Phase 3: Profit !

(Zekta: Yeah, I am still alive, just haven’t much time and topics to post. Thanks Sovrun for these wonderful posts. Until next time  o7 Zekta.)

WoW Econ 102: What can Hunters tell us about pricing?
By Sovrun

There comes a time in everyone’s life where they come to realize that what appear to be one thing is actually another. This is what happened to me a while back when examining the WoW economy. You can talk about a number of economic factors that could be involved, but in actuality none of them matter. The WoW Economy isn’t in fact an economy at all.

Whoa, not so far there partner, shouldn’t you qualify your statements a bit before jumping off the deep end. In last post, we talked about markets. Aren’t markets naturally associated with the economies that exchange products for a monetary value from the buyers and sellers? May be we didn’t spend enough time talking about “nuts”.

Well, if we don’t assume the typical, then what do we get. Hmmm, what is it? But of course… WoW is a game. The economy isn’t something that functions like a stock exchange or store. The WoW markets are each a game within the confines of the game world. They put sellers against each other in to be the selected item that gets purchased. In a store or stock exchange there is no order to the items that will be sold. However, within the game, only the lowest priced items that meet the request are purchased. This order changes your approach to pricing and figuring out which segments of the markets to participate in. Get it?

Auction House is a game

Once you accept that the Auction House is a game, you change you mindset. Let’s look into game theory to determine which of our actions will be most beneficial. I would like to examine a classic example of the Hunter’s Dilemma. This is an example where two hunters can independent select from two different meadows to hunt in. The Northern Meadow is filled with larger game, such as, deer and the Southern Meadow is filled with smaller game, such as, rabbits. The dilemma revolves around the choice that each hunter must make. The hunters will get capture either one deer or three rabbit from the respective meadow. However, if they hunt in the same meadow, they go home empty handed.

This example isn’t purely accurate, but explains how your choice of segment affects the price that you can get. The WoW Economy actually has many hunters working in each meadow, but WoW has a lot more game too. The Hunter’s dilemma points us to markets with less competition to achieve the best possible price for our goods. This doesn’t mean that hunting in the Western Meadow will be success simply because no one is hunting there. There might simply be no game or demand for those items. Simply put, find segments with demand, but limited competition. This is also why the profitable AH Gamer will need to have some diversity in production capabilities.

Game Theory

Wait, isn’t game theory used to price items in retail stores? Why aren’t we choosing a pricing example when we are talking about pricing? Well, the answer is easy. If you have a dominant strategy, use it. The a real world game of pricing, you can sell items without being the lowest priced item, but your price sets which portion of the market you will capture as individual choose items based on what is available to select within there given location. Lowering your price may capture an extra percent of market share, but it no likely to have the biggest impact. A good sales person can always point out the differentiators that allow for a high point whether they are actual benefits or perceived benefits. Customers may be willing to go to a competing store a few doors down, but it would be impractical to travel 300 miles/kilometers to save a little money. The time investment makes it not worth the effort. Customers also have some level of brand loyalty that just simply does not exist in the game. However, the Auction House is really big store with various prices for a single item. Therefore, the only item that sells is the lowest meeting the buying criteria. The dominant strategy is to be the lowest priced item on the market when the buyers are looking for the item.

I see… price everything really low and you will get all of the sales. Woot, I am going to be rich!

Not so fast, you need to look at another pricing example from a video I saw at Interop last year, where two completing sock merchants on the streets of London compete for sales. Barney is selling his socks for 40p until the Franklin moves into the area. Then the two go back and forth lowering there price until Franklin realized that Barney is now selling below Franklins wholesale price and buys all of Barney’s sock for 4p a pair. Franklin quickly raises the price to 45p and is happy that his stock of socks can be sold without competition.

Strategy

This is a strategy that I have used a number of times in the glyph market to reset margins. I will cover the glyph market in another segment, but the basic thought is to examine the market while posting. When just a couple of items are on the Auction House near your threshold, it is better to purchase them to reset the price to a higher point than to post at an ever slimming margin. As long as, your reset price is within reason, the market will progress, as it would have at the lower price, but with higher margins.

The basics of pricing in WoW for a given item are simple.

1. Undercut by the smallest margin possible (1c). Anything larger just spends up the Sock situation.
2. Don’t sell below a threshold unless you are trying to no longer sell that item. This threshold may be based on raw material cost or effort for farming typical or rare materials.
3. Look for opportunities to buy all the socks. This will allow you to reset the pricing levels for higher profitability. Be cautious here, you won’t want to end up protecting a price point. If you are purchasing more than three to five items, don’t reset the price.

