This month’s issue takes a close look at the redemption prize sector with a special section of news dedicated to the prize supply trade as well as our cover story detailing the inner workings of Redemption Plus. Readers will also benefit from special columns by industry luminaries George McAuliffe and Frank Seninsky on this topic. These two columns reveal fundamental truths about redemption merchandising and success in business more generally.
In offering prizes as an incentive to play games, operators strive to provide the right combination of novelty and value. In fact, the rest of the industry must thread this very same needle, finding a way to upgrade their products (games, etc.) and services (trade accessories, parts and components, debit card systems, etc.) while still offering them at a reasonable price. The cost value proposition informs profits up and down the supply chain.
In his look at the emerging prize market, Frank spots a troubling trend, the popularity of larger, big-dollar prizes. “With high-end prizes, the magic of perceived value is lost,” he stressed. “To make redemption work and have an average cost of sales of 25%, you don’t want the payer to have to spend much more ... playing the games than they would if they paid full retail for the prizes redeemed.
“With the prizes getting larger in price and size, the players have to play longer and spend more to get the prizes,” he continued. “That’s not necessarily a good thing for our business. The player has to spend a lot more to win those prizes in order for our business to remain profitable for the operator, but that destroys the perceived value formula. The players know that they can go out and simply buy that item for a lot less than they would have to spend on the redemption games. “
In his column, George also focused on the importance of perceived value and its relationship to the nuts and bolts of offering redemption prizes. “The customer’s value perception is what drives sales,” he explained. “Many centers incorrectly believe that ticket value is an arbitrary cost that they assign to each ticket. We often hear: “our tickets are worth .01 cents,” also known as a-penny-a-point. In fact, ticket value is the mathematical, direct result of the markup we apply to what we pay for a given item of merchandise. For our ticket value to truly be a penny a point, for each prize for which we pay $1 (100 cents) it goes on the shelf at 100 tickets. Understanding the effect of markup on ticket value is critical to managing cost of sales. It affects shelf price and game payout. A complete understanding of both is necessary to correctly measure the value we are delivering to the player.”
Both of these industry veterans are stressing something about the nature of redemption that applies equally to the game business in general or even the game of life: long-term success requires a healthy two-way relationship with customers, trading partners, family and friends whereby both parties benefit.
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