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Awesome Bits Games: Managing a Controversial Pricing Scheme Resources Author: Eric Dolansky Online Pub Date: January 02, 2019 | Original Pub. Date: 2019 Subject: Consumer Behavior, Direct Marketing, Pricing Level: | Type: Experience case | Length: 4216 Copyright: © Eric Dolansky 2019 Organization: fictional/disguised | Organization size: Small Region: Northern America | State: Industry: Creative, arts and entertainment activities| Publishing activities Originally Published in: Publisher: SAGE Publications: SAGE Business Cases Originals DOI: http://dx.doi.org/10.4135/9781526476128 | Online ISBN: 9781526476128 javascript: void(0); javascript: void(0); javascript: void(0); javascript: void(0); javascript: void(0); http://dx.doi.org/10.4135/9781526476128 © Eric Dolansky 2019 This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes. 2021 SAGE Publications Ltd. All Rights Reserved. The case studies on SAGE Business Cases are designed and optimized for online learning. Please refer to the online version of this case to fully experience any video, data embeds, spreadsheets, slides, or other resources that may be included. This content may only be distributed for use within University of South Florida. http://dx.doi.org/10.4135/9781526476128 SAGE © Eric Dolansky 2019 SAGE Business Cases Page 2 of 6 Awesome Bits Games: Managing a Controversial Pricing Scheme http://dx.doi.org/10.4135/9781526476128 Resources Exhibit 1: Past ABG Kickstarter Projects Year Game Kickstarter Funding Goal (USD) Basic Pledge Level (USD) Highest Pledge Level a (USD) Money Raised (USD) Number of Backers 2012 Mages of Wallcadon 5,000 25 116,938 2,955 2012 Deathlands 20,000 75 3,000 781,597 5,258 2012 Ancient Warriors 20,000 45 3,020 909,537 3,459 2012 Mutiny Battle: War for Ivory 20,000 80 5,000 951,254 4,278 2013 Manicsport 20,000 90 3,000 356,752 1,427 2013 Deathlands: The Second Chapter 25,000 50 2,000 2,225,018 8,844 2013 Battlebolts 25,000 90 500 582,316 2,464 2013 Emperor’s Ire 50,000 50 200 718,152 3,756 2014 Palace Challenge 50,000 90 410 774,222 4,885 2014 Deathlands: The Third Chapter 100,000 90 150 2,849,064 12,011 2014 Ale & Blood 50,000 90 100 739,513 4,417 2014 Deaconplace Attack 25,000 45 50 242,832 3,367 2014 Blood, Sweat and Tears 25,000 45 50 66,703 1,139 2014 The Specter of Fog 25,000 45 50 101,351 1,770 SAGE © Eric Dolansky 2019 SAGE Business Cases Page 3 of 6 Awesome Bits Games: Managing a Controversial Pricing Scheme https://sk.sagepub.com/cases/awesome-bits-games-managing-a-controversial-pricing-scheme#i82 2015 Surrounded: Children of the Void 50,000 85 90 567,350 4,744 2015 Valhalla Calls 50,000 70 75 905,682 9,825 2015 Deadly Sins: The Outsiders 100,000 90 100 1,464,489 10,136 2015 Palace Challenge: Hellscape 100,000 90 100 1,710,714 9,991 2015 Deathlands: Pestilence 125,000 100 150 4,078,954 20,913 2016 Deaconplace Attack: Murderswamp 30,000 55 60 383,407 4,398 2016 Ale & Blood: Dawn 80,000 90 100 917,864 5,794 2016 Palace Challenge: Dungeons 60,000 60 65 1,010,959 10,862 2016 Giant Abyss 200,000 110 120 3,560,643 22,361 2017 The Specter of Fog: Mammon’s Rise 70,000 100 120 1,174,130 7,892 2017 Jester’s Crown: The Miniatures Game 300,000 150 1,690,466 9,040 2017 Eastern Empire 300,000 100 4,228,060 31,262 2017 Deathlands: Emerald Isle 300,000 120 5,004,614 27,236 2018 Loathing 200,000 120 1,469,489 10,227 2018 Deathlands: In Space! 250,000 100 150 3,352,208 18,486 SAGE © Eric Dolansky 2019 SAGE Business Cases Page 4 of 6 Awesome Bits Games: Managing a Controversial Pricing Scheme 2018 Palace Challenge: Flight 30,000 65 316,018 5,272 2018 Undead Rising b 200,000 100 310 1,256,370 9,561 Note: Bold type indicates a sequel or expansion project rather than an original game. a If blank, there was only one pledge level. b Campaign ongoing at the time of the case, four hours into a two week campaign. Exhibit 2: Sample Comments About the Undead Rising Project, Posted on Kickstarter “Disappointed. Kickstarter exclusives suck.” “Greed has replaced quality and customer service. Nope nope nope no way.” “I’ve probably backed a dozen Kickstarter projects in the past three months, but I wouldn’t back these greedy jerks if they priced it at ten cents. These idiots need to be stopped before everyone thinks it’s great to do business this way. Disgusting!” “I’ve had enough! Crappy Kickstarter project. Beware!” “ABG’s eagerness to take advantage of customers is simply too much. It’s unethical and unacceptable.” “I cannot support a game publisher using such awful business practices. Game looks good; terrible way of running it. It’s a ripoff and a crime. Fail.” “I believe I have to express myself over how ABG has been doing its Kickstarters lately. Price gouging, early bird pricing (after saying they wouldn’t do that) is a terrible thing to do to loyal fans. Even though they’ve been successful for years, ABG doesn’t listen to its fans. Kickstarter exclusives and the backlash for their ‘Loathing’ game should have taught them a lesson.” “I’ve never commented here before, and hope I won’t have to again. I’m doing it because of ABG’s cash grab garbage on Kickstarter. There needs to be a protest and boycott to make them stop, but that won’t happen because gamers need their plastic.” “Even though the giant statue is cool I can’t see it being worth the money. I hope that everyone shelling out all that money enjoys the game.” “I don’t want the piece, personally, but I want the final chapter. I hope you find a way to decouple the content from the plastic.” “If there are economies of scale, why do the later pledges cost more? Making more of them should lower the price for everyone.” “Cash grab central, but it’s working so I guess we’re all idiots. Almost $1 million already, so ABG is being able to give us less and charge more.” “What’s the deal, ABG? I just got an e-mail saying your project launched and the big piece is sold out already?” “If I wasn’t a zombie fan I’d have run from this project already. I still may …” SAGE © Eric Dolansky 2019 SAGE Business Cases Page 5 of 6 Awesome Bits Games: Managing a Controversial Pricing Scheme https://sk.sagepub.com/cases/awesome-bits-games-managing-a-controversial-pricing-scheme#i84 “I had high hopes for this and it’s a huge let down. If you’re going to force money from us with a big finale locked in an inaccessible pledge level, why should we care?” http://dx.doi.org/10.4135/9781526476128 SAGE © Eric Dolansky 2019 SAGE Business Cases Page 6 of 6 Awesome Bits Games: Managing a Controversial Pricing Scheme http://dx.doi.org/10.4135/9781526476128 