Why do theme parks like Ocean Park offer huge discounts to Hong Kong residents and not to tourists? Nipun Sharma.

Why do theme parks like Ocean Park offer huge discounts to Hong Kong

residents and not to tourists?

Nipun Sharma

Brief Outline

Introduction - facts and assumptions Scenario 1 – No discount to local residents Scenario 2 – Heavy discounts to local

residents

Ocean Park

One day ticket to Ocean Park:– $ 185 / day

Most expensive annual Pass available to a HK resident:– $ 550 / year

Do the math…– $ 550 / 365 days ~ $ 1.5/ day

Comparison

$ 185 Vs. $ 1.5 Tourists pay 122.8 times the money!!

Rationality assumption

Opportunity cost for most people to spend a day at OP would exceed $ 1.5 – rational people will not attend every day

(more like 3-5 times a year). If locals were irrational, Ocean Park would be

in debt because $ 1.5 would presumably be far below their MC.

Facts and assumptions

Tourists are generally not very price sensitive inelastic demand

Locals are elastic demand– Diminishing marginal utility

Tourist demand is higher during peak season ( Dec and Jan only) and lower the rest of the year

Demand from locals is steady all year long

Scenario 1: Don’t offer discount to locals

High demand from tourists during peak season.

Low demand from tourists during the rest of the year.

Low demand from locals all year long.

Numbers are relative

The numbers are not REAL – just a set of easy numbers to show the relationship.

OP needs minimum 40 tickets sold every month to meet their reservation point

Tourist demand

Tickets sold

0

20

40

60

80

100

120

DecJa

nFeb M

ar AprM

ay Jun Ju

lAug Sep Oct Nov

Months

Tic

kets

so

ld

Tickets sold

PLUS

Demand from locals

Tickets sold

0

20

40

60

80

100

120

DecJa

nFeb M

ar AprM

ay Jun Ju

lAug Sep Oct Nov

Months

Tic

kets

so

ld

Tickets sold

EQUALS

Tickets sold

0

20

40

60

80

100

120

DecJa

nFeb M

ar AprM

ay Jun Ju

lAug Sep Oct Nov

Months

Tic

kets

so

ld

Tickets sold

Total demand under Scenario 1

Observations

Ticket sales from Feb – Nov = 30 tickets short of reservation point.

Ticket sales in Dec and Jan = 60 tickets above reservation point.

Overall, park will not make enough profits year along will shut down in the long run.

Scenario 2: Heavy discounts to locals

High demand from tourists during peak season.

Low demand from tourists during the rest of the year.

Moderate demand from locals all year long.

Graph it out – same tourist demand

Tickets sold

0

20

40

60

80

100

120

Months

Tic

kets

so

ld

Tickets sold

PLUS

Demand from locals - moderate

Tickets sold

0

20

40

60

80

100

120

DecJa

nFeb M

ar AprM

ay Jun Ju

lAug Sep Oct Nov

Months

Tic

kets

so

ld

Tickets sold

EQUALS

Total demand under Scenario 2

Tickets sold

020406080

100120140160180

DecJa

nFeb M

ar AprM

ay Jun Ju

lAug Sep Oct Nov

Months

Tic

kets

so

ld

Tickets sold

Observations

Ticket sales from Feb – Nov = 20 tickets above reservation point

Ticket sales in Dec and Jan = 120 tickets above reservation point

Park will make more than enough profits to support it self all year long.

Peak season will be HUUUUUGE.

Conclusion

Scenario 1: OP can only sustain it self during peak season and be in debts during the rest of the year

Scenario 2: OP will make a ridiculous amount of profit during peak season and a good amount of profit the rest of the year.

Basic price discrimination Tourists – not price sensitive – incentive not required Gives residents incentive to revisit

Words from the creator of OP

RAISE YOUR HAND FOR NIPUN…PLEASE.

THANK YOU.