Thursday, January 1, 2009

Part 1, Economics of a Recreational Paintball Facility

The study of Supply and Demand for a Recreational Paintball Facility

This exercise is going to be exclusive for recreational paintball fields and will include the standard elements found at a paintball field facility. This will include; fields to play on; a area for staff and customers to rest at, safely situated away from the playing fields; staff to operate the facility. By my definition, a recreational paintball field one that customers come to play for recreation (leisure). A non-recreational paintball field is where customers come to play competitively. For the most part, those that go specifically to a non-recreational paintball facility are players playing regularly and competitively. Although there are also players who play regularly at recreational paintball fields, most of those do not play at a recreational facility with the objective to win at all cost (seriously competitive).

The general concept of Supply and Demand is relatively easy to understand, even for those with no formal education in economics. This is good, because other than one single class on microeconomics, I know very little about economics. Simply put, as the price of a commodity increases or decreases, the demand for the commodity reacts inversely. That means if the price of a commodity increases, the demand (the amount willing to be purchased) will go down. And alternately, if the price of a commodity decreases, the demand for the commodity will increase.

We are going to examine those rules as they apply to a recreational paintball field. First we need to determine what a paintball field supplies. Here is a partial list of main products and services most paintball fields supply.

  1. Facility
  2. Rental equipment
  3. Propellant (HPAir/CO2)
  4. Paintballs

Let’s examine each of these a little before we go on.

  1. Facility

The Demand curve for paintball facilities reacts like most other standard demand curves. At any given price, there will be certain amount of people willing to pay that price to visit that facility. Lowering the price will increase the number of people willing to pay the lower price and raising the price will decrease the number of people willing to pay the higher price.

Supplying a better facility will create reactions much like most other products or services. If you increase the quality of the facility, then you have created a new Supply curve and with that a new Demand curve. Basically, as we all know, if you increase the quality and keep the price constant, there will be more people willing to pay that price. Decrease the quality and keep the same price, and less people will be willing to pay the price.

  1. Rental Equipment

This will include the usual marker and mask and may also include clothing.

Most rental equipment is fairly standard and most people renting gear know very little about the quality of the gear. Overall, equipment rental will have the same Demand curve reactions from customers as indicated in the Facilities section (above).

In general, a change in quality of rental equipment will have less affect than a change in quality of your facilities. If you however keep you equipment in overall good condition, mechanically and visually, you will make a better impression on your customers and they will not mind spending slightly more than a comparable facility with equipment in a condition that is not as good. An upgrade in rental equipment can create a significant shift in the Supply curve and can create a situation where customers are willing to pay a higher price for the upgraded equipment, be it a higher technology marker or a mask guaranteed not to fog up.

  1. Propellant (HPAir/CO2)

This is the propellant needed to propel (shoot) paintballs from the marker towards a target. At one point in the industry’s history this was all CO2. Now HPA (High Pressure Air) is another option and many new markers need HPA to operate. Both do basically the same thing, giving the marker the energy needed to propel a paintball.

Although some fields charge for propellants, many include the cost of propellant as part of the payment to use the facility. Propellant is a necessary product to shoot paintballs. Players can’t shoot paintballs without it and fields won’t have many players if they do not have propellant available.

The demand for propellant is directly related to the number of paintballs sold; as the paintballs being shot, need propellant to shoot them. Other than the varying design and efficiency of markers, the propellant needed per paintball stays fairly constant. The first paintball a customer shoots will need the same amount of propellant as the 500th paintball shot.

Whether a field owner wants to charge separately for propellant or build the price of propellant into the price of paintballs really doesn’t make any difference. In the end, the customer is going to be paying for the propellant.

There is no significant difference in quality of propellant. One could argue that providing a higher pressure HPA could be considered a step up in quality, but since paintball markers shoot at a much lower pressure than virtually all HPA tanks can hold, really the higher pressure is just a change in amount of propellant being provided per fill. There is a convenience factor that does come into play, as players able to get a higher pressure fill will not need to fill as often. If your field offers higher pressure fills than your competitors, then it could be considered an increase in quality and could therefore demand a higher price. This is not really an increase in the quality of propellant though, but rather an increase in level of service at the facility as it makes it more convenient for customers.

  1. Paintballs

These are of course round gelatin capsules filled with a colored liquid somewhat thicker than water used to mark another player, indicating that he/she has been hit. In recent years, reusable balls of similar size and weight have been introduced and used at some facilities to ease the clean-up problem. These reusable balls have no liquid in them and other than needing some external cleaning can be used over and over again. Their use is mainly limited to indoor facilities where they can be relatively easily gathered for reuse. At this point, their use is much less popular than the traditional liquid filed paintballs. For this exercise, we will concentrate on traditional gelatin capsules filled with thick liquid.

