I hear operators and solution providers talk about “replay value” and “repeat visitation” all the time. It seems to be the goal of many people in the location-based VR business to get players to come back frequently. On the surface it makes sense…we’ve learned that it’s easier and cheaper to get an existing customer to buy again than to go out and find a new one.
But there’s a fallacy in this thinking that can destroy your business. Recently I spoke with an operator thinking about lowering his prices to increase repeat visitation. He started the company a year ago, and set his prices at a level that even he thought was high (maybe based upon yours truly’s advice?).
After a year in business, he’s reaching breakeven on just casual customers and is getting ready to activate a revenue pillar based upon school groups. His arcade is large enough to handle large groups, which is a key to success for a VR arcade. Once he does that, he can move to corporate groups and will have a healthy business.
Yet he, like so many operators I speak to, thinks the lack of repeat visits is due to high prices. He has no evidence that pricing is preventing people from increasing their frequency of visits. His customer satisfaction rates are through the roof, and there have been very few comments about pricing being too high.
Pricing is a complex thing. Some consultancies do nothing but advise on retail pricing strategies. Yet I see people pull prices out of their ass all the time. I’m not an expert in pricing strategy, at least not at a single location level, but I do know a thing or two about it.
If you cut your price in half, you need to increase your number of visits by more than 2X, because your variable costs go up. Doubling your traffic will double your maintenance and repair cost, and will increase your labor costs. Every market has price elasticity, but if you don’t know what it is, it’s dangerous to guess and make widespread pricing changes.
Let’s say he reduced his price by 25% and only saw a 20% increase in repeat visits. He’s losing 25% on every new customer and didn’t gain enough repeat business to pay for his discount. In this case, a business on the verge of profitability is now bleeding cash.
My advice was to take his list of past customers and email them different, one-time exclusive offers with short time duration and various discounts to measure the response rates. This will show him the sweet spot on pricing and discounts if there is one.
Another thing everybody should be looking at is HOWND. Formerly FetchRev, it’s an online platform that maximized your list to drive repeat visits and increase party sales. If you want a demo, email me, and I will hook you up with a special deal.
Next week we will talk why your expectations around repeat visits is probably too high, and how to use scarcity and exclusivity to increase it.