Disney: Enabling the Most Magical Place on Earth
Disney goes through great lengths to put you in a whole new world.
Overview
The Walt Disney Company has set a precedent for theme parks. Though just one piece of its overall business model, Disney’s parks generated approximately $11.4B in revenue in 2013 and yielded profits of $2.2B. [1] The company’s business and operating models for its theme parks are in alignment, creating a unique customer experience which enables its success.
Business Model
Disney’s parks and resorts have a fairly straight forward business model. The costs of running a park are extremely high. Not only is there a sizeable upfront investment, but labor alone cost approximately $800M yearly at one of Disney’s mid-sized parks. [2] Luckily, Disney has found a number of ways to generate revenue to cover these expenses. The bulk are covered by simple ticket sales. Additionally, while customers are in the park, Disney is able to charge a high premium on food and merchandise since there are few or no alternatives available. Disney also provides hotels and resorts to encourage customers to stay within its sphere of influence even longer. The key to this model is volume. Disney’s theme parks attract more than double any of its competitors at over 132 million guests per year. [2]
Operating Model
The operating model of Disney’s parks and resorts is really where it sets itself apart from any of its competitors. Everything Disney does is intended to enhance the customer experience. This creates better value for the customer while providing Disney with more opportunities to capture fiscal value. Disney goes above and beyond and invests in many parts of the park that may not, at first, be obvious to the customer. It’s reasonable to assume people attend parks for rides, attractions and other obvious draws. Part of Disney’s truly unique operating model however, is to create an immersive experience that makes the customer feel like they are in a whole new world. From the layout of the park to the education of employees, everything works to capture more value from the customer and ensure they have the best possible experience.
Disney World was designed to create the perfect customer experience. Beneath the parks is an elaborate series of tunnels that allow employees to move undetected. [3] A map of this system can be seen to the right. This helps to keep the illusion of the park alive. For example if an employee is dressed as a character who is only supposed to be in a specific location of the park, they would use the tunnels so that customers do not see them outside their designated location. The tunnels also allow maintenance and facilities staff to move undetected throughout the park as they perform their day to day tasks. From there, staff education is vital to creating a meaningful experience. To remind the staff of their role within the park they are even referred to as Cast Members. [4] This always serves as a reminder that they are playing a part within the theme park and are there to entertain and serve the customer. The staff is trained in a number of different areas. Two of the more unique things they are taught is a gentle and friendly way to gesture so as not to come across aggressive by pointing and how to uniformly sign the names of famous Disney characters if they are tasked with dressing up and entertaining children for the day. [4]
Conclusion
Disney goes to great lengths to ensure the best possible experience for its parks and resorts customers. They go far beyond the bare necessities to create something the people have clearly shown they are willing to pay for. By aligning its business model so well with its operating model Disney is able to capture immense value while simultaneously providing consumers with a magical value proposition.
Sources
[1] The Walt Disney Company Fiscal Year 2014 Annual Financial Report and Shareholder Letter – https://cdn.thewaltdisneycompany.com/sites/default/files/reports/10k-wrap-2014_1.pdf
[2] The Secrets Behind Disney’s $2.2 Billion Theme Park Profits – http://www.forbes.com/sites/csylt/2014/07/14/the-secrets-behind-disneys-2-2-billion-theme-park-profits/
[3] 13 Things You Never Knew About Walt Disney World – http://www.businessinsider.com/walt-disney-world-secrets-2013-5?op=1
[4] Interview with former Disney Cast Member, Anthony Forlini
I think one other interesting way they boost the customer experience is with FastPass, which lets you book time slots on a ride in advance and skip the queue, which is a really interesting way of smoothing capacity across the park, and ensuring guests maximize the value of their day.
Disney Parks has a real challenge with incentive systems – as you highlighted they can command high prices on food and merchandise – but at the same time, I imagine they rely on repeat visitors for a significant portion of their revenue. The question then becomes how do you manage the trade off for managers between maximizing a guest’s spend in a given day, and the perceived value they received which likely influence return rates.
Thanks for your posting Bryan. I’m happy to see that you also wrote about Disney and took a deeper dive into Disney’s Parks & Resorts. You are completely correct that Disney’s ability to track the pulse of its customers’ desires is core to the firms success overall and especially in the Parks & Resorts operating asset. From personal experience I have really enjoyed Disneyland and Disney World, but found the parks to be very expensive. Do you think Disney has any issues with accessibility to its parks and could pricing be a long-term constraint on growth?
In my post on Disney I took a deep-dive into the recent acquisition of Lucasfilm and the implications to the Star Wars universe (post here: https://d3.harvard.edu/platform-rctom/submission/the-force-is-with-mickey-mouse/). I would appreciate hearing your opinion on the findings in my post; namely, if you believe that Star Wars’ best days are ahead. I can’t wait to visit Darth Vader in person at Disney World!
Disney Parks would make a really interesting TOM case for early in the semester. They seem to be operating at max capacity for their more popular parks (even with high prices). I have been behind the scenes at EPCOT for a day long session at the Disney Institute while at my last job and I can say their people management is also an integral part of their operating model. Every member of the team is considered a “Cast Member” and this communication is constant. Each employee feels an obligation to deliver on the customer experience and is trained in cultural sensitivity because of the large international customer base.
Well said, Bryan. I’m obsessed with Disney parks and have been interested in how they do what they do so well. I’d be curious to know about their imagineering teams and how they manage innovation as well. They do such a great job of understanding their customers and creating value that the customer didn’t even know they needed and I could see this being an interesting end of semester case as well.