Monday, December 15, 2014

How to Business Part IV: Strategery

Carl von Clausewitz: Crazy Smart on Strategy

Why Strategy
“Strategy” is one of those words that gets used so much that it becomes almost meaningless, especially in the business world. It gets used in completely different contexts and means different things depending (as in Magic: the Gathering versus business school versus Clausewitz). In a past life, though, I was a classicist, so I’m going to go with the literal Greek meaning of “Stuff that a General Does”.
So, what does a General do? He coordinates the efforts of disparate units to achieve a higher-level unified goal. Where the lieutenant only sees his platoon, the general sees the entire battlefield. To be successful, he needs the strengths of all of his units, and he needs to put them together just right. Now, chances are, you’re probably not going to be running a huge gaming empire anytime soon (hey, if so, congratulations!) but since you are likely deciding the fate of your own gaming business independently, I felt like some thoughts on how to put together everything we’ve covered in this series might come in handy.
Growing
Probably where strategy will be most useful to the hobby entrepreneur is in growing thoughtfully. Lamentations of the Flame Princess has gone from being a label Jim Raggi put on his own adventures into a bona fide game publisher. Goodman Games has gone from a few adventures with an old school feel for official D&D to a complete game line with boxed campaign settings and rabidly enthusiastic fans. These people and others have only been able to do what they’ve done by making sure all the elements we’ve discussed previously worked together, whether they thought of it in the terms we’ve discussed or not.
Being Thoughtful About Where You Fit In
So, as we’ve talked about before, this is a niche market (and if you’re talking OSR, a niche of a niche), so it’s extremely important to think about where you fit in. Your success will be limited if you are hard to distinguish, if you bring nothing new to the table, or if you aren’t fulfilling some unmet need in the hobby space. Now, I want to re-emphasize that I’m talking from a business standpoint here.  If making stuff really similar to what other people put out makes you happy, and that’s all you want out of it, go nuts, my friend! But if you want other people to pay you for it, you need to think about what your strengths are, and how you can apply them towards underserved areas of the hobby.
Moving from “Hobby Business” to “Business in Hobbies”
These strategic concerns become more important the bigger emphasis you put on the “business” side of things. If I put out my super-vanilla megadungeon with an uninspiring format and completely derivative rules, maybe my friends will buy a copy, but it isn’t likely to make me commercially successful, no matter how carefully I price or track my sales or negotiate my art deals. Which might be fine if all I really want is a nice-looking product and a few dollars for my trouble. But if I want to make enough money that my hobby is self-funding, or to supplement my day job, or even for it to become my day job, I’ll need to think about things a little more rigorously.
Strategy Diamond
This brings us to the Strategy Diamond. This is just a model, not a required way of doing things (business school professors loves them some models). You can use it to assess the effectiveness of your strategy, or to help you in your thinking when coming up with a new strategy. Here are the elements and an illustration:
Arenas
This is effectively “What business am I in?”  This is where you can really hone in on where your business fits into the gaming hobby – do you write adventures? Sell game rules/supplements? Make maps? Create art for others? Provide tools to other people to make content? You want to get a clear idea of what you do and for whom here.
Vehicles
This one is a little less relevant in the one-man shop approach, as it usually involves whether you’re going to internally develop capabilities or acquire other companies or the like. But basically it’s about what business structure you’re going to use to do what you said you’d do in the arenas section. On an individual scale, this might be questions like:  Do you want to go it totally alone? Have a full partner or two? Buy contributors’ work or profit share? Find a publisher or self-publish? Fulfill your own orders?
Differentiation
Given the arena(s) you’re competing in, how will you do better than other people? Higher production value? Lower price? More imaginative content? Notorious online presence? Whatever you choose to do, you want to do it somehow differently from everyone else so that people have a reason to give you business over others doing more or less the same thing. Look back to the marketing section for more on differentiation.
Staging
This is how fast you act and in what order. Do you start writing a blog for free for a few months, then put out some pay what you want .pdfs, then start publishing physical books? Or do you work quietly on a magnum opus behind the scenes and release it into the wild with a big splash? There’s a variety of right answers, but you want to be thoughtful about it and not just do stuff whenever and in whatever order.
Economic Logic
After you’ve defined those four areas, if you’ve made good choices, then a certain apparent logic should just “fall out” of the combination that speaks to why your plan makes sense and will make money. If there is no economic logic behind your combination (“I’m going to compete in the heavy metal scene by hiring a mediocre Beatles cover band, and we’ll book a show just as soon as I can figure out where heavy metal bands play”) then it is a bad strategy. At least it’s a bad business strategy. It might be a good art or community strategy, depending, but it won’t make you money.

Tying it All Together
Earlier I mentioned the fact that strategy is all about putting together the different pieces you’ve learned, and I wanted to take a moment here at the end to explicitly do that, more so than the strategy diamond above.
All of These Things Fit Together
So, of the major topics we’ve covered (cash accounting, marketing and pricing, and negotiations) everything informs everything else. Strategy is the art of making sure those interdependencies reinforce and strengthen each other rather than undermine and weaken each other. Carefully tracking your sales information allows you to make better economic decisions about your pricing, your success at building a brand makes negotiations easier, and negotiating well can get you top talent that lets you charge higher prices, and so forth.
An Extended Example of Interdependence
So, you’ve decided that you’re going to publish a campaign setting compatible with any OSR rules set. That’s your arena.
You’re going to do the writing on your own, hire a friend at a discount to do layout, and hire one freelance artist to give the whole thing a unified look. That’s your vehicle.
With professional layout and art, and the fact that you’re familiar with a cultural tradition rarely seen in gaming materials, or at least not done justice, you’re confident you’ll have a stand-out product with really high production values. There’s your differentiation.
As for staging, you’re going to develop the setting piece by piece on your blog over the course of a year. Since you’ve already got an outline, you’re commissioning the art now to make sure there are no delays there. Over the year you’ll be engaging in Google+ conversations and making connections in the community. Once the year is up and the material is written and art is in, you’ll do a kickstarter with only layout left to do, so you can have the money to professionally publish. There’s your staging.
So, with the outlines of your strategy figured out, you can start thinking about how everything we’ve gone over interacts. You’re going to want to keep track of the money you’re spending on art since you’ve decided to get it before bringing in any money, and you’re going to want to think about how many copies of your setting you’ll likely sell when you think about price and what art and layout costs you can cover. You’ll be able to use that information to set contribution levels in the kickstarter and retail prices after.
But while you’re setting prices, you also want to think about their interaction with your brand. You’ve chosen to spend this money on high production value, and you want your setting to come off as a professional product, so bargain basement pricing might work against that. Since you’re getting the artwork before the content is finished with lots of lead time, you’re taking a risk. You’ll want to mitigate that risk by taking the time to negotiate with a few different artists to see which one can work on your schedule at a price you can accept, but still does work that matches the professional image you’re shooting for. In order to convince the artists that you’re serious, and to start building your brand in public, you’ll want to make sure your blog is pretty sharp looking, and you’ll want the content you put up to be pretty close to polished, and in your interactions online, you’ll want to emphasize the unique viewpoint you can bring.
With all these elements working together (tracking your money, building a brand, negotiating good deals that form solid working relationships, and making thoughtful, strategic decisions about how to proceed) you’ve ended up with an economic logic that makes sense – by the time anything goes on sale, you’ll have a built in customer base, a kickstarter will help you better judge final interest, and you’ll be able to make money by charging a reasonably high price for your top quality work. People will be interested in buying it because you’ve picked an underserved area and made something different that plays to your strengths.
Conclusion
Even though I’ve put strategy last, so that you can see how the other pieces fit into it, it’s really something that you should be thinking about from the get go. Ideally, any major business related decisions you make should fit into a coherent strategic picture that produces a compelling economic logic. “Strategy” in business is less about outfoxing your competitors (though in big industries that can sometimes be the case) and more about maintaining a clear vision of what you do that is worth money to your customers, and responding to a changing environment by being flexible in order to keep it that way.
Finally, as I stressed at the beginning, this is ultimately a hobby that we participate in because we love it. If following any of this advice seems cold, or calculating, or in any way sucks the joy out of something you love, then forget that noise. Apply this stuff somewhere else (like your day job) where it won’t have that effect. I personally don’t feel like there’s anything inherently wrong with this business stuff, or combining it with the silly elfgames I love, but you may feel differently, and that’s cool. If you have made it this far, though, I hope that you feel better equipped to turn your gaming content into products and more comfortable letting people compensate you for your cool stuff.

