EXPOSED! The Ugly Truth of Pre-Order Pushing: Part One
I’ve mentioned before that I’ve worked in this industry for a while, mostly in the retail management sector, in the Greater Toronto Area.
I managed a few stores for EB Games. There, I said it and now we have to live with it.
Recently one of our forum members and industry jokester, Nathan Smart, has had a spotlight blasted on him for his new website venture, Pre-Order Pushers. The site is a public forum for gamers to recite the most ridiculous shit they have ever been told or heard a store clerk say about a game to get them to preorder.
THEBBPS.COM is about to throw some knowledge in your general direction from a former managers perspective… and believe me, it’s worse than you think.
Firstly, you should know that my last year at EB was the year the merger had already finalized and the company was changing. Some employees weren’t happy with the direction of the company and became vocal about their concerns, in response EB/GameStop tweaked the employee policy forbidding employees the freedom to discuss any company issues they had in public or online. According to the new policy, if an employee posted any messages regarding the company as an employee on a message board you could be fired for stating your personal opinion.
Pre-ordering is a beast that monkey’s created which is never necessary due to big box retailers. Sure, employees will threaten that you won’t be able to find that copy of Disgaea in their stores if you don’t preorder… and it’s true at EB Games, but go across the street and within three Best Buy’s you’ll have your hands on a copy. But you might ask, EB/GameStop are huge companies aren’t they? Well, they are and apparently they aren’t aware of it.
So why push pre-sales? Money is the obvious answer… but their strategy to dupe customers goes beyond that.
Disclaimer: The following information describes the process in Canada. EB Canada is totally separate from EB USA. Same company, totally different buying staff and power… but I believe it’s more of the same.
UNDERSTANDING INVENTORY
EB Canada will only buy product from a publisher if they fall into categories…
1. The title is from a long standing series with respectable sales numbers to equal great product (ie. Madden)
2. The title history also shows a strong trade/used game sales ratio.
3. The company was forced to purchase a specific amount of one title in order to obtain a specific quantity of another of the publishers titles that fall into the first two points. (ie. In order for EB Canada to get a specific number of units of BEST SELLER GAME X, PUBLISHER X forced the buyers to purchase a specific amount of lower-tier titles from their upcoming library to increase their GAME X shipments.)
4. The buyers are convinced by the marketing team of a publisher that they should invest in a title from their distributor.
To prove the points above, Tony Hawk’s American Wasteland was one of EB Canada’s major focuses in 2004 and every store was shipped a ridiculous amount of inventory based on the success of the franchise, regardless of the fact that the series was on a major down slope with it’s fans (based on the reception of the changes made since Tony Hawk’s Underground).
The main point is that the buyers at EB Games Canada don’t know or understand the industry at all. They over-buy based on the name of the game and what previous iterations have sold. So, by that mentality… if they have so many units coming in from a distributor why should you be forced into preordering?
Every month the store computer is updated with a list of titles the company is focusing their presales on. Obvious games like Halo, Madden, NHL (in Canada) make the cut and smaller titles are not a focus. Even if a title hits 400 presales the store is ships over their ordered limit for non-presale customers. Some cases that doesn’t happen due to inventory issues, but there are rarely shortages for top-tier titles. Lower tier titles are generally missing from shipments because the company is clueless as to it’s popularity.
EB Games would only buy big franchises from companies and sell the Maddens, Halos and GTAs if it could get away with it… but they buy everything (in small quantities).
A good example is Katamari Damacy. When the game was previewed gamers decided it was an essential purchase, but because the title had virtually no marketing push or distributor hype the game was not purchased at a retail level in adequate quantities.
Sure no one could foresee the success the title would have, but even months after release company buyers had yet to order new stock levels of the game. When they finally picked up on the new industry darling, Namco had limited quantities of the game.
