ICv2 asked Joe Hauck, EVP Sales, Marketing and Product Development of WizKids, his opinion about Internet retailing, discount pricing and the recent Leegin vs. PSKS Supreme Court decision:
Do you feel that online retailers that sell products at a substantial discount from retail are a positive force, negative, or have no effect on the over-all market for your products?
In marketing, you're dealing with the trade-off between richness vs. reach. Richness refers to the depth and quality of the message that is provided and reach is how many consumers will view the message. A 15 second TV commercial is not rich but can be seen by millions of people. On the flip side, a one-hour infomercial is very rich but expensive to air and thus only seen on deep cable at 4:00 a.m.
Core hobby brick and mortar stores provide a rich experience for our games through referrals by store owners, bill-boarding through displays and in store play activity, demos of our products to our perspective consumers, management of promotional activities, running OP events, etc. These activities provide the richness required to create and maintain a successful hobby game. While Internet stores have the potential to provide more reach than the network of core hobby brick and mortar stores, they do not provide the activities that help create and grow a loyal fan following. We believe that it is within our best interest to create and support a rich environment for our products, and anything that detracts from that goal would be considered negative.
If you could reduce the discounted sales of your products on the Internet, would you do so?
At WizKids we already have. We have not contracted any distributor to have the rights to sell to the Internet-only channel of distribution. Due to the recent change in our core hobby distribution model we have a tremendous increase in visibility and as a result the largest Internet-only retail game site is currently not advertising Marvel HeroClix: Avengers boosters or DC HeroClix Legion of SuperHeroes Starter sets for sale. These were the first major HeroClix products to be distributed solely through Diamond and
Do you have any policies in place, either for your own sales to retailers or for sales from your distributors to retailers that treat online-only retailers differently from brick and mortar retailers?
We have a written policy in place that defines the core hobby distribution channel as brick and mortar stores, with a business license, in a commercially zoned area, with at least 40 hours a week open to the public, and a yellow pages ad. As we stated above, there is no one contracted at this time that has Internet-only accounts as their channel of distribution. So technically, brick and mortar stores can order our product whereas Internet-only has no assigned distributor and WizKids is not selling to them.
What is your reaction to the recent Supreme Court decision, Leegin vs. PSKS, will this change how you manage sales of your products to Internet retailers?
I think it is fascinating as well as a double-edged sword. The Supreme Court didn't overturn the Sherman Anti-trust Act, they simply stated that it has been misinterpreted for the last 96 years, as most courts interpret the act to read that any dictation of price was a violation of anti-trust. Reading through their opinion they state that the original intent was to promote and protect the ability for inter-brand competition (HeroClix vs. Magic) not intra-brand competition (HeroClix vs. HeroClix).
This shift is potentially huge for the industry, especially the brick and mortar stores that are providing the rich support for our products. But given that the original act was neither abolished, nor were clear guidelines given as to when it is OK to have some sort of fixed price, we will have to work with our own legal team to determine what activities we provide as a manufacturer that align us with the activities provided by Brighton bags in their case and reduce the risk of a lawsuit down the road. While some manufacturers have already jumped on the bandwagon, we have a responsibility to our shareholders to determine how we would structure our defense argument in advance of making a price flooring decision.
Are we contemplating a change in pricing strategy as a result of the Leegin case? Absolutely. Will it change how we manage Internet sales specifically? It would change how we manage sales period, regardless of the channel of distribution and not be specific to one channel over another.