For my SECA post I have chosen to focus on the theme park industry as I showcase knowledge and examples I have gained as part of my employment with the Walt Disney World Resort.
Rivalry -
In the United States, there are five major players in the theme park industry – Cedar Fair, Six Flags, Merlin Entertainment (owner of Busch & Sea World theme parks), Universal Parks and Resorts, and Disney Parks and Resorts. Each of these companies offers theme parks with varying experiences, always trying to debut the newest and best experiences in order to stay ahead of one another. A great example of this can be seen by looking at the three major theme parks located in Orlando, FL.
In Orlando, Walt Disney World, the Universal Orlando Resort and Sea World Orlando each are in direct competition with one another. This is evident in their competitive offerings in ticket prices: $87.33 at Walt Disney World, $82.00 at Universal, and $71.99 at Sea World. These prices are all represent the cost of an adult, 1 park, 1 day ticket. If you’d like to visit more than one park in a day or increase the number of days you visit each resort, each company increases their prices competitively.
Theme parks also offer ways for Guests to gain discounted tickets to their parks, usually through a promotional campaign with a sponsor. The best example of this can be seen in the partnership between Six Flags and Coke. Each summer, Six Flags and Coke typically run a promotion for an established length of time where if you bring a can of coke to the ticket office, you get a discount (in recent summers the promotion was buy one ticket, get one free). Promotions like this force rivals like Cedar Fair to come up with creative ways to lower ticket prices in order to stay competitive with Six Flags.
The rivalry between theme parks can also be observed by the debut of new attractions or technology. When Walt Disney World debuted its one-of-a-kind “Fastpass” system, which allowed guests to experience shorter wait times, other theme parks around the world were quick to follow with their own version. After the success of Universal Orlando’s Wizarding World of Harry Potter, many people throughout the theme park industry were interested to know if Walt Disney World would announce a new attraction. Almost right on cue, Walt Disney World announced the largest expansion (over $1 billion) in the history of its Magic Kingdom theme park where it will debut new restaurants, attractions, and entertainment offerings for its guests beginning in 2012.
Rivalry amongst companies in the theme park industry is what keeps them relevant in the eyes of its customers. Every year new attractions, restaurants, entertainment, and hotel offerings are announced in order to influence people to attend the various parks. This rivalry also affects the profits of these theme parks as they typically see a good return on their investment year over year. For example, not every family is going to take a vacation to Walt Disney World each summer. Walt Disney World realizes this and thus is constantly looking for ways to improve its attractions to stay ahead of its rivals, so families can count on having a better experience on their next visit. The more guests Disney can get to return by staying ahead of rivals Universal and Sea World, the more profit they will be able to bring home.
The bargaining power of customers in the theme park industry -
In a good economy, customers do not have a great deal of bargaining power within the theme park industry. Theme parks have steadily increased their overall ticket prices over the past decade, with the only exception coming in the recent “Great Recession” of 2008-2009, which saw overall theme park attendance drop for the first time since the months following September 11, 2001.
In an attempt to combat the recession and customers’ hesitancy at spending money on travel and tourism, theme parks began offering discounts the industry had never seen before. The biggest example of these can be seen by looking at Walt Disney World in Orlando, FL. In 2009-2010, Walt Disney World started offering great incentive packages as part of their “What Will You Celebrate?” campaign. Under this new campaign, Disney offered its guests four nights for the price of seven at any of their on-site hotels. Additionally, in the theme of celebrating personal milestones, Disney offered guests free admission on their birthday – the first time in the history of the Company that Guests were admitted for free. Walt Disney World also started to offer a free dining plan in the months of September for all Guests who booked a stay at a Walt Disney World hotel. Finally, in 2010 Disney started a second campaign, encouraging people to volunteer their time (i.e. Habitat for Humanity) in exchange for free admission to their parks.
These are some great examples of how the frugal bargaining power of customers affected the profits of a major power in the theme park industry.
