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I’ll start with the disclaimer. I do have a degree in Economics, but it’s been years since I graduated and I don’t really use it in my day to day job. So I’m sure some of you will pipe up with how I got some specific or another wrong, but it’s been awhile so take it easy.

So how can GW continue to raise prices? While it is true that some of us will buy less or quit altogether, they continue to raise prices every year at a rate beyond inflation. How can they do that and still be profitable year after year? I’ve seen a lot of posts saying “It’s simply economics, if you lower price, you sell more,” and while that may be true, the way it actually works is much more complex than that.

It comes down to an economic principle called price elasticity of demand. What this means is that some products are considered elastic while others are more inelastic. An elastic product is one where as the price increases, the overall revenue ($) goes down. Think of this like butter. If the price of butter increases, you buy olive oil instead and don’t buy butter (an imperfect example, but I think you get the idea). A perfectly elastic product would be one that if there is any change in price the quantity goes to zero. Lots of items in our day to day lives are considered elastic, especially ones with lots of alternatives.

Now an inelastic product is something that even if the price increases, the drop in quantity is not enough to offset the revenue increase from the price increase. Gasoline is a classic example of this. As the price of gas goes up, people may buy less, but the overall revenue from sales of gasoline either increase or stay the same. A perfectly inelastic product is one that no matter the change in price, the quantity doesn’t change. Luxury goods are usually considered inelastic. If the price of a Lexus goes up 10%, overall revenue of Lexus’ either goes up or stays the same.

Wargaming models are generally considered luxury goods. They aren’t a necessity, there aren’t a lot of substitutions. and gamers are generally pretty brand loyal. Wargaming models, in particular warhammer models, are inelastic. So if GW raises the price of everything by 10%, they may see a decline in the total quantity sold, but not in the overall revenue of their products.

Now, since no product is perfectly inelastic, there comes a point in every product where the increase in price does not mean an increase in revenue. GW is operating under the assumption (and probably rightly so) that they have not hit that threshold yet. Until GW’s price increase does not correspond to an increase in sales, they have no reason NOT to increase prices. It pisses a lot of us off (myself included), it prices some people out of the hobby (I’m getting close there), but until it actually affects their bottom line, it makes economic sense (maybe not marketing sense, but that’s another topic), to continue to raise prices.

Hope that helps clear up the reasoning behind GW's price increases, now let's all stop buying stuff so they hit that threshold!

I fear that if the Australian market is still profitable for GW at their local prices, then that just sets a whole new scale of potential price growth for them to aim for in the rest of the world. I wont be surprised to see continual annual adjustments until Australia hits the limit of elasticity, and the rest of the world reaches Australia's current price points.

Well the strength of Australia's dollar is a relatively new phenomenon. And the average income of an Australian is higher than the average income of a US citizen, so I don't think your prices are going down anytime soon.

And don't they pay more for everything down under? Like isn't a video game $60US but $100Aus?

Regarding the video games; yes we do pay $100 for new ones.

I dont know man, but im done with the, other than some very iconical or particular min, say heroes or big monsters, i simply do not by GW any more. There are way too many fantasy alternatives out there.

I plan to redo my entire Empire army, i have crunched the numbers, buying historical 28mm models will cost me around 150 dollars for a well beyond 2000 points army. And i include some flavor GW kits like wizards and extra bits for conversions.
Rulebooks i can just get them of the net, as some chinese friend can provide for other copies.

Let me write it again 1 2000+ empire army on 3rd party manufacturers minis iquals 2 new storm talons.

You tell me what you would do...

I'm inclined to agree with you. It may be that there are enough alternatives out there (mantic, historicals, etc) that GW's price increases will result in lower revenue, but I don't think we are quite there yet.

For the record I own about 80 Mantic ghouls. Cost me about $80US. Buying that many GW ghouls would have cost more than double (and I like the Mantic ones more!).

Ozymandias wrote:Well the strength of Australia's dollar is a relatively new phenomenon. And the average income of an Australian is higher than the average income of a US citizen, so I don't think your prices are going down anytime soon.

