RevMgmt GamingStudios Jagadessh Shekar-1

8/13/2019 RevMgmt GamingStudios Jagadessh Shekar-1

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BHARATHIDASAN INSTITUTE OF MANAGEMENT

Trichy

REVENUE MANAGEMENT FOR A

GAMING STUDIOFIRST CRUSH GAMING STUDIOS, BANGALORE

SEKHAR S (27111) JAGADHEESHAN G(27075)


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TABLE OF CONTENTS

TABLE OF CONTENTS ..................................................................................................................................... 1

OVERVIEW: .................................................................................................................................................... 2

BACKGROUND OF COMPANY AND INDUSTRY: ............................................................................................. 2

REVENUE OBJECTIVES OF THE COMPANY: ................................................................................................... 4

DRIVERS OF REVENUE: .................................................................................................................................. 4

REVENUE VARIABLE AND CAPACITY CONSTRAINTS: .................................................................................... 5

AUXILIARIES: ................................................................................................................................................. 6

FORECASTING ................................................................................................................................................ 6

NEED TO FORECAST: ................................................................................................................................. 6

LEVEL OF FORECAST: ................................................................................................................................. 7

SEASONALITY AND OTHER FACTORS THAT INFLUENCE FORECAST: ......................................................... 7

PRICING ......................................................................................................................................................... 8

PRICING STRATEGIES ................................................................................................................................. 9

TYPES OF PRICING USED: ........................................................................................................................ 11

PRICE REVISING METHODS AND FREQUENCIES:..................................................................................... 13

PRICE ELASTICITY..................................................................................................................................... 14

REVENUE CLASS: ......................................................................................................................................... 15

Table 1 ................................................................................................................................................. 15

Table 2 ................................................................................................................................................. 16

Table 3 ................................................................................................................................................. 17

MAXIMIZING REVENUE: .......................................................................................................................... 17

OPTIMIZATION: ........................................................................................................................................... 19

REVENUE MAXIMIZATION TECHNIQUES:................................................................................................ 20

RECOMMENDATIONS: ............................................................................................................................ 20

HOW TO MEASURE EFFECTIVENESS: ...................................................................................................... 22


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OVERVIEW:

The objective of this project is to provide a revenue management solution for

First Crush Gaming studio, a newly opened gaming parlour in Bangalore. It was

started less than two months ago and while it generated a hugely positive

response in the first one month, business has begun stagnating in the second

month. This project aims to suggest strategies for First Crush to increase revenues

for sustaining its business. The project draws upon strategies employed by

successful gaming centres like The Blur at Sathyam Cinemas, Chennai.

BACKGROUND OF COMPANY AND INDUSTRY:

First Crush gaming studio was started on January 8 2012 by two software

engineers, Richa Sharma and Manas Sharma. It is situated off the Outer Ring Road

in Ramamoorthy Nagar in Bangalore, along a corridor where lots of IT companies

have set up offices and where thousands of software engineers reside. It mainly

targets software engineers looking at gaming as a leisure activity. Apart from this,

it secondary targets include college going youth and high-school children who are

passionate about computer gaming. It is targeted at those customers in the east

suburban areas who have leisurely time to spend but do not want to drive all the


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way to the city. It provides an easier and closer option that helps customers avoid

the nagging problems of heavy traffic en route to the city.

Computer gaming has grown to become one of the most preferred leisure

activities for the youth today. Growth of technology and individual possession of

computers has given rise to this new passion. Once restricted to cartridge-chip

based games, these have moved towards CD-based games and now the games

have gone global with the internet making it possible for players from different

parts of the world to play over the web. In addition, most games are offered

freely downloadable over the internet.

Technology companies like Nintendo and Sony have developed gaming specific

hardware such as Wii and Playstation which have also become hugely popular

among gaming aficionados. Microsoft, not wanting to be left out, has produced

Xbox. These hardware have become so popular that a gaming parlour is

considered incomplete if it does not possess any or all of these.

