Amusement Park Industry
Why Amusement Park?
Outline:
I. Industry Structure
II. Pricing Strategies
III. Analysis and Recommendations
Domestic Geographic FocusInternational Perspective
– Most popular sites are: US, France, China, Korea, U.K, Spain, Japan – U.S Entertainment Tourism accounts for roughly 3% of GDP – Creates roughly 7.5 Million jobs. (First Research)
Top Tier: Walt Disney, Cedar Fair, Universal Parks, Blackstone Group, Comcast, Six Flags
Geographic Locations• Focused on warm weather locations
)
Industry Structure Pricing Strategies Recommendations
Market Share By Percentage
11.8
41
18
9.4 9Market Share
Black StoneWalt DisneyComcastSix FlagsCedar Fair
Dominated by Walt Disney- 41 % market share
Key Characteristics: 11.B Revenue, 2.1 % in Growth, Future Growth: 2.5% until 2016, HHI= 11, 255
Industry Structure Pricing Strategies Recommendations
Southeastern Demographics Outperform Other Industry Areas
Industry Structure Pricing Strategies Recommendations
Theme Parks in the Southeast Dominate Industry Market
Industry Structure Pricing Strategies Recommendations
Industry Highly Reactive to Economic Markets
• Industry Revenues • Highly elastic relative to the economy.
Revenues suffered with economics downturn
– 3,000 establishments = $11 billion USD
– Top 50 companies receives 85% of these profits
– Why?
Industry Structure Pricing Strategies Recommendations
Industry Initial CostsWhat you need to build? What is being outsourced?
Majority of amusement parks construction are external executed but driven by internal decision makers
Project fees subject to Governmental Regulations – (FEC and IAAPA) ( American Society of Testing Material)Patents (Mostly costly in time)Licensing (Internal)
Internally Controlled functionsFinancingPre-opening (including the operating plan for the park; (Internal Marketing and Operations)Park opening (Internal) Insurance (Internal)
Outsourced Functions of Construction ---( Economies of Scale) Design development (External/ Internal)Construction drawings (External)Procuring rides and other equipment; (External)Installing rides, show facilities and other equipment; (External)
Industry Structure Pricing Strategies Recommendations
Costs of Production as a Barrier• Construction of amusement park
require a great deal of initial capital.
– Serves as a barrier to entry
– Requires massive amounts of : additional capital for branding and maintenance
– Fixed costs or improvement costs can be categorized into two things: overhead costs or new project costs or implementations of new rides.
Industry Structure Pricing Strategies Recommendations
Historical Context of Initial Investment
Industry Structure Pricing Strategies Recommendations
Current and Expansion of Consumer Demographics
Consumer Market Break Down
• Younger than 18 consumer market is prized
• International visitation
• Establishments of new target markets
Industry Structure Pricing Strategies Recommendations
Consumer SpendingAverage revenue per customer which– Typical average daily range for admission costs is $15 - $55 Dollars.
Typically the park range for attracting consumers is a 2 hours drive (external factors)
Industry Structure Pricing Strategies Recommendations
Differentiation Factors leading to Pricing Strategies
• There is an economy of scale factor (Major factor) – Profitability heavily based on effective advertising . – Smaller companies compete by having specialty rides while
these: • Coney Island Cyclone versus Kingda Ka (6% more on Capital
Improvements)• S($100,000 – $1 million) and L (1 million +)
– Merchandising Relationships (40% in merchandising 55% ticket sales)
– Product Offerings- Exclusively a water park? Rollers coasters? The best companies do it all. The reason for high concentration across industry subcategories.
Industry Structure Pricing Strategies Recommendations
Major differentiation relies on the advertising
Often association with a new product or service- Exclusive opening of new rides.
Distribution Channels and actual physical properties(rides), Technology : ie Disney and mobile applications
-(Line wait technology and online sales) -internal staffing technology – Affects the consumer experience
Direct sales methods online, Branded merchandise
Industry Structure Pricing Strategies Recommendations
Pricing Strategies
Pay one price
Second Price Discrimination
Two Part Tariff
« Magic Your Way » Disney Strategy
Third Price Discrimination
Complementary Products
Bundling
Advance Selling
Industry Structure Pricing Strategies Recommendations
Source: http://ocresort.ocregister.com/2010/08/03/disneyland-raises-ticket-parking-prices/51833/The Orange County Register, August, 2010.
Industry Structure Pricing Strategies Recommendations
• Objective:* Maximize profit by extracting all customers surplus
• How it works:* Visitors are charged a lump sum admission fee for the right to buy rides at a price of P
per ride.X= D(P, M-T)
• Who uses this pricing strategy?* Local amusement parks
* Some bigger amusement parks for selected high demanded attractions
• Advantages:* Greater incentives for customers to make repeated
* Enable the company to capture customers surplus
• Disadvantages* Customers still have incentives to make fewer visits and buy more during each trip
* Higher transaction costs
PASS PRICING
Industry Structure Pricing Strategies Recommendations
Pass Pricing: impact of the number of attractions and shows on ticket price
Rides
Shows
Total
Pass Price
Disney World, Florida
36
11
47
$90.53
Sea World, Orlando
13
21
34
$49.99
CA great America
47
7
54
$55.99
Six flags, Baltimore
55
5
60
$56.99
Industry Structure Pricing Strategies Recommendations
• Objective:* Maximize profit by extracting all customers surplus
• How it works:* Visitors are charged a lump sum admission fee for the right to buy rides at a price of P per
ride.X= D(P, M-T)
• Who uses this pricing strategy?* Local amusement parks
* Some bigger amusement parks for selected high demanded attractions
• Advantages:* Greater incentives for customers to make repeated
* Enable the company to capture customers surplus
• Disadvantages* Customers still have incentives to make fewer visits and buy more during each trip
* Higher transaction costs
TWO-PART TARIFF
Industry Structure Pricing Strategies Recommendations
DISNEY’S STRATEGY: “MAGIC YOUR WAY”Purposes:
Increase the rate of attendance in its parks
Set a price inferior to its competitors
How?
