by Ray Keating
Analysis
DisneyBizJournal.com
September 1, 2022
If you failed to notice, The Wall Street Journal has served up a mini-flurry of stories on the Walt Disney Company in recent days, and there’s some reporting worth highlighting and pondering.
Parks Pricing
First, a piece titled “Disney’s New Pricing Magic: More Profit From Fewer Park Visitors” was published on August 27. The article focuses on what many regular parks visitors and Disney watchers have seen developing, namely, getting more money out of each guest in Disney World and Disneyland. As put in the Journal story: “The results reflect a major strategic shift on Disney’s part, where the company is focused less on maximizing the quantity of visitors and more on increasing how much money each visitor spends, an approach the company refers to as yield management. Improving the visitor experience, the thinking goes, will prompt guests to spend more hours—and therefore more money—at the parks because they are having such a good time.”
Another way to put it is that Disney is raising prices, offering more paid-for services, having people pay for things that used to be free, and eliminating certain services. At one point, it was reported: “Disney’s theme-park pricing is determined by ‘pure supply and demand,’ said a company spokeswoman. ‘No different than airplanes, hotels or cruise ships.’”
That’s interesting because, while Disney obviously has hotels and cruise ships, it certainly isn’t in the airline business, and no doubt, it wouldn’t want to be.
The Journal also reported some numbers on price increases, courtesy of an analysis done by Touring Plan. It found that increases in “room prices, including taxes, at three popular Walt Disney World hotels over the past decade … far outpaced inflation,” and “prices for tickets and certain food items have also climbed faster than inflation over the past decade.” At the same time, it was noted that services for hotel guests have been reined in some, such as extra park hours available for hotel guests.
The article also hit on a hot topic in Disney circles, and that is, annual passholders at Disney parks. The economics of annual passholders versus families taking vacations at Disney parks actually is summed up nicely in the following from the Journal’s story:
“Disney has this love-hate relationship with annual passholders,” said Len Testa, a computer scientist who runs Touring Plans, a travel company that offers apps to help visitors find deals and navigate their trips to Walt Disney World and publishes a popular guide to Disney theme parks.
On one hand, they provide a reliable source of revenue—the investment bank UBS estimated early last year that annual passholders at Disneyland account for about one half of annual visits—but on the other, annual passholders tend to spend less than other visitors per visit, Mr. Testa said.
A typical annual pass holder might ride only one ride during a visit, eat an ice cream cone and walk around for a few hours, taking up capacity that might otherwise be used by out-of-state visitors, Mr. Testa said.
“Those people would have stayed all day,” he said. “They would have eaten multiple times in the restaurants, they may have stayed in the hotel. They would definitely be buying more merchandise.”
From the very start when Walt Disney opened Disneyland in July 1955, Disney parks have always been about an experience, that is, taking people away from their day-to-day lives and into a land of wonder and magic. In business terms, the parks always have been about creating tremendous value for consumers. So, Disney has more of a balancing act than many other businesses. Raising prices can work, as long as customers see an increase in value. But eliminating various services and, as has been evidenced during the struggle to recover from the pandemic, not keeping up in certain areas of well-known Disney quality, such as cleanliness and upkeep in the parks, run counter to the value proposition, again, especially when prices are going up. And regarding annual passholders and vacation guests, the key, of course, is to find the profitable balance between passholders, and their steady revenue streams, and the larger-dollar per-visit guests, who, however, can be less reliable.
Disney “Prime”?
Second, an August 31 Wall Street Journal article carried the title “Disney Explores Membership Program Like Amazon Prime to Offer Discounts and Perks.” The Journal reported that Disney is exploring a membership program that would offer special perks and deals tied to their parks, resorts, streaming and merchandise. As noted in the article, think Amazon Prime, but for Disney and its offerings.
The Journal presented nothing in terms of pricing or timing, only that this avenue for offering value to Disney customers is in early-stage discussions.
According to the report, Kristina Schake, senior executive vice president and chief communications officer at Disney, said the following in a statement: “Technology is giving us new ways to customize and personalize the consumer experience so that we are delivering entertainment, experiences and products that are most relevant to each of our guests. A membership program is just one of the exciting ideas that is being explored.”
What’s the benefit for Disney? It was explained, “Membership programs … help companies better understand customers’ purchasing habits, while offering discounts or perks that encourage them to remain loyal… A membership program could help Disney learn more about its customers’ behavior by collecting data about which shows they watched, trips they took and merchandise they purchased. Ultimately, Disney’s goal is to harness that data to make recommendations based on customers’ preferences, some of the people said.”
Disney Board
Finally, on August 29, the Journal ran another Disney story – “What’s the Right Talent Mix for Disney’s Board?” – which dealt with questions about the company’s board as raised recently by activist investor Dan Loeb. The Journal reported that Loeb’s letter, in part, addressed the make-up of the current Disney board, arguing that “Disney directors don’t have enough experience in digital advertising, the monetization of consumer data and other areas that could help Disney boost profits as the company becomes more technology-focused…”
Interestingly, the Journal noted, “Disney’s board makeup is now thinner on directors leading consumer-facing brands in tech and media. Instead, the board is stocked with executives with backgrounds at manufacturers such as Procter & Gamble, General Motors Co. and Coca-Cola Co., consumer-apparel brands such as Nike Inc. and Lululemon Athletica Inc. and healthcare and biotech companies.”
Given Disney CEO Bob Chapek’s emphasis on technology, talk of a Disney membership vehicle, streaming, and the rising role of tech in the parks, Loeb’s questions might seem to carry weight. Perhaps to a certain degree. But it must be kept in mind that the board hires and fires, and it’s the CEO and his vision that matters.
Tech, Pricing and Value
A more interesting question regarding nearly all of the issues touched on in these and other recent reports is the following: How does Disney advance in terms of technology, shifting demographics and pricing issues, while at the same time, maintaining its long and well-earned reputation for value and customer service? Of course, this combination is attainable – indeed, it must be. But it requires careful attention by those in charge to all aspects of these changes, from technological advancements to improved pricing to not simply maintaining but improving in the areas of value creation and customer service. So far, during the brief Chapek era, this hits me as the biggest unknown.
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Ray Keating is the editor, publisher and economist for DisneyBizJournal.com; and author of the Pastor Stephen Grant thrillers and mysteries, and the Alliance of Saint Michael novels; and assorted nonfiction books. Have Ray Keating speak your group, business, school, church, or organization. Email him at raykeating@keatingreports.com.
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