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The Escape Room culture itself is broadening
Passer-by trade, especially walk-in trade, requires a degree of visibility that few operations have or can access. Quite a large number of locations are in lower rent, out-of-the-way locations, often tucked away (As ours is). Good signage for strip mall locations can run as high as $4,0001, which for a startup is prohibitive, and — in a final analysis — often an unrewarding marketing expense.
Print media still has its uses, but moving molecules is expensive. Many hands have to touch the media before it even gets to a potential customer, and even when it does, there is at best a two percent chance any will bite. (This is a long-standing industry rate-of-return standard. It may be higher in some markets.)
Since Google and Facebook started selling ads, along with YELP, Yahoo and others, social media has become the place to spend one’s dollars. A monthly budget of $1000 is, on average, low. A good number for a three-to-four room operation in a semi-dense market often reaches $1500 or more. And maybe should.
Social media marketing is, when algorithmically controlled, an extremely effective marketing tool. With Facebook much in the news about its data usage, there may be an impact on its efficacy, but it is here to stay. And we should be glad. It is possible there is a worm in the garden.
Often people seek something to do within the near future, as in “What is there to do tonight?” Groupon has increasingly and overwhelmingly become the information venue of choice, taking over from the “Entertainment Section” of daily newspapers. As a result, for Escape Rooms, Groupon seems to be eating the lunch of other forms of social media advertising.
Instinctively, new openers of Escape Rooms know this, and quickly employ their form of distribution “for exposure.” As frequently, these new owners may not know what the effects will be, on both their bottom lines and on the Escape Room industry itself. So let’s take a look at what/how Groupon offers:
- They will discount your per person, per group, at their calculation, based on your base rate. For example, if you wish to offer a 2-person ticket, they might discount it by around 35-37%. Say your base rate is $30 per person. For two it would be $60, which Groupon will reduce to somewhere between $37 and $45 dollars (it is negotiable, as we shall see later.) To the customer, it looks like a good deal, because they save anywhere from $15 a couple to $23 per. Take a good look, because…
- Groupon will almost always and unilaterally take 50 cents of every dollar booked through them. That means your couple returns $18.50 to you, or $9.25 per person. As the percentage per group (for four, six, eight, ten, etc.) goes down, your per person income shrinks commensurately. Basing cost of doing business on a per person rate may not be the wisest way of figuring how much it cost you to be in business. Perhaps a better way might be income per room per hour. Although we’re not going to figure here how much you need to make per active hour per room, it is a usable number, especially in light of the next point.
- You may think the gross collected income from a 10-person Groupon sale will cover the cost of the room, but in a year with Groupon, Escape Rooms PHX sold fewer 10-person tickets than four, which was less than two. In a way, Groupon, by being the place to check for what’s going on, encourages Date Night two-people bookings. And whether you like it or not, or believe it or not, already booked rooms often turn off larger parties, or, worse, make them badly fitted to host larger parties. But, that’s not all to consider.
- Groupon on occasions discounts the discount by 10-20%. They claim they only will do it for 20% of your sales, but we found verification of this difficult to interpret. Let’s take their word. (We do get calls from Groupon users who tell us that the organization is selling a twofer for as low as $27, for which we get half, or about $6.50 per person. That is a far cry from $30!)
- But, that’s not all. In order to have a cash reserve for any customers who decided they want a refund before using the purchase, Groupon withholds an additional 20%, which they will return to you 120 days after the sale. If you remain with Groupon long enough, and have steady sales, this will begin to wash itself out. Big If, if you ask me. Now your best per person $9.25 sale returns $7.43 per person. Feeling rich yet?
- Lastly, Groupon “distributes” payments on the first and fifteenth of the month, but in reality, they can hold it up to three days longer. An inconvenience, sure. But with digital currencies flying around at the speed of electrons, you gotta ask why.
Incidental consequences of Using Groupon
Groupon just might be siphoning off your paid social media advertising. In fact, it might be siphoning off all your other paid ads forms. It works like this:
The Smiths have heard about Escape Rooms from a friend or two, even seen ads for some on Facebook or YELP. But, having used Groupon in the past, the friends will suggest that they should look on Groupon to see if there’s a cheapie available. (There always is.) There are very few Escape Rooms surviving without at least a 4plus star rating on YELP and elsewhere, so that won’t decide it for them. Good commentary will, so do your best to earn good commentary. Usually, it is the price, along with a really good room description. As said, Groupon becomes the go-to place for making the choice.
Does this dismiss word-of-mouth? In a way, yes. I’ve asked many clients who have done other escape rooms before where have they done any. They may mention the city, but they very rarely mention the name of the joint they had fun in. Most, astoundingly, can’t remember the names. It must be noted that there is, or still is, a large coterie of Escape Room aficionados who share information and recommendations amongst themselves. There are bloggers, reviewers, etc, but our experience, and that of some room owners interviewed for this article, has been that almost no one checks those resources. This is anecdotal, but a scientific assessment probably would determine the same thing. (Sorry, bloggers.) Most locations employ some part of the words Escape and Rooms, making them not very memorable.
