Presentation on theme: "By Marc Sourour, Ben Chartock, and Megan Eisenbrown"— Presentation transcript:
1By Marc Sourour, Ben Chartock, and Megan Eisenbrown Amusement ParksBy Marc Sourour, Ben Chartock, and Megan Eisenbrown
2Agenda Industry Structure Pricing Strategies Raw Data Analysis Recommendations
3Why Amusement Parks? Highly Concentrated Industry Huge Variety in Pricing StrategiesEase of Access to DataEntertaining to Research
4Amusement Parks in the United States Industry StructureAmusement Parks in the United States
5Industry OverviewDefinition: This industry is made up of amusement and theme park companies that operate mechanical rides, water rides, games, themed exhibits, refreshment stands and other attractionsAmusement Parks:Not themed and simply consist of distinct attractions or rides.Theme Parks: Have a specific theme in one or more areas of the park.
6Product Segmentation (by percent of industry revenue) IBISWorld estimates that theme parks, such as Universal Studios, account for about 80.0% of total industry revenue. These very large players operate year-round and have invested heavily over a number of years in new and exciting attractions and shows.Theme parks account 80.0% of total industry revenue.
7Market Segmentation80% of the industry revenue comes from domestic visitors, but most of the amusement and theme parks attract international visitors. The revenue generated from the international market is then considered export revenue but is difficult to quantify because of the multitude of expenditures incurred to visit, including travel expenses and hotel stays.The key demographic for theme and amusement parks are people aged 25 to 44 years old, especially families with children in their teens.
8The industry is highly concentrated in the Southeast, West, Southwest, and Mid-Atlantic regions because these areas have favorable year-round weather conditions but also because of the population density of these regions is high.Orlando Florida is home to seven of the largest amusement parks in the United States.Industry players have found that there are synergies and promotional and other advantages in having a number of major operators located in the same area.
9Competitive Landscape Enterprises: 457Major Players: 5HHI: *C4: 73%Highly concentrated IndustryThe top four players in this industry will account for over 70% of total industry revenue.The number one player is the Walt Disney Company, which accounts for over a third of total domestic industry revenue.Industry concentration increased when one of the major players, Cedar Fair Inc., acquired Paramount Parks from CBS for $1.2 billion in 2006.*HHI based on the top five firms (not including other)
10Factors affecting entry Overall difficulty of entry: High Barriers to EntryHighConcentrationHigh CompetitionFactors affecting entryTechnology ChangeHigh Capital CostsMature Life CycleArea of Land RequiredThe Amusement Parks industry has a high level of concentration – the four largest players are expected to account for about 81.5% of total industry revenue in 2012There are significant costs for entry associated with the area of land required, which can vary anywhere between 100 acres to over 300 acres, and the initial capital investment required for buildings (including public facilities), displays and rides.Overall difficulty of entry: High
11Product Differentiation 1234Name the park.In response to this high level of competition in this industry, the major players must differentiate their amusement or theme park based on design and attractions, price of entry and product packages, level of technology, quality of service, encouraging overnight stays versus day trips, offering complementary destination activities and many more.Throughout the 2000s, Walt Disney World has been able to maintain its position as a market leader in theme parks due to their product differentiation strategies. One of which is to turn all of its parks into destination resorts, places where tourists would spend more than one day (Harvard Business School).In response to this high level of competition in this industry, the major players must differentiate their parks.
13Demand Drivers Social or geopolitical factors that influence travel Real household disposable incomeSocial or geopolitical factors that influence travelOther social factorsSeasonal factorsWorld Price of Crude OilPer Capita Disposable IncomeOne determinant is change in the economics, social, or geopolitical factors that influence day and overnight travel, as well as international visitors to the United States (IBISWorld). Some examples of these factors include changes to the price of fuel, reduced consumer sentiment caused by geopolitical tension, and fears of terrorism.When consumers have more disposable income to spend demand for amusement park visits is likely to increase.Social factors such as leisure time, population growth rate, age, education levels, and population mobility and distribution affect the demand for amusement park trips.Seasonal factors significantly influence the demand for amusement park visits. During periods of extreme heat, cold, wet, hurricanes or snowy weather the demand for park attendance decrease.
