Why Disney needs to sell more pie, not less

Here’s an economics question to consider. You run a pie shop where you have 8 slices of pie and a line outside the door with 10 people in it. What do you do?

You could raise the price of a slice of pie so that only 8 of the 10 people who want the pie can afford it. This might work, but it turns out that people are only willing to pay so much for pie. So not only do the two people who can’t afford your new price for pie quit the queue, two more potential customers leave and end up buying a different pie somewhere else for less. As a business owner, you might be happy because you’re now making more money per slice of pie, but the reality is you’ve lost 40% of your customers and the positive word of mouth they might spread to potential new customers. If you keep up with this strategy eventually you’ll be out of existing customers and find it very hard to attract new ones as word of mouth will be low.

Of course, there’s always another more practical solution, just bake more pie. You are in a pie shop and you know people like pie, in fact they are lined up outside your door trying to give you money.

You can see where I’m going with this, Disney is the pie-maker who sees 10 people lined up outside and decides to raise prices so only 8 can afford to come in. In fact, after four people quit the queue, they decided to stop baking pies with 8 slices and now use a smaller tin that only provides 6 slices. But they charge more per slice, and have added extras that also cost more, so they’re making more money, but selling to fewer customers.

No one bakes pie like Disney (although that pie shop down the street hired one of your old bakers and now has its own line out the door) they could make more pie and have 10 people buying slides instead of 6. Then those 10 people will tell their friends how amazing Disney’s pie is and next day there will be 12 people in queue. Disney still makes money on every slice, they can even up-charge for caramel sauce, as long as they continue to add complimentary whip cream when asked by loyal customers.

This is Walt Disney World (and Disneyland) today. They’ve increased prices and actually reduced capacity at their parks. The result is fewer customers forcing Disney to make money by finding incremental charges for VIP access. But the same strategy turns away loyalists, those guests Disney needs the most when the economy is weakest and the ones most likely to tell their friends to plan their own visit.

The good news is that Disney has finally opened the pocket books and is about to spend three years adding some capacity to its parks. They’re still way behind demand, but I hope they’ll see how more guests in line to buy pie is a good thing.

If you could wave your magic wand and add more capacity, in the form of new attractions and entertainment, to Walt Disney World or Disneyland, where would you put it?

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7 thoughts on “Why Disney needs to sell more pie, not less

  1. Bailers

    It’s not about capacity anymore. The next downturn in the economy is going to prove that. And if the downturn is global? The parks bottom line will look like ESPN’s.

    Reply
  2. Mark Bell

    Please leave finance and economics to the experts. Disney is an investor owned corporation. Investors are looking to maximize return over the long-term. Period, end of story. Disney’s management is doing just that. Over the last 5 years, Disney stock has gone from about $41 per share to $110 per share. Over that same time period, the DJA average has gone from 13,000 to just under 21,000. So Disney is up 268% while the DJA is up 161% over the same time period. Seems like the mouse knows exactly what it’s doing and exactly who needs pie, who can afford pie, and how to keep the owner of the bakery happy. And no, I don’t work for Disney, but I do own stock in it for exactly the reasons stated above.

    Reply
  3. Sarah

    Thanks for the insightful article! I thought your analogy was very apt. You’ve nailed what has been a big concern of mine about Disney. As one of the “loyals” you mentioned, I’m not impressed with Disney’s attempts to make more by attracting those who can afford premium prices for basic experiences. To really be successful they need to target the middle class as they once did.

    Reply
  4. Donna

    As much as I’d love more attractions, what I’ve seen at Disneyland is a major need for restrooms. There has been a need to increase the women’s rooms for a long time, but even the men’s rooms are having lines out the door the last many times we’ve visited.

    Reply
  5. Barbara

    Many families are struggling financially….that is a given….but even while struggling they want to have a vacation…they want their kids to be able to have someting to remember. We are now seniors and with just two of us even on a limited income, we can afford to go more often. When we were a family of 5 it was usually 5-10 years in between visits. The increased prices meant we went less often and spent less. Yes, there are those who can afford luxury…but that is not the majority of America and between plane flights, hotel room, park tickets and dining plan, not to mention some souveneirs, many families just cannot afford to go. And yes, I own Disney stock, too. But my children and grandchildren right now cannot afford to go…and we cannot afford to pay for all of them either.

    Reply
  6. Todd

    Lots of good points, however as Mark commented, I too am a Disney shareholder. While I’m a DVC owner with multiple contracts, a D23 member and overall Disney buff that understands concerns about pricing and capacity, few publicly held corporations can rival Disney’s performance the last five years. Shareholders are happy, thus senior management is happy which means Disney doesn’t necessarily see things as broken as a lot of Disney fan comments indicate that they are.

    Keep in mind that by adding new high draw attractions which increase capacity, all that will happen is larger crowds as many people will be drawn that haven’t been attending (eg. Pandora). Everyone will then continue to make the same comment that crowds are big and more capacity is needed. It is a continuous cycle.

    I think the key now that we have all been waiting for is the future of Epcot…mainly Future World that is in dire need of removing unused structures (Innoventions) and attractions that guests are no longer interested in (Energy & Imagination) and building something new. Epcot has huge capacity capabilities compared to other parks and while it may never align with Walt’s intentions, it is now where Imagineering needs to place their park reinvestment focus.

    Reply

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