4/27/2016

Peak Pricing at Universal Studios Hollywood

Normally, I don't post on this blog at all. But an old student sent in something that they felt was appropriate — and I can't really make them write a post, can I?

This concerns the new pricing policy at Universal Studios Hollywood.

Airlines have changed prices with demand for decades. But for theme parks, it has usually been one price for all. Now they will discount for people buying online, with a bigger discount for people who buy online and book for a historically slow day of the year.

As an economist, I find the explanation that this is a form of peak pricing, like used by hotels or Uber, to be a bit lacking. My reason for this is that the cost of going to the park always included the monetary price of the ticket, plus the non-monetary price of standing in lines. For me, the park cost more on busy days no matter what.*

But the article also mentions that Universal will use this pricing method to help manage its operations. To me, this actually makes more sense. At off-peak times, costs are low for customers both in monetary and non-monetary terms. Yet the park still needs to be staffed. My guess is that this new policy is helping them get a handle on overstaffing on slow days.

* Hands down, the emptiest park I was ever in was DisneyWorld on the Tuesday before Thanksgiving. Kids were in school, there were no conferences in Orlando because of the holiday, and vacationers had yet to arrive. My wife and I did the whole park before 5 in the afternoon, with several rides gone on more than once.

5 comments:

Chris said...

We took the kids to Disneyland this year during the week after Spring Break. We take our family to Disneyland once a year for our family vacation. Yes, we actually do punish ourselves once a year if that's what you are thinking. I have to agree with Dr. Tufte's comment about the monetary price of entering the park, but also having to consider the additional price of standing in lines all day. To hopefully avoid crowds and save money, we shop online for our tickets, and we also look for off season times. This year we happen to choose the week right after Spring Break. As you can imagine, the park would be completely full during Spring Break, but it was completely empty the week after. It seems to me that because the park is full during the busy season, the pricing should be less. Those choosing to attend the park during the busy times are realizing a loss of benefit in exchange of for paying less. For those looking to skip the crowds, they would have a higher benefit, and logically, they would be willing to pay more to enjoy the park during the off season. I'm speculating here, but unlike Uber who experiences a shortage of drivers during peak times, they can justify charging more due to supply and demand. But as far as I can tell, Disneyland has no problem packing it in, and as a result, everyone suffers a loss of total benefit during peak times.

KC Hulse said...

I have never experienced the magic at Disneyland/Disneyworld or Universal Studios. I have never felt like I could afford a trip. I think Universal Studios is making the right move. I wonder if these discounted days will draw fans away from Disney parks. I think Disney will soon follow Universal Studios, especially if they have success. We will have to see whether the first mover or the second mover will have the biggest advantage.

This article raises another question; will hourly rates paid to employees also be variable to demand? Online ticket sales should help Universal Studios understand the demand at any given time, but does pay vary with demand? I could imagine it would be hard to convince employees to stay and work during spring break or Christmas. I wonder how they compensate employees for these extra hectic work days.

Another question I have is will the discounted price draw in a different demographic? I recently read an article about how prices are too high for middle class families. It would be interesting to see how this new pricing structure will influence who attends the parks and on what days. What is insane to me is that no matter the increase in price or size of the crowd, year after year, both profits and attendance grow. It seems to me that when it comes to making dreams come true, demand is perfectly inelastic.

Dr. Tufte said...

Chris: 44/50 You wrote " This year we happenED to choose ..." which I corrected with capitals. (-3) You also wrote "... a loss of benefit in exchange of for paying less.", and here you've got an extra word that should have been deleted. (-3)
KC Hulse: 47/50 You ended your second paragraph with an unmarked question.

I'm with you KC Hulse. I went to those places more before I had kids. Now that I have them I'm disappointed that I haven't felt I could justify the expense more often than once.

Chris: it's an open question in economics about why some businesses are "permitted" by consumers to change their prices frequently, while others are looked down upon if they try. For whatever reason, theme parks have been refusing to soften the blow of the admission price on the busiest days.

KC Hulse: There's definitely a first mover here, but I'm not sure there's any advantage. I think you're right that demand is inelastic though.

Another thing we can't explain in economics is why businesses, when needing flexibility, change hours rather than wage rates (Q rather than P). And workers seem to be willing to put up with this, or at least they rarely mention the alternative of cutting wages to keep hours the same. So KC Hulse, I think if this pricing strategy allows them to manage the park better, it will be by changing hours rather than wages.

Jacob Cole said...

I have never been to Universal Studios or Disneyland. I fear that I will eventually have to make a trip to Disneyland because my daughter is obsessed with Disney, especially Minnie Mouse.

This article was very interesting to me. I find this concept of peak pricing strategy at amusement parks intriguing. I do not like crowds and try to avoid them at all costs. The additional non-monetary price associated with going to an amusement park on a busy day is something I consider. It is not worth the risk to go to an amusement park and have it be a busy day, so I usually choose to just stay home. The idea that I would be able to choose a low-demand day and be rewarded with a discount is fascinating. This pricing strategy would increase the likelihood that I would go to a place like Universal Studios or Disneyland. I am interested to see how this pricing strategy works for Universal Studios and to see if other amusement parks follow suit.

This pricing strategy reminds me of the pricing strategy used by Snowbasin for season passes. Snowbasin offers a Value Season Pass that is discounted $200 because it includes “blackout” dates that are high-demand dates. Those customers with the Value Season Pass are not able to go to the resort on those “blackout” dates. This pricing strategy helps the resort reduce demand on particular dates and helps customers save money.

I agree that this pricing strategy would help amusement parks find optimal staffing for different peak times. By having people purchase tickets online, whether for a high-demand or a low-demand day, the park’s management will be better equipped to determine how much staff is needed for a given day. This pricing strategy appears to be beneficial to both the amusement parks and customers.

Dave Tufte said...

Jacob Cole: 50/50

That bit about Snowbasin is interesting. It makes a lot of sense. It also falls into the category of two part tariff: charging a fixed price for access, and then an a la carte price on top of that. While we usually explain these by saying the fixed price gets you access (as in a health club), it works just as well for a situation like this (that just isn't as easy to use as a textbook example).