And don't they pay more for everything down under? Like isn't a video game $60US but $100Aus?

http://finance.yahoo.com/news/video-games-industry-faring-205534711.html

I posted this Url because there has been a decline in video game sales for a while now, due to the high cost of this sort of entertainment.
and people like to make comparisons to video games and GW products.

I have been holding back on my IP's as well because of the economic climate.

http://theback40k.blogspot.com/2012/05/gw-dividends-down-20.html#more

Interesting comment on GW dividends.

I do not carry stock in my portfolio. To me, the stock market it is a from of legalized gambling with rules that are different in every global region. I believe that It is not that difficult to manipulate the value of the stock at hand and generally it is the small guy that gets the short end of the stick.

To end this posting I do agree with the OP's comment.

It is whatever the Market will bare.

Sadly I have now been priced out of GW, luckily I just finished my GK army, sadly I was going to buy a LR next month to round it out and give me more options.

I have mixed emotions in that I have had a 6 year relationship with GW but now it's time to part ways.

Today I went into the game store And picked up a few war machine models and will be getting into Dust as well.

Edited twice for autocorrect

darefsky wrote:Sadly I have now been priced out of GW, luckily I just finished my GK army, sadly I was going to buy a LR next month to round it out and give me more options.

I have mixed emotions in that I have had a 6 year relationship with GW but now it's time to part ways.

Today I went into the game store And picked up a few war machine models and will be getting into Dust as well.

Edited twice for autocorrect

I totally feel how you are bro.. I dont plan on buying GW stuff, I reckon the price increase will make me focus on painting 20K+ in point of orks.. lmao.. I have a nice circle of orboros that I can field at anytime also..

ruff wrote:

darefsky wrote:Sadly I have now been priced out of GW, luckily I just finished my GK army, sadly I was going to buy a LR next month to round it out and give me more options.

I have mixed emotions in that I have had a 6 year relationship with GW but now it's time to part ways.

Today I went into the game store And picked up a few war machine models and will be getting into Dust as well.

Edited twice for autocorrect

I totally feel how you are bro.. I dont plan on buying GW stuff, I reckon the price increase will make me focus on painting 20K+ in point of orks.. lmao.. I have a nice circle of orboros that I can field at anytime also..

20k of orks!!! gawd I got bored with green, red, black after "only" 3500pts

This is how I see the "Australia problem". The Aussie dollar is, compared to fairly recent times, spectacularly high. Retailers have chosen not to reflect that and still charge $20-$30 for DVD titles, $100-$120 for video game titles, etc. as they did back when it was perhaps justified (exchange rates-shipping etc.).

Now our retailers are having major issues with sales because people are - shock horror - ordering online. And they are on our TVs telling us to support our true blue local companies who have done nothing to deserve our support by charging significantly more than something is worth. Couple this with the fact that many of the big chains opened up a ton of new stores prior to the AU$ rising, and you can see why they are struggling.

The gap between what we pay for GW compared with the US is pretty similar % wise to the gap between games/movies etc. so it's clearly GW thinking that if we pay more for those items, the same will ring true for theirs. It's true to a degree, but there are still online non-.au retailers out there who will ship to Australia (despite GW efforts to prevent this). I think GW would likely be finding the same issues over here that other retailers are. One of the biggest surprises for me after getting back into the hobby after a 15+ year break as how few GW stores there are now compared to back then, when it seemed like there was one in every major suburb. Now they are moving them outside of the main shopping malls (for rent reasons I'd imagine), and there are, at a guess, half the stores that I remember there being previously.

Nice post, Ozzy... you economic stud, you!

(We shared a cab once, quite recently in fact... I'll let you draw your own conclusions )

I think what's great about what you've shown here, is that from a pure economic standpoint, what GW is doing does indeed make sense. I believe it is the marketing issues that most of us have been pointing to as far as why it doesn't make sense. The goliath is weak, and inviting the davids to wind up their slings... but that doesn't mean that what they're doing doesn't make economic (at least short-term) sense.

RiTides wrote:(We shared a cab once, quite recently in fact... I'll let you draw your own conclusions )

You cad!

Why aren't you a Wasteland regular?

I see you drew your own conclusion, P4th

Elastic or inelastic?