From my experience the company wants it’s employees to push presales in order for the head office to do as little work as possible. The buyers for EB Canada are a clueless batch of individuals who hope everyone pre-orders so they can know how many units they should buy. By pre-ordering you’re doing their job for them, and that’s their hope.
WHY DOES PRE-ORDERING MATTER?
You may or may not be aware that video game retailers make a very small profit on selling new games.
Example: When Halo 2 was released it retailed for $59.99 CND (Regular Edition) and $69.99 CND (Limited Edition). EB Games Canada purchased their units at about $53.99 CND per unit for the regular edition and around $65.99 CND per unit of the Limited (numbers are very rough as I’m going off memory, but it was about $6 profit on a regular and $4 on a limited).
Preordering games that are sure to sell gives the retailer data of guaranteed sales (the average pickup rate on games was around 75% - meaning 75% of those who preordered actually came back to purchase the title). Guaranteed sales in high numbers helped buyers adequately stock stores based on the demand.
If Store A gets 100 presales on GAME X and Store B only gets 25 presales on GAME X it helps the inventory control team allocate units to where it’s wanted. That’s the company line, and the quote you’ll get from all clerks and managers.
But the real reason they need this data is to project how many units of GAME X will be traded in and then resold at a profitable cost. If you as a customer preorder your games, the company places you in an invisible category of Return Customers. They assume if you’re willing to put your $5 down for, what can only be best described as a promise, you frequent that chain.
If you increase the amount of PRESALES for GAME X (100) divide it by the pick-up average (75% / 100 = 75 projected purchases for GAME X) and factor in the average trade % (which in my day was around 25% within the first two months) you can assume you will get around 18 units back within the same release window for that store.
In Canada the average cost of a used game that has just been released is $5 less than it is new. For the sake of argument lets say a new game that costs $69.99 would cost $59.99 used. MATH TIME!
Store A sells 75 units of GAME X at a profit of $6 per title = $450 profit (ignore shipping, ect.)
18 units return and trade in for an average of $30 = $(-540)
18 units resell for $59.99 each = $1079 Now that’s one store and one title. Imagine that number in over 3000 stores worldwide and using hundreds of titles per year.
PRE-SELL FAMILY TREE / CIRCLE OF LIFE
EB Games and GameStop have a system they call The Circle of Life (formerly the Pre-Sell Family Tree). It’s one of their worst kept strategic secrets in the horrible world of preordering. The Preorder Family Tree is something EB Games Canada utilized, I know this because myself and another EB Games Canada manager refined the program and presented it to two districts in Ontario (yes, I was a hardcore preorder pusher…sorry). Let me tell you how it works (GameStop’s Circle of Life works the same way).
(The following text is taken from the District Proposal presented by a fellow manager and myself for a Regional Meeting in May of 2004 of District 870 and 840. There is a reference to GPG’s in this document, which is the term used for the GamePlay Guarantee or Game Insurance.)
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The Pre-Sell Family Tree is a schematic diagram, resembling an upside down pyramid, of the most highly coveted new release titles linked together in chronological order.
Titles in the Tree match and merge with one-another based on system and/or genre. Eventually all titles merge into one final release, what we call the Root. The Root is essentially where all your hard work has trickled down to, hundreds of individual orders on a diverse selection of games to one final title all gamers have been craving.
The purpose is to get a customer to preorder an item from the top of the tree and based on which title they order, recommend an item found on the next branch for them to preorder when they pickup the original title. This is called a ROLLOVER. Eventually all preorders from the branches trickle down into the ROOT.
This process increases the trade opportunity, which increases overall company profits.
The Tree is used to ‘Drive The Business’ – by properly utilizing the Tree in a demand based direction a store can maximize both loyalty and profits from its clients, while ensuring the best possible trade scenarios with the newest titles. Proper execution of the Pre-Sell Family Tree falls into three categories, which are based on a time frame. Before the first week of a release, during the first week, after the first week, within these periods opportunities and strategy change.
Before First Week: Coming Soon!
