Lahore School of Economics

MerryLand Amusement Park2009

Strategic Management

Presented by: Nayab Maqsood & M. Hayat Khan 10-23-2013

ABSTRACT
This report emphasizes on the entrepreneurial abilities of Tony Kenworthy and his desire to convert an un-operational amusement park; Merryland Amusement Park into a successful and thriving site for the people of Kansas as well as an entertainment hub for disable children. Tony Kenworhty wishes to take over Merryland but due to lack of funds he is limited to three preferable options; buying the park using loans, using another corporation for finance and finally taking assistance from a consortium of entrepreneurs to attain more control but less cash. The report uses strategic analysis tools such as IFE, EFE and CPM Matrixes to define the operations of Merryland and further uses SWOT analysis techniques to define the strengths and weaknesses of the individual strategies finally using a QSPM analysis to identify the best strategy; divulge with consortium of investors of Merryland.

INTRODUCTION Merryland Amusement Park opened its gates in 1955 and was managed successfully by Stanley Merry. After his dead the park was left to his daughter-in-law; Samantha Steinberg. Miss Steinberg lacked the entrepreneurial abilities to operate an amusement park and soon increased costs and mismanagement led to Merrylands shutdown. Samantha Steingberg now wants to sell the park and asks for a minimum of $2 million for it. Tony, a graduate from the University of Richmond is talented in entrepreneurial abilities and through time has shown his flair for helping failing operations and turning them into successful ventures. Although Tony worked in many successful ventures his personal desire was to help children with disabilities and see them thrive by identifying their unique talents. This desire as well as seeing Merryland Amusement Park as a prospective success sparked the need in Tony to invest his entrepreneurial abilities in the park to benefit not only the children but the entire area of Kansas. Tony has always had an interest in controlling and management therefore having independence in his decisions but up till now hasnt had the chance to do so. To control Merryland and make it a successful venture in Kansas Tony has three basic options to decide from. The first is to merge resources with Altria who would pay for all the finances and invest $25 million in the park. Altria Group, formerly known as Phillip Morris, the cigarette giant wanted to diversify as well as improve its reputation in USA, leading to its decision in investing in the park. The second option is to divulge with a group of local business entrepreneurs who will give Tony complete control of the park but require large share of the profits. Finally the last option to Tony is to get a loan and both finance and control Merryland himself. The strategic analysis done in this report will define which strategy should be chosen by Tony for attaining Merryland to fulfill his lifelong dream.

STRATEGIC ANALYSIS Before a strategic analysis can be conducted for Tony, it is important to answer a few questions that would assist in identifying the best strategy. To identify, it is necessary to know the customers of Merryland Amusement Park. Merryland Amusement Park is destined to be a hub for children as well as adults and elderly people. According to the demographics Merryland Amusement park has a population of 90.6% and these include customers from the age of 5 to 74 and they have the potential to be consumers of Merryland. Moreover Merryland, since its opening has been majorly a family park where families came to enjoy and have rides. According to 2009 demographic statistics it has been scene that Merryland has approximately 65.3% family households from which 32.5% have children under the age of 18 years therefore are potential customers for Merryland amusement park. Apart from that there are around 11.1% households with a female householder without a husband and children under 19 years. Furthermore households with individuals under 18 years of age are around 37.5% therefore making 81.1% households the potential consumers for Merryland amusement park. It has also been seen that there are around 47.6% grandparents responsible for their grandchildren who are under 18 years of age therefore giving them an edge as a consumer as they will be the ones responsible for generating sales for Merryland. Merrylands potential consumers have one basic need; to have an amusement park that can fulfill their needs and is also a good representative for Kansas. Merryland Amusement Park has been a good experience for all those who grew up during the 1955s when Merryland opened its doors to Kansas residents therefore they have the fond memories of Merryland. These consumers want the same exciting roller coasters and enjoyment for their children and grandchildren therefore desiring for fun. Moreover all the other theme parks or amusement parks were quite far away and locals had to make long drives to enjoy family vacation. As there was no amusement park in Kansas, the consumers wanted a full-fledged park near their houses and in their town so they could enjoy easy family time without having to worry about long drives or spending days in another city. When focusing on marketing and advertising, the best method would be to use local media as the park is positioned for the consumers of Merryland. Using local billboards, shops, radios, newspaper adverts would open up the consumers to the idea of Merryland. Moreover a huge 3

