Experimenting with discount pricing.

With rising costs and departmental budget cuts, parks and recreation agencies continuously find it necessary to utilize various marketing and pricing strategies to improve and augment service delivery. In an ideal world, parks and recreation managers would only be concerned with such variables as quality, performance and personal value. However, in the current economic environment where service demands exceed public funding, managers are forced to experiment with various pricing strategies in pursuit of revenue to offset deficits.

Effects of the recession persist, and consumers and producers alike are looking for ways to save and generate money. Parks and recreation managers - as producers - are aggressively looking for strategies to concurrently generate revenue and expand service levels to broader segments of society. This exploration has induced challenges and stimulated changes in departmental protocol, including proclaiming new mission statements, identifying pricing objectives, reformulating pricing policies and generating differential pricing strategies.

Discounting offers a means to capitalize on unrealized revenue from market segments that are incapable or unwilling to pay the full price for a service. A one-price approach leaves one with a substantial amount of unrealized revenue, since some users will be paying less than they are willing to pay. By selling some services at a discount, a parks and recreation manager can maximize facility use and generate varying levels of revenue from multiple sources.

As society becomes more heterogeneous, in terms of diversity in leisure interests, discretionary incomes, work schedules, lifestyle choices and time preference for leisure participation, price flexibility provides a means to segment markets and to capture more revenue from both price-sensitive and price-insensitive segments. The diversity of populations and public parks and recreational services suggests that some patrons will use various services more than others. For example, the number of patrons of swimming complexes, sport's programs and natural preserves, as compared to the total population, confirms that there will always be more non-users than users.

Another reason for discounting is to win back those people who were once consumers and who have been attracted to competitive programs such as health centers and YMCA/YWCA programs. A final reason is to attract those customers who are least likely to respond to a single-price rate. After all, this is the United States, and most if not all citizens have become accustomed to discounting and shopping at sales. Discounting provides an incentive to such target markets. Its prevalence in the private sector indicates acceptance and popularity.

Discounting Ideas

Traditionally, the travel industry has used a concept called yield management to bring in incremental revenues from price-sensitive guests. in this approach, different target markets are charged different rates for the same service, seats on a plane or rooms in a hotel, consequently satisfying more customers and producing more revenue. This concept has also become the cornerstone of many other types of businesses such as theaters and long-distance telephone companies. To maximize revenues, it is advantageous to separate customers and charge them different rates based on their different needs and behavior. Table 1 illustrates a municipal swimming complex's price segmentation strategy based upon different user groups' willingness and abilities to pay higher prices.

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Basing rates on an individual's status has the potential of producing a negative outcome. Customers who are required to pay one price and realize that others paid significantly less may become confused and even angered by the practice. Since the price rates are based upon the manager's perceptions of certain segments' willingness and ability to pay and few users have control over their status, the perception may become evident that public recreation and park agencies discriminate against certain taxpayers who may equally be concerned about their personal finances.

A more sensitive discount price strategy is to erect "fences" that allow users to logically and rationally segment themselves into an appropriate rate category based upon their needs, behaviors and willingness to pay. The airlines' Saturday night stay-over, advance-purchase requirements are an excellent example of a fence that separates customers that need a discount from those who do not. A price fencing strategy affords price-sensitive users lower rates in exchange for decreased flexibility. On the other hand, full-rate customers can utilize the service at traditionally higher demand times. The important aspect of fences is that they allow users to purchase at a discount during periods when the facility is underutilized.

Table 2 outlines possible rate-fences for a municipal swimming complex.

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A rate-fencing system provides the parks and recreation agency a better rationale to explain rates to users. Using such a rate-fencing system may allow the facility to even out peaks and valleys of demand by opening up discounts when demand is traditionally weak and closing off discounts when demand is high. Furthermore, by requiring advance reservations from those users who generally require significant price breaks, but who can afford to be flexible, you can manage temporary needs for increased staffing more efficiently. By introducing rate-fences, you can generate demand from price-sensitive constituents while preserving the demand from higher-paying users.

Price bundling of services is another marketing idea that may be used to stimulate demand. Generally speaking, price bundling is the practice of marketing two or more services in a single "package" for a special price. The use of bundling has increased in the private sector. For example, some hotels are offering weekend packages that combine lodging and some meals at special rates. Additionally, some health clubs offer memberships in individual programs (such as aerobics classes, racquetball courts, and weight rooms). Others offer packages combining two or more activities, or days, for attendance.

