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Medium Pricing Strategy Profitability Cannibalization Analysis

Seven Flags

#Entertainment #Amusement Parks #Hospitality
ProHub Comment

This case tests pricing strategy and incremental analysis through the lens of cannibalization—a critical challenge when introducing tiered pricing. The exhibit data reveals price elasticity dynamics and forces candidates to balance revenue maximization ($16 optimal price) against the company's financial constraint (10-year payback). The recommendation hinges on sensitivity analysis, demonstrating that modest changes in cannibalization rates significantly impact project viability.

Estimated Time 15 minutes
Difficulty Medium
Source Darden
50 / 100
Our client is a mid-size amusement park chain, with 10 parks around the U.S. serving over 10 million visitors each year. In their Richmond, VA park, it operates both a traditional thrill-ride section, as well as an animal experience. Currently, the two sections are covered under one entry ticket price. However, management is considering offering a separate ticket for only the animal experience section. They have come to us to determine if this is a good idea.

Clarifying Information

  1. Financial goal: Management wants a payback period less than 10 years. (If the candidate asks, payback period = investment / on-going profit.)
  2. Current price: Tickets are currently $20 and provide visitors full access to the park
  3. Park attendance: The Richmond, VA park is an average sized park within the client’s portfolio
  4. Business model: The park is a typical amusement park (think Six Flags or Busch Gardens). Visitors buy a ticket for entrance (assume same price for adults and children), and all rides / amusements are accessible under the one ticket price. The park also sells merchandise and food / drinks separately.