Optimizing Visitor Spending at a Water Park

By William L. Haralson

More often than not, when a water park owner or manager is asked how their park performed over the past season, their answer will be couched in term of attendance.  “We had a good year” usually means attendance was equal to or better than last year.  Seldom does the conversation extend to other metrics.  In fact, attendance is not the only metric that could be employed to judge a water park’s performance.  Others might include net income after capital expenses, net operating income, operating margins and so forth.  However, one of the least discussed and understood metrics in the water park industry is visitor spending, more commonly referred to as per capita spending.

 

Just how important is an understanding of per capita spending?  Consider this simple equation:  Revenue is the product of attendance times per capita spending.[1]   Further, a change in one of these factors is just as significant as a change in the other.  For example, a five percent increase in per capita spending at a water park is just as important as the same increase in attendance:  the increase in revenue is the same in either instance.

 

So why is the issue of per capita spending’s relationship to attendance and revenue worth dwelling on?  It is simply this:  Effecting a desired increase in revenue can often be more readily realized by increasing per capita spending than by attempting to increase attendance.  Increasing revenue through increasing attendance involves a number of factors that are not always under management’s control.  These factors include weather, competition, the economy and occurrences and events that may be detrimental to water park attendance (e. g., a drowning, criminal activities, mechanical failures affecting the park, etc).  Per capita spending, on the other hand, is more predictable.  This is not to say that problems will not arise; however, they are generally more manageable.  The more challenging issue is knowing how to manage spending.

 

PRICE/VALUE RELATIONSHIPS AMONG GATED ATTRACTIONS

            It is axiomatic that a relationship exists between the level of visitor spending that an attraction engenders and the entertainment value that that attraction has to offer.  Of course, the term value in any context is an abstraction and difficult to quantify.  Fortunately, however, a surrogate for value in the attractions industry is length of stay.  In this regard, length of stay serves as a veil over entertainment value.  In other words, there is a correlation between length of stay and entertainment value:  the longer the length of stay a park engenders, the greater that park’s entertainment value and the greater the perceived value to patrons who respond by spending more money at the attraction.  This correlation is illustrated in Figure 1:  As noted in this figure, the level of per capita expenditures increases with length of stay.

[1] Water park professionals will point out that other sources of revenue include sponsorships and subsidies but these are usually minor if they exist at all in some parks.

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Additional annotations are in order regarding Figure 1.  First, the diagonal line shown in the figure should, perhaps, be more aptly depicted as a wide band that bleeds off in either direction.  The line, itself, represents the theoretical ideal relationship between entertainment value and spending, while their relationship becomes less ideal as distance from the line increases.  The area above the diagonal line becomes what we have aptly termed the “rip off” zone, where visitors quickly learn that prices for admission, user fees and discretionary spending are perceived as being too expensive and not worth their cost.  Most entertainment attractions could not long survive if they are perceived as being in the rip off zone.  The exceptions are carnivals and peep shows found in heavy-oriented tourist markets.

 

On the opposite side of the diagonal line in Figure 1 is the “charity zone”.  Here the opposite conditions are found where prices are too good to be true because the attraction’s management either has not bothered to keep current on prices and costs, or there is a deliberate policy to provide entertainment at below market rates.  This situation is common in the public sector, where the attraction’s operating costs are subsidized by taxpayers’ dollars.

 

ESTIMATING YOUR WATER PARK’S LENGTH OF STAY

As a park owner, it may be easy enough to understand the price/value relationship illustrated in Figure 1; however, you need to be able to determine the average length of stay at your park.  One simple way to learn about your park would be to put an attendant at your park’s entrance to pass out cards with the current time on them.  When the cards are returned at the end of each attendee’s visit, simply note the time of exit, which would, then, give the time spent in the park.  This method would provide a sample of the attendees visiting your park.

 

A better, more permanent way of determining length of stay would involve using turnstiles  to record time of entry and exit of virtually all of the attendees visiting the park on a given day.  If monitored manually, meter readings would need to be taken at specified intervals and the data plotted.  The results would look similar to the illustrations in Figure 2.

 

As shown in Figure 2, arrival patterns are totaled on a cumulative basis and plotted as a curve.  When the park opens, attendees begin going through the arrival turnstiles until, at some

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point, every attendee coming to the park that day is counted.  Later in the day, the earliest arrivals begin to leave the park.  If those attendees who arrived at the park around 10am leave around 2pm, their average length of stay is 4 hours.  Moreover, if that pattern continues throughout the day, that will be shown on Figure 2.  The same could be said if attendees stay longer, say 6 hours.

 

There are several advantages to this method of tracking hourly arrivals and departures from your park.  These are:

  • Once the system is set up, it can operate daily throughout the season.
  • Rather than a sample, the data will include virtually all attendees.
  • Software may be available or pending that will require little staff time.
  • Attendance patterns will be available on a daily and hourly basis, which will form the basis for decision making on operations. For example, the data will not only yield hourly arrival and departure information but also provides an instant count of the number of attendees in the park at any one time.
  • Such data could prove valuable in determining the impact of peaks and valleys in attendance on points of sale – particularly food and beverage outlets. Better decision making can be derived by knowing when staffing needs to be added or reduced.

