You cannot change your business model to better use pricing
until you find a concept that expands your competitive
advantage, regardless of what competitors do. Let's look
for that important breakthrough concept.
Although we have been focusing on the potential value of
the right pricing tests, please realize that those are
actually very hard to do well. Only if the demand
elasticity is very great will you be able to tell the
different between one pricing structure and another. Also,
beyond a certain point, you cannot effectively run any more
tests and before then measuring the results can be costly.
Because of these limitations, you need to do a lot more
thinking about what pricing could do to expand demand than
actual testing. Let's consider how changes in your pricing
structure could change your customer's and the end user's
behavior.
Disneyland's historic pricing structure might be a good
starting point. If you went to Disneyland (the one in
Anaheim, California), for many years you were offered the
choice of a one-day, multiple-day, or annual passport. The
most expensive way to buy a visit by the day was by the
one-day passport, and the least expensive per day was the
annual passport. If you knew that you were coming back for
several days during a vacation trip, you would usually opt
for a multiple-day passport. If you lived nearby, you
might consider an annual passport.
Disney always advertised these structures. So, if you were
planning a vacation to Southern California from far away,
you would often plan the length of your stay to match the
longest multiple-day pass available (usually three days).
If Disney had only offered two-day passports, many people
would not have planned to or actually stayed for a third
day.
If you lived nearby, you might never visit Disneyland again
(having been there too many times to count) unless it
seemed like it was free. And that's the perception that an
annual passport creates. Each entry is free after you have
made the annual investment. So, you might even consider
stopping by for only an hour or two. In your mind, the
cost of the day has dropped from around $50.00 recently to
nothing. Would that change the number of times you go to
Disneyland if you lived nearby? You bet.
Why would Disney want you to come all of the time? Well,
actually they don't. So, there were usually two different
kinds of annual passports. One allows you to only come on
days when Disney knows the park isn't crowded. For a lot
more money, you can come every day. The price of the more
expensive option is about the same as buying two three-day
passports. The price of the less expensive option is about
the same as buying one three-day passport.
What benefit does Disney get from having you come on not so
busy days? Well, it's almost impossible not to spend some
money while you're there. You will probably pay for
parking in the Disney lot. Even if you don't park there
and only spend $2.00 for a beverage, Disney probably has
made more money than if you hadn't been present that day.
Throughout the day, you will also be exposed to enormous
numbers of impressions about other Disney products and
services from Mickey Mouse shirts to Disney Channel
subscriptions. In essence, you are paying for the right to
receive vastly increased amounts of Disney advertising.
And if you have a good time while you're receiving the
advertising, you will undoubtedly buy more of those
products and services.
Is this pricing strategy a good one for Disney? You bet.
Why did Disney open a new theme park in Anaheim called
California Adventure? Undoubtedly, the company perceived
that it could capture vacationers for longer stays and
local people for more visits. Also, it had a chance to up
the price for an annual passport to include visits to two
parks.
With twice as many places to entertain guests when the
parks weren't crowded, the chances to increase revenues and
advertising exposure were enormous. By the way, a third
park is under development. How do you think the pricing
structure will change then?
Will the behavior of millions of visitors be changed in
ways that make more money for Disney? You bet.
How can you change the pricing of your offerings to expand
consumption?
Copyright 2008 Donald W. Mitchell, All Rights Reserved
----------------------------------------------------
Donald Mitchell is chairman of Mitchell and Company, a
strategy and financial consulting firm in Weston, MA. He is
coauthor of seven books including Adventures of an
Optimist, The 2,000 Percent Solution, and The Ultimate
Competitive Advantage. You can find free tips for
accomplishing 20 times more by registering at:
====> http://www.2000percentsolution.com .
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