Disney

Chapter 15 Euro Disney: Bungling a Successful Format

Information Box The Tokyo Disneyland Success Students may at first be surprised that, given the success of the Tokyo venture, Euro Disney was not a strong success. After all, some will argue, the overwhelming success of the Japanese undertaking should have proven that the Disneyland concept is easily transferable worldwide. Some will even insist that such transferability should have transcended any economic downturn or recession. But we know that Euro Disney did not meet even modest expectations for profitability. Are the French so different from the Japanese, at least in buying patterns and attitudes? This is an interesting question for class discussion. But the answer is rather obvious, given the empirical evidence: the French are not nearly as enamored with things American as the Japanese apparently are. But, other students may argue, did not the hordes of European visitors to U.S. Disneylands prove that Mickey Mouse and company have worldwide appeal? At this point you may find it worthwhile to explore with your students whether European, and Japanese as well, visitors to the U.S. truly represent their countrymen who are not affluent enough to travel abroad. For example, are we dealing with two different segments of French, and other Europeans? In essence, then, the assumptionmade, of course, by Disneythat the huge success of Tokyo Disneyland should have assured the success of Euro Disney rests on the belief of world homogeneity, that people of different countries and cultures are all attracted by the same entertainment theme. Perhaps they are, but apparently they are not all willing to spend precious funds to the same degree for such entertainment. A few students may point out that perhaps Euro Disneys problems were not so much differences in consumers, but rather in a flawed marketing and financing strategy in Europe.

Information Box Skimming and Penetration Pricing Undoubtedly a low penetration pricing strategy would have brought many more visitors to Euro Disney. What is less certain is whether the increased sales volume and much lower price margins would have resulted in greater profits, or less. If sales increase but less profit is made per dollar of sales, then the end result may be worse. Without some testing, the profitability of lower prices is uncertain. However, with the benefit of hindsight it is quite clear that one of the early mistakes

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of Euro Disney was pricing some things too high, and while frugal Europeans may still have visited the park, they did not partake of the expensive food and shelter. Even by 2005, Euro Disney, now named Disneyland Paris, still had not completely turned around, despite lower prices, more visitors, a 1994 restructuring and a major cash infusion by a Saudi Arabian prince. But the French government seems determined not to let this huge employer fail. See Update 2005.

Information Box The Breakeven Point A new venture often does not breakeven in its first year of operation. It may take some time for word of mouth to spread and for sufficient customer acceptance to be gained. It sometimes takes weeks or months for an operation to be smoothed out so that maximum customer satisfaction can be achieved. Furthermore, the early days and weeks of a new venture may require far more advertising and promotional expenditures than needed after a year or so, and such will increase the breakeven point temporarily. However, as some students should point out, if a new venture has little financial cushion, if it opened with limited resources, it may not be able to survive the time needed to gain a desired level of acceptance.

Information Box Disneyland Hong Kong Students should be able to come up with any number of creative ideas to better appeal to the Chinese. Some interesting ones have belatedly been introduced as described in the box. See question #7 for other more general marketing ideas. You may want to have students brainstorm on this.

Invitation for Your Own Analysis and Conclusions Students should be able to point out a number of errors that hurt Disney at the beginning and even for years after. You might want to steer them toward why such errors were permitted to happen. For example, sheer arrogance on the part of management all the way to the top should be identified. And there was poor planning, especially financial, which could be blamed on greed. A final destructive mindset was an unwillingness to accept and investigate how domestic French might differ from those more affluent who frequented Disney parks in the United States. Your students will come up with other

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factors, and then you might want to discuss which were probably the most salient, and why it took so long to correct the situation. Questions 1. At least two factors likely accounted for the serious misjudgment of the spending patterns of European customers. First, these customers were thought to be similar to those visiting Disney parks in the United States, and these were for the most part free spenders. In reality, however, the U.S. visitors tended to be far more affluent than their stay-at-home countrymen. Second, the depth of the recession in Europe, and its durability, seemed to have been underestimated. While these factors probably did not diminish greatly the number of visitors, they certainly affected their willingness to spend. 2. The impact of cultural differences on spending patterns is not easy to ascertain beforehand. But it needs to be considered and provisions made for some operational adjustments if necessary. To gain insight into such cultural differences, students will be quick to recommend research. Here you may want to pin them down as to the specifics of such research. For example, how is it to be done, who is to do it, what information is to be sought, and how large and formal a study will be needed? The common suggestion of students is to commission a survey of some kind, most often a large-scale survey to sample the entire population. Here you may want again to force your students to think out their vague recommendations: what questions should be asked, and how are these going to give Disney concrete information for making operating decisions? And what are the probable costs of getting this information? I think it would be difficult to obtain useful information by most large-scale surveys, whether by telephone, mail, or personal interview. Smaller focus groups, and/or perhaps some depth interviews with knowledgeable executives in a number of fields, such as banking, advertising, retailing, and other marketing professionals, might give some insights into possible cultural differences and what their impact might be. Even then, I'm not sure that the full measure of the subsequent creative frugality of spending would have been predicted. What do you think? 3. Generally top management must play a key role in fostering certain organizational climates. These "climates" can range from a strong commitment to ethical dealings, to customer service, to sensitivity and goodwill in dealing with foreign customers, officials, and investors. Top management needs to lead in communicating the desirability of such attitudes and behaviors, setting personal examples, and establishing incentives. Without such top management direction and encouragement, it is easy for an organization that is big and successful to fall into a pattern of arrogance and dictatorial dealings with smaller entities, as well as callousness in customer dealings. 4. The great differences in the success of Tokyo Disneyland and the problems of EuroDisney are probably best accounted for by cultural differences. The Japanese people are enamored with many things American; the French, a proud and not very tolerant people, have far less fondness for American ways. Add to this a serious recession in