 

ADMISSION SPENDING VERSUS IN-PARK SPENDING

            Assume for the moment that you are a park owner and you have done enough homework so that you have managed to navigate between the Pillars of Hercules, which we have called the rip off zone and the charity zone.  You should know that there is another challenge ahead.  Now, that you have an idea of your park’s per capita expenditure potential, how much should you try to get at the gate versus inside your park?

 

In addressing this question, you should know that getting the attendees’ money at the gate versus in-park is an “either-or” situation, and how you approach the situation could result in negative consequences.  We’ve established in Figure 1 that there is an optimum level of spending attendant to every water park.  But, does it matter how that money is transferred from the attendee to the park?  It does, and here is why.

 

Regardless of how park management views spending, attendees have a different view of spending for admissions compared to spending for items inside the park.  Admission is perceived – consciously or otherwise – as an obligation or rite of passage.  Attendees know that whether they pay one price or another, they will be getting the same entertainment experience.

 

In-park spending, on the other hand, is discretionary, meaning that attendees could enjoy their entire stay at the park without spending a dime.  So why don’t they?  In-park spending may be discretionary but it also provides the means of enhancing the attendee’s entertainment experience in the park. Food and beverages – in particular – are part of the entertainment experience in a water park.  Parks that do not provide opportunities for the purchase of food and beverages and other in-park items do not fare well in visitor satisfaction surveys.  So what is an optimum level of spending for admissions versus in-park items?  A qualitative answer is illustrated in Figure 3.

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Shown in Figure 3 is an X-Y chart similar to Figure 1.  The difference, however, is that per capita spending is split between admissions and in-park spending.  It is noteworthy to observe that in-park spending increases at a greater rate than admission.  This implies that attractions with a longer length of stay have the opportunity to engender higher levels of in-park spending, compared to attractions with shorter lengths of stay.  In fact, attractions with extremely short length of stay may have no opportunity to capture any of the attendee’s other than admissions.  At the other extreme, it is common for theme parks to generate up to half of their attendee expenditures from in-park spending.  Water parks fall between these extremes, generating 30 to 40 percent of revenue from in-park spending.

 

A more detailed breakdown of per capita spending at water parks is presented in Figure 4.  As shown, admissions account for the largest share of per capita spending. Food and beverage,  merchandise, lockers and other miscellaneous categories make up the balance.  The percentages reflected in Figure 4 are as follows:

  • Admissions 65%
  • Food & Beverage 20%
  • Merchandise 5%
  • Lockers 5%
  • Other 5%
  • Total 100%

It should be noted that these percentages are typical of many water parks; however, they will vary depending on a number of factors, including management, size of park, demographics of the market area and competition.

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Managing Admission Prices

            Setting admission prices is a challenge to every water park.  This is a challenge that water parks have in common with other industries.  In the hospitality industry, the term used is “yield management”.  Airlines, telephone companies and cable TV all have to answer the same question:  how much to charge.  The answer, inevitably, is there is not one price to charge.  The sooner water park managers realize this answer, the better.  Commercial water park managers seem to have a better handle on the issue of admission pricing than do those in the public sector.  One reason for this is that many commercial managers came out the theme park industry, where parks such as the Six Flags venues learned long ago about admission pricing.

 

The first rule in setting admission prices for a water park is to establish the marquee price.  This is where some water park managers go astray.  They assume that the marquee price should be set low enough to attract the most attendance.  This is wrong.  The marquee price is set (1) to make a statement about the entertainment value of the water park and (2) to provide a basis for establishing a whole array of discount categories for the water park.  Figure 5 illustrates a simplified version of a water park ticket mix.  As shown, the figure includes five categories of tickets for a water park.  In fact, most water parks will have more categories than shown in Figure 5, including children’s tickets, as well as a wide variety of promotions and group rates.  However, for purposes of analysis in this article, the number of categories has been limited to five.  The point of presenting the data in Figure 5 is to illustrate the rationale of having a marquee rate plus discounted rates.  In fact, some attendees will pay the marquee rate, but most will look for a less expensive alternative.  Therefore, water parks will offer a variety of promotions that provide for lower admission rates.  Some of these may be offered in coordination with promotional partners,

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such as super markets or beverage vendors, while others may be totally internal to the water park.  For example, many water parks offer discounted admission for attendees arriving late in the afternoon.  Another common promotion involves honoring residents of specific communities, or organizations.

 

The other large category of admission sales is group business.  Although groups receive deep discounts in ticket prices, their business is sought by water parks since they represent a reliable source of business, even during inclement weather.  Most water parks offer an array of group rates depending on the size of the groups.

 

Season passes are a part of the attendance mix at most water parks.  These passes are available for individuals and families and are usually priced so that they are a bargain after a certain number of uses.  The advantage to selling season passes is that they provide revenue for the park during the off season.