Okay, I'm done, I promise!

darefsky wrote:

ruff wrote:

darefsky wrote:Sadly I have now been priced out of GW, luckily I just finished my GK army, sadly I was going to buy a LR next month to round it out and give me more options.

I have mixed emotions in that I have had a 6 year relationship with GW but now it's time to part ways.

Today I went into the game store And picked up a few war machine models and will be getting into Dust as well.

Edited twice for autocorrect

I totally feel how you are bro.. I dont plan on buying GW stuff, I reckon the price increase will make me focus on painting 20K+ in point of orks.. lmao.. I have a nice circle of orboros that I can field at anytime also..

20k of orks!!! gawd I got bored with green, red, black after "only" 3500pts

lmao sad thing is I still trade for more.. LMAO backon topic.. After seeing one post of dakka, about gw not raising prices I was happy to see, then this.. It totally sucked to hear, then a local FLGS confirmed it.. There worried that there going to get hit hard with the increase..

My FLGS is very worried about his GW sales dropping off the cliff.

I hope he is really smart and gets PP, Dust, and anyone else he can think of to come in for demo days and get people excited about other games.

There simply are no games out there that scratch all the same itches that 40k does. None.

Given infinite time and money, I'd play them all. But with only the time and energy for one... Its 40k. It's always 40k.

Ok, LEt me put this down. The clerance bine today at my FLGS was full of 40k stuff, even baneblades for 60$
In all the time i have played there there has never been 40k clearance.
Seriously. He is pricing this stuff down because nothing is selling.
The stuff he sold hasnt sold for a year, and he rarely sells a battleforce/battallion.
It just, with tax here paint already runs to 4.50.
with tax, SR will cost you 100$
It just seems sad.

I am not a financial expert.
BUT , if we look at the GW plc turn over for the last few years its been practicaly static, despite increses over the rate of inflation.
And the last report showed a slight DROP in turn over, ( if you adjust for currency fluctuation.)

The next report out in June , will show how elastic the GW product actualy is....

And as there is far more chioce avaiable for those NOT tied to useing a GW store. The sales volumes are going to continue to decline IMO.

(GW plc has lost over 40% sales volumes in the last 7 years.)

Very nicve post OP, quite informative.

I am not a financial expert.
BUT , if we look at the GW plc turn over for the last few years its been practicaly static, despite increses over the rate of inflation.
And the last report showed a slight DROP in turn over, ( if you adjust for currency fluctuation.)

Im far from one too but isnt it profit they are really looking at which is different to turnover?

You could have lower TO but still be profitable (perhaps they closed more stores or let employees go or switched from metal etc).

Ozymandias wrote:Well the strength of Australia's dollar is a relatively new phenomenon. And the average income of an Australian is higher than the average income of a US citizen, so I don't think your prices are going down anytime soon.

And don't they pay more for everything down under? Like isn't a video game $60US but $100Aus?

True but as far as GW goes, they appear to track local average salaries with their pricing. The small bit of research I did on the topic last year indicated that the big sellers (SM squads/Rhinos/Landraiders) all had a rough parity across the major currencies. So in each the cost of a SM squad was say 3.5hrs work x avg. hourly rate.

The problem (if it is such?) with the Austrailian hobbiest is that they have been able to take advantage of currency rates for huge saving, this has been the case for long enough that the impression that they are somehow being targeted has come about.

From a GW Pov blocking European retailers from shipping to Aus helps their trading partners in that region (FLGs & GWAus). They need to do this because a) there is a certain moral (possibly legal) obligation not to undercut the Aussie FLGs and b) this is most important, GW expand/attract new custom through retail outlets. High street presence is what works for them. To expand the Aussie market they need toys in shops.

Anecdotally I can remember when it was about $4 to the pound (20 odd years ago), I think I'm right in saying that Australian prices have tracked from that point at the same rate as UK prices.

Me, I'm not too surprised l by this increase. The major lines have been increased by a huge margin in advance of new people coming in for 6th Edition (or so they hope?).

