103-Variable Pricing to Shift Demand and Increase Revenues
One of our local snow ski areas has started offering a “no wait” pass for snow skiers on busy days. The pass costs $20. This $20 comes on top of the normal day pass the skier has purchased. This additional pass allows the skier to avoid lift lines by going through the “ski school” entry. Other ski areas have begun charging substantial fees for “close-in” valet parking, while letting most skiers park for free at a further distance from the lift lines.
This variable pricing both reduces demand pressures on some services and increases revenues. These variable price mechanisms have become much more common over the last few years. We see them in airlines, at hotels, sporting events, movies and plays and other venues.
Now the concept has come to art museums. Some years ago, some of the largest art museums in the country learned that it could charge substantial admission fees for special shows. Now some museums are bringing the variable pricing concept to day-to-day operations. Some museums are considering charging a premium for the first hour of every day and on weekends when demand is greater than at other times. Others have noted that special exhibitions become more crowded as an exhibition comes to its end. So, these museums are considering increasing prices as the end of the special exhibition nears. Others are considering charging a fee for those museum-goers who purchase their tickets online in order to avoid lines.
Really, not bad ideas when you consider that many of these museums are under severe financial pressures these days due to the poor economy and falling attendance. And, across-the-board price increases are likely to drive even more patrons away. These, and many other pricing concepts, are available to help you develop your new pricing ideas. Please see the many brainstorming pricing ideas at www.strategystreet.com/improve/pricing.
Most large ski areas in 2022 belong to one of the major season ticket groups, which include many other ski areas. The price for these season passes allows the skier to breakeven after five days or so of skiing at his or her home ski area, with a few blackout days. These major ski areas no longer seem to need to offer special pricing for high demand periods.
Most museums continue to charge premiums for special exhibits. These extra charges might also bring somewhat higher prices for special entry times as well. Before Covid, many museums had already moved from an admission price concept of “pay as you wish” to firm admission prices.
As the Covid pandemic forced museums into lockdown, several institutions tried to supplement lost income by selling tickets to experience their exhibitions online. Visitors to the Louvre and British museums’ websites grew dramatically.
Over the last 15 years or so, many industries have become proficient in using the optional components of a price to raise their prices on some segments but not all the segments in the market. Here are some of those optional components of price:
In a rising price environment, the company may choose among the following Optional Price Components:
- An extra fee on top of the normal variable charge. Illustrative Examples>> The company charges a fee on top of its normal variable charge to improve margins. This extra fee usually reflects a separately identifiable cost in the company’s Performance offering.
- Shorter than normal payment term. Illustrative Examples>> By reducing the time the company allows the customer to pay for the product, the company reduces the capital assets it must carry for the customer.
- Minimum purchase requirements. Illustrative Examples>> This price component assures the company of a minimum amount of sales to each customer or on each transaction. These components require the customers to increase their minimum purchases and pay for any product that they do not take or use.
- Discount Elimination. Illustrative Examples>> Virtually all customer relationships involve some discount offer to the customer. The company may raise its effective prices by eliminating some forms of discount.
- Limits on the usage of the product. Illustrative Examples>> The company may raise its effective prices, especially with customers who use the product intensively, by setting limits on the amount of product the customer may use during a period of time.
For more information on using the four potential components of a price as strategic tools go HERE.
HOW CAN THESE BLOGS HELP ME?
If you face a competitive marketplace, read these blogs. We wrote them to help you make better decisions on segments, products, prices and costs based on the experience of companies in over 85 competitive industries. Much of the world suffered a severe recession from 2008 to 2011. During that time, we wrote more than 270 blogs using publicly available information and our Strategystreet system to project what would happen in various companies and industries who were living in those hostile environments. In 2022, we updated each of these blogs to describe what later took place. You can use these updated blogs to see how the Strategystreet system works and how it can lead you to better decisions.