Awesome Bits Games: Managing a Controversial Pricing Scheme Resources Awesome Bits Games: Managing a Controversial Pricing Scheme Case Author: Eric Dolansky Online Pub Date: January 02, 2019 | Original Pub. Date: 2019 Subject: Consumer Behavior, Direct Marketing, Pricing Level: | Type: Experience case | Length: 4216 Copyright: © Eric Dolansky 2019 Organization: fictional/disguised | Organization size: Small Region: Northern America | State: Industry: Creative, arts and entertainment activities| Publishing activities Originally Published in: Publisher: SAGE Publications: SAGE Business Cases Originals DOI: http://dx.doi.org/10.4135/9781526476128 | Online ISBN: 9781526476128 javascript: void(0); javascript: void(0); javascript: void(0); javascript: void(0); javascript: void(0); http://dx.doi.org/10.4135/9781526476128 © Eric Dolansky 2019 This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes. 2021 SAGE Publications Ltd. All Rights Reserved. The case studies on SAGE Business Cases are designed and optimized for online learning. Please refer to the online version of this case to fully experience any video, data embeds, spreadsheets, slides, or other resources that may be included. This content may only be distributed for use within University of South Florida. http://dx.doi.org/10.4135/9781526476128 SAGE © Eric Dolansky 2019 SAGE Business Cases Page 2 of 9 Awesome Bits Games: Managing a Controversial Pricing Scheme http://dx.doi.org/10.4135/9781526476128 Abstract Jan Flenderson, marketing manager at Awesome Bits Games, was very concerned about the negative reaction to the latest company crowdfunding campaign. Though the numbers were good, and the project was on track to earn as much or more than previous projects, the tone and number of the online comments were more strongly negative than in the past. These comments were largely in reaction to a relatively high-priced add-on to the game being sold, called “the Swarm,” and the pricing scheme that Flenderson had developed for it. Flenderson was having second thoughts about this pricing scheme and had come up with some alternatives for what could be done at this time, four hours into the campaign. She arranged an emergency meeting with the CEO, CFO, and lead game designer to develop a recommendation. Case Learning Outcomes This case, primarily about pricing, touches on several marketing topics. Through analysis and discussion of the case, students should be able to: • understand the impact of pricing decisions beyond the amount charged; • perform financial analyses of pricing decisions and be able to translate changes in price to changes in revenue and margin; • determine the effect of pricing on the distribution chain and the customer; • realize the importance of value to the customer on pricing; • gain a rudimentary understanding of topics such as crowdfunding; and • apply the above to management decision making. Introduction Jan Flenderson, marketing manager at Awesome Bits Games (ABG), was starting to get worried. The Kickstarter crowdfunding campaign for the latest company board game, Undead Rising, had gone live at 3 p.m. on July 10, 2018, and four hours later the negative online comments were piling up. Complaints were nothing new for Flenderson; they sold relatively expensive games and customers were demanding. What concerned her was that she had tweaked the pricing scheme for this game, trying something new, and this was the basis for most of the comments. The pricing change was instigated by the inclusion of a novel component in the game, a giant 18” high three-dimensional plastic piece named “the Swarm,” required only for the game’s final chapter. To price “the Swarm,” Flenderson, in consultation with game designer Derek Oakley, CEO Marta Li, and CFO Andrew Haverchuk, devised a new plan. The game alone would be priced at USD 100 (same as previous ABG products), but the game including “the Swarm” would increase in price as the crowdfunding campaign continued. The first 100 project backers would get these items for USD 220, and then the price would increase by USD 5 for each subsequent 100 backers. The first 100, available at USD 220, sold out within minutes. Although sales of the basic version and “the Swarm” bundle remained strong and rose, so did the negative comments. Accusations of price gouging were made, but that did not concern Flenderson because every crowdfunding campaign she had run generated similar comments. What really made her begin to worry were the many comments simply reading “I’m out,” or some variation on that, indicating a prospective backer who was opting to keep their money. These were customers who had gone to the Kickstarter page for the project, likely intending to back it, and had decided against it. Had she made a mistake with this pricing scheme? Flenderson sent an e-mail to Li, Haverchuk, and Oakley to arrange an emergency meeting. SAGE © Eric Dolansky 2019 SAGE Business Cases Page 3 of 9 Awesome Bits Games: Managing a Controversial Pricing Scheme Hobby Board Games In 2018, the hobby board game market was booming. Sales had consistently increased during the previous decades, and year over year sales increases hovered around 20\%. Since the mid-1990s, games beyond the typical toy store lineup of Monopoly, Clue (called Cluedo in some parts of the world), and Scrabble had invaded shelves worldwide, and within 20 years they were big business. Sales in 2016 of hobby games were USD 1.4 billion and growing. These games tended to be slightly more complex and aimed at adults, not kids. They also boasted better production value and art and required more thought and strategy, relying less on luck. While many hobbyists tried their hand at designing and publishing games (leading to more than 3,500 games published in 2017), the industry was dominated by a few very large publishers (including ABG). Awesome Bits Games ABG was a leader in the board game market. The company, founded by Li and Haverchuk in 2001, had begun as a website on which hobby board gamers could post pictures of game components, mostly homemade and/ or hand-painted. Users on the website would rate the components as either “awesome” or “not awesome.” Drawing on the existing user base of the website as a loyal following and contacts made in the hobby board game industry, ABG began publishing games in 2010 and had grown significantly since then. Sales of ABG board games were USD 15 million in 2015 and USD 20 million in 2016. The games created and published by ABG tended to have dark themes (the apocalypse, zombies, etc.), slightly complex rules with