The Future of Theme Park Pricing is Creative and Dynamic


What’s the best way to put a price on a day of theme park fun? Very thoughtfully, and preferably using data, algorithms, and flexibility, experts say.

After decades of setting one admission price and sticking with it year-round, the world’s largest theme park operators are starting to inch closer to the models used by the bulk of the travel industry.

“For as long as I can remember, theme parks have always been a place where they would paint the price of a ticket on a piece of wood and nail to to a post at the front of the park,” said Martin Lewison, an assistant professor of business management at Farmingdale State College who studies theme parks. “Once a year or so they would raise the price. They would then discount off that price.”

Although observers and media have questioned for several years whether park operators would adopt demand-based pricing strategies similar to those used by airlines or hotels, only in recent months have the biggest players made moves in that direction.

“Nobody wants to be the first one to jump off the cliff,” said Dennis Speigel, president of consulting firm International Theme Park Services. “Once they see somebody adopt, then they become adopters. Our industry as a whole, we’re slow adopters. We have been for decades and decades.”

Earlier this year, Disney changed the way it prices one-day tickets domestically, introducing a three-tiered system that charges different amounts for entry according to the date when people plan to visit. At peak season, the Magic Kingdom costs $124 a day for adults, while other Orlando parks cost $114; in California, admission at peak times is $119. Multi-day tickets are sold as usual and not tied to a specific time of year.

Around the same time, Universal Studios Hollywood announced it would charge less for admission to those who bought tickets online for slower days. The “anytime admission” ticket without a specific date costs $115.

“Universal Orlando is still a little bit of a holdout,” said Robert Niles, founder and editor of Theme Park Insider. “Everybody is expecting them to move to a variable pricing system the next time they change their prices.”

Cedar Fair, which owns 11 regional amusement parks in the U.S. and Canada, said in 2012 that it would start using a new purchasing platform to “provide real-time data and dynamic pricing modification.”

And Six Flags Entertainment Corp., which has 18 parks in North America, started its own form of variable pricing in 2012. Most of the locations use the system, which offers discounted tickets online depending on the day of the week; historically slower days cost less. The pricing is based on history and forecasts, and tickets are cheaper in advance.

“We want you to commit to us,” said Brett Petit, senior vice president of marketing and sales for the parent company.

Moving in a Dynamic Direction

Airlines pioneered dynamic pricing, or revenue management, which is changing prices based on demand, and other parts of the travel industry such as hotels and rental car companies followed suit.

The pricing strategy most attractions are experimenting with today is better described as variable, differential, or seasonal — “baby steps leading up to” something that resembles the airline model in the next five or so years, Speigel said.

Pricetag, a Netherlands-based company that provides dynamic pricing consultation and software, has been in talks with attractions and theme parks in the United States. Eric Pastoor, the company’s vice president for operations, said interest has kept him “tremendously busy.”

“I can guarantee you that come 2017, a lot will move into this direction ” he said. “And I’m not just talking about differential pricing, I’m talking about real dynamic pricing.”

His definition of “real” dynamic pricing: Parks offer cheaper prices the farther in advance tickets are purchased, even for traditionally peak times, and as more tickets are bought, the price goes up. For the busiest times, there may only be a small number of cheaper tickets available, but the idea is that anyone who plans far ahead can have the chance at a good price — rather than only those who can travel on off-peak times.

“It will move to a top price, obviously, because you will always have a number of customers that won’t care about that,” Pastoor said. “But these people are less concerned with higher prices. You want to say, ‘We’re a park that has prices for everybody.’”

Park operators, especially Universal and Disney, have done strong business in recent years and may not have felt the need to tamper with their long-held pricing practices. And their is customer feedback to consider.

“Any time you do a change — especially to Disney, it’s so ingrained in the American culture — anytime they do any changes, people are just up in arms,” said Scott Smith, an assistant professor at the University of South Carolina who teaches theme park management and other hospitality classes. “Honestly, Disney has been doing so well I almost feel like it’s a why-rock-the-boat kind of thing.”

