Monday, July 20, 2015

Pricing Pre-releases: Looking at the Numbers

A number of stores will discount pre-release events in the hopes of drawing more players. Short term, this sort of promotion benefits players because they can play more cheaply than otherwise and it benefits the store because it puts more people in seats and puts a healthy chunk of case in the till in a short period of time, so it’s all good, right? Not really, not for the players long term and certainly not for the store.  Here’s why:

As I have mentioned in previous columns, the dirty little secret of retailing is that stores have to sell stuff for more than we pay for it. Unfortunately, though, as mentioned last week, WOTC is a wonderful company that does many things that help both retailers and players, one thing they don’t do (and nor does any other gaming company) is give up our products for free.  The store had to pay for all those Magic Origins pre-release packs players spend last weekend cracking, either when they arrived through COD, credit card, bank transfer, etc. or within 30 days if the store has terms with the supplier. This means the store needs a chunk of cash quickly and a tried and true method of doing so is cutting prices. However, more cash now means less cash later. Let’s look at some numbers

The Magic Origins pre-release packs cost the store approximately $14 each, give or take some change. A store, desiring to put a lot of butts in seats, decides to charge $20 for each space in the prerelease and gets 50 people to show up,  generating $1000. That’s a nice chunk of change. However, remember those packs aren’t free. The store pays $700 for them meaning it has $300 left. Still not bad. 

Now, let’s take a look at store number 2. Store #2 charges $25 per tournament and only gets 25 people, generating $625 in proceeds from the event. Store #2 pays $330 for its packs, since it gets them for approximately $14 per pack as well, leaving a profit for the event of $295. 

Store #1 owes its supplier $700 for the pre-release packs it used. Store #2 only owes its supplier $330. Store #1 put a lot more work into its tournament in terms of judging, seating, tracking results. Anyone who has ever run a large Magic or other TCG tournament can testify to how much work goes into it, but for all the extra work, Store #1 only generated a total of $5 more in profit from the event than did Store #2. If three more players had shown up at Store #2, it would have generated $328 in profits, making about 10% in profit on the event with a third less players.

Why is this important to the store and the players over the long term? Because, unless you have deep pocketed investors willing to take a loss over a long period of time (See Amazon) or have an incredibly efficient operation (see Wal-mart), profits are what keeps the store open, whether they are profits coming from regular day in and day out sales or from special events like a pre-release. Long term, without sufficient profits, a store cannot remain open and its customers will have to find someplace else to shop and play.

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