It should be pointed out that GW (and FW's) quality of product is going down the pan, too. Perceived value of the product is being reduced whilst the purchase price is being increased. After more than 25 years, I am now for the first time seriously eyeing up other products. Paulson's Robotech miniatures are beautiful, and I'd get into that in a heartbeat (plus I love mecha). Dust Tactics / Warfare, also like that. Black Scorpion's cowboys (which I painted a few of for a mate and THOROUGHLY enjoyed). Heck, I'm even considering starting a 28mm Wars of the Roses army. But for GW, I think it'll just be for commissions now. It mostly has been for the last 3 or 4 years anyway. Their humour in design is all but gone, there's very little character in it any more - it all feels very much like it's designed to get money, rather than to have fun with.

At the FW open day, there was a stall selling old GW stuff in Bugman's, including some of the old Troll games (Trollz in the Pantry I think it was). The guy manning the stores said something like 'Yeah, these were made when Games Workshop was a very different company...'
Anyone who remembers (or managed to score one of these on eBay) knows how right he was.

^^ not sure if serious?

Do you mean the aesthetic of the sculpts or the quality of materials/casts used?

If the former, imho you're talking gak.

Both to some extent. CAD designed kits are frequently quite sloppy/lazy (check the interior of a Valkyrie). Don't get me wrong the plastics production methods are very sophisticated - some stuff is superbly *engineered*. But this doesn't equate to a great design overall. Character models have lost a lot of... character. Sure, some of the sculpts are sharper, but there's less comedy, less drama. Everyone is angry, all of the time. Everthing must be COVERED IN SKULLS.
And then there's Finecast. Which just needs that sentence.

Well, one thing I can say is that all of this will be good for the industry as a whole. Although I go to a club where a lot of the members enjoy playing new games, it seems obvious that in a lot of cases players have stuck exclusively to one game and system. And for the most part this is sensible as the money investment involved (not to mention the time spent building and painting) really only allows time for one system.

But, I think really it shouldn't be an 'either or' situation. And now I can imagine most people keeping their existing 40k/WFB armies, which they will continue to use, but rather than starting that new WFB or 40k project they will look elsewhere. For me, I was forced into this situation a couple of years ago, living in a country with no GW stockists the international trade embargo came in and so I was simply not able to buy a WFB Orc army I had planned. So, instead I took the £200 I had set aside, had a read on Dakka and other websites like it, and looked through Maelstroms product list on the right hand side of the page at what took my fancy.

The end result is that I have tried out several other games, and ended up settling on Infinity. And the wonderful thing? There are some great other games systems out there, which I might not otherwise have tried. People enjoy the familiar and staying with what they know, and it can take a big push to move them away from that. For me, it was not being able to buy GW product that pushed me elsewhere. I am sure that this round of price rises, like in previous years, will have a similar effect for a lot of people.

notprop wrote:True but as far as GW goes, they appear to track local average salaries with their pricing. The small bit of research I did on the topic last year indicated that the big sellers (SM squads/Rhinos/Landraiders) all had a rough parity across the major currencies. So in each the cost of a SM squad was say 3.5hrs work x avg. hourly rate.

Yes but what kind of prices do other miniature wargames go for? I would be interested to know if the likes of WarMachine/Infinity/Flames of War etc. have prices similar to those in the US/EU, or they are similarly inflated? If so, it would be an even bigger argument for looking at something as an alternative to GW.

Very nice post. Exalted.


In theory - I'm no economic boff though - but couldn't they not raise the prices, and therefore sell more/the same overall, make similar revenue and not piss the customer off?

A few things:
1) They made a loss in Australia last year. A combination of exchange rates and price hikes, but they lost a lot.

2) There are many alternative wargames. No-one else makes Warhammer, and GW (as the primary wargames advertiser) does their best to convince people that they are the only one, but there are a lot of alternatives.

