Case Study: Walt Disney World Resorts and CRM StrategyBy CIOinsight | Posted 12-01-2003
Case Study: Walt Disney World Resorts and CRM Strategy
Sitting on a curb with their three children one humid afternoon in October inside Magic Kingdom, the oldest of Walt Disney World's four Orlando theme parks, Jeff Pawlowski and his wife were in a sour mood. Long lines demanded waits of as long as two hours at some rides inside the 47-square-mile fantasy extravaganza, and the lines at the food stalls and restaurants weren't much better. "Today has been the worst," Pawlowski complained. His wife agreed: "Our neighbor came home from Disney on Friday and said there were no lines. We came here on Saturday, and it's not what we expected."
The Pawlowskis aren't alone. Throughout the amusement park industry, long lines, fidgety crowds and high ticket prices continue to rank as the top customer turnoffs. Meanwhile, Disney's theme parks have been particularly hard hit by sliding attendance figures and decreasing revenues. Bob Iger, Walt Disney Co.'s president and COO, told securities analysts on Nov. 20 that the Parks & Resorts division took in $6.4 billion in revenues in the year ended Sept.30, 1 percent less than 2002's $6.5 billion, which was already down 8 percent from 2001. Iger blamed the sluggish performance on lower hotel occupancy rates and a further decline in attendance, which had already fallen 14 percent, to 37.7 million, in 2002, from a peak of 43.2 million in 2000. Analysts say international visitors are staying away, thanks to the flat global economy, rising anti-American sentiment and a continued fear of flying since the Sept. 11, 2001 terrorist attacks.
Ticket prices aren't helping: They've risen 20 percent since 1998, and at $52 per person per day, they're already at the psychological limit of what consumers are willing to spend for the theme park experience, say some analysts. Disney has cut ticket prices by up to 42 percent in some cases this year in an effort to drum up more business. That's stemmed some of the attendance erosion, Disney executives say, but it hasn't done much to the division's operating income, which fell 18 percent in fiscal 2003, to $957 million from $1.2 billion in fiscal 2002.
At the same time, Disney's costs continue to rise: Analysts say insurance premiums have nearly doubled since the Sept. 11 terrorist attacks, and health care and pension costs for the company's 54,000 employees in Orlando alone cost the company nearly $250 million in 2003. Analysts also note that capital expenditures for the parks were down significantly in fiscal 2002. That's exactly the cost-conscious environment that prompted Roy Disney, nephew of founder Walt Disney, to refer, in his Nov. 30 letter of resignation from the company's board of directors, to "the timidity of [the company's] investments in our theme park business."
Clearly, the goal for now is to do more with less. And Walt Disney Co. CIO Roger Berry is at the center of that mandatebut not for all the usual reasons. To help Disney usher in what Disney Chairman Michael Eisner has called the company's "digital decade," Berry has been helping to create a risky but cutting-edge technology strategy designed to help Walt Disney World restore the luster of its aging brand, increase efficiencies and boost attendanceas well as the bottom line. Berry's mission: to use Walt Disney World as a test bed for one of corporate America's most ambitious tryouts of the business use of IT convergencethe combination of global positioning satellites, smart sensors, wireless technology and mobile devices, including one that looks like Mickey Mouse himselfto reinvent the customer experience, influence visitor behavior and ease crowding throughout the parks. The goal: to reduce the hassle for visitors to the park by creating a more personalized environment, with IT at the core. "The role of IT is changing," says Berry. "It's not simply an organization that deploys technology, but one that now integrates technology from a lot of different angles to improve the customer experience."
Leading by the Nose
For now, the most visible manifestation of the new strategy is a 10 1/2-inch-tall stuffed doll called Pal Mickey. With a powerful infrared sensor in its nose, the doll acts as a virtual tour guide, providing tips on which rides have the shortest lines and information on events. How does it work? A zipper in its fur conceals a central processing unit, an internal clock, small speakers and a tiny infrared sensor. When the doll is carried into the park, the sensor receives a wireless data upload from one of the 500 infrared beacons concealed in park lampposts, rooftops and bushes, which transmit information from a Disney data center. The signals let Pal Mickey know that it's time to "tell you a secret," says Bruce Vaughn, who led the Disney R&D team that developed the doll's prototype. When the doll receives a new piece of information from a nearby beacon, it giggles and vibrates to indicate that it has something new to say. Squeeze its hand or stomach and it will tell you about an upcoming parade, a shorter line at another ride, or trivia about the area of the park you're walking through.
