And attempts to maintain profit margins by giving products a premium shine aren’t guaranteed to pay off.
Understand inflation and how it affects you
Six Flags, the theme park operator, recently transitioned to a premium model by raising prices and capping discounts in what Selim Bassoul, the chief executive, described as “bold changes to our business model to improve the guest experience.” So far it has had mixed results. In the nine months to September, visitor numbers at the parks fell 25 percent year-on-year, spending per guest rose 22 percent, and profits ended up falling nearly 10 percent.
In January, The Walt Disney Company acknowledged that it may have pushed prices down too hard at its theme parks and upset loyal customers. It revised its policies on ticketing, hotel parking, driving photos and annual passes.
But the shift toward premium products could signal the start of a more lasting change as companies in a fractured economy adjust to the habit of selling smaller volumes at higher prices — a strategy that could leave poorer consumers worse off.
Take the US auto market. At the end of 2017, 36 models cost less than $25,000, and the proportion of cars costing as much or less accounted for nearly 13 percent of all new car sales, according to an analysis by Cox Automotive. At the end of last year, only 10 models had such low starting prices, and their sales share plummeted to under 4 percent. Subprime buyers are increasingly exiting the market, suggesting that poorer people, who tend to have lower credit ratings, are struggling to gain a foothold.
Automakers may be cutting cheap models in part because it’s difficult to justify the cost of making them at a time of expensive parts and persistent labor shortages, said Jonathan Smoke, Cox’s chief economist. However, they are expected to continue to focus on larger-ticket models while resisting ramping up overall vehicle production to levels that could lead to price discounts, even as supply shortages ease.
“They’re better off selling less and retaining their pricing power,” Mr. Smoke said. That could spur rivals to jump into the market to offer cheaper cars, but such an adaptation likely won’t happen quickly.
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