THE BLUR is the gaming studio opened as part of Sathyam Cinemas in Chennai.

Sathyam Cinemas was originally a multiplex theatre but with cinema tickets being

capped at Rs. 120, the group began integrating food and gaming to manage its

revenue. Instead of outsourcing its food requirements, it opened its own food


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division which prepares food for the theatres and the restaurants it operates

within its multiplex premises. THE BLUR was opened to provide the movie goes

with a complete leisure experience. It consists of a bowling alley, computer games

and a complete set of Playstation, Xbox, Wii and Arcade games.

REVENUE OBJECTIVES OF THE COMPANY:

The gaming studio was started as a means of entertainment and recreation in the

neighbourhood of Ramamurthy Nagar. With more new and innovative computer

games being launched and existing games being upgraded, the objective of

revenue generation is to cover the day-to-day costs involved in running the studio

and enable the installation of upgraded and licensed versions of the latest games.

The objective also includes getting repeat and newer customers through

optimized usage of the gaming stations and auxiliary products.

DRIVERS OF REVENUE:

1. Type of games

2. Day of week & time of day

3. Length of usage

4. Ability to upgrade offerings from time to time


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5. Membership schemes

6. Availability of gaming stations (stations refers to any of computer,

playstation and snooker)

REVENUE VARIABLE AND CAPACITY CONSTRAINTS:

The revenue variable in this case is the amount per hourly usage of a gaming

station. The hourly rates are as follows

GAMING STATION CAPACITY RATE (Rs.)

Computer 6 nos 30

Playstation 2 nos 65

Snooker 1 120

As seen from the above table, the constraints in this case are the number of

available terminals. There can be cases when people come in groups and during

such times if no station is available, it can put off the group. On the other hand if

a group of six people is occupied in the computers, it can force incoming

customers to wait before they are given a terminal.


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AUXILIARIES:

Apart from gaming, First Crush also sells carbonated beverages and snacks. These

are sold independently and are not tied to any gaming usage. These are provided

to the users on request. So far the studio has not introduced packages and

membership schemes whereby users can avail discounts in future use of the

services.

FORECASTING

NEED TO FORECAST:

Forecasting would help First Crush to predict its demand to a favourable and

comfortable position and set prices accordingly. It helps the company to equip

itself of the demand that has to be met and increase in capacities. Instead of

having fixed rates for each gaming station, FC can set prices for different games

according to their popularity. Revenue management achieves its revenue gains by

applying statistical methods to forecast for a given time horizon. In this manner, it

helps the company to manage capacity and price that result in improved revenue

per gamer.


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LEVEL OF FORECAST:

Currently First Crush does not employ any forecasting techniques. However if we

are to recommend one it would be at the level of each game rather than at the

gaming station level. This is because of the huge popularity of some games such

as Counter Strike and FIFA Football. It therefore makes sense to have these

popular games at all six computer terminals and the less popular ones at fewer

terminals. Moreover majority of the customers come in looking to play specific

games and it is therefore justified to have the forecasting done at the individual

game level in the case of computer terminals.

SEASONALITY AND OTHER FACTORS THAT INFLUENCE

FORECAST:

Weekends and public holidays greatly affect the demand levels. Weekends here

includes Friday, Saturday and Sunday. As First Crush has school children also as

customers, school vacation times would see a peak in demand. Lean demand

periods would be daytime on weekdays and during examination time for school

children. Presence of another gaming studio in the same neighbourhood also

impacts demand.


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One factor that can be expected to impact the demand largely is the cricket

season, particularly the Indian Premier League during April-May. With most

matches happening during the evening and prime time, viewers have a means of

recreation in their homes itself.

PRICING

Pricing is a key strategy to improve the profits, since its mostly the service which

is being consumed here in the case of the Gaming studios, there must be

sufficient amount of details that should go in to the pricing criteria including the

pricing strategy to be employed.

