Joni Newkirk is the founder and CEO of Integrated Insight. She is a former Senior Vice President of Business Insight and Improvement at Disney. She was responsible for anything analytical outside traditional finance. One of the big things was pricing and revenue management for essentially everything Disney sold. They were responsible for forecasting revenue, which included things like daily attendance and a 10-year plan.
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Lead With the Customer
- What is the most important thing you can share about pricing?
- Lead with the customer: understand your consumer and where he places value.
- What is the customer's value proposition?
- How do you marry your company's value proposition with theirs?
- Silo pricing goes back to organizational structure.
- The guest is coming to the destination and experiencing all of the areas.
- They are not looking at it as a transaction with a specific branch of the structure, but rather the overall experience.
- Teams get focused on what they are held accountable for and tend to forget about how the customer perceives the value.
- What is the power of pricing to change a company?
- Pricing, if done well, is one of those things that can add instant value to the bottom line.
- A 1% increase in pricing can lead to 5-10% improvement in net income.
- It takes very little marketing or capital to raise the price.
- Be intentional about pricing, especially if you are taking discounts or running promotions.
- Make sure you measure your price changes to see if it works.
- Target any discount at segments that might not be buying anyway – fence them in!
- There is art, as well as science, behind pricing.
- Why is holding a price for a long time a bad idea?
- The best intentions of doing a favor for your customers can result in a position of not serving them.
- You are dropping your net income if you hold a price for a long time.
- Over time, it may lead to not-smart cost cuts.
- It is hard to make up your pricing if you do not increase it slowly over time
- You end up with a big increase that affects your customers more dramatically.
- Fear is usually why organizations do not raise their prices.
- You decide that your customers will not take a price increase and would go somewhere else.
- You want to price the value of the product you are providing, not just the same product you can buy elsewhere.
- Unrestful markets can create more fear of price increases.
- If you better understand why they were doing business with you, it helps you understand how you can price based on the value.
- Fear comes from the lack of knowledge of the customer's perception of value.
- On the surface, it can appear that Disney sells theme parks.
- In reality, Disney is selling magical memories, quality time with your family, the chance to take your child to a place where they will be awe-struck, etc.; the theme park is secondary.
- All of that represents intangible value and is priceless.
- Every business is different and must be examined holistically.
- When you develop a successful strategy, it cannot always be applied everywhere else.
- Disney World and Disney Land do not use the same strategies.
Magic Your Way Strategy
- Why was black market reselling of a 2-3 day ticket a pricing problem for Disney?
- Disney did not sell a 2-3 day ticket, thinking it would prevent sales of 4-day tickets.
- The aftermarket sales of multi-day tickets took off, resulting in about 10% of the overall traffic.
- Disney looked at where they were making the most money (who was the best customer).
- Someone who stayed at a Disney resort for a week was the prime customer.
- The ticket options did not incentivize people who wanted to stay longer and at the resorts.
- If the customer was willing to spend 5-7 days at the parks, Disney would give you a great price and would benefit from the revenue of food and beverage, photography, etc.
- They separated the water park and other outside-the-park features from the park itself.
- Disney was unintentionally penalizing its best customers.
- The data and research were available to allow Disney to correct it.
- How hard was it to sell Disney management on the new pricing strategy?
- You either had to be in or not in; it was a tough sale.
- Al Weiss was a visionary and willing to take calculated risks.
- He was a cheerleader to help move it up through the company.
- Wickedly smart and financially savvy, he was able to help them work through the various challenges.
- It involved a lot of aspects of the business, including meal plans and transportation, affecting their P&Ls.
- Disney had to price holistically and look at the overall value, rather than the individual departments.
- Joni's team took accountability for the individual metrics of the departments.
- What were the advantages of consolidating pricing management?
- The business lines were able to focus more on delivering the experience.
- Restaurants that had not been full initially were able to talk about adding more.
- After the fact, it was easier because the income increased and it became the easiest ticket to sell.
- Credibility increased as people came to understand that the plan was about the guest and overall success for Disney.
- They were able to move much faster than in the past.
- For example, they developed the “Free Dine” promotion to make the worst performing month (September) better.
- In a siloed environment, that idea would have never been approved.
- Having total responsibility for pricing allows you do the analysis and show why it is going to work.
- What was the impact of Magic Your Way on the price to the customer?
- They started to develop Magic Your Way in 2003 and implemented in January 2005.
- If you were spending your entire week at Disney World and staying at a resort, they reduced the price by about 36% with travel and dining plans.
- Prior to this deal, they did not talk about pricing in advertising.
- A lot more people came because of this affordable option.
- What was the impact of Magic Your Way on Disney's bottom line?
- The first year, they saw a 20% increase in net income due to the strategy.
- Afterward, it was high single digit gains.
- The strategy had longevity, so they were able to continue pricing on top of the new pricing put in place.
- You know pretty quickly if the pricing is going to work, so they knew within 2-3 weeks if it was a win and it came out exactly as they predicted.
- They went to look at the other properties after Disney World's success and looked at them as separate entities.
- If you have the faith to lead with the consumer, you can make sure both the company and the consumer gain value.
Determining Value and Segmentation
- Amy Robles: What are some factors Disney considers when determining value from the customer perspective?
- It revolves around what the customer wants from the vacation, their intent.
- Is it a family that wants to give their children their visit to Disney?
- Is it a big family reunion, with an extended family?
- Is it a couple celebrating a specific intimate event?
- They are all looking for impeccable service, nothing to go wrong and consistency.
- Jan Vuicich: How does Disney determine when the price is too high?
- There is a lot of research that goes into pricing strategy.
- Internally, everyone focused on the one-day $100 ticket, very few guests look at it that way.
- How does the guest use the property?
- The research and analysis of transactional data are very structured at Disney.
- Adrian Simmons: How does Disney identify the market segments and the strategy for each?
- They identify the segments through research, based on behavioral aspects, whether they have been to Disney before, and family composition.
- You could take the same guest and come at them in different ways, for example, how do they look at home?
- They segment according to food and beverage too – is it sustenance or part of the vacation?
- The hotel they are planning to stay in can segment them further.
- Merchandise is another area: are they collectors? are they bringing a gift to someone at home?
- You have to be able to execute against the segments… they have to be actionable.
- What is one of your best stories about creating value for a customer?
- Outside of Disney, she is getting her customers, in general, a 10-30% net income improvement consistently.
- Early on, they worked with a company on a strategy that returned 20% profit the first year and it was the first year that company had made money in 5 years.
- They thought differently and identified several revenue streams that they were not accessing.
- Two years later, they sent a handwritten thank-you note, stating that they were going into a budget meeting and it was going to be better now that they were making money.
- The person who wrote the note went to another company and they are about to kick off a project with the new company.
- Price increases can change lives.
About Joni Newkirk
- Website: www.integratedinsight.com
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