advantage of Merryland is that not a lot of advertisement is required considering Merryland was an operational amusement park and shut down recently therefore consumers know about the park and its rides therefore the advertisement would just be a reminder and motivation to come to the amusement park. It is important for Tony as an entrepreneur to control the operations of Merryland considering he plans to invest his efforts in it and see it succeed. Tony has always wished for independent control and Merryland gives him a vision of his dreams therefore it is highly important for him to maintain control. Also, Tony has always wished to help disabled children and by having complete control on Merryland he could do this successfully. For each purchase decision there is control but also risk associated as well which will be defined later. Tonys core values are to help disabled children but also assist failing operations, turning them into successful ventures. As defined, Tonys good core values are the basic reason for his success in all the ventures he has chosen through time ranging from camps to Showbizz therefore assisting him in making the correct decision for Merryland. Tonys desire to help disabled kids is not overshadowing his ability to bring corporate life back to Merryland but assisting him in this venture. His desire to help children as well as recover Merryland and restore it back to its glory is the basic reason behind his interest in Merryland and this can be amalgamated with strategic decisions to create a success for Merryland. To define the correct strategy for Merryland a strategic analysis will be done which will have three basic stages; input, matching and output stage. Each decision will incorporate serious tools for strategy analysis leaving behind the most successful venture for Tony to invest it. When focusing on the strategies they have been ranked according to the level of applicability as shown below; 4. Take assistance from local consortium of investors 2. Take assistance from Altria 1. Take personal loan to assist Merryland

INPUT STAGE External Factor Evaluation Matrix Key External Factors Weight Rating Weighted Score Opportunities Kansas is experiencing increased household demographics Creation of theme parks Indoor parks for all ages Diversified games Family parks 0.21 0.02 0.04 0.02 1 1 3 4 0.21 0.02 0.12 0.08 0.10 1 0.1

Threats Family vacations dominant to major theme parks; Disney World, Universal Studios Shift from basic amusement parks to food and hotel experience Full-time employed families; less time for amusement parks Total 1.0 13 1.14 0.08 1 0.08 0.28 1 0.28 0.25 1 0.25

Seeing that the score of Merryland is 1.22, which is not very significant as it is lesser than the midpoint of 2.5 therefore it can be seen that it is not avoiding its threats and neither is it adopting its opportunities. Competitive Profile Matrix Six Flags St. Louis Critical Success Factors Weight Rating 5 Score Worlds of Fun Rating Score Merryland Rating Score

Theme Park Diversified Games Food Courts Water Parks Advertising Managerial Effectiveness Location Nearness Change in Consumer Demographics

0.15 0.12 0.08 0.10 0.13 0.20 0.10 0.12

4 4 3 3 3 3 1 4

0.8 0.6 0.6 0.36 0.45 0.54 0.10 0.48

4 2 2 4 2 3 1 4

0.8 0.3 0.4 0.48 0.3 0.54 0.10 0.48

1 2 1 1 1 1 4 1

0.2 0.3 0.2 0.12 0.15 0.18 0.40 0.12

Total

1.0

3.93

3.4

1.67

Looking at the CPM Matrix results it can be seen that both Six Flags and Worlds of Fun are quite competitive and utilizing their strengths and opportunities whereas Merryland is lagging far behind.

Internal Factor Evaluation Key Internal Factors Strengths No amusement park located near Good reputation Famous rides Personal land; no rents Vast land for development 0.17 0.04 0.08 0.10 0.08 4 3 3 3 3 0.68 0.12 0.24 0.30 0.24 Weight Rating Score

Weaknesses Limited rides Underdeveloped infrastructure Amusement park areas destroyed by graffiti, theft 0.15 0.09 0.07 1 1 2 0.15 0.09 0.14

 Total

Managerial ineffectiveness Lack of finance

0.10 0.12 1.0

1 1 22

0.10 0.12 2.18

Considering that the IFE is below the average of 2.5 it can be seen that the organization is currently weak internally and not utilizing its strengths to its fullest. Financial Analysis

Current Ratio
2004 2.3 2005 2.4 2006 1.9 2007 1.6 2008 1.4

Asset Turnover Ratio

2004 1.5 2005 1.7 2006 1.3 2007 1.1 2008 0.9

Net Profit Margin

2004 0.089 2005 0.071 2006 0.026 2007 0.053 2008 0.052

The ratios have a similar pattern through time and they are all falling gradually and this is mainly because of managerial ineffectiveness. The liabilities increase through time with current borrowings, account payable and other current liabilities increasing very quickly 7

and in large amounts. Moreover the current assets are falling and by 2009 getting to an amount zero which is extremely dangerous for the organization. The assets again are decreasing gradually with lesser buildings and rides but the sales are falling at a higher rate which then causes a decrease in the ATR. Moreover net profit and sales both fall increasingly therefore causing the net profit margin to fall as well. MATCHING STAGE SWOT Analysis To identify the most effective strategy for Tony, it is important that a SWOT Analysis be conducted to provide assistance as to what are the strengths and weaknesses for each strategy. Strategy 1:
Altrias Cash Offer to Purchase

Strengths 1. Quick cash for buying Merryland as proposed by the owners. 2. Giving finance of $25mn for investment as well as expansion in water-park. 3. Complete control to Tony 4. Green-dome for climate control 5. Easy advertisement done by Altria

Weaknesses 1. Giving 10% of profits 2. Changing name from Merryland to Altria Gardens and Water Park 3. Banning sales of competitor products

Opportunities 1. Increased households in Kansas. 2. Expansion to more games 3. Expansion to food courts, restaurants 4. Altrias famous name would bring consumers from areas other than Kansas

Threats 1. Altria holds the identity of Philip Morris, a tobacco company which could endanger the image of a family amusement park. 2. Giving special treatment; discounts,

to Altrias consumers would make other consumers feel left out from the parks offerings. 3. Associating with Philip Morris could also create problems for Tonys dream of using park to help disabled children.

