why do theme parks like ocean park offer huge discounts to hong kong residents and not to tourists?...
TRANSCRIPT
Why do theme parks like Ocean Park offer huge discounts to Hong Kong
residents and not to tourists?
Nipun Sharma
Brief Outline
Introduction - facts and assumptions Scenario 1 – No discount to local residents Scenario 2 – Heavy discounts to local
residents
Ocean Park
One day ticket to Ocean Park:– $ 185 / day
Most expensive annual Pass available to a HK resident:– $ 550 / year
Do the math…– $ 550 / 365 days ~ $ 1.5/ day
Rationality assumption
Opportunity cost for most people to spend a day at OP would exceed $ 1.5 – rational people will not attend every day
(more like 3-5 times a year). If locals were irrational, Ocean Park would be
in debt because $ 1.5 would presumably be far below their MC.
Facts and assumptions
Tourists are generally not very price sensitive inelastic demand
Locals are elastic demand– Diminishing marginal utility
Tourist demand is higher during peak season ( Dec and Jan only) and lower the rest of the year
Demand from locals is steady all year long
Scenario 1: Don’t offer discount to locals
High demand from tourists during peak season.
Low demand from tourists during the rest of the year.
Low demand from locals all year long.
Numbers are relative
The numbers are not REAL – just a set of easy numbers to show the relationship.
OP needs minimum 40 tickets sold every month to meet their reservation point
Tourist demand
Tickets sold
0
20
40
60
80
100
120
DecJa
nFeb M
ar AprM
ay Jun Ju
lAug Sep Oct Nov
Months
Tic
kets
so
ld
Tickets sold
Demand from locals
Tickets sold
0
20
40
60
80
100
120
DecJa
nFeb M
ar AprM
ay Jun Ju
lAug Sep Oct Nov
Months
Tic
kets
so
ld
Tickets sold
Tickets sold
0
20
40
60
80
100
120
DecJa
nFeb M
ar AprM
ay Jun Ju
lAug Sep Oct Nov
Months
Tic
kets
so
ld
Tickets sold
Total demand under Scenario 1
Observations
Ticket sales from Feb – Nov = 30 tickets short of reservation point.
Ticket sales in Dec and Jan = 60 tickets above reservation point.
Overall, park will not make enough profits year along will shut down in the long run.
Scenario 2: Heavy discounts to locals
High demand from tourists during peak season.
Low demand from tourists during the rest of the year.
Moderate demand from locals all year long.
Graph it out – same tourist demand
Tickets sold
0
20
40
60
80
100
120
Months
Tic
kets
so
ld
Tickets sold
Demand from locals - moderate
Tickets sold
0
20
40
60
80
100
120
DecJa
nFeb M
ar AprM
ay Jun Ju
lAug Sep Oct Nov
Months
Tic
kets
so
ld
Tickets sold
Total demand under Scenario 2
Tickets sold
020406080
100120140160180
DecJa
nFeb M
ar AprM
ay Jun Ju
lAug Sep Oct Nov
Months
Tic
kets
so
ld
Tickets sold
Observations
Ticket sales from Feb – Nov = 20 tickets above reservation point
Ticket sales in Dec and Jan = 120 tickets above reservation point
Park will make more than enough profits to support it self all year long.
Peak season will be HUUUUUGE.
Conclusion
Scenario 1: OP can only sustain it self during peak season and be in debts during the rest of the year
Scenario 2: OP will make a ridiculous amount of profit during peak season and a good amount of profit the rest of the year.
Basic price discrimination Tourists – not price sensitive – incentive not required Gives residents incentive to revisit