Why Is The Business Model Important In The Success Of A Pricing Strategy 🪤
Discounts are commonly used by businesses to attract customers and drive higher sales and revenue. Yet, it is evident from repeated instances that even significant discounts may not always accomplish these goals, particularly when the underlying business model is problematic. This highlights the importance of addressing core business issues alongside pricing strategies. So, why is a business model important in the success of a discount pricing strategy?
Many companies face challenges with their business models and pricing strategies when they focus solely on offering discounts to attract customers without addressing fundamental issues within their operations and product offerings. This shortsighted approach often fails to create long-term value or sustainable growth, as the underlying problems, such as product quality, customer experience, or alignment with evolving consumer preferences, remain unaddressed.
In this article, we will examine the alignment of business models with evolving customer preferences. We begin by critiquing Disney’s recent pricing strategies and business model. Subsequently, we offer solutions for improvement and provide insights for other companies to avert similar challenges. Our central argument is that significant price reductions alone cannot drive sales without a business model in harmony with customer value.
At Taylor Wells, we believe that pricing strategies should be in line with a well-designed and customer-focused business model that caters to evolving customer needs and expectations. By the end, you will learn how to utilise customer-driven insights to rectify a flawed business model.
Why Is The Business Model Important?
In the dynamic landscape of business, having a well-defined business model is imperative for sustained success. It serves as the compass, providing strategic direction, ensuring efficient resource utilisation, and ultimately driving profitability. Let’s delve into the significance of business models, drawing insights from media, amusement, and entertainment companies.
A robust business model acts as the cornerstone of strategic planning, guiding organisations through the complexities of market dynamics. For instance, in the realm of media, companies like Spotify leverage a freemium model. By offering a free tier supported by ads and a premium subscription with enhanced features, they strike a balance that attracts a broad user base while generating revenue, showcasing the adaptability and strategic planning inherent in successful business models.
Examining successful media giants like Netflix illustrates the profound impact of a well-crafted business model. By offering on-demand content through a subscription model, Netflix not only anticipates consumer needs but also adapts swiftly to market changes. This foresight enables them to outpace competitors, showcasing how a finely tuned business model propels companies to unparalleled success.
In the realm of entertainment, customer-centricity is paramount. Take Amazon Prime Video as an example. Their business model seamlessly integrates e-commerce benefits with entertainment offerings, creating a holistic experience for subscribers. By understanding and meeting customer desires, Amazon Prime Video exemplifies how a customer-centric business model can thrive in the ever-evolving landscape of entertainment.
Why Developing A Strong Business Model Is Important?
Innovation is the lifeblood of thriving businesses in the media and entertainment sectors. Consider Spotify’s inventive approach to content discovery. Through machine learning algorithms and personalised playlists, they redefine how users engage with music. This innovative business model not only enhances the user experience but also sets Spotify apart in a crowded market. Embracing creative solutions in content delivery, as exemplified by Spotify, illustrates the vital role of innovation in shaping successful business models.
While innovation is key, avoiding common pitfalls is equally critical. Many media companies fall into the trap of overlooking changing consumer behaviours. Blockbuster, once a giant in the entertainment industry, failed to adapt its business model to the rise of digital streaming. By not foreseeing the shift in consumer preferences, they serve as a cautionary tale. Acknowledging and learning from such mistakes underscores the importance of staying attuned to market trends in business model development.
Crafting a robust business model demands a strategic mindset. Take HBO Max’s integration of content variety and exclusive releases, providing a compelling value proposition. To develop a similarly strong business model, companies should prioritise understanding their target audience, continuously adapting to market changes, and fostering a culture of innovation.
What Is Wrong With Disney’s Business Model?
In a bid to attract more families, Disneyland has announced a new pricing strategy that will see children’s ticket prices slashed by over 50%. Starting on October 24th, families can snag tickets for their little ones, aged 3 to 9, for as low as $50 per child per day. Current prices start at $104. This offer will be valid for visits between January 8th and March 10th at either Disneyland or Disney California Adventure. Meanwhile, adults will need to secure their full-priced tickets separately.
The promotion covers 1, 2, or 3-day ticket packages, allowing flexibility for families planning their Disney adventures. There are no blackout dates, and tickets will expire 13 days after the first use if purchased for multiple days, giving visitors a two-week window.
Nonetheless, critics argue that the deep discounting strategy will fail to sway numerous conservative parents into supporting the company.
The ticket price cut coincides with the park’s loss in a class action lawsuit, which accused Disney of employing deceptive methods in distributing reservations to annual pass holders.
Criticism of the park isn’t solely related to dissatisfaction with its services but also extends to Disney’s recent content. A recent Disneyland visitor expressed reluctance to return to the park, citing concerns over Disney Pixar’s upcoming movie “Wish,” which portrays a God-like character as the antagonist.
This sentiment follows earlier controversy surrounding Disney’s Snow White remake, with David Hand, the son of the original film’s animator and director, criticising the “woke” elements introduced in the new version as an insult to his father’s work and a departure from the beloved classic’s concept.
Seemingly, then, even massively discounted ticket prices won’t entice parents to take their kids to Disney’s fun parks or to watch Disney films. A case example of how pricing can’t fix a broken, dying or woke business model. ‘Go-woke- go-broke’ as the saying goes.
