American vs. Canadian online pricing

[Aegypticus]

Originally Posted by PepsiFree

Generally their costs are in US dollars. So let's just say the all-in cost to produce a single copy of a video game is $50 US. It's selling for $60 US and $60 Canadian. At par, that's all good. When the CDN dollar tanks though, they're now looking at getting $45, or selling the game for a loss.

There is no cost to producing a single copy of a digital product. That's nonsense. In the worst case it costs maybe a penny to distribute an additional copy of a game. All other costs already exist, whether you sell one copy or 50 million.

Setting the price of a digital product in a different country is not difficult. In the most simple scenario you ignore all costs and the process of determining a price of the product is, in essence, quite simple: set the price at the point where projected sales at that price multiplied by that price comes out the highest. If your research says you can sell 500,000 copies at $80 or 1,000,000 copies at $60, you price at $60.

My point originally is that's don't think they're pricing their product at a price that makes sense to maximize revenue. I think they just saw that the Canadian dollar was lower and wanted to keep their per-unit revenue roughly the same without putting any thought towards if raising prices in Canada would lower their units sold by enough to cause overall revenue to be lower than it might have been.

I'm perfectly willing to concede that I might be wrong and they did do research to determine that people want to play these new games so badly that increasing the price by 33% will deter very few of their customers, but my contention is that I won't be buying much at the higher price, nor will my brother, and I consider us to be fairly average customers of these game companies. If we won't buy, then I believe there are many others that won't as well, and it might be enough to bring revenues below where they might have been at a $60 price point.

As to blankall's point about spoofing locations to take advantage of lower pricing, it's certainly a risk, and it's a problem that companies have already had to deal with. There was a specific example where Blizzard offers some WoW services like character transfers for much cheaper in countries like Brazil and they had people changing their info to take advantage of that. They solved it in the end, but I won't pretend to know the technical details. In the end, I think that's a bridge these companies would cross each time it becomes a real problem.

[PepsiFree]

A game costs X amount of dollars to produce, you can measure that cost over X number of titles digital or physical.

That's why it's a flat cost across digital and physical. The physical production cost of a videogame is an incredibly insignificant part of the overall cost.

If you expect the cost to be recouped by selling 1M copies at $60 US, you need to raise the CDN price to meet $60 US. Digital is irrelevant. This is partially why film/music/and even game companies are suffering. They are failing to market the truth that you are buying a movie/album/game, not a disc. The vessel is irrelevant.

[Fuzz]

It's funny, back in the early 90's we used to pay $80 for a game, and now, it's the same price, but with inflation it would be about $120. I agree though, that's to much for all but the best games. I'd pay it for Zelda, but not much else.

[CroFlames]

Originally Posted by blankall

Not to mention with a digital copy of a video game, if there was a difference in absolute value, an American could just spoof their IP address and buy from the Canadian site.

I have a Canadian playstation account, so I get to take advantage of this.

[CliffFletcher]

Originally Posted by blankall

Labour costs are also much higher here.

This is a big one. Many retail businesses rely on unskilled labour. And unskilled labour in the U.S. is dirt-cheap. Of course, that has its own costs in a permanent underclass of disgruntled citizens who have little or no sense of trust with society as a whole.

[Aegypticus]

Originally Posted by PepsiFree

A game costs X amount of dollars to produce, you can measure that cost over X number of titles digital or physical.

Sure, that's one way to measure success after the fact, but in your original post you said "let's just say the all-in cost to produce a single copy of a video game is $50 US", which is meaningless. That might be their cost of a single copy years down the line when they've made every single sale they'll ever make of that game, but as long as they're selling copies, this cost per unit keeps dropping.

Let's say a company produces a game for a flat cost of $100,000,000, which they paid up front, of course. Their research team comes in and says, "we've found that, at a typical price of $60, we can sell 8,000,000 copies for a total of $480,000,000 of revenue. The developer thinks, "hey, that's great, that would mean our cost per unit is $12.50 and we're making $47.50 on each copy. A solid profit!" But then the research team says, "but wait, this is going to sound strange, but we're 100% confident that, if we price the game at $10, we can sell 50,000,000 copies for $500,000,000 of revenue!"

