Assignment: Question one, essay on Merlin
Word count: 1,406
The purpose of this essay is to investigate future pricing policy for Merlin for the tower. A brief review of Merlin’s management of the Blackpool Tower will be highlighted, and then using economic tools of analysis, it will clarify the concept of pricing discrimination and how companies use prices to attract certain kinds of customer. Followed by, the use of price and attendance data from other attractions, such as Camelot and Alton Towers to support the argument. Finally the essay will come to a conclusion. `Merlin Entertainment in 2010 took over the management of Blackpool Tower, one of the U.K.’s more iconic tourist attractions. The Tower was built in 1894, and contains a circus, an aquarium, a world famous ballroom, Jungle Jim’s, The Tower Top and Jurassic Walk. The new owners are adding a Tower Dungeon and a new tower top 4D cinema experience (News Release, 2010). Earlier, entrance to the tower cost £17 for adults, £14 for seniors and children payable at the door, with a £3 discount for those booking online. For this, customers gained access to all facilities, as well as admission to the circus show. Merlin has commissioned to advise them on their future pricing policy for the tower.
Price discrimination is the practice of setting different pricing methods in different virtual markets, while still preserving the same product throughout. The prices are based upon the price elasticity of demand in each given market and practice of marginal analysis (Armstrong, 2006). It is ideal to capture consumer surplus and to recognise degrees of discrimination. There are three degree of price discrimination, such as First degree, second degree and third degree. In first degree price discrimination, it is recommended that one charges a customer the maximum amount they are willing to pay. In second degree price discrimination, tactics such as “block pricing” and “commodity bundling” are common. (Tribe. J, 2004). Third degree price discrimination deals with unraveling customers into discrete groups based upon their differences in elasticity of demand. Based upon this elasticity, they then charge a higher price to the group whose demand is less elastic. Marginal revenue is the change in the total revenue that is the result of a small change in the sales of the good in question. Therefore, price must also have to change slightly (Sinclair, M. and Stabler, M 2002), Price discrimination is simply lucrative if and when the given target groups price elasticity of demand varies to the point where the separate prices yield to profit maximisation for each given group in question, where marginal revenue equals marginal cost (Samuelson & Marks (2003). Groups that are more sensitive to prices, such as students and senior citizens for example, have a lower price elasticity of demand and are the ones, which are often charged the lower prices for the identical goods or services. The key to price discrimination and using it to fully tribute other economic practices, ultimately achieving the total profit maximisation, is the ability to effectively and efficiently collect, analyze, and act upon data gathered about the different groups (Laffont JJ, Rey P,1998). The Blackpool Tower is now the center of a £40 million tourism development, which the local authority hopes will give a complete makeover to the seaside resort (News Release, 2010) Mr. Trevor Hemmings, the leisure entrepreneur, sold the aged, rusting tower, along with the Winter Gardens conference venue, to the Blackpool council, which has secured £30 million in European Union (EU) for the redevelopment. Top of Form
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During the past 15 years, annual visitor numbers to the resort in Lancashire have declined from 17 million to less than ten million as travelers chose cheap sun packages on the Continent. (See Figure 2.Appendix 1) However, Blackpool government officials estimated the £40 million...
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