Imagine you operate an attraction – something like a haunted house, a miniature golf course, a wax museum, etc. You are dealing in a very perishable product – if your attraction isn't full to capacity your product is spoiling. You are missing out on potential revenue you can never get back.
This makes attraction owners keen disciples of revenue management. They are very focussed on understanding how people value their product and charging accordingly, using pricing tactics like bundles and hurdles – sometimes even in combination – to maximize revenue.
As an example look at several attractions in the Niagara Falls Canada area, which sell a "Fun Pass" that gives the bearer access to five attractions, plus some tokens for an arcade:
The Niagara SkyWheel (Canada’s Largest Observation Wheel)
Wizards Golf or Dinosaur Adventure Golf
Movieland Wax Museum of Stars
Wild West Coaster
Ghostblasters Dark Ride
Plus 5 Great Canadian Midway Tokens
There are several things going on here:
The bundle recognizes that different people place different values on different attractions in different conditions. The mini-golf enthusiast will likely attach a higher value (also known as surplus utility) on access to mini golf – if they consider that mini golf is worth $15, then it seems like they are getting access to the other four attractions for just $10 more. Even if they place a much lower value on these attractions they're more likely to be interested when they cost just $2.50 each as part of the fun pass.
Given that so many of the visitors to Niagara Falls are families, who have to act as a group, the effect is even more pronounced. The parents are likely to very very interested in observing the falls from the observation wheel, but little interest in the arcade. One child might be very keen on the wax museum, another on the miniature golf. Again the bundle serves to even out the very different valuations.
As discussed in other posts it's not just the person and the attraction but also the situation. Miniature golf is more likely to appeal to everyone on a beautiful spring day than a scorching hot August day or (even worse) a cold and wet early spring or late fall days. The skywheel is less attractive in overcast weather, and the indoor attractions are more interesting in cold or hot weather.
Bundles also appeal because they offer a reduction in ordering costs. If there was no bundle offered imagine the dilemma faced by parents trying to plan a trip to Niagara Falls on a budget. They'd be trying to anticipate the weather, and gauge the interest of different children in different attractions. The bundle makes all of that go away.
By including all of the events in a bundle the vendors get to "even out" demand for their products. Instead of living and dying by weather, and how it affects demand for individual attractions, they benefit from more consistent demand for their bundle.
The bundle sells for $25.95 for adults, and $19.95 for children. This is savings of $25 – approximately 50% – over purchasing each of the items individually. Why would the operator discount so aggressively, especially when it has been proven that bundles do not need to be discounted?
Like many other vendors they recognize the diminishing marginal utility of their product – one attraction is a lot of fun, but doing five the odds of any family paying full price for all of these attractions are very small. If the vendor held firm on their full prices, most people would buy tickets for one or two attractions and overall revenue would actually go down.
Offering such a discount means a more attractive package and greater revenue. It also lets them exploit the anchor effect – by showing the savings next to the price they can highlight just what a good deal they are offering.
As good as the discount is customers that are sensitive to price can get an even better deal if they are prepared to jump over a significant hurdle.
Costco stores in a large (at least 100 mile) radius around Niagara Falls frequently sell these fun passes at a further discount – typically $21.99 for adults (additional savings of approximately $4) and $16.99 for kids (approximately $3).
They do this because Costco shoppers pay a membership fee to get access to the stores, drive longer distances to do their shopping, etc. They have proven themselves to be serious about saving money.
Buying access to the attractions in this way is a hurdle. If you are in Niagara Falls on a nice day, the pass is likely to seem like a great idea. If you are in a Costco a hundred miles away, on a dreary winter day, the pass is much less tempting. It means tying up cash in a pass you hope to remember to use one day. If you are prepared to jump those hurdles you have earned the extra discount.
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