At this point, the developer doesn't say, "we can't sell the game for $10, our cost per unit is $12.50, we'd be losing money!" Obviously, at 50,000,000 units, the cost per unit has dropped to $2. The revenue per unit has also dropped by 83%, but that doesn't matter. It's pretty obvious that revenue is higher at the significantly lower price point.

Originally Posted by PepsiFree

That's why it's a flat cost across digital and physical. The physical production cost of a videogame is an incredibly insignificant part of the overall cost.

You and I agree here, which is why I'm not sure why my point isn't getting through.

Originally Posted by PepsiFree

If you expect the cost to be recouped by selling 1M copies at $60 US, you need to raise the CDN price to meet $60 US.

This isn't necessarily true though. The markets are different, and the Canadian market will only bear so much. What if the Canadian dollar was worth 10 cents on the US dollar with all else being equal? Do they price new games at $600? The market won't accept it. At that point you're getting into a scenario where maybe you price the game at $60, selling 500,000 copies in Canada, and accept your piddly $3000000 in revenue, or you price at $600, sell NO copies, and take $0 home. The costs are sunk, they don't play into the conversation at all. You don't lose money by selling at a lower price. You're simply trying to maximize revenue.

[PepsiFree]

What your saying is not wrong, and I think why you and I don't see completely eye-to-eye is that I'm coming from a developer standpoint and you're coming from a consumer standpoint.

At $80 CAD, developers are making the exact same amount as $60 USD. As you've said, it factors in what the market will accept, what is needed to recoup cost, and what fits in a competitive landscape.

The videogame market doesn't fluctuate that much based on price. It's quality driven. Put out a top game, it'll sell. They have years of experiential knowledge of the impact an $80 price point has. While you may be right that selling some games at a lower price point adds more revenue, for top games the amount of money you're losing on the sales you would've made either way is not overtaken by the amount you gain for the small amount of extra copies you'll sell.

Digital are also equally priced because they don't want to kill the physical industry, so...

[Fire of the Phoenix]

Originally Posted by Fuzz

It's funny, back in the early 90's we used to pay $80 for a game, and now, it's the same price, but with inflation it would be about $120. I agree though, that's to much for all but the best games. I'd pay it for Zelda, but not much else.

Some games are even more than that, if you factor in the expansions and upgrades released later on, I think I paid roughly $130 for Civilization V when it was all said and done. The game was released in a unfinished state and they basically sold you the rest of the game after you already bought it. Game companies know they can't have a $120 price point so this is the crap they do to get around it.

They must hate the low Canadian dollar, as they have to raise the price just to get the right price in US dollars. If it drops too far, we could start to see $100+ games, which will really start to negatively impact sales IMO.

[Aegypticus]

Originally Posted by PepsiFree

I'm coming from a developer standpoint and you're coming from a consumer standpoint.

I'm coming at it from an economics standpoint. My point is that "what is needed to recoup cost" is irrelevant to pricing. The money is spent and it's not coming back. The only goal is to maximize revenue, whether you lose money or make money.

Originally Posted by PepsiFree

The videogame market doesn't fluctuate that much based on price. It's quality driven. Put out a top game, it'll sell.

This is a point I can actually get behind. You contend that the market for triple A games is not very price sensitive. I contend that, beyond the super hardcore fans of a franchise/developer, that it might be a lot more price sensitive than these companies think. Since neither of us have strong evidence to back up our opinions, I think it's fine to disagree here.

We'll see in the future if the market will bear the price hike after getting used to paying $60 for a game. My anecdotal evidence from myself and people I know says that they're going to be losing significant sales, but obviously I wouldn't be confident in coming to any firm conclusions based on that.

Originally Posted by PepsiFree

They have years of experiential knowledge of the impact an $80 price point has.

