The Lion and the Wolf

Thanks to WarOne over at the DakkaDakka DCM forums, we have this little letter that addresses the concerns of a shareholder in GW.

Dear Nick,

Thank you for your letter in which you expressed your concerns regarding Games Workshop's pricing. As a shareholder it is important that you understand our pricing strategy so I'm going to explain it while addressing each of the issues you have raised.

First let me deal with price increases. We review our pricing each year. In doing so we take into account the costs of designing and making the product, raw material costs, support costs such as staff salaries and rents for our Hobby Centres and of course any quality improvements we have designed into the products.

All of these costs have increased in recent years, particularly raw material costs such as tin and plastic which have increased far faster than our retail prices. The reason that we have been able to absorb much of this cost pressure is that we are constantly investing in technology and training to deliver greater efficiency in our manufacturing and design processes. We have also worked hard to keep our staffing to a minimum in all areas, from hobby centres to production lines to offices.

However, the one area where we will not compromise is quality. Every product we have released has delivered an improvement in quality. Our plastic sets, paints, scenery and hobby products are incomparable compared to only five years ago. I'd argue that product quality has improved at a far faster rate in recent years than our prices.

We have never claimed that the Games Workshop product is the cheapest. Only that is the best. The only part of our range where we had not made as much progress over this time was our metal range of miniatures. And that is why, if you look at Citadel Finecast that we have just launched, you will see that we have delivered another step change in quality.
As for the cost of making resin miniatures, the raw material is just one of the components in the costings. The true cost includes the cost of labour, moulds, chemicals, wastage, equipment and quality control. For the resin manufacturing process, each of these is significantly more than for metal miniatures.

Despite the usual difficulties of working with a new material, if done well, resin does produce a much better miniature. Which is why we have spent the last two years working on the production process to find a way of doing it consistently well for the sort of quantities that Games Workshop sells. We think we have just about resolved all the issues and that is why we chose to launch Citadel Finecast.

Given the quality improvement and the investment we have put into the process, we believe the price increase is justified. If you have had the chance to look at one of the new Citadel Finecast miniatures you will understand that we are not trying to exploit any of our customers, quite the reverse. We are trying to give customers what they want. The best quality Warhammer, 40k and Lord of the Rings miniatures we can make.

You also raised the affordability of the hobby. We know every customer has to make a significant investment in time and money when starting in the hobby. That is why over the last 10 years we have designed our introductory products to offer exceptional value for money. The contents of Assault on Black Reach, Island of Blood and the Mines of Moria, not to mention the hobby starter and paint sets, offer significant discounts to someone starting a new game system. And for existing customers wanting to start a new army, we have designed our Battle Force and Battalion box sets to offer significant savings over buying those contents individually.

Having said that, our experience is that the factor that has the most impact on the growth in the number of customers is not price. It is the presence of a local Games Workshop Hobby Centre running introductory games, painting lessons and beginner activities. Whenever we open one of these, the number of customers in a that area increases significantly. And if we employ a great manager who stays there for a number of years, we recruit even more.

This is why the price of our miniatures must cover this investment in service. It is also why Games Workshop has grown far larger than all the other miniature businesses that have come and gone over the years. No one else has made this level of investment in growing their customer base. And by growing our customer base we have been able to generate sufficient volume to reinvest in product development and product quality, to keep customers excited and coming back.

You also raised a concern regarding the difference in pricing between countries. Whenever we adjust prices, we do so globally at the same time. We don't ramp up any country's prices relative to another. The only reason that a country's prices would increase faster than another will be due to exchange rates moving, not because of any pricing decisions by us. If we could avoid this happening, believe me I'd love to, but we can't.

The Australian dollar has strengthened relative to Sterling. But our customers, staff, landlords and suppliers are still paid in Australian dollars. To suggest that we drop our prices in Australia to match the UK sterling price would be fine if we could persuade our staff, our Australian landlords and our Australian suppliers to do the same. That just won't happen.

Dropping our prices in Australia will mean we close down our local hobby centres and the one proven method of recruiting and growing a customer base in that territory will cease. That doesn't seem to us to be a sensible long term decision. It might make some customers happy in the short term, but it is not a sustainable pricing strategy and therefore not one we will pursue.

So to summarise, we only increase prices when we feel they are justified by the quality improvement. We keep these increases to a minimum by being as efficient as possible in managing our costs. We build into our range exceptional value for money products for those starting a new game or army. The prices we charge in each territory ensure we can grow the customer base by running local Games Workshop Hobby Centres . They also ensure we can reinvest in continuous product development to keep existing hobbyists engaged in the hobby longer.

While I know you have concerns about our strategy, we believe it is the right one for the long term health of Games Workshop and your investment. I hope that over time you will find this to be the case. Thank you again for taking the trouble to write to us and allowing me the opportunity to explain our approach.

Yours sincerely,
Mark Wells