Price Tags
Yet Another Reason I Had Gray Hair at Age 36
By Mike Bennighof, Ph.D., president, Avalanche Press
June 2010

I used to be even more naive than I am now.

When we released our very first boxed game, the long-out-of-print Invasion of Italy, I didn't design it myself (that was Brian Knipple) but I oversaw its production, marketing and sales. So I was the one who set its price.

I'd worked at another game company before we founded Avalanche Press; the president there had a complicated and prickly personality. But he did impart to me the standard game industry pricing model: multiply the Cost of Goods Sold (COGS) times 2.8 to get the wholesale price. Since standard wholesale in the games industry then (as now) was 40 percent of retail, you then multiply the wholesale price by 2.5 to get the retail price.

The first time I tried to explain that to Brian, the mathematical genius, he cut me off after about three words with, "You mean multiply cost by 7."

That's a nebulous standard, but it's what I've used ever since to set the price we have to get for a product. It's then rounded to the nearest "price point": the standard resistance prices we use like 24.99, 49.99 or whatever. Resistance pricing I learned from another complicated and prickly industry figure. This is the notion that the human brain only recognizes certain price levels: "less than fifty dollars," "under twenty dollars" and so on. So if your model says the price should be $47, you round up to 49.99. You'll not get a single additional sale because the product is 2.99 cheaper, but you will throw away 2.99 you could have had with every sale.

Many years later, that's still pretty much the model I use to set our prices. They don't always mesh with that model: If we think the market will bear a higher price, we use the higher price. If we think it needs to be lower, it goes lower. The "we think" here usually operates as shorthand for "Mike and Lys argue with lots of dramatic sighs and f-words." Sometimes I win and the price goes higher (Cassino, Cone of Fire). I have to pay the bills, so I want to take in maximum revenue. Usually Lys wins (August 1914, Elsenborn Ridge). She has to sell this stuff, so she wants a low regular (not deep-discount-sale) price and argues that this actually maximizes revenue. She is right, but nothing is universally true in business.

There's a whole lot of science that goes into pricing at real companies involving massive databases, much consumer testing and a lot of complicated algorithms. In the game industry, prices are usually set under one of two tests:

1. What would I want to pay?

2. How much will make me rich?

So by the standards of the real world, we are a couple of bumbling idiots when it comes to pricing. By the standards of the game industry, our genius is indistinguishable from magic. Actually, we're aware of most of the factors that the real world uses. We just don't have the data or analytical ability to support their application or the time to truly study them.

When I set the price for our very first game, the model said it should cost $37 and some change; I don't recall the exact number. So I put the price at $38. We released the game, I eagerly went to the GEnie boards to read what I was sure would be heaps of praise, and found it being savaged as far too expensive ($54.30 in 2009 dollars). Being an idiot, I argued with them and pointed out other games from other publishers with less stuff in them that cost more. That was extraordinarily stupid. because for the hardest core of gamers, there's only one acceptable price: free. And even then they'll complain (we've given stuff away free and, yes, some actually complained). I don't engage in the ultimate test of online cerebral fitness any more; I write happy noncommittal bits of fluff and filter them through Lys for even more fluffification.

That's 674 words of warmup to get to this buried lede: We're going to change the prices of two brand-new games. Coral Sea and Pacific Crossroads will go from 19.99 to 24.99; I wanted 29.99, Lys wanted to keep 19.99. The reasons follow. Not that it makes much difference, but I do get enough feedback to know that our customers like it when I describe bad business decisions and the complicated web metrics we get appear to say that many of you at least scroll all the way to the end of these things. Anyway, I don't know if these really qualify as bad decisions on their own merits, but here's the tale.

We announced these games some time ago, when we were still printing in the Far East. I think at the time I was planning to put all the work in the People's Republic of China; I was definitely intending to make the boxes there, as I had a source to make our small boxes (the 6 x 9 "pocket" size) very cheaply. Lys wanted a pair of $19.99 intro games for the two naval series (Great War at Sea and Second World War at Sea) and I was quite sure we could deliver. Each game would have a pocket-size box, a 22x17 paper map, scenario book and half a sheet of counters (split unevenly between them) plus the standard series rules package.

When we moved production back to the United States, things changed. Print prices went up, though not as much as you might expect: the meme of Chinese cheapness is in part artificial, and many of their advantages (at least in printing) come from more modern equipment and an ethic of good service. Desperate for the work, a number of American printers offered to match Chinese/Korean prices — though we've experienced two of them going out of business between accepting our orders and actually delivering.

But not box makers. Box prices jumped substantially, and the economics are different. In the States, there's not a whole lot of price difference between the various sizes we use; the real difference is in the total number of boxes in an order. The greater the number of boxes of the exact same size, the better the production price. (Shipping of course goes up substantially for a larger box — boxes are in the highest-priced freight category.)

So I made the decision to re-size the Coral Sea and Pacific Crossroads boxes to our standard 1-inch-deep, 9x12 face box. They would run together with August 1914, Bismarck and Soldier Emperor Player's Edition. That plan fell apart when late in the process we found that the files of the Bismarck and Soldier Emperor covers in our archive have some font problems. Terry Strickland, who created the covers, could not locate her originals. Not willing to brook more delay, I removed them from the order. As things turned out, the printer making the boxes went out of business and was bought out by another firm, leading to a four-month delay. Had I known that there was plenty of time to craft new covers and restore the order I obviously would have asked Susan Robinson, our production director, to do that, but of course, it wasn't a four-month delay, more like 120 one-day delays in sequence.