This is true. My feeling, however, is that their past sales data might be leading them astray. I think the market has changed, Canadians won't buy $80 games at anywhere near the volume the developers think they will, and they'll see that soon in lower than expected revenue. Again, I might be totally wrong.

[Ducay]

Amazon.ca prices vary based on a complex algorithm using supply, demand, site visits, times added to cart, times bought, and a thousand other metrics. Search any item on ca.camelcamelcamel.com and you'll see the roller coaster that is its prices.

That said, the argument still holds. I just bough a few polishing pads on amazon.ca. They're $8 MSRP US, and they go for that on Amazon.com, but I just paid $14 on Amazon.ca
Those same pads are now $20 (still sold by Amazon.ca not a retailer).

Same pad was $6 a year ago on Amazon.ca. USD fx is just killing us now.

http://ca.camelcamelcamel.com/Chemic...context=browse

[PepsiFree]

You might be, and I might be too. I don't have first-hand knowledge (though I do work with developers) so I can't say definitively how it's going to play out.

What I can say is that I think your economic view is sound, it just tends to play out a bit differently in that industry, especially when you're talking about Canada (which is a relatively small market for Sony and Nintendo especially). Will it continue to be lucky? Maybe not.

This board has so many resources... anyone in the industry? I'd love to hear a first hand account. Really interesting topic anyway.

[Language]

Originally Posted by rd_aaron

Has anyone had success with or can recommend a package forwarding company? The idea is you buy something on Amazon.com at a lower cost than Amazon.ca, you ship it to one of these package forwarding companies in the US (because they don't ship to Canada), and then the package forwarding company ships it to you for a fee. I have to imagine this works out to the buyers benefit a lot of the time considering the difference in costs on Amazon.com vs .ca.

I looked into this with one site, but when I did the math it ended up being similar to what I'd be paying for the product in Canada, so the difference was negligible enough where I didn't bother with the added hassle of going through the package forwarding company.

Maybe someone here has done so with another service provider and would be able to provide a good alternative.

[Jimmy Stang]

Originally Posted by Ducay

Amazon.ca prices vary based on a complex algorithm using supply, demand, site visits, times added to cart, times bought, and a thousand other metrics. Search any item on ca.camelcamelcamel.com and you'll see the roller coaster that is its prices.

That said, the argument still holds. I just bough a few polishing pads on amazon.ca. They're $8 MSRP US, and they go for that on Amazon.com, but I just paid $14 on Amazon.ca
Those same pads are now $20 (still sold by Amazon.ca not a retailer).

Same pad was $6 a year ago on Amazon.ca. USD fx is just killing us now.

http://ca.camelcamelcamel.com/Chemic...context=browse

This is the first I have heard of this ca.camelcamelcamel.com site, and I can't thank you enough.

[Aegypticus]

Originally Posted by Jimmy Stang

This is the first I have heard of this ca.camelcamelcamel.com site, and I can't thank you enough.

The best part is setting aggressive price alerts. When you wake up to that email saying your price is met its like Christmas.

[Enoch Root]

Originally Posted by Aegypticus

Sure, that's one way to measure success after the fact, but in your original post you said "let's just say the all-in cost to produce a single copy of a video game is $50 US", which is meaningless. That might be their cost of a single copy years down the line when they've made every single sale they'll ever make of that game, but as long as they're selling copies, this cost per unit keeps dropping.

Let's say a company produces a game for a flat cost of $100,000,000, which they paid up front, of course. Their research team comes in and says, "we've found that, at a typical price of $60, we can sell 8,000,000 copies for a total of $480,000,000 of revenue. The developer thinks, "hey, that's great, that would mean our cost per unit is $12.50 and we're making $47.50 on each copy. A solid profit!" But then the research team says, "but wait, this is going to sound strange, but we're 100% confident that, if we price the game at $10, we can sell 50,000,000 copies for $500,000,000 of revenue!"

At this point, the developer doesn't say, "we can't sell the game for $10, our cost per unit is $12.50, we'd be losing money!" Obviously, at 50,000,000 units, the cost per unit has dropped to $2. The revenue per unit has also dropped by 83%, but that doesn't matter. It's pretty obvious that revenue is higher at the significantly lower price point.