Why Make the Change?

The goal is to maximize revenue by spreading out visitors, encouraging more people to attend on slow days and fewer people on the busiest.

“It basically cuts down on your peak moment in the park, which cuts down on waiting times,” Pastoor said. “And if people are not waiting in line, they will spend more in your park.”

Smith said spreading attendance more evenly throughout the year also helps operators plan staffing levels and operations better.

In addition to allowing parks to plan, Lewison said smaller crowds should improve people’s happiness with their visits.

“That’s obviously the big determinant of satisfaction, how many rides did I get in,” he said. “You want guests to feel like they had a great time.”
Is it Working?

Niles, of Theme Park Insider, said early anecdotes indicate that, at least at Disney, efforts to even out the crowds with differential prices might be working.

“It seems as though the Fourth of July this year in both Orlando and Southern California, the crowds seemed really light compared to previous years,” he said. There were some differences: the holiday fell on a Monday compared to a weekend, and Orlando has been experiencing softer demand destination-wide.

But Niles wasn’t ready to rule out pricing as a factor: “It really does seem like the peak days aren’t quite as peak and the slower days aren’t quite as slow,” he said.

During an earnings call in May, the Walt Disney Company said attendance at Walt Disney World Resort in Florida saw “a modest decrease” in the beginning of the year. In the quarter that ended July 2, attendance decreased across domestic parks while revenue rose.

“We like the steps that we’ve taken in terms of pricing,” CEO Bob Iger said during the May call. “We’ve made a number of steps to essentially grow revenue, in some cases actually at the expense of some attendance where we’re changing our pricing approach sometimes in part to moderate attendance so the park experience is a little bit better.”

Still, Niles said he doesn’t expect to see Disney move toward a real-time dynamic system right away.

“The next step would be toward five tiers instead of three tiers, or maybe even beginning to adjust the price of multi-day tickets,” he said.

Maximizing Big Data

As park operators get more comfortable moving away from traditional pricing, observers think there are a host of opportunities to generate more revenue.

Lewison has proposed that parks create a loyalty program that ties big data into ticket buying and spending so they can create customized packages that appeal to individual guests’ behavior patterns.

“Everybody’s got little cards on their keychains for when they go to the grocery store,” he said. “It seems like a no-brainer and the technology is probably cheap these days.”

Disney has already laid the groundwork to put that idea into practice at Walt Disney World. The company spent a reported billion dollars creating its My Magic+ system in Orlando, which tracks behavior and spending through wristbands that let users enter the park, book rides, get into hotel rooms, and spend at parks.

“Disney did it the most expensive way they could have with these bands,” Lewison said. “You can do it a lot cheaper.”

Packages, Premium Experiences

Conversations about the future at Six Flags center on packaging products to add value.

“How do we get a park guest to spend more money than they think they’re going to spend and how do we package that and get that sold ahead of time?” Petit said.

He said the company knows a customer’s day could include multiple transactions: admission, food, merchandise, midway games, front-of-line passes, and more.

“How do we package that and make that a must-do scenario?” Petit said. “We want to pull you up into a higher price package. We’re upselling you, so to speak, in our pricing scheme so that we can maximize the revenue from each guest that day.”

The problem with upgrading at the moment is that the process is still more labor-intensive than the company would like; Six Flags wants to make that process simpler and mobile.

“Ultimately it will get to as quick as hitting some buttons on the phone,” he said.

SeaWorld’s Discovery Cove could provide a model for high-end experiences, Smith said: A limited number of people pay hundreds of dollars to swim with dolphins and get unlimited food and drinks. And Disney has a slew of behind-the-scenes tours that charge beyond the cost of admission.

“Those are the types of things that I think you’re going to see,” Smith said. “Provide them with these add-on options that the top 20 percent of the population can easily afford and would gladly afford.”

Niles said add-ons like photo packages, holiday after-hours events, or special parties tied to fireworks viewing could also be maximized.