Until next time….have fun and sell like a crazy hunter, possibly a goblin hunter.

Dear Reader, Sovrun recently got in touch with me and asked if he could try a guest post on P3P. After a little back and forth, he crafted the following. Sovrun is a fellow AIE’er, has a ton of WoW gold, and is generally worth listening to. So, without further ado, let’s give him a chance to speak up!

GL!/bow -Jimm

Econ 101: Introduction to the WoW Economy
By Sovrun

Hello all, I should really start off by explaining a little about myself prior to moving into the dirt.  I have been playing WoW since the launch of Wrath.  Yes, I am a Wrath baby.  It’s okay.  Call me what you want.  I don’t have time for participate in the end game much.  I guess this is what makes be an altaholic with a professions issue.  A friend of mine asked my to take up writing about the WoW economy as a substitute for the typical 12 step program.  So….here is step one.

The first step into any venture is to understand the market to see what opportunities exist and help to define your angle and strategy.   Well,  that’s a load of nothing specific.  What does this mean?  If you look at the market you will see that it behaves similar to many of the real world markets, but just not the ones that you are likely thinking of   You are not going to make headlines because of the latest do-dad that your innovative team of engineers just came up with, no matter how thin you screen is.   The WoW economy is a nuts and bolts industry.  No really, it’s just like buying nuts, bolts, screws and nails.  You are not going to find any cults of fruit that will buy anything that Harrison Jones is offering.  You, nor I, have that kind of pull with our “Made by” tags. 

So what do I mean by Nails…  Nails are your typical bulk items that sell in high volumes, but have no real differentiation.  Yes, there may be a nail built by some amazing designer, but most will settle of the less wonderful bulk item.  They may be different size or for a specialized use, but they are still basic and no one cares were they come from.  Did I just describe the Bag Market?  Of course, I did.  Items that fit into this category are the types of things that are in high demand with generally low margins.  Think Bags, Fortune Cards, Belt Buckles when you put items into the Nails category.

Ok, but Screws?  Have you ever bought a screw?  Screws are more specialized than nails.  Companies that are participating in the Screws Market must create different variations to meet the customer’s fickle demand.  Are these descriptions hitting home or what?  Yes, you guessed it.  The screws market is similar to Gems, Enchants and Glyph.  These items sell really well, but you need the breadth of scope to capture the sales.  If you only sell one type of Gem, Enchant or Glyph, you can pretty much guarantee that you will not make much in the way of Gold.  Even the rare recipes don’t sell as often or have as much profit potential as the group in general.

The Nuts and Bolt market is even further specialized.  The main difference is that they are complimentary.  This category is made up of item that may be subcomponents, most blues and epic items, recipes and pets.  These items may warrant a premium, but sell at a lower rate than the other two categories.  Yes, there are many niche items in this area that will do really well, but the risk is also higher than the other categories.

This can’t really just be about renaming groups of items into something you can find at the local hardware store.  Again, you are way smart than…well, the small screen staring back at me.  Once you understand which segment you are selling to you need to ensure that you are profitable.  Add-ons will help understand what items are currently not selling for.  But to ensure profitability, I recommend manually setting a minimum threshold that ensures financial growth.  Feel free to undercut as much as you want as long as the item is still posted above you costs.  Needless to say, companies don’t stay in business long selling everything at a loss.  There is no such thing as a loss leader on the Auction House.  I don’t want to go into pricing strategies at this time, but stay mindful of your ratio of Price to Cost.

Each segment requires a different strategy to attach. 

Nails have high competition, but you don’t have to be to lowest priced supplier on the Auction House to sell.  The demand will allow you to have long posting cycles with high volumes.  Let’s just call it a low time investment category. 

I also put the gathering professions in this category. Herbs, Ore, Cloth, and Leather are also additional examples of Nails.  The real difference here is thinking about how these items are used in the professions and by popular add-ons.  For instance, Trade Skill Master is gaining momentum for heavy Auction House Users.  The TSM Shopping Scan will only consider herbs or ore stacks that can evenly create inks and gems during it’s semi-automated buying cycle.  Based on this information alone, it doesn’t make sense to post Ore and Herbs in anything but groups of 5, 10, 15 and 20.  Otherwise, you miss the opportunity to sell your raw materials to potential manufacturers.

Screws, on the other hand, have the demand spread throughout the category.  These are typically fiercely competitive where only the lowest priced items will sell.  My experience with the glyph market is that when you have complete glyph coverage, the 12-hour posting window is way too long.  You actually will sell the vast majority of items within the first hour or two.  These two characteristics combine to make this a high time investment category.  Additionally, this category is ripe for price resetting, but I will cover this more under pricing strategies

Lastly, the Nuts and Bolts category is similar to the Nails in that long posting cycles are typical, but the demand is much lower.  In fact, you may be the only item on the AH and not have a single offer.