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Europe and we have all the ingredients of forecast projections being far off the mark. 5. Student opinions will tend to differ somewhat on this. Most will hazard that some other location than outside of Paris would have prevented most of the friction. Yet the tradeoffs favored the Paris location. It was more centrally located, and had proximity to the largest European population as well as Paris, the largest tourist draw in Europe. Furthermore, the French government was as generous as could be expected with subsidies and infrastructure development. I do not really believe that the location decision can be faulted. But better efforts could have been made for working with and within a proud and unbending culture. 6. A small minority of vocal critics maintained that this project was an American cultural abomination, and condemned the alleged despoiling of French culture. However, to the majority of French and Europeans, and especially children, Mickey Mouse and Disney had universal appeal. 7. A strong effort directed to catering to travel agents, tour guides, and transportation firms would seem very desirable. We are not given much information in the case about efforts in this direction. And in its early arrogance, Disney probably gave little attention to these intermediaries, thinking that its appeal to final consumers would be enough. You may want to enlist your students' creative ideas for marketing Euro Disney to all concerned: consumers, intermediaries, investors, government officials, the press. Some of the fruitful ideas forthcoming might include special packages, price discounts, special events, promotional brochures, contests, prizes, and the like. For the important sector of travel intermediaries, Disney should offer inducements at least as good as alternative attractions. These should probably include attractive commissions for such intermediaries. For the enthusiastic cooperation of bus drivers, better facilities would seem a must. Some students may suggest giving special discounts to them and their families. At some point, you may want to caution your students as to how many special deals and discounts they should offer. Can this be overdone? And, if so, what might be the consequences? 8. Most students will be very critical of the idea of raising pricing at the very time when attendance is static, and new attractions are many months in the future. It would seem to be a decision of last resort, a short-term effort to boost profits. Yet, a few may argue that it is not such a bad idea. Ask them to support their views, that they may not be so bad after all, despite what the rest of the class may think. It depends on the slope of the demand curve, doesnt it? For the more affluent customers, this may be relatively inelastic, with demand not being so price sensitive. Only for the poorer is it likely to be highly elastic. Then many people still equate higher prices with higher quality. So, is this decision a mistake, or an attempt to increase profits sufficiently to be viable until better times come? A key consideration here is to recognize who are the prime customers? Isnt it likely to be families with children? Are the bulk of these likely to be affluent? Hands-On Exercises Before

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1. It is easy to come up with recommendations for more modest-priced offerings for Euro Disney, after the fact. You might want to remind your students that in the heady optimism of preparing for the grand opening and anticipating a runaway success like the other Disney theme parks, a skimming pricing decision seemed not at all imprudent. Alas, things do not always work out as anticipated. Some of the arguments your students should propose for having more modest accommodations and prices include: -- the recession in Europe which showed no signs of abating. -- typical French and European visitors to Euro Disney will likely not be as affluent as their counterparts who travel to the U. S. theme parks. -- lower prices will attract a much larger customer base, particularly for families with children, and such a volume of customers is particularly important as a new entertainment complex seeks to achieve a major impact in a new market. -- an image of being expensive and snobbish will surely turn off the masses, and be difficult to overcome. After 2. Here we have opportunity for creativity: what creative approaches can your students come up with for gaining more customers and revenues? You may even invite your students to brainstorm, to seek a sheer quantity of ideas. For the purpose of this discussion question, I have found it best to assume that more modest prices and accommodations have been set up, after the criticisms and lack of acceptance of the "luxury" mode initially established. Therefore, in our creativity, we are primarily seeking promotional ideas to bring more people into the park. But some students may propose changes in the product package, and if so, these may also be fruitful. After all, Euro Disney does not have to slavishly follow the entertainment package of the U. S. theme parks. After your students have come up with a number of ideas, you may ask them to support their rationale for them. Then you may ask them to prioritize their ideas and decide which have the most merit and should receive prompt attention. 3. How to get rid of an arrogant mindset? This would seem easily accomplished by not so subtle suggestions by consultants and/or upper management. But in reality, this is not always so easy. Particularly if the arrogant mindset resides in top management and then filters down in the organization. An operational VP is a notch below top management, and may not have the respect to accomplish much more than lip service throughout the organization. This exercise should stimulate your students human relations skills. The key here is selling the idea, as well as publicizing throughout the organization that planning and contacts with locals must be participative and not dictatorial. What do you think? Team Debate Exercise

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This is a most common controversy: should we be aggressive about this matter, or conservative? Are the gains likely to outweigh the risks? Often this is a gamble that no one can estimate with certainty. The aggressive approach assumes that the more money plowed into a venture the more likely the success. Conservatives shun such excesses and advocate a slow and steady approach. Either strategy might be satisfactory in the long run, but in the short run, given a worthy product/service, pouring more money into the project should more quickly bring it to profitability and success, although with more risk of being overextended. I certainly would not condemn being conservative and waiting for customer acceptance to develop with good word-of-mouth, but this will take longer. Your students can argue these two positions with neither side having a significant advantage.

Your Assessment of Latest Developments Can you criticize the present business plan, and will it transfer well to the Far East? While we are not given many details of the proposed rejuvenation of EuroDisney except that more expensive attractions are planned, the fact that attendance is merely holding steady does not augur well for the growth that was expected. Perhaps Disney should do further experimentation seeking more popular features. More research may be needed. The Far East should be a better market with its rising prosperity and hundreds of millions more potential customers. What do you and your students think? See question #7 for more marketing ideas.