o Making the added cost for extra visits negligible
o Capitalizing on the law of diminishing marginal utility
Industry Structure Pricing Strategies Recommendations
1 2 3 4 5 6 7 8 9 10$0
$50
$100
$150
$200
$250
$300
$350
Magic Your Way Strategy
Base ticket Ages 10-up
Average Price per day
Price
per
tick
et
Number of days
Industry Structure Pricing Strategies Recommendations
% Increase 1 day 3.7% 2 days 3.7% 3 days 3.6% 4 days 4.7% 5 days 5.9% 6 days 7% 7 days 8.1% 8 days 9.13% 9 days 10.12% 10 days 11.1%
1 day 2 days 3 days 4 days 5 days 6 days 7 days 8 days 9 days 10 days$0
$50
$100
$150
$200
$250
$300
$350
Jun-11
Jun-12
Disney increases the premium from June 2011 to June 2012
Price per ticket ($)
Number of days
Industry Structure Pricing Strategies Recommendations
Success of its strategy
0
2
4
6
8
10
12
14
16
18Florida Park Amusement Attendance
Attendance numbers in million
The 4 parks of Walt Disney World
Industry Structure Pricing Strategies Recommendations
• Objective• Attract people who would not visit your attraction otherwise
• Customer segmentation:• Adults: always charged the highest price
• Children: often get high discounts in the industry
• Students: get discounts in some theme parks
• Seniors: get discounts in a few theme parks
THIRD PRICE DISCRIMINATION
Industry Structure Pricing Strategies Recommendations
Sea World Disney World
CA Great America
Six Flags America, Baltimore
0102030405060708090
100
AdultChild
Third Price Discrimination: Differences in prices between adult and child segments in four major theme parks
Sources: Theme parks websites
Industry Structure Pricing Strategies Recommendations
Amusement parks usually charge high prices on complementary products
• ObjectiveIncreased profits on products customers have a low sensitivity to prices
variations
• Trick:“You can not bring any food or drinks in the park”Asymmetry of information
COMPLEMENTARY PRODUCTS
Industry Structure Pricing Strategies Recommendations
One slice pizza
Cockail 1 bottle sports drink
Parking02468
10121416
Theme parks priceUS average price
Complementary products pricing: some examples
Industry Structure Pricing Strategies Recommendations
ADVANCE SELLING
How?
• Use of new technologies (online tickets, prevention of arbitrage)
Industry Structure Pricing Strategies Recommendations
• Encourage people to buy online with discounts and take advantage of their uncertainty about their future enjoyment of the park
Industry Structure Pricing Strategies Recommendations
Differences in prices at the gate and online. Disney Land Resort California.
Purchase valid now through December 31, 2012. General Adult ticket.
1-day 1-Park Ticket 2-days 1-Park Ticket
3-days 1-Park Ticket
4-days 1-Park Ticket
5-days 1-Park Ticket
6-days 1-Park Ticket
$0
$50
$100
$150
$200
$250
$300
At the gateOnline
Price
Type of ticket
Industry Structure Pricing Strategies Recommendations
Results
• Increase profits• Speeds up the lines • Maximize spending on souvenirs and other impulse purchases
Industry Structure Pricing Strategies Recommendations
ADVANCE SELLING RESORT HOTELS
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
500.00
Loews Portofino Bayhotel
Hard Rock Hotel
Loews Royal Pacific Resort
Price per night for a family of 2adults and 2children if we buy now.Universal Orlando ResortPrice per
night ($)
Time
Industry Structure Pricing Strategies Recommendations
BUNDLINGAdvantages:
Discounts for consumers
Simplified consumer searches
Increase in sales because consumers feel they are getting their money’s worth
Technologies facilitate the bundling.
Use of customization
The operator hides how much the customer pays for each individual item.
Temptation of discounts.
Industry Structure Pricing Strategies Recommendations
VACATION PACKAGES “Disney World Premium”
Include:
Accommodations at a Disney Resort Hotel Park entry tickets. Choice of the number of days Park Hopper Option that permits you to go through all 4 Walt Disney World
theme parks Extra package benefits:
Walt Disney World Marina Discounts, 15% off Planet Hollywood $15 USD Meal Voucher and Souvenir Keepsake Children’s Activity Centers Discount Spa Discount 15%off Bath fishing discount
Industry Structure Pricing Strategies Recommendations
SeaWorld® Combo Ticket
Two Great Parks, One Low Price Save $25 on the
combined price of General/Adult admission.
Plus, enjoy unlimited visits for up to 14 days at both
parks!
Combo ticketsAlliances between competitors
Industry Structure Pricing Strategies Recommendations
Recommendations
• Special prices that grant admission to the park but don’t let the ticket holder ride anything
• As people become more sophisticated, operators have to keep up with these customers increased expectations
• Lower transaction costs with more efficient technologies so as to switch to a two part tariff strategy
• Ipod and ipad applications to increase park security and decrease waiting times for rides
Industry Structure Pricing Strategies Recommendations