Pricing and Revenue Management

How to Communicate Pricing

After you have researched and created a strategy, how are you supposed to communicate pricing to consumers? A well-designed pricing strategy will provide inherent levers to help move consumers along the continuum of products and services available for sale. Pricing communication strategies are essential to gaining incremental demand.

To ensure successful implementation, pricing communication needs to be clear, consistent, and compelling. This article will explain how to communicate pricing to consumers for optimal results.

Establish Clear Communication

Regardless of how or where consumers engage, what they will receive for the price they pay must be transparent. If a product doesn’t include a feature or benefit the consumer expected, they will be disappointed and perhaps lose trust. Are the batteries included? Does a charger have to be purchased separately? Does my telecommunication plan include international calls and data? On the flip side, if the product or service contains features that are not apparent, you are at risk of losing a potential sale or leaving value on the table. Do your guests know breakfast is included with the price of the room? Is it clear – before getting to check-out – that your products ship for free?

Research has shown that brands that score high on the “decision simplicity index”, which measures how well the brand aids navigation, builds trust, and makes it easier to weigh options, have a higher likelihood of purchase. Prices need to be readily apparent, whether purchased instore, online, on a mobile device, or by phone. The price of a product is an important factor considered when evaluating a purchase, and consumers are generally both time and patience constrained. On physical products, having prices large enough to read and not obscured by other information is critical. The description on the shelf needs to match what is on the item.

Too often, bar codes or abbreviated key codes appear on shelf prices. While it may be the number of record for internal inventory control, that information may be frustrating for the customer to decipher and figure out.

 

Focus on E-commerce Communication

On the web, regardless of the product or service being sold, reducing the number of clicks to reach pricing information is paramount. If selling products or services that can be customized by the purchaser, make the path to purchase simple and intuitive. Pricing grids, where all the options can be laid out side by side, with clear indication of differences and benefits among various products and services, work well for many categories. Not only does it do the legwork for the consumer, but most pricing grids can be reached on a website in just two or three clicks, a critical factor for time-starved consumers.

When communicating pricing information, be sure to simplify. State what is critical to know, but steer clear of overwhelming consumers with every minute detail. Speak in the consumer’s language.

 

Communicate Consistently

In an omni-channel environment where consumers can engage through mobile, online, or brick and mortar – all in the process of purchasing one product – it is non-negotiable that communications regarding price are consistent. This is not to say that the actual price needs to be the same in all channels, just the message around why the price is what it is. For example, many attractions sell tickets online at a reduced price to secure commitment. This is not only acceptable, but a great practice in competitive markets. What is important is that consumers know the real price as well as the reduced price for purchasing online or via mobile.

Often times in an effort to update all channels when price changes are made, we forget one of our most valuable resources: our employees. The team directly responsible for selling either by phone or in-person is often the last to know of price changes. Not only do they need to be informed, but they need the right message points as well, which brings us to the importance of “marketing” the pricing. We learned this when implementing Walt Disney World's "Magic Your Way" pricing strategy. 

Make Sure the Message is Compelling

Your products and services have a story and that begins to bear tangible fruit when it comes to pricing power. When communicating your pricing, ensure the story is not lost in translation. Rather, lead with the story. TOMS shoes (or eyeglasses) takes a bold and heart-wrenching approach with the One for One promise. For every pair of shoes purchased, TOMS donates a pair of shoes to a needy child. Powerful. It makes you feel good about your purchase, even though you may find the same shoes for a lesser price elsewhere. Or consider Chick-fil-A.

Small soft drinks or soda run about $1.35 while lemonade is 20 cents higher. Why? Because it is fresh-squeezed lemonade and Chick-fil-A makes sure you know that. Or RedHead socks. They come with a lifetime guarantee. If your socks ever wear out, they are replaced for free and RedHead knows that’s an unusual promise for socks. Still not a convert on the power of story? Check out Rob Walker’s anthropological experiment on the SignificantObjects website.