Monday, November 3, 2014

How to Business Part III: Negotiations

An Example of a Strong Opening Position
A lot of people tend to view negotiations as something antagonistic, a matter of “winning” or getting one over your opponent. Sometimes these attitudes can be helpful, but much more often, a mutually beneficial deal is the very worst you should be able to get out of a negotiation, and if you’re willing to be flexible and creative,  all parties might actually end up better off than anyone expected.
Terminology
Leverage – Anything that strengthens your negotiating position or weakens undesirable parts of your counterpart’s position
Best Alternative – The next best option if you do not come to an agreement in a negotiation
Walk Away (Reservation) Point – The very least favorable terms you are willing to accept
Goal – The terms you hope to achieve through negotiation
Distributive vs Integrative Negotiating
Okay, I’ve got some fancy terminology to drop on you, but I thought it was a bit technical to put in the key terminology section: Distributive Negotiation and Integrative Negotiation.
First off, Distributive Negotiation is stereotypical haggling, slicing up the pie, trying-to-get-the-most-for-yourself negotiation that you’ve seen in TV shows and maybe used at the car dealership. It’s not bad, and most negotiations are at least partially distributive. The name comes from the fact that there’s some amount of value (usually expressed in dollars) on the table, and you are negotiating how to distribute it (more for you is usually better).
Integrative Negotiation on the other hand, is about trying to find solutions that create more value than you started with. You’re making the pie bigger. Often there are opportunities for this where the parties involved can make something happen that will benefit all of them more than any one of them could do by themselves. I’m a big fan of recommending you almost always start with an integrative approach to make sure all options for helping everyone involved out have been found, and only then worrying about how to divvy them up.
Factors to Consider in Negotiations
Your approach to any given negotiation is going to be colored by a number of factors, and you should consider them before actually starting the negotiation.
Value of this Deal
Obviously, you need to consider how much this particular deal is worth to you. If it’s worth a lot, you should prepare more and consider if it is worth relatively as much to your counterpart. What might be the chance of your life could be routine business to the other guy. Having some idea of how important this deal is to you and to any other parties is one of the most important steps in adequate preparation.
Relationships
Is this deal a one-time thing with a stranger, or is it an ongoing situation with a close friend? You’ll probably prepare and act differently in those situations (as well you should!). Negotiations can be a great way to build relationships, but they can also sour them. If you have, or want to have, an ongoing relationship with your counterparts, it helps to be more conciliatory and to offer more concessions. If you’re never going to see the other person again , and you know that they’re trying to take you for as much as they can (see car salesmen referenced above) then maybe you adopt a harder stance and fight tooth and nail for every concession you can drag out of them.
Reputation
Particular fields of business tend to be small worlds, and that is especially so of the gaming world (especially especially so of the professional gaming world). So, the way you treat people in deals is gonna get around. Maybe you got a book full of top notch artwork for what you knew to be a steal out of a newcomer, but when that gal finds out and starts telling everyone how you hosed her, good luck ever hiring a quality artist again. Likewise, word will get around in a good way if you occasionally make some concessions that are fair and reasonable, but maybe not the best for your bottom line in the short term – “hey, this guy cut me a sweet deal so I could focus on his project more, you should work for him.”
Personal Style
Different people are better at different kinds of negotiations by their nature. Some folks thrive on combative, head-to-head, high stakes distributive negotiations. That stuff gives other folks hives just to think about. It’s good to know different techniques and tactics, and it’s good to develop skills in areas where you’re less comfortable, but for the most part, you’re going to be best in negotiations that play to your style. If you have a really important negotiation that doesn’t fit your style (maybe a publisher is welching on paying you for delivered artwork, but you don’t like confrontation) then do your prep work and have a friend help you. I bet everyone reading this has at least one conciliatory “let’s all work together” friend and at least one “hard-charging, loves confrontation” friend.
Medium of Communication
How is this negotiation going to be conducted? In person? Over the phone? Via email? All of these have strengths and weaknesses, but generally, face to face is preferred for all the same reasons gaming in person beats the hell out of a hangouts game. Email or other asynchronous methods allow you to take the time not to get caught up in emotions and to do spot research on specific offers or terms, but it also makes the deal slower and makes it almost impossible to pick up on possibly important cues from body language or tone. With the highly distributed nature of hobby gaming, you’re probably going to have to conduct many of your negotiations remotely, but for any negotiations that are seriously important, consider if it’s feasible to do them in person.
What to Do
Prepare
Preparing before a negotiation is the single most important thing you can do to maximize your chances of success. Many people assume either that there’s too much to prepare for, so it’s best to just wing it, or that they understand their own position well enough that there’s no need to prepare. Preparation isn’t about clarifying your own position (though you should do some of that too) – it’s primarily about learning as much as you can about your counterpart’s position. Ideally, you want to walk into a negotiation knowing exactly what your counterpart wants. You want to understand their position better than they do, so you can figure out how your position can fit with theirs in a way that gets you (or hopefully you both) what you want.
The sorts of things to research are basic facts on your counterpart, industry averages for the type of deal you’re discussing, recent activity around the sort of deal you’re discussing, that kind of thing. Anything you’ll be asking for or making an offer based on? Research that really well, so that you have facts to back up your moves.
Your Opening Move
There are various pros and cons to being the first person to put something on the table, but a safe place to begin with for just about any negotiation is to get clarification on what you’re there to discuss and what everyone hopes to get out of it. So, you could start a negotiation with a freelance artist with something like “Thanks for meeting me today, I really like your stuff. I’d like to talk to you about how much art you can do for my book and what your rates will be. Is there anything else you want to make sure we cover?”
That gives them an opportunity to add anything they especially care about to the agenda, and might give you more information. If the artist responds “Yeah, that sounds good, but I also want to make sure we hammer out when payment will be made for work” then that tells you that the timing of payment is also important, not just the amount.
Now, if you find yourself needing to lay down a number (or a bundle of terms or whatever), a good rule of thumb is this: start as optimistic as you can possibly justify. It doesn’t have to be a rock solid justification, just a good one. If you were in a job interview, and they ask you what you expect salary-wise, you might go “Well, based on my research, people in this field make $80,000 a year plus bonus, so I think that would be fair”. What’s that based off of? Maybe that’s the very top of the starting range of salary for people in that position, or maybe one guy put that amount on Glassdoor.com. The reasons other people got those values may or may not apply to you, but you have a fact-based justification as a starting place to determine whether they do or not, and you don’t cede possible bargaining space before you even start.
Shoot for your Goal
While you’re engaged in the negotiation, you want to always focus on your goal. While doing your research before beginning the negotiation, you should come up with a somewhat audacious “best case” result, and start thinking of that as your target. Research has shown that negotiators with ambitious goals do better than negotiators with moderate or “reasonable” goals. Obviously you don’t want to come up with something totally ridiculous, nor should you get too attached to your goal if you need to be flexible to get to a mutually agreeable deal, but having a well-researched and optimistic goal will give you more confidence and start you from a better position than coming in with a worst-case mindset.
But Don’t Forget your Walkaway Point
Speaking of which, your “worst case” is your walkaway point, or as some formal negotiations books will call it, your reservation point. This is the position (be it a dollar value, a bundle of benefits, or whatever) that is the absolute worst you will accept - crucially, though, you will still accept it. So, how do you figure out your walkaway point? You look at your best alternative (some fancy negotiations books go so far as to call it a “Best Alternative To a Negotiated Agreement” or BATNA).
Your best alternative is the thing that you fall back on if you can’t come to a mutually agreeable deal with your counterpart in the current negotiation. The simplest example is this: you have a job that is just fine, but someone offers you a new job. Without any other job hunting, your best alternative is probably your current job. If some element of negotiation with the new job offer doesn’t go well - it turns out the people at the new place suck, or the pay is less, or the chance for advancement isn’t what you want, for example - then it’s in your best interest to sit tight at your current job.
