Disney`s strategy: “Magic your Way”

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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
9.4
11.8
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
•
Objective:
*
•
PASS PRICING
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?
*
*
•
Some bigger amusement parks for selected high demanded attractions
Advantages:
*
*
•
Local amusement parks
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,
Orlando
CA great
America
Six flags,
Baltimore
Disney World,
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
•
*
•
TWO-PART TARIFF
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?
*
*
•
Some bigger amusement parks for selected high demanded attractions
Advantages:
*
*
•
Local amusement parks
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
Price per ticket
$250
$200
Base ticket Ages 10-up
Average Price per day
$150
$100
Number of
days
$50
$0
1
2
3
4
Industry Structure
5
6
7
Pricing Strategies
8
9
10
Recommendations
% In crease
1 day
3.7%
2 days
3.7%
3 days
3.6%
4 days
4.7%
5 days
5.9%
6 days
7%
7 days
8.1%
8 days
9.13%
9 days
10.12%
1 0 days
11.1%
Disney increases the premium from June 2011 to June
2012
Price per
ticket ($)
$350
$300
$250
$200
Jun-11
Jun-12
$150
$100
$50
$0
1 day
Industry Structure
2 days 3 days 4 days 5 days 6 days 7 days 8 days 9 days 10 days
Pricing Strategies
Recommendations
Number of
days
Success of its strategy
Attendance
numbers in
million
Florida Park Amusement Attendance
18
16
14
12
10
8
6
4
2
0
Walt Disney
World’s Magic
Kingdom
Epcot
Disney’s Hollywood
Studios
Disney’s Animal
Kindgom
Universal Studios
Orlando
Islands of
Adventure at
Universal
Seaworld Florida
Busch Gardens
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
40
30
20
10
0
Adult
Child
Sea World
Disney
World
CA Great
America
Six Flags
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
US average price
6
4
2
0
One slice
pizza
Cockail
Industry Structure
1 bottle
sports drink
Parking
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.
Price
Disney Land Resort California.
Purchase valid now through December 31, 2012. General Adult ticket.
$300
$250
$200
At the gate
$150
Online
$100
$50
$0
1-day 1-Park
Ticket
2-days 1-Park
Ticket
3-days 1-Park
Ticket
Industry Structure
4-days 1-Park
Ticket
5-days 1-Park
Ticket
Pricing Strategies
6-days 1-Park
Ticket
Type of
ticket
Recommendations
Results
• Increase profits
• Speeds up the lines
• Maximize spending on souvenirs and other impulse purchases
Industry Structure
Pricing Strategies
Recommendations
ADVANCE SELLING RESORT HOTELS
Price per
night ($)
Price per night for a family of 2adults and 2children if we buy now.
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
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