Profit-Maximizing an Amusement Park – Gate Versus Food Price

27

A trip to an amusement park can be an exciting way to spend a summer day. With rising gas prices an amusement park “day-cation” is now a more popular option than ever. That’s not to say a trip to the local park is cheap. Most parks charge an admission fee for entrance, parking pass fee, deposit for rentable locker, and charge tokens to play games. The typical amusement park prohibits guests from bringing their own food into the park. Different people have different demands for food. Some people are willing to pay more for food, while others prefer to eat before going and not buy food after they enter the gates. The park sells food at concession stands, but usually charge prices twice as much as restaurants outside the park. How can the park charge outrageously high prices and not lose business? Would the amusement park gain by charging a higher or a lower price for food? The key to profit-maximizing an amusement park is to find the right balance between the price of food and admission.

Amusement parks can charge what they do for food and admission for a number of reasons. They have to pay for maintenance of the park and upkeep of the rides, employees, food, water, electricity, new rides, etc. If visiting guests want a safe, clean, open park that can add some fun rides and additions to the park every season or two, they’re the ones who are going to have to pay for it. If an amusement park lowered the price of food then people would have to wait longer between new rides which usually lead guests to start to complain about if it gets too long. Food pricing at amusement parks also need to fit in the supply and demand realm. If a park gets overcrowded then new high capacity rides need to be built in order to service all of those people. To a certain degree, the pricing helps keep the attendance on a controlled growth path while financing expansion. This will not be the same for every park. Including one or two perks like free sunscreen or parking rolled into admission works for some parks. Others make guests feel in that one visit the park is trying to squeeze every penny out of them. It’s not good for business when visitors walk out the door feeling like they’ve been taken advantage of as they will be less likely to return. The most successful amusement parks are the ones that find the equilibrium point between gate and food pricing.

In order to understand how an amusement park can charge high prices and still be successful another question needs to be answered: Why do so many people visit amusement parks every year? In 2006, over 335 million people visited America’s theme parks. Generally, people visit parks for the rides. The rides are what the parks are selling to the customer. The ride lineup is probably the single biggest factor in the guest experience for most people through the gate. Most major cities usually only has one large amusement park within a convenient range, the issue is basically one of monopoly too. Still, the rides are the product and everything else is just details.

One of the largest regional amusement-resort operators in the world, Cedar Fair, owns and operates eleven amusement parks in North America including Cedar Point in Sandusky, Ohio. Consistently voted “Best Amusement Park in the World” in Amusement Today polls, Cedar Point is known as the roller coaster capital of the world with a grand total of seventeen coasters, more than any other park. A one day ticket for ages 3-61, 48″ and taller during the 2008 season is $42.95. Parking is $10 and admission to Soak City Water Park is NOT included.

Holiday World & Splashin’ Safari in Santa Claus, Indiana, is a small family-owned and operated park with just four roller coasters. The park has been voted the “World’s Friendliest Park” and the “World’s Cleanest Park” for five years in a row by the readers of Amusement Today magazine. A general admission one day ticket in 2008 costs $39.95, almost as much as Cedar Point. While Cedar Point has thirteen more roller coasters, Holiday World’s admission is only three dollars less. However, Holiday World’s admission includes several perks including admission to Splashin’ Safari Water Park for no additional charge, free sunscreen, free parking, and the biggie: free unlimited soft drinks. Which park is the better value for the guest and how does the profit-maximizing strategy of each park differ?

Known for some of the best amusement park rides in the world, Cedar Point is also home to some of the highest food prices in the industry. The majority of the food venues are very fast-food oriented, with limited menus, and prices geared for a semi-captive market of visitors unwilling to endure the time-consuming hassle of driving the causeway back to the city just to get a cheaper meal. At Cedar Point during the 2008 season it’s $3.29 for a 16oz, $3.79 for a 22oz and $3.93 for a 32oz soda. A 20 oz bottle of coke at any Disney park is $2.00 even, a medium fountain drink is $2.19 and a large is $2.69 (allearsnet.com). A six inch Subway sub sandwich is $7 plus tax at the Point. Outside the park a foot-long Subway sub is only $5. A bottle of soda or water that can be found for a dollar in most vending machines is $3.50 at Cedar Point. Two entrees at Panda Express are $8.99 compared to the local mall price of $6.99. Refills on the $8.95 souvenir cup are $1.99 which means most guests might as well just buy the $4 drink because the break even point is four drinks, not to mention the hassle of carrying the huge cup around all day with the possibility of it being lost or stolen.