much player interaction, and contained a very large number of plastic game pieces. ABG stayed true to its original focus of high-quality game components in its own games, and its customers expected to buy a box full of intricately detailed plastic pieces. This led to ABG games having a higher sale price point than most games (typically around USD 100 per game, compared to an industry averages of USD 40–50) but customers still felt they received value for money. Of that USD 100 price tag, manufacturing costs were about 8\%, distributors collected 10\%, and retailers received 50\% (crowdfunding projects required distribution but removed the need for retailers). In 2017, ABG found itself in the unexpected position of being the second-largest independent board game publisher in the world. Two years earlier it would not have been in the top 20, but a combination of rapid company growth and industry consolidation resulted in its ascent in the rankings. Asmodee, a French hobby game company and the largest in the world in terms of revenue, had acquired the next three largest companies during an 18-month period beginning in 2015. Their aggressive growth strategy, relying on acquisition over organic growth, led to more and more buyouts and consolidation. In contrast, ABG rarely acquired other companies and chose to grow organically, which it did at a rate that surpassed overall industry growth. Jan Flenderson The rapid growth of ABG necessitated the hiring of new managers, and no area within the company was in need of greater help than marketing. Haverchuk and Li were programmers first and foremost, with Haverchuk’s limited background in finance providing a justification to make him CFO. The co-founders were learning as they went, and to take off some of the pressure, they hired an experienced marketing manager, Flenderson, in 2013. Jan Flenderson had an MBA from a northeastern business school and had worked for several years as a brand manager at a major packaged-goods company. She was a personal acquaintance of Marta Li, which is how she became aware of the opportunity and brought big-company practices and procedures to what was, at the time, a somewhat haphazard operation. She was also instrumental in recruiting managers for human resources and operations, both of whom were contacts she had made in business school. The company growth continued as Flenderson and the other new managers grew into their roles. Flenderson did not know much about hobby games prior to taking the position at ABG, but she did have legitimate knowledge of, and experience with, marketing strategy and tactics. Her skills were not perfectly transferable from one industry to another, but with a solid foundation in marketing, and the relatively new growth of the hobby board game industry, Li, Haverchuk, and Flenderson herself believed in her ability to learn the industry and its customers SAGE © Eric Dolansky 2019 SAGE Business Cases Page 4 of 9 Awesome Bits Games: Managing a Controversial Pricing Scheme while on the job. For all the added professionalism she brought to the company, though, she was loath to change core values and procedures of ABG and supported the continued use of crowdfunding as a launching pad for company products. Crowdfunding—Kickstarter A major component of the ABG sales and marketing tactics was the use of crowdfunding, specifically Kickstarter. Crowdfunding is an online method of selling, wherein projects of all kinds (not only games, but also movies, music, books, art, etc.) are posted and “backers” can support the project financially, usually in exchange for rewards. For example, a band might post a project on a crowdfunding site (such as a new studio album) and backers would pledge money in exchange for a reward (ranging from a non-specific “thank you,” to a copy of the album, to a backstage experience with the band, depending on the amount contributed). For hobby board games, the reward was typically the game, with some perks such as exclusive content. Kickstarter, a crowdfunding platform, is extensively used by board game publishers, and hobby games formed the single largest category in terms of revenue on the site. In 2017, 2,106 hobby game projects together earned USD 137 million in revenue through the site. In exchange for use of its platform, Kickstarter took a fee that amounted to 8\% of the revenue and USD 0.20 per pledge. Each project on Kickstarter had a stated funding goal, and if this goal was not met, the project would not be funded and no money would be collected from backers. The ABG projects on the site were some of the biggest earners for Kickstarter, and the company had run 30 Kickstarter projects by July 2018 (see Exhibit 1 for previous ABG Kickstarter projects). These campaigns had followed a predictable pattern, both from the company and the customer’s perspective. ABG would have one version of the game available (no deluxe version) at USD 100, and then during the campaign (usually two to four weeks), it would unveil new content. Some of this content was in the form of “stretch goals,” which could lead to free rewards. That is, as the overall funding level of the campaign rose, each backer would receive more and more rewards for their USD 100 pledge (i.e., for “free”). Other content was available as “add-ons,” meaning that the customer would need to increase the amount of their pledge to be able to receive this material. From the company perspective, Kickstarter campaigns usually opened strong or not at all; about 50\% of the overall revenue from an ABG Kickstarter was earned in the first four hours. Therefore, if a board game project did not get to about 50\% of the funding goal quickly, the project was unlikely to ever hit the funding goal. Although ABG had never failed to meet its goal (and had generally greatly exceeded goals), this pattern spoke to the pattern of funding. Backers could cancel their pledges any time before the campaign ended (funds were locked in after that). In recent years, about 55\% of ABG board game revenue was derived through the Kickstarter avenue. Historically, ABG had tried different approaches with its campaigns. There had been experimentation with very pricey, exclusive pledge levels that cost many times the price of the games. With this type of campaign, a small number of customers could receive a once-in-a-lifetime opportunity, such as to play the game with the designer or to have a character in a game based on the backer. This practice was discontinued within the first few years. ABG had also used “early-bird” prices, meaning that those who backed