Tuesday, June 7, 2011

Cost of doing buisness

It's been a few weeks and people are still upset about the business shenanigans of our favorite faceless multinational toy company.  I don't mean to be the constant GW apologist because I agree they do some pretty bonehead things on occasion.  I do so like to play the devils advocate, and that leads me to defend things a bit more heartily than they deserve.  This is especially true when I think that opposing arguments are based on faulty logic.  Seeing things like this on TGN doesn't help either:
However PP is a company that LOVES you as a customer and listens to your concerns.
Really?  I mean really, really? I already countered this point last time. Privateer is a for-profit company. If they listen to your concerns it's not because they love you, it's because they think that a happy customer will give them more of their money.  And I've seen some of the responses that PP staff has posted on their forums to their customers, and they sometimes come off as more annoyed and condescending than loving.  That's only after putting up with gamer fanboi BS for a few years, lets see how they deal with their crazy customers after being in the business for 25 plus years.

Another argument that I've seen lately against GW is that other smaller companies release similar products at lower prices.  The conclusion of that argument always seams to come down to GW is price gouging their customers because its obvious that GW with it's higher production rates should be able to produce it even cheaper.  I'm not an economist or a business owner, but I've picked up some knowledge about business processes.  I've worked for large and small companies, and there are vast differences in how they run.  Most companies always tend to run along the same track when they transition from small to large because they all run into the same issues.  There are certain realities to running a business that people who've never worked in a cooperate environment may not realize.

As companies grow they need more and more employees with specialized skill sets.  When a company is small and does a small volume of business, they can get by with people filling multiple roles.  There comes a point when one person can't handle distribution and sales and development and management all at the same time.  So you hire new people to do it.  Every person you hire requires more expenses in terms of taxes, salary and benefits.  Eventual you get so many employees that you need managers to mange them and human resources to take care of the infrastructure.  Then you then hit some magic number and suddenly your business is subject to different labor and tax laws.  Now your office is too small so you have to move to bigger facilities driving up rent costs.  Bulk production can reduce variable costs per product, but in order to start bulk production you have to incur lots of fixed costs first.

Interestingly enough, there is a good episode of the Office(US) that illustrates this point. Michal Scott quits and starts his own paper company.  He undercuts the prices of his old employers and steals many of their clients.  But he only has three employees and keeping up with the bulk of orders is taking its toll on them.  They contemplate hiring additional staff but are dismayed to find out that even with their volume of sales they are loosing money and can't even afford to hire help without raising their prices.

A lot of miniature companies are very small.  It's a couple of guys with a spin caster in their garage, or a CAD program and a contract with a larger generic manufacturer.  And that works for the volume they sell at.  They can even sell their stuff at very low margin because the are probably only supplementing their normal income by running their operation in their free time.  If their product becomes popular all of a sudden, they won't be able to continue running their business in that fashion.  To provide their product to meet demand they have to grow their business incurring all those fixed costs along the way.  Suddenly the money they make per sale goes much less further than it used to.

Basically manufacturing products is complicated business.  Especially when you are manufacturing enough product to sell across 6 continents.

GW made a lot of mistakes as they grew, but they where also one of the first in the hobby to get as big as they have.  TSR is probably the only contemporary to match them, and look how they turned out.  Companies like Privateer have been as successful as they have because they where able to learn from the mistakes that GW made and grow smarter.

My basic point is don't attribute every business decision that GW makes to malice or stupidity.   There can be a lot of very good and unavoidable reasons behind each and everyone of them.  They can also be trying to make the best out of a bad situation for the sake of making sure their thousands of employees keep their jobs and their shareholder interests are protected.  Even the best companies can't make the right choices every time.  Institutional blindness and maintaining the status quo can effect a larger company much more severely than a smaller one.

Also don't become emotionally invested in the products you buy or the companies you buy them from.  Go ahead and get emotionally invested in the hobby; that's fine by me.  The companies that support our hobby on the other hand; you need to maintain a detached skeptical outlook on.  Even the really good ones like Privateer. Because when it comes down to your personal feelings versus their own bottom line, 10 times out of 10 you know which one they'll pick.

Don't hate them for it, they're just playing the game everyone else is.   As they saying goes, "Don't hate the player, hate the game."

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