Why Amusement

Park?

Outline:

I. Industry Structure

II. Pricing Strategies

III. Analysis and

Recommendations
 Domestic Geographic Focus
International 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
Market Share
9 11.8
9.4
Black Stone
Walt Disney
18 Comcast
41 Six Flags
Cedar 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 Costs
What 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 functions

Financing
Pre-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 Spending
Average 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

 PASS PRICING
• 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

Industry Structure Pricing Strategies Recommendations

 Pass Pricing: impact of the number of attractions and shows on
ticket price

Sea World, CA great Six flags, Disney World,

Orlando America Baltimore Florida

Rides 13 47 55 36

Shows 21 7 5 11

Total 34 54 60 47

Pass Price $49.99 $55.99 $56.99 $90.53

Industry Structure Pricing Strategies Recommendations

• Objective:
TWO-PART TARIFF
* 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

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

 Magic Your Way Strategy
$350

$300

$250
Price per ticket

$200
Base ticket Ages 10-up

Average Price per day

$150

$100
Number of
days
$50

$0
1 2 3 4 5 6 7 8 9 10

Industry Structure Pricing Strategies Recommendations

 % In crease
1 day 3.7%
2 days 3.7%
3 days 3.6%
Disney increases the premium from June 2011 to June
4 days 4.7%
2012
5 days 5.9%
6 days 7% Price per
ticket ($)
7 days 8.1%
$350
8 days 9.13%
9 days 10.12%
1 0 days 11.1% $300

$250

$200
Jun-11

Jun-12
$150

$100

$50

$0 Number of
1 day 2 days 3 days 4 days 5 days 6 days 7 days 8 days 9 days 10 days days

Industry Structure Pricing Strategies Recommendations

 Success of its strategy
Attendance
numbers in
million Florida Park Amusement Attendance
18

16

14

12

10

0
Walt Disney Epcot Disney’s Hollywood Disney’s Animal Universal Studios Islands of Seaworld Florida Busch Gardens
World’s Magic Studios Kindgom Orlando Adventure at
Kingdom Universal

The 4 parks of Walt Disney World

Industry Structure Pricing Strategies Recommendations

 THIRD PRICE DISCRIMINATION

• 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

Industry Structure Pricing Strategies Recommendations

 Third Price Discrimination: Differences in prices between adult
and child segments in four major theme parks

100
90
80
70
60
50 Adult
40
Child
30
20
10
0
Sea World Disney CA Great Six Flags
World America America,
Baltimore
Sources: Theme parks websites

Industry Structure Pricing Strategies Recommendations

COMPLEMENTARY PRODUCTS

Amusement parks usually charge high prices on complementary products

• Objective
Increased 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

Industry Structure Pricing Strategies Recommendations

 Complementary products pricing: some examples

16
14
12
10
8 Theme parks price
6 US average price
4
2
0
One slice Cockail 1 bottle Parking
pizza sports drink

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.
Price

$300

$250

$200

$150 At the gate

Online

$100

$50

$0
Type of
1-day 1-Park 2-days 1-Park 3-days 1-Park 4-days 1-Park 5-days 1-Park 6-days 1-Park ticket
Ticket Ticket Ticket Ticket Ticket 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

Price per night for a family of 2adults and 2children if we buy now.
Price per
night ($) Universal Orlando Resort

500.00

450.00

400.00

350.00

300.00

250.00

200.00

150.00 Loews Portofino Bayhotel

100.00 Hard Rock Hotel

Loews Royal Pacific Resort

50.00

0.00

Time

Industry Structure Pricing Strategies Recommendations

BUNDLING
Advantages:

 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

 Combo tickets
Alliances between competitors

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!

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