Business & Finance - Marketing
What happens when you are no longer "the Happiest Place on Earth"? The Walt Disney Company doesn't want to find out and is "reimagining" its pricing strategy. Responding to the ever-increasing demand for theme park tickets, especially at peak times, Disney has implemented "demand-based pric¬ing" at both Walt Disney World in Florida and Disneyland in California.
Airlines and hotels have used demand-based pricing for years by charging higher prices during summer vacation sea¬son and around holidays when demand for flights and hotel accommodations is highest. Similarly, demand-based pricing has been in use by Disney competitor, Universal Studios, and other theme park operators in the United States. The idea is to redistribute customer demand by lowering prices during times with less demand to encourage more sales and increase prices at times when demand is higher to encourage customers to switch some of their visits to lower-priced times.
Visitors to Disneyland were previously charged a single-day ticket price of 499.00. Under demand-based pricing, there are three prices. "Value" tickets for Mondays through Thursdays during weeks when children are in school are only 495, a reduction of 54.00. "Regular" tickets for most week¬ends and summer months are $105. "Peak" tickets for visitors during December, spring break weeks, and July weekends are highest at $119. For Orlando's Disney World, the pricing is similar but more complex as a result of having four differ¬ent parks at the site. The new demand-based pricing is only for single-day tickets and does not affect the price of annual passes or multiday tickets, which most families buy when they travel to Disney.
The unknown is how consumers will respond to this new pricing strategy long term. Will they see it as a more equitable system in which you pay more if you want to visit Disney at the "best" times to travel and pay less if you can vacation at "off" times. Of course, consumers may perceive the new strategy as a pricing gimmick to gouge consumers during heavy travel times to increase Disney profits.
Certainly, demand-pricing tactics airlines employ are not thought of kindly and have contributed to negative consumer attitudes toward the airlines. Although Disney stresses that it is using the new demand-based pricing to more efficiently manage its customer experience, it should be obvious that this policy can also lead to greater profits. Even more important, how will consumers think of Disney and its theme parks long term? Will Disney still be the happiest place in the world?
You Make the Call
10-36. What is the decision facing Disney?
10-37. What factors are important in understanding this decision situation?
10-38. What are the alternatives?
10-39. What decision(s) do you recommend?
10-40. What are some ways to implement your recommen¬dation?
Disney's Demand-Based Pricing: A Decision Analysis
10-36. What is the decision facing Disney?
Disney faces the decision of whether to continue with its new demand-based pricing strategy for single-day tickets at its theme parks.
10-37. What factors are important in understanding this decision situation?
Several factors are crucial in understanding this situation:
- Impact on customer perception: Will demand-based pricing be seen as fair or a cash grab?
- Effect on park experience: Will it effectively manage crowds and wait times?
- Revenue and profit: Will the new pricing generate more revenue or simply redistribute existing sales?
- Competitor strategies: How do other theme parks manage pricing, and how will Disney's strategy compare?
- Impact on annual passes and multi-day tickets: Will the new pricing affect sales of these key ticket types?
- Long-term brand image: Will Disney remain the "happiest place on earth" or risk tarnishing its reputation?
10-38. What are the alternatives?
Disney has several alternatives:
- Maintain the new demand-based pricing: Continue with the current system and monitor its long-term effects.
- Modify the demand-based pricing: Adjust the price tiers, days included in each tier, or the overall price range.
- Revert to a single-price system: Return to the previous flat rate for single-day tickets.
- Offer a hybrid approach: Combine elements of demand-based pricing with promotions or discounts for specific times.
10-39. What decision(s) do you recommend?
A cautious approach is recommended. Here's a breakdown:
- Short-term: Monitor the initial customer response and impact on park experience. Analyze data on sales, guest satisfaction, and crowd management effectiveness.
- Long-term: Based on the initial data, Disney can decide to:
- Refine the system: Adjust pricing tiers or offer targeted promotions to address customer concerns and optimize park experience.
- Revert or modify: If the new system proves detrimental to brand image or park experience, consider reverting to a single-price system or a less drastic demand-based approach.
10-40. What are some ways to implement your recommendation?
- Transparency and communication: Clearly explain the new pricing structure to customers and its rationale (managing crowds, optimizing experience).
- Data-driven adjustments: Use data on customer response, park attendance, and revenue to refine the pricing tiers or introduce targeted promotions.
- Phased implementation: Consider a pilot program at one park before full-scale implementation across all parks.
- Focus on value: Emphasize the benefits of visiting during off-peak times (lower prices, shorter wait times) and offer incentives for such visits.
By implementing a cautious approach with clear communication and data-driven adjustments, Disney can minimize negative impacts and potentially find a pricing strategy that balances managing crowds, maximizing profit, and preserving its brand image as the happiest place on earth.