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Redemption
Game Formulas
Playmeter Articles by Steve McCaul
Q: Is There a Formula for Successful Redemption Game Operations?
A:
There still seems to be plenty of confusion regarding
redemption formulas, ticket pricing, ticket payouts, token value, and perceived
product value.
Recently, I have been visiting locations where I've found that product is being
priced with no rhyme or reason. It is either being priced so high that customers
could never obtain the point level being placed on that product, or the product
is given away with very little or no value placed on it. Also, the redemption
counter employees are spending too much time on low-end product which takes up
too much of the employer's time and money.
I want to share a basic formula for marking your product (which has been in
place for years) that should render your redemption business successful. This is
the formula:
COST OF GOODS:
Product Cost (wholesale) plus 15 percent for shipping and handling = Point Value
placed on product.
FORMULA COMPONENTS:
Average tickets to be paid out eight per coin dropped into each game Coin Value
= 25 cents Tickets valued at one cent.
EXAMPLE:
Item Cost = $2 plus 15 percent shipping and handling = Point Value placed on the
product you purchased. The point value is 230 ($2.30)
In order to know how much the customer is going to pay for
that item marked 230 tickets, consider this: as we said earlier, the average
ticket payout is eight tickets per coin played. Take 230 (ticket value assigned
to the product) and divide that number by eight (tickets per coin) = 28 (amount
of coins in the cash box) = 28 x 25 cents = $7. Your customers will drop $7 into
your cash box for every item you have marked 230 tickets. Your cost on that item
is $2.30. On every item a customer has redeemed, you have a
profit of $4.70 or 305 percent return!
With the above scenario, if your product is Beanie Babies or a current hot
electronic gadget, you can do the math and change the numbers accordingly.
Sometimes one or two hot items can make your redemption counter very profitable.
However, a successful counter must have many appealing items and extra attention
must be put into the display, as I have mentioned in past articles.
The above basic redemption formula has not changed in years. However, variations
can affect the way your product is market or valued. In explaining some of these
variations, I will try not to confuse the basic formula that should be used.
Remember, to use this formula correctly, you must know your Coin Value. Is it 25
cents, or are you on token play and giving away tokens for promotions or
birthday parties?
Some FEC's token values are only 22 cents, or even as low as 18 cents (depending
on the amount of promotion tokens given out). Adjustments must be made for this
which will directly affect the profit shown in the redemption formula.
In order to keep your profit margin the same you must go up accordingly in the
point value placed on the product. You must maintain the profit which has been
set by the formula.
For example, a competitor's location could have its product marked up double.
What you don't know is that maybe they are giving double the ticket award. They
could be giving 16 tickets on average per coin (the above example only shows
eight). The product has to be marked up accordingly.
As you can see, the formula has not changed and the same profit is being
maintained, but the values have been changed. If you make any changes with token
giveaways or you decide to give out more tickets, adjustments have to be made to
maintain your profit margin.
Perceived Value is the value a customer presumes a product is worth. It plays a
very important part in the value you place on your product.
When you look to purchase a product, use the above formula and calculate what
you think your customer is willing to pay for that item. If the product is going
to be perceived as too expensive, then you have to make adjustments. By using
the formula, you know what your return is going to be.
ANOTHER EXAMPLE:
Item Cost (wholesale) = $35 (plus 15 percent handling brings your cost up to
$40.25). In using the above formula, the ticket value placed on your item is
4,025 tickets ($40.25). If you divide that ticket value (4,025) by eight
tickets per coin = 503 x 25 cents (Coin Value) = $125.75. Your customer will
have spent $125.75 for the item that actually cost you a total of $40.25!
There is a lot of room to mark this item down and your customer will perceive a
better value. In that way, you will move more items and make more money due to
the volume of items redeemed.
The kids won't figure out how much the item cost them, but you can bet their
parents will quickly figure it out. The whole idea is to keep your customers
happy. You want your customers leaving your location feeling they got their
money's worth. Then they will continue to visit your location, returning again
and again.
You can mark up your low-end product many times because your customer really has
no idea of the actual cost. As long as it is perceived as a bargain, or priced
reasonably, they will play your games over and over. The major mistake is that
redemption operators get too greedy and mark up their prizes thinking they will
make fantastic profits.
In reality, they are driving their customers away. Those
customers will tell 30 other customers what a rip-off your location is. You wake
up months later asking "Where did my customers go? I was doing so well!"
Redemption is a continuous balancing act. It can be very profitable if done at a
slow, steady pace. You will have this business for many years.
To recap, if you stick to the formula, understand token value, perceived value,
average ticket payout, and product cost, you will be successful. Always look at
your product the way your customer perceives it. We are in the entertainment
business and the retail business at the same time. As always, we have to keep
our customers happy. A satisfied customer will return frequently and bring a
friend.
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Are You Operating Global Coin-Op's
Recommended Hot Picks? Are you up to speed with regard to Card Swipe Ticketless Redemption Game Operations? Are you operating GCE Hoppers on your Quick Coin Card Swipe Games - Swipe Card - Get Tokens - Play Game! Click Here to Read Vending Times Article |
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Your consideration to contact me will be sincerely appreciated. I will do my best to answer your questions, and assist you. |
 |
| Steve McCaul |
| Global Coin-Op Equipment |
| Amusement Arcade Redemption Game Specialists |
| Contact: [1] 617-688-6889 |
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