My son visited the Walt Disney World complex in Florida and pointed out the methods used to spread demand temporally. Coupons for 30 percent discounts on restaurant food purchased before noon or between 3PM and 4:30PM are available. Merchandise coupons for 20 percent discounts are given for use between 9AM and noon. Both coupons are offered to shift demand rightward at non-peak times.
Why do this? Disney trains its workers extensively, so that to a large extent labor costs become fixed costs. To spread those costs – to maximize labor productivity – it makes sense to reduce the peak demand for labor. Spreading these costs also has the virtue of reducing the negative reputational impacts in the labor market that would accompany layoffs that might occur if demand were more variable. An additional virtue is that spreading customer demand helps the parks’ reputation with consumers and allows them to spend less time in line – and thus have more time to spend more money! (HT: DJH)
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Last summer, when I went to Disneyland, I arrived there at around 10 am, and to make sure I had enough energy for the day, I had a good breakfast. Of course by like 1:30 or 2:00 pm I was going to be hungry and was going to have lunch at the park, but not before 12 pm. Neither was I going to be hungry between 3 pm and 4 pm because I would have just eaten couple hours ago. They are very clever in doing this because as I just showed, these time frames are not popular at all. People know that everything sold in these parks is very expensive, so they try to fill their stomachs up as much as they can before going there, and they also bring snacks most of the time. So, before noon, no one will probably think about going to a restaurant. Now with the coupon, since they are getting a discount, they might as well just eat before noon even though they might not be as hungry as they would like to be because they are paying less.
These coupons are slowly eliminating peak hours, and assuring that there will be high demand of restaurant food (and food in general) at all hours. Since costumers know food here is expensive, as soon as they see the coupons they get excited, since they know they will get it a lower price, which leads them to consume at those time frames no matter what. A big corporation like this one knows that customers talk, and in order to keep a good reputation they must be satisfied in one way or the other. The most important thing on amusement parks? Food and beverages of course since after a tyring morning or day in general, all you want is to have a good meal. These strategies have been used by many corporations and we will see them more and more often since it is a very smart way to shift demand rightward. There will be nearly as much people eating before noon and between 3 and 4 pm, as there will be in peak hour such as 1 pm.
I wonder what are the benefits of such coupons as opposed to simple happy hours.
Really? We all get the rationale behind coupons and spreading the demand, etc.
But just as a polite reminder, 30% off a Disney meal means that it is about what you would pay for the equivalent undiscounted meal in a regular restaurant in your own home town.
And do we really wonder how Disney makes ends meet? The wonder is that consumers will line up to pay $84 per person to then get in more lines to wait for the actual rides. It is obscene what we put up with to take our kids there – the airlines need to work out how Disney can abuse its customers so badly and then have them come back asking for more.
Its interesting how companies and businesses have different strategies to maximize their profit. In the case of Disney, not only are they trying to increase the demand of the customers during times where their is not much activity, like at night when the rides close or during spring, but Disney also makes sure that they are getting as much productivity as possible from labor by keeping the workers busy at all hours. In addition, apart from keeping the park busy during hours of poor activity, this coupon method can also help reduce traffic at the ride lines. In the end, by waiting less in line, consumer satisfaction will increase.
I also have to say that this may not be a rightward shift in demand. Correct me if I’m wrong, but by having coupons you will have a change in quantity demanded. I say this because coupons essentially decrease the price of your meal, and because quantity demanded varies inversely with price, if the the price of a pizza in the park drops from $8 to $5, this would cause a movement along the demand curve. A movement along the demand curve reflects a change in quantity demanded.
Finally, the reason why this coupon method works in Disney, is because demand is elastic, this means that the customers are sensitive to a change in price. People from varied economic classes go to Disney world, everyone here is not extremely rich. So if you offer a coupon that will grant you a cheaper meal, many will accept this offer.
The problem with Disney and other theme park/resorts like it is that their current system of rides and how those scarce resources are allocated represent a massive market failure of Soviet Proportions. With few exceptions theme parks rely heavily on Rationing by Queues. Recent estimates showed that your average Disney visitor only rode 8-9 of the 40 or so available rides with most of their time waiting in line. Disney can do its best to make waiting fun or try to herd people around, but in essence the presence of lines means that the price is too low for a good resulting in excess demand. Disney either needs to raise the price of admission until demand drops or find some way to charge people incrementally based on more specific demand factors.
I believe they have been doing this to some degree with the availability of VIP passes that allow one to skip the line, but I am not sure how this is put into practice. Anyway I am of the mind that Disney charging more up front is more consumer friendly than their current too low prices. Higher fares leading to higher satisfaction is not a contradiction because as it stands these parks are all massive Bait and Switch scams. You are baited with the promise of exciting rides, but these are switched to the tedious practice of waiting in line.
“It is obscene what we put up with to take our kids there – the airlines need to work out how Disney can abuse its customers so badly and then have them come back asking for more.”
It’s Disney, not Gitmo — no one can compel you to go if you don’t want to.
If you don’t like it, don’t go.
How Hamermesh Does It:
Applies intellectual and economical explanations for ubiquitous forms of marketing common sense.
@MikeB
The average family spends way more than the cost of tickets to visit Disney. Most stay at Disney lodging and eat at Disney Restaurants. You can spend $4000-$5000 for a week of vacation (for 5 people) without blinking. Only ~$1200 of that is tickets.
Disney already has differential ticket pricing based on where you live (FL or not) and how long you stay. The first park day is ~$80 a person, and the 6th or 7th day in a week is less than $10. Again, another incentive to capture every single one of your vacation dollars for that particular trip.