It’s super important to keep your walkaway point handy because people get caught up in “deal fever”.  My professor even recommended that you write it down, put it in your pocket, and check it before you finalize a deal. After all, haggling and negotiating can be exciting! And after you put all this time and work into the negotiation, you totally want something to happen, right? Remember that sunk cost fallacy, though? So, if you’ve been wrangling over something and you feel relieved that you and your counterparts finally seem to see eye to eye, before you shake hands or sign anything, pull out that walkaway point that you made in the cold light of rationality and make sure the deal on the table beats it. If not, then you walk away.
Some Specific Tools and Tactics
Leverage
Leverage is a topic that most people have at least some grasp of, but the key piece that many people forget is that it is anything that strengthens your position as perceived by your counterpart. Say you’re going to your boss asking for a raise. You know that you have a job offer for more money at a new company, but you like the people here and would rather stay if you can. If you never tell your boss that you have an offer for more money, you have no leverage from that job offer. Say you do tell her, but she was planning to fire you anyway – no leverage there either. So while you’re best alternative is often your basis for leverage, your counterpart has to know about it for it to work as leverage, and deciding what to share with your counterpart brings us to our next topic of openness.
Openness
Even though I’m a pretty open guy, and I’m all about sharing information and coming to mutually beneficial deals and all that integrative stuff, I still have problems with not defaulting to “cagey” in negotiations. There’s this natural tendency to think that your secret information is power, and that anything you reveal to your counterpart will give them an advantage over you. Honestly, though, most of the time the opposite is true. Usually, the more you tell your counterpart, the more opportunity he or she will have to find opportunities for mutual benefit and compromise. The one exception to this general rule of openness is your walkaway point – the only time you should reveal that is when you are literally ready to walk away unless your counterpart will budge off of something seemingly intractable.  The reason you don’t want to reveal your walkaway point unless you have to is that as soon as your counterpart knows the bare minimum you’re willing to accept, he or she has very little reason to offer you anything more favorable than that.
Ask
Much of the time in life we just accept how things are “supposed to go” and take what is presented to us. Sometimes, though, if you just ask for more, you’d be surprised what you can get. Now, of course, don’t be rude, don’t be ridiculous, but just ask. The worst they can say is no, or “maybe, but what can you give me in return?”. For example, when I go to Chipotle, if I’m not happy with the amount of steak they scoop into my bowl, I go “could I get a little more steak, please?” and sometimes they just give it to me, and other times they go “it’ll be extra for double meat, is that okay?” Either way, I’m no worse off than I was with my stingy scoop of meat. Obviously, this can apply to bigger stuff too, like asking for a higher salary, a bonus, royalties from a final product, or whatever. Practice doing it with the little stuff (like Chipotle) and you’ll feel more comfortable doing it with the big stuff (like your salary).
Anchoring
Anchoring is a technique that all of us have experienced, but most of us don’t ever bother to put a name to. It is quite simply the practice of throwing out a point (usually a dollar value) as the “starting point” from which all other negotiating will happen. The exaggerated haggling of many a dungeon-town merchant is an example: “How much for the rope?” “This is amazing rope – 50 gold” “Bah, it’s rat chewed and made of who knows what, I’ll give you 5 coppers for it”. Both people in that negotiation are trying to establish the bounds within which fine tuning will happen.
A more subtle example is in real estate. The list price of a house serves to anchor all offers that will be made on it. Sellers and buyers alike will evaluate how well they did by how much above or below asking price they got. Real estate agents will estimate prices within a range above or below the list price (studies confirm this – groups of realtors asked to provide a “fair price” for a house showed way less variation in values when given the list price than those who didn’t have one).
But be careful! You could fall into a trap here in your zeal to anchor the debate. Say you throw out a number and it secretly delights your counterpart because you grossly under or overvalued something. They’re not going to correct you. Heck, they may still haggle with you to get an even better deal, and leave you feeling pretty proud of your acumen. Research is the best antidote to this - know what the reasonable range is for your negotiation based on the most comparable deals you can find. If someone tries to aggressively anchor you, go back to the stereotypical hawker and counter anchor just as aggressively.
Log-rolling
Log-rolling is a technique you can use in negotiations that involve multiple issues where you trade concessions quid pro quo. For example: “Okay, sure, I can work weekends, but I’m going to need 5 more vacation days a year” or whatever. Ideally, you want to find the issues that don’t matter that much to you but matter a lot to your counterpart, and trade those for the issues that do matter a lot to you. Say you’re an artist, and you do illustrations for a living. Your counterpart is trying to publish a book on a short schedule and has money to burn to make it happen. Since getting illustrations done on a short schedule is not that big a deal to you, you could offer a shorter deadline in exchange for something that is important to you, like more money, a headline spot as the featured artist, or whatever else is valuable to you and not a big deal for your counterpart to give you.
Packages
When dealing with multiple issue negotiations, it is almost always better to present complete packages than it is to deal with issues one by one. The reason is that each party may place different values on each issue, and if you nail one down, you lose flexibility in reaching accord elsewhere.
Let’s take the example from above, where you’re an illustrator working with an author. The author places a high priority on timeliness (he’s promised dates to his adoring fans), but not that high a priority on price (it’s a vanity project and he’s independently wealthy). You place a low priority on timeliness (you’ll be painting for hours every night regardless, it’s just a matter of what topic), and a high priority on pay (this is your job).
If you and your counterpart sat down and worked out the timeline first, then pay separately, you both would end up satisfied but not totally happy with the agreement.  But if you instead discuss both issues as a package and say something like “I can give you all the illustrations you need for cheap in a long time, or I can get them to you fast for more money”, there’s a much better chance you’ll both maximize the benefits of the overall deal to each of you. The author can go “I’m happy to pay for faster pictures!” and both of you end up happier than if you had haggled down price and then based how fast you were willing to do it based on that.
There’s a few cases where “point by point” can be useful, but that’s really only in very large, complex deals that are very transactional in nature (not building a relationship for later deals) where it becomes more important to make sure each item is adequately addressed than it is to find opportunities for varying preferences to complement one another.
Playing Hardball
Honestly this sections is more here to help you identify other people trying to use these techniques against you. It is almost never a good idea to use hardass tactics in negotiations, and pretty much the only time is when your counterpart is already dead set on being a pain in the ass. That being said, lots of people equate playing hardball with being good at negotiating, so you need to be able to recognize the techniques, what’s wrong with them, and know how to counter them.
Good Cop, Bad Cop
Pretty much anyone who’s seen a police procedural knows this one. It comes up in group negotations, and one party acts like a friend that understands you, and another acts like the bad guy that questions everything you say and can’t budge on their positions. This tactic is usually pretty transparent, and honestly, the best counter to it is to just call it out, like so: “Really? Are you guys pulling ‘good cop, bad cop’ on me? I was hoping we could all negotiate in good faith about our interests, here.”
A more subtle variation is for the person negotiating with you to say they have to check any real concessions with their superior, and to talk about how much they are on your side and want to make things work. If you find your counterpart constantly seeking approval for any and all concessions, you’re well within your rights to ask to resume negotiations when they clarify their side’s requirements, or to negotiate with someone who has the power to make decisions directly.
“Tactical Misinformation”
More commonly known as “lying”. Different people have different views on this in the context of negotiations – some see minor fibs as exactly the same as bluffing in poker, an expected part of the “game”. Others see it as craven deception of the worst sort. You’re going to have to figure out where you come down on this one, but I’d caution against it.
Without even going into the damage getting caught in a lie can cause to your relationships and reputation, there’s the practical side to consider. You might accidentally miss out on an opportunity the truth would have got you. Did you tell that recruiter you won’t be available for months because you thought it would help to get a better offer? Well, maybe if you had been honest and told her that you’re available within 2 weeks, you could have started your dream job, but she’s not looking for someone who can only start months later. I really do think honesty is usually the best policy.
That being said, there are definitely times where selective honesty is more useful than full disclosure. Maybe you stress that you’ve done art for hire before but you don’t mention that it was for a friend for crap rates unless they really press you. Or maybe you tell a potential employer that you could accept today if they make a little better offer, and you don’t mention that you have no other pending offers, and the only reason you wouldn’t accept today is because you want to see how much better you can do.  In the long run it pays to be ethical, but it also pays not to be completely naïve.

