Companies need to develop solid pricing models that are customer-friendly. Unpredictable costing may disgruntle or even make customers seek alternative service providers. Among others, businesses rely on competitors’ prices, demand, operating costs, and profitability to set or review prices. Walt Disney operates resorts, theme parks, and broadcast networks. Disney World (Florida) has adopted visitation time, peak, and differential pricing, which are reasonable but ignore the need to justify price hikes to customers, which can discourage the customers and put its existence at risk.
Issues with Disney’s Pricing
Disney World observes customers’ behavior to understand the demand for the product before setting prices. For example, the business observes the number of visitations to any one park before adjusting prices. Prices are increased for the most visited parks in the Orlando area resort. Customer behavior is widely used by businesses to price their products. Online businesses, for example, observe the number of visits a particular customer makes on a given product and adjust the price accordingly. The businesses understand that return visits for a given product indicate the consumer needs them. Normally, customers will observe price increase on return visits. In the case of Walt Disney, more visits to any of the parks in the Orlando area indicate customers are most likely satisfied with service quality. It is reasonable for the business to adjust prices upward during peak periods or for most visited sites to cater to increased operating costs. A business should cautiously take advantage of increased demand to maximize profits. However, it is difficult for Disney to determine the best pricing for the park without carrying out market research on the level of satisfaction derived from current pricing. The business should consider informed pricing pegged on customer feedback.
Pricing has additionally been based on the time one visits, with prices being higher on the most popular dates. For example, for the nine days around Christmas time, a one-day ticket to Magic Kingdom will cost $ 189, up from $159. Popular visitation dates indicate increased demand for the product, justifying the pricing. This is because operating costs will increase at peak periods. The customers must meet the operation costs for profitability. However, the company does not explain to its customers the increased prices, which can disgruntle them. Although it is not absolutely necessary, the business should explain price increases to customers so they may understand. Value for money may be a mere perception rather than real, and consumers are made to perceive it as such.
Disney employs value, perceived value, and differential pricing to set prices. One company spokesman said the company works on providing customers with the best and most memorable experiences, including the lowest-priced ticket going at $109. Incredible experiences can only be achieved through the provision n of quality services or products. Disney must therefore invest in service provision to give customers memorable experiences. At the same time, the business offers low-priced services for a section of consumers of a largely similar product. This way, the pricing model allows customers with lower incomes to enjoy the service, increasing total profits. Perceived value can be achieved through advertisements and promotions, justifying higher pricing of some of the services. Direct and indirect costs are incurred in advertisements and promotions.
It is observed that Disney increased prices for nearly all its products. The number of blackout days was also increased for certain visits while at the same time limiting the category of people who access such services. Although the company needs to remain profitable, the price increases must be controlled. The company can and should have adopted an imperfectly competitive pricing model where pricing is pegged on marginal costs so that they have room not to adjust prices whenever there are minor cost variations. Variable costs for service provision businesses can remain largely the same once they acquire capital. This means their prices can be stable for quite some time. Pricing should also consider those of competitors, so that it is neither exploitive nor undercharged.
The main objectives of pricing include the need for new businesses to survive, profit maximization, increasing market share, market skimming, and product quality leadership. Disney is an already established company that should focus mainly on product quality leadership, maximizing profit, and increasing market share. Its pricing should therefore reflect an established brand. Too low, too high, and unpredictable pricing can be detrimental to the company, reducing its chances of survival. In the recent pricing changes, the company failed to disclose the reasons for price changes but at the same time made record-high profits. This clearly indicates that the current pricing was not based on variable costs but on the need to increase profits.
Conclusion
Like any other entertainment business, Disney World operations in Florida are subject to government regulations and, therefore, unlikely to be exploitive to customers. Its new prices mainly relied on customer behavior, visitation time, product value, perceived value, and differential pricing to set prices. The new prices were adjusted upwards with the sole aim of increasing profits. All its service categories increased their pricing without explanations, creating a perception of unreasoned pricing. In the future, the business might have to consider explaining price adjustments to avoid customer dissatisfaction.
Reference:
Passy, Jacob. “Disney World Announces Another Round of Price Increases.” WSJ, Web.