Friday, August 16, 2013

TCS: Loss for Gain

In trying to explain the mission and method of TCS, I have moved towards presenting the corner store approach. TCS is an embedded business, confined to a particular area of town. The residents of that area of town are the clientele that come to the store. The store caters to the clientele not itself for its success. To cater to people the store has to become flexible.'

Most of the players in the game are in love with the games economy. They do not have to be aware of this love but a lack of awareness does not invalidate the truth of it. Without the economy stuff would not be important. Without stuff being important, nothing else in the game would be important. And importance does not mean that one wishes to take stuff to bed and cuddle with it to be reassured that there are no monsters under the bed. The importance is a driving force for every aspect of the game be it the great Sov wars or deciding which station to pick up a 500k ISK frigate hull.

Because someone will decide to pick one station over another due to one hull costing 500k and another hull costing 510k and both hulls being the same inconvince to activate when building TCS I function with some Loss Leaders.  I've been explaining about these Loss Leaders for some time. They aer normally hulls. However, someone in Gevlon's chat named it for me yesterday and I was thrilled. I've heard the term before but I have never worked in retail before and the term was not native to my vocabulary. It is a very good thing for someone wanting to create a market to think about.

Loss Leader:
Loss lead" describes the concept that an item is offered for sale at a reduced price and is intended to "lead" to the subsequent sale of other items, the sales of which will be made in greater numbers, or greater profits, or both. It is offered at a price below its minimum profit margin—not necessarily below cost.
Like much of business economics when applied to Eve, some amount of flexibility must be allowed for. It is, after all, a video game. People can succumb to their emotional reactions and respond based off of things that they could not justify in real life. And the society of the game is somewhat different from the society many of us live in day to day.

The reason I found Loss Leader to be a perfect term is that I was explaining to someone about being flexible with margins. I was asked, "You keep your margin around 10%-20%?" and I said, "Well yes. But not for everything."

No one has to come to Bosena to shop. That is the simple fact of running a market in Eve. They can go anywhere else to buy the same thing. Because of this, I have to bring into the equation to emotional response of my buyer.

A 10% Markup of a 500,000 ISK hull is 50,000 ISK. That would make that particular hull cost 550,000 ISK. For that person to choose my hull over the other station that sells that hull at 500,000 ISK I have other options. They can fit that hull completely at my market. Then the 50k ISK becomes a matter of travelling and convenience. Also, mix in the fact that this is low sec and flying an unfitted ship around is often not the best idea. At that point, who cares about 50k?

A 10% markup on a 50m ISK hull is 5 million ISK. All the same factors apply but suddenly the five million starts to matter a bit. After all, you could grab the hull and then grab the mods and move them. Why is that priced so much higher then everyone else? If there is a wide variance of prices up and down that is one thing. If there is not and one price glows 5 million over every other listed prices, people start to go, "hmm."

A 20% markup, a markup considered acceptable because of 'low sec' is 10 million ISK. Now we are looking at 1/5th of the cheaper hull cost in markup alone. While it may be valid and explainable the buying public doesn't care. It is their ISK after all and why should they give you 10 million more than that other guy in that station who has a more reasonable price?

If I were to stand upon the true and honest facts and say, "Well I went to Jita, purchased it, moved it to low sec, listed it, maintain market alts, maintain a corporation, maintain six hundred orders, used my time and energy, and this is my lively hood in Eve," while valid the answer is, "So what?" or "It isn't my problem."

I'd love for it to be their problem but it isn't. The Eve buying public has a budget. They earn their ISK and spend their ISK. That ISK has tangible value to it because they need it to continue to play Eve. When you mix that up with low sec you have a group of people who buy each ship with that ship already written off. That is why people buy in fits and my ammo sales are normally 1-2k units. Why fill your cargo hold up with ammo you will never expend?

That is why when ever someone asks me about starting or what I stock I suggest that they do not focus on individual items. If you are selling in a cut throat market and buying just to resell then your margins are your point. You have a finite list of items you are going to work with and manage. When you are running a market you are catering to the needs of the environment you are in. Each person is not one possible transaction but dozens or hundreds. It is about time and repeat business. As unappealing as it may sound to others you need to give a fuck about what those people flying around out there want. They will entrust their wallet to you if you don't abuse it.

3 comments:

  1. This is the logic I use to make myself smile when someone undercuts my sell order by 0.01.

    I try to focus on the fact that lowering the price will make someone else buying the item smile, and do a little jump for joy that they can afford it.

    I trade in Hek. I've always had a soft spot for that system (even though the Republic lays claim to it). Getting more ISK flowing through that system always makes me happy.

    Gives me a reason to undercut that 0.01 guy by 1 million :)

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    Replies
    1. So you're the guy....

      Hek is one of my favorites too. =)

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  2. Loss Leaders are important. They draw customers to your location. Once there most customers will buy other things too and that's where you make your money.

    Used car dealerships use loss leaders all the time. One vehicle (or several) advertised in big full page ads in all the newspapers at a terrific price. Hundreds, if not thousands of people come in to buy that vehicle. Of course it sells quick and the dealership doesn't make any money on it. But, only one person can buy it, many of the rest buy another vehicle and the dealer makes plenty of money off all of them.

    ReplyDelete