[HoE] Fw: [fsuns-l] Fw: "Price as a Weapon"

["James Cook" <jcook@net-serv.com>]

Hi folks,

I apologize in advance for those who may consider this spam, but I am
concerned about what it implies. It's a post from Ryan Dancy concerning AD&D
3rd Edition marketing that someone on the Fading Suns list cc'ed...

Thanks,
James Cook

----- Original Message -----
From: Conrad R. Harkrader <kreegan@home.com>
To: Fading Suns <fsuns-l@telelists.com>
Sent: Monday, November 23, 1998 4:33 PM
Subject: [fsuns-l] Fw: "Price as a Weapon"


> This is a post by the head of TSR for Wizards of Hasbro to a Pyramid
message
> board( BTW, every RPG fan should subscribe to Pyramid if at all possible.
> It is well worth the 15$ a year).  This post makes me very, very afraid.
>
> Rich;)
> "Whatever you do will be insignificant, but it is very important that you
do
> it."
> -Mahatma Gandhi
>
> -----Original Message-----
> From: Ryan S. Dancey <ryand@frpg.com>
> Newsgroups: sjgames.gamebiz
> Date: Saturday, October 09, 1999 12:46 PM
> Subject: "Price as a Weapon"
>
>
> >I thought I'd create this post for two reasons.
> >
> >One, some people on the Game Industry Retail Forum where it first
appeared
> >have made that request.  I'm not one to hide the things I say, so I'd
> rather
> >you see this stuff directly from me rather than in a post from someone
> else.
> >
> >Second, I'm going to add the contents of a follow-up post I made in the
> same
> >venue about a day later that clarifies my position vs. a vs. the value of
> >competition and growth in the game publishing sector.
> >
> >I'm actually very interested in what this particular community has to say
> >about these comments.
> >
> >=========================
> >
> >> Just out of curiosity, how does this opinion match up with
> >> TSR's stated plans to publish the next edition of D&D books
> >> at $20 each?
> >
> >We're going to use price as a weapon.
> >
> >We've got the largest print runs of any hobby RPG. Once every ten years,
> >those print runs jump by a factor of five. This time, we're going to use
> >that advantage in the marketplace, instead of squandering it on short
term
> >bottom line profit.
> >
> >We're putting stuff into the PHB and DMG that we haven't even announced
> yet.
> >When gamers see what we can deliver for $20, they're going to have some
> >really hard questions for publishers with $30+ rule books.
> >
> >Our long term objectives are served best by bringing as many people
> >"forward" to 3e as possible. That means reducing switching costs as much
as
> >we can. "Switching Costs" is a catch-all term that can refer to any
number
> >of factors; but there's a clear relationship between actual price and
> >consumer interest.
> >
> >We're in the razor/razorblade business. Every "razor" we sell in the form
> of
> >a 3e PHB will create two, three, maybe four hundred dollars in potential
> >downstream revenue over the next ten years, at an average bottom line
> profit
> >margin in excess of 20%. So if we sell 300,000 PHBs, we're creating a
> >$60M-$120M revenue stream, and a $12M-24M bottom line profit for the
> >company - those are numbers that >no one else< in RPGs can rationally
> expect
> >to ever generate.
> >
> >With the D&D business model (and I believe only D&D is big enough to
reach
> >this level) I could probably justify just giving away the PHBs; the value
> of
> >the future business is so high. It'll cost me slightly more than $1M to
> make
> >those 300,000 PHBs - I'll probably make that back in profit before the
end
> >of 2001.
> >
> >By taking the PHB to the $20 level, we're starving our competitors of
gross
> >margin. If they come down to meet us, they're going to lose so much money
> >(due to economy of scale issues) that they may not be able to sustain the
> >business on a cash-flow level, or, the future value of the business
> >generated from sales of their core rules may not (and probably won't)
> offset
> >the loss on the core rules.
> >
> >If they stay at the $30+ price point, they're going to have to add value
in
> >order to make the price seem reasonable to consumers. But that's going to
> be
> >tough, because the core 3e books are going to have more "added value"
than
> >any core RPG product in the history of hobby gaming. Coming up to that
> level
> >of value may in turn raise costs to the competition to the point where
the
> >books again become unprofitable.
> >
> >We believe that there's a place for lower priced products: At the intro
> >level, and as an acquisition strategy. Products farther along the product
> >spectrum from those basic level books are going to carry a price
premium -
> >not only will we make a good margin due to economies of scale, we're
> >actually going to charge more on a per-page basis because we think that
the
> >market will support a price premium for the D&D brand.
> >
> >> I'm also just a bit disturbed by Ryan's comment about
> >> restricting product supply. Isn't that what everyone hates
> >> about Pokemon?
> >
> >Manipulating supply is something publishers do all the time. The unusual
> >factor at work in the Pokemon business is that instead of the supply
being
> >limited by active choices being made by WotC, supply is being limited by
> the
> >total capacity of the production system.
> >
> >What people "hate" about the current supply ratios for Pokemon is that
> > putting words in a whole bunch of people's mouths ] they're getting an
> >"unfairly small" allocation, while other people, notably WotC itself, are
> >taking an "unfairly large" allocation.
> >
> >Keeping supply on a product slightly below demand helps support higher
> >prices, by removing the incentive on the part of retailers to discount.
> >There is a huge difference between being so scarce that people are
> >frustrated and quit looking for a good, and a point where they have to
use
> >just a little bit more energy than normal to find a good.
> >
> >In the computer game business, where there is near "perfect" supply (that
> >is, the publishers can easily produce enough product to meet consumer
> >demand, because they're using a production system geared Microsoft