In my next segment (no pun intended), I will go into pricing strategies.  How do I price my items?  Do I undercut?  By how much?  How can two hunters help?  You got it.  I’ll explain it all next time…. Until then, have fun and make more copper than the next guy.

It’s time to talk about the newest profession, Archaeology. Let’s do it Idiot’s Guide-style; in case you’ve forgotten, look back at the last time we did this to see what I mean by that. Let’s go!

What is Archaeology?

Archaeology is a secondary profession that allows you to find stuff in various zones in game. The zones show up on your map, and are level-dependent. You find archaeology fragments and then assemble them into stuff. Usually you assemble common (read: grey vendor trash) items, but sometimes you get rares. The rares are usually vanity-type items, but there are a few pieces of weapons and armor, including the much sought after Zin’rohk. Here’s a link to the wowpedia article, complete with a full list of rares.

No, seriously, what is Archaeology?

Archaeology is a huge waste of time. That’s about it. It’s like vanilla fishing. A little dot pops up on your map, you fly across the continent, survey, find the pieces, and come back.

Wait, survey?

Indeed. You get a function to “survey.” This is basically how you use archaeology. You get in a zone that’s marked on your map and you survey. A little survey tool appears, and the color of the light on the tool indicates how near or far you are from the fragment. You keep surveying until you’re close enough to find the fragment, which eventually apprears as a lootable item on the ground.

(If you want more details, look any of the excellent guides online. For professions generally I like WoW Professions, but there are other good ones as well.)

I’m really just supposed to fly around and look for things?

Yep, that’s it.

Why would I do this?

Well, there are a number of reasons.

First of all, it’s definitely aimed at completionists and casuals. So, if you’ve got the completionist urge and just must fill up every bar, Archaeology is much better than killing Furbolgs or running Sethekk Halls, again, to try to get that Druid Bird mount that never drops.

There is some money to be made. Occasionally you get common items that are worth a few hundred gold, and that’s nice. And you do get a shot at some fun vanity rares that will turn you into a bug, speak with dark gods, or let you go home with a dwarf chick. All in all, there are a few pets, a mount, and some other fun stuff.

What’s the downside?

It’s a huge, ripping, screaming waste of time. I mean, even more than WoW is. It’s horrendously boring- you just fly, survey, pick up a dozen or so fragments in a zone, and then fly ACROSS THE CONTINENT to pick up another dozen or so fragments. Then you assemble whatever you’ve been working on, and there’s a magical moment when it’s unclear what will pop up next. Then, when it isn’t Zin’Rohk but is, instead, just another stupid bijou, you almost throw your computer out the window.

So, if it’s so boring, how far along are you, Bigjimm, right now?

I’m umm…. I’m *cough* maxed. I’ve found more than 100 commons. I’m almost a Professor (18/20 rares as of this post). In fact, I’ve done almost everything that I can. (I’m not an alchemist, so I can’t find the recipe for the Vial of the Sands.) Yes, it’s a horrible waste of time. But… it’s oddly addicting. It’s Whac-A-Mole on your map, except that there’s always more moles (ie: zones) to whack (ie: survey). There can’t ever be less than four, so… I just keep looting them.

And, in fact, Archaeology works perfectly for people like me. I don’t raid anymore and don’t have any desire to. I haven’t even done all the heroics. I play at night, when I’m so wound up from working (in a restaurant) that I can’t sleep, but don’t want to think about anything. When I log on at 11pm or midnight, I don’t want to move out of the goo, I don’t want to stare at a boss’s crotch or tank the ads or anything like that. I just want to listen to a few podcasts, have a glass of milk or maybe my preferred adult beverage, and relax. Archaeology is the casual profession, bar none.

Any final thoughts?

I did get Zin’Rohk. So… I feel a little guilty about that. And Archaeology does give you time to talk to your guildies while you’re flying around. When you’re a member of AIE, that’s a good thing. (Especially when they stroke my ego a bit.)

Markco... who?

In conclusion: don’t do archaeology to make money. It’s roughly about as much gold per hour as questing… so not good at all. But it is relaxing and fun, and I like it.

One final note: I’ve received a lot of feedback, here on the blog and in-game, regarding my upcoming move. Thanks to everyone who took the time to wish me well. I genuinely appreciate it. As ever, we here at P3P look forward to all your feedback. If you have a sec, take some time to leave a comment on this post. We read them all.

GL! /bow

Jimm