 

In addition to the revenue-generating categories of attendance cited above, a small percentage of tickets are complimentary and can be given out as a public relations effort or may represent trade outs with local media outlets.

 

Finally!

 

NEVER, EVER DEFER ADMISSION PRICE ADJUSTMENTS.  Admission prices should be escalated every year.  We have served clients who have delayed admission rate increases for as long as three years.  This makes about as much sense as a sprinter stopping to tie his shoelace during a race.

 

Budgeting Admissions Spending

            The pattern of admission categories shown in Figure 5 is no accident, if water park managers engage in the budgeting process.  Table 1 presents a simplified example of the budgeting process, using the same data that is reflected in Figure 5.  Note that the marquee rate has been set

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at $19.95.  All other categories of admissions are, then, keyed to the marquee rate, with promotions set at 80 percent of the marquee price and groups set at 50 percent.  Season passes are priced at approximately four times the marquee rate, or $79.95.  Next, Table 1 shows estimates of attendance by ticket category, expressed as percentages of total attendance.  Note that attendance at the marquee level is only 15 percent, compared to 45 percent for promotions, 30 percent for groups, 6 percent for season passes and 4 percent for complimentary admissions.  Multiplying the admission figure in Table 1 by the corresponding percentage of attendance yields each attendance category’s contribution to total admission spending.  Further, adding the product of these categories together yields a total weighted per capita expenditure of $13.77.  Ultimately, this number will have to be reviewed along with other data to determine a final budget for the water park, and revisions may be necessary.

 

In-Park Spending

As previously noted, in-park spending generally accounts for 30 to 40 percent of total spending at a water park.  In Figure 5, we used a mid-point of 35 percent.  Further, we identified four categories of in-park spending, which merit discussion.

 

Food and Beverage:  As previously noted, food and beverage is the largest revenue generator of in-park spending in a water park.  A successful food and beverage operation must focus on the following factors.

 

  • Location: Location is mentioned first since it should be taken into account in the park site plan prior to construction.  Some water parks have been developed with the food and beverage outlet near the entrance.  Unless the park has a small footprint, attendees will only go near the entrance upon arrival and when leaving.  Studies have shown that water park attendees tend to be a bit lazy and will resist walking very far to reach a food outlet.

 

  • Throughput Capacity: Although the food and beverage operation is the largest contributor to revenue of all in-park categories, park planners frequently pay too little attention to the size and layout of food and beverage outlets.  As a consequence, outlets are often undersized and poorly laid out.  Studies have shown that per capita food and beverage sales decrease on busy days at water parks.  Lack of adequate planning is not just restricted to the point of sales area, but, also, the food preparation side.  Measures to correct the problem of inadequate throughput capacity include having a better understanding of peak demand, design layouts that best meet that demand, shade over queue lines and mobile food and beverage carts.

 

  • Pricing and Menu: Price points on menu items should be based on prevailing prices at local fast food outlets.  The park’s price points need not match local prices but should be  guided by these, nevertheless.  Moreover, the selection of menu items should be limited to facilitate throughput.  Prominent display of five or six combination meals is also recommended with options for upgrades.  Obviously, the quality of the food must be monitored frequently by management.

 

Merchandise:  Except in very large water parks, merchandise cannot be expected to be a significant contributor to park revenue.  Some type of merchandise, however, should be provided as a service to attendees.  Sale items should include sundries such as sun tan lotion, sunglasses and books; however, many small water parks find that their best sellers are candy and snack items.

 

Lockers:  As with merchandise, lockers are not a significant contributor to the revenue of a water park.  They are significant, however in that they serve a need of many attendees who need a place to put their valuables.  Many water parks locate their lockers within the restrooms.  While some lockers may be needed in the restrooms, most should be located near the food and beverage outlets so that park attendees can retrieve their money to make food and beverage purchases.

 

Other In-Park Revenue Generators:  There are several in-park revenue generators not cited herein since they are only viable in large water parks.  For example, cabana rentals are available in some large parks at rather substantial daily rates.  And, even though they may be limited in number, they can be significant contributors to revenue due to their high rental rate.  Another example of a revenue generator found in some parks is tube rental, which is only viable in large parks.  Smaller parks often only have one attraction that require tubes, which renders the rental tube less marketable.  A third example of a infrequently found revenue generator is the Sky Coaster, a swing ride found at a few water parks.

 

Budgeted Total Water Park Expenditures and Revenue

            Table 2 presents a sample revenue statement for a hypothetical water park.  The per capita expenditure for admissions in Year 1 is derived from Table 1, while other per capita expenditure for Year 1 are based on the percentage relationships presented in Figure 4.  Per capita expenditures projected in Year 2 and subsequent years are escalated at 4.0 percent per annum.  The attendance figures assumed in Table 2 are typical of a medium sized water park.  Finally, revenue projections are the product of attendance multiplied by each category of per capita expenditures.

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