Why Companies Are Pushing Premium Products With Higher Prices

Six Flags, the theme park operator, recently shifted to a more premium model by raising prices and limiting discounts, which Selim Bassoul, the chief executive, described as “bold changes to our business model in order to elevate the guest experience.” It has had mixed results so far. In the nine months through September, attendance at its parks fell by 25 percent from the year before, spending per guest rose 22 percent and, in the end, profits fell by nearly 10 percent.

In January, the Walt Disney Company acknowledged that it might have pushed too hard on prices at its theme parks, angering loyal customers. It revised its policies on ticketing, hotel parking, ride photos and annual passes.

But the shift toward premium products could signal the start of a more lasting change, as businesses settle into a routine of selling lower volumes for higher prices in a divided economy — a strategy that could leave poorer consumers worse off.

Take the U.S. car market. At the end of 2017, 36 models were priced below $25,000, and the share of cars that cost that much or less accounted for nearly 13 percent of all sales of new cars, according to an analysis by Cox Automotive. At the end of last year, only 10 models had starting prices that low, and their share of sales plunged to less than 4 percent. Subprime buyers are increasingly falling out of the market, in a sign that poorer people, who tend to have lower credit scores, are struggling for a foothold.

Carmakers may be cutting cheap models in part because it is hard to justify the cost of making them in an era of expensive parts and persistent labor shortages, said Jonathan Smoke, chief economist at Cox. But the expectation is that they will continue to focus on bigger-ticket models, while resisting pushing overall vehicle production higher to levels that could lead to discounting even as supply bottlenecks ease.

“They’re better off selling fewer and maintaining pricing power,” Mr. Smoke said. That could spur competitors to jump into the market to provide cheaper cars, but such an adjustment is unlikely to happen quickly.

For now, car ownership could increasingly become the purview of the rich. Fewer new cars eventually translates into fewer used cars. That raises prices and, together with higher interest rates, threatens to shut poorer people out of the market.

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