88-The End of a Local Leader’s Trap

A Leader’s Trap occurs when an industry leader, usually the first or second company ranked by market share, holds prices high in the face of declining industry prices. The industry leader expects that its customers will remain loyal despite lower cost competition. This decision is virtually certain to fail. Eventually, the industry leader will reduce its prices, but only after losing market share to the lower cost competitor. The North Lake Tahoe ski world is seeing the end of a Leader’s Trap. The world is about to get more interesting for skiers around this area.

Several years ago, one of the largest North Tahoe ski areas, Northstar, developed a ski pass that allowed the pass-holder to ski any day of the week except for Saturday and a few blackout dates around popular holidays. Northstar is a relatively large, well-run resort. While its mountain is fine for families, it is sorely lacking in challenges for the advanced skier. They priced these passes at the equivalent of five or six days’ cost of a regular full day of skiing. As a result of this decision, Northstar gained in popularity. Skiers flocked to the good deal. They skied Northstar on most days and then bought single day tickets at the other ski areas for their Saturday skiing. These pass-holders have been a boon to Northstar (see the Symptom and Implication, “The industry leaders are losing share” on StrategyStreet.com). They bring their friends and family, they buy food and equipment at the village shops and they upgrade the reputation of the resort.

Northstar enjoyed these benefits for the last several years because its two large competitors, Squaw Valley and Alpine Meadows, refused to match their price offering. This was a classic Leader’s Trap. By most accounts, Alpine and Squaw offer a better mountain to skiers. But the prices they charge have caused many skiers to jump ship to Northstar, taking their purchases and buzz benefits with them.

But these days are quickly coming to an end. Squaw Valley has announced new season passes that are very competitive with those at Northstar, and a great deal less expensive than previous season passes. Squaw Valley will now offer a Bronze season pass, good for any day except Saturday and selected blackout dates for $369. Northstar’s equivalent offering is $329. More expensive than Northstar, yes, but a whole lot less costly than when Squaw Valley’s adult full-season pass cost of $1,449. Squaw Valley also upped the ante. It offers a Silver pass for $469. This pass, which does not have a Northstar equivalent, allows the pass-holder to ski seven days a week, except on selected blackout dates.

This new pricing scheme from Squaw Valley puts a great deal of pressure on all other ski areas in North Lake Tahoe. Alpine Meadows will have to fall in line. Other smaller ski areas, such as Sugar Bowl, Homewood, Incline and Mt. Rose will also have to reduce their prices and offer a season passes with similar benefits. Northstar already is the leader in this pricing approach. It will continue on as it is, though now its price advantage over Squaw has fallen to 11%, from something closer to 75%.

Skiers here may see some additional pricing innovations, such as multiple ski area season passes. Such season passes, at low costs, already exist in Colorado, where a skier can gain access to five separate ski areas, including leaders Vail and Beaver Creek, for a cost that hovers around $500. A season pass granting the pass-holder access to several of the smaller ski areas might be an effective answer to Squaw Valley’s latest initiative.

No matter what happens next, Squaw Valley is out of the Leader’s Trap. It will certainly gain market share next year. (See the Symptom and Implication, “The larger companies are squeezing out the smaller” on StrategyStreet.com.)

Posted 3/16/09

Update:

Season ski passes covering several different mountains have taken over much of the industry’s season pass market. These multi-mountain season passes come at higher prices but with benefits highly appealing to committed skiers.  Avid skiers paid a very low cost per day by using these season passes. See HERE for a picture of what this might look like.

In 2022, skiers may participate in multi-resort season tickets at very competitive prices. Two major season-ticket companies include Ikon and Epic which both offer access to worldwide ski areas for competitive prices. Here are Ikon’s prices for 2022/23: for $1179 a season pass holder has no blackout dates, 14 unlimited skiing and riding destinations and up to seven days at 35 other destinations. There are lower prices offered for young adults, children ages 5 to 12 and children four and under.  The Ikon Base Pass (Comparable to the silver pass discussed in the blog above.) offers a skier or rider 13 unlimited skiing and riding destinations and up to five days at 30 destinations for $869 with some blackout dates.  The implied annual growth rate of this type of season pass price is about 5% a year, above inflation for that period, but offering far more skiing options and variety. These skiing destinations include well-known ski areas across the US and Canada along with several in France, Italy, Switzerland, Austria, Australia, New Zealand Japan and Chile.

These multi-resort season passes have put enormous pressure on the smaller ski areas whose season passes must be significantly cheaper to compete.

8/22

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THE SOURCES FOR STRATEGYSTREET.COM: For over 30 years we observed the evolution of more than 100 industries, many hostile.  We put their facts into frameworks applicable to all industries and found patterns.  Strategystreet.com describes the inductive results of these thousands of observations and their patterns.