“They’ve been doing a lot of upsell opportunities which they can then turn around and bundle into various packages if they feel the need to move product in one segment or another,” Niles said. “That’s something that they’ve already begun to do and I expect to see more of.”

He added: “They’re definitely being quite a bit more creative with pricing now than they ever have in the past.”

Lewison expects the same, but he urged parks to be cautious: “Of course they have to be careful, because many customers already feel nickel-and-dimed.”


The Future of Theme Park Pricing is Creative and Dynamic


Toronto Blue Jays restructure ticket pricing system

TORONTO – Season-ticket prices are rising an average of nine per cent next year for early-bird renewals as part of a wide-scale matrix restructuring the Toronto Blue Jaysunveiled Monday.

The 2017 home schedule will be split into a new five-category pricing system – A+, two games; A, 32 games; B, 20 games; C, 18 games; D, 9 games – replacing the old premium/regular designations the club used in recent years. The Rogers Centre’s seating plan has also been rescaled.

Unlike the price hikes that followed the 2014 and 2015 seasons, the new increases won’t be across-the-board, as the cost for an 81-game subscription will rise in some areas of the dome, and stay flat in others.

Still, season-ticket holders who renew during the early-bird period – which runs Monday through Sept. 8 – will see the cost of tickets for 54 games rising an average of 13 per cent, and for the remaining 27 games dropping seven per cent.

“The idea is it’s acknowledging that 81 games are not equal,” says Andrew Miller, the club’s executive vice-president of business operations. “Canada Day and opening day here, or a day like (Sunday) with a very popular promotion, may have a very different level of interest from fans than say a typical Tuesday night in April. All it’s trying to do is more appropriately match the values assigned to each of those games with the ticket prices.”

New game packs will be introduced in the coming weeks, with the pricing details for single-game tickets due early in 2017. With plans to increase the use of dynamic pricing for single-game tickets, the cost of attendance from day to day will vary based on a number of factors.

“They’ll all generally follow the same structure,” says Miller.

Which games end up in which category will be revealed next month when the 2017 baseball schedule is released. Opening day and Canada Day will be the two A+ games, with the A games likely to be heavy on summer weekends and premium teams. Weeknight games in April are likely to populate the D contests.

“For an individual ticket holder, (the price) depends on which game they’re purchasing and when they purchase them,” says Miller. “It’s not necessarily as simple as increase or stay the same.”

The new system is the most significant reworking of the club’s ticketing structure since the current set-up was introduced ahead of the 2010 season.

Blue Jays ticket prices remained unchanged until hikes ranging between 5-27.6 per cent on season subscriptions and 0.80-50 per cent on flex packs were put in place for the 2015 season.

This year, following the club’s first post-season appearance since 1993, prices rose an average of 10 per cent.

The new scheme is the result of “quite a bit of research and it’s very typical across the league, and even across Toronto sports to have this type of pricing structure,” says Miller. “I guess what I would say is it may be different from what was done in the past, but it’s very common across sports at this point. In the past, if we just used one average price, an average means there are some games that should be higher and some that should be lower. So the only thing we know about that average is that for the most part, we’re either overpricing a ticket or underpricing a ticket. What we’re trying to do now is make it more accurate in terms of aligning that price with the true value of the ticket for fans.”

The Blue Jays ranked eighth in the majors in attendance last year at 2,794,891, and this year are fourth with an average of 40,895 through 62 home dates, good for a total of 2,535,500.

Asked if the new pricing structure is expected to increase the revenue-per-ticket for the Blue Jays, Miller replied: “That’s hard to say. Our goal is make sure that we’re aligning value for the fans, so we’re trying to give more choice for some fans that may be selecting games that they otherwise wouldn’t have selected in different parts of the season.”


5 Algorithms every Pricing Director should know

Peter Sondergaard from Gartner recently coined the term of “Algorithmic Business” to state that data volume does not really matter, but what companies do with that data – how they turn it into proprietary algorithms – is a powerful competitive advantage and therefore the cornerstone of business growth.