14Demand DriversFY13: The increase in per capita disposable income is expected to drive growth in the industry in 2013.
15Government Regulation Regulation of the industry is medium but increasingRegulatory Agents:The Federal Consumer Product Safety CommissionOccupational Health and Safety AdministrationMissouri, Utah, and District of Columbia do not require any regular inspectionsThe federal Consumer Product Safety Commission only has authority over mobile amusement rides. Some states, such as Missouri, Utah and the District of Columbia do not require any regular inspections. There are also Occupational Health and Safety Administration (OSHA) regulations associated with employees who operate or work in the vicinity of rides.
16Major Players The Walt Disney Company Universal Parks & Resorts Market Share: 36.0%FY12 Profits: $12.9 billion5-Year Growth Rate: 4.0%Brand Names: Disneyland, Walt Disney World ResortIn the news: Redesign completionUniversal Parks & ResortsMarket Share: 17.3%FY12 Profits:$2.3 billion5-Year Growth Rate: 12.4%Brand Names: Universal Studios, Islands of AdventureIn the news: The Wizarding World of Harry PotterSeaWorld Parks & EntertainmentMarket Share:11.0%FY12 Profits: $1.4 billion5-Year Growth Rate:2.3%Brand Names: SeaWorld, Busch Gardens, Adventure Island, Discovery Cove, Waterworld Country USA, Sesame Place, AquaticaIn 2007, Disney announced a multiyear $1.1-billion redesign and expansion plan for Disney's California Adventure Park. Several less popular attractions were removed, while others were redesigned or replaced with a larger focus on Disney characters and stories. The project was completed in June 2012.In 2011, Universal's Islands of Adventure experienced 29.0% growth to 7.7 million visitors, largely due to the success of the Wizarding World of Harry Potter.
17Major Players Continued Cedar Fair LLP.Market Share: 8.2%FY12 Profits: $1.1 billion5-Year Growth Rate:1.6%Brand Names: Knott’s Berry Farm, Cedar Point, Dorney Park and Wildwater Kingdom, ValleyfairSix Flags Inc.Market Share: 8.20%FY12 Profits:$1.1 billion5-Year Growth Rate:2.1%Brand Names: Six FlagsIn the news: emergence from bankruptcy in 2010In March 2009, Six Flags announced that it would file for Chapter 11 bankruptcy protection. The company had until August 15, 2009, to pay $300.0 million to its preferred shareholders; it subsequently underwent a restructuring process and entered Chapter 11 bankruptcy protection proceedings in June 2009, with $2.4 billion in debt. Six Flags emerged from Chapter 11 bankruptcy on April 30, 2010, after erasing out more than $1.0 billion in debt by turning the company's ownership over to bondholders.
19AffiliationsFlorida residents, Disney Club members, annual passholders, and members of the U.S. Military can purchase Walt Disney World park tickets at a discounted price.Universal Orlando also offers discounted pricing for Florida residents.3rd degree price discrimination
20SeasonalityHotel prices at Walt Disney World fluctuate based on the time of the year.2nd degree price discrimination
21SeasonalitySix Flags offers Junior pricing for everyone through May 27nd when you bring in a can of Coca-Cola.Universal offers a 3rd day free with the purchase of a 2-day ticket until June 30th.2nd degree price discrimination for Universal’s offer.
22Time Sensitivity$125$80$45Consumers that are more time sensitive will have to pay more.Different levels of the “FLASH Pass” exist to extract additional consumer surplus.“Express Pass” prices are based on demand and seasonality for Universal.Disney has a free ‘regular flash pass’.December 2013SunMonTueWedThuFriSat1234567$35.99$45.99$55.998910111213141516171819202122232425262728$69.99$89.99$119.992930312nd degree price discrimination
23“The Longer You Play, The Less You Pay Per Day!” Similarly to most amusement parks, Disney’s pricing structure provides those who spend more time at the park with cheaper tickets.2nd degree price discrimination6day7day
24Six Flags Price Discrimination Purchasing tickets online will save you $25 on a general admission ticket.Junior ticket price is the same online or at the park.Age (3+) and height (4.5ft or 1m37) discrimination are in effect.Buying more than three Season Passes will reduce the cost per pass.2nd degree price discrimination
25Book your Disney vacation here! Booking choicesBook your Disney vacation here!
