Disney has made it hard for Annual Passholders to get access to the park or glean value in favor of daily guests. That plan is backfiring.
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Disney Moved to Swap Customers
On Disney’s 2020 Q3 earnings call, the executive team made it clear that daily guests and visitors to the resort that do not have an Annual Pass are more valuable to the company.
In subsequent posts I have noted that this thinking makes sense when considering two factors: 1) Capacity Controls that limit the number of visitors to the park (they have to choose which customers to accept) and 2) Revenue per visit on a unit basis but not including total absolute spending.
In a prior post, I mentioned that Disney executives were rather open about choosing one-time guests over Annual Passholders. Disney CEO, Bob Chepak’s logic is simple:
“We just replace local and annual passholders with some of the falloff that we’ve necessarily seen from the long-distance travelers. I will say that our research indicates that — and our bookings indicate that, you know, we should be in good shape once consumer confidence sort of returns.”
Later, he added this:
“All I’ll follow up on the parks question is that, as you know, different guests, depending on where they’re coming from, have different relative values in terms of their contribution as a guest to the park. And typically, someone who travels and stays for five to seven days is marginally more valuable to the business than someone who comes in on an annual pass and stays a day or two and consumes less, you know, merchandise and food and beverage. So, the way I would look at it is that it’s just as that constituency changes a little bit, so do our overall margins change. But it’s not because of price reductions or anything like that.”
Every business has this struggle. Take, for example, a local coffee shop. Their regular customers that stop by every morning for a cup of coffee spend less money per visit than one-time guests. They are given discounts, frequent visitor punch cards, and are less likely to bring a group of others with them. But it’s, of course, not as simple as choosing to exclude your most frequent guests and only accept one-time guests who spend more on a per-visit basis but less annually.
The Plan Backfired
As disclosed last week, Disney is having trouble filling the parks even to its lowered capacity. The plan was to swap consistent but lower-margin customers for inconsistent but higher margin customers.
Disney is finding out the hard way that the customers that come to Disney no matter what and pay thousands per person for annual passes are also the ones most likely to visit when others will delay trips. One-time guests haven’t shown up to the park as expected, opting instead to cancel trips. Still, Disney persists in their plan to limit access for Annual Passholders in favor of declining infrequent guests.
Will Disney Change Its Mind
As a business person, I can understand Disney’s strategy. After all, they have a limited number of guests they can permit entry to the parks so ideally, those that are permitted should be higher daily value. However, some Annual Passholders – aka easy money – have cancelled their passes (as Disney stated in their earnings call.)
With fewer high-value guests maintaining their reservations, Disney will be foolish not to fill the parks to its reduced capacity. Some Orlando-based Annual Passholders would go to Epcot just for dinner but without the ability to gain entry to the parks, Disney forgoes that revenue in favor of guests who are not materializing.
The parks will be forced to recant their abuse of Annual Passholders or lose an even greater number of them and the consistent, no-work revenue that comes with them. It’s possible that they maintain the current course but they pass up revenue opportunities the longer this remains the policy.
Disney’s guest gamble hasn’t paid off the way CEO Chepak had hoped. Instead of leaning into the guests who have been loyal and consistent, he opted for less reliable but higher revenue-per-visit guests that have failed to keep their reservations. Maintaining this policy will lead to lower revenue for the company in both the near and long term and could cause the company more harm than good. Losing reliable revenue for the benefit of short term gain is always a high-risk game to play, but when the plan doesn’t work, it will take far more effort and future incentives to get those disenfranchised back on Disney’s side.
What do you think? Should Disney reverse course? Will the gamble play out better in the future?