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


Southeastern Demographics Outperform Other Industry Areas


Theme Parks in the Southeast Dominate Industry Market


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 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)


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.


Historical Context of Initial Investment


Current and Expansion of Consumer Demographics

Consumer Market Break Down

• Younger than 18 consumer market is prized

• International visitation

• Establishments of new target markets


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)


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.


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


Pricing Strategies

Pay one price

Second Price Discrimination

Two Part Tariff

« Magic Your Way » Disney Strategy

Third Price Discrimination

Complementary Products

Bundling

Advance Selling


Source: http://ocresort.ocregister.com/2010/08/03/disneyland-raises-ticket-parking-prices/51833/The Orange County Register, August, 2010.


http://ocresort.ocregister.com/2010/08/03/disneyland-raises-ticket-parking-prices/51833/

• 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


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


• 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


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


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


% 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


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


• 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


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


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


One slice pizza

Cockail 1 bottle sports drink

Parking02468

10121416

Theme parks priceUS average price

Complementary products pricing: some examples


ADVANCE SELLING

How?

• Use of new technologies (online tickets, prevention of arbitrage)


• Encourage people to buy online with discounts and take advantage of their uncertainty about their future enjoyment of the park


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




$0

$50

$100

$150

$200

$250

$300

At the gateOnline

Price

Type of ticket


Results

• Increase profits• Speeds up the lines • Maximize spending on souvenirs and other impulse purchases


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


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.


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


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


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


Amusement Park Industry

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