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No one likes price hikes, but in the case of dynamic pricing, demand-based price lifts and dips could give you more bang for your buck.
Walt Disney Co. DIS, +0.22% announced in a blog post on Saturday that its seasonal pricing plan for one-day tickets would go into effect on Sunday. Popularity of franchises including “Frozen” and “Star Wars” have increased the parks’ already overwhelming demand. The new dynamic pricing strategy increases ticket prices during peak visitor times, like school holiday breaks and summer weekends, and drops prices during low-traffic times like weekdays. At Disneyland in Anaheim, Calif., regular tickets — most regular weekends and summer weeks — are $105, off-season tickets are $95 and peak demand tickets are $119. For the Magic Kingdom park at Disney World in Orlando, Fla., ticket prices range from $105 for low-traffic periods, $110 for regular demand and $119 for peak.
Experts say such a strategy opens up the market to more price-sensitive consumers on the lower end, and helps manage demand — effectively reducing crowds and time spent in lines — on the higher end.
Disney raised base ticket prices in October for lower-tier annual passes at Disneyland and Disney California Adventure, as well as its bi-coastal pass that is accepted at both Disneyland and Walt Disney World.
Read more: Disneyland price shocker: Popular annual pass now costs over $1,000
“We continue to evolve the way we think about managing demand — particularly during our busiest seasons — in order to deliver a world-class experience for our guests,” Jacquee Wahler, a spokesperson for Disney, said in a statement.
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Rafi Mohammed, a price strategy consultant and founder of consultancy firm Culture of Profit, says peak pricing is an effective way to motivate consumer behavior.
He says that Disney’s rollout of a peak pricing strategy has been successful thus far because of its focus on consumer benefit and open communication with customers through things like surveys. The change has been marketed as a way to give more consumers access to the park, rather than boost Disney profits, since offseason prices would make it more affordable for lower-income consumers and higher prices would discourage overcrowding during the peak seasons.
“Price can destroy reputation very quickly,” Mohammed says. “Any time you do a pricing change it’s important to have communication with customers.”
Despite the potential benefits of modified behavior, consumers typically denounce the practice as a way to favor those with more disposable income. And those with higher incomes can also arguably enjoy more flexibility when it comes to dates to go to the park. For example, peak pricing would presumably be in effect during times like Christmas when kids are off from school, while lower-income consumers could be restricted to less convenient times.
Some college sports teams have experimented with dynamic pricing — pricing single-game tickets at real-time market value — with mixed reception. Northwestern University reported a 162% increase in revenue for its 2013 football game against Ohio State University after instituting dynamic pricing and continues to take advantage of that strategy as a way to fill stadiums. On the other hand, the University of Michigan got rid of the practice — which had been in place since 2013 — for the 2015 season after receiving strong negative feedback from fans and decreased ticket sales.
Uber’s surge pricing is an example of how a lack of communication on pricing changes can lead to customer dissatisfaction, Mohammed says. “The most important part is really the rollout and letting customers understand the program,” he says. “Uber started surges but a lot of customers weren’t familiar and just hit ‘yes.’”
Now Uber requires users to type in the amount of the surge to ensure they understand the price increase. The ride-hailing service also received public backlash after implementing surge pricing during a hostage crisis in Sydney, Australia, last year.
Even billionaire investor Warren Buffett dislikes the practice, urging attendees of Berkshire Hathaway’s annual shareholder meeting to use home-renting platform AirBnB to avoid the raised rates at Omaha hotels last year, according to The Wall Street Journal.
The idea that adjusting prices to consumer demand is harmful fails to take into account the value of other factors involved, like time spent waiting in line, says Benjamin Zycher, an economist at the American Enterprise Institute. “It depends on preferences,” he says. “Any system of allocating a scarce good makes some people better off or worse off depending on the method. Queuing favors people who have low time values.”
Detractors of dynamic pricing tend to focus on the high-price aspect and miss the benefits of the lower prices, Mohammed adds. “If you can offer low prices, you can activate dormant customers,” he says. “If you can get customers to come who wouldn’t otherwise come, that’s a big slam dunk for you.”
(This story has been updated.)