1. Sense Demand: create goals for new release titles
2. Mass Marketing: it is impossible to sell what cannot be seen.
Utilizing available POP help to showcase the hottest new release. 3. Adjust Hot List: prepare for the next wave of titles on your Tree to ROLLOVER your clients during pickup.
4. Call List: call your pre-sells, mentioning add-ons at this time helps to maximize your attach rate! Mention the GPG Program, Hintbooks, Trade-In Opportunities & of course mention titles from the next branch of the Tree!
During First Week: Hot New Release!
1. ROLLOVER: essential to success, rolling preorders over to a title in the next branch of the TREE continues the cycle and maximizes profits.
2. Mass Marketing: during the first week, marketing changes. The addition of POP for titles in the next branch of the Tree can maximize opportunities. Primary marketing dedicated to the new release title is very important to attract walk-in clients.
After The First Week: Yesterday’s News!
1. ROLLOVER: Previous week’s new release is old news, its time to rollover and preorder from the next branch.
2. CALL LIST: Recall preorder list if possible to start the ‘Before’ process again!
In Plan A, when the Tree is not properly utilized pre-sell numbers are lackluster, at best. However, during the crucial new release period the store in PLAN A excels at GPG’s! But that won’t save them…with poor pre-selling, and no rollover action taken the bottom line comes up to a meager $2650.
In Plan B, pre-sells in this particular tree are outstanding. just by properly utilizing the Tree and obtaining a 50% rollover plan on their clients PLAN B does much better, even with poor GPG results.
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As you can see, the company backs preordering because it increases unit quantities and ensures better and bigger profits from trading and the sales of used games.
Charming how they expect us all to follow their system like mindless drones.
Now I won’t argue that the store employees are, for the most part, rude individuals. But now you can see the people running the show are even worse and thnk even less of their CORE demographic.
In Part Two of EXPOSED! THE UGLY TRUTH IF PRE-ORDER PUSHING, I answer the big question… what does EB Games do with that preorder deposit you forgot you had sitting in their computer?
Editors Note: Xav de Matos managed three locations for EB Games in the Greater Toronto Area and was under their employment from October 2003 and left in September 2006. Because EB Games management are not required to sign a non-disclosure agreement this information is submitted for public consumption.
[Update: Corrected my mistake, Halo 2 retailed for $59.99 CND (Regular) and $69.99 CND (Limited) - the margin however is, to the best of my fragile memory, correct.]
EXPOSED! The Ugly Truth of Pre-Order Pushing Part 2
In Part One of our two part series, The Ugly Truth of Pre-Order Pushing, we (the editorial we that is) detailed how EB Games/ GameStop orders inventory and the importance of employees aggressively pre-selling customers to compensate for low margins. We also outlined the EB Games/ GameStop directive, the Circle of Life (which we detailed as the Pre-Sell Family Tree initiative presented by a partner and myself at a May 2004 EB Games Regional Meeting), and described its strong ties with their company wide focus on trades and used games.
In our final part of this series you will learn what happens to forgotten pre-orders, how inventory is distributed based on a pre-sell plan and we’ll attempt to answer questions and concerns made from comments in part one.
Hang onto your hat, chomp down on your mouth-guard and meet us in the square circle…
The Bits, Bytes, Pixels, Sprites team is about to kick you in the face.
Although I didn’t see eye-to-eye with policies introduced during the end of my career with EB Games, I thoroughly enjoyed my tenure there. Being able to go to work and be surrounded by an industry I love was a huge selling point for me as a professional. I made sure to work hard and the company appreciably promoted me from a temp holiday employee to assistant manager and finally a manager within ten months.
Pre-orders were never a focus when I began my career with the company, however, the focus shifted when HQ realized how much control we would have in the buying room versus their competitors.
At no time in this article will I mention names, nor, will I specifically point out the shortcomings of any individual department (in part one I mentioned the buyers were clueless, but that’s all). This article is designed to beg the question to EB Games/GameStop as a corporation.
