Disney discounting expected to maintain attendance at cost of lost revenue

Posted Monday, May 4, 2009 3:14 PM | Contributed by Jeff

Scores of vacationers who have visited Walt Disney World this year underscore the trade-off Disney's theme parks are making as they battle the worst economy in at least a generation. Steep discounts — primarily on hotel rooms, but also on tickets, food and merchandise — have helped Disney prop up attendance despite the downturn. But they have also eroded the company's ability to make money off those crowds.

Read more from The Orlando Sentinel.

Monday, May 4, 2009 3:17 PM

The angle that I think the article might be missing is that an unintended consequence is getting people in to the resort who might not have otherwise. What if that compels them to come back a year from now or later when things are better? It seems to me you might be gaining customers in the long run.

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Monday, May 4, 2009 4:04 PM

Agreed. I took a 8 day Disney vacation in February in leiu of a cruise, and I had a pretty darn good time. I would do it again.

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Monday, May 4, 2009 5:32 PM

I totally agree with that. After going last year, I wasn't planning on returning for 3 or 4 years. I got an email from Disney about the deep discounts, and now I'm seriously considering returning this year.

Free dining plan, value resorts for a little over $80/night, kids 9 and younger get free tickets and free dining plans of their own, and I can fly there on Southwest for 79 bucks. Don't know when I'll be able to do Disney like that ever again. I may take them up on it. They may not be getting full price from me, but they wouldn't have gotten anything otherwise.

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Monday, May 4, 2009 11:01 PM

But the flip side to that is price integrity.

When everyone sees (or takes advantage of) these deals where kids are eating and getting in for free and rooms rates are low and you can essentially get almost half off of your vacation what happens when things go back to 'normal' pricing.

Suddenly, it's harder to get people to pay the higher prices and see the value of returning down the road when the last time they visited it was half the cost.

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Tuesday, May 5, 2009 12:44 AM

Funny, I had started posting something along these lines in the GL/SFWoA thread. But here goes anyway, the "short but sweet" wersion of the argument...one that's come up for us at work recently.

Infrastructure. Economies of scale are obtained when you're willing and able to spend money to support a large infrastructure. GL from the sound of things didn't have it on the scale needed to support a large park when SF came in, and exploded without the capacity it needed. Disney has it. They've built it. Massively. Costs a LOT to maintain. So they need to have a high occupancy rate at the hotels, and they need to have the parks full, etc. Just to cover "operating expenses".

My connection back to GL is that the expansion caused the normal operating expenses to skyrocket, whereas the attendance peaked quickly and then wasn't around to KEEP funding the place enough to cover the higer expense plateau. And then it turns into a much more massive scale problem when the name out front is Disney.

Last edited by rollergator, Tuesday, May 5, 2009 12:44 AM
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Tuesday, May 5, 2009 9:26 AM

Jeff said:
The angle that I think the article might be missing is that an unintended consequence is getting people in to the resort who might not have otherwise. What if that compels them to come back a year from now or later when things are better? It seems to me you might be gaining customers in the long run.

From the article:

But at a conference in March, Disney Co. Chief Executive Officer Bob Iger said he was pleased with the results, and he has said the company is willing to accept lower profit margins if that keeps its theme-park turnstiles clicking — and keeps exposing consumers to Disney's world-famous brands

I think Mr. Iger it sying exactly that. He wants people to see the Disney name in the hopes that they will later consume more Disney products. I always thought of the theme parks as the product themselves, but it seems like Mr. Iger (at least additionally) views them as a marketing opportunity.

My first inclination when seeing the headline was more along Gonch's usual line of "Less people at higher prices". But viewed through the tint of the parks being (at least partly) a marketing tool to later sell DVDs, plushies, etc., it seems to make sense to "put butts in the seats", even if you dont make as much upfront. Doesn't hurt that it keeps those butts out of you competitor's parks eithers.

Once again, Disney is the smartest kid in the class.
lata, jeremy

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Tuesday, May 5, 2009 9:43 AM

One of the Disney Bus drivers said it best to me one time I was down there, Disney is Disney because of the parks. Without them, they are just another movie studio no different from Paramount, WB, Universal. There is a reason that all of those studios have (or had) a park at one time, they saw how wildly successful Disney was at making his brand synomous with America and Fun because of Disneyland/Disney World.

The parks really should be viewed as one giant marketing possiblity.

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Tuesday, May 5, 2009 10:12 AM

But the flip side to that is price integrity.

If you look at the promotions, though, *admission* is barely discounted at all. Sure, you get three days free after buying four, but those three days were only worth $9 or so to begin with. So, gate integrity is maintained. I'm not aware of any "kids get in free" deals, but I might have missed that. What they do discount are the room rates and the food.

Disney's basic resort philosophy is that they'll price the rooms to fill them, more or less no matter what. They have a year-round occupancy rate of 90%, and that's pretty phenomenal. Essentially, when travel demand to central FL drops, they just lower their resort prices to cannibalize all the off-site leech resorts. When travel demand recovers, they can recover price, as well. The bargain-hunters can go offsite for the $40 HoJo's special, and Disney won't really care, because their rooms are filled by the overall rising tide of demand, and at room rates that have recovered.

This isn't Disney's first rodeo---they did exactly the same thing after 9/11, discounting during the lull, and recovering afterward. They were able to recover (and surpass) their RevPAR numbers as demand recovered. Essentially, the offsite hotels act as the sponge to soak up excess demand, but only after The Rat takes its cheese.

The food angle is a different deal, and has been going on for several years now, well before the current unpleasantness. That was originally a mechanism to deal with a slow season, which is hard to market even in the best of times. This is late August into very early October, possibly one of the worst times for the Resort. It's hurricane season. Kids are back in school. The weather in central FL is just nasty hot and humid---most rational people would rather be almost anywhere else that time of year. So, Disney gives away food, but only if you pay rack rate for the room. Oh, and you also probably are going to be buying park admission, too. When the weather gets a little less hideous in October, they switch to the Food & Wine marketing angle to fill the resort up with empty-nesters and DINKs.

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Tuesday, May 5, 2009 10:39 AM

2Hostyl said:
I think Mr. Iger it sying exactly that. He wants people to see the Disney name in the hopes that they will later consume more Disney products. I always thought of the theme parks as the product themselves, but it seems like Mr. Iger (at least additionally) views them as a marketing opportunity.

Yeah, I read that, but it wasn't really what I had in mind. You can buy Disney "product" pretty much anywhere, but what I was referring to was the theme park experience. Someone who might be priced out of that kind of vacation may find it "worth it" for subsequent visits if you can just get them in once.

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