Why Groupon (and other daily deals) are terrible for room escape businesses

I'll cut to the chase: Using Groupon is bad for your room escape business.  NOTE: The below applies to all daily deals sites, but I'll be referring to the greater concept as "Groupon" for the rest of this post. These services:

  • Are a great way to get some money upfront.
  • Are a great way to get the marketing that seems good, but is actually destructive beyond the immediate term.
  • Demolish your profit margin.
  • Establishes yours as a "discount" brand.
  • Are very much a net-negative decision for your business long term.
  • Cheapen the entire industry.

The Groupon concept is simple and alluring. You offer a discount. Groupon takes a cut, and does a bunch of marketing for you. Customers buy the deal, and visit your awesome business.

In practice, there is so much more to this, and little of it is good for escape room owner-operators.

A cautionary tale.

A cautionary tale.

First up, repeat business. One of the fundamental principles of Groupon success is that you lure customers the first time with a hot deal, and they are so enamored with your product/service that they sign up to pay full price from the 2nd time to the Nth time. This might work for restaurants, as people generally eat up to three times a day. This falls apart with the contemporary escape room model. How many rooms do you have? 2? 3? How big a bath are you willing to take on the profit from visit #1 in the hopes that a customer maybe returns one or two more times at full price?

Speaking of profit, let's talk some numbers. Let's say your tickets cost around the industry average of $30 USD. Unless you're a savvy negotiator or have some leverage, Groupon will make you discount that 50%. Your tickets now cost $15 (more on this hyper important piece later). Guess how much Groupon takes? 50% of that. Your revenue per ticket plummets from $30 to a comical $7.50. With many operational models, we've gone straight into money-losing territory. And while these figures can be negotiated, they can't be moved nearly enough to compensate for the legion of tradeoffs.

Suggested reading: "Groupon Isn't a Good Deal for Businesses"

Next up, the Bargain Seeker. Much has been written on the temperament, entitlement, and overall undesirability of the serial Groupon user, who scour daily deals sites exclusively and pay full price for nothing. Even if you could convert these customers to regular players (which you won't), you wouldn't want them. They will have a bad time and write bad reviews that include such poison as "definitely not worth full price." (more on the impact of this below)

Suggested reading: "Groupon Was 'The Single Worst Decision I Have Ever Made As A Business Owner'"

How healthy is your relationship with pennies?!

How healthy is your relationship with pennies?!

"OK Nate, fine," you say, "I'll eat that pain upfront to get some success (or just fill up games on the weekdays), I won't use it otherwise, and it'll be fine, right?"

WRONG.

Arguably the most damning part of using a daily deal site not only hurts your business, but also the entire industry: Screwing up the price anchoring and perceived value. At its core: Customers evaluate the value of something with the first piece of information they get. To see this concept fully weaponized, look to Apple; they use this concept to their advantage relentlessly. NOTE: Price anchoring is better explained by smarter folks than me all over the internet. If you're not familiar with the concept, I highly encourage some research on this topic.

Every escape room that eats the forbidden Groupon fruit is permanently scarred with an online footprint that never goes away. Potential customers will google "Escape room Cityname Groupon" or "Your Room Escape Groupon." They will see that you once offered a Groupon. Even worse, business reviews will mention "I snagged a Groupon deal." These are disasters for two reasons, either of which alone should be enough to ward people away forever:

  1.  As mentioned, your price anchoring is tarnished. The perceived value of your experience (and by extension to a degree, all other room escapes) is slashed in half, now and forever. "Oh," potential customers will think, "this is actually a $15 experience." They will read reviews from serial Groupon-ers saying, "Eh I had a good time but I don't think I'd pay full price for this!" This warped perception can (and in many cases already is) directly impacting the entire industry's value. In affected minds, all room escape experiences are chintzy and arbitrarily expensive. At Puzzle Break, we pride ourselves in offering a premium entertainment experience second to none. We spend enormous resources on our designs, builds, and operations to ensure each and every player walks away a truly satisfied feeling that they paid full price and got a huge bargain on an unforgettable experience.
  2. The other side of this coin is where the true pain is felt. There exists an enormous customer-base that will discover that A. you used to use Groupon and B. you currently don't use Groupon. They will wait patiently for you to offer another discount and never book a ticket at full price. This is different than the bargain seeker audience that only uses Groupon; this is the silent majority who are simply in no rush to play a Room Escape and are happy to wait on a deep discount that you've trained them into waiting for. It is right around here that we see businesses become "addicted" to Groupon time and again.

This is it at a very high level. There are lesser pros and cons that I didn't cover, and I encourage as much independent, unbiased research in this area as possible for anyone on the fence.

My advice for Room Escape owner-operators of all stripes: Don't be seduced by the false promise of short term gains with a host of downsides that will damage your business (and that of the entire nascent industry) swiftly and permanently.

Instead, dedicate your resources into creating artisanal, high-quality experiences that players will be clamoring to pay full price for. Experiences so great that they will rush out of the game and immediately demand all their friends/family/co-workers play. Encourage word-of-mouth. Puzzle Break wouldn't be where we are today without our customers being our strongest advocates. Utilize traditional marketing channels. Your brand value will grow, your bottom line will grow, the room escape industry will grow, and most importantly, your players will have the time of their lives.

 

-Nate

Nate Martin is the Co-Founder and CEO of Puzzle Break, the oldest American escape room company. Puzzle Break is headquartered in Seattle with locations in Long Island, Massachusetts and on Royal Caribbean ships. Prior to Puzzle Break, he was a senior executive at Microsoft and Electronic Arts. He has shipped software used by billions of users as well as some of the most beloved video games of a generation. @GuyFromTomorrow on Twitter.

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