A corporation has a responsibility to its shareholders, which I was during my time with the company, to make a profit. That’s what business is all about. I know that. You know that. This article is designed to outline the process in which EB seeks its profits and beg the question, is it ethically correct?
I’m not saying you shouldn’t pre-order, actually I pre-order myself, but I do suggest you understand the mechanics and purpose behind the act.
WHERE DO PRE-ORDERS GO TO DIE?
Have you ever pre-ordered a game and then forgot all about it? It happens all the time. With such an aggressive push for people to throw down $5 for a promise, sometimes people just don’t remember they did it. EB has a policy to contact customers that pre-order a game the day it is available and hold that title for no more than 48 hours (unless you call and ask nicely for a small extension).
A few times a year, usually near the end of the 2nd and 4th quarters, EB Games sends a company wide directive through it’s internal e-mail (the E BEE LINE) to go through pre-sell lists and delete the credit on titles that have been on store shelves for more than 90 days.
Delete. Yes. The manager is to open each individual account in the point-of-sale (POS) system and cash-out the credit as a refund (trade credit is placed on a Gift Card), while not actually removing the money from the computer.
High volume stores can typically expect to cash-out hundreds, sometimes thousands, of dollars in forgotten credit. Where does it go? Although they never specifically told managers, the general consensus was the credit is placed in one general account and liquefied into the company’s quarterly bottom line.
The E BEE Line does state that if a customer does return for the credit they are to be reimbursed for what was effectively taken from their accounts (an account history can be preformed to check), but the directive does not begin with the directive to call the customer to warn them of the process.
Essentially, by forgetting you have a few dollars in the EB computers you are giving the billion dollar organization free money and they don’t think twice about the process at all.
Spread a few hundred, or thousand, dollars across the board to over 3000 stores in North America alone (5000 worldwide) and it’s a wonder the company can announce record annual profits.
TO THE HIGHEST BIDDER
When the Xbox 360 was set to launch EB Games Canada was clamoring for their inventory allocation numbers. Microsoft, as we now know, was unable to keep pace with the demand because of the popularity (and sheer awesomeness) of the system.
It was recommended that the company not take pre-orders until we were aware of our final stock numbers. The company didn’t listen to Microsoft’s wise advice.
We were directed to take pre-orders on the Xbox 360, the launch games and accessories for a short period of time (every store was given a maximum number of orders for the system – mine for example was 16 units). We did so, as per the company’s request and promptly halted when we hit our number.
Then, a few months later, we were told to turn on pre-orders in full force.
This is where I will sound like a hypocrite:
My location proceeded to acquire the most pre-orders for the Xbox 360 in Canada.
Collectively, over two SKUs, we tallied near 150 units in total.
This is where I become hated:
You might say, what is that 149 Premium and 1 Core?
No.
As a manager I understood the logistics of the inventory and the subsequent shortage of units we were going to expect, so, my staff and I created a plan to focus specifically on the Core SKU.
It was a strategy that would ensure success if the process worked. It did.
By November 2005 my location has 115 Premium pre-orders and 35 Core pre-orders.
The mentality I had at the time was, I needed to meet the company’s strict goals in order to keep my job. I had never worked a launch this big (worked PSP and DS but those were obviously different). My plan was to focus on pushing people to Core for a number of reasons; they would be more readily available to the public as most people hated, what is now known as, the ‘tard pack and it afforded my store a better chance of increasing overall margin by adding on extras. We ended up selling all of our 45 Core Units (we got 10 extra for our efforts) and nearly 60% of those people also purchased the HDD (making the system $30 more expensive than the Premium model).
I will however firmly state that I have a big issue with lying to customers to get a pre-order. If you need to lie to do you your job you should be excused of your duties. It was just a process of explaining to people who pre-ordered the system late that if they wanted to ensure they had a system on day one, they were in a better position getting the Core package unless they wanted to wait in line-ups at all hours of the night and miss work.
