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

July 5, 2016 by Nate Martin

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

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9 Comments

  1. Debi

    Love it and agree. Hard to survive when ALL OF THE COMPETITORS are using Groupon. It didn’t make sense to me a year ago when we opened, and we will wait it out and survive.

  2. The Logic Escapes Me

    [Disclaimer: Not an owner, never dealt directly with Groupon and not a businessperson]
    I see companies coming to London and take a long time to get traction even when their games are better than the competitors. Yes, there’s a downside to Groupon, but there are upsides too – you get occupancy early on and you get reviews (often better than you really deserve because people are happy with the reduced cost). If you can afford to weather that initial three to six months of waiting then great, but most companies would struggle.

    As for the 50% discount… I agree the 25% revenue is painful, but if it were me, I’d open with a "higher than I really think the market can take" price and then drop it after the Groupon. In effect, you get something like 30-40% of revenue but loads more players at the start. I suspect you can make it work but only if it’s a fixed duration thing and you’re clear to customers that you’ll never run another Groupon.

    My big worry would be, how bad is the long term effect of Groupon being associated with your brand forever? Do people wait around "knowing" that there will be another Groupon offer? I don’t know. If they’re that sort of person, it feels (in London) that they’re more likely to just head to a different escape room that does have a Groupon. There are plenty around.

    As for the effect on the industry, it sucks, but the impact on the specific business isn’t that big. If all of the owners in an area agreed not to do Groupon then great, but that’s not realistic (and it’s not far off price-fixing…).

    Having said all that, I can’t help but feel they’d be better offering discounts via the local newspaper, at a college campus or giving free tickets out to some local companies or to some local charity auctions/raffles. Get the reviews and the word of mouth going, but don’t leave the "paper trail" on the internet.

  3. David Spira

    I’m really glad you wrote this. I completely agree with your points and I’ll add new players are frequently driven to mediocre games by Groupons as well. It’s a problem.

  4. Jane

    Since when is it good business to alienate and belittle a group of potential customers?

    Maybe Groupon is not the best incentive marketing program for you. It must be hard for small businesses to swallow profit losses so high. But let me tell you, it is just as hard for the average family to afford experiences. Coupons, in one form or another, bring in a diverse group of people—people who do not always have access to higher—priced commodities. These customers can none-the-less pass their glowing reviews to friends, family and coworkers. You’re right, few people will return to an escape room more than once. But play your cards right and you will get a good recommendation for future customers.

    What’s the worst way to get a good recommendation? Write a blog post about how elitist you and your company are. Perhaps there is a “trope” of Groupon users who are entitled and give bad reviews, but not every person who relies on coupons is the “Bargain Seeker” you find so undesirable. I have heard nothing but good things about your company, and would likely give a good review, but I can’t afford to take my family there. Plain and simple. Take your frustrations out on Groupon rather than dissing an entire group of people simply because they benefit from discounts.

    If you are so concerned about marketing, here’s a tip: don’t publicly represent yourself as someone who believes their business is only worthy of the upper crust. You’ll find that paper trail can be just as damaging.

    • Nate Martin

      Hey Jane,

      Thanks for taking the time to write a response, I appreciate it.

      I painted with an unfortunately broad brush, and for that I would like to apologize to both you and other folks out there who reasonably take advantage of discounts. There’s hardly anything wrong with acting rationally and trying to save some money!

      Regretfully, there’s a huge set of folks out there that go largely unnoticed by reasonable bargain seekers and naive business owners considering offering a daily deal. They prey upon unfortunate business owners looking to provide a deeply discounted experience in exchange for volume and marketing. These customers can be the worst kind of entitled and cause nothing but trouble before, during, and after the transaction. You do not sound like this sort of customer, and you are of course not alone.

      It was my intent to bring light to this not-commonly-known issue, and I can see how my over-generalization on that piece can erroneously loop the good in with the not-so-good, and I apologize for that.

      • Tom Woods

        I don’t think you needed to apologize. Your article changed my own mind as a consumer. I get the position you’re in, and I don’t want to contribute to making your life impossible.

        As for people who can’t afford regular price, no one is entitled to an escape game. If you can afford the discounted price, you can save up for the regular price.

    • Renee Townsend

      Tickets are $30 a person. I understand that may not be affordable for everyone. However, we all make choices in life. We choose where and when to spend our money and what to do with our time. No one is entitled to a discount simply because a service is outside of his or her price bracket.

      Yes, there are generalizations made here. As a bargain shopper myself, the article is dead on for me. I’m sitting in a restaurant right now and the lady who was in line with me mentioned how she always waits for the best Groupon deals to come here. I’ve decided not to make a purchase because I missed a deal plenty of times.

      Everyone may not be the stereotype mentioned in the article. However, it’s definitely something for a business owner to consider. It’s all great to get deals. However, when those deals put run into the red, your favorite Groupon business will disappear.

  5. Paul Exit

    Groupon and similar to him DO NOT promote your business ! They promote their own business using your brand . Groupon customers are not your customers – they are buying promotions from Grupon . Everyone says : "It was great fun in the rooms escape what I bought at half price on Grupon – check on Groupon because it is cheaper". In this way, you lose money and customers . Why did not you give a discount of 50% at a convenient date for you? Why not invest in a few flyers , promote on social media (Facebook, TripAdvisor, Twitter …) and instead earn 25% you earn 50% and you get your own customers. It is not so difficult – you have to spend some time and think instead give it to someone who will use your business and earn your money.

  6. GT

    Groupon is killing my business!
    While I was building a safe, fun, exciting escape room, three others opened up around me. Trying not to sound biased, but they suck! Stolen ideas, crappy logic flow, staff that have no positive energy… Basically, just a get rich quick thing. Guess what? They also do Groupon.

    The few people that have come into my business are totally blown away with the experience, and are excited to play the other room at full price. People are willing to pay good money for a good product. I can barely afford to keep the lights on, but those that come here make the dead days worth while.

    Don’t sell your escape room short! You worked hard to create something unique for people to play. Groupon may get you a few bucks, but Mr. Martin is correct when he says that it cheapens the entire industry.

    GT

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