The Demand Curve for paintballs is very standard. At any particular price point, there will be a certain demand. Raise the price; demand will go down and people will buy fewer paintballs. Lower the price; demand will go up and people will buy more paintballs.

So what’s the big deal?

So far we haven’t discussed anything that anyone with a little bit of common sense didn’t already know. So why are we discussing this at all? Well, we wouldn’t need to discuss this any further if the four products and services were the only thing a recreational paintball field supplied and they truly all had their own individual Supply and Demand curves. The interesting thing is when you lump it all together and then try to figure out the Demand Curve for the whole package. You see, when consumers go to play paintball and are deciding which facility to go to, they are taking all the products and services into consideration. For example, if they are renting, they are not going to go to Field “A” because the rental gear is $5 less than at Field “B”, if the cost to play is $15 more at Field “A” than Field ”B”. They are going to go to Field “B” because the total cost is less, assuming all other decision making criteria are equal. This is why most fields sell “packages”. These packages will usually include field fees (the cost to play at the facility), propellant (CO2 and/or air), and may include a certain amount of paintballs (with more available to be purchased as needed). Most fields will have at least two packages, one for those needing rental equipment and one for those that have their own equipment.

So if consumers are looking at the “package” a recreational paintball field is offering why did we bother to look at the Supply and Demand curves of each individual product and service? Mostly, I just wanted to make sure that everyone understands that the package is made up of components, each with it’s own theoretical Supply and Demand curve. When lumped together, they create a new Supply and Demand curve for the “package”, but each component still influences the package. Also, there is one and possibly two products that may or may not be in the package, but even if they are, there is still the option for the consumer to purchase more of those products. Those of course are paintballs and possibly propellant.

OK. So let’s look at the decision facing your potential customer. This is the person out there who has somehow been stimulated to consider playing paintball in the not too distant future. What is going through their minds?

The cost of their upcoming endeavor is definitely going to be on their minds. Why play paintball at all? There are at least a hundred other things our consumer could spend their money on. Therefore the price the consumer is willing to play paintball must be competitively priced with many other activities. But each activity is not the same. Of the hundreds of activities a consumer can choose from, most are completely different from paintball and from each other. So why need to consider these other activities at all. Each would have a totally different Supply and Demand curve, would they not? The short answer is yes.

But it really gets a little more complicated. We do know that other activities are in the mind of our potential customers. Why? Because consumers are really deciding where to spend their entertainment dollars. Consumers are looking to have fun. So when a consumer is making a decision on where to spend their money in order to experience fun, the amount of fun they are going to have plays a big roll in the Supply and Demand of those activities.

Fun is a subjective thing. The criteria people have to decide what is fun varies greatly from one person to another. There are people who consider going for a walk in the park a fun activity. At the other end of the spectrum, you will have people who feel it necessary to literally risk their well being in order to feel stimulated. These people will participate in activities such as extreme skiing on the slopes of uncharted mountains or intense rock climbing. Then there is everyone else in between. For those that haven’t figured it out, paintball is somewhere in between.

Alright, so let’s get back into the minds of our consumers. We’ll assume at this point that our consumers have decided they have chosen paintball from the multitude of activities they could choose from. Now they need to decide at which facility they want to spend their entertainment dollar. In the minds of our consumers is still the objective to have fun. They need all the four products (if they own their own equipment they only need three) we discussed individually earlier to participate, but in reality, they are making a decision of where to go, based on the entertainment value. They are going to choose the facility that will provide them the most fun for the amount of money they are willing to spend on their paintball outing.

You might want to go back and reread the last paragraph again. As a recreational paintball field owner (or potential owner), this is the most important concept to understand. Each and every one of your customers is coming to your facility to have as much fun as they possibly can, and they are willing to pay you for that fun. How much they will pay you will depend upon how much fun they anticipate they will have. The level of anticipated fun they will have will be easier for repeat customers to estimate, but even brand new customers will hopefully have an idea of the fun they might experience, either from former customers or from advertising you have provided to give them an idea. The level of fun will also determine where the Demand curve for your facility (or paintball package) will be. A facility with a higher level of anticipated fun will have a Demand curve higher than a facility with a lower level of anticipated fun.

Check back soon for "Economics of a Recreational Paintball Facility, Part 2"

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