Not only is the cost of food at Cedar Point high, but the quality is just as poor. Based on a recent visit, the service at various counter locations can be described as “glacial, not friendly and pathetic.” Here’s the deal with the food: A good $2 hamburger is a good $2 hamburger. Part of the problem is that a good $2 hamburger is a LOUSY $8 hamburger. And when the park tries to sell that $2 hamburger for $10, it is going to seem even worse. And yet, if a consumer were to pay $2 for it, they would probably think it pretty darned good. That’s what value is all about. The prices at Cedar Point are too high when judged in comparison to the quality of the food (with park-specific locations) and when judged against the equivalent choice outside the park (Subway example).

The good news is that even if guests are stuck in the park all day, most of the food items are optional. However, convenience is a big one. The majority of guests hate leaving a park and to go get something to eat as its time lost that could be spent riding the rides, the reason they came to the park in the first place. The whole process is bothersome: finding the way out of the park, getting the hand stamp, walking to the car, driving out of the lot, finding a place to eat, eating, driving back to the park, finding a parking space again, and walking back through the gate. In the end the majority of park guests are actually willing to accept a little more than a reasonable markup to just avoid the whole time and hassle of leaving the park for food.

How high can the prices of food go? Until the per-caps (spending per person in the park) actually drops or attendance significantly drops, there’s not going to be a change. Would it be better to see the revenue made at the gate? If the park made the $43 admission ticket $50 then they could lower the price of food items inside the park by a dollar or two. The only catch is that people might just complain about the price to get in and not come in the first place.

According to the article “Cheaper to eat at the Point, too” Cedar Point actually lowered prices for the 2006 season. “The price of regular one-day admission (in 2006) is $39.95, down $5 from last year’s (2005) $44.95” and a “20-ounce Pepsi soft drink was $2.75, now $2.39.” Why did the park lower prices? “Guest comments may have played some role in the decision, but so did the park’s lagging attendance the past few years.” Run the math: The gate admission dropped 11%. That means an almost 13% increase in attendance is needed to make the same revenue. On top of that they dropped food prices in the park an average of 20%. Even if they make up the 11% price drop at the gate, if in-park food buying remains constant (in terms of volume, not dollars), they’re down between 11% and 12% on food revenue. Still assuming the lower gate will drive attendance and knowing food dropped an average of 20% then the guest has to buy 12.5% more food (based on an average) to make up the difference. So with the price drops, just to keep the numbers the same, they need a 13% increase in attendance and on top of that need their guest to buy 12% more food. And that doesn’t take into effect the increased costs of putting more people through the gate and selling more volume.

What was the result of lowering prices? Cedar Fair doesn’t release per park attendance figures but since the 2006 season the food and ticket prices have gone back up (though the admission ticket price remains below the 2005 level.) The lowered prices did not pull in enough customers to make up the difference. The park is operating on fewer visitors at a higher margin. Cedar Point would’ve been better off lowering the price of food or gate but not both. Cedar Point might as well charge high prices for food because lower food prices didn’t increase attendance to make up the difference. In Cedar Point’s case the high food prices are not hurting their business because of the demand for their rides.

Holiday World has an interesting point of view on the food pricing issue. The park made a bold and risky move when president Will Koch decided to give away “free” unlimited soft drinks, included with the price of admission. Holiday World began their free unlimited soft drinks program in 2000, the same year they opened The Legend, a new three million dollar wooden rollercoaster. That year, they raised the ticket prices by $4.00 from the previous year’s prices: $1.00 for the new ride, and $3.00 for the new unlimited soft drinks. The park built several “Pepsi Oasis” buildings with self-serve soft drink fountains. Were there guest complaints about the increase in the gate price? No. Were guests thankful for the free soft drinks? Yes.

The article “Liquid Assets for Holiday World & Splashin’ Safari” contains some interesting inside information. In 1999, the year before they changed to free soft drinks, Holiday World’s annual attendance was 564,373. In 2006 the park surpassed the one million mark for the first time in their history when 1,004,788 guests passed through the turnstiles, a 78% increase in attendance in just seven years. During that period, each year set a new attendance record (with the exception of 2005). But attendance isn’t everything, attendance can’t be spent, it doesn’t exactly translate to more revenue.

The most amazing fact is on average guests have been spending more money inside the park as total per-capita spending has risen over the seven year period by 41%. Guests are spending more money on food. Total per-capita food spending has risen by 20% (according to the park “it took only until 2003 to recover the loss in food per-caps within the food service department not allocating any gate per-cap to foods”). Guests don’t feel “cheated” by the food pricing like they would at a park that charges an arm-and-a-leg for it. Also, the self-serve drink locations speed up service at food venues leading to greater capacity and more profits. The park makes money by serving more guests and by not needing the additional employees to serve beverages. The park has also found guests stay longer, as they feel more comfortable, hydrated, and less tired. When visitors stay longer in the park they spend more money and when they leave happy they are much more likely to return.