The rationale for bundling is twofold: first, the cost of most services in parks and recreation is characterized by a high ratio of fixed cost, a degree of variable cost and great degree of cost sharing. Many programs use the same facilities, equipment and personnel. For example, a fitness program may have various program components, but uses the same facility and involves the same staff, equipment and so forth. Once a relationship is established with a user for one program, such as an aerobics class, the marginal cost needed to market other program components such as a step-aerobics class or a nutrition class is generally low in comparison to the agency's total costs.

Many services offered by parks and recreation agencies are interdependent in terms of demands. That is, most parks and recreation agencies offer a range of services that complement each other or provide the means to intensify the leisure experience.

There are several bundling options available. One may elect to employ pure or mixed bundling. In pure bundling, the consumer must purchase the entire package. in mixed bundling, one may either purchase one or more programs individually or purchase the bundle. Of course, there is an incentive for purchasing the bundle. By selecting the bundle option, the price of one or more programs is discounted when the other program is purchased at the regular price (a mixed-leader bundling approach). Another mixed-bundling option is when the consumer jointly purchases two or more programs/services at a single price (a mixed joint form).

Consider an aquatic program, where individual swimming lessons are the core service priced at $15 (Program A) and a mother/daughter, father/son or grannie/peewee swim classes at $10 (Program B). We have four market segments: Market Segment 1, buys only 1 @ $15; Market Segment 2, buys only B @ $10; Market Segment 3, buys A and B @ $25; Market Segment 4, who does not buy.

Then, if the services are bundled at $22: Market Segment 1 buys bundle; Market Segment 2 buys bundle; Market Segment 3 buys bundle; Market Segment 4, who does not buy.

As a result of bundling, an agency has motivated a third market segment, the users who buy both A and B, and has created an option that may attract members of segment 4 at a later date.

The challenge inherent in utilizing this strategy is determining the optimal prices for each product that will maximize the expected profit. Another challenge is inherent in encouraging cross-over among users. This is easier in some program areas but more complicated for others. It will probably be easier to entice user cross-over in aerobics, step-aerobics and nutrition classes, but harder to interest golfers in tennis or racquetball.

Value Clarifications and

Ethnic Dilemmas

It is not our intention to disregard unresolved questions and ethical concerns regarding the use of revenue strategies in parks and recreation. We remain sensitive to the reality that some parks and recreation departments are currently exploring their readiness to establish revenue generation programs and policies. They are still attempting to establish their positions on various questions such as: Do profit motives interfere with other agency's goals? Is revenue generation a business mode of operation? Should patrons be required to pay more than variable cost? Should programs and services be discounted for various target markets such as seniors, economically disadvantaged groups or others?

Furthermore, we realize that marketing public services differs from similar efforts in the commercial sector in a fundamental way - the public sector must market for more than economic profit. That is, public parks and recreation agencies must provide services for those who are most likely to respond and to those who are unlikely to respond, but yet have a need for services. Discounting services may provide the spin or gimmick necessary to attract those market segments who do not respond to single-price structure.

Many park and recreation agencies may be uncomfortable with the thought to charging one user a higher rate based upon their flexibility and willingness to pay. The idea raises issues of ethics; however, employing a one-rate pricing strategy is discriminatory because it fails to respond to those potential users who do not have the ability to pay, or to pay equally.

When recreation enters the world of business, ambiguity increases dramatically. Not only does uncertainty intensify, but so does cognitive dissonance (tensions that arise when two psychologically inconsistent cognition-opinions, attitudes or beliefs occur simultaneously). Parks and recreation managers' dilemmas with profit versus service as motive is a vivid example of this. Yet, it is logical to believe that revenue generation can offset budget cuts. What is the impact of such a practice on traditional values of the recreation profession? The latter becomes the source of the dissonance.

The attachment of a value on the emotional quality of the leisure experience is yet another value conflict or ethical concern. The question of recreation as an end, versus recreation as a means, gives rise to a primary value conflict centering on the basic issue of fees for fun. And, there is the ethical concern that placing value/price on the experience inherent in a recreational activity degrades the quality of the recreational experience.

Finally, there is the ethical issue associated with segmenting user groups. When segmenting users through some overt status that they may have little control over (e.g., senior, underemployed), one may run the risk of offending certain users. While not a guaranteed system, discounting as a pricing strategy does offer a viable alternative - one that is creative, flexible and which offers more opportunity for equity - to pricing services in parks and recreation. Recognizing that user fees have become necessary, discounting provides a structure to reduce the ambiguity associated with integrating business approaches by providing pricing options that a user can control. The economics of supply and demand require that parks and recreation departments use segmented prices to maximize revenue in as fair and equitable a way as possible. User fees are more equitable when rate structures are based upon the user can control.