Most of Pricing professionals are lagging behind in the digital transformation, and despite an important investment in software and data capture, most of the companies are facing a black box when it comes to understanding how pricing decision is decided and executed.

Mastering the Algorithmic Era in Pricing means creating in glass box situation within the organization, by getting back the control over pricing data and rules and developing and installing sustainable pricing analytics skills.

Where to start?

Here is our Top 5 Algorithms for Pricing:

  • Clustering: Clustering, K-Means are central mainly because segments (both customer and products) are at the very heart of pricing performance.
  • Regression: OLS, Multivariate, Logistic will allow you to identify predictors with or without interaction. Must have for elasticity and cross-elasticity measurement among other.
  • Associated Rules: even if the two first are obvious, this one is often missing. A priori rules are at the center of market basket analysis for example. Very useful when you have a large product portfolio and need to identify product sharing consumption patterns. It can allow you to extrapolate accurately value related insights from market research to your transactional data.
  • Decision Tree: Pricing is all about rules. Decision Trees (CART, CHAID, etc.) allow a representation of pricing decisions relating antecedents and outcomes, as well as a definition of the rules behind them (if / then). The backbone of pricing execution and efficient promotions and discounting for example. 
  • Deep Learning: because pricing is complex and volatile by nature, more advanced tools need to be used in order to deal with complex data or event structures, generate multiple layers of analytics, and learn from continuous data enrichment.

Algorithm and mathematics are at the very heart of the scientific process. And Pricing needs to be treated as a science. If you want to be prepared for the algorithmic era, you’d better start now!


Singapore – Internet Service Providers wage new broadband war

They are targeting 360,000 cable modem users

A broadband price war has emerged as Internet service providers (ISPs) take aim at some 360,000 cable modem users whose services may be discontinued by end-2017.

Sources said StarHub’s existing network leasing agreement with Singtel – which is crucial for the former’s cable broadband and TV services – is coming to an end next year.

Should StarHub choose to end the lease, its cable services will cease, making its 360,000 customers a prime target for ISPs eager to expand their customer base.

When contacted, StarHub chief marketing officer Howie Lau said: “We will ensure a smooth transition for our customers, from cable to our fibre broadband services.”

The Straits Times understands that a decision has yet to be made on the Singtel lease. In April, StarHub slashed the monthly price for its 300Mbps package from $49.90 to $29 – the cheapest offer yet – as part of early efforts to retain its cable broadband customers.

  • New tech takes over

  • Conventional broadband is based on older technologies such as StarHub’s cable and Singtel’s asymmetric digital subscriber line (ADSL) systems.

    These technologies, which have been around for more than a decade, have a surfing speed limit of around 100Mbps, unlike fibre broadband services which are 10 to 100 times faster.

    Fibre broadband – launched here in September 2010 – now commands about 70 per cent market share among households, according to the latest statistics on the Infocomm Development Authority’s website.

    In contrast, there are now only 360,000 cable modem users and “thousands” of ADSL subscribers. It is not known when Singtel will retire its ADSL systems, but StarHub’s cable service may be discontinued next year.

    StarHub’s existing network leasing agreement with Singtel – which is crucial for the former’s cable broadband and TV services – is coming to an end next year.

    The long-term lease dates back to the early 1990s, when StarHub’s predecessor, Singapore Cable Vision, was set up. It had to lease Singtel’s networks as the latter had a monopoly on telecommunications facilities.

    Irene Tham

But other ISPs also sniffed out the opportunity. Last month, M1 matched the StarHub deal with its own $29-a-month 300Mbps plan.

ViewQwest – which has so far been focusing on ultra-fast plans with surfing speeds of 1Gbps or higher – said it is set to offer a 350 Mbps fibre broadband plan for $29 a month tomorrow. “This group of users may not need high-speed plans, but they will be looking to switch to a good fibre broadband provider,” said Mr Vignesa Moorthy, chief executive of ViewQwest.