Compelling value messages are real. When shopping for cookware on the Williams-Sonoma website, I ran across a cookware set from Calphalon – a 10-inch fry pan and 3-quart saucepan. The “suggested” price (completely meaningless without reference on where the suggestion originated) was $375.00 while “Our price” was $99.95. What would have been much more useful – and compelling – was the true “savings” I had to discover on my own. The fry pan standalone was $89.95 and the same saucepan if purchased separately was $99.95.Williams-Sonoma failed to grab my attention with “Buy a three quart saucepan and get a 10-inch frypan for free” or “Save over 45% with the purchase of both a fry pan and saucepan.”

The Takeaway

Communicate your prices in a clear, consistent, and compelling way. Consumers are time-starved and overwhelmed with options. The more you can do to facilitate the path to purchase, the better.

 

For more information on pricing strategy and how we partner with brands across the globe, please contact us at info@integratedinsight.com

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Schedule a free consultation to discuss your business needs.

why companies need to focus on pricing

Why Focus on Pricing?

It is important to focus on pricing to achieve profitability. Increasing revenue will help alleviate some of the cost pain for business owners. Marketing and penetration strategies can increase demand, but an effective pricing strategy with rate improvement can be more impactful to the bottom line. On the flip side, decreasing price or even holding on price to try and retain or capture more market share is a risky proposition.

The team at Integrated Insight is responsible for the pricing strategy behind Walt Disney World’s Magic Your Way – the most sweeping pricing strategy in WDW history with an increased net income of 20%.  Let’s take this expertise and examine the impact of pricing to understand how it can help your business.

The Power of Pricing

It is often said that a 1% increase in price realization equates to a 5% to 10% improvement in net income, depending on a company’s cost structure. That certainly gets your attention, but exactly how does it work? The reason pricing can be so impactful is that is has little overhead cost associated with execution, and for many products and services, little price-elasticity experienced within reasonable price changes. 

Consider the following example. Joe’s Cigars offers a variety of imported cigars, and on average they sell at about a 50% markup for total revenue of $50,000 per month. In addition to cost of goods sold, Joe incurs about $10,000 a month in operating expenses, mainly the rent on his store, salaries, supplies, etc. leading to a monthly profit margin of about 13%. For the purpose of illustration, assume Joe takes an across the board 1% price hike. Note: This may not be the best strategy to deploy given some products likely sell better than others and different consumers may spark to different products. With all costs remaining the same, and assuming no loss in demand from the price increase, the additional $500 in monthly revenue flows straight through to net income, increasing by 7.5% for the month.

So why not raise the price by 2%, 3% or 10%? Your business might very well be able to absorb higher increases with little or no penalty, but before ingesting the pricing drug, consider that a long term, sustainable pricing strategy is really what you want to achieve. Leading with the consumer and their specific wants and needs will likely result in even higher profits. Seldom is price gouging a long-term strategy. The point is that there is power in pricing and developing this discipline is well worth the investment.

Why Holding on Price in the Long Term is a Bad Idea

Some small businesses are shy about taking price increases. More than once I’ve received the letter of apology from a provider, stating that they haven’t taken a price increase in several years, but now need to pass on some of the cost of doing business to their customers. Arguably, passing those costs on with an annual price increase is less painful for both the company and consumers. As a consumer, I really haven’t given you credit for not raising price – in fact, it wasn’t even a fleeting thought – but now I find myself reacting to a rather strong increase I wasn’t expecting – an unwanted surprise. 

But neither is it an appealing option from the company’s perspective. Let’s say that to achieve his $50,000 in monthly revenue Joe sells 2,500 cigars at $20 each. Consider that costs of goods sold and operating expenses are both likely increasing annually at the rate of inflation, and for illustration, let’s say inflation has averaged 2% per year. After four years of inflation and no price increase, Joe loses over half his monthly income – $3,572 – unless he realizes stronger sales. Joe would need to sell 1.8% more cigars each year, or a little over 7% more for the four years combined, just to break even.

If demand is rising, it is easy to ignore pricing, or go without a price increase, because revenue is still growing at a healthy rate. But often times, businesses fail to consider the reason behind their changes in demand. Have more customers moved to the area? Did a competitor go out of business? Did your own product improvements drive demand? Or, are customers flocking to your business because they know you are holding your prices. That last one is a stretch. Revenue growth shouldn’t be an “or/else”, meaning drive volume or rate, but not both. It can and should be a “both/and.” Drive demand, but take price as well.

