Pricing strategy is paramount these days as we face an unpredictable economy with limited future visibility. It’s part of a broader strategy, of course, but one of the first things that executives jump to when prices come under fire.
Note the different approach to this subject from an AP story carried in today’s SF Chronicle identified opposing trends for the entertainment juggernauts of Las Vegas and Disney. Vegas has focused on building a premium product over recent years and the metrics bear that out. Gambling in Las Vegas today accounts for 41% of revenues while 58% comes from the sale of rooms, beverages, shopping – the exact opposite from the 1990-91 recession. But, gambling revenue was down 4% in the first 2 months of 2008 vs. one year ago, which is only the 2nd time since 1970 that gambling revenue declined (the other following 9/11). So, the Las Vegas gamble on going upstream with fewer freebies and discount rooms and meals, may not be very resilient in a struggling economy. With 135,000 rooms in Vegas and another 40,000 rooms being built, the challenges are significant.
Contrarily, Disney has moved downstream to focus on more strategic pricing to make it less vulnerable to an economic downturn. It offers very competitive, strategic pricing with about 75% of its rooms today considered moderate or value-priced vs. 55% that were marked as premium priced in 1991. Result? Disney’s Q2 earnings are up 22% and parks and resort revenues are up 11%.
It’s a fascinating time for businesses to flex their strategy and see how resilient it is to an economic downturn. For another twist on innovative strategy, see my blog post on the F.A.O. Schwarz and Macy’s partnership.
All of these news stories about a Vegas Recession are really off-base (and written by people who don’t understand the tourism economy vs. housing market vs. stocks.
Room rates have fluctuated heavily here since the dawn of tourism. It is only the past three years they spiked high and stayed for some time. This dip wouldn’t even be noted 10 years ago.
Hotel occupancy is 95%. Any other city would love to have that. Orlando sits at about 60%.
I wrote an extended blog post about this entire topic at
http://blog.360.yahoo.com:80/blog-ma9.tkEweKVnjAyaIq0lqYH9POKObA–?cq=1&p=29
I go into seven major points about why this widely reported “Las Vegas Recession” has not been correctly viewed.
Having said all of that… If you have kids, visit Orlando. Not Las Vegas! Disney does it right for families.
Ted Newkirk
Managing Editor
http://www.accessvegas.com
Thanks for your response, Ted. I appreciate your extended blog entry but I don’t see any reference to the drop in gaming revenue. I guess you’re separating the “gaming business” from the “city of Las Vegas”, which you acknowledge IS in recession. If I understand your point, the drop in gaming revenue is unimportant because it was expected when the gaming folks decided to go upstream and substitute food/beverage/room revenue for gaming revenue? You claim people are NOT spending less but it sure seems like they ARE gambling less. Was that really the strategy when Las Vegas began to move upstream? Seems a pretty unlikely strategy from here.