Windows
> >and Office sized volumes, even though they only use less than 1% of that
> for
> >a typical successful game title), the SRP system collapsed because all
the
> >retailers eventually began to compete on price.
> >
> >The margins (for publishers) in game software are extraordinary. I can
say,
> >without violating any confidences, that on a game you buy at one of the
> mall
> >stores for $50, the publisher's wholesale price is usually $40. That's an
> >immense margin; if these products carried SRPs, the SRP of that $50
product
> >would be in the $80-$90 range. The publishers took the SRPs >off< because
> >the deep discounting in the channel was making their brands look
damaged -
> >because deep discounting is normally a signal of distress in other types
of
> >markets.
> >
> >I would argue that hobby gaming is different. The price/demand
relationship
> >is not the same as computer game software, which has become a commodity.
> The
> >reason is that the store can add value in terms of play space, GM
training
> >and retention programs, etc. that an e-game mall store can never do.
> >
> >Someone else (I think it was Rob Placer) made the comment that someone
who
> >discounts TCGs does so for no good reason - a smart retailer can almost
> >always sell as supported, popular TCG at full retail, regardless of what
> the
> >"internet price" is.
> >
> >Look at similar types of businesses. I'm sure I could buy Colombian
coffee
> >beans from some internet business at a huge discount. However, my wife
> keeps
> >giving the local Starbucks $3 a cup. Somehow, Starbucks has created
"value"
> >that my wife subconsciously accepts by paying that price premium.
> >
> >Premium businesses are generally healthy businesses. Price sensitive
> >businesses, sooner or later, are consolidated, and reduced to
commoditized
> >movements of goods at the lowest supportable price - meaning that the
only
> >companies that succeed are the very, very big ones. I think gaming is,
and
> >could be priced as, a premium business. And I think that doing so would
be
> >"healthy" for the entire channel in the long run.
> >
> >Ryan
> >
> >========================= [ message 2]
> >
> >> Well, I have to say I was fairly disgusted by this post. It
> >> seems somewhat hypocritical to be arguing that RPG core
> >> book prices should go up while using your weight in the
> >> marketplace to drive the customers' price perceptions down.
> >
> >I also said that there's a place for a low priced introductory strategy,
> and
> >that I intended to charge a price premium for products farther along the
> >product chain. Those two strategies are not contradictory.
> >
> >> Based on our previous conversations, WotC has about 80% of
> >> the roleplaying marketplace -- does it feel so threatened
> >> by the remaining 20% that it has to compete by taking steps
> >> to making life harder for other publishers?
> >
> >Having 80% of a market that's 1/20th the size it was ten years ago isn't
> >satisfactory to me.
> >
> >I believe that one reason the RPG component of the hobby game industry is
> >unhealthy is because the marketplace is over-segmented. That effect in
> micro
> >is what killed TSR via the overproliferation of campaign settings and
> >mutually incompatible optional rules systems; it has the macro effect for
> >the rest of the RPG hobby of spreading inventory dollars at retail across
> >too many different lines, segmenting the consumer base below a threshold
> >value necessary for strong and growing repeat purchases, and of creating
a
> >marketplace that seems to reward companies for constantly releasing new
> >games and new versions of old games rather than working to develop a
> stable,
> >long term business centered around a popular and successful franchise.
> >
> >My personal opinion is that it only seems to reward those companies - in
> the
> >long run, the "treadmill" strategy only results in a long slow spiral
into
> >failure. And for the consumers, it creates patterns of purchase behavior
> >that tend to splinter their gaming experiences and thus reduce the bonds
of
> >community.
> >
> >I think great games, from any source, will always have a market. I am not
> an
> >advocate for a lowest-common-denominator product strategy. I believe that
> >there is and will always be a place for small companies to grow and
become
> >larger enterprises. I also think that anyone who comes to do business in
> >this segment should be prepared to create and produce the absolute best
> >quality merchandise they can, because if they don't the market should
> reject
> >their product offerings. I hope that over time the barriers to entry for
> our
> >industry rise to make it more difficult for mediocre or substandard
product
> >to get into the channel.
> >
> >On that note, I should mention that while I think it would be healthier
for
> >the gaming industry to move into a period with fewer game >systems<, I
> think
> >that the health of the industry will also be aided by more worlds, more
> >unique adventures and more content compatible with those systems that do
> >survive the shakeout. I think the projects like Fuzion and the very
> >successful CoC licensed source material like Delta Green point the way
> >towards that type of a marketplace.
> >
> >Like them or not, Microsoft made it possible for software to become a
> hugely
> >successful industry by establishing certain standards. As a result, there
> >are many, many more programs available for consumers to use than there
> would
> >have been if MS had tried to be the only developer of code. I think that
> the
> >profit zone for >most< RPG publishers is in creating add-on content to
> >someone else's basic mechanics - unless they happen to own one of the
games
> >that demonstrates significant long term consumer support - in which case
> >they can make money on both ends of the spectrum.
> >
> >Ryan
> >
> >========================
> >
> >< ASBESTOS SUIT ON>
> >Let the flames begin!
> >
> >Ryan S. Dancey
> >VP, TSR
> >Wizards of the Coast
> >a subsidiary of Hasbro
> >
> >
>
>
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