 

And If Holding Price is a Bad Idea, Dropping Price is Even Worse

Demand is waning and desperation sets in. Sooner or later, someone calls the question: “Should we lower our price?” Reducing price as part of a promotional offer, coupled with the necessary sales and marketing support, can often help stimulate demand in the short-term. (For more on promotions, see “Promotional Pricing”.) But seldom does a permanent, non-offer driven reduction work unless price was truly the issue for lack of demand in the first place. Therefore, the first step should be research to understand why demand is waning and address the true cause. 

The second step is to understand the impact of a price reduction – what do you have to believe will happen to make it pay off?

Consider Joe’s Cigars once again. While the upside to pricing can be powerful, the downside can be risky and brutal if your assumption that a price reduction will permanently increase demand is wrong. If Joe takes a 5% reduction – arguably too little to catch consumer attention – he immediately loses over a third of his profit unless new demand materializes. In fact, Joe needs to see a 5% increase in sales just to break even. But why take the risk for a break-even proposition? More likely, Joe is looking for an 8%-10% increase in sales from his 5% reduction.

Consumer Perception

Now consider how consumers might respond to the price reduction. You’ll likely announce the reduction once and in a low key fashion. Some consumers may hear the message, others not. Taking a price reduction does not carry the same sense of urgency, “deal of the century” message that a promotional offer can achieve. And what research have you done that shows a 5% price reduction will be motivating? If demand has fallen for another reason, it likely will not. If price is really the issue, how much of a gap exists in the consumer’s mind? The true target reduction may be much higher than 5%, increasing your risk dramatically.

Rather than across the board price reductions, consider more holistic pricing strategies that price where consumer’s place value, and are structured to respond to specific wants and needs.

For more information on pricing strategy and how we partner with brands across the globe, please contact us at info@integratedinsight.com

How to Develop a Successful Pricing Strategy

The discipline of pricing continues to evolve in many organizations, but often lags the insight and structure found in sales and marketing. Regardless of the size of your business or the amount of internal pricing expertise, having a set of principles to guide pricing decisions will prove beneficial.

The Guiding Principles to a Successful Pricing Strategy

These principles will help your strategy execution by keeping  the focus on the end goal; providing a tool for sorting through strategic options; keeping the customer front and center in the decision process; assisting with price integrity (a critical factor in establishing consumer trust); and preventing reversion to old – and often times, bad – pricing tactics.

Over the past decade, and through the design and implementation of countless pricing strategies, we have become firm believers that leading with the consumer consistently produces optimal and sustainable results. Marrying the consumer’s value proposition with that of the business quickly leads to win-win solutions. It is not unusual to see step-change improvement – double digit increases in net income – when strategies are developed that speak to how consumers think and behave. Yet leading with the consumer is often easier said than done, particularly if pricing has historically been deployed as the stop-gap measure for achieving a budget or goal. These seven principles have served us well, although others may be critical to your specific organization or industry.

1. Develop holistic strategies

Organizational construct can stand in the way of great pricing strategies. Pricing is often done in silos, with each functional line of business determining what is optimal for their particular area of responsibility. This is often in direct conflict with how consumers engage. For example, if I find a great deal on a hotel room, only to discover I’m gouged on restaurant pricing, parking, and resort fees once I arrive, I may do some more digging the next time I need accommodations in the area. Just as consumers expect a seamless experience, pricing should be seamless and supportive of the whole as well.

2. Price where the consumer places value

Understanding where consumers place the most value, among all the products and services provided by the company, is the foundation upon which your strategy should stand. Robust analysis of transactional data will indicate what is happening, but consumer research and insightful analysis will help with the why. Both are important. Consider health plans.

Transactional data will indicate how patients use their health plan insurance, but research will unveil why customers chose the plan they did. What they were seeking, which benefits drew them in, and how they perceived the plan to provide value.

3. Be transparent

You have no choice. Consumers expect transparency and know how to get it, whether your prices are transparent or not. Search engines provide a plethora of opportunity for consumers and companies like Kayak, Nextag, and The Find make it easy to compare and contrast. But you want to be transparent for no other reason than it builds trust. Consumers want to conduct business with companies they trust. Given the cost of acquiring new customers versus keeping the ones you have, your pricing strategy should lead the way in open, transparent practices.

