Price Discrimination | Amusement Parks Free Essay Example

Introduction Consider these Amusement park pricing scenarios: ?Six Flags Discovery kingdom sells its annual season pass for $59. 99. According to its website, “Buy your Season Pass for $59. 99, just $14 more than a one-day admission. ” ?Bush Gardens Dark Continent. sells its Fun Card for $95. 00. According to its website, “Pay for a Day, Get now through 2015 FREE. ”, Now why would they give away an unlimited entry annual pass for an extra 25% over the single entry price?

What is common in these pricing scenarios? All these businesses are practicing what economists call, “Metered Price Discrimination“, or what marketers describe as, “Customer Margin”.

It all starts with, “price discrimination” – charging different customers different prices. Customers differ in the value they get from a product/service and in how much they are willing to pay for it. For each price point you set, there will be different number of customers willing to pay that price. That is your demand curve. The goal is to find the price that maximizes profit.

There are many different ways to monetize the customer and Amusement parks offer us a great opportunity to examine several of them.

As in the example above, Amusement Parks employ multiple price discrimination strategies when establishing ticket prices in order to increase Six Flags Season Pass Pricing Busch Gardens “Fun Card” Pricing overall attendance but make up for the lost single entry fee revenue from the subset of customers willing to pay set pricing scale at park concession stands, gift shops, diners and restaurants. This is Metered Price Discrimination – some customers get away with paying the low “entry fee” while others pay more by consuming additional services at different prices.

Discrimination can take several forms and those presently employed in the amusement park industry begins with an exploration of spatial discrimination.

Spatial Discrimination Amusement parks benefit greatly from their ability to isolate customers away from competitors for long periods of time. Part of the value proposition for an amusement park is the highly developed themed experience they provide. Once fully immersed in the amusement park experience the level of difficulty and inconvenience in accessing alternative providers for staples like food, drink, shopping, and accommodations, grows exponentially. Utilizing spatial discrimination, the parks have several different supply, demand and profit opportunities to exploit.?

Higher than market food pricing and profits based on proximity and distance to cheaper alternative. Amusement Parks, like many other entertainment businesses can derive extremely high profits from customers on purchases of goods and services once inside the park. ?Zero competition from competitors within park confines. The experience of the park itself requires a good deal of isolation and space so the business can control the imagery, interactions, and exposure to inconsistent inputs. The space and isolation enables the parks to create their own marketplace and exclude other industry actors access to the customers in their park avoiding food, retail, services competition altogether.

Once the customer is in the park you control the market and the market offerings and pricing ? Ingress and Egress marketing opportunities for personalized content like group photos on T-Shirts, Mugs etc. The parks have cameras throughout their facilities and more often than not have a kiosk standing by to sell customers personalized remembrances of the experience the park is providing. Only the park has the photo of your family on the roller coaster together.

Since they own the roller coaster, they can restrict access to the best picture locations. Price discrimination takes place in that they control the supply completely. Calculate the highest price the market is willing to pay and sit back, you’ve eliminated the competition while they are in the park. Bundling One type of membership popular with both Bush Gardens and Walt Disney World customers is the add-on (up charge) for water park entry in addition to the amusement park entry at a reduced “bundled” price. Water park capacity is likely to be considerably less than the amusement park so the profit maximization point must take into account the “limited capacity” constraint.

The reduced revenues from the amusement park tickets vs. full price tickets needs to be tracked so supply of the amusement/water park bundles does not, or to the best case achievable, negatively impact the supply of the water park “single park” utilization. Profit maximization can be best achieved by limiting the bundle availability to key periods during the annual calendar when excess capacity exists at the water park. Bundling will fill the gap between current utilization and current capacity at the water park while providing added perceived value to the purchase of a amusement park ticket. Peak Load Pricing.

The customers of annual passes are further discriminated by those that have the capability to tailor entry dates away from peak load periods. Ex. Walt Disney World “Florida Resident” annual passes with entry restricted during the summer and holiday periods. Amusement Parks have multiple levels and types of annualized memberships based on paying a onetime fee for unlimited entry for a specified period (Typically annually) at specified times.

The overall infrastructure footprint of the parks is constant. In the slower months of the year there is Busch Gardens Bundled Pricing Walt Disney World Florida Resident Pricing an excess of capacity (or supply0 at the parks and the peak load pricing attracts park visitors at lower utilization periods of the year. (An argument can be made for inclusion in the Spatial Discrimination category and the overlap is noted here. Florida residents benefit from a price discriminator compared to out of state customers but must use the park facilities at times it benefits the park most. )

Air fares, Hotels, etc. Finally, the cross marketing partners the amusement parks team with will employ length of stay discounts, food offerings, free parking offers, service level upgrades, hotel upgrades and the like.

The price discriminators are focused on the ancillary products and services typically required to in order to utilize the amusement parks. The parks will appoint official Airlines of the park, or have a preferred credit card, or as in the case of Walt Disney World several tiers of hotels. Disney owns their own hotels, all in the best locations, extensively themed to the park specifications. Disney also leases hotel locations on their land to the major hotel chains.

The location is not the best, and the hotels cannot use Disney’s Theme in their decorating but they are located on Disney property with access to Disney’s higher income, more likely to spend money, customers. A third tier exists in the hotels off Disney property. Disney will offer discounted ticket prices to these hotels for their customers. Walt Disney World Package Pricing Closing Amusement Parks have well developed and sophisticated price discrimination strategies in place.

They capitalize on several of the methods described in the Harvard note Economics of Product Variety. They use spacial discrimination to boost profits on food, services, and goods once the supply is controlled in the park. They use bundling to attract attendance across the multiple parks they operate in the hopes of increasing profits through the generated increase in demand the bundling creates.

They use peak load pricing to entice attendees during low utilization periods as well as boost purchase of ancillary “high margin” items in the parks. And they use cross marketing strategies to team with hotels, airlines, credit cards, and others to increase demand from third tier hoteliers near the park. References HIRSCHEY, MARK; MANAGERIAL ECONOMICS 12TH EDITION, CENGAGE LEARNING, MASON OH, 2009 President and Fellows of Havard College, Price Discrimination, Havard Business Schools Publishing, Boston, MA 02163, 1993.