Monday, April 24, 2017

All Shall Perish Like the Morning Mist

This is not a discussion of pricing, though I will reference pricing for specific offerings as a way of anchoring the concepts involved.  As always, individual businesses must set prices according to their own criteria.

I'm going to hit this topic quickly because it has been a busy weekend and I have even busier weeks ahead.  This is the kind of topic where other retailers reading should do follow-up research on their own and really integrate these concepts.

Some goods are there for a while and then become worthless.  Traditionally these were called "evanescent" goods, because the definition of "evanescence" is a property of existing for a short time and then disappearing.  In recent decades the term "evanescent" goods has largely persisted only in law and academia, where the adjective also describes e.g. evidence: traces of alcohol in a suspect's bloodstream, for example.

The term now in commerce is perishable inventory.  Just like food that literally spoils if unsold for long enough, there exist goods and services that become worthless if unsold during a given interval.  A seat on a plane flight or a bus trip.  A night's accommodation in a hotel room.  An evening's occupancy of a seat at a concert hall.  That ticket to see Evanescence perform at the Dodge Theatre becomes worthless after the show, so the promoter really, really wants to see every ticket sold.
There is bean counting that achieves the goal of selling an optimal number of perishable goods and services.  Paradoxically, that number is usually not expressed in terms of a 100% sellout.  If a concert sells out, the promoter doesn't know how many more tickets they could have sold if they had staged the event at a larger venue.  If an airplane flight sells out, you end up having to beat up passengers.  If a hotel sells out, anyone who paid less than anyone else to stay there represents money lost.  And therein lies the rub.

It's impossible to tell the future, comma, lottery tickets yippee.  Though the actuaries who count the assorted airline, concert, and hotel beans tend to count very well, they will have an error rate even when performing at their best.  The business then has to decide how to mitigate those risks.  An airline might oversell and offer vouchers to get people to bail from a flight.  A hotel worried about being too empty might offer deep discount room rates far in advance or on mid-week days, and then raise the price right up until the week or days prior.  Then, the very night of, the hotel rates might plummet as unsold rooms stand on the verge of earning nothing.  It's not spherical sheep in a vacuum because it costs labor to have the service staff restore a used room, but bistro math says the hotel hopes to be close to full at a fairly high average room rate.  Close to full.  That's efficient.

By now you can certainly imagine some of the financial and promotional gymnastics that go into the perishable inventory mechanism.  If you want to live on the bleeding edge and experience this in excruciating fidelity, be a ticket scalper.  Your stock value will fluctuate wildly and you'll have to do all your research in advance and operate live without a net, and your hope is to clear a night's profit for yourself before your remaining stock of tickets turns to metaphorical dust.

So why am I talking about all this?

Tabletop game pre-release events are perishable inventory.

In most cases pre-releases are publisher-driven and stores are given a limited allocation of "player packs" or prize modules or whatever creates finiteness in the offering.  And in most cases stores can only run the event on a given calendar day.  So the store wants to sell out that event, to within one player kit.

Invariably, as occurred after last weekend's wonderful Magic: the Gathering "Amonkhet" pre-release, the retailer realms on social media were inundated by stores complaining that they had been allocated too few kits and had sold out the event too quickly and had to cancel remaining start times.  And while there were plenty of instances where this happened despite good practices, fairly often I see stores causing their own problem when it comes to perishable inventory by underpricing it.

The MSRP of a Magic pre-release is $25.99.  Disregarding for the sake of clarity the fact that each new release may vary in quality from the last, a store that sold out its previous pre-release or came close, should likely change very little.  DSG used to sell out or come within small unit counts of doing so routinely, as you can read right here on this blog.  Ever since another store dropped in three miles away, some amount of our local audience is saturated out, and we now post sell-through figures in the eighties of percents, offering the event at MSRP.  This would be unacceptable if we were not simply able to recoup much of that value selling the event kits a week later as regular product.  But we do get to do that, so ~85% of capacity is fine.  Meanwhile DSG Tempe runs over 100% capacity and gets additional kits from DSG Gilbert's excess.  So that's outstanding.

If we routinely ran very shallow on sell-through, that would be a sign that our price was too high.  Once upon a time I ran the event at ~$30 with higher prizing.  I think that's actually a more realistic price level for a Magic pre-release, and I am not the first to say so.  But as crowded as my market is, I didn't see that same traction for sets that had soft underbellies, such as Fate Reforged, despite heavy prize support.  We took a complete bath on Journey into Nyx at thirty bills.

If I found the sellouts coming very easily and Sunday afternoon events cancelled on the regular, that would be a telltale sign that I was too low on admission price.  I think I could run $20 events tax-in and sell out extremely easily, but the net on that is abysmal compared to far smaller events at MSRP or above.  It doesn't make a lot of sense when I can come close to selling out at MSRP, and in all likelihood the main thing preventing a full sellout these days is that I don't have the physical space to seat more players at prime start times such as the midnight kickoff.  (That raises a fun question of whether varying pricing by start time might be a viable option.)  Back when Dragons of Tarkir came through and sold out, my allocation was smaller, and my floor had less product on it.  Great for pre-release capacity, bad for sales the other 357 days every year.  Much as I'd love to have huge, luxurious seating for throngs of players, and we'll see what DSG Next has in store, for now we just don't have it, and product must have adequate space on the floor for visitors to shop it.  DSG Tempe is bigger than DSG Gilbert physically and still fills up on event days.

So if you're one of those stores that gets a 90-pack allocation or 120 or 180 or whatever and you sell out too quickly at $25 tax-in?  Maybe you need to be charging $27.  Maybe $29.  Egads, maybe $32, though I think that might be a little more than most markets will bear unless your store is a luxurious event center like The Wandering Dragon or Mox Boarding House.  And I have no idea what they charge, for all I know they're at MSRP anyway.

You can't really reduce prizing if you're giving out the two packs per player that Wizards requires.  You can adjust round counts, prize dispersal, and various other semi-meaningful criteria, but the big one is price and will always be price.  And if you're wrong?  You still get easy sales of the pre-release kits on release weekend.  Maybe you charge one price for advance registration and more at the door on the day of the event, though I urge caution there, that might dissuade players who feel like they missed out on a better deal and won't come play on a quick decision.

The next level of analysis is to recognize that filling capacity is a great rule of thumb, but overall net income is the real goal, and depending on price elasticity in your market, costs of operating, and like such, it might actually net you more to fill 70% of player slots at a given price point than going down $2 per player to fill them all.  I'm keeping that out of the scope of this article because I don't think a lot of hobby game stores are there yet.  They're so terrified of failing to make rent that they'll crank the price down as low as necessary to ensure a sellout, and all the while that gross revenue doesn't punch anywhere near its weight.

Do your research, learn and understand how perishable inventory works, and crib from the vast history of companies who have tried every process under the sun to optimize their results.  But don't give away nickel beer and then complain that you ran out.  Your problem isn't the brewery failing to send you enough beer.  It was you charging only a nickel for the beer they did send you.

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