4. Pull consumers into desired behavior

Consumers value choice. The ability to customize and even personalize their purchase to what fits them best is desirable. At times, we try to force solutions to achieve higher per capita revenue, often putting the customer in the position of purchasing something they did not want or need. Take for example, cable television. With hundreds of channels to choose from, we are almost always forced to pick a bundle that inevitably includes channels of little interest. And in defense of the cable company, they are often forced to include channels by the content distributor. Cedar Falls Utilities, based in – you guessed it – Cedar Falls, Iowa – was recently faced with taking on the SEC Network as part of the National Cable Television Cooperative negotiation with ESPN or going outside the cooperative to purchase. Arguably, viewers in Cedar Falls have little interest in the Southeastern Football Conference. Effective pricing strategies can overcome this hurdle and use price to pull consumers into desired behavior, particularly when deployed with a holistic approach.

5. Reward your most valued customers

Loyalty comes with expectations. In turn, keeping loyal customers satisfied creates goodwill for the company and stronger word of mouth recommendations – another win-win proposition.

Developing potential tiers of benefits and adhering to a hierarchy of customer value will help ensure your most loyal customers are treated fairly. This can be more easily said than done, due to the complexity of client sales in some organizations and the tendency to price in silos as mentioned previously. The timeshare industry comes to mind. Long-time owners are now seeing their investment de-valued as resort hotels sell their same size unit at a nightly rate on the internet, for less than it costs them to maintain their ownership through annual maintenance fees and taxes. Not to mention the cost of the ownership in the first place.

6. Maintain or exceed the customer experience

Although at times counter-intuitive, how products and services are priced and packaged can actually improve the customer experience. Such was the case with the Magic Your Way pricing strategy at Walt Disney World, where consumers were given a vast amount of choice after years of forcing them into certain behaviors. Leading with the consumer when developing the strategy itself is the first step to using price to improve the experience, but equally important is how prices and packages are communicated, the ease with a purchase can be made, and the perceived value for price paid.

7. Protect the brand

A good pricing strategy builds upon brand equity. Feeling gouged – for any aspect of the experience – deteriorates brand equity. But so does a fire sale. Selling products and services significantly below their standard price, or expected standard price based on industry comparisons, will make consumers second guess the quality that will be provided. Consider Groupon Reserve. In an attempt to go after higher-end consumers, Groupon has partnered with upscale restaurants to offer significant discounts to Groupon customers. While the offers may indeed bring in new guests who have not previously dined at the restaurant, you cannot help but wonder if loyal guests will be concerned about whom the potential clientele may be, or if their own status is now diminished.

Other principles may apply to your organization. These we have found to be beneficial across a number of service industries, and hopefully, can be a guiding light for you as well.

How Can We Help?

Schedule a free consultation to discuss your business needs.

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successful promotional pricing strategies

Successful Promotional Pricing Strategies

Discounts and promotions, if executed well, are an effective way to help boost revenue. While you want to steer clear of making the “sales” price your everyday offer, discounts needn’t be feared either. It is all about the design, execution, and post period measurement.

The Guiding Principles to a Successful Pricing Strategy

Over the past decade, and through the design and implementation of countless pricing strategies, we have become firm believers that leading with the consumer consistently produces optimal and sustainable results. Marrying the consumer’s value proposition with that of the business quickly leads to win-win solutions. These five guidelines will serve you well in every industry.

1. Plan in advance of need

One of the common pitfalls in implementing promotional offers is waiting too long to act. Once you “see” the need in the current numbers, you are already behind the eight ball. And when rushed, many factors are at risk. There may not be time to evaluate what is the “right” offer to hit the sweet spot and drive enough, but not too much demand. Marketing may not have sufficient time to develop the best creative execution to help support the offer and distribution channels may not be able to respond quick enough. Your customers may also be put in a pinch, with the timeframe to respond suboptimal.

Doing the heavy lifting on promotional planning well in advance – as part of the annual budget process – is highly recommended. If there is a good chance you will run any promotions at all during the coming year, it is worth your time to plan ahead. Develop several potential offers and determine how much demand is needed to make the discount profitable.  Actually pull together a high-level pro forma of what you have to believe. Also select specific audiences that may be good targets for specific products or specific times of the year for each offer. You can also determine the creative execution for marketing the promotion and identify the lead time necessary for development. Likewise, requirements and lead time needed for third party distributors can be determined. Savvy businesses also prepare by identifying the financial resources required and developing contingency funds accordingly.

