Sales and Merchandising

David DeMartini is the head of EA’s Origin digital distribution service. At this year’s E3, he gave a few comments on Valve’s Steam digital distribution service, the 800 pound gorilla in the field. Steam is known for having sales on games. These sales have been a source of criticism. The criticism centers around the idea that people will not buy games for their full retail price–that they’d wait for one of the big sales and only purchase the game at a generous discount. Discounting elicits different responses from different game developers. Most developers find the sales useful as a promotional vehicle for their titles. These titles typically move a lot of copies during Steam sales, but DeMartini thinks it damages the health of the intellectual property:

“We won’t be doing that. Obviously they think it’s the right thing to do after a certain amount of time. I just think it cheapens your intellectual property.”

“I know both sides of it, I understand it. If you want to sell a whole bunch of units, that is certainly a way to do that, to sell a whole bunch of stuff at a low price. The game makers work incredibly hard to make this intellectual property, and we’re not trying to be Target. We’re trying to be Nordstrom.”

A month later, Valve responded to the “Nordstrom” comment. Valve’s Jason Holtman commented:

“Ask our partners,” he said. “Ask the large to the small and see what they think about that. Putting it all in the bucket of, it’s all about the discounts, I don’t think that’s everything about it.”

“Discounts serve a lot of functions. Highlighting serves a lot of functions. The qualities of the games serve a lot of functions. Everything we’ve seen, PC games and IP and all those franchises are more valuable today than they were four or five years ago.”

“Discounting is one small function of what we do. It’s one small function of our market and our store. It certainly doesn’t seem to be anything that cheapens IP.”

Anyone who has worked in retail knows there is more to selling things than cheapening prices. Elastic prices certainly help, but real merchandising comes from placement of items. Grocery stores know how placement works. Companies pay for better placement on supermarket shelves with eye level having the highest premium. Steam offers a premium experience, but I would be shocked if games that appear on Steam’s front area, the area you see when you go to the website or launch the program, don’t have at least some kind of increased revenue sharing with Valve if not outright paying for that placement and the promotion that comes with it. Promotion is the other key value to Steam’s publishers/developers. If a publisher/developer is having a sale, but your game is placed near theirs on the home page, it’s a win for you as your game’s exposure is increased. Steam has been instrumental in exposing smaller games like Audiosurf. Games like Audiosurf have also participated in other promotions Steam has launched like last year’s potato collecting madness. That madness led directly into the launching of Portal 2, one of Valve’s own titles, sharing some of the launch promotion with independent developers. These independent developers are often strong supporters of Steam sales. Supporters also include the game buying public who visits the site regularly to see what new games are on sale generating purchasing opportunities for other titles in Steam’s main area which strengthens their position as the leading digital distribution service.