Universal Studio Revenue Management

¶ … pricing strategies that Universal Studio can adopt in order to maximize its revenues. First of all, its pricing strategies need to be judged in comparison with its main competitors on the market, Disney. One can argue that the two big studios compete for virtually the same potential consumers and on a market that is, more or less, an oligopoly. As a consequence, the first strategy that can be mentioned is that of the price leadership.

Universal has been in a competition with Disney about which entity would have the highest entry fee. Both started at $82, moved to $85 and, subsequently, Disney increased to $88 and Universal to $89. Disney immediately adjusted the price to $89 as well. The idea of price leadership is that this maximizes your revenue without taking away from your customers. If the two prices (Universal vs. Disney) are similar, the price sensitivity is low, and, as a consequence, it is not likely that consumers will migrate from Universal to Disney.

As such, it is important for the company to have the highest fee, because it will increase revenues, with consumer numbers stable. However, this leads to a second strategy that needs to be considered: psychological pricing. It is arguable that $100 represents an important boundary for Universal consumers, because it would mark going into the three digit territory. Consumers may become more aware of how high prices actually are and may react accordingly by lowering the number of visits they make.

Universal prices are also always kept in a format that usually includes a 9 ($89). Two more pricing strategies that Universal employs need to be discussed as well. The first is premium pricing. Pricing the entry to almost $100 is, by any means, a high price. If one also considers that the prices for things inside are significantly high as well, the overall conclusion is that this is a premium package for the family. The rationale behind this type of premium strategy is multifold.

First, families are likely to pay this money, because of several incentives: the children wanting to live the experience, the parents having to come along with them and not wanting to have just part of the family going in etc. One needs thus to consider that, with premium pricing, the revenues are maximized, with everybody going into the Universal park. Second, this is usually a vacation activity and people are more willing to pay more money for different activities when they are on vacation.

It makes sense to have premium pricing for a seasonal activity such as the one that Universal has. Universal's pricing strategy is, however, more complex than this and includes bundling and a highly customized pricing strategy. Starting with the latter, high levels of customization translate into giving the consumer a choice of when and how he wants to pay his visit. Depending on his choices of when and how, a certain pricing level that is more advantageous is fixed.

A good example in this sense is the company's strategy to offer better prices for several days passes, allowing the client to go into Universal on different days. If the price for one day is $89, the price for four days is $135, which is not so much higher. Someone will be likely to choose this option, thus maximizing the company's revenues. Bundling is another strategy that Universal uses.

Bundling allows the client to pay less for a combined ticket than paying separate entry fees to all the parks he or she wants to go to. It fits the customization strategy that was previously mentioned, it maximizes revenue and gives the client more flexibility in seeing more sites. 2. When discussing revenue management at Universal Studios, a series of issues need to be taken into consideration. A fundamental, central one relates to capacity management and allocation issues.

The objective in this case is to optimally manage all associated challenges in order to ensure that the highest number of customers visit Universal, in the best conditions possible. The challenge, as such, does not resume to maximizing client volume, but to maximizing customer retention as well: the clients need to return in the future and not choose a competitor for their next visit. Starting from this objective, supply and distribution management appears essential.

The client needs to be, for the entire period of time that he or she spends at Universal, able to purchase anything that has been advertised, at any time. He or she needs to be able to eat and drink at whatever time etc. For this, the company needs to properly estimate (using historical data and past information) the number of visitors that it is likely to have in a day and order supplies accordingly.

Any extra supplies that are not used are likely to go bad and increase costs for Universal, thus decreasing profits. Another important part of capacity management is queue management. The principle here is simple: if the client needs to queue for hours to get into Universal, he may prefer to choose another form of entertainment in the future. Queue management should also start from a proper analysis of daily participation in the park that should look at hourly intervals when clients prefer to visit Universal. The company.