Finally, you have time to develop a measurement plan that will lead to a robust understanding of the offer’s performance. Once it is determined a discount or promotion is needed, refer to the promotional plan and select what might be the best solution for the current business need. Often times, it is just a matter of determining the final discount price and executing the creative.

2. Target specific audiences and areas of need

Targeted offers should be the norm, not the exception. With a good forecast and advanced planning, most businesses can use strategically placed, targeted offers throughout the year to stimulate just enough demand. Targeting offers to specific audiences has a few advantages. It allows the offer to be customized to that particular audience’s interest or need and can potentially reward your most valued customers. It also provides a natural “fence” for the offer (see Fencing below), allowing the business to solve for enough, but not too much demand at the discounted price.

3. Fence promotion messages to avoid dilution

Fences make good neighbors. They make for good offers too. “Fencing” applies to rules and procedures that keep the offer valid only for the intended audience. Unless you purposefully make your offer “broad” or available to anyone, determine how the offer will be fenced in advance.

Fences can be “hard” fences, whereby the consumer needs to prove they are eligible, or “soft”, where the offer is made available in such a way that the most likely consumer to respond is the one you intended. For example, a hard fence might be an offer targeting only those students who attend a certain college or number of colleges in an area. By showing their student ID, they are eligible for the offer. A soft fence might be an offer sent to select homes via direct mail with a code that can be used once, and which is expired after calling, going online, or entering the store to make a purchase. Granted the code can be given to someone else, but it can only be used once.

4. Create compelling marketing messages

Promotional offers should be designed by a multi-disciplinary team, with the consumer mindset front and center. The offer needs to resonate with consumers to be effective, not just deliver on the required return on investment. Savings or value messages need to be strong and consumers shouldn’t have to do the math. “Save 5%” is seldom motivating even if that is all you need to do. “Save 30%” is more compelling than “Save 29”. “$10 off” is meaningless unless the consumer knows the original price of an item. “Buy two of X and get Y free” only works if X and Y are complementary products, not extra inventory that needs to be dumped. If something is the “best deal”, tell consumers why. How much is being saved?

5. Measure results

Consumer behavior relative to discounts and promotions can be categorized in one of two ways:

- The consumer sees the offer, and makes a purchase they otherwise would not have made.

- The consumer was already planning to purchase the product at the higher price, but now enjoys the discount.

In the former situation, the consumer represents new demand and the purchase is incremental revenue to you. This is what you are hoping to achieve when offering a discount. The later scenario creates what is known as dilution. You gave up potential revenue to someone willing to pay full price. There are also variations of dilution. For example, a consumer may accelerate a purchase – purchase sooner than expected – then continue relative to their normal cadence. This may not be as dilutive as a one-time purchase that is moved up.

Dilution will be present in almost any offer executed, but is acceptable so long as the incremental revenue not only offsets the dilution, but other expenses (marketing, distribution, etc.) associated with execution.

That’s where a good measurement plan comes into play. Seldom can examination of trend data give you the answer as many factors impact revenue trends, not just the offer. By designing promotions with measurement in mind, you’ll be able to collect the data required for analysis. Some useful methods of tracking include customer specific codes to use the offer, special toll-free numbers for calling in a purchase, identification of where the consumer if coming from (IP address, zip code), etc. Also consider primary market research structured to ask the customer about their purchase behavior before and after seeing the offer. This insight, coupled with transactional data and tracking of expenses will help determine if the offer was profitable. Ultimately, you want to execute more of what works well, and be certain not to repeat those that fall short.

For more information on pricing strategy and how we partner with brands across the globe, please contact us at info@integratedinsight.com

How Can We Help?

Schedule a free consultation to discuss your business needs.

