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Amusement Park Industry

Amusement Park Industry. Why Amusement Park?. Outline : Industry Structure Pricing Strategies Analysis and Recommendations. Domestic Geographic Focus. International Perspective Most popular sites are: US, France, China, Korea, U.K, Spain, Japan

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Amusement Park Industry

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  1. Amusement Park Industry

  2. Why Amusement Park? Outline: Industry Structure PricingStrategies Analysis and Recommendations

  3. 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 )

  4. Market Share By Percentage 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

  5. Southeastern Demographics Outperform Other Industry Areas

  6. Theme Parks in the Southeast Dominate Industry Market

  7. 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?

  8. 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)

  9. 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.

  10. Historical Context of Initial Investment

  11. Current and Expansion of Consumer Demographics Consumer Market Break Down Younger than 18 consumer market is prized International visitation Establishments of new target markets

  12. 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)

  13. 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 KingdaKa (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.

  14. 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

  15. PricingStrategies • Pay one price • Second Price Discrimination • Two Part Tariff • « MagicYourWay » Disney Strategy • Third Price Discrimination • ComplementaryProducts • Bundling • AdvanceSelling

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

  17. 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 PassPricing

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

  19. 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

  20. Purposes: • Increase the rate of attendance in its parks • Set a price inferior to its competitors Disney’s strategy: “Magic your Way” • How? • Making the added cost for extra visits negligible • Capitalizing on the law of diminishing marginal utility

  21. Number of days

  22. Disney increases the premium from June 2011 to June 2012 Price per ticket ($) Number of days

  23. Success of its strategy Attendance numbers in million The 4 parks of Walt Disney World

  24. 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

  25. Third Price Discrimination: Differences in prices between adult and child segments in four major theme parks Sources: Theme parks websites

  26. Complementaryproducts 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

  27. Complementary products pricing: some examples

  28. Advance Selling How? • Use of new technologies (online tickets, prevention of arbitrage)

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

  30. Differences in prices at the gate and online. Disney Land Resort California. Purchase valid now through December 31, 2012. General Adult ticket. Price Type of ticket

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

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

  33. 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.

  34. 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

  35. Combo ticketsAlliances between competitors SeaWorld® Combo TicketTwo Great Parks, One Low PriceSave $25 on the combined price of General/Adult admission. Plus, enjoy unlimited visits for up to 14 days at both parks!

  36. 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

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