Mr Mike Ang, president of the Association of Telecommunications Industry of Singapore, said the switch from older technologies such as cable to fibre is inevitable.

“Cable technologies which are capable of surfing speeds of up to around 100Mbps are old and will eventually be retired,” he said.

Fibre broadband services debuted here in 2010, offering 10 to 100 times faster surfing than older broadband technologies such as cable and asymmetric digital subscriber line (ADSL). Now, more than 968,000 – or seven in 10 – households are on fibre broadband plans, according to Infocomm Development Authority statistics.

Mr Clement Teo, a senior analyst at market research firm Forrester, attributed the huge demand for fibre broadband to aggressive promotions. “Today, a 1Gbps plan can be bought for only $39 a month.”

Comparatively, a 6Mbps ADSL plan from Singtel – which is more than 100 times slower – cost $29.90 a month in 2013.[ST_Newsletter_AM]-20160601-[Internet+Service+Providers+wage+new+broadband+war]&xts=538291&utm_content=buffer2cfca&utm_medium=social&


Beware the Off-The-Shelf Consultant

When meeting with potential new clients, I am occasionally struck by their “what can you do for me?” or “how much do you charge for an evaluation?” approach to hiring consultants. There is a fundamental flaw in this line of questioning that can doom a foundation-consultant relationship from the start. The approach is backwards, because those foundations are essentially scanning for an expertise that they may be able to use, or assuming a one-size fits all approach, rather than thinking about what they really need.

If you have a program or initiative or planning project that feels incomplete or not quite what it should be, it’s tempting to look around for off-the shelf answers. And there are many pre-packaged consulting methodologies that may or may not be the right fit. Keep in mind that solutions or methods that worked perfectly for one foundation rarely fit as perfectly at another. Because every philanthropic enterprise has different personalities, policies, cultures and priorities – the talents and skills required to address challenges or supplement grantmaking efforts will be different as well.

But be warned that many consultants lead with their methodology. They provide “diversity training” and therefore pitch training as the solution to your needs. The smarter approach is to find consultants who spend more time asking you questions about your actual needs than they do promoting their own methods or models. If you aren’t sure what you need, a good consultant should be able to help you explore the situation, whether through a conversation over a cup of coffee or a more substantial fact-finding engagement or needs assessment.

Here are three ways to protect yourself from off-the-shelf consultants:

  1. Trust your instincts. If a consultant keeps pushing a methodology or program that feels wrong, it probably is. Even if other foundations have used it successfully, you will have the best insights on whether their solution will work for you.
  1. Instead of asking “what can you do for me?” or “we need a strategic plan, what do you charge for that?” say “this is what I think I need and why.” Share your needs as you perceive them. If you are unsure about what you really need, say so. A good consultant will ask the right questions to help you determine your objectives and then give you their honest opinion about whether or not their skills, expertise and focus are the right fit.
  1. Be part of determining the solution. Your relationship with a potential consultant is just that: a relationship. You need to be engaged in determining your needs and the best approach to addressing them. In fact, good consultants welcome your input and ideas in crafting their proposed approach. They may have objectivity and key skills, but you know your organization best. This ultimately makes for more clarity about the expectations of your consulting agreement.

When you approach consulting engagements from a philosophy of “what I need” instead of “what can you do?” you can save hours of time and thousands of dollars, and your philanthropy is much more likely to enjoy greater impact, both from your consultant engagement and in the work you do.


Loyalty Programs: A Difference Against New Competitors

The following case study is a composite made up of the actual experiences of several companies that have adopted loyalty based pricing programs. It has been written to provide an example of a successful program while maintaining the confidentiality of the companies involved.


 The XYZ company, a dominant force in the high technology industry, was facing the entrance of a new competitor. At the time, there were two other significant players in the industry, and while XYZ enjoyed a 75%+ market share, some customers were showing signs of dissatisfaction. Complaints that XYZ’s dominant position in the market had led to arrogance and an inflexible attitude were becoming more frequent. Indeed, many buyers made no attempt to hide their enthusiasm for the impending entry of a new competitor for XYZ. Against this backdrop, XYZ began to search for a pricing strategy to defend itself from possible market share erosion while maintaining profitability.