And the major one:
3) I don't know what the economic theory is about 'social' products, but I think that GW has a enormous social/network effect that it is losing.
People wanting to get into wargaming like the idea of GW, because there is basically a guarantee that there will be people playing the game near you. You'll find opponents and clubs. And wargames are something that fundamentally requires opponents.
So every time they lose a customer, they essentially devalue their product because it is less likely that you'll be able to use it. No matter how price inelastic the last customer is, they will stop buying because the product has no value.
You can see this effect hugely in social networking sites or multiplayer computer games

3) I don't know what the economic theory is about 'social' products, but I think that GW has a enormous social/network effect that it is losing.
People wanting to get into wargaming like the idea of GW, because there is basically a guarantee that there will be people playing the game near you. You'll find opponents and clubs. And wargames are something that fundamentally requires opponents.
So every time they lose a customer, they essentially devalue their product because it is less likely that you'll be able to use it. No matter how price inelastic the last customer is, they will stop buying because the product has no value.
You can see this effect hugely in social networking sites or multiplayer computer games

I help run a gaming club which was founded by off GW players fe dup of playing at the store. When we first started 95% of the people there were playing GW games, thats changed a lot recently. We have a lot of magic and infinity now and games like firestorm, warmachine/hordes and malifaux are being played more often. I think this will only grow as you are no longer guranteed a GW game at our club.

After the last price hike I didn't stop buying GW, I just stopped buying it from them. Started using ebay and third party sites, I've only been able to legitamise my continued purchases by selling other hobby stuff (old consoles, anime).

I'm going to have a sit down and have a real good think about where I stand but in all honesty this new hike won't probably stop me buying but it will be a lot less often (from other sources).

Pacific wrote:

notprop wrote:True but as far as GW goes, they appear to track local average salaries with their pricing. The small bit of research I did on the topic last year indicated that the big sellers (SM squads/Rhinos/Landraiders) all had a rough parity across the major currencies. So in each the cost of a SM squad was say 3.5hrs work x avg. hourly rate.

Yes but what kind of prices do other miniature wargames go for? I would be interested to know if the likes of WarMachine/Infinity/Flames of War etc. have prices similar to those in the US/EU, or they are similarly inflated? If so, it would be an even bigger argument for looking at something as an alternative to GW.

Not sure mate but i do know that Battlefront (makers of FoW) did do a price correction exercise across the globe a couple of years back to even out discrepancies. I seem to remember the effec was a price rise in Europe, but BF are recognised as expensive in 15mm but few people complain about that in the same way few complain about their poor casting quality.

Further from a purely economic PoV GW don't compare too well with those competitors you list. While PP/Corvus Belli/BF do sell abroad thy do not operate in foreign territorie and that is the difference here. GW have foreign based HQ/manufacture/shipping/reta'arms all over and there for at closer to the local currency as a result and all of these must be covered as an on costs. The others have is international shipping but that's about it assuming they do not use distributors.

Without wishing to defend GWs price point in anyway my question whenever discussing this is also why the others charge comparable per model prices?

Ozymandias wrote:I’ll start with the disclaimer. I do have a degree in Economics, but it’s been years since I graduated and I don’t really use it in my day to day job. So I’m sure some of you will pipe up with how I got some specific or another wrong, but it’s been awhile so take it easy.

So how can GW continue to raise prices? While it is true that some of us will buy less or quit altogether, they continue to raise prices every year at a rate beyond inflation. How can they do that and still be profitable year after year? I’ve seen a lot of posts saying “It’s simply economics, if you lower price, you sell more,” and while that may be true, the way it actually works is much more complex than that.

It comes down to an economic principle called price elasticity of demand. What this means is that some products are considered elastic while others are more inelastic. An elastic product is one where as the price increases, the overall revenue ($) goes down. Think of this like butter. If the price of butter increases, you buy olive oil instead and don’t buy butter (an imperfect example, but I think you get the idea). A perfectly elastic product would be one that if there is any change in price the quantity goes to zero. Lots of items in our day to day lives are considered elastic, especially ones with lots of alternatives.

Now an inelastic product is something that even if the price increases, the drop in quantity is not enough to offset the revenue increase from the price increase. Gasoline is a classic example of this. As the price of gas goes up, people may buy less, but the overall revenue from sales of gasoline either increase or stay the same. A perfectly inelastic product is one that no matter the change in price, the quantity doesn’t change. Luxury goods are usually considered inelastic. If the price of a Lexus goes up 10%, overall revenue of Lexus’ either goes up or stays the same.