You and I agree here, which is why I'm not sure why my point isn't getting through.



This isn't necessarily true though. The markets are different, and the Canadian market will only bear so much. What if the Canadian dollar was worth 10 cents on the US dollar with all else being equal? Do they price new games at $600? The market won't accept it. At that point you're getting into a scenario where maybe you price the game at $60, selling 500,000 copies in Canada, and accept your piddly $3000000 in revenue, or you price at $600, sell NO copies, and take $0 home. The costs are sunk, they don't play into the conversation at all. You don't lose money by selling at a lower price. You're simply trying to maximize revenue.

The primary problem with the "we'll sell enough extra units at the lower price to end up with more total sales' strategy is that this is not by any means certain. And it is a huge risk because, if you're wrong, you're screwed.

Using your original example, if you drop the price to $10 but then sales are disappointing, you have shot yourself in the foot, because you've already sold (at a low price) to your best customers. Now that sales have slowed, there is nothing you can do.

Another big issue that you have ignored, is the sales of future games. If you drop the price of one game, you cannibalize the potential price for future games (as well as undercut the price for other current games).

There is more to the economics of pricing a game than the simple math of $X x Y units.

[Aegypticus]

Originally Posted by Enoch Root

The primary problem with the "we'll sell enough extra units at the lower price to end up with more total sales' strategy is that this is not by any means certain. And it is a huge risk because, if you're wrong, you're screwed.

Using your original example, if you drop the price to $10 but then sales are disappointing, you have shot yourself in the foot, because you've already sold (at a low price) to your best customers. Now that sales have slowed, there is nothing you can do.

Another big issue that you have ignored, is the sales of future games. If you drop the price of one game, you cannibalize the potential price for future games (as well as undercut the price for other current games).

There is more to the economics of pricing a game than the simple math of $X x Y units.

I never meant to get into an economics or accounting discussion at all. I just objected to the idea that you can assign costs to purely digital products in a way that you could be losing money by selling any single copy.

Anyways, obviously the $10 price point was just an extreme example to make my point easier to understand, and I don't disagree with your argument that precedent is important. Yes, if you drop the price of a new game now, then consumers will expect future titles to also be offered at a lower price. My point is that exactly this scenario has already happened.

The price of new, triple A games in the US has been $60 for many, many years. It's been that way for so long that I believe "new game = $60" is just assumed by American consumers and any game released at a higher price than that is likely to be rejected by a large amount of potential customers. Well, I think the same thing is now true for Canadian consumers. Sure, maybe we paid more for games in the past, but we've been at the $60 price point for quite a while now, too. I'm pretty sure it's been at least half a decade since we saw game prices go to the same level as in the US. My opinion is that Canadians, too, are at the point where it is just automatic to assume games are $60. I think it's going to be very hard for developers to put that cat back in the bag.

Consumers are fickle. They don't care that US companies are making less money per sale at $60 than at $80. All they care about is that the cost of a source of entertainment has gone up by 33%. What I don't know is how many people will be deterred enough by the increase to not buy, but I can tell you the answer is at least one.

How many people will not buy games at 80 bucks and will look to other ways to get entertainment?

[Aegypticus]

Originally Posted by Jimmy Stang

This is the first I have heard of this ca.camelcamelcamel.com site, and I can't thank you enough.

One other thing... there's a Chrome app called The Camelizer that allows you to get the price data graphs and set alerts right at the top of the Amazon page for a specific product.

[blankall]

Originally Posted by CliffFletcher

This is a big one. Many retail businesses rely on unskilled labour. And unskilled labour in the U.S. is dirt-cheap. Of course, that has its own costs in a permanent underclass of disgruntled citizens who have little or no sense of trust with society as a whole.

Stuff is cheaper in the USA. Although low end wages are less, the standard of living would be the same.

Everything from booze to food to real estate and rent is cheaper in most American cities.