Friday, October 24, 2014

How to Business Aside: Call for Cases


I'd like to take a pause from the "How to Business" series to make a request of you, the reader. See, in business school, the primary vehicle of learning is the "case". A case is a situation drawn from real life, selected because it is illustrative of certain business concepts, and then written up by fancy professors (usually from Harvard) to highlight the most teachable stuff and downplay the rest.

Now, I'm far from being able to write a real case, but I think we can all still benefit from some of the methodology. The idea is that theory matters very little in business, and results matter a ton. Also, business issues are complex and rely on the entire context, not just on one or two easily separated elements. So, cases are supposed to be exercise for your business acumen muscles - a way to practice being a manager making crucial decisions with limited information.

Honestly, they're pretty fun.  It's a bit like a business roleplaying scenario, except with a written "Adventure" and no referee. In school, the usual format is to write up or otherwise prepare your response to the case before a guided discussion in class.

So I am here requesting cases from y'all. Have a business issue you want examined? Let me know. Have a specific roleplaying game business episode you want dissected for great learning? Even better. Non-roleplaying related stuff is of course welcome, but given the nature of the blog, I'd prefer gaming-related stuff.

We'll do some back and forth discussion to figure out the best way to present it, and then after wrapping up the series, I'll post the results here.

Tuesday, October 14, 2014

How to Business Part II: Marketing & Pricing

Don't do marketing like these guys

Marketing and pricing are a fascinating area of business to me. They live at the corner of psychology and hard-nosed economics. As I hope to show you in this post, “marketing” is not just a fancy word for “advertising”, and it is not a dirty word. I find marketing really exciting, and I’ve probably already written too much in this post, but as always, I will be more than happy to answer questions or expand on anything people want to hear about.
So, with all that build up, what is marketing? Let’s take a step sideways and start by defining the core purpose of all for-profit businesses: creating value for a customer and capturing a fair portion of that value. Marketing is not about getting something for nothing or ripping people off or tricking them. It’s not about polishing a turd or portraying a product as something it’s not. What marketing is about is making sure that your business gets some of that value created in the form of customer dollars.
To explain what I mean by this potentially vague word value, allow me a brief digression on the value chain. Most things that you buy go through multiple stages of production and/or distribution before they get to you. Take a coke, for example. Somebody made the can. Somebody filled that can with just the right combination of sugar, water, and secret ingredients. Somebody moved it to a store. Somebody held it in a store and then finally took your money for it. Then you drank it (p’kssh, aahhhh). You can take this all the way back to the somebodies who dug the aluminum out of the ground for the can or the farmers who grew the corn used in the syrup, and so on. But all of these people contributed to you getting the value you got out of the coke, and all of them deserve a piece of that value. Marketing is what each link in the chain does to negotiate how much of that created value they get to keep.
Marketing often gets a bad rap as “making something out of nothing” or for hyping things that don’t deserve hype, and honestly, a whole hell of a lot of that goes on. But we’re not gonna do that. We’re better than that. Because we make things that we love, and so we know we’re starting with something worthwhile.
So let’s talk about some elements of marketing and how you can apply them to selling your game stuff. As with accounting, there’s some super useful terminology that describes the core concepts of marketing, and it’s worth taking some time to define and elaborate on them.

Terminology

Once again, we will start by defining some terms with potentially divergent natural language and business terminology meanings.
Segmentation – The act of defining your customers and what they value in order to more effectively differentiate.
Differentiation – The act of making your product distinct from similar products in a way that adds value and communicating those differences to customers

Customer – An individual who values what your product offers
Product – Any good or service provided in exchange for compensation.
Brand – The value possessed by a product due to the known qualities of its maker as distinct from the value derived from its intrinsic qualities.
Value – the entire benefit a customer gains from the purchase or use of a product.

