Negotiating : Understanding Incentives

This is a ‘best practice’ article in many ways, but delves into something I’ve discussed before – negotiating.  One of the most important aspcets of negotiating is understanding the motivations & incentives of the parties involved.  As an example, let’s talk about leasing & the commercial real estate market.  There are basically 3 parties (sometimes 4); involved in negotiating a lease.

The Landlords

The landlord’s motivation is simple – he’s there to rent his space for the most amount possible.  Now, depending on the landlord; he might value this amount in the short-term (i.e. the most money he can get per month) or long-term (taking into account ‘down-time’ when the space is empty and the most over the terms of the lease).  He might also value his time and peace-of-mind (i.e. long term tenants who are quiet) quite highly.

So, time, money & peace-of-mind are his 3 major motivations.

The Lessee

The Lessee wants a good space, he wants a location that he can likely grow into (if they’re thinking of growth) and the least onerous terms possible including the lowest rent.   Depending on the lessee; they might also value peace-of-mind and certainly want to mitigate potential risk factors as much as possible.

His incentive is his bottom-line and any risk mitigation possible

The Realtor’s

The realtor works for the landlord generally, posting his listing in an attempt to find a lessee for the landlord.  His motivation is the sale.  There’s also a secondary motivation – a desire for continuing business from the landlord and to a much lesser extent, the lessee.  How much they value each of the above is dependent on the realtor obviously; but here’s where incentives come into play in a large part.

The realtor is paid by the landlord as a percentage (%) of the final lease.  As such, he is incentivised is to get the highest possible lease rate for the landlord; especially when you consider that the landlord likely has multiple locations to lease.

At the Table

At the table, as a lessee you need to realise that while the Realtor might sound like he’s working for you; his greatest incentive is to get the highest lease amount possible.  Close behind that is keeping the landlord happy (not necessarily the same thing).  He is not greatly incentivised to make you happy . Understanding these motivations allow you to approach the negotiation in the right frame of mind, allowing you to get a better deal.

This is true in any negotiation of course, especially when there are multiple parties involved and there often are.  It’s also why creating the proper incentives for salespeople is important.

Products Sold by Quantity for Manufacturers

Knowing you like seeing things like this, thought I’d post the latest updates on what has been selling. This is by Quantity by Manufacturer, so someone like Mayday Games with their dozens of sleeves pop-up really high.  Same with FFG with their multiple LCGs and sleeves and huge collection of games.  Still, figured you’d find it interesting:

Q1 2012 Products Sold by Quantity

PS : Click on the pie chart to see the original; larger version.

Marketing : Passive & Active

Let’s talk about marketing again.  Specifically, what I’d like to term Passive & Active marketing.  No, they’re not real terms but it’s a distinction I occasionally use in my mind.

Passive & Active Marketing

The difference between passive and active marketing is the way those tactics bring customers in.  Passive marketing continually draws customers in due to its nature by building the company’s brand, while active marketing if turned off would result in no customers at all.  Here’s a few examples:

Passive: Blogs, Videos & SEO

Active: Social Media Marketing & Adwords

Now, this obviously isn’t a direct correlation – some Active marketing like the Social Media marketing does help build the brand; but it also requires a larger commitment of time and continuous management.  Same with Adwords to some extent – you can turn it on quite easily and not manage it; but if you ever stopped investing in it, you’d get no additional customers due to its very nature.

Passive marketing on the other hand builds the brand and is ‘consistent’ in its returns.  In some ways, banner advertising falls under that category by building an impression of the company with your customers.  There’s long terms return from this type of marketing; but it can often take a long-time to take off.  SEO for example requires consistent work for a long period before you notice any actual difference – but also has a large amount of inertia behind it (generally speaking – we won’t discuss algorithm changes here).

Implementation

Theoretically, you could only use one or the other form of marketing and build a company.  However, I’ve found it more useful to balance both forms – passive marketing is great but takes such a long time, while active marketing brings immediate short-term returns but doesn’t add to your long-term results.

Another way to view this is via the sales funnel and where you are ‘stuffing’ customers in.  A lot of active marketing targets customers as they are in the later stages of their decision process – pushing them to ‘buy’ now.  Passive marketing works to ‘stuff’ customers in in the earlier stages, increasing the total number of customers in the funnel.

By only using passive marketing, you might increase the demand for board games but you also lose many of those customers when they finally make the purchase.  On the other hand, only using active marketing means you continually fight for the same few customers with your competitors – a nasty business of diminishing returns.

Top 10 Science Fiction Board Games

We just released a new article – the Top 10 Science Fiction Board Games.  I’ve been playing with that list for ages now; but till recently hadn’t been that excited about that many SciFi games.  Now, I’d say there’s a pretty good number out there, and some that I feel are quite fun to play.  Thus the list.

Have fun reading and do feel free to comment.

 

Video Reviews – A Business Perspective

It’s been over 5 months since we launched our video games reviews; and I thought for the business readers here it might be interesting to see a business perspective on them.

Cost

The first part is cost.  There are 2 components to this – the financial cost and the time cost.  Financially, videos range from $200 – $400 a video; and that’s only because Rob at Phasefirefilms is a gamer and thus is giving us a great deal.   The other side of this equation is the time cost – and that’s a major cost.  We write all our own review scripts – figure 2 – 4 hours per script written and then another hour editing by a 2nd person.  On top of that, we’re looking at 1 to 1.5 hours for filming.