Bargaining power of suppliers –
As I mentioned in my discussion surrounding rivalry in the theme park industry, every park attempts to stay relevant and appealing to its customers by debuting new attractions/offerings as often as possible. Operating under that impression, the suppliers to the theme park industry have a lot of bargaining power. Bollinger & Mabillard, Intamin, Vekoma, Arrow, Premier Rides, The Gravity Group, and S & S Power are just a few of the major companies who create the attractions found in most of the theme parks throughout the world. Every year, the International Association of Amusement Parks and Attractions (IAAPA) hosts a convention where the newest technology is put on display for the consumers (theme parks). In an effort to keep customers excited year after year, theme parks have the opportunity at this convention to see the newest technologies first hand and decide what to bring to their theme parks in the future. This can negatively effect the profit level of theme parks however, as they bid against one another as they vie for the best technology, driving up the prices and reputation of the suppliers
Threat of new entrants –
Out of Michael Porter’s Five Forces, the threat of new entrants into the theme park industry is one that has not proven easy to do in the past. In the past decade, there has not been a major theme park in the United States that has opened its doors. In fact, the trend has been the opposite as we have seen several parks close their doors for good. Hard Rock Park (Myrtle Beach, SC), Geauga Lake (OH), Cyprus Gardens (Lakeland, FL), Six Flags New Orleans (LA), Six Flags Kentucky Kingdom (KY), and Astroland (NY) and some examples of large, well-funded theme parks that have folded in recent years.
I think that they most obvious reason for this trend is that there simply aren’t many more markets in the United States left to tap. The most recent attempt to gain entry into a great tourist destination came with Hard Rock Park in Myrtle Beach, SC in 2008. After one season, the park declared bankruptcy and sold to new ownership who attempted to revitalize the park under the name Freestyle Music Park for the 2009 summer season. However the name change didn’t do enough for the success of the park and Freestyle Music Parks closed its doors for good in the fall of 2009.
Outside of the United States however, the threat of new entrants appears to exist. In recent years, Hong Kong Disneyland has opened with success, a new Shanghai Disney recent has been announced, and several theme park projects in Dubai, though long delayed, are now starting to get under way. Whether or not these projects will succeed remains to be seen, but the entry barriers for the theme park industry appear to be much lower outside of the United States. For these reasons I have to conclude that the threat of new entrants into the theme park industry does not seem to have too large an impact on current companies profits.
Threat of substitutes –
The threat of substitutes in the theme park industry is one of the biggest challenges theme parks are forced to overcome. While the majority of theme parks such as Six Flags, Cedar Fair, and small, family-owned parks (Hersheypark, Holiday World, Dollywood, etc.) exist as one or two days travel destinations, larger resorts such as Walt Disney World, Universal Orlando Resort, and Sea World Orlando often try and sell multi-day ticket packages to their customers. The challenge for these resorts is finding ways to entice customers to spend their vacations with them as opposed to trips to the beach, cruises, Las Vegas, etc.
Walt Disney World has done a great job of attempting to alleviate these substitutes. As a resort, Disney offers its guests a wide range of experiences including four incredible theme parks, two water parks, a retail and dining shopping district, championship golf courses, miniature golf, a state of the art sports and athletics complex, and over twenty unique hotels with great dining experiences. Recently, Disney has also made great strides in expanding their cruise line, as they plan on debuting two new cruise ships in 2011 and 2012.
Disney also offers their own version of a time share called the Disney Vacation Club. This “club” offers guests the unique opportunity to buy into property ownership not only at Walt Disney World, but at over five hundred locations worldwide. Property ownership at Walt Disney World is a great example of how Disney attempts to stay current amongst not only their competitors in the theme park industry, but other substitutes of the travel industry as well.
The threat of substitutes will always exist as families decide where to spend their money on vacations each year. However, if companies can find a way to remain relevant and offer a wide range of activities for people to engage in like Walt Disney World in Orlando, FL, they will be less susceptible to feel the effects of these substitutes and profit levels will continue to grow.
