Disney shows that discounts move attendance in a down economy

May 6, 2009, 12:47 PM · We've got a discussion going about Disney's latest financial results. If you haven't seen the news: movies tanked, and theme park revenue is down. But theme park attendance is down just 1 percent in Orlando, and up 2 percent in Anaheim.

How did attendance hold and revenue decline? Discounts. Massive discounts and less overall visitor spending.

So that's the question: Would you rather discount and hold on to visitors, taking a loss in revenue from those who might have come anyway... or not discount and take a hit on attendance (which might lead to just as large, or even larger, revenue loss as well)?

Personally, I've talked with many people in many industries who'd argue in favor of holding on to your customers and market share... at whatever cost. It's far easier, they say, to get existing customers to pay more to you, during a recovery, than to acquire new customers, especially ones that you lost.

Of course, discounts alone don't get the job done. Theme parks need to promote and advertise their discounts, and Disney's done that with a vengeance.

Universal's got some sweet discounts, too, but after the Super Bowl, I've seen few ads from them. I seen a few more from Busch/SeaWorld, but not nearly as many as from Disney. And I've seen zilch from Six Flags.

If you offer a discount, and no one hears about it, does it really exist?

Replies (10)

May 6, 2009 at 3:01 PM · Let's spread a little perspective on this thing, shall we?

The Associated Press article that reported Disney's second quarter financials noted "its results narrowly beat Wall Street forecasts and shares rose."

Meaning (all things considered) the company did better than they were expected.

That logic makes sense, as the Disney company (which has often been regarded as spend thrift [to a FAULT]) started implementing dramatic cost cutting measures since early 2008

Jimhillmedia.co offered up this report last October:

"Based on what I've been told, the folks who work at Disney's Reservation Centers began raising red flags back in January. Even then, there was enough of a deviation from the way that people typically made their Disney World reservations, the numbers of days that Guests were opting to stay on Property, the types of packages that they were booking to suggest that late 2008 / early 2009 was going to be a real challenge for the Resort."

Those cost cuts ran pretty deep -- especially those management buy-outs and department consolidations.

But (as we all know) Disney did not just cut costs. Disney Marketeers stepped up and started throwin' punches.

Jim Hill again:

"I mean, think about it. Knowing now what they knew about how the Resort's advance reservations were falling off (at least from its stateside customer base), wasn't it clever -- gutsy even -- for Disney to craft a promotional campaign that would actually take into account the coming bad times? Which would then offer Guests free admission to a Disney theme park at a time when people might need an incentive like that in order to make a trip to the Parks & Resorts seem that much more affordable?"

And (as several have noted here) despite a late start to spring break '09, the WDW parks suffered only a 1% drop in attendance. Contrast that to Universal's 20% drop.

Having completed the second quarter, Spring break came, those promotions kicked in and WDW blew up!

Orlando Sentinel April 9, 2009

"No recession to see here: Walt Disney World’s flagship park, the Magic Kingdom, has apparently hit maxiumum capacity several times this week. On Tuesday, for instance, the park at one point had to stop letting any guests in at all because it was so full. Disney’s other three theme parks remained open, though the parking lot at Disney’s Hollywood Studios also filled up that day, forcing visitors there to park in the Epcot lot and ride a bus over to the Studios. There have been several reports from parkgoers that the Magic Kingdom hit capacity again yesterday. Expect them to continue the rest of this week. The week of Easter is historically one of the busiest single weeks of the year for the parks."

That same day Forbes.com reminded its readers:

"'The Mouse Is No Louse - Buy Disney' The Disney name is one of the world's most recognized brands across all of its major business segments," says George Putnam, editor of the Turnaround Letter. "While the company's financial results have been hurt temporarily by the global economic weakness, we believe it is well positioned to prosper again when economic conditions improve."

Central Florida tourism has a long way to go before it's out of these rough economic seas. But its flagship is holding up pretty darn well.

May 6, 2009 at 4:46 PM · Disney did not make it to #1 by being lucky. For the most part the company has been shrewdly and efficiently managed, and will continue to be successful long after I have shaken off this mortal coil.
May 6, 2009 at 8:28 PM · This conversation was started in another thread. I'm hearing all this love for Disney, and I can appreciate Disney being able to keep attendance flat in the face of a recession, but is everyone lost on the fact that their profit is down 50 percent? That's a lot of money....a lot of money. They've cut their profit in half in order to keep their attendance the same. What good is a lot of people in your park if they don't spend money inside of it? If they continue this trend through the summer, they will lose even more profit. Sure there will be more people this summer and attendance will go up...right along with operating costs, and believe me...Disney has some serious operating costs. Even with all the layoffs, they are bleeding. The size of Disney is a disadvantage in this fight. They rely on lots of guests...but they also rely on those guests forking over loads of money during their stay. That's what pays for those 100 million dollar attractions and all the detail and Disney magic that people so dearly love.