With more than 700 prerecorded message variations, Pal Mickey always has something to say, whether it's telling a child a corny joke or keeping kids entertained with interactive games while they wait in line. The product was designed for kids, says Michael Colglazier, vice president of operations strategy and technology at Walt Disney World, but "when we tried it out on kids in test research, they'd hear Mickey, and then they'd put him up to their mom's or dad's ear." Vaughn says Pal Mickey also tested favorably on a majority of adults "because suddenly they felt some of the pressure being lifted of having to know everything [about the parks] and make sure they weren't missing anything."
Technologists speak of Pal Mickey as an experiment in bridging the gap between static data about a customer and the customer's dynamic behavioral preferences, which depend on the customer's physical location and movements at any given time. In other words, it's all about dynamically matching data with contexta new concept and the next big development in the evolution of CRM, in the view of futurist Paul Saffo, research director of the Institute for the Future in Menlo Park, Calif., a technology think tank. C.K. Prahalad, the Harvey C. Fruehauf Professor of Business Administration at the University of Michigan Business School and coauthor of The Future of Competition (due out in January from Harvard Business School Press), agrees. "Disney is experimenting with a customer strategy that goes beyond today's CRM," he says, "using not just the data, but data in the context of individual customer behavior."
The subject of location awareness makes some consumers skittish about the potential for privacy abuse. Indeed, some skeptics warn that such persuasive technologies cross the privacy line, especially when they appear to be friendly. "Is it potentially creepy? Yes," says B.J. Fogg, director of Stanford University's Persuasive Technology Lab. "But because Mickey Mouse is the interface for customer interaction and has such credibility with people, Disney can do things with persuasive technology that probably a Microsoft or a WorldCom could not."
Disney executives acknowledge that there was some worry that Pal Mickey might be seen as a customer tracking devicemore of a Big Brother than a trusted tour guide. But Disney insists that as they consider how to make Pal Mickey even more interactive, the intent is to help parkgoers customize their Disney experience for maximum value and convenience. In any event, says Berry, Pal Mickey isn't a collector of personal data. "We push data out to Pal Mickey," he says, "we don't pull anything back." Like other companies, adds Colglazier, "we have other ways of collecting [customer] data."
For now, Disney is betting customers will see Pal Mickey as a convenience. The doll's ability to surprise parkgoers with relevant information in real timeto have Pal Mickey tell you as you're walking through Adventureland, for example, that "pirates are sneaking around," and then to turn a corner and spot Captain Hook and Smee signing autographs for a group of childrenhas proven to be more of a delight than a cause for alarm over privacy. Already on sale is a Spanish-speaking Pal Mickey, and other languages are being considered. There's also talk of creating other "skins," such as a Pal Minnie or Buzz Lightyear.
Pal Mickey isn't the only effort on Disney's part to beef up results at the division. Under Destination Disney, the name for Disney's new customer experience strategy, the company intends to leverage technology, both up front and behind the scenes, in hopes of personalizing the park experience. It starts with an expanded uber-database of customer information that can be updated on the fly, giving Disney more insight about its customers. "Historically, if you went to a theme park twice in a row, Disney was unlikely to know that, and if you went to two different parks, Disney definitely wouldn't know that," says John Parkinson, chief technologist for the Americas for Cap Gemini Ernst & Young and a CIO Insight columnist, whose company has advised Disney on its customer strategy. Now, though, Disney will be able to slice and dice data to influence a customer's total vacation experience, from the hotel to the park ride. It can also make assumptions about visitors' buying behavior and personal preferences in real time, and refine those assumptions as it collects more data about customers.
Once in the park, the idea is to be able to give parkgoers up-to-the-minute information specific to their preset preferences via their cell phones. Got a restaurant reservation in a half an hour? Disney will remind you to keep it by sending a text message to your cell phone. Don't want to miss the fireworks? Your PDA will beep you.
Disney wants to make that data accessible across all lines of business, so that any employee at any given time can access or add information to a visitor's profile. For example, the same information that a visitor might give to a reservations agent when booking a vacation could be viewed later by the visitor's hotel concierge, who could then make personalized recommendations without having to ask the guest for any additional information. "If they know, for example, that I spent a lot of time in the Dinosaur exhibit at Animal Kingdom, because I bought a lot of stuff there using my park pass, the CRM engine could figure out that if there's a special-edition DVD coming out, they should tell me about it," says Parkinson. "And if there's a special screening of a Dinosaur IIif they ever made such a filmthey might send me an advance screening notice and maybe an invitation to a first-run event in my town."
