The Limits of Automating Redemption
By George McAuliffe, President, Pinnacle Entertainment Group
Limits on automation? That statement counters the trends all around us. Several vendors have been marketing automation of the redemption merchandise process (RMP) and promising to “make it easy.” If it were only so simple!
Don’t get me wrong, we are big supporters of technology, and we make a living advising FEC operators how to systematize operations for efficiency. We’ve been out front on adapting technology and integrating into FECs. But there are limits. Some of the automation schemes out there today confuse the means of redemption (how you achieve your main purpose) with the ends (the central purpose of your redemption program).
How can we go astray?
Good management sets goals and then creates the path to reach those goals. If we were to poll the top 10 FEC arcade operators in the country about what their goal for their redemption merchandise program is, they’d answer: “to drive sales while controlling costs.”
Ask those same operators what their challenges are for their RMP, they’d say: managing the many merchandise items, keeping the counter full, getting reorders in before the next weekend, quality control, general staff turnover and training challenges.
Operational challenges are not the central purpose of a redemption management program: they are steppingstones on the path. Because they are common –– and frustrating –– finding solutions should be important to management. The problem arises when solving those problems negatively effects our central goal of driving sales while controlling costs.
Limits
Here are just a few:
1. GIGO (Garbage In, Garbage Out): Automation schemes rely on data, the reliability of which depends on a several-step process by multiple human beings, including: ordering, receiving, stocking, redeeming, returns, inventory, reporting, financial reporting and (add your own here). There is the possibility for error and bad data each step of the way.
2. Backwards Look: The automation processes we’ve observed all rely on assembling data based on history, and using it to project the future. But there are countless times throughout the year when sales and traffic levels transition from high to low and low to high. If our process is only looking backward, we’ll have issues numerous times throughout the year.
3. Stale Displays: Redemption should be a major change agent in the arcade. Allowing computers to choose items based on history risks getting into a product rut.
4. Disengagement: Redemption managers should be more engaged, not less. Given our goal of driving sales, having someone controlling inventory, usage, selecting product, and anticipating change is true to our goal. Over-automating risks management disengagement.
5. Unintended Financial Consequences: Automating is not managing. Too much automation can cause a higher cost of sales, too much (or not enough) inventory on hand, unbalanced merchandise assortments by price point, and lower sales.
Balance
Again, we’re not anti-technology by any means. We just think that redemption merchandise automation has been oversold. As the business writer Benjamin Lawsky has written: “It’s an absolute myth that you can send an algorithm over raw data and have insights pop up.” Technology needs to be overseen by humans who know how to interpret it and then translate that to action.
For years we have taught our “closed loop” system of managing the redemption process to drive sales and control costs. It goes like this:
1. Ticket Value: Establish a ticket value based on your players (those you have and those you aspire to have) and the perceived value you want for your guest experience. Use vendors that allow your redemption manager to shop in your custom ticket values.
2. Control Ticket Pricing: Use a vendor that allows you to customize and set this ticket value so that every employee is bound by it when they log in.
3. Control the Universe: Do this through “favorites” or other similar e-commerce features, and use vendors that allow you to set the items you want your management or leads to choose from.
4. Digital Packing List (DPL): Use vendors with reliable, seamless DPL capability.
5. Barcoding: Use vendors that will barcode items to your ticket values.
6. Scanning Discipline: Teach, train, and manage your staff to scan items accurately.
7. Inventory: Keep an organized back room and insist on clean inventories.
8. Automation: Clearly, we want to reasonably and effectively automate the redemption process. There are systems out there like Rapid Reorder, which tees up an order based on par levels, but requires management review and approval.
9. Storyboarding/Planagrams: Assortment planning and theming help simplify the process while promoting popular merchandise.
We believe these principles provide management with clean data and the time to make good decisions on what items to carry, how many of each and how merchandise should be displayed. This all comes together to support driving sales, the redemption end in itself.
George McAuliffe has helped hundreds of business large and small develop and execute arcades and FECs. He has personally operated family entertainment centers from 2,000 to 150,000 square feet as a corporate executive, entrepreneur and consultant. With his partner and son Howard, he recently launched The Pinnacle Insider to help a wider audience execute FEC operations at a higher level. Readers can become an Insider at ThePinnaceInsider.com.
George lives on the Jersey Shore with his wife, Julie, and has a passion for passing along what he’s learned in the fun business to the new generation of operators and suppliers.
Visit grouppinnacle.com for more information or contact George at georgemc@grouppinnacle.com; phone: 314-422-7197.