Chapter 3 The Nature of Commercial Recreation and Tourism: On-Line Lesson

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Challenges in Commercial Recreation

Approximately 45% of all new enterprises fail within their first five years.

1) Dependence Upon Discretionary Income: Disposable income is defined as the "gross income received from all sources minus direct deductions for taxes (including social security)" (Crossley, Jamieson & Brayley, 2018, p. 54). But a more significant predictor for spending in commercial recreation and tourism is Discretionary income. Discretionary income is money left over once a person has paid for housing, clothing, food and other necessities. It is the money that income earners have to save or spend as they wish. Spending on recreation depends to a great extent on the overall economy.

Substitution: the extent in which products or services can be interchanged to satisfy the user's motives, wishes, and desires.

Who has it? The age-group market segment with the highest discretionary income are people aged 35-44. The 55 to 64 segment is probably the most likely to spend discretionary income for recreation and tourism because they are in their peak earning years, have low or no mortgage payments, and have few or no children at home.

2) Seasonal Nature of Recreation: Many commercial recreation businesses have a highly seasonal orientation. This may be because the product or service is weather or natural resource dependent (skiing, river rafting, fly-fishing) or because the supply of consumers is regulated by seasonal conditions (public school schedules, employment demands, traditional celebrations like Christmas or New Year's Eve). Seasonality includes:

             High Season: customer demand matches or exceeds facility capacity.
             Low Season: customer capacity far exceeds demand.
             Shoulder Season: reduced customer demand  or when a smaller market segment replaces the prime market segment that attends during the peak season.

Challenge to create a year round business. Change target market for different seasons.

3) Cyclical nature and Unpredictable Variations: Commercial recreation and tourism enterprises, whether seasonal or not, have normal cycles of business activity in which participation increases or decreases. Challenges occur when cycles occur quickly or unexpectedly, usually due to weather or public interest. See Florida Hurricane article. It is important for businesses to understand what makes business cycles occur and to learn the art of predicting their consequences.

4) Intermittent Nature: Even during peak season, commercial recreation and tourism businesses are likely to have intermittent periods of heavy and light use participation. Examples are paydays, weekends, or busy hours, this creates supplies and staffing problems. Weekends account for more than half of the volume of some commercial recreation and tourism businesses.

5) Competitive Climate - The theory of the zero sum market is that in a static or constant economy, gains of market share (percentage of the market controlled) by any enterprise will be offset by commensurate losses of market share by competing enterprises. A new customer for my business is a lost customer for your business. A growing economy or more discretionary spending can off set this event (pop. Growth, decreased taxes).

Economic and Political Challenges

In additional to challenges, economic and political conditions greatly influence the commercial recreation and tourism industry. These conditions present difficulties for some types of commercial recreation and tourism businesses and opportunities for others.

Inflation and Interest Rates: Inflation is the on-going rise in the general level of prices. An increase in inflation raises costs for many products. Interest is the money charged for the privilege of deferred payment or a debt. Higher interests rates increase the cost of buying high end items (boats, cars, vacations etc). Loans to most individuals and business start-ups are usually 2% or more higher than the prime rate.

Foreign Exchange: This impacts commercial recreation and tourism enterprises with international customers. When the U.S. dollar is weak (lower) compared to other currencies, foreign investors/tourists spend more money in the United States. If the U.S. dollar is strong compared to other currencies, Americans travel overseas and buy more foreign goods.

Stock Markets: Since many individuals and businesses are invested in the stock market, stock market fluctuations directly impact individual individual assets including savings and retirement funds.

Energy Shortages and Prices: Shortages and high energy prices motivated governments and private industry to increase efficiency and conserve energy. The roller coaster of energy prices will probably continue until alternative energy sources become a cost-effective reality.

The Insurance Dilemma: As the American society is increasingly litigious the cost of insurance premiums for commercial recreation and tourism businesses have risen dramatically. This creates a financial burden on many commercial recreation and tourism businesses.

Terrorism, Crime, and Civil Unrest: Post 2001 individual concerns about safety has reduced many international visits. When people decide not to travel to a given location because of fear of harm or while traveling, they often substitute by engaging in more local recreation or by traveling to alternate destinations by alternate means. When terrorism activities reduce travel to foreign destinations, travel within the United States and to Caribbean destinations tend to increase.

Constraints to Participation

Constraints can cause customers to visit a business less often or not at all. The following are barriers to travel and to recreation in general:

	Lack of Money
	Lack of Time
	Physical Condition
	Family Status
	Lack of Interest
	Lack of Skills
	Lack of Companions
	Lack of Knowledge
	Lack of Safety
	Lack of Transportation

Lack of money and lack of time are the two most commonly identified barriers to participation in recreation.

Constraints to participation in recreational activities are classified as:

• Intrapersonal: lack of knowledge, skills or interest.
• Interpersonal: lack of companions and family status involve other people or social roles, and potential participants.
• Structural: lack of time, money, safety, transportation and physical condition.

Economic Concepts Applied to Commercial Recreation and Tourism

The commercial recreation and tourism manager who understands several economic concepts related to the business will be more effective.

Supply and Demand

Supply: the quantity of a product or service that a business willingly provides at a given price at a given time. Sellers typically are willing to supply larger quantities at higher prices than at lower prices.

Inverse relationship: as the price goes up the demand goes down and vice versa.

Demand: the quantity of a product or service that consumers buy at a given price at a given time. Generally, people buy more of a product or service at a lower price than at a higher price.

Equilibrium: is the price at which the market demands precisely the same quantity that the producer is willing to supply.

Elasticity of Demand

Elasticity: the ratio of the percentage change in quantity of a product or service demanded in response to a change in price.

Relatively Inelastic: When a change in price produces  a proportionally smaller change in demand. Example: a 25% increase in price results in a loss of only 10% of the customers indicates a relatively inelastic demand.

Relatively Elastic: When a change in price produces a proportionally greater change in demand. Example: 20% increase in price, results in 35% fewer customers, would indicate demand is relatively elastic.

Price sensitivity varies between markets and between products. markets for "non-essential" or easily "deferred" purchases such as recreation products tend to be more price sensitive than markets consumers consider to be essential or necessary.

System Structure

System structure refers to a variety of systems that provide the basic framework of support for a commercial recreation and tourism enterprise. System structure: a variety of systems that provide the basic support for a commercial recreation and tourism enterprise.

Infrastructure: development on or below ground.

Superstructure: developments above ground.

	Transportation system - access for customers, employees and suppliers via roads, airlines, bus lines, railroad and other ground transfer services.
	Utility systems - includes electricity, gas lines, water & sewer, garbage pick-up, telephone & Internet services.
	Public services - include police and fire protection and local government, public schools and parks.
	Local services network - includes suppliers, vendors, maintenance and repair shops, trades and contractors.
	Marketing and media network - includes promotional services like television, radio, newspaper, roadside advertising, printing and marketing services.
	Related amenities - include hotels, restaurants, retail shops, tour guides, medical services, gas stations and parking facilities.

In every stage of its development, the recreation and tourism system structure mist be in harmony with its natural environment. All development should minimize negative effects on the land and water resources, vegetation, and wildlife of an area. When needed to support a commercial recreation and tourism enterprise, infrastructure and superstructure development may have to be financed in part or entirely by that enterprise.

	Facility size -  is the optimal size for the best recreation experience.
	Length of stay - is large enough to create a desired length of stay for visitors.
	Encourages return visits (diversity) - is big enough and varied enough to keep participants coming back.
	Size optimizes cash flow - is balanced in terms of optimal cash flow.