Of course discounts move attendance (they do all the time in the regional market), and they also move money right down the drain if they are too deep. Honestly, I think that Disney may be too worried about attendance now and not worried enough about the financial long term. If they want to lower something, perhaps they should lower some in-park prices to get spending per guest up and not discount so deep on hotels. I just hope they don't start sacrificing quality of experience when money gets even tighter. Let's fast forward to the next year or two, when hopefully the economy has stabilized and people have the money to go to Orlando. Universal is opening a brand new coaster this year and Harry Potter later on. Sea World just opened their own new coaster. While those parks have been taking a beating lately, they are positioned for a faster recovery and potential to take some Disney guests anyway, because they have new attractions.

I guess we will have to see how it all pans out. The summer hasn't begun yet, and the quarters fall a little differently this year. The economy isn't moving yet, and Obama can't win this one by talking (which frankly is all I've heard). I wish Disney the best, but I fear that this is the beginning of one ugly year for the Mouse.

May 6, 2009 at 10:25 PM · As has been discussed on many different boards, if some other prices were lower (more reasonable), then maybe guests would spend more on those things. The discounted admissions seem to prove that point, yet, food prices and souvenir prices are still too high. Therefore, it would seem to follow that: if more people come when the admission price is lower, they would probably spend more while they are there if the other prices were lower, too. This would include existing customers that return regularly as well as those added guests that wouldn't have normally come, but did for the discounted admission.
Many talk about food prices being lower and, in stead, bring (sneak) their own food, or go off property, to the fast food across the street. Leaving the property keeps them from spending time at the park ---> enjoying it less, and spending less. (Many souvenirs that are close enough to what you would find in the park can also be found locally, off property - especially for the first time visitor that doesn't need the latest, trendiest collectible t-shirt, figurine, pin...)
They should try starting with lowering some prices - making more overall in the long run. This would be a good business practice, and a service to guests at the same time, especially in this economy.
Just my shiny-new-log-cabin-on-the-back two cents.
May 7, 2009 at 3:00 AM · "Loss leaders" are common practice in business. That is to say : selling your product at a loss to maintain the customer base and with an eye to getting more revenue through other areas from those customers.

Disney are astute enough to know that their biggest asset is their customer. Buying. or in this case visiting , trends are often very fragile beasts. What they are doing makes good business sense.

May 7, 2009 at 5:01 AM · Disneyland is way too crowded these days and it's impacting customer experience. If everyone is waiting on long lines to get in all the rides they want in a day, then they're not eating at the restaurants (they're packing sandwiches into the backpack), and they're not buying merchandise (not enough time, the priority will always be getting in the rides). Less crowds means shorter lines, and then more time to eat and buy stuff in the park. Way too cheap APs are hurting the DL experience for guests and Disney's bottom line. They should double the price of all APs now.
May 7, 2009 at 12:00 PM · Where exactly is Disney gaining money by using admission and hotel as a loss leader. I seriously doubt that spending in the park is up. The only thing that they are accomplishing with their current method is maintaining attendance. Even though they are still profitable, they are making significantly less per guest. I now see that they are offering a free dining plan on top of all the other discounts. While I'm sure that many Disney fans are loving the low prices, the truth is that I don't think they can maintain their standards with these financial numbers for long...without doing some damage to that long term vision and delaying future attractions.
May 8, 2009 at 12:38 AM · I would suggest that Disney will derive even less profit if people stop visiting altogether.
They simply have to remain competetive and try to ride out the economic storm. There's little to be gained from losing customers to other forms of entertainment or to other Parks.
I applaud their proactive efforts to maintain turnover with a view to increasing profits in the long term.
WDW's business is a marathon not a sprint.
May 9, 2009 at 10:50 PM · I have to admit, I kind of wish Disney had kept prices high and allowed attendance to decline, just so that Disneyland would be less crowded. But I think they made the right decision, for two reasons:

- In a down economy when people are having to cut corners, thanks to the discounts they can still take their kids to the parks. Yes, I hate the crowds, but a lot of people are still getting to have fun at Disney's parks this year.

- The parks serve a purpose larger than just profit. They give people a strong connection to the Disney brand. Disney wants as many kids as possible to grow up loving Disneyland and Disneyworld.

May 11, 2009 at 3:42 AM · You may be MOSTLY anonymous but you are TOTALLY correct !

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