Pricing strategy is paramount these days as we face an unpredictable economy with limited future visibility. It’s part of a broader strategy, of course, but one of the first things that executives jump to when prices come under fire.
Note the different approach to this subject from an AP story carried in today’s SF Chronicle identified opposing trends for the entertainment juggernauts of Las Vegas and Disney. Vegas has focused on building a premium product over recent years and the metrics bear that out. Gambling in Las Vegas today accounts for 41% of revenues while 58% comes from the sale of rooms, beverages, shopping – the exact opposite from the 1990-91 recession. But, gambling revenue was down 4% in the first 2 months of 2008 vs. one year ago, which is only the 2nd time since 1970 that gambling revenue declined (the other following 9/11). So, the Las Vegas gamble on going upstream with fewer freebies and discount rooms and meals, may not be very resilient in a struggling economy. With 135,000 rooms in Vegas and another 40,000 rooms being built, the challenges are significant.
Contrarily, Disney has moved downstream to focus on more strategic pricing to make it less vulnerable to an economic downturn. It offers very competitive, strategic pricing with about 75% of its rooms today considered moderate or value-priced vs. 55% that were marked as premium priced in 1991. Result? Disney’s Q2 earnings are up 22% and parks and resort revenues are up 11%.
It’s a fascinating time for businesses to flex their strategy and see how resilient it is to an economic downturn. For another twist on innovative strategy, see my blog post on the F.A.O. Schwarz and Macy’s partnership.