Segmentation & Differentiation

Segmentation
Segmentation is the act of defining your customer as accurately and narrowly as possible. It is super important to figure out who your customers really are, and which features distinguish them. If you don’t know who you are selling your stuff to or what they want, you can’t begin to figure out how your product meets their needs and desires or how to let them know that it does. “Game players” probably isn’t super helpful as a customer segment. “Roleplaying gamers” might be a little better, but “Old School RPG gamers” is even better, because it is more specific. Even from there you could probably get more specific if you tried, like “DCCRPG fans” versus “early edition traditionalists” or the like.
Traditionally, marketers have spent a lot of time collecting easily gathered information (like basic demographic information) and hunting for characteristics that correlate with interest in their product. So, marketers might look at the survey data they’ve gathered and see that most of the people that like their product are suburban moms. Armed with this correlation (not causation, mind you) they decide to come up with an approach that appeals to what they think suburban moms want out of their product.
There’s a lot of room for error in that process, obviously, so fortunately, these days, we are lucky enough to be living in the computer age, and more information than you can possibly use is easily available. You can have customers create profiles so that you can track what purchases they do (and don’t) get, you can analyze what websites send you traffic that actually results in purchases versus window shopping, and collect other information that gets much closer to your customer’s actual buying behavior than what neighborhood they live in or how old they are.
Even better for us gamer-businesspeople is the fact that we are already embedded in a community whose wants and needs we deeply understand. Big companies try to create communities like we’re fortunate to have organically, and if you don’t abuse it, it is enormously beneficial. You have the trust to actually show people unfinished stuff, get feedback, and then later still be able to sell it for money. So you’ve got a big leg up on knowing your customer compared to most companies in most industries.
Differentiation
At its most basic, differentiation is the process of establishing how your product is different from potential substitutes. The opposite of a differentiated product is a commodity: a product where the buyer’s only distinction between competitors is price. For most people, gasoline is  pretty close to a commodity, you buy it where it’s cheapest or most convenient, not because you love how much better your car runs with Exxon gas instead of Valero. As a business you don’t want to be a commodity, because as we’ll see below, competing on price is a mug’s game.
If segmentation is the audience focused half of marketing, differentiation is the product focused half.  Of course, their relationship is a bit like the Yin and the Yang – each dynamically affects and depends upon the other. Having a differentiated product can drive segmentation decisions. For example, you have written an adventure for an old school game that takes especial advantage of that particular game’s rules, so you figure you will spend most of your time letting people who love that game know about your adventure and how it’s great for that game, and less time trying to sell it to players of other, compatible games. Alternatively, if you have a well-segmented customer group, you might choose specific ways to differentiate your product from others that cater to that segment. James Raggi knows his audience well: people who enjoy old school adventures with weird and/or shocking elements (segmentation). But he doesn’t stop there, he makes sure the books he publishes have top notch weird and shocking artwork and solid production value, something most old school adventure writers can’t or won’t match (differentiation).

Brand

Brand is one of the more nebulous overall concepts that makes up marketing, but it is a very important one. It’s also a concept that gets a lot of negativity thrown its way (sometimes for good reason, sure) so let’s spend some time talking about how it can be useful to customers as well as merchants.
What the Hell does “Brand” Even Mean, Anyway?
The definition given for brand in the terminology section is unfortunately pretty vague. Brand is a hard thing to pin down, but basically, it comes down to the value a customer gets out of a product because it was made by a particular company or has a particular name on it. This sounds suspiciously superficial and insipid, but it doesn’t have to be.
Take D&D, a popular retroclone, and your own house rules as an example in contrasts for a moment. Fifth Edition D&D has some potential value that, say, Swords & Wizardry doesn’t, and both have certain value than your house rules don’t. With D&D, you can walk into any one of thousands of organized play events and find a game that to play, because it’s called D&D and made by Wizards of the Coast. Swords & Wizardry has value to people who want to be able to publish adventures that are compatible with a broad variety of old school games without an onerous licensing process, because it’s called Swords & Wizardry and Matt Finch made it. Your house rules have value to you because they are exactly what you want for your table, because they’re called whatever you want and you made them.
These are things that really are useful and valuable to some customers, and those customers will pay for that value in the form of being willing to pay higher prices for something with the right brand versus an identical offering without it. What would you pay for the current fifth edition Players Handbook? What would you pay for the entire text devoid of art, professional layout, and a legal copyright?
Why Are We Suspicious of It?
It’s pretty natural of us to be suspicious of people’s willingness to pay more for something only because of the name on the tin. What makes Advil worth more money than Walgreens ibuprofen? In a tightly regulated market where safety and packaging are guaranteed more by the government than by a medicine company’s desire to maintain a premium brand, I’d argue “not much.” Is that going to stop Pfizer from doing everything it can to get people to keep paying more for Advil than they do for generic ibuprofen? Of course not.  Cases like this where a brand’s premium over generics is maintained by ignorance or shaky justifications make many people suspicious of the whole concept of brands at all. To avoid having this suspicion leveled at your brand, my recommendation is simple: build your brand on the genuine qualities of you and your products, then stick to those qualities.
Why is It Useful to Sellers and Customers?
When done properly, brand becomes shorthand for trust. If you see a can of Coke, you probably have very little doubt what it will taste like if you buy it and crack it open. You trust it not to make you sick and to most likely taste better than the store brand cola next to it.
In Old School gaming circles, the Lamentations of the Flame Princess brand has come to be synonymous with weird/horror elements, a real-world setting, and high production quality. You trust that if you click “checkout”, the physical books mailed to you all the way from Finland will be among the best in physical quality in all of gaming, and you probably trust that the content will be pretty weird.
This trust helps out both customers and sellers. Customers don’t have to spend as much time carefully evaluating all of their options. Imagine if every old school adventure had nothing but a title and a brief description. Every time you ordered one, it’d be a crapshoot if it would fulfill the promise you found in the title. And that’s to say nothing of your search time. You’d have to go through the RPGNow page, adventure by adventure, reading titles, maybe descriptions, and it’d take forever to make an informed decision.
On the other hand, if you can go “you know what, I may not always want to play LotFP stuff, but it’s always worth a read” then you can save yourself significant time and effort by just signing up for the LotFP newsletter. For a non-gaming example, I know that if I need some rugged outdoors clothing in a style and quality I appreciate, the Filson website is a good place to start.
So, the benefits to you the merchant include trust and some other intangible benefits, but also include some more concrete ones as well. If your customers know that you put out quality work that they will enjoy, that is valuable to them, and they will pay you more money for that added value. Think about what you’re willing to pay, sight unseen, for an adventure or game from your favorite designer versus what you’re willing to pay for a comparable amount of content from someone you’ve never heard of. That difference is the monetary value of brand.
The Power of Specificity
Brands are most effective when they are specific. Even though you may be aware that Sprite is owned by the Coca Cola Company, it’s not sold as “Coke’s Sprite” for a very good reason. Coke means something much more specific, and they have expanded it very carefully. New Coke, which was a huge mess, was one of the Coca Cola Company’s few branding missteps because they lost sight of customers’ trust in the Coca Cola name and brand.
Attempts to be all things to all people almost always end badly.  Think about how universally reviled games are that succumb to printing ream after ream of splatbooks. Even if there’s some content that’s good or fun in one or two of those books, the sheer volume, the attempt to be everything takes away from the concentrated essence of the more limited original game or campaign setting.
Specificity, on the other hand, creates a strong association for customers that can have a real financial impact. Take Dyson Logos – he makes some great adventures, and his magic rules and classes in Theorems & Thaumaturgy have a bunch of neat stuff, but his maps literally pay his rent. He’s the map guy. And it works for him.
So, think about what you’re best at, and what your stuff accomplishes better than other people’s stuff. Then really play to those strengths. There are two main benefits to this approach: first, it keeps you focused on making what you love and feel good about. Second, it strengthens your brand as people come to associate good, consistent stuff with you. Now, if you have broad interests and want to pursue them, by all means, go nuts. But try to avoid the temptation to make something that you think will be popular or appeal to the broadest group of people only because there are a lot of them.
The Majority Fallacy
Which brings us rather neatly to the majority fallacy. This is not a formal logical fallacy like the sunk cost fallacy we talked about last time, but is instead merely a pretty reliable heuristic. The majority fallacy is the belief that the single largest market segment is the most desirable and most lucrative to pursue. Seems pretty straightforward, right? Want to make a lot of money selling something? Then sell something that everyone buys!
There’s two problems here, though. The first has to do with competition. Because the market segment is so big and so potentially lucrative, it attracts a lot of competition. Competition drives down profitability as rivals lower prices to get a bigger share of the market. The second problem is that the more broadly you define a market segment, the less you can do to target specific value for your customers through your product and brand. In other words, the more generic a market segment, the more generic the product that appeals to it.
What do I mean by that second part? It is much easier to create a product that adequately satisfies the needs and desires of “old school rule loving, sword and sorcery reading roleplaying gamers” than it is to create a product that adequately satisfies the needs and desires of “all people who want entertainment”. It is often more profitable to be the only serious player in a small segment than it is to be one of many in a big segment. The entire RPG gaming scene is already pretty small and specific, so this isn’t too hard, but if you find yourself thinking that you’ve written the perfect game for all the players of OD&D, Pathfinder, and Marvel Heroic Roleplaying, maybe pause and reflect before putting it on sale.

