Pricing strategy: Bread and rollercoasters ~ Brand Mix

Tuesday, April 21, 2009

Pricing strategy: Bread and rollercoasters

Photo: (obviously) me

We made our annual, I was going to say pilgrimage but that doesn't sound right so, trip to Discovery Kingdom on Sunday. We always enjoy our visit and this year was no exception. I think that the park manages to stay the right side of the experience delivery vs. revenue extraction equation. Providing some restaurant-branded (Johnny Rockets) food choices has helped because this was one area in big need of improvement.

Anyway, what caught my attention from a pricing perspective was the extreme incentive offered to buy a season pass. As you would be able to see from the photograph if I'd taken a better shot, the price for a season pass is $49.99 and general admission is $44.99. For only $5 more you can go an unlimited number of times to the park. That's a big difference from other venues like ski resorts where the season pass only pays out after the fourth or fifth visit.

I assume that this pricing incentive comes from the fact that, like movie theaters, the park makes most of its money from concessions and gift shops and therefore wants to cram as many people in as possible to maximize revenues. I wonder if they do, or even can, work out how much people's experience of the park is affected by having to wait in longer lines for the rides or having to pay exorbitant amounts for the food, the two downsides to this strategy?

On to bread. Back in the city I went to Lightening Foods for lunch, an eaterie known for its extremely garlicy Caesar salad. It used to offer an individually wrapped Italian roll free with the salads. No more. Now those same rolls cost 10 cents which the cashier has to tell every single person who picks one up to make sure they know the change in policy. As he told me, rather than increase the price of the salads: "We decided to do away with all the free stuff."

I think that was a bad idea for three reasons: a) I imagine that the price increase on the salads which would have generated the same revenue as the 10 cents on the rolls would be hardly noticeable (especially since most of the salads are sold by weight; b) People love free stuff. These free rolls sent a strong message and c) I feel bad for the cashier.

For both the park's season passes and the eaterie's free rolls, the pricing decisions taken have hard-to-measure downsides. I don't know about these two cases specifically but my experience has been that things not easily quantified are easily discounted, often leading companies to make decisions that look good on a spreadsheet but not so great on the ground.

1 comment:

Rags Srinivasan said...

Nice talk today at Haas.
Regarding amusement park pricing, you are correct about the parks maximizing "customer margin" - the profit they make from all transactions inside the park. Besides it is a schlep to go to these parks, there is parking, planning, managing kids. Not everyone is going to do this trip more than 2 times. For the parks it is all fixed cost so enticing the customer with a low season pass gives them $5 for sure and more.

Regarding charging for bread stick, it is product/service unbundling and it is happening everywhere. The Airlines are doing it. I was SeaWorld over spring break and saw the dressing was charged separately from the salad. I do not fully agree with you tat unbundled pricing is bad. If some customers did not want the bread now they have the option. But unbundling is not the right approach to every product as it can erode the brand value.

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