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Why Amusement Park? Outline: I.Industry Structure II.Pricing Strategies III.Analysis and Recommendations.

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Presentation on theme: "Why Amusement Park? Outline: I.Industry Structure II.Pricing Strategies III.Analysis and Recommendations."— Presentation transcript:

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2 Why Amusement Park? Outline: I.Industry Structure II.Pricing Strategies III.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 ) Industry StructurePricing StrategiesRecommendations

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 Industry StructurePricing StrategiesRecommendations

5 Southeastern Demographics Outperform Other Industry Areas Industry StructurePricing StrategiesRecommendations

6 Theme Parks in the Southeast Dominate Industry Market Industry StructurePricing StrategiesRecommendations

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? Industry StructurePricing StrategiesRecommendations

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) Industry StructurePricing StrategiesRecommendations

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. Industry StructurePricing StrategiesRecommendations

10 Historical Context of Initial Investment Industry StructurePricing StrategiesRecommendations

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 Industry StructurePricing StrategiesRecommendations

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) Industry StructurePricing StrategiesRecommendations

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 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 StructurePricing StrategiesRecommendations

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 Industry StructurePricing StrategiesRecommendations

15 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 StructurePricing StrategiesRecommendations

16 Source: The Orange County Register, August, Industry StructurePricing StrategiesRecommendations

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 P ASS P RICING Industry StructurePricing StrategiesRecommendations

18 Pass Pricing: impact of the number of attractions and shows on ticket price Rides Shows Total Pass Price Disney World, Florida $90.53 Sea World, Orlando $49.99 CA great America $55.99 Six flags, Baltimore $56.99 Industry StructurePricing StrategiesRecommendations

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 T WO -P ART T ARIFF Industry StructurePricing StrategiesRecommendations

20 D ISNEY ’ S STRATEGY : “M AGIC YOUR W AY ” 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 StructurePricing StrategiesRecommendations

21 Number of days Industry StructurePricing StrategiesRecommendations

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

23 Success of its strategy Attendance numbers in million The 4 parks of Walt Disney World Industry StructurePricing StrategiesRecommendations

24 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 T HIRD P RICE D ISCRIMINATION Industry StructurePricing StrategiesRecommendations

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

26 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 C OMPLEMENTARY PRODUCTS Industry StructurePricing StrategiesRecommendations

27 Complementary products pricing: some examples Industry StructurePricing StrategiesRecommendations

28 A DVANCE S ELLING How? Use of new technologies (online tickets, prevention of arbitrage) Industry StructurePricing StrategiesRecommendations

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

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

31 Results Increase profits Speeds up the lines Maximize spending on souvenirs and other impulse purchases Industry StructurePricing StrategiesRecommendations

32 A DVANCE S ELLING R ESORT H OTELS Price per night for a family of 2adults and 2children if we buy now. Universal Orlando Resort Price per night ($) Time Industry StructurePricing StrategiesRecommendations

33 B UNDLING 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 StructurePricing StrategiesRecommendations

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 Industry StructurePricing StrategiesRecommendations

35 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 tickets Alliances between competitors Industry StructurePricing StrategiesRecommendations

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 Industry StructurePricing StrategiesRecommendations


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