How do Steam sales work?

tkioz

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So I can't sleep. I've been puzzling over how Steam sales work as a business practice. I understand how normal sales work and why businesses have them. I don't know much about economics but my old boss loved to rattle on about them and it was interesting.

Normally manufacture/publisher sets a cost per unit based on volume, wholesaler buys x amounts of units adds their markup and onsells either to a retailer or secondary wholesaler, retailer adds their market up and sells to public, fairly simple. Generally once the product gets to the retailer, they can set any price they want (baring a few exceptions companies don't control prices, Apple for example does) for the final product. RRP being just that the recommended retail price. Of course if the product is on consignment the retailer doesn't set the price, but that's a small downside to the advantage of not paying up front.

Anyway sales work by dropping the profit margin of the product in hopes volumes will make up the different, for example if you sell 10 copies of product X a week on average and you've got a 30% markup on it, that's 30% profit, if you drop that to 15% for a sale you're hoping that sell more then 20 copies of product X during that sale week in order to at least cover the difference, anything over 20 is a gain.

But I just can't see how Steam does their sales, both ways I can see how it works don't make sense.

Idea one is that they purchase bulk licences off the publishers and then set whatever price they want, but that falls apart when you hear about publishers listing products on Steam.

Idea two is that publishers control the prices of their products on Steam, with Steam taking a cut, and Steam organises sales trying to gain volume advantage, but that just seems like a massive huge pain in the ass for something like the big sales they run now and then.

So how the hell do they do it and still make money?
 

Alfador_VII

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Generally the publishers set the pricing levels, with Valve presumably taking a percentage of each purchase.

As for the big sales, like the summer one going on now, I'd expect Valve approach all the publishers who use Steam to be included in the sale, and for how long, and what discount they want to offer.
 

Owyn_Merrilin

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Digital distribution costs basically nothing, so the profit margin is much higher on a full priced game. With these high profit margins, not to mention the comparatively massive amounts of sales, it's not too big of a deal to slash prices every now and then.
 

FallenJellyDoughnut

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Well they get assloads of money even without sales, maybe they're just being cool?

I think Steam is a cool guy, eh sells cheap games and doesn't afraid of anything.
 

Abedeus

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FallenJellyDoughnut said:
Well they get assloads of money even without sales, maybe they're just being cool?

I think Steam is a cool guy, eh sells cheap games and doesn't afraid of anything.
1. We hate people who use dumb memes on the Escapist. Don't do it.

2. Check European prices on Steam. Last game I bought there that WASN'T discounted was... Team Fortress about two years ago.
 

Captain Pancake

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I'd assume there'd be an initial publishing price for valve to buy the publishing rights, then they'd split the profits to some degree between the distributor and the producer, like with iTunes.
 

More Fun To Compute

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Steam has run out of keys for games before and has not been able to sell more so they may buy licences from publishers. In practice I guess that the publishers have enough negotiating power that there might be different agreements for each game.
 

tkioz

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Owyn_Merrilin said:
Digital distribution costs basically nothing, so the profit margin is much higher on a full priced game.
While I'm not 100% on it, and yes it would cost a lot less then traditional copies, it's not nothing.

Traditional game sales needed manufacturing, packaging, shipping, shipping, stocking, etc. It's basically a huge pain in the ass, with large chunks of the price being unavoidable costs, that's even before you get into development costs.

With digital sales of games you've got server costs (with the size of Steam and it's distribution all over the glove, that's not a tiny amount), maintenance of the servers, maintenance of the products (adding patching, etc), setting it so they game installs via steam, bandwidth costs to pump the stuff out... so yea while it's still a lot less then tradition hard packet games it's not nothing.

So I think you're right they likely just get in touch with publishers, but god what a nightmare that would be to organise...
 

More Fun To Compute

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Also, for many of these Steam deals, you can still often find unopened box copies for less. The thing about the Steam sales is the convenience and psyops grade marketing power they have. I bet that most steam sale purchases don't get played for more than an hour or so.
 

Kukakkau

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Guessing they buy licensing rights for the game from the games developers and give them a cut of each sale.

But I don't see the point of Steam since game prices don't seem to go down much and I'd rather just get a preowned copy of a game that's been out long enough to be discounted.
 

tkioz

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More Fun To Compute said:
Also, for many of these Steam deals, you can still often find unopened box copies for less. The thing about the Steam sales is the convenience and psyops grade marketing power they have. I bet that most steam sale purchases don't get played for more than an hour or so.
Yea I agree there, I grabbed the Civ pack when it was one sale a few months back, haven't even installed the stuff, but I grabbed it because I lost my copies in a move, so it was "sale! score!" but the majority of my stuff I buy on Steam it's only because I want to play it, but I'll wait for a sale.
 

RicoADF

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tkioz said:
Owyn_Merrilin said:
Digital distribution costs basically nothing, so the profit margin is much higher on a full priced game.
While I'm not 100% on it, and yes it would cost a lot less then traditional copies, it's not nothing.

