paradise parks

8/11/2019 Paradise Parks

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Paradise Parks

A report submitted to

Instructor: Prof. Meenakshi Sharma

Academic Associate: Ms Diti Shah

In partial fulfilment of the requirements of the course

Written Analysis and CommunicationI (2014-15)

By

Abhay Kumar Singh

Section B

On

5 July 2014

INDIAN INSTITUTE OF MANAGEMENT, AHMEDABAD


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Letter of Transmittal

To,

Jill Hoover,

President and CEO, Paradise Parks,

Seattle, WA USA

Subject: Recommendation for avoiding crash-crunch at the Paradise Parks

In the enclosed report, I have presented my analysis on what should be done in order to avoid

the impending cash crunch that the Paradise Parks face. On the basis of the revenues needed

and the customer experience to be maintained, I recommend the Preference Card Plan along

with some additional aspects to it. An action plan to carry out the same has also been

included in the report.

Regards,

Abhay Kumar Singh

Advisor, Ahmedabad

July 5th, 2014


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Executive Summary

Paradise parks make a group of entertainment parks started by Francis Hoover for relaxation

purposes. The company performed well in the start till the last two years when it underwent

continuous loses. Expanding business has become very hard due to increased costs. The CFO

has come up with the idea of a preferred guest cardfor the affluent customers to resolve the

problem. The CEO along with other members are not sure about the proposed plan as it is

against the company's values and culture and want to focus on in-park upgrades.

Number of words: 92


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Contents

Situation Analysis .................................................................................................................................... 5

Problem Statement ................................................................................................................................. 6

Options .................................................................................................................................................... 6

Criteria for Evaluation ............................................................................................................................. 6

Evaluation of Options .............................................................................................................................. 6

Recommendation .................................................................................................................................... 7

Action Plan .............................................................................................................................................. 7

Exhibits .................................................................................................................................................... 8


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Situation Analysis

Paradise Parks were started post WWII by Francis Hoover as a place where people couldforget their worries and enjoy the best of human endeavours. The company has now

expanded to nineteen parks with Francis daughter Jill as the CEO.Further expansion is very

difficult due to the increased labour costs and insurance costs owing to the high employment

opportunities and recent mishaps. The high capital needed to build new rides to compete in

the market coupled with the expiring real-estate benefits has made the company incur losses

in the last two years.

To increase revenue, the company printed $10-off discount coupons on soda cans which

increased the in-park spending but the gate receipts remained in losses. This suggests that the

number of visits by a customer did not increase with this step. So, there is a need to increase

the number of customers visiting the park all the while increasing the in-park spending by

each customer. Another measure to increase the revenue is the Operation Upbeat, the idea

suggested by the CFO to attract the affluent people to the parks, allowing them to jump long

lines with a little extra money. But this contradicts with what the company has been

following: same experience for the same price. A lot of emphasis has been laid upon whetheror not to implement this step but this question should arise after some preliminary analysis

has been carried out as to determine whether all the parks are losing or the problem is with

only some of them. The demographics presented by the CFO that top 20% of US incomes

account for more than 48% of total spending on entertainment fees and admissions suggest

that the issue of preference cards would increase the revenue although it might cause a dip in

the visits by customer. On the other hand, the in-park facilities could be upgraded with more

appealing merchandise and services. This has been implemented and is found to be effective

in tapping the high income customers. Also, a separate director for attracting conference

business has been recruited. Hosting conferences in the parks where in the participants are

provided with the discounts on the facilities and rides could increase the revenue.


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Problem Statement

To increase the profits without compromising the overall experience of the customer.

Options

a) Issue a preferred guest card for the people who have more money than time (hereby

referred to as the mass affluents)

b) Focus on upgrading the in-park souvenir shops and eating outlets to increase the in-

park spending by a customer

Criteria for Evaluation

The criteria have been listed down according to the decreasing priority.

a)

Revenue should not fall below $1.5 billion (see exhibit 1)

b) The overall customer experience should not degrade

Evaluation of Options

1)

Issue a preferred guest card for the mass affluents

a) Revenue should not fall below $1.5 billion

The cards should be priced so that the profits are not compromised even if the

total annual attendance diminishes by 25% (an assumed safety factor). Exhibit 2

shows the worked out pricing as $60 which is $35 more than what the regular

customers pay and is an achievable goal. This pricing is based on the assumptionslisted below the exhibits and shall have to be suitably modified for other

assumptions.

b) The overall customer experience should not degrade

As per the plan the normal line for the rides would be separated so that people

might not feel discriminated against. Also, the number of such cards should be

limited for a day so that it does not cause inconvenience for the regular customers.

The cards could be awarded as per schemes for people who come early to attract

more customers.


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Exhibits

Exhibit 1 Revenue collected in a year

In-park spending per customer per visit $35

Entry fees per visit $25

Total annual attendance 23 million

Total annual revenue earned $1.38 billion

Exhibit 2 Price of a preference card

Target total annual revenue $1.5 billion

Total annual attendance (safe value) 17.25 million

Total annual revenue to be realized from mass affluents $720 million (48%)

Total annual attendance contributed by mass affluents 5.175 million

Spending per person belonging to mass affluents $140

Entry fees per visit $60

1Based on the fact that the discount offered on soda cans was $10 which is taken as 40%

of the entry fees for the sake of brevity

2

Based on the fact that top 20% of US incomes account for 48% of the total spending onentertainment fess and admission

3Assuming 30% of the total to belong to the mass affluents

4Taking the same ratio of in-park spending to entry fees as in exhibit 1

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