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The Making of Magic Your Way

Faced with the challenge of making a week-long vacation at Walt Disney World more affordable and maintaining share in an increasingly competitive theme park market, the principals of Integrated Insight, Inc. designed, developed, and implemented Magic Your Way, the most sweeping change in revenue strategy in Walt Disney Company history. The holistic strategy pulled guests into optimal behavior with the ability to customize their vacation, leveraging the strategic application of non-core assets (such as airport to hotel transportation and food and beverage packages) to improve the guest experience and capture higher spend. With the launch of the new strategy, the cost of an all-inclusive seven night, eight day vacation with meals and transportation was reduced by 36%, enabling many young families to take the vacation they had only dreamed of previously. Dubbed “Disney’s Brilliant Price Hike” by analysts, overwhelming consumer response drove a 20% increase in annual operating income in year one, with year after year revenue gains in high single digits.

Background

Prior to introducing Magic Your Way, Walt Disney World guests had limited ticket options. Disney resort guests were sold tickets packaged with their room, good from day of check-in to check-out and fully loaded with water park admission and the ability to hop from park to park in a single day. Resort guest tickets were valued similarly to tickets purchased at the gate, but expired at the end of the guest’s stay versus holding their value for future visits. The forced expiration, coupled with features and benefits some did not desire, resulted in inferior value for arguably Disney’s best guests. For guests choosing to stay elsewhere, ticket options were limited. Guests could either buy multiple, one day passes, or a 4, 5, 6 or 7 day ticket. All multi-day tickets came with park hopping and 6 and 7 day tickets included water parks. There was little monetary incentive to buy more days, but unused days did not expire. As a result, the unauthorized resell market was booming, selling the most desired ticket combination – 2 and 3 day passes – that Disney would not sell.

Prior to Magic Your Way, all inclusive meal plans for resort guests were offered close to retail prices and included add-on features with limited appeal, resulting in extremely low penetration. And while Disney provided great on-site transportation, guests who flew needed to pay for a cab or shuttle to the resort, or rent a car that went virtually unused the rest of the week. While aggressive price increases had been realized for a decade preceding Magic Your Way, research indicated some consumers were being priced out of the market, and significant hotel discounts, shorter length of stays and lower occupancy were eroding profits.

Magic Your Way

The holistic Magic Your Way strategy was designed to address the consumer’s desire to customize the vacation that best fit their need, provide strong value for price paid, and pull guests into behavior that optimized Disney’s own value proposition. The most profitable guests stayed in Disney resorts, spent a full week (or more) at the resort and seldom left the Disney complex for other entertainment. To induce longer length of stay, diminishing marginal prices were implemented on tickets, significantly so for four plus day admissions, and made available to both Disney hotel and non-hotel guests. Further, consumers could now purchase the coveted two and three day tickets. The “base”, no frills ticket provided an excellent cost per day, less than $29 on a 7-day ticket, or half the price of a one day. To minimize the revenue risk on longer duration tickets, a $5 or 9% increase was taken on the one day ticket. Tourists opting for one day tickets were generally on shorter length of stay vacations and less price sensitive, but the significant one-day price hike was still a risk. In addition, water park admission and park hopping features could be added to any ticket duration and provided significantly lower pricing the more days purchased. If added to a seven day theme park ticket, guests could also visit the water park every day for just five dollars per day. Similarly, the longer the ticket duration, the more valuable park hopping became, enabling guests to move freely from park to park throughout their stay.

Other new products and services encouraged guests to stay in Disney resorts, reducing the need for discounts to drive demand. “Disney Dine Plans” that represented a 40% discount on retail prices were offered to resort guests only, provided the plan was purchased for all nights of the guest stay. “Extra Magic Hours” were implemented – at no charge – to give resort guests additional theme park privileges. Every day, one of the four theme parks would open an hour early just for guests staying in a Walt Disney World resort, and every evening, one of the four theme parks would stay open three hours later. An added benefit was a more optimal spread of demand, with fewer guests in the theme park during the peak afternoon period and stronger utilization of hotel restaurants during the lunch hour. Finally, "Disney's Magical Express" was implemented to provide free round-trip bus transportation for guests and their luggage, from Orlando International Airport to their Disney resort. This tangible savings made staying on-property an easy decision.