A lot of people didn’t like the idea and decided to line up for the system, which I respect, however some people decided it was worth it to have the system when they wanted it and not when the inventory allowed it. It was something I hated to have to do and it soured me on the entire process.
This strategy was formed out of a fear of losing my full-time position with the company for failing to meet their, ridiculously, high UPT (units per transaction aka attach) goals.
Conference calls were organized to into our heads how important this launch was to the success of the company.
But that isn’t the bad part.
My location was shipped 66 Premium units (49 units less than my pre-ordered number) and was promptly told to contact the first 20 people on the list to assure them they were in good standing to receive the system.
But what about the other 46 units?
Now, I should note that this next point was NOT a company directive… but more of an insinuation to my staff and me by our regional and district manager.
It was suggested we allocate our remaining units to customers on the pre-order list with a higher volume of pre-ordered items.
My personal belief is that the highest chains of management would actually be furious with this concept, but because store managers, district managers and regional managers are all fighting each other for a higher rank (and effectively their jobs and livelihood) the concept was introduced.
What it means is, if you were #21 on a pre-order list for an Xbox 360 and did not order another item with it the unit that should have been for you may have gone to someone lower on the list who ordered a more units.
This process was shocking, but understandable.
When units were being allocated to retailers, it’s feasible to assume, current sale numbers were considered and the units were allocated to companies that proved themselves.
Add to the face the company sent e-mail after e-mail about the importance of adding on their warranty option, even tracking and giving away $1000 to the manager who achieved the highest attach percentage (I ended with an attach of around 88%, two locations – one of which was my partner for the Pre-Sell Family Tree initiative – ended with 100%!)
The entire process left a bas taste in my mouth, from forcing me to do something I did not want to do to effectively screwing people out of units because they may not have purchased more items with it.
It’s identical, if in a hidden way, to the infamous console bundles EB Games and GameStop forces on consumers for hardware.
I decided to leave the company in August 2006 and one of my main reasons was I did not want to have to go through the same process with the Nintendo Wii and PlayStation 3.
You might go to GameStop and EB Games and hate them for what they’re doing. You may or may not agree with it, but we should all understand that these men and women are just trying to keep their jobs.
Personally, if a customer came to me and said “I understand you need to sell pre-orders for your store goals but I’m just not interested. As soon as I am I will pre-order, but for now I will take my chances.” I would understand.
I’d probably call you a dick when you left, but I’d get it! The main thing is I’d remember it the next time you were in.
My honest opinion and professional opinion is you rarely need to pre-order a copy of Madden or GTA or Halo because the stock levels for those titles are usually quite high. But, to play devil’s advocate, if you’re going to buy it at a particular location maybe you should. The only time I feel it’s necessary to pre-order is for smaller titles, because as I stated before, the buyers are NOT usually gamers and don’t make intelligent purchases for the company as a whole.
I pre-order, I do it out of respect for my former staff who worked hard for me and because I understand the process. I rarely trade games in and, if you read Part One, that’s the leg of the process that keeps it going.
I think the comments on part one of this series proves that employees of EB Games and GameStop are hardcore gamers too, who love this industry and I guess they feel like I’m going after them. That’s not my point here. My point is to show you the why’s and how’s of the process and help us all come to a mutual understanding at the corporate level.
Hopefully this article has shown you the process and fear attributed to the company directive, and maybe if we start understanding each other going to EB Games will be the fun process it should be. Not the hassles and bullshit it currently is.
Or. Go to Best Buy, they probably have 10 copies of what you’re looking for anyway… and for less skrilla (aka moneys).
Editors Note: Xav de Matos managed three locations for EB Games in the Greater Toronto Area and was under their employment from October 2003 and left in September 2006. Because EB Games management is not required to sign a non-disclosure agreement this information is submitted for public consumption.
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