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?
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?