{"id":1116,"date":"2021-02-05T17:58:51","date_gmt":"2021-02-05T17:58:51","guid":{"rendered":"https:\/\/www.theparkdb.com\/blog\/?p=1116"},"modified":"2024-05-03T21:49:09","modified_gmt":"2024-05-03T21:49:09","slug":"penrates","status":"publish","type":"post","link":"https:\/\/www.theparkdb.com\/blog\/penrates\/","title":{"rendered":"The Reality of Pen Rates"},"content":{"rendered":"\r\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_63 ez-toc-wrap-left counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.theparkdb.com\/blog\/penrates\/#A_Micro-History_of_Penetration_Rates\" title=\"A Micro-History of Penetration Rates\">A Micro-History of Penetration Rates<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.theparkdb.com\/blog\/penrates\/#Whats_the_Point\" title=\"What&#8217;s the Point?\">What&#8217;s the Point?<\/a><\/li><\/ul><\/nav><\/div>\n\r\n<p><span >We have a love-hate relationship with penetration rates.<\/span><\/p>\r\n<p><span >As you might be aware, penetration rate methodology is the predominant method used to <strong>forecast attendance<\/strong> at theme parks, and conduct feasibility studies in the attractions field.<\/span><\/p>\r\n<p><span >\r\n\r\n<\/span><\/p>\r\n<p><span >\r\n\r\n<\/span><\/p>\r\n<p><span >But, it suffers from almost anything you can imagine about a quantitative method: it\u2019s imprecise, has no standard definition among almost everyone who uses it, and upon careful reflection, you&#8217;ll realize that it\u2019s&#8230;not a forecasting tool.<\/span><\/p>\r\n<p><span >\r\n\r\n<\/span><\/p>\r\n<p><span >Before we get into what <em>it&#8217;s not<\/em>, let\u2019s review what a penetration rate analysis actually <strong><u>is<\/u><\/strong>.\u00a0<\/span><\/p>\r\n<p><span >\r\n\r\n<\/span><\/p>\r\n<p><span >Simply, a<strong> <a href=\"https:\/\/en.wikipedia.org\/wiki\/Penetration_rate\">penetration rate is a measurement<\/a><\/strong>, and is used widely in various industries to determine what percentage of a population, or market, has access to a device, attends an attraction, or exhibits some sort of behavior.<\/span><\/p>\r\n<p><span >\r\n\r\n<\/span><\/p>\r\n<ul class=\"wp-block-list\">\r\n<li><span >For example, an analyst might look at the market penetration of smartphones in China.<\/span><\/li>\r\n<li><span >Or the market penetration of Coca-Cola or Starbucks in Africa.<\/span><\/li>\r\n<li><span >In the attractions industry, Economics Research Associates (ERA) applied the use of penetration rates to determine the ratio between the total market size, and actual visitation.<\/span><\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n\r\n\r\n<h1 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"A_Micro-History_of_Penetration_Rates\"><\/span><strong><span   >A Micro-History of Penetration Rates<\/span><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h1>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">To make this more clear, let&#8217;s take a look at an actual study conducted in the mid-1960s by Buzz Price, founder of ERA.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Here you notice that in advising MCA Inc., on the market potential of what would later become Universal Citywalk Hollywood, Buzz illustrates the penetration rates required to achieve a certain level of sales:<\/span><\/p>\r\n\r\n\r\n\r\n<div class=\"wp-block-image\">\r\n<figure class=\"aligncenter size-large is-resized\"><a href=\"https:\/\/stars.library.ucf.edu\/cgi\/viewcontent.cgi?article=1149&amp;context=buzzprice\"><img decoding=\"async\" class=\"wp-image-1121\" src=\"https:\/\/www.theparkdb.com\/blog\/wp-content\/uploads\/2021\/02\/image.png\" alt=\"\" width=\"600\" \/><\/a><\/figure>\r\n<\/div>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Note that penetration rates are <strong>not <\/strong>driving the analysis. The market potential is shown. Some reasonable estimates for sales are shown ($10m and $15m). Penetration rates are then calculated afterwards to show what % of the market needs to be captured to achieve those sales.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">As the decades rolled on, notice the subtle shift in how penetration rates become used. By the early 1990s, Buzz Price begins using pen rates to <strong>drive <\/strong>the analysis instead.<\/span><\/p>\r\n\r\n\r\n\r\n<div class=\"wp-block-image\">\r\n<figure class=\"aligncenter size-large\"><a href=\"https:\/\/stars.library.ucf.edu\/cgi\/viewcontent.cgi?article=1182&amp;context=buzzprice\"><img decoding=\"async\" class=\"wp-image-1125\" src=\"https:\/\/www.theparkdb.com\/blog\/wp-content\/uploads\/2021\/02\/image-4.png\" alt=\"\" \/><\/a><\/figure>\r\n<\/div>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Instead of pen rates being the result, they&#8217;re the actual methodology! Penetration rates are multiplied by the market size to determine the estimated annual attendance.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">But still, here in the early 1990s, you may or may not notice that this analysis is qualified by the word &#8220;illustrative&#8221;. Here are some illustrative penetration rates, and that gets you an illustrative attendance. Here are some visitation numbers that <em>could <\/em>be achieved.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">In the decades since that, however, this &#8220;methodology&#8221; has evolved even further so that pen rate analysis has now become enshrined (ossified) as The Method to magically forecast the <strong>likely or probable<\/strong> attendance.