Disney pricing analogy

[Spork24]

Lets say I own a company that makes widgets. And I optimize my manufacturing process to make 10k per year of widgets. Now let's say I can make up to 17k widgets per year maximum with overtime and expediting raw materials.

Now first year I put my widgets on the market for $19.95 and I sell 7,000 of them, I may lower my price to $17.50 to try to make sure I hit my optimum manufacture point. Now the next year I sell 12,000 so I go back to $19.95.

Now the next year I sell 13,000 so I go to $20.99 and invest $250k in expanding my optimum manufacture capacity to 13k widgets per year which will be ready in a couple of years.

The following year I hit 16k and my expansion is still 9 months out. So I add plans to take my expansion to 18k which costs another 500k and will be ready in 2 years. Now I'm still in a predicament because my growth outpaces my ability to manufacture until my expansions are finished. So I plan to raise the price to $25.00 when my marketing director points out that I sell more widgets at Christmas time than any other season. She projects that I could get $30.00 at Christmas without pricing myself out of the market. So I charge $25.00 through October and then raise my price to $30.00.

I didn't raise my price because I'm heartless. I didn't raise my price because I'm greedy. I didn't spit on Walt's grave in the process. I raised the price because the market told me to.

Now I know this analogy isn't perfect, but this is how I see the Disney price issues.

Disney has operational problems, and they are taking steps to fix them. The seasonal price increase and package increase is just a step to buy them some time. Will it be permanent? Likely the answer is yes as long as the seasonal demand is there.

 

[Spork24]

Man, this post is getting crickets, I was half expecting 100 posts telling me I was wrong.

 

[supersnoop]

They're optimizing yield, plain and simple.

 

[DVCcurious]

I think you're dead-on balls accurate (it's an industry term). So there's not a lot to add. If you want to go at Christmas or Easter you'll pay more. If you want to pay less they'll gladly take you in non-peak times.

 

[Oneanne]

I also think you are right on... the challenge though is that Disney doesn't sell widgets, they sell emotions. So fluctuations in price/perceived value are going to elicit an emotional response.

 

[JimmyV]

There is nothing unusual or sinister about what Disney is doing, so I don't think there will be much of a reaction. Anyone who skis knows that a lift ticket on the Saturday of President's Day Weekend costs more than a mid-week ticket two weeks later. It has always been that way. Everyone who has ever gone on a cruise knows that prices fluctuate with the calendar. So too with hotels and airlines. It is really, really hard to get worked up about Disney moving toward a pricing strategy that mirrors every other facet of the vacation industry.

 

[Spork24]

There is nothing unusual or sinister about what Disney is doing, so I don't think there will be much of a reaction. Anyone who skis knows that a lift ticket on the Saturday of President's Day Weekend costs more than a mid-week ticket two weeks later. It has always been that way. Everyone who has ever gone on a cruise knows that prices fluctuate with the calendar. So too with hotels and airlines. It is really, really hard to get worked up about Disney moving toward a pricing strategy that mirrors every other facet of the vacation industry.

I was referring to the "Disney has a responsibility to remain affordable to middle class families" argument that I've seen posted elsewhere. Or the "this isn't what Walt would do" argument.

Couldn't agree more that it's not sinister.

 

[JimmyV]

I was referring to the "Disney has a responsibility to remain affordable to middle class families" argument that I've seen posted elsewhere.

There is no way that WDW is out of reach for middle class families. If said family drives, stays in a Value, (or off site) and doesn't splurge on food, a week at WDW is absolutely affordable to the middle class. The problem with this Board is that it is heavily populated by people who go to WDW every year. Or twice every year. Or three times every year. And when looked at through that lens, then it is probably true that the middle class is or will be priced out of going multiple times per year. But that is not the test. Just because one can no longer afford to go every year does not equate to not being able to go. If a trip to WDW is a family's one big "save for" vacation, then a middle class family can certainly figure out a way to go once every 5 years or so. So to the extent that one believes that Disney "has a responsibility" to remain affordable to the middle class, as long as off site hotels go for $60 per night and on site Values go for $120, then the middle class can continue to go to WDW, at least every once in a while. Disney absolutely does NOT have a responsibility to manipulate its prices such that a middle class family can go every single year, or twice a year. No vacation destination has that obligation. We have all become spoiled into thinking that a big, blow-out, pull out all the stops vacation is something that everyone should do at least once, and preferably twice per year. Life doesn't work that way.