within the first 24 or 48 hours got a slightly lower price for the same material. This practice was also discontinued, the reason provided to customers being early-bird pricing was unfair because not everyone was hyper-aware of when projects began, so those less “in the know” could not take advantage of the lower price. Another, internal, reason was that so many backers pledged early that the lower price was essentially selling games for an unnecessarily low price. The New Project—Undead Rising Undead Rising was similar in many respects to past projects: it was designed by Derek Oakley, the company’s lead board game designer, it was playable in multiple sessions that together told an overall story, it contained dozens of plastic miniatures of heroes and monsters, and the base price was USD 100. This game, however, had an add-on purchase that literally dwarfed anything that came before it. To finish the story contained within SAGE © Eric Dolansky 2019 SAGE Business Cases Page 5 of 9 Awesome Bits Games: Managing a Controversial Pricing Scheme the multi-session gaming experience, a large plastic component was needed. The final chapter of the game was played on “the Swarm,” a 14” by 14” by 18” piece that represented a ruined city overrun by a horde of zombies. ABG had never created a piece like this before and most players had never played on one. Flenderson knew that a USD 100 price would not work for this component as it did not fit with the ABG cost structure. The manufacturing cost alone of this piece was USD 16 (twice the cost of producing the basic game itself), and shipping costs would be higher than usual as well. Based on the usual cost and revenue analysis, the piece should retail for USD 200, which far exceeded most customers’ budgets. Flenderson decided that the piece could work as an add-on for the Kickstarter project and never be sold at retail (a few previous ABG titles had only been sold on Kickstarter and never at retail, due to an expected small audience beyond loyal fans). Because there was no retailer share, a price of USD 100 to USD 150 could be offered for the add-on. Haverchuk supported this pricing model, as did game designer Derek Oakley. They cited past experience with add-ons and Kickstarter campaigns and believed that there were sufficient interested customers to make the add-on worthwhile. Marta Li deferred to Flenderson’s decision, and the marketing manager had a few misgivings about it: • ABG had never had an add-on this expensive before. The previous campaigns included add-ons with a maximum of USD50, and the planned add-on would be three times that amount. • She was worried about customer backlash. Add-ons were usually unveiled a few days into the crowdfunding campaign, by which point more than 50\% of people who would eventually back the project already had. Flenderson was concerned that customers would feel betrayed if they committed to spend USD 100 and then later found out that an additional USD 150 would be needed to truly complete the story of the game. • Economies of scale did not apply to “the Swarm” because the plastic-injection molds used for a unit that size would wear out quickly. Orders would need to be in the tens of thousands (much more than expected) to realize a per-unit cost reduction. • Shipping would be adversely affected. Although it was quite common for Kickstarter projects to ship their rewards to backers later than promised, ABG had a very good track record of on-time (or even early) shipping. “The Swarm” would involve much more time to produce, so shipping all the rewards at the same time would push back delivery for all backers, not just those who ordered the add-on. Flenderson set to work on an alternative pricing strategy. The final result was to offer two tiers of rewards right from the start of the campaign, one including “the Swarm” and one without. The base game, without “the Swarm,” would be USD 100. For “the Swarm” price Flenderson drew on what she had seen in other Kickstarter projects, such as exclusive pledge levels and early-bird pricing. Driven by the above concerns, Flenderson decided to price the bundled product starting at USD 220, with the price increasing by USD 5 with each 100 backers. This (a) provided the opportunity to purchase it at a discount; (b) ensured all backers knew about “the Swarm” from the start of the campaign; (c) kept margins large despite the lack of economies of scale; and (d) provided staggered delivery dates by splitting backers into groups of 100. From the customer’s viewpoint, they would go onto the Undead Rising project page and see two available options: the USD 100 option and whichever bundle option was active at that time, depending on how many pledges had been made thus far. Limited functionality on the Kickstarter platform caused two challenges, but Flenderson did not think they were serious. First, because pledge levels could not be removed from the page, customers would see all of the “full” pledge levels for the bundle (i.e., if a backer was pledging at the USD 240 level, she would see that there had been a USD 220, USD 225, USD 230, and USD 235 level but that these were each sold out). Second, because there was no way to automate the creation of new pledge levels, someone at ABG would need to manually update the page to include each new level. Success and Crisis The Undead Rising project went live on Kickstarter at 3 p.m. (EDT) on July 10, 2018. Within one minute, the USD 220 level for the bundle sold out. By 3:14, the project reached its USD 200,000 funding goal, and by SAGE © Eric Dolansky 2019 SAGE Business Cases Page 6 of 9 Awesome Bits Games: Managing a Controversial Pricing Scheme 3:22, the bundle price had already reached USD 250. By any measure, the project was successful and on track to match or beat previous ABG projects. Flenderson was still concerned, however, because ABG had not been able to keep up with the incredible pace of demand. The manual updates to the page, creating the new bundle pledge levels, each sold out in less than three minutes. She could see on the project comment page that some prospective backers were becoming frustrated, as they waited for a new level to be opened only to miss out on pledging at that price in the frenzy that followed. Though she had learned long ago not to put too much stock in Internet comments, Flenderson thought that there were many more negative comments than in the past, and the tone was angrier. Gradually the pace of customer demand slowed, but the negative comments continued to be posted. Many stated that they would have backed the