Simply raising the price of the product is not a solution here since such an act may

lead to potential loss of revenue to the competition and lower pricing may eat

away the profit. So the pricing needs to be optimized.

The product being the service here and experience is the most important factor to

be considered for placing the product in the customer minds, a right mix with the

price will aid the process and be beneficial.


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PRICING STRATEGIES

The different kinds of pricing strategies that can be used:

1) Profits Maximization: the Main objective is to maximize the profits

associated with the service of Gaming studios and is absolutely necessary

to keep the shareholders happy and the company healthy.

2) Return on Investment: As a firm, the main objective of the investors into the

gaming studios is to get reasonable return on their investment with focus

on increasing the profits and Break even.

3) Market Share Maximization ( In-terms of number of footfalls and customer

strength) : For Gaming studios to generate revenue, the market share in the

location plays a huge role Repeat customers and Attracting new customers

with proper incentives forms the part of the pricing strategy.

4) Price Differentiation: Since the Product consumed is similar (service

Games) in various gaming studios, price forms a important factor for

differentiating our product from others, this also forms an important

criteria for revenue maximization where the price differentiation within a


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gaming studios based on the game and hour of use forms the base for

important management decisions.

5) Revenue Maximization: Pricing also forms an important component to

optimize revenue and maximize the same with the existing resources.

6) Maintaining Existing Customers: For the Gaming studios to achieve the cost

advantage, maintaining existing customers and thus making them to visit

our gaming studio more frequent, will increase the chances of growth for

the company.

7) Stability in Market: Some pricing strategies aim at attaining a stable

position in the market with the intension of sustaining the competition and

to achieve a commanding position.

8) Determination of Fair prices for the customers: Customers as such are price

sensitive and they will not accept the an unfair price for the service. The

pricing decision is based on the perceived value which comes with the

service.

9) Long Term Survival: This is for a going concern where the survival of the

entity sustaining the competition is the goal. Long term survival can be

achieved by increasing /decreasing the prices as per the market conditions

and maintaining the quality of the service.


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TYPES OF PRICING USED:

1) Cost Based Pricing: The pricing decisions are based on the cost incurred in

running the business and apportioning it on the machines added with a

profit margin. This is a simple method of pricing.

2) Competition Based Pricing: Competition based pricing deals with fixing the

prices based on the competitors prices wherein charging a premium or a

discount over the competitors price based on various criteria such as

Ambience, Space, Type of Game etc.

3) Demand Based Pricing: Demand is the most important contributing

element in the gaming studios. Gaming studios are highly price elastic

wherein the increase in demand will increase the price and Vice versa.

4) Target Return Pricing: Target Return Pricing is based on achieving the

targeted revenue and pricing the product accordingly to achieve the

revenue within stipulated time.

5) Pricing according to the dominant price in Market(Analysis):This is done by

analyzing the gaming studios location, ambience and a customer survey or

research is done to determine the right price to fit the product.


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6) Price Above/Below Competitors: This technique is used for beating the

competition and to increase the presence and thus the market share. We

analyze the competitorsprices and accordingly price our Gaming prices.

7) Bundled Pricing: Bundled pricing is most effective means of pricing which is

used in recent times, here we combine a less revenue making product with

a hit service and offer them as a package in order to maximize revenue on

both.

8) Pricing based on the Average Prices in Market: This is one of the effective

means of pricing where in the other gaming studios are studied for their

prices and an average of those prices are found in order to determine the

price of our service.

9) Value Pricing: value pricing is associated with the value of the service and

the perceived value of the product including the benefits. This is basically

the price the customer will be willing to pay irrespective of the fact that it is

charged a premium.

10) Dynamic Pricing: Dynamic pricing is the flexible pricing mechanism by

using information technology to analyze the market fluctuations and arrive

at a price. Most apt solution for a gaming studio.

The pricing intensions determine the type of the pricing used for the purpose.