The Loyalty Program

 In its search for a defensive pricing strategy, XYZ explored the feasibility of implementing a loyalty program. While management was wary of the amount of time and resources that would go into implementing a loyalty program, they also recognized that a loyalty program might be their best defence against the new competitor, for several reasons.

 For starters, a loyalty program would send a strong signal to customers that XYZ was prepared to recognize and reward their loyalty in the face of new competition. This was an especially important message to communicate, given XYZ’s reputation for arrogance and inflexibility.

 Management also realized that a loyalty program could be a tactic where pricing details would not be readily transparent to competitors. A loyalty program would thus be unlikely to incite immediate price retaliation from the new entrant. In addition, if successfully executed, the program would provide a long-term competitive advantage to XYZ by discouraging customers from diverting business to the new entrant. Finally, management concluded that if they did not implement a loyalty program, the new entrant might. The advantages of being first in an industry to implement a loyalty program are usually enormous. Once a customer has made a commitment to a particular program, it is often difficult to dislodge the customer’s loyalty. (Consider how often members of a particular frequent flyer program go out of their way to fly with ‘their’ airline.)

Designing the Program

 One of the first steps taken by XYZ in designing the loyalty program was to hold a brainstorming session with the sales force to determine what products or services offered by XYZ were highly valued by its customers and, at the same time, not replicable by any of its competitors. During the brainstorming session, the group identified XYZ’s breadth of product offerings as key to implementing a successful loyalty program. In essence, XYZ was the only significant supplier of a full systems solution, encompassing both hardware and software. By leveraging off this dominant position, XYZ management felt it could also promote customer loyalty.


 The program provided customer discounts based on three major criteria:

 Percentage of XYZ product bought relative to purchases from the competition

  • Volume purchased of a single product

  • Number of different products purchased.


 This loyalty program was a tremendous success for XYZ. Not only was the potential erosion of both margin and sales halted, but many current customers actually increased their purchases. Moreover, although other competitors – including the new entrant – attempted to introduce their own loyalty programs, XYZ had achieved the dual advantage of being first in the industry to implement a program, and designing a program based on features that were very difficult for competitors to copy.!Loyalty-Programs-A-Difference-Against-New-Competitors/c1t3q/56fec0480cf2f28d5dd4fdb3


Dressing to the Nines: A Pricing Dilemma

Price not only communicates transactional cost it also informs about product quality. Many retailers such as Wal-Mart use prices ending with the number 7, while others use prices ending with 9. While the use of such numbers may be common practice, the implications and meaning associated with such an approach may be more problematic than once thought.

The main purpose of this commentary is to provide insights about price endings and suggest that prices ending with the number 0 may have an operational advantage. Moreover, zero-ending products may be perceived as “better quality” than those with odd price endings.

Odd Pricing & The Magic Number 9

With the introduction of the cash register, storeowners found it easy to keep track of sales because each transaction was recorded. There was the possibility that the cash register clerk could pocket the money by not recording the sale. If, however, the clerk had to return some change to the customer, the cash register could not be opened without ringing up the sale.

In the decimal numerical system, numbers 7 and 9 are such that even when a customer buys 10 items of all the item prices end with 7 or 9, the clerk always must return some change when a customer presents paper currency.

The number 9 has an even more interesting feature. Suppose a customer purchases three items and all items are priced with an ending 9. The number of pennies the customer must be given back is equal to 10 minus the number of items, which in this case is three.

Although cash registers have been replaced with optical-bar-code readers or computer-based scanners, which provide information about prices, retailers have continued to use odd price endings such as 7 and 9. Moreover, sale taxes and other service charges in the current business environment may not meaningfully communicate odd or 9-ending prices. This is even more problematic in a business-to-business transaction where mark-up may create further distractions for the ultimate consumers. It also may create an operational nightmare for a store manager.

