Case Statement:
Victoria Memorial, a monument in Kolkata, is currently managed by the West Bengal government. It earns an annual revenue of Rs. 1 crore and books a loss of Rs. 150 crore annually. The government is looking to outsource the monument’s management to your client, a major private player in the industry, such that the government would earn 20% of revenues. Advice if your client should accept the government’s offer.
C: Interesting! Just to reiterate, the revenue is 1 crore while the cost is 151 crores, and the client would have to meet all the costs from the 80% of the revenues.
I: Yes
C: Alright! Could you throw some more light on the client and what are the client’s objectives behind considering the proposal
I: The client has a pan-India presence and it manages multiple monuments. It has about 60% private sector market share in the industry. The client wants you to analyze if accepting the proposal will make financial sense and what are the risks associated.
C: Since I have never been to Victoria Memorial could you run me through the different areas there?
I: Sure! There is a palace which houses historic artifacts, also there are multiple gardens and a lake.
C: Do we have any demographic segmentation of the visitors in terms of age or tourists to Indian residents' ratio.
I: A lot of families visit and thus there are people from all ages. The tourists to Indian residents' ratio is 1:4.
C: In order to make financial sense, the monument should earn at least more than 20% profits. To bridge the 150 crore loss we need to decrease costs and/or increase revenues.
I: Assume that costs cannot be reduced, look into ways to increase revenues.
C: Alright, what are the current revenue streams?
I: As of now, the only revenue stream is the ticket revenue with ticket being priced at Re. 1.
C: Thus, currently we have 1 crore visitors per year. We can look into multiple revenue streams divided into 2 major buckets: from renting out for events and from general visitors; for the former we could rent out gardens for events and shows.
I: Based on government rules, the monument land cannot be rented or leased to any other organization.
C: That restricts our entire focus to the visitors. To increase the revenues, we look into ways to increase the number of consumers and the revenue per visitor.
I: The government has tried but increasing the number of visitors is not possible.
C: Alright! Given the facts, the breakeven revenue required is about 190 crores (151*100/80), thus at an average every visitor should spend at least Rs. 190 to make the proposal financially viable. We could look into the following heads to achieve that.
a) Ticket revenue, b) Parking, c) Additional amenities like an entertainment center in the gardens or boating in the lake, and d) Value added service like an app-based tourist guide.
I: Sounds good! Let’s look at each head one by one.
C: In order to increase ticket revenue, we would need to increase the ticket price. We could resort to differential pricing for tourists and for natives after looking into price elasticity of each segment.
I: With a reasonable and competitive pricing, price elasticity would not be an issue.
C: Based on my experience, Rs. 30 is a competitive ticket price for Indian citizens and foreigners would be ready to pay about $2 for a similar monument in their native place which makes it Rs. 150. Thus, at an average each person spends Rs. 54 on ticket price.
Next, we can look at parking. Let’s assume 50% people travel by public transport and other by private transport and for the sake of simplicity can we assume the 50 % travelling by private vehicle is equally divided between cars and bike?
I: Yes that’s fine.
C: Now, by experience bike parking fee is Rs. 10 and has 2 riders, car on the other hand is Rs. 20 with 4 riders, thus people using private transport will be spending Rs. 5 per person on parking leading to Rs. 2.5 per person on average. Moving to additional amenities, I would like to start with introducing boating facility in the lake. Maybe we could look at customer demographics and figure out how many people would enjoy boating.
I: Is there an easier way to calculate that?
C: Yes! We can estimate this from a capacity angle. Do we have any information about the size of the lake, how many boats can we have and operational hours.
I: Let’s assume, there are 30 boats with a capacity of 10 people. A Rs. 50 ride lasts for 30 minutes and it is operational for 10 hours in a day.
C: Thus, we can earn a revenue of Rs. 9 crore assuming 300 as working days in a year. On a per person basis that translates to Rs. 9/person. Now, we can consider other amenities like an entertainment center in the gardens and an app-based tourist guide.
I: Take the entertainment center to be comparable to the boating, so that is another Rs.9 per person. How would the app-based tourist guide work?
C: The idea was that any person/family can download the app and upon receiving the payment in the monument they would unlock a virtual guide that will guide them through the monument briefing them about the history and importance of the monument. We could charge about Rs. 50-70 for the same.
I: Are you assuming everyone would take this up?
C: No everyone would not be using it. We would be lucky to get about 20% of the people to pay for it.
I: Thus, based on your approach that adds approximately Rs. 10 out of Rs. 190 needed. Do you think we would be able to reach the minimum target of Rs. 190 considering only the breakeven.
C: So, till now based on all the calculations every individual would be spending approximately Rs. 85 without having accounted for the revenue from eateries.
I: What would your final recommendation then?
C: Working under the constraints of constant costs, not being able to increase the number of visitors and not being able to rent area for events, we would be able to earn about Rs. 100 to Rs. 130 per person on average falling short of the breakeven mark. Thus, going forward with the idea would not be the best idea as of now.
I: Thank you! We can close the case here.
Background Information:
Company: Market leader in managing monuments
Product: Victoria Memorial- Palace, lakes & gardens
Competitors: No other competitor offered similar offer
Consumers: Foreign tourists (20%) & all age groups
Case recommendations:
Analyze the different possible revenue streams to determine if it would be profitable for the company to accept the offer.
• The case was interviewee led and the candidate identified how to put a price on different streams.
• State the different constraints that is making the offer impractical before rejecting it.
