Price Setting in the Gaming World

[Dav]

Okay, before I begin, I just want to mention that I may, to some degree, break into crazy business terms and mathematics.  I don't know, I haven't written anything yet.

My issue, which, strangely, has been thrown about with a number of people over the past week, is on the elements of setting a price for your product.  My argument is a simple statement:  gamers are rather price insensitive.

Certainly, we have those who bitch and those who moan, but in reality, it takes a price jump of nearly $5 to see a relevant impact to the bottom line.  I conclude this based upon the following factors:
      1) Gaming is a hobby.  It is a luxury good.  This makes price comparison relatively unimportant when put on the same graph as content comparison.
      2) Gaming serves a subcultural niche.  Now, not every game serves the same segment of the niche.  However, my contention is that, on average, a gamer tends to be 110+ IQ (and we can avoid the debate of whether IQ is a good measure of intelligence some other time), white (dare I say it?), and chances are, that person has been haunted by a singular statement throughout the course of their adolescent and adult life: "you aren't living up to your potential."
     
Gaming public is a disaffected youth that has become cynical, sarcastic, and openly derisive of the average conformist peer group.  This is not a bad thing.  And yes, I realize that I am speaking openly and without structured defense of my points, but I don't want this to turn into a book.  The same gaming public is enthralled with their own disgruntled attitude mainly because they may, in some manner, obtain  sense of escapism, grand-standing, and hero-worship, all the while not actually threatening the general masses that make them the way they are.  That is important.  They are pissed, but they like it that way.

Now, roll that together with an average of about 2 years of college, a job paying (again, on average) $25,000/year, and an expense ratio of .75.  this means that th average gamer has $6250 to spend on gaming each year.  I don't know abut you, but I never spend that much.  Never.  Maybe $500.  Maybe.

Therefore, the question as to price setting, in my eyes, comes in the form of the $5 increment.  Openly admitting that Apophis does not follow this rule with its own core book (at $28), I say to you that $29.95 is functionally the same as $28 to the gamer.  

In a conversation with Ron, he mentioned that many people would have been happy to see the Sorcerer core book priced at $24.95.  Why?  That increase is noticable.  At $20, it rests at a happy break-point, and dares the rest of us to loewr our prices to competitive levels.  (For the record, I have two things to say about that one:  Fuck and That.)  

How many people, honestly, will buy a product at $21, but not at $22?  I would guess few.  But jump that to $21 vs. $25, and we are speaking to a much more discriminating audience suddenly.

Therefore, when setting a price to your product, figure out the base-line margin that is acceptable to you, add all costs of production per product (for the math-challenged: if cover = $2000, and print run = 2000, cost of cover per book is $1), and then round up to the nearest multiple of 5.  Seriously.  It doesn't have to be more difficult than this.  

I have visions and nightmares of great corporate think-tanks laboriously crunching numbers and graphing them against demand curves for normal goods to arrive at some arcane number such as $27.94567 per book.  Of course, after much careful negotiation and debate, and many furious letters to Congress, they finally allow for the fact that creating currency to reconcile prices to the 1/100,000th of a cent is not necessarily in the best interest of the public, and round that figure to $27.95.

Anyway, my position is that all prices for all gaming materials should be priced at X minus 5 cents, where X is any number divisible by 5.

Anyway, I am finished now.  I will go back to my cave and mumble.

Dav

[Jared A. Sorensen]

I looked quickly at the subject and thought it was gonna be a post about how much things might cost in a post-nuke RPG.

You know, price setting in Gamma World.

Oy vey.

[Dav]

Post-nuke prices?  That's simple.  Two packs of smokes.  For some reason, though mankind rests on the brink of extinction and no plants can be found anywhere, smokes become a prevalent commodity.  

Either that or a couple of rats.  Rats always seem to make it as well.

Dav

[Tim Gray]

I think your analysis of the market is based more on your own attitudes and prejudices than on the truth, and the rest of the post is semi-ranty. You could have got the main point across in a couple of sentences and asked for comment. The main point being that because of the nature of RPGs (luxury/entertainment products, aimed largely at genre-happy folk) there's no point worrying about small differences in pricing level and content is more important. An accurate point, I think, but not hugely interesting as it stands.

[Ron Edwards]

Hi there,

Tim,
As the co-author and publisher of Obsidian, Dav has the chops to be permitted a bit of ranting, I think. However, you are also quite right to ask for the meat of the point or issue.

