Doug Sundseth Posted June 28, 2011 Share Posted June 28, 2011 Game Retailing 101: Using your example of a $100 game, any company that had a cost-of-goods-sold higher than $20 would almost certainly be out of business in short order. A smart company would arrange the retail so COGS is closer to 10% of retail than 20% of retail. What that means is that rather than making 6 times the gross profit, the company would be making not better than 2.5x the gross profit by selling direct to consumers. Now, note that I said gross profit. That would be before the cost of keeping the doors open and selling the product. Selling direct entails higher advertising costs, since you don't have salescritters in stores around the world selling your game for you. Selling direct also entails significantly higher distribution costs (shipping, order taking, order fulfillment, customer service, whatever). All of these mean that net profit is unlikely to be much higher when selling direct than when selling through distribution. There are companies that have made excellent businesses through total vertical integration, so it's certainly possible to succeed that way, but they tend to have larger and denser customer bases than are available in the games industry. GW has not stayed in distribution as long as it has through altruism. Oh, they tweak their formula regularly, and they make those tweaks without regard to the profits of any entity but themselves. Sometimes, I think they're far too oriented on the short term and insufficiently interested in the long-term success of their business. But they're still in business when dozens of hundreds of their competitors are gone, which argues that they have a formula that works. Finally, let me note that I'm no apologist for GW. They design for an audience with far different tastes than mine and always have (both games and miniatures). I'm not even completely convinced that they're a net positive for the industry. But they're not doing whatever they're doing just to mess with people. Quote Link to comment Share on other sites More sharing options...
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