The Four P’s – What Marketers Worry About

Having laid all this groundwork about segmentation, differentiation, and brand, we can start talking about some of the nuts and bolts of marketing. The Four P’s is a useful framework for making sure you’re thinking about creating and capturing value holistically, rather than getting caught up on only one or two pieces of the puzzle.
Product
This one is pretty simple, and there’s a reason it’s first: if you get everything else right, you’re still gonna have a lot of trouble selling something that sucks. Less pessimistically, everything else is way easier if you have a great product. What your product is will inform your decisions about what approach you take to selling it, how you price it, and in what ways you promote it. In pretty much every way that matters, you’ll have a very different time selling ice cream at a summer football game than you will at an open air mid-winter hockey game. Your product dictates your approach to everything else.
Place
Place doesn’t just mean the physical (or digital) place you sell your product in, like “on RPGNow”. It’s everything that goes into getting your product to your customer. Print, e-book, or both? What kind of shipping? Fulfillment service or do it yourself? Direct sales or retail distribution? All that jazz.
For most RPG content creators, selling direct via low-fee services like RPGNow and Lulu makes the most sense. There’s value in selling via a marketplace with an established customer base – for most people it’s a fair trade to give RPGNow their cut per sale in order to sell your product in a way people trust, with automatic sales data tracking, and automatic order fulfillment. But these are all elements of how you get your product to your customers, and you can and should think about if they’re the right choices for you.
Price
This one is complicated and important enough that it gets its own section below, and was named in the post title. In case you don’t remember from the accounting section, price is what your customer pays for your product, and after your product itself, it’s the most important piece of the marketing equation.
Promotion
This is what most people think of when they think of “marketing” – it’s what you do to tell people why your product is great and how they can get it. Advertising, sales, encouraging word of mouth, pulling publicity stunts -  all of these things are examples of promotion. But so is writing a good blurb for the back of the book, figuring out what about your product will appeal to people and putting it into words, or making it easy for people that are looking for your stuff to find it through intelligent cataloging and search engine optimization.