Consider an example of a typical grocery store that may carry as many as 15,000 Stock Keeping Units or SKUs. If the store puts 10 percent of its SKUs on sales promotion, the store manager must change 1,500 prices. If each SKU price has an average of the three digits, then the retailer must change 4,500 numbers. Finally, if the store manager has 99% accuracy in entering numbers, it is still possible he may miss as many as 45 SKU prices.

Consider now a situation where all prices end with zero. Holding everything else the same, the store manager is likely to make one-third fewer errors – a significant benefit in terms of customer relations and an excellent pricing strategy.

As retailers have continued over the years to use odd price endings, academic research has flourished as it attempts to explain why products are priced with 9 endings. A significant amount of academic research suggest that odd price endings, especially prices ending with 7 and/or 9 are perceived by consumers to be cheaper both in terms of transaction cost and quality than prices ending with zero.

Other academic research indicates there might be a small sales increase because the product is perceived to be cheaper. The increased sales, however, occur only when no other competitive products in the market have 7 and/or 9 endings. The effect of better product image, as well as better retailer image, however, is a longer-term benefit that is harder to achieve.

From the above discussion, it can be argued that retailers who use prices with zero endings may be perceived to carry better quality products and have a stronger image than retailers using prices ending with 7 and/or 9.!Dressing-to-the-Nines-A-Pricing-Dilemma/c1t3q/56f147760cf28bf0e6e9b94c


Don’t Under Value New Products and Services

Companies invest untold millions in innovation every year, lowering customer costs and improving revenue and margin performance.  But are those companies being paid adequately for that innovation?  In our experience the answer is no.  Looking across 30 cases, we have found that managers are inclined to under estimate customer’s willingness to pay for valuable new products and services by over 100%!  Here are a handful of examples.

If you are going to be paid well for your innovation, you need to be asking three questions.

  1. Which customers will benefit the most from our innovation?
  2. What attributes of our new offering drive the most value?
  3. What is the customer’s willingness to pay?

Answering those questions well can turn a $20M breakeven opportunity into a $50M, highly profitable opportunity.  This kind of thinking can be especially valuable in tech industries where the terms  “as a Service” and “profitability” don’t seem to belong in the same sentence.


Lost Sales: All About Price? Hmm…

Let’s spend a moment in the land of make believe.  Imagine this conversation:

Sales Manager: “What happened with the potential business with XYZ?”

Sales Person:  “They decided to go with a competitor.  I didn’t prove to them our company and me could provide them enough value versus what our competitor said he could provide.  I need to get better.”

Meanwhile, back on planet earth, here’s the real conversation:

Sales Manager: “What happened with the potential business with XYZ?”

Sales Person: “We got beat by a competitor.  Our prices are always high.  What are you going to do about that?  I need to sell more so I can pay for (a new car, my beach house, my kids’ college, insert want here).  We’re just not competitive and it’s not my fault.” (This situation never happens at I.D. Images!  In all seriousness, we’ve got a great sales team who uses price only occasionally as a reason for lost business.  They know better!)

Yes, we all deal with price competition and it’s not going away.  We’ve allowed price to become the canned answer to every piece of business we don’t win.  Sure, it happens but probably not as much as our sales people lead us to believe.  It’s easy for a customer/prospect to say price is the reason they went somewhere else and it’s even easier for a sales person to not follow up and blame price for not winning the order.  It’s even easier for a sales manager/owner to accept price as the reason for lost business.  Who likes confrontation?  A wise mentor of mine would tell me constantly, “In management, you get what you accept.”  If we accept price as the catch-all for lost business, that’s what we’ll be told.

We really become what we believe.  If our sales team thinks we’re not competitive, we become not competitive.  We start to play the price game.  Remember, you can only play the price game if you know you are the cost leader.  We all like to think we’re the low cost producers.  There’s only one.  It’s probably not you.  As I wrote a few weeks ago, if you can’t sell value, you’ll be automated.  If you’re losing business truly because of price, your company has no choice but to cut costs.  (Side note: watch what happens in California with their new minimum wage law and required family leave requirements.  The cost of labor went up.  Therefore, the cost of automation went down.  This is what happens when politics are controlled by lawyers.  Many lawyers have told me they went to law school because they hated math.  The talking points of a higher minimum wage sound great.  The math is a problem.)