A note about customer loyalty
For the reason just mentioned, among others, there is also no real loyalty to any Escape Room venue, and it is nobody’s fault. Most operations have three to four rooms, with a number having even fewer, each with a varying theme. There is a built-in defect to multi-themed locations that I doubt anyone can overcome. Some groups will like one theme but avoid another like the plague. We have a puzzle room and one with a vampire associated theme. Those who go to one rarely want the other. (Something anecdotally noted among Escape Rooms PHX’s customers: people over thirty hate Zombie rooms, unless they are — face it — weird.)
Without inherent values other than price and thematic appeal, room owners are hard pressed to avoid the Big Rock in the little river: Groupon. In a query among thirty room owners around the country, the very few that have never and will never use Groupon rode the new-in-the-world wave. They made their buckets of bucks on simple, sometimes very inexpensive rooms, and used it to replace them with more techno and techie rooms, or to expand and even develop franchises.
Those newbie owners now coming in are often entering either well-developed or nearly saturated regions. (In December of 2017, a mere 18 months ago, there were 19 in all of the Valley of the Sun here around Phoenix. Today there are more than 35.)
Being the fastest to reach a billion dollars in sales business in history, Groupon is now a juggernaut, and the only one on the field. Or at least the only unavoidable one. Having gotten so fat so fast, they depend rigidly on a systematic, one-glove fits all approach to their sales. Some organizations have been able to dislodge Groupon from their fifty percent take, but those are often large, conglomerated organizations with multiple organizations or locations. The newbie opening two rooms? You’re stuck.
Of those who are using Groupon, some have developed clever strategies and post even marketing to capitalize. Groupon does offer a one-purchase-per customer, but that is easy to run around, and which baffles but does not block those wanting a four and two-person purchase to make their six, when that’s not offered. Post-event strategies are, though, for another article, but they are out there.
In gauging the pros and cons of allying with Groupon, it is difficult to feel gratitude on the Pro side. The cons, which are the discount being so large, and the inhaling of other advertising effects so major, and the returned dollars being so little, the benefit of exposure seems outweighed. But then one runs into: what choice does a new business have?
What is it like to work with Groupon?
This question really translates: how is their customer service? Regarding personnel, everyone I engage was literate, although rule-bound, polite but stubborn, and just darn nice. But there have been problems, which have been more systemic than personnel-based.
When I had been an uninformed Groupon newbie, I had to work my way through the system, which admittedly Groupon has done an excellent job of establishing. Unfortunately, and perhaps because of their fast and almost unmanageable meteoric growth, they have no ability to be flexible. That became obvious in trying to negotiate my best return. “That is not available. We suggest you raise your sale price to increase revenues.” Or/and: “The 50% is non-negotiable.” Try as I might to point out how, inevitably, the rate of return falls below my cost of doing business, thereby eradicating all profit margin, was akin to turning a thirsty mule away from the river. Wasn’t going to happen.
Which leads me to two useful points that should be illuminated. For months I confused “sale price” with my base charge per person per room. Raising that would have made me ridiculously outpriced, and my rooms didn’t warrant the high charge. Because of their refusal to turn the horse head, we wrangled for months before I finally got the agent to clarify. The “Sell Price” is, in Groupon-speak, the price that appears on your discount offer.
Secondly, and on deeper inspection, that altered “sell price” is achieved by changing the discount margin. Instead of 37% off, make it 33% off. But analyzed, that means the increase to my bottom line falls onto the prospective client paying more, and my offer becoming the worst among those also advertising in my region. Groupon would not budge an inch on this.
So, by increasing my Groupon Sell Price, Groupon benefits with no additional service. They will get 50% of the increase, or about a dollar per sale, without returning any added service. Clever, on their part. Furthermore, I hurt my chances of getting the bargain hunter. They claim we would see an increase in better customers, which I found slightly insulting, but which has no real-world meaning other than snobbish.
Is Groupon good for the Escape Room Business?
The Bottom Line:
I lean toward “no.” But the caveat here is, it may be good for the newcomer business.
Bottom line: doesn’t matter what I, or you, think. We’re going to be living with a very big thug for a while
Is Groupon Ruining or Helping Escape Room Businesses? by Janell Woodbury of Exit Strategy Games
Charles Bechtel is at present the owner and operator of Escape Rooms PHX in Mesa, AZ. He is 65, married to Manuela Mary Bechtel, with two grown daughters and three granddaughters.
Professionally, Charles has been a published author of numerous books, both fiction and nonfiction, owned and operated his own publishing & consulting firms, and even had owned a charter fishing operation out of Cape May, New Jersey. Click here to check out some of the books authored by Charles.
During his consulting days, he specialized in developing new products for the newspaper industry and developing what had then been the industry-altering desktop publishing replacement for many composition firms.
He has years of marketing experience, wearing many hats on both the production and administrative sides of publishing.