project but were angry at the “price gouging” and “unfair practices” of ABG (see Exhibit 2 for a sample of these complaints). Relief at the success of the project increasingly evolved into concern. Flenderson knew that she was responsible for pricing and needed to know that the company would back her decisions. She also knew that projects were flexible enough that it was not too late to make changes. If she had more time, she would have undertaken a more rigorous examination of the comments and social media activity around the campaign, but with Undead Rising already live, a decision to take immediate action (or not) was needed. At 7 p.m., four hours into the campaign, the project had raised over USD 1.25 million from backers, 1,837 people had pledged for the bundle, for which the price was currently at USD 310. The comment page was overrun by negativity from backers and non-backers alike, with the former stating that they would keep their pledge but not buy from ABG in the future, and the latter chiding and mocking those who were turning over their “hard-earned money to those greedy bastards.” Flenderson decided to do something: she contacted Li, Haverchuk, and Oakley for an emergency meeting. Even though it was evening, everyone was still at the office for Kickstarter launch day, so getting them together in the conference room was easy. The Emergency Meeting The following is a transcript of the meeting that began at 7:14 p.m. in the conference room at ABG. Flenderson: I’ve called you all here because I’m very concerned. I’ve noticed that— Haverchuk: Concerned? We’ve had a great launch! Right on track to do as well as our past stuff. Li: What concerns you, Jan? Flenderson: I’ve noticed that customers are very unhappy with the way the add-on is priced. Those that have backed it feel ripped off, and many people have stated that they would not back the project, even though they had planned to. Haverchuk: Yeah, they always complain but then they come back for the next game. We make quality stuff, and customers love ‘em. Oakley: I’m reading some of it too; I’ve had to because my Twitter is blowing up. People have been asking me about this all day. Not the game, but the price. I keep telling them that I’m not involved in that, but they still want answers from me. Flenderson: Sorry about that, Derek, but you are one of the prominent public faces of the company. No one knows me, Andrew, and Marta. Your name is on the game box. Oakley: I get it, but I just don’t know what to tell them. And to tell the truth— Haverchuk: Tell them that they’re getting a bigger game piece than they can imagine, and even at USD 400, SAGE © Eric Dolansky 2019 SAGE Business Cases Page 7 of 9 Awesome Bits Games: Managing a Controversial Pricing Scheme it would be a great deal! Oakley: —as I was saying, to be honest it bugs me. I’m a member of the gaming community, I see people at conventions, I don’t want to be called a money-grubbing business type. No offence. Haverchuk: None taken, I guess. Flenderson: Getting back to the issue at hand, I need to know from you whether you think we should make any changes at this point. Li: Changes now? The project is live. Flenderson: Yes, but we can always change things. I’ve sketched out a few options. First, we could leave things as they are, continue to raise the price five dollars with each 100 backers. Haverchuk: Yes. Flenderson: A variation on that strategy would be that we could provide an explanation for why we priced it as we did in one of the campaign updates. Get into the nitty-gritty of why it’s so expensive, production costs, shipping, and so on. Haverchuk: Fine, I guess. Oakley: Uh, I don’t know if that’s going to fly. Flenderson: Second, we could simply stop increasing the price where it is now and open up that pledge level to an unlimited number of backers. So anyone who has not bought the bundle could get it at USD 310, and we wouldn’t raise it from there. Li: Seems reasonable. Flenderson: Third, and last, we could roll back the price to a lower level, like USD 250, and anyone who pledged at a higher amount than that would get their pledge reduced to that level. Those who got it cheaper, the first few hundred backers, would keep their price. Li: I don’t know about that one. Haverchuk: I’m not in favor of giving money back. Flenderson: We haven’t collected any money and won’t until the campaign ends in two weeks. We’re not giving money back, we’re just going to collect less. Haverchuk: Same difference. Oakley: I like that one, sort of apologize for what we did and try and make it right. Haverchuk: Am I the only one trying to run a business here? We have customers, hundreds of them, who are willing to fork over more than USD 250 for this, so why stop them? Flenderson: There are future add-ons to the project, they’re less likely to buy those. There are future projects— Haverchuk: Those other add-ons are small potatoes, the biggest one is USD 50 and most are USD 20 or less. Minus costs. We’re giving back pure profit! Oakley: We’re also ruining our good name! SAGE © Eric Dolansky 2019 SAGE Business Cases Page 8 of 9 Awesome Bits Games: Managing a Controversial Pricing Scheme Li: He’s right, our brand is at stake too. We need these customers. Haverchuk: We have these customers. They’re rushing to pledge the minute the project opens. We can’t change our business operations because of some comments! Flenderson: Listen. I know something about pricing. People need to believe the price is fair. Most customers believe that we can have a reasonable profit, but if it seems we’re taking advantage of them, they will turn on us. Li: Yes, that makes sense. Flenderson: It all comes down to value. We’re offering a lot of value for a high price. But is the way we’re doing it fair? Do customers believe they have some control over their choices? This afternoon was a mess, based on the comments I’ve read and what I’ve observed. That’s mostly on me. But now we should do something about it. And that could mean correcting our mistake. Oakley: Agreed. Haverchuk: Strongly disagree. But ultimately, Marta, it’s your call and I’ll go along with that. Li: Hmmm. We hired Jan to make these decisions. So, marketing manager, what should we do? Discussion Questions • 1. Analyze the pricing decision for the Undead Rising Kickstarter project: ◦ a. How much money will ABG make from each copy of the basic game? Based on past projects and performance, how much total revenue will Undead Rising make through each method of distribution? What does this say about these channels and pricing? ◦ b. Why would ABG not just