Enigma Escape Rooms Ltd Case Study

Definition of success / Critical Issues

For the second fiscal year, Enigma Escape Rooms Ltd. should generate profit before tax at least 31.08%^[1] accounted for sales by expansion. In order to allow the company to continue a sustainable financial position while resolving the following critical issues:

• Make decision before Hidden Trail to securing the new location
• Increase customer’s awareness of the new location/new theme of rooms
• Provide value added approach to capture businesses

Situation Analysis

Alexander Miller, the proprietor of Enigma, was pleased with Enigmas financial performance in its first fiscal year and contemplating an expansion opportunity. Miller wanted to launch a new location after evaluate Enigma’s capabilities and competitive landscape. The new location would offer an additional three escapes room which will fit the increasing demand for the Halloween season. There are 60 escape rooms businesses operated in Ontario, and the current market conditions have attributed to the popularity of escape rooms and customers have a higher bargaining power resulting in a highly competitive market (porter’s 5). Currently, the first fiscal year profit before tax accounted 46.18% of sales which is able to cover the company expenses.

The main competitors of Enigma are Hidden Trail and Exodus. They both use Groupon to generating sales by offering discounted price. It is like a reminder of Enigma that they should provide value added approach to attract customer. A group of Enigma’s regular customer decided to operate their escape room business which named Ape Escape, they are familiar with Enigma’s system and will offer similar quality rooms to customers. Moreover, if Miller decided to launch a horror-themed location, it is better to make decision quickly since Hidden Trail also interested in Realm’s place as well. In order to better take care of customers’ game experience, Enigma need to grasp the degree of fear of the rooms. The new themed room will target a different segment in the market, so increase company awareness is important. Miller wondered if the new location would worth his time and investment.

Decision criteria:

• Provide more promotions to customer would reach Enigma’s target market
• Due to the expansion, Enigma better maintain at least the same level of profitability as the first fiscal year which is 46.18%^[2]

• Maintain high-quality service and excellent customer experience care
• Develop an effective company working schedule

Option 1: Expand a horror-themed location by rent Realm’s basement with high performance and provide promotion to customers

Expected sales for the second fiscal year: High $83,857.9; Low $$54,105.1

Budget: The operating cost budget will be at $37,291 includes the wages, equipment and materials.

The advantages to opening a horror-themed second location:

• Attract and retain new customers
• Have equity from Enigma’s adventured-themed rooms
• Have experienced or high-quality employees
• Halloween season will give an increase in sales
• Less set up cost than adventured-themed rooms
• Able to improve brand awareness with multiple locations

However, there are some disadvantages exist as well:

• Many competitors existing in the current market
• Require new employees or increase working hours for current employees
• Risk to failure the new location (some customers mentioned that they don’t want to be scared during the game)

Currently, Enigma only provided 10 minutes free in exchange for subscribing Enigma’s Facebook page, which seems no enough value for customers. In order to have an efficiency customer flow for the new location, Enigma could spend half of it advertising budget on SEO and the other half to offer discounted price for large group of customers.

Option 2: Expand a new location with one adventured-themed room and two horror-themed rooms by rent Realm’s basement

Expected sales for the second fiscal year: High $83,857.9; Low $$54,105.1

Budget: The operating cost budget will be at $31,163.67 includes the wages, equipment and materials.

The advantages to have both adventured-themed room and horror-themed room are similar to Option 1. However, there is an additional risk existing:

•  A single horror-themed room might not enough for the busy Halloween season

Recommendation

Based on the decision criteria, option 2 will provide the best outcome for Enigma in the second fiscal year. In terms of financials, the net profit will satisfy Miller’s expectations and it has less operating expenses compare to option1. The leverage can help Enigma pursue a higher profit target by using less capital. In order to reach the high performance level, Enigma should follow these steps:

• Rent Realm’s basement before Hidden Trail did
• Alert current and new customers that they are going to have a second location
• Complete renovation on time (September, 2016)
• Find a digital marketing agency to help with SEO
• Advertising information should require discounted price; for horror-themed room, customer will have an additional service that they are able to choose the level of fear themselves

As a result of these changes, Enigma will have higher chance to meet the high performance level and generate high profit for the second fiscal year.

Exhibit 1- SWOT Analysis

Conclusion: Enigma has some valuable strengths, such as their convenient location and the business attracted local media attention which is help them to increase awareness. One weakness for Enigma is they have limited promotion for customers. However, there are some significant threats existing, such as regular customers launch a similar business, and other competitors offer discounted price for the game.