Wargaming models are generally considered luxury goods. They aren’t a necessity, there aren’t a lot of substitutions. and gamers are generally pretty brand loyal. Wargaming models, in particular warhammer models, are inelastic. So if GW raises the price of everything by 10%, they may see a decline in the total quantity sold, but not in the overall revenue of their products.

Now, since no product is perfectly inelastic, there comes a point in every product where the increase in price does not mean an increase in revenue. GW is operating under the assumption (and probably rightly so) that they have not hit that threshold yet. Until GW’s price increase does not correspond to an increase in sales, they have no reason NOT to increase prices. It pisses a lot of us off (myself included), it prices some people out of the hobby (I’m getting close there), but until it actually affects their bottom line, it makes economic sense (maybe not marketing sense, but that’s another topic), to continue to raise prices.

Hope that helps clear up the reasoning behind GW's price increases, now let's all stop buying stuff so they hit that threshold!

I disagree with your conclusion that GW is inelastic. The fact that they are not a necessity already poses a great problem to that. If you look at wargaming being just GW, then yes they are inelastic within their own stores, where they require their models. They force a monopoly market within themselves, but they cannot control what happens at your house or at your friendly local gaming store. If you consider alternative models, they are abundant. If you consider alternative games, they are abundant as well. If you consider other forms of entertainment, well you see. It depends on how you consider your sample to define it's alternatives. It is simplest to think of it in competition with every other wargame, in which case there are tons of alternatives and substitutes.

If you consider loyalty, that is probably the strongest part they have. If you have an army, it's hard to get out. If you love the universe like most of us do, it's painful to leave. However, that does not mean that habits may not change. When i worked at GW and got the 50% discount, I was always buying stuff because the perceived value was greater than the cost and I was left with a rather large consumer surplus which made me happy. Now, I find it hard to justify the prices as the perceived value is less than the cost. I have a long term goal of having an entire chapter, but that goal is fading in the face of the price. Other armies I'd like to make have become less attractive. My overall spending has drastically lowered. While anecdotal evidence is hardly a rule, my behavior follows the rational model.

The other problem that comes with the inflation shocks they do. Everyone here knows they happen like clockwork, but there's many problems with the way they do it that makes it unexpected. They make 0 announcements themselves, we have to get the information through back channels more or less, which makes this technically unexpected inflation. No logic to what is increased and what isn't. No anticipatable increase. Nobody could have guessed that only 2 tyranids would get a $2 increase and that the storm raven and land raider would jump up $10+. The products chosen and the amounts raised are not easily discernible which causes shocks to their market. The market doesn't like shocks and so we see people on the forums react in the ways they do. GW is lucky that most of it is just grumblings, but they still lose customers and sales.

While they may be getting more revenue per box now, they are simultaneously losing sales. This is one reason that they haven't been getting growth.

http://investing.businessweek.com/research/stocks/earnings/earnings.asp?ticker=GAW:LN
http://inflationdata.com/inflation/inflation_rate/currentinflation.asp

Reports nominal revenue
2010: $127m
2011: $123m
2012 (projected): $128m

However when you adjust for inflation to 2010 value (using average annual inflation) real revenue:
2010: $127m
2011: $119m (average 3.42%)
2012: $120m (current average 2.69%)

This is bad. And it gets worse. They have higher fixed costs now that they have 1 man stores. You can't layoff extra staff anymore to cut costs, they've already cut them as low as they can. So instead of having a variable cost, they now have a fixed cost when it comes to labor as every store manager is tied to physical capital with a lease. SO they've lost revenue, they're lost sales and they've lost flexibility. GW is really doing bad.


Automatically Appended Next Post:

notprop wrote:Without wishing to defend GWs price point in anyway my question whenever discussing this is also why the others charge comparable per model prices?

PP metals are about the same price as GW plastics and in some cases cheaper. Squad of infantry vs infantry PP is higher price but dreadnaught vs jack, jack is cheaper. Metal PP blisters run around the same as GW plastic blisters and cheaper than finecast. PP cinerators/bastions are comparable in size to termies and are cheaper with more detail. Battle engines and collossals compare to Forgeworld prices depending on which models you pick from (their prices are all over the place relative to size).