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Michelle Peffen

on 21 March 2014

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Transcript of Universal

Internal Environment
Final Recommendations
External Environment
Image by Tom Mooring
What happens in the future?
Universal: The Company as a Whole
In the future, there will most likely not be any more competitors in the market; SeaWorld's demand seems to be declining. However, FunSpot has greatly improved the attractions and is becoming a good competitor, although it is not at the Universal or Disney level yet.
Disney is the only main competitor in the future.
Price leadership just occurred with Disney and Universal. Disney knew that Universal was going to raise the price due to the addition onto Harry Potter, and Disney wanted to raise the price due to the addition of the Avatar world.
According to Susan Jacobson at the Orlando Sentinel, Universal raised their prices just a few days after Disney did.
Since both competitors in the duopoly raised ticket prices less than a month ago, prices will not likely rise again in the near future.
Technology is a major input.
Technology controls all of the rides,
It is used to create and design the different aspects of the parks,
It is used to determine wages,
It is even used in simple cash registers.
Another input is the metal used as tracks for the rides and the trains (cars) that go along the tracks.
For the shows, major inputs are the lighting and sound instruments.
Specifically for shows, the actors could be considered inputs but technically they are workers.
Any ingredients used to make food, any materials to make the souvenirs that are sold.
Development of new products
Universal has to make people want to come to the parks. They have to create new attractions that are appealing to make customers visit and return.
Most recently, the development of Transformers created a new appeal. Before that, Harry Potter which still attracts thousands of people each day.
When developing a new ride or attraction, Universal must design, engineer, build, and test it. When considering design, the designers must consider what will appeal to consumers. For example, when building Harry Potter, JK Rowling insisted that the buildings stay true to size that they would be in the book. She had very strict requirements that had to be made to keep her, and the Harry Potter consumer, happy.
The validation process is the most important because the engineers must make sure that the ride is safe and working well. Before the ride officially opens, there is an employee test and then a soft opening. Both give engineers a chance to work out all of the kinks.
Prices and Price Elasticity
A Universal 1 day, 1 park pass costs $96.
A Disney 1 day, 1 park pass costs $94.
In order to maximize profits, Universal must sell where the demand curve corresponds to the equality of marginal revenue and marginal cost.
Universal and Disney have realized that their ticket prices are pretty inelastic. People want to go just because it is Universal or Disney: (From The Global Theme Park Industry By Salvador Anton Clavé )
Cost Structure
Fixed costs include the cost for the land that Universal sits on and salary based workers.
Variable costs include hourly workers' wages, the costs for main utilities such as electricity and water, and costs for production of goods sold within the park.
As long as Universal covers the average variable cost in revenue, then business is good. Otherwise, they will have to shut down.
An attraction attendant averages $8 an hour, which is just above minimum wage.
All team members are eligible for healthcare, insurance, vacation time, retirement benefits, and more.
FunSpot (not quite yet but this company is emerging)
Universal's main competitor in the Orlando area is Disney, however, there are some other theme parks that are competition.
Supply and Demand
Demand for both Universal and Disney is pretty inelastic.
Attendance varies with the season, the 'off season' is during the typical school year, attendance spikes around holidays and during the summer.
According to Jason Garcia at the Orlando Sentinel, 7.7 million people attended Universal in 2012.
Universal's supply is as big as it needs to be - there is probably a maximum number of people that can be in the park at one time but the space accommodates massive crowds so no one is turned down.
Adaptability to changing environments
Strong factors:
Universal needs to adapt to the increased attendance during summer and around holidays. This is accomplished by hiring more hourly workers to be cashiers, ride attendants, etc.
Universal must also keep consumers' attention. This is done by developing new rides and shows that appeal to the public.
Recently, Universal has been strong in developing new attractions. In the last few years, Simpsons, Rockit, Harry Potter, Despicable Me and Transformers have been added to the park.
When rides shut down, it can take a long time (a few hours to a few days) to diagnose and fix the problem which causes the guests to be disappointed.
It takes a long time to develop new attractions; planning has to be done years before the attraction is built and opened.
It is very difficult for other competitors to enter into the market so Universal just needs to keep up with Disney, and vice versa.
Market Structure
For all intents and purposes, Universal is part of a duopoly with Disney.
A duopoly is an oligopoly with only two firms.
This duopoly has some control over price, a differentiated product, is supposed to have no barriers to entry but it does cost a lot to start a theme park, so this could be a possible barrier to entry.
Universal and Disney both have extremely recognizable brand names, and large start up costs, both of which are contributors to oligopolies.
