Increasing market share by putting prices UP

Once again this is a story I was involved in so I will try and be as modest as possible!

In the mid 1980s the games platforms of choice were 8 bit home computers made by Sinclair and Commodore which used audio cassettes as media. Piracy was endemic so the industry responded with “budget games” which were priced at £1.99, so they were hardly worth copying. However the operating margin of the publishers was wafer thin.

I was at a new publisher called Codemasters, in charge of marketing, with a budget of slightly above zero which I spent mainly on PR and trade advertising. We created a brand with the consistent message that these were in fact full price games and that the only thing “budget” about them was the price. This was largely true with the “simulator” series written by the Darling brothers and the “Dizzy” series written by the Oliver twins being the most famous. We succeeded in getting 12 different Dizzy titles to number one in the Gallup charts. Jim Darling used his considerable business skills to make the whole thing work. We shovelled immense numbers of cassettes out of the door but it was not immensely profitable at such a low pricepoint.

Now for an anecdote within an anecdote. At that time the magazines added value by covermounting game cassettes. I persuaded the Oliver twins to let us covermount one of the Dizzy titles on the best selling Sinclair magazine which in those days had a circulation of several hundred thousand. The idea was to build the Dizzy brand and we expected the covermount to kill retail sales dead so we obviously chose a title that had been out for a few months. We were wrong, after the magazine came out the retail sales of the game went up! What had happened is that the covermount had introduced the game to new people and they liked it so much that they wanted a “proper” version of the game. £1.99 was little resistance so they were quite happy to go and buy a games they already had.

So, back to the main story. Eventually we decided to try putting our prices up but we were very nervous about losing sales. So we came up with a crafty plan. In those days there was a constant stream of titles, so one month we told the world that the new titles were going to retail at £2.99 from then on. But the crafty thing is that we told all our trade customers that the trade price would remain the same for the first month. So they made a huge amount more profit. So they bought them like crazy. And the new, higher priced titles dominated the top of the charts. Just before the end of the month we rang round and told our customers it was their last chance at the old trade price and they filled their socks so we dominated the charts even more. Of course after these had sold through they had to re order at the new price and as we dominated the charts they had no option. The £2.99 price point was established and we had increased market share on the price increase.

Then came the masterstroke. We told our trade customers that the retail price on our entire back catalogue was going up to the new price point of £2.99 from a certain date, but that they could continue to buy at the old trade price for a month after that date. They saw a second opportunity to make a killing and sales of our back catalogue shot up. Many of them re-entered the charts, which we then had total domination of. Once again they filled their socks with massive orders just before the deadline. And once again they had no option but to keep on buying at the new trade price once they had sold this stock. Some of these older games went on to make more profit for us at the higher price than they had at the lower price.

In those days the charts were compiled by Gallup and our market share as a publisher peaked at just over 27% of the total UK all formats chart. In fact it was probably higher as we used a lot of channels that our competitors didn’t (we put thousands of racks into all sorts of retail, for instance) and which weren’t measured by Gallup. Obviouly our competitors followed by putting their prices up but they did not do it with the same guile so they lost the opportunity to use it as a tool to attack our market share.

Codemasters became a lot more profitable. We had vastly increased sales, but more importantly, our profit margin had multiplied several fold because our costs remained the same. The company was less than a year old at this stage and this move on price consolidated it’s position as one of the major British publishers.

So what do you think of this? You can use the comment feature to let everyone know.

7 comments ↓

#1 Phil on 08.16.07 at 4:50 pm

Fascinating story. I’m curious how (if any way) you would think this same kind of thinking could be applied by game publishers today.

#2 Bruce on 08.16.07 at 5:13 pm

We aren’t in the same wafer thin margin situation any more. In fact game prices may already be a bit high. I wouldn’t want to put them up, you would hit demand elasticity problems.
One lesson of the story is that marketing in to the supply chain can be very effective. In this case more effective than marketing to the end customer.

And finally, if today I had an idea that could multiply a publisher’s profitabilty several fold would I put it on here? Well probably, but would any publisher notice?

#3 G on 08.16.07 at 10:34 pm

I feel the next big issue that this matter will touch upon is Downloadable Content or Episodic Content. All the same questions come in to play…(but I don’t have the time to open that can of worms right now!)…seems like it could be a new topic for you to post on!

#4 Carlos Obregón on 08.16.07 at 11:06 pm

It’s a fantastic story.

But I agree that the market is just way different now.

In fact I’m beggining to wonder when will be a publisher brave enough to begin lowering there prices for their AAA titles.

We all know that

profit = units * unit price

So if we lower the unit price but we have more units solds we can find a balance (and I suspect that we all agree that the same profit we a higher unit count is a lot better)

Can it be done?

#5 Bruce on 08.17.07 at 11:27 am

Episodic games are on the list of upcoming articles. It may not be what you expect though!

Game pricing seems to be based on what the market will bear. I have never seen any price elasticity of demand research so I doubt if prices are optimised for profitability.

#6 Dazza on 04.17.08 at 12:20 pm

I’d just like to point out that no Spectrum magazine ever had a circulation of “several hundred thousand”. I think the top seller was Crash, peaking with a figure of around 120,000.

Even if you claim more than 1 person read each magazine, there was still only 1 tape on the cover and a tape was less likely to be shared around at school.

#7 Bruce on 04.17.08 at 12:43 pm

Dazza, you are right. I was thinking of readership.

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