 

[MickeyMinnieMom]

Lets say I own a company that makes widgets. And I optimize my manufacturing process to make 10k per year of widgets. Now let's say I can make up to 17k widgets per year maximum with overtime and expediting raw materials.

Now first year I put my widgets on the market for $19.95 and I sell 7,000 of them, I may lower my price to $17.50 to try to make sure I hit my optimum manufacture point. Now the next year I sell 12,000 so I go back to $19.95.

Now the next year I sell 13,000 so I go to $20.99 and invest $250k in expanding my optimum manufacture capacity to 13k widgets per year which will be ready in a couple of years.

The following year I hit 16k and my expansion is still 9 months out. So I add plans to take my expansion to 18k which costs another 500k and will be ready in 2 years. Now I'm still in a predicament because my growth outpaces my ability to manufacture until my expansions are finished. So I plan to raise the price to $25.00 when my marketing director points out that I sell more widgets at Christmas time than any other season. She projects that I could get $30.00 at Christmas without pricing myself out of the market. So I charge $25.00 through October and then raise my price to $30.00.

I didn't raise my price because I'm heartless. I didn't raise my price because I'm greedy. I didn't spit on Walt's grave in the process. I raised the price because the market told me to.

Now I know this analogy isn't perfect, but this is how I see the Disney price issues.

Disney has operational problems, and they are taking steps to fix them. The seasonal price increase and package increase is just a step to buy them some time. Will it be permanent? Likely the answer is yes as long as the seasonal demand is there.

Bingo. Thank you. This is a logical, business argument with solid support all over the place for anyone who wants to search. These posts usually get "crickets"...

 

[hopeful4fl]

There is a kink in this argument (well...... someone has to be argumentative ). Quality is a measurement that determines price increase justification wrt customer loyalty and uptick in profit. Disney has been taking away quality (I am sure people will argue against this too), while increasing prices. In your analogy, if your widgets increased in price while going from a US quality to a China quality, your business may suffer. In the same manner, Disney has been capturing "first times" who may not know the difference, but customers who have been lifelong Disney fans and repeat loyalists are being alienated. At some time, the model will cause issues. IMHO, that point is not too far away.
To summarize, if Disney increased quality (cleaner bathrooms would be a start, better Disney branded products than the crap they sell now, etc), along with faster turn around time with newer attractions, you would hear a lot less complaints.

 

[Spork24]

There is a kink in this argument (well...... someone has to be argumentative ). Quality is a measurement that determines price increase justification wrt customer loyalty and uptick in profit. Disney has been taking away quality (I am sure people will argue against this too), while increasing prices. In your analogy, if your widgets increased in price while going from a US quality to a China quality, your business may suffer. In the same manner, Disney has been capturing "first times" who may not know the difference, but customers who have been lifelong Disney fans and repeat loyalists are being alienated. At some time, the model will cause issues. IMHO, that point is not too far away.
To summarize, if Disney increased quality (cleaner bathrooms would be a start, better Disney branded products than the crap they sell now, etc), along with faster turn around time with newer attractions, you would hear a lot less complaints.

Excellent point, but if I take your Chinese manufacturing analogy and add it to the Disney discussion, and still showed increase demand, I would still be raising prices because I still couldn't keep up with demand. If demand is greater than supply then perceived quality is moot until it has an impact on demand.

Plus I don't think Disney see's a lack of new attractions (quality) that many of these boards claim. In this decade they have given us a major overhaul of fantasyland, and have major projects going at the other parks.

They fast-tracked a frozen ride by utilizing existing infrastructure. Are expanding capacity at tsmm and soarin, giving us new nightime extravaganzas at AK and HS. And that's not even including the THREE major immersive lands that are under construction. And even though DSprings isn't a park, that's a major upgrade that many families traveling for a week vacation will enjoy.

That being said, I do totally agree about the bathrooms. If you can't do that right, you will eventually hurt your business!

 

[snayak]

Why is it cheaper to buy a matinee movie ticket?