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The Business of Magic
A look at the business of Disney
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Alex Stroup, Editor

Of Imagineers, Parking, Hotels and Marketing Strategy

Some thoughts on Alís recent D-I-G updates

I really donít have much time to write this week (being in the middle of final week of classes for the semester and all), but I read Alís Disneyland update recently and I just had to respond. A bunch of the items smacked me in the head like a wet Mickey waffle, because theyíre exactly the kind of things we just finished studying in my Marketing Strategy course, so I just *have* to mention them. First:

More Imagineering Cutbacks

If it is indeed true that they are laying off more Imagineers and no longer doing any unique research, all I can say, "Ugh." This is so wrong, for two reasons:

One of my objections is on a gut level. Without WDIís research into creating unique ride systems, we wouldnít have the Omnimover (DoomBuggies in the Haunted Mansion, as well as Buzz Lightyear and Spaceship Earth in Florida), the PeopleMover, the Indiana Jones and Dinosaur EMVs, the Test Track cars, rollercoaster cars with soundtracks, the monorails as we know them, the Subs, heck, even the Autopia cars have their origins as original Disney designs. What would Disney theme parks be like without them? That doesnít even count the hundreds, if not thousands, of small innovations that we donít see, that give us better show effects and smoother park operations.

The off- the- shelf Mad Mouse at California Adventure
The off- the- shelf Mad Mouse at California Adventure

My other objection is strictly analytical. Sure, slashing WDI some more saves a bunch of money from the budget. But without Research creating new things unique to Disney, every future innovation will have to come from outside ride developers. These firms sell to anybody who has the money, so what will make the Disney parks different from the competition? I guess Disney figures that the difference will be that whatís left of WDI will gussy these off-the-shelf ride systems up (a la DCAís Paradise Pier section) and make them look nicer than the competition. Is making things look real pretty a sustainable Competitive Advantage that will keep them ahead of their rivals over long haul? I just donít believe it is.

And to make matters worse, guess where a lot of those talented Disney- trained Imagineers will end up? Many will go to those outside design companies, which means anything they come up will be sold to everybody. Which is why, for example, "Mad Mouse" coasters are proliferating like, well, mad mice. Anybody with the cash can buy one, so a Mad Mouse at California Adventure wonít be particularly unique. Even worse, if one of Disneyís competitors has any brains and some deeper pockets, theyíll hire those ex-Imagineers and wind up making attractions that are unique to the competition Ė and better than Disneyís off-the-shelf rides.

So now letís some throw marketing strategy theory around this: There are two basic ways you can compete. One way is on price alone Ė that is, the customer buys based on price, and cheapest product always wins. Lowest price certainly isnít Disneyís strategy. The other way to compete is called "Differentiation" Ė in other words, make your product unique in some way so that customers want to buy yours instead of the competitionsí. So if Disney moves more and more to off-the-shelf ride systems, they lose some of their differentiation. And as the theme park business becomes more and more competitive, you should be differentiating more Ė not less.

All- in- all, this looks just plain dangerous. Any company that guts its research capability is resigning itself to innovative stagnation and eventually slow growth and creative death. Unfortunately, Iíve seen this happen in other companies, first hand.

Or to put it in a historical context, the amusements and boardwalks of the past which all used the same off- the- shelf rides were done in by a highly innovative competitor who ran off with a lot of their business. Thatís right, Disneyland.

Donít think it canít happen here, Michael.

Parking Lot Capacity

Iíve been wondering about this one every since they closed the old lot to build DCA. The new garage doesnít hold that many more cars than the old surface lot did - roughly 10,000 cars. Yes, thereís also the Lion King lots and lot where the old Grand Hotel used to be, and they do have the Pumbaa lot, which has seen increasing use this season. But are those enough to hold all the people going to the new park? Then add to that all the local people just going to Downtown Disney. Where are they going to park? Anybody know? I sure donít.

Parking lots closed before noon on Saturday Dec. 9th
Parking lots closed before noon on Saturday Dec. 9th

(Of course, they also use the Convention Centerís garage on busy days. What happens Ė heaven forbid Ė if they actually have a big convention in town?)

Okay, this time Iím not going to bring up my Marketing Strategy class material. Last yearís Operations class is more fitting here. In Operations you learn that its not the biggest or fastest part of a process that determines how many people you can handle, itís smallest or the slowest (a.k.a., "the bottleneck"). Insufficient parking can hurt attendance (and profits!) just as much as not having exciting enough attractions. If you build it and they come, they have to have a place to park.