offer “the Swarm” as a separate add-on at a specific price instead of bundling? If it was offered this way, what should the price have been? ◦ c. How much value does “the Swarm” offer to customers? • 2. Was the pricing scheme fair? Why or why not? • 3. Examine the customer comments. What do you think that the customers are communicating? • 4. How is this Kickstarter project different from previous ABG projects? • 5. Consider the options available to ABG at the time of the emergency meeting (do nothing; do nothing but explain; open the USD 310 pledge level to an unlimited number; roll the price back to USD 250). ◦ a. Perform appropriate financial analysis for each option. ◦ b. Examine the role of company, competition, and customers on this decision. ◦ c. Which option should ABG choose? Explain your answer. http://dx.doi.org/10.4135/9781526476128 SAGE © Eric Dolansky 2019 SAGE Business Cases Page 9 of 9 Awesome Bits Games: Managing a Controversial Pricing Scheme http://dx.doi.org/10.4135/9781526476128 Awesome Bits Games: Managing a Controversial Pricing Scheme Case Abstract 1 Case Write-Ups Purpose and Guidelines Case write-ups are required for every case discussed in this class. Each will focus on a broad range of marketing problems related to topics we will discuss in class, as well as some that you may experience in your careers. Remember that you are being assessed on the quality of the answers that you provide in this write up and in the corresponding class discussion. Performing these quick case write-ups will help you to properly prepare for discussion. Some of your write ups will be collected for a grade. Others may not be. Be ready! Each write-up is to be submitted on Canvas, no later than the beginning of the class meeting in which they are discussed. The instructor is inclined to NOT accept late assignments because of in class discussion around the case on the date that they are due. The requirements for the write-up are listed below. Instructions The key to a good case write-up is to ground your analyses and recommendations on sound strategic principles: take what you learned from your marketing classes and apply it to the analysis of the case (SWOT, Porter’s 5 Forces, Customer Lifetime Value, etc.). You MUST be able to justify your position by using key information provided in the case, not just simply recommend a position. Cases should be approximately 1.5 pages in length, single-spaced, 11pt font, 1 inch margins. In most organizations, top management has a very short attention span. It is critical for you to be able to make a succinct coherent argument for your ideas to get attention. You may use bullets sparingly to drive home specific points. Your write-up is to be broken into three distinct parts (please provide headings for each part): 1. Problem(s) / Environment / What is the underlying problem (and what symptoms is it Analysis causing)? What information in the case is relevant to your analysis (e.g., trends, current marketing, performance, etc.)? Discuss analysis. Anchor analysis to a framework. 2. Reasonable Alternatives List approximately 2-3. 3. Recommendation Recommend best alternative. Provide a supporting argument using information from the case as rationale (reference analysis). Convince the reader that this is the best course of action. Make sure recommendation addresses identified problem and be explicit. Be specific – think about how such a recommendation may impact the 4 Ps. Discuss the benefits and consequences of such a strategy. Assessment Among the critical aspects that you will be assessed on are the quality and thoroughness of your write up and the clarity of your writing. Remember to use data, where necessary, to support your problem statement, analysis, and recommendations. Avoid “pie in the sky” – make sure your recommendations make sense given the case. When possible, be specific in your recommendation and make sure it addresses the problem that you identified. Clear and concise articulation of your thoughts is paramount. 2 Examples Examples of both good and poor case write-ups appear on the pages that follow. Please note the structure/formatting used, proper grammar, and the general quality of the write-up. In the good example, statements are backed up with specific information from the case. Example of a Great Case Write-Up Squatty Potty Case Problem and Environment The Squatty Potty CEO and investors are looking to determine the success of their digital marketing campaign and how to move forward with these results. Based on their marketing KPIs and financial standing at the end of 2016, I would qualify the campaign as an overall success for the following reasons: • For 2016, promotional costs per Squatty Potty purchase (on SquattyPotty.com and Amazon combined) was $3.39 • The viral video generated 32 million organic views in its first month – and while organic views demonstrated the exponential drop-off typical of viral videos, it still averaged 3.6 million per month from Nov 2015 through the end of 2016 • SquattyPotty.com had a monthly average of 368,641 unique visitors after the launch of the viral video* However, the campaign faced one significant problem: focusing their targeting on mothers. The argument made by Squatty Potty that the “purchase of these [constipation-related] solutions was typically driven by women—specifically mothers—who accounted for 70–80 per cent of all household purchases” makes sense. Traditionally, women hold significant influence over purchase decisions and may be the one physically shopping for household items. Selecting mothers as their main target audience appeared to be the best strategy prior to the campaign’s launch, but several factors support a shift in target audience: • Social: Constipation and bowel movements are topics most people have difficulty discussing or admitting to – and this may be heightened with women. It is possible that women feel less open to discussing private, “embarrassing” health matters compared to men. They may not have wanted to admit to liking the video or may have been less likely to share. The embarrassment or discomfort with the product may make them less likely to shop for it. If they are not comfortable shopping for this kind of product and they do the shopping for their household – the Squatty Potty might not get purchased even if a need exists. • Facebook promotion results: When comparing the number of SquattyPotty.com checkouts and the cost per Squatty Potty (CPA) of the various Facebook targets, many of the male groups outperformed their female counterparts. For example, the company invested an equal $17,260 in targeting each ‘Interest in Yoga, Male’ and ‘Interest in Yoga, Female’ groups – but the male group converted better with 40\% (540) more SquattyPotty.com checkouts and cost $3.75 less per conversion. Similar trends of lower CPAs were found when comparing male vs. female interest in veganism and fans of Howard Stern. While mothers may still be an important audience for Squatty Potty, they are severely underestimating the opportunities that exist for a health-conscious male audience. Reasonable Alternatives 3 1. Test & refine the targeting of males on Facebook with paid advertisements. Determine what other interests besides yoga, veganism, chiropractic medicine etc. are relevant filters to apply to reach men that would be interested in the Squatty Potty. 