Any time you alter one element in a complex equation, you create many other changes. They're not truly "unintended consequences," nor do they "create a perfect storm" (the currently popular excuses in American public life) because I've done this for a while and usually know they're coming. Some are good, some are bad, and some are indifferent.

To put the two games in small boxes, we would have to lay out the series rulebooks in a new, digest-sized format so they'd fit. Since they'd have to be re-done anyway, I asked developer Doug McNair if we should re-write them; he was pretty enthusiastic. But the project became a major one as he decided to combine both into one. Over time that will save us money as we'll only have one book to print and one model of tactical map to include, and spare us mis-assembled games — two series with similar names create a constant source of confusion, and we've had games go out with the wrong set of series rules for a decade now.

The project proved more complicated than Doug believed, and as of this spring he was not finished. No problem: We'd just use the perfectly good current edition, since we now had a box in which they would fit. Yet we were running out of Second World War at Sea tactical maps, and I did not want to place an order for a part that would soon become obsolete. Enter Huntley.

Huntley works for the people from whom we got our printernator, the giant machine that prints our black-and-white components. Huntley has some corporate title that makes no sense, wears a trench coat, and appears to do nothing but smile and laugh a lot, buy people lunch, and talk on the phone. But things happen when he gets involved.

Our machine worked a grand total of four days in November and December, masses of orders went unfilled and product unshipped, and we suffered greatly (as this cost us massive loss of Christmas sales). The beast came very close to putting us out of business. After long adventures I found support on their board of directors, pressure was applied, a vice president showed up in our office and said someone would make things right. He sent Huntley.

And Huntley got things fixed. That's not his name because I'm not sure how much of what he does is authorized. But among his fixes, he facilitated a deal for us to get great pricing on full-color printing from another of their customers who owed him a favor. In particular, they specialize in the same sort of work that produces the cardstock maps we use in our Panzer Grenadier and Infantry Attacks games, at a per-unit price. One piece or 10,000, the price is the same.

So I started buying SWWAS tactical maps made on cardstock. We'd run out of paper maps and were selling a lot of copies of games like Midway and especially Arctic Convoy that use the SWWAS rules. I really liked the quality. And then Christopher West came along.

I think I met Chris when he was doing Axis&Allies maps for Wizards of the Coast and someone over there introduced us. At any rate, he did the maps for August 1914 and we liked them very much. So Susan gave him the work for the two small naval games.

When I saw his Coral Sea map, I immediately wanted to print it on heavy cardstock. The reproduction quality is excellent and this beautiful map would really show well. Plus, I wouldn't have to order 5,000 of them at once as with a paper map - we'd pay more over time, but conserve short-term cash. And we really need to do that if we're to produce the masses of stuff now under way.

The cardstock maps have a number of advantages. Normally, they print very quickly; Coral Sea lost a few days when our printer was overwhelmed by orders for the Alabama primary elections (for our foreign friends, these are the first round of elections, where each political party holds an open vote — Alabama does not require party registration). That bonanza only comes once every four years, so in this environment it's understandable that they needed to take in every such job that came along. The local economy may be wrecked (see this) but amazingly it seems everyone's got plenty of money for political campaigns. Or maybe it's not so amazing if you read that Rolling Stone piece.

Anyway, we like the cardstock maps. They're not as impressive as the hard-mounted boards we once used, but those were mostly an exercise in ego fulfillment anyway. The cardstock has just about all of the advantages of hard-mounted boards, without the valleys at the folds or between the pieces. Or the massive shipping costs. They don't tear along the folds, as some paper maps are wont to do, and they reproduce the artwork on them exceptionally well. And gamers seem to like them a lot. For an introductory game intended to sell the entire series, the added cost is amply justified.

All of those changes result mean that the original price model is no longer valid. A small box made in China, with paper map, stretched 19.99 pretty tightly. We've been able to do them because Lys Fulda can sell them in huge numbers (relative to the game industry) so we can print a lot of them at once. But the cardstock maps have no economy of scale, so the new larger and American-made Coral Sea really should be priced at 34.99. As the people knowledgeable in pricing know, reading this with can't-turn-away-from-the-trainwreck fascination, that model doesn't cover all the true costs. At 19.99, I'm pretty confident that we will lose money with every sale.

Sometimes that's OK as a marketing expense. Coral Sea is going to sell a lot of SWWAS games for us. But right now, we're not in a position to take that hit. Many losses have already occurred (the games are sold) but that's less than 20% of the print run and we traditionally see our greatest sales volume in the months right after release, not as pre-orders.

A low price has another negative, and regardless of models we set the original too low. Consumers don't necessarily react positively to the lowest possible price. A low price can equal lack of value in their minds. I think we set the price too low at 19.99; Lys disagrees.

Pacific Crossroads is actually slightly cheaper to make as it draws on our huge stockpile of Great War at Sea tactical maps (which are also the Ironclads tactical maps and, eventually, the new SWWAS tactical maps). It still needs to go up, and the two games need to be priced in tandem.

The new prices take effect at the end of June. For now, you can still order at the old, stupid price of $19.99.

Take advantage of our stupid price while you can! Order Coral Sea and Pacific Crossroads NOW!