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">There is no qualification being made anymore, in studies ranging from waterparks in Texas:<\/span><\/p>\r\n\r\n\r\n\r\n<div class=\"wp-block-image\">\r\n<figure class=\"aligncenter size-large is-resized\"><a href=\"https:\/\/rc.library.uta.edu\/uta-ir\/bitstream\/handle\/10106\/23998\/BRAZORIA%20FINAL%20EDITED.pdf?sequence=1&amp;isAllowed=y\"><img decoding=\"async\" class=\"wp-image-1122\" src=\"https:\/\/www.theparkdb.com\/blog\/wp-content\/uploads\/2021\/02\/image-1.png\" alt=\"\" width=\"600\" \/><\/a><\/figure>\r\n<\/div>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">To wildlife parks in Buffalo:<\/span><\/p>\r\n<p><a href=\"https:\/\/dehayf5mhw1h7.cloudfront.net\/wp-content\/uploads\/sites\/1065\/2020\/10\/29093228\/FINAL-REPORT-BCP-10-15-20.pdf\"><img decoding=\"async\" class=\"wp-image-1123\" src=\"https:\/\/www.theparkdb.com\/blog\/wp-content\/uploads\/2021\/02\/image-2.png\" alt=\"\" width=\"600\" \/><\/a><\/p>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">To end-of-term student projects:<\/span><\/p>\r\n\r\n\r\n\r\n<div class=\"wp-block-image\">\r\n<figure class=\"aligncenter size-large\"><a href=\"https:\/\/charlottevkeulen.files.wordpress.com\/2017\/11\/feasibilityreport_tpe2017_legoland.pdf\"><img decoding=\"async\" class=\"wp-image-1124\" src=\"https:\/\/www.theparkdb.com\/blog\/wp-content\/uploads\/2021\/02\/image-3.png\" alt=\"\" \/><\/a><\/figure>\r\n<\/div>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\"><strong>So you might be wondering then, where do these magical penetration rate numbers come from? <\/strong><\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">In any of the above studies, one simply does not know. There is no description of the methodology, or peek behind the magic curtain. The penetration rates drop in like words of wisdom, from the minds of the consultants (or students) who wrote the feasibility studies.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">This accords with much of our experience reviewing feasibility studies from around the world. This, the pivotal piece of an attendance analysis, which drives what are usually hundred million dollar to multi-billion dollar developments, are as ethereal as pixie dust.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Moreover, even if illustrative penetration rates from comparable parks are shown, there&#8217;s no standard analysis that goes from the &#8220;illustrative&#8221; to the forecast.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Simply put, this &#8220;methodology&#8221; has no standard among consultants, often lacks any justification, suffers from a dearth of evidence, and is about as rigorous an analysis as taking two numbers at random and multiplying them together.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n\r\n\r\n\r\n<h1 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"Whats_the_Point\"><\/span><strong><span   >What&#8217;s the Point?<\/span><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h1>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">And so you might ask, what use are penetration rates then?<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Well, it&#8217;s been a standard methodology for so long that it&#8217;s entrenched. And there <strong>is <\/strong>readily available data that allows anyone to calculate their own penetration rates, and reason by analogy accordingly.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Theoretically, there is some merit to the idea that if an existing theme park is capturing the nearby market at [x]% rate, that a newly built park with similar characteristics, would also exhibit a similar penetration rate. We&#8217;ll call this the Theory of Penetration Rates, or TOPR.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Makes sense, right?<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Except that in practice, things like market dynamics, competition, operating strategies, marketing, and cultural differences have a huge impact.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p id=\"penrates\"><span style=\"font-size: 20px; font-family: 'EB Garamond';\">If TOPR actually worked, then you would not expect, say, a Disney park, to show penetration rates that were all over the place, with a huge 400% gap among the highest and lowest rates of the parks from its various geographies.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Which is clearly the case:<\/span><\/p>\r\n\r\n\r\n\r\n<div class=\"wp-block-image\">\r\n<figure class=\"aligncenter size-large is-resized\"><a href=\"https:\/\/store.theparkdb.com\/products\/model-benchmark-ranges\"><img decoding=\"async\" class=\"wp-image-1127\" src=\"https:\/\/www.theparkdb.com\/blog\/wp-content\/uploads\/2021\/02\/DisneyPens2.png\" alt=\"\" width=\"600\" \/><\/a><\/figure>\r\n<\/div>\r\n\r\n\r\n\r\n<p>&nbsp;<\/p>\r\n\r\n\r\n\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Pen rates are not a forecasting tool. They&#8217;re a ratio. A measure.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">And in the same way that you might look at the price of a home in your neighborhood to determine what yours might be worth, penetration rates work best in reasoning by analogy.