2. Reactivate Squatty Potty’s earned media campaign using influencers/channels more relevant to a male target audience. Recommendation I recommend alternative 2.) Reactivate Squatty Potty’s earned media campaign using influencers/channels more relevant to a male target audience. Offering the product for influencers to promote worked before the company’s widespread awareness and has the potential to be successful again. First, Squatty Potty would benefit from more in-depth research of what this male audience looks like. It would be helpful to develop a customer persona and narrow down the demographics, psychographics, and behaviors they are interested in. The more they understand this audience, the more specific and targeted campaigns they can run. Highly targeted campaigns create the effect that the product is “meant for them.” With new information on their male target audience, the way Squatty Potty approaches an earned media influencer campaign will change. Different channels may appeal to this new audience. The type of influencers they engage may change as well. They would need to determine what influencer qualities would relate to the target. The earned media approach could be useful in combatting the stigma of talking about digestive issues. It allows for real people to connect with others who have the same problems. It can develop personal credibility for the product. Influencer campaigns are easily trackable through blogs, social media, or other websites. Additionally, the increased funds the company has compared to the first run of their earned media campaign would allow them to layer on incremental tactics. They may benefit from retargeting consumers who interacted with the influencers’ content with a digital display campaign. *More information on web traffic throughout Squatty Potty’s history would help determine the marginal increases as different campaigns were introduced. They averaged 900 total visits per month prior to any major marketing campaigns. It would be important in the company’s full analysis to track traffic following their earned media/influencer campaign, feature on Dr. Oz, feature on Howard Stern, appearance on Shark Tank etc. to determine if the post-viral video campaign traffic increase is statistically significant. 4 Example of a Good Case Write-up: The Upstart’s Assault Case Problem and Environment: Meridicom has to decide on how to react to TelZip’s offer of free broadband service to new business customers who were willing to leave their current provider and enter into a long-term contract with TelZip. Meridicom needs to proceed very carefully because TelZip’s bold move may be a “game changer” within the telecommunications industry. There are 5 aspects of Meridicom that need to be understood and considered carefully before making a decision regarding the strategy that needs to be implemented to counter TelZip’s offer. • Meridicom is separated in 3 independent divisions: Landline, mobile, and broadband. Each division operates independently. Meridicom customers receive a different bill per service, which can be confusing. Also, the fact that the 3 divisions operate independently does not contribute to minimizing Meridicom’s total operational costs. • The landlines division represents 70\% of the company’s revenues, and Meridicom has an 85\% market share in the landlines market. This means that it is important that this division does not lose customers. • Meridicom has a 60\% market share in the broadband market, and the broadband division represents 25\% of the company’s revenues. Offering broadband service for free would negatively affect Meridicom’s revenues and would make the broadband division operate at total loss. • Meridicom’s major business customers complain about the company’s services being expensive. • TelZip has a much larger mobile phone market share than Meridicom’s 5\% market share. Management at Meridicom needs to understand that whatever strategy they implement will have an important impact on the telecommunications market distribution. Reasonable Alternatives: • Quickly develop and implement a strategy to minimize the operational costs, and send individual bills to their business customers instead of one different bill per service. This would decrease the company’s costs and eliminate confusions that customers may have. • Offer free broadband to their customers because TelZip’s move is a “game changer”. Customers will be expecting to get broadband service for free or change providers. • Increase prices of the landlines service by 5\%. This is the reason why: Offering free broadband would help Meridicom acquire a larger market share in the landlines market, which would increase their revenues and partially cover the losses resulting from offering broadband for free. The 5\% price increase in the landlines service is relatively low, and it is very likely that it will not be noticed because it would happen at the same time as the free broadband. Recommendation: I recommend that Meridicom increases the prices of landlines service by 5\%. As stated above this gives Meridicom the power to lower its broadband price to compete with TelZip and maintain its strong market position. This strategy takes advantage of Meridicom’s unique portfolio. However, because each division is run separately, one challenge in implementation is convincing the landline and broadband divisions that this is the best action; broadband may not want to give up its revenues and one division may not wish to subsidize the other. 