Discussion On Why Business Model Is Important And How To Align It With Customer Value
The synergy between a business model and pricing strategy is paramount in achieving sustained success and profitability. In the case of Disneyland’s discounted ticket offerings, the disconnect between the perceived customer value and the pricing strategy has been striking.
For instance, while Disney may believe that reducing child ticket prices should naturally lead to higher sales, the negative customer feedback suggests a misalignment between the discount-driven pricing strategy and the customer’s perceived value. This mismatch can deter potential visitors, ultimately hampering the company’s revenue generation.
To illustrate, the controversies surrounding Disney’s film content, such as the perceived “woke” elements in their movies like “Wish” and the Snow White remake, can influence customer decisions to visit the theme park. This disconnect between their business model, which includes both theme parks and movie production and their pricing strategy can result in underwhelming results.
Achieving harmony between the business model and pricing strategy requires a thorough understanding of customer expectations, competitive positioning, and overall value proposition, which should guide pricing decisions that are conducive to long-term success.
To truly captivate a customer base, pricing must be justified by customer-focused offers. Offering discounts alone is insufficient to boost sales; there must be tangible value in the experience.
Why is a business model important? How do companies appeal to changing customer interests and preferences?
1. Customer Research: Conduct comprehensive market research to gain insights into evolving customer interests and preferences. For instance, Disney could analyse customer feedback and trends to understand what themes, characters, or experiences are currently in demand, enabling them to adapt their business model accordingly.
2. Value Proposition Alignment: Ensure that your business model is aligned with the value customers seek. For example, if customers prioritise immersive experiences, like the Star Wars attractions at Disney parks, then adapting the business model to emphasise these experiences can be crucial.
3. Pricing Strategies: Revise pricing strategies based on customer expectations and perceived value. Businesses can implement dynamic pricing, like Disney’s variable pricing for tickets, to match demand with appropriate pricing, ensuring customers see the value in what they’re paying for.
4. Flexibility and Innovation: Maintain the flexibility to pivot and innovate in response to changing customer interests. Just as Disney has introduced new attractions and experiences based on popular franchises, other businesses can continuously adapt their offerings to stay relevant.
5. Feedback Loops: Create feedback loops to stay connected with your customer base. Customer feedback, whether through surveys, reviews, or social media, should inform ongoing adjustments to your business model and pricing strategies. This iterative process ensures your business evolves in harmony with customer interests and preferences.
To realign business models with evolving customer interests and preferences, a series of internal and organisational changes and improvements are imperative. Firstly, a cultural shift is vital. Companies, such as Disney, should cultivate a customer-centric culture where employees at all levels prioritise understanding and responding to customer needs. By fostering this culture, employees can stay attuned to customer feedback and market trends, much like Disney’s Imagineers continuously refine attractions based on visitor experiences and preferences.
Additionally, cross-functional collaboration is crucial.
Organisations must break down silos and encourage departments, from marketing to product development, to work collaboratively. For instance, Disney could have its theme park and content creation teams collaborate closely to ensure that movie franchises and characters are effectively integrated into the theme park experience. This collaborative approach ensures that the entire organisation is aligned towards delivering a unified customer experience.
Our findings show that when a business builds and embeds commercial capability across the business; bolstering its internal pricing skills and capabilities to build a sustainable pricing system, it can generate at least 3-10% additional margin each year while protecting hard-earned revenue and volume. This is at least a 30-60% profit improvement straight to the bottom line.
Furthermore, investing in data analytics and technology is essential. Disney, like other businesses, should utilise data-driven insights and advanced technologies to gather real-time customer feedback and preferences. This allows for swift decision-making and adaptation, whether it’s optimising ticket pricing in response to demand fluctuations or tailoring streaming content based on viewer preferences. Ultimately, these internal changes empower companies to be agile, responsive, and thoroughly aligned with the ever-evolving landscape of customer interests and preferences.
Our findings show that with the right set-up and pricing team in place, incremental earnings gains can begin to occur in less than 12 weeks. After 6 months, the team can capture at least 1.0-3.25% more margin using better price management processes. After 9-12 months, businesses often generate between 7-11% additional margin each year as they identify more complex and previously unrealised opportunities, efficiencies, and risks.
In conclusion, the interplay between business models and pricing strategies necessitates precise alignment with changing customer interests. As demonstrated by Disney’s recent discounted ticket offerings, substantial price cuts alone may not drive sales when the business model doesn’t resonate with customer value.
To tackle this, companies should conduct thorough customer research and reevaluate their value propositions, implementing flexible pricing strategies. It’s crucial to foster a customer-centric culture, encourage cross-functional collaboration, and embrace data-driven insights for swift adaptation, just as Disney’s Imagineers continuously refine park experiences.
In today’s dynamic business landscape, staying in tune with evolving customer interests is not just strategic but a competitive advantage. By harmonizing well-crafted business models with responsive pricing strategies and adopting internal changes to enhance adaptability, businesses can position themselves for sustained growth and success in the ever-changing marketplace.
For a comprehensive view of building a great pricing team to prevent loss in revenue, Download a complimentary whitepaper on How to Improve Your Pricing Team Performance.
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