Published in the June 2009 issue of International Bowling Industry. An expanded version of this article, The future of location-based leisure: suddenly a new scenerio, was published in the Jan-Feb 2009 issue of our Leisure eNewsletter.

Watching Your Step

by Randy White

In just a few months, many of the underlying economic assumptions we have used for years for the feasibility, development and management of location-based leisure (LBL) venues are no longer valid. In fact, we may be at the beginning of a major consumer paradigm shift where thrift is trendy, saving is savvy and search for true value is time well spent.

We have no magic crystal ball to predict how the downward recessionary spiral the world economies are in will unfold, but we thought we'd share some of our thinking on how economic conditions may impact the LBL industry, both in the short and long term.

Existing LBLs

First, let's look at existing LBL facilities. Generally, you can break LBLs into two categories — community-based and tourist-based. Tourist-based LBLs require the largest expenditure for travel, lodging, entertainment and dining. They will probably be hardest hit, as consumers for forgo major discretionary expenditures.

The trend started not long ago with high gasoline and energy prices, and it will continue and accelerate. Vacations are being replaced with stay-cations. This is not good news if you have a hotel, cruise ship or an LBL in a tourist area.
But the shift to stay-cations is good news for community-based LBLs. Community-based LBLs such as bowling centers. Per capita expenditures are generally in the $12 to $20 range. The recent substantial drop in gasoline prices helps, as consumers will have less reluctance than they did just a few months ago to drive those miles to visit.

You can stay home only so long. People still need some relief from their anxieties and will go out for some indulgencies to get away from it all. Yes, they may trade down a little, just like consumers are trading down from white tablecloth restaurants to casual restaurants and perhaps forgoing the appetizer. But they will still go out to eat.

Several recent surveys indicate that although consumers are trading down in many categories, there are still some luxuries they won't go without. A late October 2008 survey by The Boston Consulting Group of households with incomes over $35,000 found that 62% of Americans say they trade down “so I can spend it elsewhere.” Only 27% say they do it because they cannot afford to buy the more expensive products.

Experts who study happiness have consistently found people get the most joy out of time with family and friends or activities that provide personal enrichment, such as hobbies. A recent survey by The Washington Post indicates that consumers find the prospects of spending money on friends, family or a small boost to their well-being is still worth it today. Any out-of-home activity that creates a positive social experience will get priority from consumers.

The Boston Consulting Group concluded the following in a major survey and analysis it recently conducted on trading up and trading down: “The appeal of emotional benefits, in particular, is likely to remain strong (and may even intensify) in troubled economic times, as consumers defer big-ticket purchases and embrace affordable luxuries in place of luxuries they can no longer afford.”

A study of the 1990-1991 and 2001-2002 economic downturns by McKinsey & Company showed U.S. consumers prioritized spending rather than cut it across the board. Entertainment spending during those two economic turndowns actually decreased less in percentage terms than all overall spending. (This bodes well for eatertainment, where the entertainment becomes the attraction and the food and beverage enjoys better sales than at stand-alone restaurants).

Consumers will keep coming to affordable LBLs that offer good perceived value, a short respite from economic stresses and anxiety, and a social experience for family and friends.

In fact, a little fun, a positive emotional experience, an escape with family or friends has an even higher value during times of stress and uncertainty. No, sales may not be at historic highs, but those LBLs, just like casual dining restaurants, won't get hurt to the same degree as more expensive restaurants or LBLs that aren't perceived as a good value.

With consumers watching their spending, they are going to be even more selective in which LBLs they choose to frequent. Only those that offer a compelling reason to visit -- a great perceived value -- will win consumers' dollars. Many LBL owners think perceived value is all about price. To survive in tough times, their strategy is to discount their prices, thinking that will drive business.

Perceived value in the eye of many consumers, however, is not all about price – even in times like these. Perceived value deals with price, the total experience, and the expenditure of time. Assuming the price is affordable, the time factor and the total experience are often more important than price.

If admission to a cinema is $10, but there are no good movies playing, $10 is too expensive to go see a so-so movie. But if there is a great movie showing, then $10 is considered a decent value (assuming you're not jobless and totally broke). In fact, the success of IMAX and 3-D movies indicates consumers are willing to trade up to a higher admission price to have an even better movie-going experience. Many movie theaters have upped the ante by adding dining, both in the auditorium and in restaurants, to create even greater value. Many of those dinner-and-a-movie auditoriums have an even higher ticket price, and many movie goers are willing to trade up for that higher value.

When businesses discount too much and too consistently, what they do is teach their customers the regular price is too high. Years ago, the pizza delivery business got itself in trouble with 50% off coupons. They taught customers that pizzas weren't worth full price, so if you didn't have a 50% off coupon, you didn't buy. Once you teach the consumer your full price is not a good deal, you can never go back.

There's a second problem with discounting for the short term. It can change your customer base and drive away your loyal core customers. Like it or not, we are socioeconomic creatures. We like to be in places with our own tribe. If a family-oriented LBL suddenly attracts teenagers, then it drives away its core customers. This not only can hurt sales short term, but long term, as well.

Knowing and targeting your core niche market is a powerful strategy in both good and challenging times to gain market share and improve profit margins. This is sometimes referred to as market segmentation or niche marketing. It basically boils down to leveraging whatever differentiates your LBL to target a distinct market segment that has common customer attributes.

There are only five ways that any location-based business can grow. In increasing degree of difficulty and in decreasing return on investment of money and effort, they are:

  1. Lower the guest defection rate (guests who don't return for various, usually negative, reasons)
  2. Increase the amount guests spend on each visit (higher per capita spending)
  3. Increase how often existing guests visit (higher repeat business)
  4. Attract new guests from within the existing trade area
  5. Expand the geographic reach of the trade area (almost impossible)

The first three, which focus on existing guests and their experiences when they visit, are the easiest to accomplish in both good times and bad. Research shows that for most businesses, the top 30% of customers generate 50% or more of revenues - and an even greater proportion of profits. The last two are focused on attracting new guests and generate a much lower return on investment. And as mentioned earlier, changing the value equation for your offering can actually result in a loss of revenues from existing guests.

Kamor Karington, a Las Vegas-based marketing consultant, puts it this way, “If you're going to give anything away, give it to someone who's already been to your place. Taking care of those who've already come to you is a much more effective long-term strategy than doing two-for-ones and trying to attract strangers.” This of course, means LBLs need to maintain a customer database, so they know who their existing customers are.

There are ways to offer deals in tough times and not hurt your business, both short and long term. One recent good example we noticed was John's Incredible Pizza in California with a 12 Days of Christmas promotion. There was a different coupon deal for each of 12 days. This targeted the slower period before Christmas, and in most cases, rather than discount the business' core product buffet price, it added value with entertainment (with its higher margins). The company created higher value without changing the public's perception of the buffet and entertainment prices.

They did another thing that was really smart. The offer went out only to their core customers. So rather than advertise to everyone, they offered the special deals to their regular, loyal customers, making them feel special and appreciated

We recently had the opportunity to analyze the existing customers for an LBL where we discovered that the existing market niche was completely different than the owners thought. Often, owners don't know who their core customers are, so it is impossible for them to craft their offerings to have greater appeal to them. It's like trying to hit the target on a dart board blindfolded.

The formula for survival in today's challenging times is no different than it was not that long ago: know who your customers are and design your business to offer them a good value. The only difference now is you need to sharpen your act to make sure it's a great value as your customers perceive it.