5 Example of a Poor Case Write-up: Alegre Hotels Problem: The problem with this case was that Alegre Hotels just opened up a brand new flagship hotel at Palma Cay and is struggling with filling the rooms at the peak of the tourist season. Analysis: Beatriz Soto proposed that Alegre pay her $700,000 so that she can create a campaign focused towards generating more revenue and bringing more customers to the hotel. The company is struggling to accept her request because they run their hotels individually of one another. Individual hotel managers are outraged because they feel that they could use the money that Beatriz is asking for better opportunities but the company feels that they need to push their new hotel as much as possible. It seems as if Alegre Hotels is suffering from an internal calamity due to its decentralized business structure and lack of uniform brand recognition. Recommendations: I would recommend that Alegre take the approach of Best Western when trying to create a brand throughout the company. The Best Western model sticks to one initiative that exudes quality and convenience at affordable rates. Alegre should brand itself amongst its different categories because each entity is so distinct from the other. The city hotels should be branded the same as other city hotels and the resorts should be branded just like other resorts but the key to all of them is to have one common identity which is luxury and style. As far as giving Beatriz the money for her campaign my suggestion would be to closely supervise her campaign and to force her to model it off of the entire brand as a whole. The reason that she needs to brand with a companywide focus is because the company needs to maximize revenue across the board and it can essentially fund two different initiatives for the price of one with Beatriz’s campaign. The company needs to develop a rewards program because several other competitors already do that and they have seen great success in offering them. By offering rewards to customers they can drive customers back into the hotels time and time again. Independence between individual hotels is essential in achieving success amongst the brand because individual hotels run and operate in specific ways from one another and help to create a unique brand for the company as a whole. By going back to the Best Western model Alegre needs to be known for its ideals rather than the look of all of its hotels. Rubric for Case Analysis Criteria Excellent (4) Good (3) Needs Improvement (2) Unacceptable (1) Identification of the Main Problem(s) 25\% Clearly identifies the main problem(s), demonstrating ability to prioritize problems. Reports this in a concise (1-2 sentence) manner. Problem identification is clear, but prioritization is not. Reporting is longer than necessary. Symptom is reported in lieu of a problem. Problem identification and prioritization are not clear. Reporting is longer than necessary, or incomplete. Problem identification and prioritization are not clear or misidentified. Reporting is longer than necessary, or incomplete. Section is missing entirely. Application of Marketing Concepts 25\% Clearly identifies several complexities of the main problem(s). The analysis appropriately incorporates strategic marketing management concepts and financial analysis. Identifies complexities of the main problem(s). Some statements are unsupported by analysis/ calculations. Assumptions are stated, but some are not justified. The list of complexities is incomplete or unclear in some aspects, and includes items that are not reasonably linked to the problems and issues. Analysis is too narrow and does not identify a broad strategic direction. Some analysis is included, but it is not very detailed. Many statements are not supported by analysis/calculations. Most of the stated assumptions are not justified. Either the list of complexities is missing or the list is very incomplete or there is no linkage of the alternative actions to the problems/issues. None of the alternatives identifies a broad strategic direction. Shows lack of thorough consideration. Analysis is trivial or missing, lacking any depth. Conclusions & Recommendations 25\% A clear action plan is given, logically derived from complexity analysis, that provides optimal solution for identified problems/issues and that further makes sense; the recommendation is based on only one of the strategic alternative actions. Assumptions, caveats, ongoing considerations concerning recommendation are provided. The likely benefits/disadvantages of each action are clearly identified and supported by the analysis. An action plan is given, which is mostly, but not completely, logically derived from alternative analysis. There may be a better solution to the problems/issues than the one recommended. Most, but not all, assumptions, caveats, and ongoing considerations are provided. Most, but not all, benefits/disadvantages are clearly identified and supported by the analysis. A solution is recommended, but logical derivation from analysis is unclear, and there is clearly a better optimal solution. The recommendation is based on more than one alternative action. No identification of assumptions, caveats, or considerations that might affect the recommendation is provided. Several benefits/ disadvantages are missing and/or not clearly identified or unsupported by the analysis. A solution is recommended, but it is not derived from the alternative analysis at all; or the recommended solution is clearly not viable; or the recommended solution does not address the problems/issues; or there is no recommended solution. No assumptions are stated (and are needed). Likely benefits/disadvantages are not provided at all or are unsupported by the analysis. Organization, Grammar, Spelling, and Formatting 25\% Written work is well organized and easy to understand. There is a brief introduction. Sections of case analysis are marked with appropriate headings. The work has been thoroughly spell- checked and proofread. There are none to almost no grammatical or spelling errors. There are no formatting errors. The organization is generally good. There is a brief introduction and section headings. But some sections seem out of place or mislabeled, diminishing the ease with which the case reads and is understood. There are a few spelling and grammatical errors and one to three formatting errors. The organization is unclear; headings are missing. The introduction is not succinct. There is more than one spelling, grammatical, and/or formatting errors. The case analysis is disorganized to the extent that it prevents understanding of content. There are no headings. There is no introduction. There are frequent misspelled words, serious grammatical errors, and formatting errors, indicating that time was not taken to spell-check and proofread the report.