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PRICE REVISING METHODS AND FREQUENCIES:

The Price revision can happen in many situations and some of them are listed

below:

On Upgrade: On upgrade of the existing gaming station or the game itself to a

current level, the increase in cost should be compensated with the necessary

pricing decision, which can support an increase in revenue. Such increase may

necessarily facilitate charging the customers more than the existing Prices.

On Capacity Increase: The capacity increase in the gaming studio, with an

addition of new stations, can further contribute to the price revision. This will

happen more frequent based on the new additions due to the growth of the

studios. The revision will be based on optimally allocating prices for the high

revenue yielding machines and converting the low revenue yielding games to high

revenue targets through capacity addition and Upgrade/Degrade decisions.

Launching New game : the introduction of a new game will further induce a prize

revision in the existing games, this is to incorporate the optimal usage of the

machines to increase the revenue. The prices will be based on cost based to

achieve break-even sooner.


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Demand:The Increase in demand for one of the games will induce a price revision

to that particular game along with the other games. This is to maximize the

revenue while the demand is high and also to facilitate optimal utilization of the

studio.

Frequency: The frequency of the revision is also based on the above criteria. In

terms of timelines, the frequency may be as low as a month Quarter as a

Minimum period and to a maximum it can go up to 2 Years.

PRICE ELASTICITY

Price elasticity of demand (PED or Ed) is a measure used in economics to show the

responsiveness, orelasticity,of the quantity demanded of a good or service to a

change in its price. This is indeed most of the times negative in the case that,

when the demand goes high, the price of using the machine can be increased thus

helping us to maximize the revenue.
http://en.wikipedia.org/wiki/Elasticity_(economics)http://en.wikipedia.org/wiki/Elasticity_(economics)


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REVENUE CLASS:

Revenue Classes here can be taken as one among the three possible options listed

below.

Revenue Classes here refer to the following major classes w.r.t the time of usage

of the Gaming studio, which can be taken as a base for determining the

appropriate Revenue Management Strategy.

Revenue Class Day and Time

WeekdayOff Peak Monday to Friday: Time 10 AM to 3.59 PM

WeekdayPeak Monday to Thursday : Time 4 PM to 10 PM

WeekendPeak On Saturday and Sunday : Time 1 PM to 10 PM

Friday : Time 4 PM to 10 PM

WeekendOff Peak Saturday and Sundays : Time 9 AM to 12.59 PM

Kids Hour Daily 4 PM to 6 PMCombos

Holiday Packs SeasonalBased on HolidaysCombos

Table 1

Another way of describing the revenue class which can used is based on the

combo packs where the continuous usage of the machine for more than a Hour in

terms of the following slots defined as additional new revenue classes which are

divided based on the machine used.


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Class Usage Time (Hrs)

C-A1 3

C-B1 2

C-C1 1

P-A1 3

P-B1 2

P-C1 1

S-A1 3

S-B1 2

S-C1 1

Table 2

Another way to describe the revenue classes is to have the revenue based on the type of game

chosen for play in the computer terminal or in the play station or the pool. As given in the

below table


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Machine Class CD Usage

Computer Terminal C-A Kids

Computer Terminal C-B FPS (First Person Shooting)

Computer Terminal C-C Racing

PlayStation P-A Kids

PlayStation P-B FPS (First Person Shooting)

PlayStation P-C Racing

Snooker S-A Pool - Upto 4 Members

Snooker S-B Pool - more than 4 Members

Table 3

We have made the optimization decisions based on the above table and used it as a Reference.

Further we have assumed that, there will be only 2 instances of a game available at any point of

time. This class can be further combined with the Override from the peak and Non Peak

phenomenon on a weekday and weekend to optimally price the products for maximize the

revenue.

MAXIMIZING REVENUE:

Revenue Maximization can be achieved by following any of the above revenue classes as

base for managing the revenue. The optimal use of the machines is the key and the utilization

should be always 100 % to maximize the revenue.