I do think there's an issue here that doesn't reveal itself easily to the customer side of the retailer's counter. Price-point (or MSRP, the cost printed on the book) is a serious problem for creator-owned games. I'm not talking about the end-use customer so much as the tiers of distribution.

It is not hard to understand that distributors and retailers would like to see a nice high MSRP on every product - they make their money from the profit margin, and that's that. However, it's a little harder for me to understand why lower-MSRP products are often not reordered by retailers even when they sell out.

So that's the problem. For instance, I like the idea of pricing books just in the low end of the acceptable range. Sorcerer, as a hard-back with a nice cover and unusual texture, is priced at $20. My logic is that a customer perceives this low-ish-ness and likes it, more often than not. But my risk is that the retailer (a) fails to reorder the game because he makes less from it than he would from selling (say) Obsidian, or (b) directly and personally is disgruntled with my policy and deliberately chooses not to reorder on that basis. [That last would seem like paranoia except that some retailers have said, to my face, that they practice such policies on occasion.]

Well, there's more here to talk about, most especially about what reasonable time-unit is necessary to see whether a role-playing game is "good" in customers' eyes, and whether that matches the cycle of retailers' assessing sales success of their products for reorder purposes. But for now, that's the meat that I see to underlie Dav's post - that MSRP is not a straightforward issue, and that pricing under a certain range is not just silly in the sense that you won't profit as much, but suicidal in terms of the needs of the intermediary tiers of retail sales.

Best,
Ron

[Paul Czege]

Hey Ron,

I like the idea of pricing books just in the low end of the acceptable range....But my risk is that the retailer...directly and personally is disgruntled with my policy and deliberately chooses not to reorder on that basis.

Are a retailer's costs proportionate with the price of the book? Aren't you cutting into their profit margin (revenue minus costs) directly by pricing at the low end? Doesn't a retailer, for instance, pay just as much in shipping and handling charges from their distributor for a box of $20 copies of Sorcerer as they do for game books from some other publisher priced at $30 each?

Paul

[Ron Edwards]

Hi Paul,

I'll deal with the detail first - Sorcerer is lighter, 'cause it's smaller. Hence lower shipping charges. But who knows whether, penny for penny, that "evens out" the difference in any way, especially because distance shipped plays a role too.

More importantly, I'm trying to distinguish between low-ish and under-priced. The latter would be stupid - the book wouldn't be worth even my own effort if its MSRP didn't yield profit for me or for the retailer. The former is tricky, because we're not just talking profit, we're talking profit that makes me (manufacturer) or the retailer happy.

By low-ish, I'm talking about Dav's point - the low end of the "happiness range." A retailer might like it if Sorcerer were at $25, but he can stand it at $20. Now, Dav's tactic is to find the high end of that practical range (the upper limit of course being set by customers' standards), and mine is to find the low end.

Best,
Ron

[GMSkarka]

Just a couple quick responses to the original post:

Your assessment of the market doesn't jibe with the marketing figures that I've seen.   Some of your points are true...but some (notably the opinion that gamers are by nature outcasts and also of higher intelligence than average) are simply long-held industry assumptions that the figures just don't bear out.

That's sort of immaterial, though.

Really, what it comes down to is that price point is an odd duck in this industry, simply because it is a luxury hobby.  People will spend much more on their hobby than normal consumer models would indicate.  

It is further muddied by the fact that gamers on the internet (who are the loudest voices that we as publishers hear, despite the fact that they are a minority) are quite fond of loudly complaining...often about price.  

However, if you look at the purchase histories in this industry, you'll find that price is almost NEVER an issue.  Sales have not been significantly impacted in any case that I can find where a product has been released with a price point significantly (5 dollars or more ) above average for similar products.

This led me to print up a paper with a saying in 32 point type, which I keep over my desk:  "Bitch, Piss, Moan, Complain...AND BUY ANYWAY."  That, in a nutshell, is the purchase model of the average gaming consumer.

Gareth-Michael Skarka
Adamant Entertainment[/url]

[Valamir]

I offer my personal experience to the mix and caveat it as follows:
1) Personal experience being by definition anecdotal and of statistical limited population may indeed have marginal utility.
2) Most of my gaming experience comes from that unique geographical niche in the gaming world...the greater Metro Washington DC area.

Personal observation #1)  Price has virtually never mattered to me or the few dozen people whose buying habits I know well.  Do I enjoy paying $20 for a product the quality of Sorcerer?  Absolutely.  Would I have paid $35 for the same book.  Absolutely?  Would I have questioned whether the weight of paper was worth $35? Absolutely.  Would I have bought it anyway and gone on to buy a similarly inflated copies of Sword and Soul?  Without question.