Walt Disney World Hotel Service Cutbacks

This one hits something we studied just the other week in Marketing Strategy. And even though the idea of giving the same level of service and amenities to customers staying in the $500 a night Grand Floridian room as those given to the guests in the $100 per All- Star hotels seems like a no-brainer that doesnít require an MBA to figure out, letís apply a little marketing theory to see where this might take Disney.

Yacht and Beach Club - a more expensive Disney hotel
Yacht and Beach Club - a more expensive Disney hotel

One theory is called "The Commodity Magnet." It analyzes any product or service on two dimensions: Price to the customer and Cost to serve those customers. This becomes a 2x2 matrix (we MBAs love classifying everything into 2x2 matrices) like this:

This will give you four quadrants:

The Commodity Magnet

Augmented Ė High Price, High Cost; a premium product with unique features and a high price to match.

Specialty Ė High Price, Low Cost; a fairly unique product that serves a particular need that doesnít have much competition. Hence, you can charge a lot for product or service that isnít too expensive to produce.

Core Ė Low Price, Low Cost; Now thereís competition, so prices are driven down and customers are buying on price rather than features.

Commodity Ė Low Price, High Cost; this is the worst place to be Ė the customers are demanding a low price and fierce competition between competing companies raises the cost to produce the product as each company tries to outdo the others.

Letís say, for the sake of argument, that Disneyís premium hotels right now are in the Augmented quadrant Ė yes, a high price but with a high (read "costly") level of service. By cutting back on the service / amenity level, they are trying to move in the Specialty quadrant like this:

By cutting back on the service / amenity level, they are trying to move in the Specialty quadrant

At first glance, this looks like a great place to be: customers giving you lots of money for something that doesnít cost all that much to produce, which equals more profit! One big problem, though Ė the theory says that this position is inherently untenable. Why? Because all that profit attracts other competitors and your customers eventually get wise. They decide they donít like paying so much to get so little and either move down to lower- priced but equal featured competitors in the Core quadrant or across to Augmented quadrant where they pay the same price but get more for their money.

Either way, they donít buy the Specialty product once competition arrives. You are forced move to a more stable quadrant: either back to Augmented (which is expensive to get back to) or down to Core (where itís much more competitive and you are likely to be drawn into the very unprofitable Commodity quadrant).

You are forced move to a more stable quadrant

In fact, thatís where the name comes from Ė because as markets mature and competition heats up, products tend to be drawn down towards becoming commodities.

So moving from Augmented to Specialty is where Disney is going with these changes at the WDW high- end hotels Ė to an unstable and ultimately unprofitable strategic position, in exchange for a short- term increase in profits. There are a lot of really bright MBAs working for Disney Ė doesnít anybody see this happening? Is nobody thinking strategically at Team Disney?


I think thatís all I have time for today. Actually, that was probably more time than I had Ė so wish me luck on my finals.

Oh, if you have any Disney- oriented business questions or things youíd like to see me write about, e-mail me at DanS3@aol.com. Just donít expect a reply until after finals are over...

Poor choices?

AL LUTZ'S NOTE:

Since Dan's piece was written, I had a few things clarified on some items I had run in my update column from some folks at Disney, and wanted to make note of them here since Dan refers to them.

* On the Imagineering cutbacks - Disney particularly seemed to be focused on reductions for research that's theme park specific. Apparently budgets appear to be kept level for other areas, in particular more research into technology used in the broadcast and net arena. That doesn't alter Dan's points made but is important to keep note of.

* Parking at Disneyland - appears to be an increasing problem, much to the horror of all the planners involved. This past Saturday for example (12/9) Disney's parking filled up before noon - and they were scrambling to move cars around to the other area alternatives, such as the Convention Center. Keep in mind the new park isn't open yet on top of all this.

Finally...

* I am getting increased complaints about the quality of the Walt Disney World resort properties, in particular the Caribbean Beach Resort location. Apparently they have canceled a scheduled renovation of the rooms due to budget problems - making for problematic stays for a lot of you.

Along with many complaints about slow and inadequate service - many of you are concerned that the Disney name on a hotel may no longer be a guarantee of optimal quality.

- Al Lutz

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