Presently, First Crush is not using the any revenue management principles and is using

the fixed rates for the games irrespective of the time or day of Usage. We would suggest the


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initial revenue plan of charging the customers based on the peak and off peak time during both

weekdays and weekends.

Since the Optimization of usage of the existing resources namely the Computer

Terminal, Play Station and the Snooker will lead to effective utilization of the First Crushs

resources, we can achieve an higher revenue, the capacity and Space of the studio along with

the initial investment to make to start a new gaming station will become the constraints for

such an act.


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OPTIMIZATION:

Optimization is normally done to increase the revenue of the project by properly utilizing the

available resources.

The problem here is the maximization of revenue, with the limited resources available. The

demand for the service is currently feeble, for the First Crush was recently launched, we have to

induce demand through promotions and Offers

Problem: Optimization

Rev_Mgmt_Gamingstudios.xlsx

Assumptions:

The assumptions are based on the constraints that the No of DVDs available for the usage in

only 2 at any moment, thus only two instances of the game can run at any given time and hence

having a constraints on capacity. Table 3 with Revenue classes based on the Type of Game is

used as a base for the study.


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REVENUE MAXIMIZATION TECHNIQUES:

Other Methods include the maximization of revenue through introducing the Peak and Half

Peak Hour rates with a premium charged for Weekends than for a Weekday as defined by the

Table 1.

Introduction of combo schemes as in Table 2, will also induce maximum utilization of existing

resources and thus promoting revenue. The Demand pattern for the same should be carefully

analyzed and the upgrade decisions can be made for the class of usage to promote the

customers to visit again. The Combos can include incentives which can further promote First

Crush.

RECOMMENDATIONS:

The current utilization of Gaming stations is far below the optimal level. While

this may be attributed to factors like status (new gaming studio) and hence low

awareness level of customers, demand can be triggered by promotional activities

such as ads in city-based newspapers (like Bangalore Mirror, Deccan Herald etc),

newspaper insertions and pamphlets to be given away during special events like

trade shows.

Aggressive promotion in social media sites like Facebook and Twitter. Currently

First Crush has a page in Facebook with just a handful of members. The page can

be promoted online by the members, thereby generating word-of-mouth

publicity.

Membership packages can be introduced with options such as monthly,

bimonthly, unlimited daily and unlimited monthly.


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Introduction of customer loyalty programs such as points-reward redemption

system to further induce demand among regular gamers.

Introduction of referral schemes where referrers would be awarded a certain

number of free gaming hours for each new customer they refer. This scheme is

applicable to members only.

Whenever a new game is launched, in order to capitalize on the craze, slots can

be opened up for which booking can be done online. This helps introduce

protections whereby certain slots are opened for pre-booking at higher rates

only at a later stage thereby enabling more customers to experience the new

game. This system can be gradually extended over time to provide for

reservations and prior bookings to existing terminals.

Auxiliaries can be bundled with existing packages. For example, a beverage

bottle or tin free upon purchase of a membership package, continued usage

beyond 3 hours etc. A separate rack selling snacks can be kept at the front desk.

The snacks can be purchased from a wholesaler at a lower price and then be sold

at MRP, thereby obtaining a margin of 10-12%.

After demand stabilizes to full capacity levels, smart cards can be introduced to

gauge the usage times. The card would come in with pre-determined usage

times and swipe of the card would register the actual usage time. As this usage

time reduces, it can be recharged on payment of a certain fee which could as

high as in denominations of Rs. 100.


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HOW TO MEASURE EFFECTIVENESS:

The effectiveness of the revenue management system can be measured by the following

parameters:

Increased utilization of the gaming stations per hour per machine. This can be measured

from the number of hours spent on a particular machine through logs.

Increased daily sales

Increased revenue through sale of auxiliaries, reflected in the sales margins.

Documents

RevMgmt GamingStudios Jagadessh Shekar-1