Pricing and Raw Data

AMUSEMENT PARKS By Marc Sourour, Ben Chartock, and Megan Eisenbrown

Agenda Industry Structure Pricing Strategies Raw Data Analysis Recommendations

Why Amusement Parks?

Highly Concentrated Industry

Huge Variety in Pricing Strategies

Ease of Access to Data

Entertaining to Research

INDUSTRY STRUCTURE Amusement Parks in the United States

Industry Overview • Definition: This industry is made

up of amusement and theme park companies that operate mechanical rides, water rides, games, themed exhibits, refreshment stands and other attractions • Amusement 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.

Product Segmentation (by percent of industry revenue)

Theme Parks in the Southeast 38%

Theme Parks in the West 19%

Theme Parks in Other US Regions 23%

Amusement and Water Parks 20%

Theme parks account 80.0% of total industry revenue.

Market Segmentation

Competitive Landscape Major Player Market Share The Walt Disney Company

• Enterprises: 457 • Major Players: 5

19%

• HHI: 1865.21* • C4: 73%

36%

Universal Parks & Resorts

8%

SeaWorld Parks & Entertainment

8%

Six Flags Inc. 11%

18%

Cedar Fair LP

Other • Highly concentrated Industry • The top four players in this industry will account for over 70% of total industry

revenue.

Barriers to Entry

High Competition

High Concentration High Capital Costs

Technology Change

Factors affecting entry Mature Life Cycle

Overall difficulty of entry: High

Area of Land Required

Product Differentiation 1

2

3

4

In response to this high level of competition in this industry, the major players must differentiate their parks.

Industry Organization Demand Industries

Supply Industries Beer Wholesaling

Hotels & Motels

Confectionery Wholesaling

Amusement Parks

Consumers

Demand Drivers Real household disposable income World Price of Crude Oil

Social or geopolitical factors that influence travel

Per Capita Disposable Income

Other social factors

Seasonal factors

Demand Drivers

FY13: The increase in per capita disposable income is expected to drive growth in the industry in 2013.

Government Regulation

• Regulation of the industry is medium but increasing • Regulatory Agents: • The Federal Consumer Product Safety Commission • Occupational Health and Safety Administration • Missouri, Utah, and District of Columbia do not require any regular

inspections

Major Players The Walt Disney Company

Universal Parks & Resorts

SeaWorld Parks & Entertainment

• Market Share: 36.0% • FY12 Profits: $12.9 billion • 5-Year Growth Rate: 4.0% • Brand Names: Disneyland, Walt Disney World Resort • In the news: Redesign completion

• Market Share: 17.3% • FY12 Profits:$2.3 billion • 5-Year Growth Rate: 12.4% • Brand Names: Universal Studios, Islands of Adventure • In the news: The Wizarding World of Harry Potter

• Market Share:11.0% • FY12 Profits: $1.4 billion • 5-Year Growth Rate:2.3% • Brand Names: SeaWorld, Busch Gardens, Adventure Island, Discovery Cove, Waterworld Country USA, Sesame Place, Aquatica

Major Players Continued Cedar Fair LLP. • Market Share: 8.2% • FY12 Profits: $1.1 billion • 5-Year Growth Rate:1.6% • Brand Names: Knott’s Berry Farm, Cedar Point, Dorney Park and Wildwater Kingdom, Valleyfair

Six Flags Inc. • Market Share: 8.20% • FY12 Profits:$1.1 billion • 5-Year Growth Rate:2.1% • Brand Names: Six Flags • In the news: emergence from bankruptcy in 2010

PRICING STRATEGIES 3rd degree price discrimination • Affiliations 2nd degree price discrimination • Seasonality • Time sensitivity • Quantity discounts 1st degree price discrimination • Booking choices

Affiliations • Florida 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.

Seasonality • Hotel prices at Walt Disney World fluctuate based on the

time of the year. Disney's Pop Century Resort Price (Avg/Night) 220

Avg price per night

200

180

160

140

120

100 5/3/13

6/3/13

7/3/13

8/3/13

9/3/13

10/3/13

Check-in Date (6-night stay)

11/3/13

12/3/13

1/3/14

Seasonality • Six 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.

Time Sensitivity • Consumers that are more

$125

$80

$45

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.

December 2013 Sun

Mon 1

Tue 2

Wed 3

Thu 4

Fri 5

Sat 6

7

$35.99 $35.99 $35.99 $35.99 $35.99 $45.99 $55.99 8

9

10

11

12

13

14

$45.99 $35.99 $35.99 $35.99 $45.99 $45.99 $55.99

• Disney has a free ‘regular

flash pass’.

15

16

17

18

19

20

21

$45.99 $55.99 $55.99 $55.99 $55.99 $55.99 $55.99 22

23

24

25

26

27

28

$55.99 $55.99 $55.99 $69.99 $89.99 $119.99 $119.99 29

30

31

$119.99 $89.99 $69.99

“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.

Six Flags Price Discrimination

Six Flags ticket purchasing location

• Purchasing tickets online will save you $25 on

a general admission ticket.

At the park 29%

• 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.

Online 71%

Booking choices Book your Disney vacation here!

Confusion • A 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.

RAW DATA ANALYSIS Via online survey results: • • • •

Competition Factors & Pricing Demand for Bundling Advanced Booking Demand Price Discrimination on peak times

Number of people visiting each park

Competition & 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)

Estimating Park Extremeness • Question:

Does Disney offer a different level of “extremeness” than Universal Studios?

| Summary of risk appetite Disney | Mean Std. Dev. Freq. ------------+-----------------------------------0 | 4.3846154 1.1208971 13 1 | 4.08 1.1924935 50 ------------+-----------------------------------Total | 4.1428571 1.1757927 63

| Summary of risk appetite Universal | Mean Std. Dev. Freq. ------------+-----------------------------------0 | 4 1.0540926 19 1 | 4.2045455 1.2309865 44 ------------+-----------------------------------Total | 4.1428571 1.1757927 63

| Summary of risk appetite both | Mean Std. Dev. Freq. ------------+-----------------------------------0 | 4.173913 1.0292174 23 1 | 4.125 1.2646577 40 ------------+-----------------------------------Total | 4.1428571 1.1757927 63

THRILL CONTINUM

Monopolistic 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 up • Close proximity (both located in Orlando) indicates competitive behavior and prices driven down

Park 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

Should I go to Florida or California?

Should I go to Florida or California?

Demand for Mixed Bundling

Price 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 $66.99. Which night would you buy a ticket for?

• We measured the time and price sensitivity of 128

students facing this hypothetical choice.

Which day would you buy a ticket for? DATA SHOWS: 1) More people are interested in offpeak, lower price tickets than high price weekend tickets

2) We see evidence of aversion to buying the highest price tickets. Preferences tend away from the extreme.

Industry Outlook • Strong revenue outlook • Travel spending expecting to increase • Decline in unemployment rates

Investment Recommendation • No clear strategy • Several ways to invest in theme parks • Cedar Fair and Six Flags are the most concentrated bets

in the industry, BUT • Disney is the leader in theme parks, BUT • Blackstone’s (owner of SeaWorld) future is unclear

Source: USA Today “The Ups and Downs of Investing in Theme Parks”

Recommendations • Disney 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.

Recommendations • 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 revenue by changing demand.

Questions? Book your Disney vacation here!