A Different look at Disney...

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Things are in a constant state of change and flux at the Disney parks. Usually, that's a good thing. But it can be bad, too, like when food prices change twice a year, usually by going up (sometimes by outrageous amounts), literally overnight. One such sudden price change happened on April 6th for the stroller rentals (only at Walt Disney World, not Disneyland).

Formerly, the distinctive, hard-plastic strollers were, if not fairly priced, were at least in the right ballpark. The single strollers used to cost $10, and the double-wides would cost $18. On April 6th though, the price jumped to $15 for the singles, and $31 for the doubles. That's a 50% increase for singles, and a 72% increase for the doubles. Overnight!

Disney does sell (and has sold) strollers right next to the stroller rental facility. They are the Kolcraft Sport Tour model, with a red canopy and a foot rest. The stroller reclines and has a cup holder. In short, it's an upscale umbrella stroller. Presently, it costs $45 including the tax. Surprisingly, this is hardly inflated at all, compared to the prices you can see online for this same model. So, what gives?

Perhaps if we did a few back of the envelope calculations we might divine what's up. Working with the old prices, we could try to figure out what a typical tourist used to spend on rental strollers. At $10/day, a family must have spent $50 for the typical vacation (assuming a single stroller, and renting for a bit less than a week). That's more money than a purchased stroller would cost (although length-of-stay discounts would have brought the cost down a bit). And this assuming they bought the stroller right at Disney's park. There are much, much cheaper versions around at gift stores and supermarkets on nearby roads, just off-property.

And yet, despite the cheaper alternatives, people would rent Disney's strollers. Some must have done it because they didn't have cars, and wanted to stay on property (i.e., they had no choice). Others did it possibly because they didn't particularly need yet another thing to schlep home, and at least the rental stroller didn't add to their massive souvenir bags. Besides, a stolen rental stroller was easily and cost-free replaced in case someone walked off with it, while the same could not be said for a private stroller.

When prices were reasonable, this was a common sight.

Since the change to the new prices, there are all but no Disney strollers out in the parks. I've been watching for them, and the drop off is quite noticeable. At the same time, I am seeing a lot more of the Kolcraft strollers that Disney sells. The obvious answer is that tourists are arriving at the rental counter, see the prices, balk at them unwaveringly, and decide to just buy a stroller instead.

From the customer side, it's basically a wash. $50/week in the old scheme to rent it, $45 now to just buy one outright. It's a win-win, right? I have to ask myself yet again, what gives? Why on earth would Disney give up $50 in rental fees (I have to believe that almost every cent of that money is pure profit) to harvest maybe $5 or at best $10 per stroller in sales?

I suppose it's possible Disney is trying to discourage strollers, to keep the numbers down in the parks. But that's a much bigger problem in Anaheim than in Orlando, where the walkways are much wider. So that can't be the entire rationale. Could it be that Disney was just raising prices to maximize profits, and in this case reached too far? But that, too, doesn't jibe with what we know of Disney. If something is underpriced (say, admission tickets to the parks in 1984), then Disney just ratchets up the price a dollar or two per year. That way, you don't spook the natives.

As the saying goes, the only way to boil a live frog is to start with cold water and heat it slowly, so he doesn't know he's being cooked until it's too late. So this sudden jump of 50% and 72% doesn't match that kind of strategy.

No, I think it's simpler than that. Disney must want to get out of the business of renting strollers. The price of Electric Convenience Vehicles (ECVs) is now also sky-high ($65/day, of which $20 is a refundable deposit), and it's possible they want to cut those numbers in the park. But raising prices on strollers can't be a cover for encouraging fewer ECVs, can it?

There's a quite simple answer. If Disney gets out of the business of renting strollers, a result that has largely already occurred in fact, since the April 6th change in price, then they don't need the hordes of workers to dispense, collect, and clean the strollers. They can cut labor! They can cut costs!

A lot of real estate at Epcot is given over to stroller rentals.

You can see why the Disney accountants (Accountaneers, as I call them) would gravitate toward this solution right away. They get to cut costs at the theme park, which looks great to the bottom line.

It's true that they will lose the $50 in rentals. But they harvest maybe $10 per family instead. If they harvest $10/family and only have to pay one or two workers per shift, that might be better from their perspective than making $50/family and having to pay twenty or more workers per shift to deal with all those rental transactions. In other words, on paper it makes sense.

In economics, any undergraduate will tell you that the operating metaphor here is "marginal returns." The concept is simple: if you spend more money "on the margin", how much "extra" return do you get from that extra spending? Consider a new store selling widgets. It can make $1,000/day without advertising. Or, it can spend $60/day on advertising, and reap an additional $200 in sales.

Those marginal returns of $200 look good, so far. But if the store doubles its advertising (now spending $120), the extra returns only bump up to $250. The second boost of $60 only created $50 in extra sales. This is the principle of diminishing marginal returns. Somewhere there has to be a magic point at which you've spent enough to fully and completely maximize returns, without spending (wasting) a dime extra.

Our stroller example is this principle in reverse. Some clever Accountanteer must have realized that cutting costs could be accomplished without overly damaging the bottom line. In fact, the numbers probably look more rosy now on paper. Such things as "sales per labor hour" and "labor percentage of sales" probably shot upwards as soon as the new program went into effect.

The Kolcraft strollers all but fly off the shelves now.

And yet, there are limits to this. When I was an Hourly Lead at Disneyland, I once asked my managers what kind of "labor percentage of sales" they wanted. At the Cafe Orleans, we usually hovered around 20% of sales going toward the labor. At first, I naively assumed they wanted that number as low as possible. "Oh no," they told me. "If you dip below 15%, that means you are making profit at breakneck speed, and the Guest experience will be pretty horrible. You're treating them rudely and moving them too fast, all in the name of making money. Aim at 17%, instead."

I wonder if there's something similar going on here. The wisdom of my onetime managers is that they realized it's not always better to cut costs! Sometimes, you have to spend money to earn money. We can intuit this easily enough. The cheap and tacky Dinoland carnival didn't cost much to build, and it didn't draw many folks to Disney's Animal Kingdom. The expensive Expedition Everest cost a fortune, but it is helping drive millions more to the park. You have to spend money to make money. Corollary: if you don't spend money, don't expect to make much money.

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2008 Kevin Yee

A Different look at Disney...
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