Pricing

Methods of Pricing
So, the traditional method of pricing is what’s known as cost plus pricing. In cost plus pricing, you figure out how much your thing costs you to make, you figure out a “decent” profit margin, apply that on top, and bada-bing bada-boom, you’ve got a price. There’s not anything inherently wrong with this approach, but I prefer to look at cost plus pricing as the floor of what you should price your product. If you aren’t at least covering costs and making what you think is fair, you should either change price or sell something else.
Fortunately, there’s a method of pricing I like a lot better:  value in use pricing. This is a little harder to explain with stuff like games, so I’m going to go through a more concrete example, then apply it to less concrete stuff in the next section.
Let’s say you are considering whether to buy an inkjet printer or a laser printer for printing out your new zine. Given the rough, DIY aesthetic of your particular zine, you’re not concerned at all with picture quality, but because it’s meant to be inexpensive and accessible, you are pretty sensitive to keeping costs low.
So, you’ve narrowed down your choices to the InkMaster 5000 and the Lasertron 800. The InkMaster is cheaper off the shelf at $100, including ink cartridges, but the Lasertron has a cheaper refill cost. So let’s figure out what value in use price you might be willing to pay.  To start, we figure that in one year, you’re going to be a stellar zine maker and produce 12 zines. Each zine is 8 sheets of paper, front and back (folded into a tasteful digest, natch). So that’s 96 front and back pages per subscriber per year. Each InkMaster cartridge has a terribly small but very easy to divide ink capacity of 32 pages, and costs $40. The Lasertron can produce the definitely more reasonable 48 pages per toner refill. Toner refills cost $45.
At first blush, the InkMaster looks like a better deal – it’s cheaper to buy, and its refills are cheaper. But to get a full picture, we need to factor in frequency of refills.
For the InkMaster, in one year, you’re paying $100 + (3 x $40) = $220. If the Lasertron costs $130, it would be the same cost to you because you only have to refill twice ($130 +(2 x $45) = $220). That means that if the Lasertron costs you anything below $130 it’s a better deal than the InkMaster, even if the sticker price is higher than the InkMaster’s $100. The lower refill price is the in use value.
If you were the maker of the Lasertron 800, trying to sell it to aspiring zine producers, you’d want to  price it as close to $130 as you could, and then highlight that even in one year it’s a better deal than the InkMaster, and the longer you use it, the better a deal it is to the buyer.
So how does this apply to gaming products? You want to price your product based on what it will do for the customer, not on how much it costs you to make it or how it compares to similar physical objects. RPG makers have priced comparable to books for ages, but recently Wizards has figured out that their real competitors are video games. That’s why your 5E core books are priced about as much as an Xbox or Playstation game. It’s why most core rulebooks are higher priced than adventures, even if they’re of comparable length – you can potentially get more use out of the core books.
Margin
The whole goal of pricing is to maximize margin. You may be more familiar with it as profit margin, but for a variety of reasons, marketers prefer to just call it “margin”. There are two main ways you can calculate it: either as a percentage of cost or as a percentage of price (remember me saying this distinction was important back in accounting terminology?).
Here’s an example to show the difference:
Item
Cost
Price
Margin on Cost
Margin on Price
Whizzbanger
1.00
1.50
(1.50-1.00)/1.00 = 50%
(1.50-1.00)/1.50 = 33.33%
Same item, same actual profits ($.50) -  but different percentage “margins” depending on whether you’re talking about the amount tacked onto cost or the amount of the total price that is profit. Both have their uses, but for your own personal use, just pick the one that makes more sense to you and use it consistently in your pricing decisions. The distinction is most often important when it comes to negotiating things with distributors: there are all kinds of old, arcane terminologies and agreements that are probably at least as old as the Dutch East India Company and they are based on different sorts of margins. So if you are going to enter into any sort of deal with a distributor, store or partner, look at how they define margin and how it gets split.
However you calculate margin, your price is the main variable you can adjust to affect it. In a hobby business, it’s unlikely you’ll reach a scale where you get significant cost savings by becoming more popular, and your costs will tend to stabilize after you figure out what you’re doing. So that leaves price as the only variable for you to adjust. Small changes in price without a change in cost can really affect your margin, especially when you consider that most transactions (like fees paid to a vendor) come out of your total price without regard to your other  costs.
Let’s take a look an example of what I mean. You’ve written an adventure that you think is pretty good, and you want to price it somewhere between $10 and $15. Here’s a table showing what a difference each dollar in price makes per sale:
Price
$ 10.00
$ 11.00
$ 12.00
$ 13.00
$ 14.00
$ 15.00
Vendor Fee (3%)
$ 0.30
$ 0.33
$ 0.36
$ 0.39
$ 0.42
$ 0.45
Other Costs
$ 5.00
$ 5.00
$ 5.00
$ 5.00
$ 5.00
$ 5.00
Margin in Dollars
$ 4.70
$ 5.67
$ 6.64
$ 7.61
$ 8.58
$ 9.55
Margin on Price
47%
52%
55%
59%
61%
64%
Margin on Cost
89%
106%
124%
141%
158%
175%
As you can see, that “off the top” fee from the vendor makes a big difference, and with a constant cost of $5 per unit, a change of $1 in price makes a big difference to your bottom line.
[Terminological aside: Top Line means money coming in, your revenue. Bottom Line means money after all the costs are taken out, your profit.]
If you make a modest but reasonable sales target of 30 copies sold, here’s the difference it makes in how much money goes in your pocket:
Price
$ 10.00
$ 11.00
$ 12.00
$ 13.00
$ 14.00
$ 15.00
Sales
30
30
30
30
30
30
Revenue
$ 300.00
$ 330.00
$ 360.00
$  390.00
$  420.00
$  450.00
Costs
$ 159.00
$ 159.90
$ 160.80
$  161.70
$  162.60
$  163.50
Profits
$ 141.00
$ 170.10
$ 199.20
$  228.30
$  257.40
$  286.50
The key take away here is that your price is the determiner of how much profit you make. You want to set it as high as the customer is willing to pay and not a cent higher.
Fuzzy Side of Pricing
So, now that we’ve talked about some of the nuts and bolts of pricing, let’s get into the fuzzier side of it. I’m a liberal arts kinda guy at heart, so I find this aspect of pricing even more fascinating than the margin discussion above, but you need the crunchy side in order to understand the importance and impact of the decisions you make on the fuzzy side.
Value
As I touched on in my introduction to marketing, the core concept when it comes to creating and selling something is not so much cost or price, but rather value. Different individuals and entities value things differently. That difference in valuation is what makes commerce possible (my employer wants me to make stuff for them, I want money, and so I have a job), but it also makes it hard to get value in use pricing right.
Some value is reasonably easy to quantify– almost everybody agrees that gold is valuable, so you can sell something made of gold for at least the going market rate for the amount of gold in it. Quantifying other value is much harder – I certainly value taking a walk on a pleasant fall day, but if I had to pay for it as the only way to experience it, would I substitute something else enjoyable for it? If I would pay for it, how much?
The goal of pricing is to capture as much value as you create/contribute to a product, so it pays to think a lot about what your customers value in your product, and how much. Now, this “capture” business may sound harsh, but it’s not meant to be.
Let’s say you’re an artist, and you make some art for my book. People love the art, and I can sell my book for more money because it’s in there. Regardless of how I pay you, you have contributed value to the product: it’s better than it was because of what you did. So, I think it’s fair for you to get paid as much more than some other artist would as you added more value than they would have.  
To put in terms of an example: if the average customer would pay $15.00 without your art, and $20.00 with it, then I am doing you a disservice if I don’t price it higher and pay you better for your contribution. The value to the customer from the art exists either way (it doesn’t get better or worse depending on how we price it). So our goal, as the people getting it to the customer, is to set the price as close as possible to the customer’s value of the end product.
Remember the value chain from up top? Every step in that chain should be capturing as much of the value that they contributed as they can, because outside of shitty coercive relationships, that process will lead to everybody getting a fair deal for their contribution, with the end result of the end user paying exactly what the product is worth to him or her. If it’s priced more than it’s worth to them, they won’t buy it. If it’s priced less, that means someone in the value chain didn’t get what they deserved for their contribution to putting it into the end user’s hands.
Psychological Effect of Price
The other “fuzzy” element in pricing is the psychological effects of price on people’s perception of products. People have a really funny relationship to pricing. Price often acts as a convenient heuristic for quality, and it strongly affects our perceptions of something’s value even when we’re consciously trying not to let it. No matter how sophisticated you are about price and pricing in a given category of product, it’s really really hard not to let something’s stated price affect your perception of its value.
Think about the last time you bought a product you’re not that familiar with as a gift, like wine. I am willing to bet cash dollars that you determined a price range based on what you thought was appropriate for the person and occasion, then used some secondary factor to pick from within that price range (employee recommendation? Coolest label? Whatever you do know about wine?).
It works the other way too. Most people assume low priced stuff is cheap. There’s an element (whether conscious or subconscious) that something must not be that great if it’s significantly less expensive than others of its kind. For this, I direct your attention to store brand groceries. Did you know that most of those come from the exact same factories or farms as the name brands and have the exact same ingredients?
That’s right – your Kroger or Giant brand ketchup and your Hunt’s brand ketchup are identical except for the label – the same ketchup squeezed out on the same assembly line. Ask me and I’ll go into the operational reasons the factories do this. But most folks assume that the cheaper store brand isn’t as good, and so if they have the money to spend, they go with the name brand that they trust (there’s that word again).
Anyway, when a product has strongly enough demonstrated value, these tendencies can be overturned. Say hard copies of Vornheim went on sale for $2.00. You’d be a fool not to take advantage of that if you were even remotely in the market for one, because everyone knows it’s high quality and it won a damn award. That’s why sales exist and don’t completely undermine the psychological effects we’ve been discussing when used sparingly.
But you have to be careful with cutting prices, even temporarily. This deep, not entirely conscious, not even entirely rational association of price with value means that you have to be really careful about the implications for your products value when setting your initial price and even more careful if lowering your price. You might erode people’s perception of your product’s value, and you will definitely be getting a smaller margin per sale. As my marketing professor would say “lowering price is the laziest and costliest way to increase sales”.
Psychology of Price “Buckets”
Finally, for a more concrete and tactical psychological consideration, people tend to group things into price “buckets”. It can get really complicated because people might have general buckets (“$100 is a lot of money for anything”), broad category buckets (“$50 is a lot for an entertainment purchase”), or even specific category buckets (“$30 is a lot for a game purchase”). Every person’s buckets are different, but they are influenced by culture, the market, peers, and so forth. Big companies do a lot of market research to figure out what those buckets are for their average customer and then make products tailored to those buckets (wine makers have this down to an art).
So, what do I mean by “bucket”? Let’s say Bob wants to buy an adventure to run in his campaign. Bob loves buying adventures and knows that many great adventures are free, but he has a limited gaming budget, so his buckets for adventures go like this:
$0.00-$2.00: “Sure, I’ll pick that up!”
$3.00-9.99: “I’ll buy that if it’s got a good review”
$10.00-$14.99: “Maybe I’ll buy that if I know I like the author’s stuff already”
$15.00+: “This better be amazing, and I want multiple reviews from sources I trust to tell me it’s worth it.”
The point of identifying these buckets is that for Bob, any price within a bucket is functionally the same. Theoretically, it doesn’t really matter where your adventure is priced inside of one of those buckets. The prices in the bucket range are psychologically identical to Bob in his decision making, except for edge cases, like if Bob can only make one purchase and he’s torn between yours and another in the same bucket.
So, wherever possible, you want to figure out what the average “buckets” are for customers of your product, and then price at the top of whichever bucket you choose to be in. You can figure this out by examining your sales history at different price points or by talking to other people selling similar products if they’re willing to collaborate.
One last thing on buckets: notice that “$9.99”. For most people, that puts it in a different bucket than “$10” would, even though our rational, conscious brains know that that penny really doesn’t matter. You’ve been seeing it on shelves all your life because it works.

