The real price of going cheap
Fierce competition has led to big discounts on top titles - but thistrend needs to be reversed if the retailers are to continue making aprofit, says Chris Ratcliff, publisher of software directory Game Guide.
Wouldn't it be great if you could buy a Ford Mondeo for the price of a Fiesta. Or how about fillet steak at rump prices? You would get a better quality product at a cheap price - shoppers' heaven. But what happens to all those unsold Fiesta cars and rump steaks? They get discounted after remaining unsold, are sold off cheap or destroyed to stop them entering the market.
This may appear to be commercial suicide, a stupid policy guaranteed to upset a stable market, but it's a policy practised every day in the high street by multiple computer software retailers.
How has the computer games industry managed to find itself in this commercial blind alley? It is now common practice to discount top titles to the bone, while continuing to sell second division - and sometimes substandard - product at full price until it is dumped onto the market by publishers, distributors and ultimately retailers at "special purchase" prices. Admittedly, this can be a bonanza for retailers, who find it relatively easy to shift such low priced merchandise, but it puts them in the league of bargain centres.
It occurs to me we have turned normal retail practice on its head. With CD-ROM we have conditioned the public to expect top titles to be severely discounted and consequently they reject paying full price. This has caused a knock-on effect, making it difficult to sell second eleven product which is always sold at full price on release.
We have recently seen events such as Grand Prix 2 reduced from u39.99 to u29.99. With a trade price, to the independent sector, of u23.50, this leaves a profit of u2.03 instead of the expected u10.53. Quake was billed as u49.99 before being savagely cut to u29.99 leaving a profit of u2.43 instead of a possible u19.45 and Z makes u2.55 instead of u19.57. Of course the multiples, enjoying better trade prices, make slightly more. It is also interesting to note that Grand Prix 2, which enjoys exclusive distribution, has the highest trade price and the lowest margin in these examples. But what about Playstation? Resident Evil was launched at u49.99 and except for one isolated incident where it is being sold for u44.99 by a multiple store, it brings the independent a profit of u8.51, not a fortune but a reliable return on his investment.
Publishers tell me they want to sell more product through the independents.
Apart from Sony, who, through Centresoft, treat the independents as one large multiple, letting them enjoy the benefits of dedicated support, incentives, POS, price protection and marketing effort, there is little evidence of this on the shop floor.
Despite the labours of various marketing companies, who are increasingly concentrating on the top 100 independent stores, the average independent is struggling for POS, product information, in fact, any tangible support at all. On top of this he is unable to buy product from one source due to exclusive distribution and therefore can't negotiate volume discount rates on total order values. His answer is to turn his back on CD-ROM and concentrate on areas where he knows he can turn a decent profit. These include Playstation and Saturn software, stock discounted at distribution, grey stock, used games and in isolated cases, pirate software.
It is time for the industry to rethink its strategy for the next year and the next millennium, to re-educate the public and the multiple stores to expect to pay for and sell good product at a realistic price. The publishers should look at their catalogues and price their products according to quality. Low grade titles will never sell in any quantity at u44.99, but stand a good chance of selling through at u19.99. I am reminded of a comment by Nic Tee, managing director of CD Imports who told me: "You can make a bigger profit on one red hot multimedia title than a top-rated full price game. All our titles retail at u9.95 for a cost of u5.30."
It is vital for the entire industry to reverse the trend and start selling to earn a profit rather than score points against rivals. It is critical the independent sector is saved for its expertise and it is important not to dismiss their grievances by saying their customers will continue to buy from them for their product knowledge and after sales service.
The average punter now buys on price and if the independent cannot offer this he or she will walk across the road to the nearest multiple store.
We are giving the message that CD-ROM software is over priced and by discounting AA titles by up to u20 we are proving that we have been enjoying obscene profits. The punter is asking himself why Quake is worth u30 when some "crap" title can cost up to u50.