Gaming is a niche hobby.  There is only so much quality out there.  If you want to own it, you'll pay almost any amount that doesn't require reducing ones food/beer/movie budget dramatically.


Personal observation #2)  There is a dramatic difference in pricing in the gaming world between RPGs and "Wargames" [note I put Wargames in quotes because here I use it to include a variety of board type games that strictly speaking aren't true wargames in the grognard sense of the word].

While RPG players may bitch and moan about a book that costs $30, a dedicated wargamer will cheerfully plunk down $100-$150 for a box of paper maps and cardboard counters (don't believe it...check out some of the wargaming booths at Origins some time).  The plastic piece games from Hasbro routinely sell in excess of $50.  

One could come up with all sorts of arguements as to why this price differential is in place.  Ultimately I think they are all missing the point.  People pay less for RPGs because RPG designers charge less.  If the RPG prices were $35-$50 then thats what RPG players would pay.  Wait Wait.  People pay more for a wargame because its complete.  RPGs have dozens of supplements so you can't charge that much for each supplement.  I have 3 things to say to that:  Europa, Star Fleet Battles, Advanced Squad Leader.  

My personal conclusion:  Charge more, they'll pay more.


Now I will say that the Metro DC area has hordes of gamers many of whom work for the Department of Defense in some fashion and have salaries that are probably in the upper range of the gamer average.  BUT you look at the price of movies, you look at the price of fast food, you look at the price of clothes, look at the price of a console or PC game...or just about anything even unemployed youth spend their money on and tell me that when it comes to entertainment people are price sensitive.  At the level of dollars we're talking about...I don't buy it.

I pay $50-$70 for a new PC game, which after a couple of PC upgrades I won't even beable to play anymore.  Why wouldn't I pay $50-$70 for a paper game I could play forever.

[GMSkarka]

Another point to consider, brought up to me by Laura Hanson (my fiancee, and partner in Adamant):  Higher prices do not result in lower sales, but they do result in SLOWER sales.

Often, you'll hear younger gamers (those without stable regular income) say "I really want that, but it's expensive, so I'll get it later."   They *DO* eventually purchase it, though (in fact, I would argue that the average gamer's purchasing decision is pretty much made when they first become aware of the product....much like most consumers attitudes toward films: if it's something they're interested in, they'll see it, regardless of reviews).

It might result in a longer sales period, with a longer turnaround....which can result in problems in the front-list driven distribution and retail ends of things, but not for the indie publisher who's largely selling direct.  Plus, if you have established a group of hardcore fans BEFORE release (like I did with UnderWorld, through my design column on RPGnet), their initial purchases should be enough to offset the delayed sales period in distributor and retailer eyes.

Gareth-Michael Skarka
Adamant Entertainment

[J B Bell]

I almost never buy games.  It is fairly likely that Sorcerer, Soul, and & Sword are going to be the only three RPGs I buy all year.  (Although, it, and this place, have rather re-fired my enthusiasm.  And I'm *way* looking forward to a bound copy of Scattershot.)

I also rarely buy science fiction books new.  (I do buy way too many academic books in philosophy, buddhism, science of mind, and other abstruse subjects.)

There's a reason for both of these, namely, I'm in Canada.  If Sorcerer were 25 USD, I probably would have still bought it, especially after reading aobut it here and elsewhere, but I certainly would not have bolted out the door the next day to go grab it (costing me another 3.25 CDN for bussing).  And then, if you're ordering from the web and not able to get a game at your retailer, there's the whole fun with Customs issue--they charge $5 for me to have the privilege of them pawing through my crap, and then I get to pay a 7% tax at the post office.

That badass monster-truck-eating American dollar is total hell on Canadian consumers.  It's no fun for retailers, either, who have simply stopped taking special orders for books in some cases when the exchange rate gets ugly.  I would guess the effect here is to crunch your margin even worse--a five-dollar (US) leap is much more likely to turn away a customer, but pricing to the low end can kill your retailer orders, too.

Anyway, yet another variable that makes finance look like voodoo to most of us.  (Actually, I think I have a much better handle on voodoo.)

--TQuid

[Dav]

GMS (and Laura):

After reading your posts, I am inclined to alter my opinion to be more in-line with the statements you (actually, I guess it was Laura) made regarding increasing price equals increasing turnover, without significant impact upon bottom line.