Strategy 2:
Consortium of Local Business Entrepreneurs

Strengths 1. Complete control to Tony 2. Allow Tony to make new renovations 3. Easy and quick investment in the park 4. Good advertisement options by investors as they own enterprises 5. Preserve Merrylands name 6. Let Tony help disabled children by giving autonomy of operations

Weaknesses 1. Will require 40% of the profits 2. Will require 20 acres of land for undisclosed reasons

Opportunities 1. Help disabled children 2. More advertising options provided 3. Households increasing in Kansas 9 1.

Threats Less finance to open theme park idea adopted by other parks 2. All other amusement parks have water parks which Merryland does not have.

4. Only amusement park located in Kansas 5. More options for expansion and adding new rides and games

Strategy 3:
Getting a Loan

Strengths 1. Personal control on finances 2. Personal control on operations 3. Have all the land required for expansion 4. No need to pay profits to anyone

Weaknesses 1. Interest payments 2. Not get the required amount to make renovations to the park 3. No identification by bank on profitable operations 4. Personally pay for advertising 5. Hire personal management responsible for operations

Opportunities 1. Keep profits for further expansion 2. Create special gaming area for disabled children as land is ample

Threats 1. No water park when Merryland opens. 2. Increased operating costs; taxes and interest costs can lead to Merryland losing valuable profits for retaining profits for future or even remaining afloat.

When talking about the matching stage no other options can be used for Merryland because; 10

1. Space matrix is applicable to choosing product or service strategies; market penetration, development, divesting strategies. Considering we are already given three strategies which are related to financing operations we cannot use SPACE matrix. 2. BCG matrix is applicable to a company with vast products or services divisions and provides a means to improve multi-division products/services in the firm. Considering we are talking about an amusement park we cannot apply this matrix strategy. 3. The IE and Grand Matrix are also strategies for products or services and their marketing operations decisions. As we are focusing on financing opportunities and their strategies therefore we are unable to apply these strategies as well. DECISION STAGE Quantitative Strategy Planning Matrix

Strategic Evaluations
Option 1: Accept Altrias Cash Offer Option 2: Work with Consortium of Investors Key Factors Opportunities 1.Increased games 2. Good renovation 3. Assistance to disabled children 4. Creation of water parks 0.16 0.14 0.17 0.16 4 4 1 4 0.64 0.56 0.17 0.64 4 4 3 1 0.64 0.56 0.51 0.16 3 2 4 1 0.48 0.28 0.68 0.16 Weight AS TAS AS TAS AS TAS Option 3: Take Personal Loan

Threats 1. Merryland identity 2. Profits 3. Loss of land 0.15 0.10 0.12 1.0 1 3 * 0.15 0.3 4 1 1 0.6 0.3 0.12 4 4 * 0.6 0.4

Strengths 11

1. Complete control 2. Advertising options 3. Quick cash availability 4. Increased revenue 5. Park retains image 6. Good management

0.18 0.05 0.10 0.12 0.10 0.12

1 4 3 3 1 4

0.18 0.20 0.3 0.36 0.10 0.48

4 4 4 2 4 3

0.72 0.2 0.4 0.24 0.4 0.36

4 1 2 2 4 3

0.72 0.05 0.20 0.24 0.40 0.36

Weaknesses 1. Interest payments 2. Profit sharing 3. Image association with other firm 0.08 0.20 0.05 * 1 1 0.20 0.05 * 1 * 0.20 * 1 * * 0.08

Total

4.33

5.41

4.62

STRATEGY EVALUATION After assessing the entire situation of the three strategies the QSPM analysis shows that from the three strategy evaluated the most preferable will be the second one; having a consortium with local business entrepreneurs. This has a score of 6.07 and is greater than both the given options. As seen in the SWOT analysis as well, this is the most preferable option considering the strengths and opportunities outcast the threats and weaknesses. Moreover with this opportunity Tony will be able to have complete control on the operations. Although a large chunk of the net profit will go away but profitability is not the reason behind Tony investing his abilities in the operation but because he has always dreamt of having a successful venture as well as entire autonomy and helping disabled children. By having complete control of operations he can invest time in helping the disabled children. The only issue pertains of the water park as the loss of 20 acres would create problems for building the water park but this might be the objective of the 12

entrepreneurs as they are using it for undisclosed reason. Moreover by investing in new games, roller coasters and even arcades there might not be a need for a water park for Merryland to be successful. To use the second option Tony will have to create annual objectives which could be the following;

Long Term Objective: Experience an increase in sales of 25% in the first two years.

Marketing Division- Annual Objective Implement marketing techniques to increase customer vistis in Merryland by 35% in the first year

R&D-Annual Objective Develop one roller coaster, and two amusement park rides for Merryland that customers prefer these days

Finance Division-Annual Objective Effectively cut costs and create budgets after looking at R&D to propose to Consortium for development of MAP.

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