One of the primary driving forces for attracting customers to purchase pre-orders is the promise of some promotional tchochke, often t-shirts, keychains, or in-game item.  That’s a great value add, but it often only attracts those already interested in the characters or franchise–fans who desire collectibles.  What attracts random passer-bys, though, is the promise of savings.  Think of the impulse purchase items by cash registers…just up-scaled.

GameStop is the last retailer out there that needs help selling video games.  Unfortunately, their reselling of used games is detrimental to the industry-supporting sale of new games, but they’re the prime candidate for who can support what I’m about to propose: meaningful discounts off the price of a new game.  But I’ll get to why GameStop later.

In most cases, when a brand new release is discounted, it’s a joint effort between the publisher and the retailer.  Both of them wind up eating some of the loss from the discount in order to simply drive the customer into the store or the product into the customer’s home.  A “loss leader” or subsidization.

Traditionally business says that you can charge early adopters whatever price you want, and they’ll willingly pay it.  Continue this pricing until sales slump, then cut the price.

I ask, why not offer substantial savings to attract additional early adopters?

As you saw in my post about UbiSoft’s aggressive price-slashing, the effort is often a reaction to low momentum. I say that an “early adopters’” discount can actually build momentum.  A time-limited offer puts pressure on the consumer to “buy now!” or risk missing out on the deal.  It’s the same thing you see on infomercials: “If you order within the next twenty minutes, we’ll double your order for free!”  Once a consumer gets in the mindset of active action, of closing the deal, it’s a much harder thing for them to back away.  With such an offer, to wait until later means actually spending more money.

Let’s talk about GameStop.  GameStop makes the vast amount of their profit from the resale of games traded in.  These used games are then resold at a $5 to $10 discount (from the normal price of a new copy), depending on whether or not the particular customer purchased the $20/yr. discount card.  However, the amount that GameStop paid for the trade in is generally $20-$30 for a new release, depending on the title, during the first month or two of availability.  That means there’s between $20 and $35 profit for each used game sold.  That’s quite a large profit margin!

GameStop sells new games in the hopes that you’ll turn around and trade it right back in.  I’ve even heard that selling non-used products is detrimental to an employee’s performance figures.  That’s why they often ask you if you’d like to buy the used copy for (only) $5 cheaper.

If we discount a new product, someone’s got to be missing out, right?  Profit margins for retailers on new video games aren’t that stellar to begin with.  If such a program were to be rolled out, and a publisher didn’t want to eat all the “losses” by themselves, they’d need to find a retailer partner that is willing help shoulder the weight.  Because of the profitable above-mentioned used game business model, GameStop is the prime candidate.

I want to propose a $10 discount off new games.  That’s 1/6th the sticker price, and two digits.  It’s not a token amount.  Split evenly between GameStop and the publisher, that’s $5 each.  Or GameStop could eat it all, and their used game margins would still be healthy.

For that first week, the game would cost $50.  Any used copies immediately flipped would still be $55. That wouldn’t make sense, but that’s only for a very limited time; order would be restored once the new game price returned to normal.  The flip-flopped perception of savings would disincentivize the customer from buying a used copy. During the first week, they’d pay $5 less than a used copy. If they had the discount card, they could get a used copy for less, but by only less than a dollar; why not get a brand new, sealed copy for such a miniscule difference?  As long as customers are made aware of the promotion and the release dates, the psychological effect would still carry through after the end of the promotional period.  They may kick themselves for not acting earlier to participate in the deal and plan more accordingly for the next game they want.

The Publisher

Builds word-of-mouth momentum. From this arrangement, the publisher can sell more new copies of their game and avoid the possibility of the product stagnating on the shelf.  If promoted successfully, it may additionally lure in those who only buy when something is “on sale.” More games sold, means larger install base, something meaningful when you’re trying to sell DLC.

The Retailer

Increases likelihood of pre-order. Obligates customer to continue with purchase of actual product.  More new games sold means more games likely to be traded in to the same store. Maybe tie in requirement of a game trade at time of pre-order to ensure continuation of the chain.

The Consumer

Can be early adopter but still not pay full price. Lower price, lower perceived cost of entry. Cultivates psychological pressure to buy sooner rather than later.