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p class=\"has-text-align-left\"><span style=\"font-size: 20px; font-family: 'EB Garamond';\"><strong>If Park A has penetration rates of [a]%, then New Park might have penetration rates of [a]% x [b], with [b] being some sort of adjustment made for the market, competition, operating factors, etc. <\/strong><\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Theoretically, this makes sense too, doesn&#8217;t it?<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Although, there is no standardization as to how [b] is determined, either, meaning that once again, this &#8220;analytic method&#8221; is purely illustrative.<\/span><\/p>\r\n<blockquote>\r\n<p><span style=\"font-family: 'EB Garamond'; font-size: 20px;\">In summary: <\/span><strong style=\"font-family: 'EB Garamond'; font-size: 20px;\">any penetration rate analysis used in attractions feasibility is illustrative.<\/strong><\/p>\r\n<p><strong style=\"font-family: 'EB Garamond'; font-size: 20px;\">It shows what &#8220;could happen&#8221; if an illustrative pen rate from another project is applied.<\/strong><\/p>\r\n<p><strong style=\"font-family: 'EB Garamond'; font-size: 20px;\">It is not a forecast<\/strong><span style=\"font-family: 'EB Garamond'; font-size: 20px;\">!<\/span><\/p>\r\n<\/blockquote>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Anyone using it should be aware of its limitations and conditions. There is no magic tool to forecast attendance of a given attraction.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Forecasting is, despite any financial analyst or consultant&#8217;s claims otherwise, nearly impossible.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">What&#8217;s all this to say?<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">That the best thing you can do if planning for a theme park, is to approach the business planning with a scenario-type analysis, testing a range of assumptions that seem reasonable. <strong> <span style=\"text-decoration: underline;\"><a href=\"http:\/\/www.theparkdb.com\/blog\/the-business-of-theme-parks-part-ii-how-much-do-they-cost-and-earn\/\">See more here in the summary section<\/a><\/span><\/strong>. You don&#8217;t need to pay a consultant or advisor tens of thousands of dollars to prepare some sort of attendance &#8216;forecast&#8217; on pro forma.<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Also, that in the spirit of dialogue and transparency, that we&#8217;re opening up the penetration rates we use. You&#8217;ll see them in both <a href=\"https:\/\/store.theparkdb.com\/products\/development-model-suite\"><strong>our best-selling development model<\/strong><\/a> and our <strong><a href=\"https:\/\/store.theparkdb.com\/products\/model-benchmark-ranges\">benchmark ranges product<\/a>.<\/strong><\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">\r\n\r\n<\/span><\/p>\r\n<p><span style=\"font-size: 20px; font-family: 'EB Garamond';\">Use them at your own discretion, and remember &#8211; anything derived from them are illustrative only.<\/span><\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>We have a love-hate relationship with penetration rates. As you might be aware, penetration rate methodology is the predominant method used to forecast attendance at theme parks, and conduct feasibility studies in the attractions field. But, it suffers from almost anything you can imagine about a quantitative method: it\u2019s imprecise, has no standard definition among [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1981,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[15,7],"tags":[111,14,112,113,114,19],"class_list":["post-1116","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-guides-and-references","tag-analysis","tag-disney","tag-era","tag-feasibility","tag-penetration-rates","tag-universal"],"acf":{"":"","bfi_title":"","bfi_title_2":"","bfi_description":"","chart_image":"","chart_title":"","chart_description":"","bc_title":"","bc_sub_title":"","bc_content":"","bc_right_side_content":"","highlighted_image":"","highlighted_sub_title":"","highlighted_title":"","highlighted_bottom_text":"","highlighted_button_text":"","highlighted_button_link":"","below_highlighted_title":"","below_highlighted_sub_title":"","below_highlighted_content":"","below_highlighted_right_side_title":"","below_highlighted_list":""},"_links":{"self":[{"href":"https:\/\/www.theparkdb.com\/blog\/wp-json\/wp\/v2\/posts\/1116","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.theparkdb.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.theparkdb.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.theparkdb.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.theparkdb.com\/blog\/wp-json\/wp\/v2\/comments?post=1116"}],"version-history":[{"count":0,"href":"https:\/\/www.theparkdb.com\/blog\/wp-json\/wp\/v2\/posts\/1116\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.theparkdb.com\/blog\/wp-json\/wp\/v2\/media\/1981"}],"wp:attachment":[{"href":"https:\/\/www.theparkdb.com\/blog\/wp-json\/wp\/v2\/media?parent=1116"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.theparkdb.com\/blog\/wp-json\/wp\/v2\/categories?post=1116"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.theparkdb.com\/blog\/wp-json\/wp\/v2\/tags?post=1116"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}