Considerations In a Hobby Market

So far I’ve mostly focused on the business portion of “hobby business” in this discussion, but I wanted to step back for a moment to talk about the hobby side of things too. Even though I want to help you make money doing what you love, chances are good you’re still a customer and a member of a gaming community no matter how successful you are.
First off, as I discussed a bit in the intro, there is an old and wonderful tradition in the gaming hobby of sharing quality stuff for free. I know I’ve used plenty of great free stuff in my games, and I’ve shared plenty of free (if not great) stuff on my blog.  In the collaborative and reputation-based community of the OSR, there are plenty of ways to signal quality and value that are not price.
Because of these alternate methods of signaling quality, gamers have a somewhat easier time getting around that idea in the psychology section above about low price conveying “cheapness” than people in other fields. So don’t think that if you make one thing available for free, you will forever attaint your for-profit products. On the other hand, do be ready for people to expect higher production values or other improvements in your for-pay products than in your free ones.
In most corners of the gaming hobby world, there’s also a sense of community and wanting to treat people right that you don’t necessarily get with faceless retail. I mean, if you go to buy a power drill from Home Depot, you expect to get a reasonable price and a functional tool, but you probably aren’t going to pay more at Home Depot than you would at Lowes because you like the way they run things there. It’s an arms-length business transaction with no hurt feelings all around.
With a hobby community, that sense of fairness can be enormously helpful. One example of how great it can be for everybody involved is “Pay What You Want”. This goes against some of the psychology of pricing discussed above, but by giving your customers some agency, you’re taking what could be a simple transaction of money for goods, and turning it into a chance for interaction or even a relationship.
There are tons of people who want to support others in creating cool stuff simply to see them do more of it – that’s where things like Patreon come in. And there are opportunities, like Kickstarter, for people to demonstrate how much they want you to be able to make a particular thing into its best possible version. All of these ways for customers to show their support for creators rely on you building up trust and a reputation for quality products.
So you want to be careful to price things where you communicate your product’s value and get as much of what the customer is willing to give you for it, without coming across as greedy or ruthless about it. In a small, niche community market like RPGs, I think the best route is honesty and transparency combined with an unabashed pride in your work. Tell people why your stuff is great, and then tell them you’re charging for greatness. If you’re not an asshole about it, people will either enthusiastically give you their money, or else help you set your price somewhere more realistic without any rancor.

Appendix: Three Common Marketing Pitfalls

“Leverage the Brand”
So you’ve come up with a game world that people are really digging, you’re selling adventures and setting material and its doing great. You notice people really dig the artwork and so you decide to do a huge production run of vintage lunchboxes featuring some fan favorites. You figure you can sell lunchboxes to your existing fans and at the same time get into the vintage lunchbox market. Unfortunately, it turns out that few of your existing fans want lunchboxes, and lunchbox aficionados lack any context for the artwork and don’t find it as evocative as your gamer fans do. You’ve tried, and failed, to leverage the brand.
The history of D&D is replete with this mistake over and over and over again. When you have a strong brand - one that people know, feel strongly about, and buy things based on, there is an awfully strong temptation to slap that name on a new product. The assumption is that you’ll be able to sell something new to existing fans of the brand and simultaneously introduce new customers to its awesomeness. Well, you know what Admiral Ackbar said.
Take the Dungeons and Dragons movie: execrable. Movie-goers not that familiar with D&D got a negative impression of the brand, and D&D fans got a negative impression of D&D-based movies.  Lose-lose.
So, the short answer? If you ever find yourself thinking that you can expand your business into a new product category or market segment by making use of existing goodwill/notoriety/brand, think long and hard about how the new product would fit into what makes your existing products resonate with your customers and whether the new product reinforces that or fights it.
“Educate the Customer”
You’ve thought up a sweet new game rule. It’s the most elegant and comprehensively thorough solution to a problem that has been plaguing you since you first put die to table and pencil to character sheet. You write a game based on this rule and put it up on RPGNow and wait for the dollars and accolades to come pouring in. But they don’t. Nobody buys it. What do you do?
Well, what you don’t do is think “I just need to convince everyone how awesome it is, then they’ll buy it.”
Sure, you might eventually be successful if what you have really is awesome, but it is much faster, easier, and more effective to instead ask yourself “who needs this and what do they need about it?” (remember segmentation and differentiation?) If you can answer that question, it becomes a matter of finding those people and letting them know you have what they want, rather than trying to convince people to want what you have.  If you ever find yourself thinking “if only the customers would just get it, I’d be doing great!” you might be looking at the wrong customers, pitching the wrong product, or both.
“We’ll Make it Up in Volume”
You’re seeing a few sales here and there, but you’re not selling as many copies of your product as you’d like. So you start thinking “well maybe if I lower the price, I’ll sell more, and sales will go up enough that overall I’ll be more profitable!”

For all the reasons discussed in the pricing section, this is a dangerous line of reasoning to follow. Besides the more obvious economic impacts of reducing your revenue without reducing your costs (lower per unit margin), there’s also the fact that you might inadvertently harm the reputation of everything you make, not just the discounted item. Say you write adventures and you knock one adventure’s price down a bit. People might start wondering why they should pay more for the others, and then you might be forced to cut prices on everything in order to sell anything.  Trying to make it up in volume is usually a bad move for any business, but especially as a hobbyist in a niche market, please don’t count on high volume to hit your goals. Price your product wisely based on its value to the customer, and high volumes will just be a bonus.