Traditional game sales needed manufacturing, packaging, shipping, shipping, stocking, etc. It's basically a huge pain in the ass, with large chunks of the price being unavoidable costs, that's even before you get into development costs.

With digital sales of games you've got server costs (with the size of Steam and it's distribution all over the glove, that's not a tiny amount), maintenance of the servers, maintenance of the products (adding patching, etc), setting it so they game installs via steam, bandwidth costs to pump the stuff out... so yea while it's still a lot less then tradition hard packet games it's not nothing.

So I think you're right they likely just get in touch with publishers, but god what a nightmare that would be to organise...
At the end of the day thats what Steam is paid to do, be the PR/salesman for the games avaliable on it. Not really much different to a publisher organizing adds and prices for games in stores.
 

tkioz

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RicoADF said:
tkioz said:
Owyn_Merrilin said:
Digital distribution costs basically nothing, so the profit margin is much higher on a full priced game.
While I'm not 100% on it, and yes it would cost a lot less then traditional copies, it's not nothing.

Traditional game sales needed manufacturing, packaging, shipping, shipping, stocking, etc. It's basically a huge pain in the ass, with large chunks of the price being unavoidable costs, that's even before you get into development costs.

With digital sales of games you've got server costs (with the size of Steam and it's distribution all over the glove, that's not a tiny amount), maintenance of the servers, maintenance of the products (adding patching, etc), setting it so they game installs via steam, bandwidth costs to pump the stuff out... so yea while it's still a lot less then tradition hard packet games it's not nothing.

So I think you're right they likely just get in touch with publishers, but god what a nightmare that would be to organise...
At the end of the day thats what Steam is paid to do, be the PR/salesman for the games avaliable on it. Not really much different to a publisher organizing adds and prices for games in stores.
I suppose, just gives me the hibbey gebeeys just thinking about it, I hated dealing with wholesalers and manufactures and trying to sort out things like that, it was a freaking nightmare even on a small scale, imagining doing something on such a massive scale gives me the creeping horrors.
 

mad825

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Valve may collect aggregate information, individual information, and personally identifiable information, as defined below. Valve may share aggregate information and individual information with other parties. Valve shall not share personally identifiable information with other parties, except as described in the policy below.

"Aggregate information" is information that describes the habits, usage patterns, and demographics of users as a group but does not describe or reveal the identity of any particular user.

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they sell the information that they gather to other companies, plus they dont have to pay the usual prices of shipping,Disk,cover box + ink then giving it to a retailer and storage
 

Owyn_Merrilin

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tkioz said:
Owyn_Merrilin said:
Digital distribution costs basically nothing, so the profit margin is much higher on a full priced game.
While I'm not 100% on it, and yes it would cost a lot less then traditional copies, it's not nothing.

Traditional game sales needed manufacturing, packaging, shipping, shipping, stocking, etc. It's basically a huge pain in the ass, with large chunks of the price being unavoidable costs, that's even before you get into development costs.

With digital sales of games you've got server costs (with the size of Steam and it's distribution all over the glove, that's not a tiny amount), maintenance of the servers, maintenance of the products (adding patching, etc), setting it so they game installs via steam, bandwidth costs to pump the stuff out... so yea while it's still a lot less then tradition hard packet games it's not nothing.

So I think you're right they likely just get in touch with publishers, but god what a nightmare that would be to organise...
You're right, it does cost money to keep the servers up. But when I said "basically nothing" I meant that, when compared to the costs associated with a physical product, the cost of running the servers is negligable. Think about it; when a company goes the digital distribution route, they have to pay for servers, electricity, and someone to maintain the servers. When there's physical product involved, they usually still have all of that, but there's a lot of extra stuff as well. You already listed most of it off, so I'm not going to go too far into it. This is the second time in recent months I've gotten into trouble online for using the word "basically" as a qualifier...
 

FallenJellyDoughnut

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Abedeus said:
FallenJellyDoughnut said:
Well they get assloads of money even without sales, maybe they're just being cool?

I think Steam is a cool guy, eh sells cheap games and doesn't afraid of anything.
1. We hate people who use dumb memes on the Escapist. Don't do it.

2. Check European prices on Steam. Last game I bought there that WASN'T discounted was... Team Fortress about two years ago.
First of all, I was using the meme because its dumb. Where I come from, Lame is the new cool (seriously)

Second, maybe Steam just sells games cheap because they don't have to pay for delivery, storage and all that other shit.
 

dryg

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http://www.shacknews.com/onearticle.x/57308

I have also seen something about steam how you can make about 37$ profit from a 50$ game while in retail max is around 7$. Though it was a while ago I saw that article..
 

Rickyvantof

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Well, I think that Steam is just a platform where the games are sold, Steam is not comparable to a real life store. Publishers put pay Valve so they can put their games on Steam and Valve gets a share of the profit of games sold on Steam.