Monday, May 6, 2013

Lessons in Entrepreneurship: Skylanders (Upselling on Steroids)

Posted By: George Deeb - 5/06/2013

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Following my last Lesson #143 on upselling techniques, I wanted to share this case study on Skylanders, the popular video game franchise from Activision launched two years ago.  Any of you with six to nine year old boys, like me, have most likely learned about Skylanders from your kids.
 
First of all, what is Skylanders?  It is much more than a simple video game disc you play on your gaming console.  You can't use the video game, until you have the matching action figures, which you place on a docking station, to bring that character to life in the video game.  So, think video games meets collectable action figures, with around 48 characters you can buy for this this game, each with unique powers.
 
So, here is the lesson on upselling.  The Skylanders starter set is priced around $69.99, which includes the video game, docking station and three action figures.  But, once your kids start playing, they become hooked, and want all the additional characters.  And, the additional characters range from $9.99 to $14.99 each . . . yes, I said EACH.  So, if your addicted kid ends up collecting the entire set of 45 additional characters, that would end up costing you around $632 plus tax!!  Compare this to a more typical top-of-the-line video game that may cost you $49.99.
 
And, believe me, the kids get hooked.  My son is up to around 10 of the action figures, after about two weeks of owning the game.  And, it is a feeding frenzy in the stores for these characters.  I was at Target yesterday, and there were four boys with their dads all jockeying for space within this five foot shelf of action figures.  And, apparently, some of these characters are in such short supply, it has created a "scalper-like" after market, with certain characters fetching up to $49.99 by themself.
 
So, what has Skylanders done for Activision's business and the video game industry?  It has entirely revolutionized the way video game manufacturers are thinking about designing their video games, as Skylanders has become the #1 selling video game on the planet.  Skylanders have sold in excess of $500MM in revenues in the last two years around this franchise, including the game, the action figures and all the other related merchandising.  A typical top-of-the-line video game would be lucky to sell 1MM units at $50 each for around $50MM in sales.  Skylanders has sold around 10x this average!!  To put this in perspective, the #1 toy brand, Lego, does around $4BN in annual sales.
 
So, when you are designing your business plans, try to tap into large upselling opportunities like this.  Anything you can do to leverage your fixed investment with additional revenues will simply flow thru additional cash flow to your bottom line.  What a great financial success Skylanders has become with this model, at the unique intersection between the video game and collectible toys markets.
 
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