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. Less expensive, yes, but a whole lot less costly than when Squaw Valley’s adult full-season pass cost $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.)