From the same article, “We intentionally keep our prices lower than most of our competitors. We believe that the irritation we cause guests does not make up for the added revenue we might receive if we charged higher prices for our food. In fact, we try to stay within 20% of the pricing at fast food chains. Thinking about the cost of a meal at Holiday World in comparison with a meal at a fast food location, our total cost may well be lower than it would be outside the park because the food prices are reasonable, and the drinks are free.”

The most important impact that the free soft drinks scheme has had on the park is in the free advertising that it generates for them. What’s the most powerful word in advertising? FREE. President Will Koch had this to say about the unlimited drinks program: “I regard it as one of the best business decisions that our company ever made. It symbolizes a number of other value messages about our park, and gives our target market something extra to talk about after their visit. This word-of-mouth advertising is more effective than TV, radio and outdoor combined. It has been a big contributor to our attendance growth. Implemented well, it could work in other parks as well as it has in ours.”

Is Holiday World’s approach better than Cedar Point’s pricing strategy? According to “Summer Fun!” the park served 380,000 gallons of free soft drinks last year (2007). Holiday World recently broke the 1,000,000 mark in attendance so for the sake of simplicity just round that down to an even one million and run the math. The result is surprising: 380,000 gallons = 48,640,000 ounces. 48,640,000 ounces divided by 1,000,000 guests = between 48 to 49 ounces per guest. That is just one and a half large drinks at a park like Cedar Point that charges almost $4.00 a cup for that large drink (32 oz). Is the average guest really drinking less than two large cups worth of soft drinks? It’s no wonder Holiday World has seen revenue grow since adding free drinks – they’re only giving away an average of $6 of soft drink (at the “highway robbery” Cedar Point pricing) to each guest on average. Holiday World has found the perfect niche in terms of how to price their park as can be seen in their attendance growth and guest satisfaction.

Another small park recently converted to Holiday World’s pricing formula. Magic Springs, in Arkansas, went to free drinks and sunscreen last year. They increased the gate by $7 (now $45.99 + tax in 2008)and parking by $2 (now $9). The park is home to six roller coasters. The free drinks and sunscreen costs a family of four $30 extra (four tickets plus one parking pass). Even if drinks were $3 each – that’s ten drinks. How many families of four were buying ten drinks before the change? It doesn’t matter because now they’re being forced to have ten drinks in order to break even.

Who does this “free” soft drink strategy benefit and who does it hurt? First off, this strategy really benefits the park. The real value that you can’t put a cost on is being able to tell people they get free drinks. This translates to free advertising because it generates a lot of interest by word-of-mouth. In terms of the guests, those who drink a lot of beverages at the parks really benefit from this type of pricing but it also really hurts the guests that don’t stay in the park very long. If an amusement park includes parking in the ticket price what happens to the people that get dropped off or take public transportation to the park? They’re paying for an option they won’t even use. For some guests this pricing scheme ends up costing them more, but for the park it is the best option.

Here’s an interesting experiment: Gate price of $129 – everything included (parking, drinks, three meals, free lockers, even a game or two on the house). Rolling the entire visit into admission would probably make people balk at the ticket price. To guests who stay an entire day, park their own vehicle, and make use of the lockers, this would be a great option, to others it would end up costing them much more.

There is a sweet spot between the price of food and admission that every amusement park must find in order to maximize profits. The best option for most parks in America to end up with greater profit would be to raise each admission ticket $5-7 and include drinks and sunscreen. Looking at the revenue generated by those items, parks might make a little bit less than selling those individually, but the increased customer happiness would result in more than enough additional profit spread throughout the park to make it worthwhile. Even if parks ended up making a little less per guest per visit, happy customers are much more likely to return, causing profits and attendance to grow. Rather than super sizing the drink and charging an arm and a leg for it, add a few dollars to the entry ticket and include unlimited soft drinks with nice small twelve or sixteen ounce cups. Someone who gets four free drinks in a day still has only taken forty-eight ounces of soda. If the gate price were right, the park could actually end up ahead thanks to the psychology of the cup size. Even though the opposite may be true, this type of pricing strategy makes guests feel they are getting a great value for their money. Happy guests are much more likely to spend money and make frequent return visits in which they will spend more money thus maximizing the park’s profit.

Note: Author most recently visited Cedar Point on May 17, 2008.

Source by Nick Weisenberger

· · ·


Related Articles & Comments

Menu Title