JWI 515: Assignment Four: Price Discrimination
Charles W. Slaven
November 30th, 2014
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 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...
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
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