Another initiative that ties in with Destination Disney is a Web site called Magical Gatherings, specifically intended to boost new revenues and group business bookings by encouraging far-flung family members to collaborate online to plan their next reunion or group event at Disney World.
Jordan Rohan, an analyst for SoundView Technology Group Inc., an Old Greenwich, Conn.based securities research firm, says that Disney's strategy appears to be on target with what the company needs to do to increase business, particularly during the lull in the summer and fall between the most popular winter and spring tourist seasons. "In the next few years, Disney needs to use the Internet to capture the e-mail addresses of every Disney visitor and potential visitor. With that capability, Disney can have more control over guest attendance by offering very specific promotions to highly valued guests," he says.
Destination Disney doesn't stop there. Berry and crew are also rolling out interactive, location-aware programs to help Disney executives cut costs on the back end, in park operations and logistics. The effort will include helping to manage the park's fleet of 267 buses, which shuttle an average of 150,000 parkgoers a day. GPS and mobile Internet technology let Disney run its fleet based on real-time customer demand rather than set scheduleshelping to eliminate lines and wait times as well as cut excess operations costs.
Down the road? Disney says it is looking to expand its digital-imaging services. Executives won't elaborate, but insiders say this could include a program that may, for example, let visitors staying at a Disney hotel use their room television sets to review and buy photographs taken of them on rides during the day. Berry also says the resort is looking to improve Fastpass, a service that allows visitors to schedule ride times, thus avoiding long lines. And some Disney observers expect even more experience-driven pyrotechnics, including a form of pay-as-you-go pricing. Rather than charge customers one fee for the entire day, data-smart cards linked to Disney's customer database could help Disney return to a multitiered pricing structure such as the old A-ride, E-ride approach, which charged customers more for the best and most popular rides. The concept is just another aspect of the effort to use technology to attract people back to the parks and perhaps segment customers for customized rewards according to the frequency of their business. "I think what we're going to see is something sort of revolutionary," says Tim O'Brien, senior editor of Amusement Business magazine, which tracks the industry.
The Stakes are High
Will the strategy work? Theme park analysts and business strategy experts say it's a tall orderand a risky one. They suggest that Disney's new CRM strategyahead of that of rivals Universal Parks & Resorts and Six Flags Inc., and more comprehensiverepresents an experiment in the way businesses might interact with customers in the future. "The problem with today's CRM is that it doesn't engage consumers as equal problem solvers in the quest for value all around," says Prahalad. "The way CRM has evolved, unfortunately, is by taking a company-centric view of customers rather than using customers as co-creators of value. With Pal Mickey and other initiatives as first steps in a longer journey, Disney is attempting to redefine CRM, using it as a co-creator of experiences to help find and deliver value." And making that fundamental shift won't be easy. "It's like everything that no one has done before," says Parkinson. "In theory, it's great. But in practice, there's a whole host of things you have to figure out how to do, from practical engineering-type things all the way up to measuring the acceptability with the target population segment."
Meanwhile, analysts warn that company officials need to be mindful of their product. "Technology alone is not going to solve the problem," says Patrick McKeigue, an analyst at Independence Investments in Boston. Adds Jessica Reif Cohen of Merrill Lynch: "It's important to keep the attractions fresh. To keep people coming, they need to have new attractions or events. That's the issue with theme parksyou have to constantly reinvest."
To be sure, it's a far-reaching experiment, say analysts. But it's a must-do in a corner of the entertainment business where competing for customers will be increasingly tough amid a sensory onslaught of digital and interactive experiences, an explosion of new digital and media devices, and a marketplace increasingly filled with customers who have no clue as to what it was like to be in an old-fashioned, digital-free environment.
"Disney's only real riskand it's a big oneis to know when to be digital and when to be human, and therein lies the greatest challenge with the next era of CRM as defined by Disney," says Saffo. "Sure the technology is tough, but the real test will be in knowing what to control and what to leave to chance. Either way, Disney's experience will be a lesson to us all in how to do customer service for the 21st century."
Understanding Disney: The Manufacture of Fantasy
By Janet Wasko
Polity Press, 2001
Persuasive Technology: Using Computers to Change What We Think and Do
By B.J. Fogg
Morgan Kaufmann, 2002
By Erik Pfeiffer, MIT Technology Review, Sept. 2003
Walt Disney World's official site
A critical perspective on the
Walt Disney Co.