Technological advancements are necessary in the ride aspects of Universal. Technology makes rides safer, faster, and more unique. Technology also helps to diagnose problems when a ride goes down.
Universal will improve its technology basis throughout the future. When new rides are created, a new set of engineering and computer tools comes with it.
It is unknown exactly what technological developments may be put in place but the future developments in technology will set Universal apart from Disney.
A problem for the future lies with increased demand. Since more people are coming to the parks to see the new attractions, Universal has to hire more people. Three or four people behind one small counter could lead to negative marginal productivity.
Each additional worker will add less help to the business. Universal will need to find a balance between consumer and worker population to keep total productivity to a maximum without TP going over the peak.
Government Regulations
44 states currently regulate theme parks.
Future government regulation would improve ride safety. Many regulations are already put into place and as technology improves and changes, the regulations change.
On top of the government regulations, theme parks follow American Society for Testing and Materials (ASTM) International and Consumer Product Safety Council. This group serves as a regulatory body to ensure safe them park rides in the US. Different regulations are in place in Europe and Asia.
Theme parks continue to share the problems that occur during run time. This leads to creation of different regulations that further improve rides.
Universal must be ready to compensate for any new regulations that are put into place.
Universal does not want to get sued or receive bad press so the company makes sure to abide by these regulations.
Wages and Benefits
Wages have a possibility of changing due to the increased ticket price. Universal will want to keep their workers so they will provide a premium, which they now can afford, in order to keep the workers from moving to Disney.
Benefits may change with a greater development of of Obama's health care system. For now, benefits will stay the same.
If Universal merges with another company, benefits could change. Since a merge just happened, this is unlikely.
Global Competition
Since there are two Universal theme parks abroad, global competition is a new factor. Universal is still a leader but the competitor scale has widened.
In Singapore, there are no other amusement parks. There are however, other competitors to Universal Studios Japan. There is a Disney park in Tokyo, as well as a few other amusement parks.
Global competition is a factor in Europe because there is Disney in Europe but there is not a Universal theme park. This would lead to more Europeans being customers at Disney than at Universal.
Profit Maximization
Universal should continue to expand in order to maximize profits. Specifically, Universal should Expand into Europe.
Government Policy, Social Diversity and Business Ethics
Government policy effects Universal in regulations of rides. If Universal expands, the company will still need to abide by these regulations. These regulations are the best for the consumers and for the firm. The consumer has a lesser chance of getting hurt and the firm has a lesser chance of being sued.
Social diversity improves Universal's profits because teens and adults prefer the roller coasters. Disney does not have many roller coasters.
Social diversity in Europe will show that expansion is a good decision because more consumers will go to Universal and will allow Universal to make more profit.
The brand name will be more recognizable and allow the member of the duopoly to take more money in.
Business ethics are a major factor in attractions. The business must want to keep the guest safe otherwise guests will not come back. The business has a responsibility to ensure a safe ride. If the ride is unsafe, a life could be taken. Through expansion, Universal will be exposed to different regulations that will help make the rides safer.
Universal should invest in a new theme park in Europe because Disney is mainly a kid park. Universal tends to be more for teens and adults. Therefore, the market in Europe is open. Marginal revenue will increase because more consumption will occur of Universal's product.
Universal should invest in new capital and land in order to build another park.
This will decrease Disney's total revenue because people who were going to Disney at older ages will be more inclined to go to Universal. Also, now the European's do not have to travel to the US in order to experience Universal.
The only other organization for Universal to consider a merge with would be Disney. This would be illegal, however, since the two control the majority of the market and the merge would create a monopoly. Therefore, Universal should not merge.
Universal Studios began in 1912 as a part of the Film Industry.
Universal Studios Hollywood was built in 1964, and Universal Studios Florida was built in 1990.
Universal parks are now in multiple countries and its movies are sold world wide.
Universal is owned by NBC.
Recently, Universal experienced a conglomerate merger with Comcast.
Universal is part of an Oligopoly. However, it is mainly a duopoly with Disney.
Universal offers the theme park experience on an international scale.
This project will focus on Universal Orlando.
This explains that even though theme parks are raising prices, demand is not decreasing as it normally would. This supports the inelastic nature of demand for Universal.
This video explains how to calculate to calculate marginal product of labor and marginal revenue product of labor.
Universal Studios Japan
Universal Studios Singapore
Disney Paris
Works Consulted
Full transcript