Freshman Economics Elude Bob Iger
Posted For: Mr Proton
By M. R. Proton
Any college student who takes economics used to learn a concept called Price Elasticity of Demand. Because it involves simple math, it might no longer be taught. Maths is scary, evidently, and students are graduating with Business and even Economics degrees with far less analytical skill than they had even ten years ago.
Still, the concept is critical: If a Producer increases their price by X%, will the quantity demanded for that product fall by MORE or LESS than X%?
It is always calculated as %’s, unless you are a grad student and use differential calc, but either way it’s a critical concept.
If you raise your prices by 10%, do you sell 12% less? If so, then you’re losing money. If you only see sales drop by 9%, however? The new sales figures actually go up.
Disney has just spiked their prices. Now the news is reporting that “lines are shorter than they have been for a long time!” which is a meaningless data point… but that’s how the “media” rolls these days. “Feelings,” and not actual data.
The fact is, Disney hasn’t yet published their attendance figures, so we really can’t say whether Iger’s move was the right one or not. Jacking prices ALWAYS lowers the quantity demanded for a product. That’s how Demand works. Duh. The question is: did the quantity fall by more than the price rose?
And this is where it gets both interesting and sticky.
You see, a trip to Disney World isn’t just the price of admission. It is what’s known as a Complex, or Blended good. It’s the ticket, sure, but it’s also the food. The souvenirs. The add-on experiences. The premium “fast pass” fees. Hotels, of course.
Iger is betting that there will still be enough people in the park to more than compensate for the price increase, and this includes across all of these derived goods (as they are often called). The demand for Turkey Legs in the Magic Kingdom will fall, but not enough to matter… or so the logic goes.
Will it?
Disney is a funny good. As originally sold in the 1960’s and 70’s, it was “The Happiest Place On Earth.” Crowds weren’t insane. Oh, it was crowded, but it wasn’t THIS crowded. You could enjoy yourself without having to pre-book everything. You didn’t have to plan your trip like Operation Overlord. It was, all in all, RELAXING.
If Iger can drive enough people out of the park, he might just get it back to that… for the affluent. That’s the plan, if there is one. Make Disney “pleasant” again, but that means making it Exclusive and that means expensive.
Are the Affluent going to go? Hmmmmm…. that’s the question, right?
Because WDW isn’t just a Complex Good, with Derived Products. It is also an Experience good and like any good, the excitement (“utility”) of repeated use tends to fall. That first sip of beer is much more enjoyable than the 100th. Ditto coffee. Ditto the 900th time you get behind the wheel of the car that you were SO excited to buy, right?
If WDW is more expensive than a trip to Provence or Tuscany or Hawaii… will you choose it three times? Five? Ten?
Tuscany is a region. Hawaii is a chain of islands. Provence is a whole area. Day trips to Florence or Paris (etc.) are easy when you’re there. How does Disney compare to that, after the initial fun wears off?
What are they doing to “woo the affluent back for endless-repeat visits?”
Bluntly: this is a short term strategy, if it’s even a strategy at all. Even if the Elasticity makes this work and they DO net more from smaller but more affluent visitors, I believe that bump – which is VERY speculative to begin with – will be just that: A bump. A temporary revenue blip.
After that? Discount time. Prices will have to falllll…
And after people get a bad taste in their mouth about how they’ve been treated? Not factoring in the grooming and other culture insults?
Iger might have really played this wrong. Really, really, really wrong. His movie studios are bleeding cash due to a combination of Woke and crappy story telling. His TV network is already showing the whole “how many times do I want to watch the same movie?” plus Woke.
I think that this “genius” has screwed the pooch. It’s going to take quite a bit of time to see it, but “falling attendance” is not the bellweather.
It’s when prices fall again that you’ll start to see what actually happened – and whether they can pull out.
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