The holistic Magic Your Way strategy was a win for guests in many ways. Not only did they now have choice to plan the vacation that best fit their need, but the price of a Disney vacation plummeted. Comparing a seven-night, eight-day vacation in a Disney value resort pre and post Magic Your Way showed a 36% reduction in price. Families that previously could not afford a stay in a Disney hotel or could not afford the vacation itself were now flocking to Orlando and spending their entire stay with Disney.

For Disney, a 20% increase in net income in year one confirmed the value of marrying consumer insight with strong decision analytics to find solutions that spoke to both the consumer’s value proposition and that of the company. The strategy is still in place today, having delivered consistently strong results year over year, but it also highlighted the importance of organizational alignment and willingness to take calculated risk to achieve transformational change.

The Takeaway

A few factors were most critical to the success of Magic Your Way, starting with consumer research and insights. As with any strategy, it is imperative to understand the motivations and barriers among core consumer markets. For Disney, a strong brand, consistently exceptional service and attention to detail in every story-based attraction and show developed, has made it a “must see” experience for many families. Motivation comes naturally, and seeing your child light up at the sight of Mickey is priceless, but a week of theme parks can be an expensive endeavor. Compounding the expense are competing priorities. The best time for Disney is when children are young, but that is also when families are paying off college loans, building homes, and incurring the expense associated with raising children. It needed to be an affordable vacation now, not sometime later.

Understanding the value proposition was next. Not just the value proposition for the business, but the guest as well. For guests, time with family, magical moments and just the amount of attractions, entertainment and character interactions contained in a day long visit speak to value. The pricing power is in the parks but the fantasy and emotional drivers of value carry over to the Disney resorts, specialty dining and merchandise as well. Disney guests are buying memories and magic no matter what the product or service may be.

For Disney, the closer and longer guests stay, the more profitable they will be. The value proposition for Disney is to capture not only theme park visits, but hotels stays, food and beverage spending and purchases of souvenirs and other merchandise. Thus the introduction of Disney’s Magical Express, given the more captive the audience, the better. From Disney’s perspective, giving away an enticing transportation option would more than pay for itself in improved occupancy and spending. From a guest perspective, it represented true savings.

Implementing transformational strategies typically impact many areas of the business and such was the case for Magic Your Way. Breaking down organizational barriers and aligning the company around the transformation is a critical factor for success. IT was tasked with re-designing ticketing systems, introducing biometrics for every ticket purchase, enabling the selling of new dine plans and packages, and tracking millions of bags for arriving and departing guests. Operations were impacted on every front from theme park hours to new and popular dine plans in fast food and sit down restaurants, to an entirely new luggage handling facility and hundreds of buses a day arriving with multiple families ready to check-in – and expecting their bags to be in their room.

What on the surface appeared to be a complex strategy had to be marketed to guests in a clear, concise and compelling way, quite different from the emotional and attraction based efforts typically produced by Marketing. Likewise, thousands of internal sales reservationists and travel trade partners had to be trained on the new strategy. And while not intuitive, back of house operations were impacted as well. Extra theme park hours meant maintenance schedules would need to be redone, and with stronger demand in restaurants and resorts, purchasing and housekeeping were affected as well.

The organizational alignment probably most impactful was the ability to price holistically – to use all products and services to fashion the most profitable strategy. While responsibility for pricing tickets, hotel rooms, merchandise, food and beverage, and ancillary products and services were previously scattered throughout the organization, post Magic Your Way, all were housed in one cohesive Pricing and Revenue Management organization. No longer beholden to independent profit and loss statements, the Pricing organization was now able to price where guests placed value and maintain reasonable pricing or offer free services where it strategically made sense to do so.

Finally, having the courage to take calculated risk was the key to the successful implementation of Magic Your Way. Like many other strategies, this one was hard to test in real time without going all the way. While research and due diligence on the analytics indicated the strategy would be a success, it was easy to become skeptical and leery of such a large scale change. But significant reward is often the by-product of significant risk and Magic Your Way was no exception. Step changes in business usually require more than just a little tweaking and aversion to risk can easily dilute a strategy and its upside potential.

Having courage to execute when the risk is calculated and clear is often what keeps some of the best innovation from being realized. Leaders want assurance the risk being taken will pay off, and pay off handsomely. Embracing research, approaching analysis with rigor, and leveraging the most skeptical of skeptics to find the holes will help ensure success. All that’s left is a little courage.

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