I do have, if I may ask, a couple questions:

When you say that it has no net impact on sales (excepting rapidity of turnover), are you referring to bottom line (margin), or net sales in numbers (quantity)?  I am not so obtuse as to think you are saying that *no one* is impacted by increasing price, just that those that are impacted are relatively marginal to the overall picture.  However, if what you are saying is that company X could make the same money printing a third of the books at 167% the price, I am interested in the extreme.  

Without miring the equation in changing price points for ordering quantities and readjusting cost figures based upon print runs, you seem to be indicating that fewer books at higher prices are the way to go for the indie publisher.  Is that an unfair statement based upon your posts?

This also brings to light another rather sticky point, that you very succinctly (to my mind, at least) mentioned.  That point, simply, would be that marketing in the gaming industry does NOT have to be something that requires a large, or even an existent, budget.  A few comp. copies to reviewers, and some press releases via web sites and you have your buzz.  I am inclined to agree with this, though Apophis has had some success marketing to non-gamer markets (such as Carpe Noctem and Rue Morgue), but that is largely a sale to someone who won't *play* the game, they just want the "dark stuff" to have on their book shelf.  Again, that is more opinion than researched fact, but I feel safe making that assumption.

Anyway, thanks for the insight.  

Davh

[GMSkarka]

Without miring the equation in changing price points for ordering quantities and readjusting cost figures based upon print runs, you seem to be indicating that fewer books at higher prices are the way to go for the indie publisher.  Is that an unfair statement based upon your posts?

No, that's a fair statement based upon my posts, but it isn't necessarily the point that I was trying to make.  In my posts, the setting of MSRP was independent of production...so I was saying that, across the board, prices can be raised without it adversely impacting sales, regardless of how much stock you produce.

If you want to produce lower runs, that's certainly your call...which would result in lower cash outlays for an indie publisher, but it would also reduce your margin, since per-unit costs would also rise.  

I'm saying: print the same sized runs, but increase the price ANYWAY.  The product will move.

GMS

[Ron Edwards]

Hi Dav and Gareth,

I guess I'm the dewey-eyed bambi of the three of us. Your take is perfectly reasonable, also known as, "charge as high as the market will bear," regardless of production cost. It happens not to accord with my own approach. My general take is that, if a book can be made better and cheaper, I'll price it lower (within that range I mentioned earlier).

Part of the issue is long-term vs. short-term. Of course, if long-term survival of one's game is not a priority, and the company is proceeding on more of a fire-and-forget model, then your tactic applies immediately as the best. In longer-term success terms, things get grayer fast.

To clarify: I think my approach is based on the idea that all markets/industries go through crisis periods, during which customers are disgruntled with value-per-cost, retailers are being burned by deep-orders which aren't paying off, distributors are unstable in terms of payment or even their existence (very disastrous), and manufacturers are finding that last year's tactic didn't do what they thought it would.

During these crisis periods, all sorts of funny things happen. I think retailers tend to like higher profit margins, no matter what; but what end-use customers think of them when the industry per se is tottering around drunkenly, who knows? That's when one's own personal call is as good as anyone else's.

Talk about this stuff moves into the realm of values-based decisions and strategic planning, a.k.a. guessing about future outcomes, and so it's little more than (1) position yourself as you see fit, and (2) decide who your friends are, and (3) hope.

Best,
Ron

[woodelf]

Anyway, my position is that all prices for all gaming materials should be priced at X minus 5 cents, where X is any number divisible by 5.

i'll go you one better:
all products should be priced at N/T, where N is some whole number, and T is the local sales tax.  that is, with computerized registers, and computer-tracked invoices, and so on, there is no reason not to hide sales tax.  pick a price point and sell at that.  divide by the tax rate to figure out what to give the gov't at the end of the month/year.

ok, more practically (that's great for services, a pain for goods that are sold in more than one tax-rate market), why not just some multiple of 5?  i know the common wisdom is that people are more willing to buy something at 24.95 or 24.99 than at $25, but is that actually true?  i know when i'm comparing prices, i just round up to the next dollar (for anything over ~$5 base price), because i *know* that the change is just there to make me think it's cheaper.  when comparing prices to my funds (as opposed to to each other) i round up to the next dollar and add a dollar for every 20 (to approximate tax).  

and, come to think of it, if i'm deciding between, say, two RPG books, and one is priced at $25, and the other at $24, i treat them as "the same price"--so i'm certainly not going to give a break to the product priced at $24.95.

oh, and on objects in the $15-$40 range, i'd suggest looking at multiples of 2 or 3, rather than 5--too big of jumps, compared both to each other and to production costs.