores, and it passes the tests: a boutique store can do it, the potential effect on the brand is all upside, and it doesn’t train customers to shop the sale because there is no "sale."  A customer understands why the discount exists (because the volunteer is working), understands why it’s not universal (because other people are not working), and understands what it would take to earn the discount in the future (they would need to timely fill the store’s planned or unplanned need for a volunteer).  As with the other examples, it is a win-win scenario for all.

5. Evanescence

Besides being a gothic metal band from Arkansas, "evanescence" is a characteristic whereby a subject is only present briefly and then disappears.  In law, the term refers to things such as traces of alcohol in the blood; police are authorized to draw blood from drunk-driving suspects without waiting for a search warrant because the evidence disappears quickly as it is processed in the bloodstream.  The two most common uses of the concept in sales relate to event tickets and lodging.  If the Super Bowl is on February 3rd, a ticket to the game is worth thousands of dollars on February 2nd and is worth almost nothing on or after February 4th.  That front-row ticket to the Evanescence concert becomes worthless in the space of only 90 minutes or so once the concert begins.  For a hotel, the stakes are similarly high: a hotel room unsold sits empty and earns nothing, while still making up part of the hotel’s capital costs and operational costs to keep and maintain.  A Miami hotel can charge a high rate for rooms on the day of the Super Bowl because it knows it will probably rent out every room that night, while a Lubbock hotel in the quiet doldrums of October is given incentive to collect whatever money it can get for any given room or likely end up earning nothing.  Las Vegas casino hotels are actuarial masters of this concept, which is why it is no accident that they offer hotel rooms on a complimentary basis to visitors who spend time gambling on the premises.  Movie theaters do the same thing: the showtimes most likely to sell out are deemed "special engagements" when discount passes and offers are not valid for entry, whereas a film exhibited in its third week is unlikely to sell out on a Tuesday evening and the theater management is more than happy to admit you with a coupon (in the hope that you will buy concessions at full mark-up, which is their core revenue source anyway). 

Most game stores achieve no benefit on location from evanescence and I readily admit that my own is no exception.  The mistaken but most common analogy is that of a tournament event, but a tournament entry actually becomes MORE valuable, not less, as the event fills up and becomes closer to starting, because good event attendance at a game store attracts more attendees in a virtuous cycle.  The best use of evanescence discounts for a game store are probably found when the store is operating a vendor table at an off-site event.  From Gen Con down to the lowliest of local comic monthlies, there is a cost in time and logistics for a store to vend at the event.  Many stores hand-wave these expenses as the cost of marketing, but that is the last refuge of a scoundrel in a business like this one that depends on smart spending.  Better to go to the event with a solid array of goods, and lower the price of those goods throughout the event until there is as little as possible left to take home afterward.  There is no need to sell the family farm, of course – if the store plans to tour the major conventions all year, from Phoenix in May to Origins in June to San Diego in July to Gen Con and PAX in August, the prices can slide over the course of that entire span.  Importantly, it is an opportunity to make revenue and save on logistics and freight while providing a great experience to a customer.  It passes the test: a boutique can do it, the brand benefits, and a customer is not trained to "shop the sale" because convention attendance is an expensive prospect in and of itself.  A customer understands why the discount is offered (because it’s convention time!), understands why it’s not universal (because usually it’s NOT convention time!), and understands how to get the discount in the future (wait until next year!).

Capstone Concept: The Emotion Engine

All of these discounts are attractive to customers in a monetary sense, of course, but there is an important emotional principle involved.  A customer understands on a deeper level that these discounts are "fair."  They aren’t arbitrary.  The customer isn’t missing out on a deal just because he isn’t the owner’s drinking buddy.  The customer isn’t being denied a price break just because the evening shift clerk is jealous or doesn’t like her.  The criteria for these discounts are clear and obvious in a way that most customers easily understand, and customers recognize the fairness inherent in that, even if they don’t communicate that back to you.  Don’t dismiss the notions of fairness and unfairness as being irrelevant to retail, because the opposite is true.  People learn as children to be upset at real or perceived unfairness.  Psychologically, while maturing, a person develops a Pavlovian discharge of endorphins, causing feelings of comfort and happiness, when something "unfair" is corrected or "made fair."  This is plainly evident in the joy we feel when the downtrodden movie hero finally defeats the arrogant movie villain who kidnapped their true love/killed their parents/scoured the Shire.  So, if a customer experiences feelings of comfort and happiness when they buy things from you, and those feelings become associated with that activity deep within their mind, what do you suppose that customer will be inclined to do, again and again?

The corner case of which I spoke above is a customer qualification that can be offered without discrimination, but that will not upset a customer who learns that the discount isn’t open to them.  (It is "fair.")  At Desert Sky Games, we discount across-the-board to owners, employees, and military personnel (active and veterans).  The owner and employee discounts need little explanation: owners have already contributed up front to the store’s livelihood, and a discount allows for administrative simplicity rather than forcing books reconciliation after a buy. For employees, it is a perk associated with the job, and probably has some incremental positive effect on retention costs. For military personnel, we discount 10% across the board.  Show us a current or expired U.S. Armed Forces ID and the discount will be added to your customer card in our system, and will automatically apply every time you buy.  It’s true that the store sacrifices its profit on purchases by military personnel, but military personnel sacrifice blood, sweat, and time with their families so that we can live in a free country and have a store at all, so we consider it the least we can do.

Hopefully, this article has given any game store owners among you some guidance as you wrestle with the conundrum of whether, how, and when to discount.  For those of you reading who are pure consumers, now you may see why sometimes a discount is gladly offered and other times kindly withheld – and now you can suggest bundling, pre-orders, clearances and the like as ways to encourage that store to discount safely and appropriately.  Your store will hopefully last longer than the seven months of hair-pulling agony I spent not realizing why Wizard’s Tower wasn’t working despite so much money passing through my hands.  Well, now I know, and so do you.

See you at the gaming table – New Worlds Await!

Original article link:
http://www.gamehead.com/article/1936/discounting-dilemma-game-stores-face