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The Distribution Process
Distributors
traditionally handle the physical conveyance of games to the retail chains and independents. However, the respective roles of publisher and distributor aren't always so clear-cut. Some distributors handle some of
the publishers' role by undertaking localisation and even marketing of products for their particular territories. Others undertake inventory risk by buying finished product from publishers and selling it on to
retailers. On the other hand, many of the larger publishers have in-house distribution resources and deal with the larger retailers directly. Most smaller publishers will retain an internal sales team that looks
after the key retail accounts. Distributors are often only employed to take the product from manufacturing or storage to retail. At the same time, the publisher might have secured a different distribution partner to
handle not only the conveyance of product but also the sales of the product to the smaller retail accounts.
With the number of games platforms and titles ever increasing and whilst shelf space remains limited,
the role of distribution, whether handled by a dedicated distributor or a publisher, can be critical to a game's commercial success. A title's sales will be severely hampered with limited exposure in the shops.
Distribution is a low margin business that relies on high volumes. Typically, distributors make between 50p and £3.50 per full-price unit sold to retail (depending on the service performed, product box size etc...)
but because distribution is only rarely a capital intensive business, the distribution market is both crowded and highly competitive.
The Retail Process
Retailers, through
high street, online or mail order, sell the products on to the consumers. With the help of the publishers and distributors they coordinate point of sale marketing through the use of in-shop displays, demos and
posters and determine which titles will fill their (usually) very limited shelf space.
Current average premium retail prices in the UK are as follows:
PC CD-ROM: £29.99 - £34.99
Sony PlayStation 2: £19.99 - £34.99
Microsoft Xbox 360/PS3/Wii: £39.99 - £49.99
Nintendo Game Boy Advance/DS: £19.99-£29.99
The gross margin per unit that retailers can expect on a full price game varies widely from around £2 up to £15
reflecting the variance in wholesale price paid but more importantly the final retail price that the retailer chooses to offer the product at. A rough method of determining retailer margins is to assume that just
under half of the recommended retail price of a software product is retail margin but from that comes VAT(@17.5%) and any retail price discount applied by the retailer. Thus a £39.99 RRP Wii game might be sold for
£34.99 leaving the retailer with a margin of around £7-£9 (net of VAT). Console hardware margins (net of VAT) tend to vary between 10%-15%, peripherals 30%-50% and second hand software 30%-60%.
Aggressive price
competition has occurred on several occasions in the UK over the last decade although most of this pressure has been born by the retailers not the publishers (average net receipts per unit to the publishers has
remained relatively unchanged over the period). Such strategies tend to be short-term and focused around holiday periods by non-specialist retailers who are more interested in creating increased footfall in their
stores. The UK market is markedly different to the continental market. The German market for instance is dominated by large department stores and supermarket chains and aggressive discounting is a common feature
whilst the French market with its more socialist trading regulations is rarely (if ever) impacted by price discounting but is focused around chart releases as a result. The Spanish and Italian market suffer
considerably higher piracy rates and average wholesale pricing tends to be lower to try to counter this, leading to lower average retail prices.
Across the board, though, retailers are increasingly realising that
they cannot rely on price alone for commercial success. The location of the store is a crucial factor and increasingly the more enlightened chains are realising the importance of informed and knowledgeable staff.
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