26That amounts to over 7,488 price points!! ConfusionA search for a booking at Walt Disney World lead to 26 hotels available, 4 rooms in one of the hotels, more than 4 ticket options, 6 dining options, and 3 transportations options.That amounts to over 7,488 price points!!Each phase of reserving your booking allows you to add more options, increasing the cost of the trip.Allows Disney to approach 1st degree price discrimination.
27Raw Data Analysis Via online survey results: Competition Factors & PricingDemand for BundlingAdvanced Booking DemandPrice Discrimination on peak times
29Competition & Monopoly Pricing Data collected:Information regarding appetite for “thrill rides & exciting roller coasters,” as well as data regarding individuals’ visits to the top amusement parks in the United States (based on a 2011 industry report - Global Attractions Attendance Report)
30Estimating Park Extremeness | Summary of risk appetiteDisney | Mean Std. Dev Freq.0 |1 |Total |Universal | Mean Std. Dev Freq.0 |1 |both | Mean Std. Dev Freq.0 |1 |Question:Does Disney offer a different level of “extremeness” than Universal Studios?
33Monopolistic Competition Are the Big Two parks behaving more like oligopolists and driving prices up, or is competition driving prices down?Both factors are at play!Differentiated products on the thrill scale indicate lessened competition and prices driven upClose proximity (both located in Orlando) indicates competitive behavior and prices driven down
34Park attendance by region If you were given a chance to go to one of the major amusement parks in the United States for an overnight stay, which region would you chose to go to?128 respondents
38Price Discrimination on Peak Times Florida residents can buy tickets to Universal Studios’ Halloween Horror Night at different prices depending on which day one wants to go: Sundays, Wednesdays, or Thursdays are $41.99, on Friday the price is $51.99, and on Saturday it is $ Which night would you buy a ticket for?We measured the time and price sensitivity of 128 students facing this hypothetical choice.
39Which day would you buy a ticket for? DATA SHOWS:More people are interested in off-peak, lower price tickets than high price weekend ticketsWe see evidence of aversion to buying the highest price tickets. Preferences tend away from the extreme.
40Industry Outlook Strong revenue outlook Travel spending expecting to increaseDecline in unemployment ratesThrough 2017, IBISWorld forecasts revenue will increase at an annualized rate of 2.4% to total $14.6 billionTravel spending is anticipated to increase as the economy improves during the next five years. In 2013, domestic travel is anticipated to increase 1.6%, while international arrivals rise 5.1%.Consumer spending is expected to increase 1.9 % in 2013 and should increase at an annualized rate of 2.8% during the five years to 2017.
41Investment Recommendation No clear strategySeveral ways to invest in theme parksCedar Fair and Six Flags are the most concentrated bets in the industry, BUTDisney is the leader in theme parks, BUTBlackstone’s (owner of SeaWorld) future is unclearSource: USA Today “The Ups and Downs of Investing in Theme Parks”As you can see, there are several ways to invest in theme parks. Six Flags and Cedar Fair are the most concentrated bets on the industry, however, neither of those operators own the most popular resorts. Disney is the leader in theme parks, but at a corporate level, TV is a bigger part of the business. And it's unclear what Blackstone's future in the industry might be.
42RecommendationsDisney should advertise its free basic “flash pass” or begin charging for it, even a small amount would lead to an almost 100% margin on the pass.The industry should continue their current pricing structure, the confusion caused by all the choices causes increased extraction of consumer surplus.
43Recommendations Advertise, Advertise, Advertise! - Major Players in the industry should highlight heterogeneity of the products offered in continued advertising campaigns.This will drive up prices & increase revenueby changing demand.
44Book your Disney vacation here! Questions?Book your Disney vacation here!