Retailer discounting on Microsoft Flight Simulator 6 has backfired on the sector, following the software publisher's decision to up the trade prices less than a month after its launch.
On 18 November, Microsoft increased Flight Sim 6 prices by around u2 per unit more than October 24 launch day prices, in a bid to stamp out grey exporting from the UK and bring the product into line with the rest of Europe. Frontline is currently quoting u30.78 trade price for quantities of one or two.
The move was attacked by a leading retailer which had ignored Microsoft's u49.99 "estimated street price" to major on a u39.99 price point. "Microsoft's trade prices mean that we would have to charge u49.99 to maintain the same margin," he said. "But Microsoft bloody well knows we can't increase the prices." Examples of retailers working on u39.99 price points include HMV, Virgin and Game.
But retailers were informed two months before launch date by the vendor that it would increase prices, Microsoft consumer product manager Stephen McGill revealed: "We did this to ensure that disties and retailers were properly prepared with their stock orders for the Christmas push," he said. "Discounting is a decision that retailers must make by themselves.
But I question whether they really need to reduce their margins for the world's best selling leisure title."
Paul Donnelly, (pictured) managing director of Gem, a Microsoft consumer software distributor, said: "The bottom line is that Flight Sim has an elasticity of demand that would support u49.99. And ultimately the retailers don't have to sell at u39.99, if they want to maintain their margin. But it is difficult to put prices up, especially if one retailer stays put at u39.99. Then we are looking at margin compression."
Microsoft is on target to sell 150,000 units into distribution before Christmas, according to McGill. "Many of our distributors are out of stock already," he said. Mail-order dealers account for 30% of UK Flight Sim sales.
Telco also announced series of initiatives to drive digital growth in the UK
Nana Baffour opens up on Getronics' mammoth acquisition of Pomeroy
Analyst predicts SaaS will remain the dominant segment in the market as it grows 17 per cent in 2019
NSS Labs claims vendors are refusing to have their products tested effectively and are trying to restrict its access