The Mathematics and Perception o

The Mathematics and Perception of Games Pricing

By: Shawn M. Haas - FunWorld Magazine

“Come on over and play basketball its ONLY Five Dollars! Five dollars per play for a skill game today. If many operators are not there yet, they are heading that direction.

Many operators are asking the question, “should I raise prices to increase revenues?”

Yes, higher prices usually equal higher revenues but at what cost? There are numerous issues for the games operator to consider when determining games pricing. In this article we will examine the positive and negative sides surrounding this issue.

Do higher prices mean that you will increase your revenues?

Yes. And no. Let’s take the following example to compare.

A basketball game is currently charging $1 to play and is generating $10,000 per week. It is decided to raise the price to $2. The mathematics dictates that the game would double in revenue and now generate $20,000 per week. That would be nice, but we live in the real world and not everyone who played at the $1 price will play at the new price. In our example if we estimate that 75% of the people who played before will pay the $2, then we would generate $15,000. That is a really good increase in revenues…on paper. In reality, it is not that easy. There are other items to consider.

First, are we sacrificing play for revenue? In the previous example, the $1 per play had 10,000 players while the $2 per play only had 7,500 players. That is a loss of 2,500 people playing the game. That also translates into a lot less people prizes walking around your midway. But revenues have increased by $5,000 and that is money in the bank. But that leads us into a larger question…

What is the perception of the guest?

There is psychology involved in all areas of pricing. The most critical is what the guest perceives now. The guest who normally would have played 5 times at a $1 game may now only play once or twice. If we are generous and say the guest will now play twice, that translates into a $1 less than they would have played previously. Instead of $5, we only received $4.

A dollar loss is not that bad since we are still making money. Not necessarily a true statement. Look at what the price increase may do to future revenues. The guest returns next season and may be less likely to play games now that they know the games are charging a higher price. It is more difficult to convince a guest to play a $2 game than the $1game. Sure, twice as much revenue is possible but you also increase the difficulty in attracting guest by at least double the effort.

And that leads to the next question of what is the perceived value?
Value is another key component of a price increase. Are you giving away a larger prize? If you are not, then the price increase will have a negative impact on your revenues. If you are, then there is a greater likelihood of increased revenues.

Examine a group race game that charges $3 per player and requires a minimum of 4 people to start. The prize is $4 stock. $12 in revenues is generated by the race. This translates to a 30% cost of goods which is not bad, and that percentage decreases as the number of players increases.

The operation generates higher revenues with fewer players, but the guest is may be less likely to play more than one time. But the opposite side is that potential players are attracted to playing games where they can win a large prize. And some guests prefer not to go the replay route and trade up prizes.

One way to look at all of this is the old Wal-Mart philosophy. Volume., Volume. Volume. Lower prices generate a greater volume and lead to increased sales in the long term. This may lead to a midway full of happy, smiling, plush carrying guests which looks a lot better than the alternative.

The other side of the coin is providing increased value. To many potential players it is work the extra cash to be able to win larger prizes quicker. It is all about perception. If a guest has the opportunity to pay $5 to win a prize that has a high perceived value, there are those who will drop the cash. But a $5 play will not work if the prize has a low perceived value.

Which leads us to the ultimate question, “How do I determine the correct pricing for my games operation?” Each games operation is different and many parks have had success with increased prices. It is important to fully evaluate both sides of the coin before making the decision to change pricing. First, do the math. Secondly ensure that the perceived value exceeds what is being charged to play. And finally, know your market. Pricing plays a critical role in the success of your operation and should be carefully studied prior to making any changes.