There’s also the cost of  managing the editing (generally quite small since Rob’s a great editor), reshoots (if necessary) and then putting the video up.   That can run an additional half-hour to hour a week, sometimes a lot faster.

Overall, in a year we’re talking a budget of nearly $10 – 15,000 spent on these videos, an enormous sum for us.

Marketing

What are we hoping to get from the videos? Sales obviously – putting the videos up, we’re hoping to convince customers if a game is for them (or not).  Eventually, we’ll have enough videos covering all our major games that customers can make better informed decisions.

There’s also the promotional aspects of the reviews.  There’s a problem though, because Youtube and BGG  are global websites and thus the videos hit a global audience.  Unfortunately, our customer base are majority Canadians – so there’s a lot of ‘missed’ targeting.    And that’s not a great thing when you’re talking about something that expensive.

We might be able to  get a small portion of that cost back by adding Advertising to the videos; but that just brings a whole slew of problems with it.  And let’s be truthful; we aren’t likely to make that much money here – at a few Cents a click, we’d have to get a lot of clicks to make our money back.

So Outsource

Why do it in-house? Control.  Control over both the content of the video, where it goes and what it’s used for and control over our brand.  Having the videos created by another party just didn’t seem to work as well, in our perspective.  I’d rather pay a bit more and control the content rather than provide it to a 3rd party as we have done so before, with scattered returns.

Bottom-Line

At the end of the day, we’re committed to continuing the reviews for this year.  After that, we’re going to have to take a very close look at the cost and benefits from it.  While it’s a great tool, it’s also an expensive tool and if we can’t get enough utility from it we might just have to stop.

What can you do help? Well, help us promote the videos and the subscriptions.  The more people who subscribe to our Channel, who buy from the videos, the more likely we’ll keep them going.  One thing we have considered, and might need to undertake later this year is to launch a Kickstarter / Indiegogo project to raise funds for the reviews.

 

The Fickleness of Memory

I’m in the midst of updating our sales list right now, and have once again been reminded just how fickle my memory is.  When deciding what games to put up for sale, I go through a few steps:

  1. Download our entire catalog
  2. Remove all out-of-stock items
  3. Start deleting all games that I know have sold well.
  4. Once complete, I generally have about 700 – 800 products on the list.  I then start verifying sales in the last year.

This is where my memory really fails me.  See, in part (3) if I even hesitate, I leave the game / item on the list so that I can double-check in part (4).  Generally though, I like to think of myself as a person with a great memory.

Then I hit games like Tobago, Labyrinth the Card Game and Chez Cthulhu and Homesteaders and I realise, no, my memory really isn’t that good.  All those games have sold over 4 times in a year – which is very good in our business.

And that’s why we have stats

I’m obsessed with numbers – I run the business with numbers. If I can’t put a number to something, I get twitchy (e.g. how well is the Spiel doing for us?)  It’s not just for my own phobias though, it’s because with over 3,000 plus SKUs, you cannot remember it all.  Thus, numbers and charts and databases that record it all because your memory, no matter how good just can’t process all that information.

Managing & Personnel

As many of you know, we’ve recently been hiring and are now are a 3 person company.  That’s a great thing for us (if slightly a strain on our cashflow at the moment); but the real change has been in me having to relearn management.  It has been quite a few years since I had to manage anyone other than myself and relearning best practices has been a journey for me.

There’s a few stumbling blocks I’ve had / have and I thought I’d articulate them here as a reminder to myself:

Project Timelines

Perhaps my biggest frustration at the moment; and one that I keep forgetting.  I hand-out projects to the employees; and while I get updates, I’ve been forgetting to ask for timelines and deadlines.  Now, in the course of our business, we receive a number of set-backs and delays (a rush of orders, delays in getting products in which force us to have multiple receiving days, etc.); but there’s no reason why we shouldn’t at least have deadlines clearly articulated and pushed back (if necessary).

My biggest stumbling block here; and frustration is that I often intuitively have a deadline in mind for a project when I start it (or assign it).  I rarely articulate it (after all, who am I articulating to other than myself?); but it’s there.  Unfortunately, not articulating to employees doesn’t exactly work – and then having a project not completed to an unarticulated deadline just causes frustration.  Mostly with myself; but to a small extent the employee.  Which is obviously not fair to them.

Tasks & Documentation

Another major  area that I have a problem with currently is actually documenting the variety of tasks that I do on a daily basis; and that the company does.  It might seem strange needing to document things as simple as ‘Approve Reviews daily’ or ‘Transfer PayPal funds’ but if you don’t; and for some reason I can’t do it (like a holiday); it doesn’t get done.  As I try to shift more mundane tasks like that away from myself to the employees; forgetting to tell them about minor tasks like that becomes a major problem that can fall through the cracks.

Delegating

Of course, that’s when I do want to let go.  Much of the delegating right now is to move ‘easier’ tasks away from me so I can tackle more complex tasks.  However, at the same time I need to learn to delegate even the more complex tasks and that’s tough. Part of that is of course the old maxim – You can delegate authority but not responsibility. It’s my company, so I still feel responsible for even the smallest tasks.  It’s a tough thing, learning to let go.

Training

Lastly there’s training.  Adding new tasks requires training, adding new projects often requires training (sometimes in simple things like project management).  Then there’s the entire realm of online sales and the complexity that is running such a site – everything from using FTP programs to uploading new modules to payment gateways.  All that at some point will need to be taught, to create redundancy in the company.   Unfortunately, I’m not necessarily the best teacher – sometimes because I’m still learning the subject matter; at other times because of my lack of patience.