Pricing your products to fit your business

As owners of businesses we know that there are a variety of options in how we can price our products.

Boutiques for example might pick a high or value priced model. Some business models demand a discount strategy. For some businesses, including many in manufacturing, it might be a commodity based demand pricing model that they follow.

Herman Holtz in his book Priced to Sell: A complete guide to more Profitable Pricing says that the best price is “the highest one that fits your business’s strategy.”

In other words you should be pricing your products to fit the model of your business which we described in the earlier chapter on strategy. Ideally you want to differentiate your products and services enough from your competitors that you can justify different prices.

Hopefully the pricing model that you pick is going to be one that will allow you to be profitable.

The problem with most entrepreneurs and business managers is that they only consider one model of pricing. Often we don’t consider that we may be able to sell the same product or service to a different market. This new market might be geographical, socioeconomic, or use based. When this happens we can often adapt our pricing to reflect the market conditions in the new opportunity.

Sometimes we can use opportunity pricing to increase our margins during higher times of demand.

Of course any time we consider changes in pricing we need to think about the effect that this will have on our customers.

However, if we are shortsighted and fail to consider these different opportunities, our business will lose the potential for this revenue over the long run and rob us of profits.

Let’s delve into the different pricing models.

There are a number of pricing models that can lead to success in your business. I am going to list some of them here with a short description.

Try out some of them in your business. See how they work.

I can tell you that I have used many of these as every business needs a number of pricing strategies to optimize profits and ensure that your customers receive value.

Let’s look at some different models of pricing that can increase your profitability.

Anchor pricing: Jewelers know that the best way to sell a $5,000 dollar diamond ring is to put it beside a $15,000 dollar comparative model. In this manner your customers of the $5,000 variety believe that they are getting great value.

Auction type pricing: Now made popular by Ebay, this model works for some sellers in some markets. The key to this type of selling is to have your desired profit margin built into your minimum selling price

Branding pricing: This is a pricing model that works well for many successful business owners. Branding pricing essentially means that you have at least two and preferably three similar products in each category.

Bundle pricing: Encouraging your customers to buy more by putting products suited to your target market together in a package for sale can increase profit dollars.

Commodity pricing (sometimes called going rate pricing): Your focus to increase profitability is going to be to focus on differentiating your product or service offerings so that you can sell some additional products you can get more margin on or reduce your costs to increase your margins.

Discount pricing: In my eyes this is a rush to the bottom of the barrel and a quick way to go out of business.

Geographic pricing: The fact is that certain markets are willing to pay more for products.

High-low pricing: This is a pricing model that most people are familiar with. A business will have a regular high price but put products on sale to encourage customers to come in and buy more frequently

Premium pricing: You know if you walk into a boutique that you are probably going to be paying a higher price for a product than a similar product in a grocery store.

However you are also going to get better service and a higher quality product.

Sometimes the perception of quality is enough to demand premium pricing.

Price endings with nine: There is research to suggest that prices ending in nine will outsell prices ending in five by up to 24 per cent in some cases.

Seasonal pricing: Everyone knows that if you are selling flowers the price you can get for a bouquet of nice flowers is going to be different in November than it will be on Valentines or Mother’s Day.

Do you have products that are seasonal or in more demand at certain times? Can you figure out a way of getting more margin through your buying and pricing models?

Subscription pricing: Would you rather spend $1,000 per year or $83.33 per month?

Value pricing: Ikea is a prime example of this. They offer a fairly high quality product at a value to the consumers.

Remember every business is unique, pricing your products are important way to ensure that you are profitable. Without being profitable your business won’t be able to serve your customers, your community or your family for very much longer.