Megan Carolin Chris Ramento



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Distribution Issues

In the placement of our product, the resort and theme park will be located just outside of the city of Mumbai. Mumbai is very overcrowded and land is difficult to find, so therefore with constructing such a large project, we much locate in a suburb of the city. Additionally, according to Anand Prasad who I interviewed, he mentioned that Mumbai land sells at Manhattan prices, which are very expensive. We have chosen the town of Trombay. A rail line runs from the city to Mankhurd, a station very close to where the actual project will be constructed. This station is on the Harbour Line of the Mumbai Suburban Railway An additional Disney rail line will connect from this station to the park, increasing public transportation to Disneyland. Land is available here, it is on the water, and a large portion of the target market, teen agers and families, are starting to reside near this suburb. Trombay is still known more for its industries than a residential suburb but this is fast changing, as Trombay has a cosmopolitan population that is dominated by Tamilians.49 The location will impact our distribution strategy.

Channels of distribution provide the vital connection between producers and customers. For Disneyland India, distributing our product, which is a stationary themepark just outside of Mumbai, will require some distribution strategies as far as reaching many people via ticket sales and through the promotional strategies. In determining our channel structure and relationships, there are few things we have to consider, stemming from the “11 C’s” of distribution management. The first is customer characteristics. Goals for this include understanding when, why and how they buy, in order to shape the distribution around them. Internally, channel structure can be built on company objectives, coverage and communication. The company objectives of distribution of ticket sales are to penetrate the target market in both the city of Mumbai, but also on a national and regional level. With coverage, we want to use the approach of selective coverage, which entails choosing a number of intermediaries for each area to be covered. However, we are hoping the few channels and intermediaries used reach a wide audience. Lastly, communication is going to play an important factor. There will be a degree of cultural distance between the two entities in the distribution chain. Management of the chain will probably be controlled to an extent by corporate from America, with most of the distribution utilizing native employees, which can have norm, value and working method clashes.

With these ideas in mind, there are a few goals to be set for the coming 3-5 years. One is to maximize coverage and outlets in ways to keep ticket sales high and resort occupation maximized utilizing various channels. Secondly, with distribution, there needs to be other creative ways past the theme park to draw customers to it. Third, we would like to expand coverage of distribution into other neighboring countries in the region to draw foreigners to Disneyland India. Lastly, the distribution of ticket sales and other sales related previous to arrival at the park need to be quick and easy to update the database keeping tabs on the number of guests arriving to the park and resort. This will prevent overselling the resort, which will result in too much crowdedness, long lines, and overall lack of consumer satisfaction.

Disney’s ticket distribution goal for other parks has to pre-sell as much of the vacationer’s time at the park before the vacationer ever leaves home.50 This reduces time spent in line to get tickets and other purchases and makes the consumer experience much more pleasant.

In order to reach a large audience, and also try to sell as many tickets and resort features (such as hotel rooms, dinner reservations at select restaurants, backstage passes, etc.), we need to utilize the best distribution channels available. With the number of users on the internet in India rapidly growing, we need to maximize the online channel. This will include both the Disneyland India site allowing for an easy to use ticket sales system, along with looking at outside companies to increase sales for those not visiting the Disneyland website. In 2004, the Disney resort’s sales and distribution vice president Norbert Stiekema said, “’It is directly in line with our distribution strategy to sell through internet channels and offer guests the flexibility to plan their holidays the way that they want to.”51 Other online distribution channels could include ticketmaster.com or the comparable website in India, lastminute.com comparable website in India, or other various high traffic websites that the target market might use, see if tickets can be purchased from that sight. Past the online channel for ticket sales, direct selling without intermediaries can be used at high traffic areas in Mumbai and around the nation. This could include kiosks in the malls, airports, densely populated residential areas, and maybe even at the hubs for public transportation systems. This will provide another channel for those that might not have access to the internet or find that process much more difficult. Also with distribution of ticket sales, travel agents can be an important intermediary to sell the product to the consumer. It is important that they can help assist in sales and recommendation of the resort to their clients.

There also needs to be creative ways in order to sell Disneyland India to those not aware of the park and not familiar with the brand name. Possibly with the opening of the theme park, opening a few select Disney stores in malls with plush products and Disney apparel can help stimulate interest from those not familiar with the company. If a few of these regional Disney product stores open, and also provide information about the newly opened theme park with the availability to purchase tickets at the store, this results in reaching a population that was incomprehensive of the brand. Stimulating them to first interact with store merchandise, and then be informed about this theme park through engaging advertisements on TV and on signs within the store, can help boost ticket sales while at the same time spreading the footprint of Disney outside of the theme park and resort in Mumbai.

We would also like to expand distribution of ticket sales to the regions outside of India within a couple years after initially opening. The rationale behind this is to drive foreigners to both Disneyland but also to increase tourism for the country of India in Mumbai. Going into India as a Foreign Direct Investment (FDI), If we try to increase tourism it is possible the India government will allocate some funds and resources to us for generating growth in their country. Tourism in India isn’t as strong as it should be and the government wants to try to increase it. In 2006, the country received only 4 million tourists from outside the country, which is staggeringly low.52 Although the number of tourists has increased 13% over the past couple of years, we are hoping that Disneyland India can promote more tourism to the country, which in turn the company will get rewarded by the government for their part in helping the tourism industry. In order to increase these ticket sales to outside countries, besides utilizing the internet channels, we will also seek to look into opening sale centers and kiosks in selected cities. This could include cities such as Karachi, Colombo, Bangkok, Dubai, Muscat, and Riyadh. This will also help expand the name of Disney to new countries.

Lastly, the goal for quick and easy sales to needs to be reached. With all transactions occurring online, and instantly updating a database on ticket sales and other various sales associated with Disney, this will increase efficiency of the distribution and prevent overselling of the park. Therefore, along with the distribution strategy, we need to maintain an accurate, easy to use, and compatible database for all Disney associates to be able to use and monitor to keep an eye and take statistics on ticket sales. Effective management and updating of this will need to be required. With execution of these distribution strategies, a higher number of users will visit the park, and larger revenue and a shorter period of time for profit will result.


Distribution Action Steps:

When

By Who

Budget

KPI’s

- Set-up and maintain ticket sales channel’s online

Pre-opening, monthly

Online Distribution Channel Manager

$4 Million USD

- % of ticket sales from online

- Set-up of ticket sales centers and kiosks in India

Year 1

India Distribution Manager

$6 Million USD

- # of visitors per day at locations

- Effectiveness


- Expansion of sales internationally

Year 3

Eastern Asia Sales Manager

$10 Million USD

- Ticket sales total

- Packaged ticket & resort sales



- Database management for ticket sales and volume

Pre-opening; Weekly

Sales Database Manager

$2 Million USD

- Ease from corporate usage

- Alertness when oversold; undercapacity, etc.




Expected Financial Results

With the opening of the Disneyland India just outside of Mumbai, we are hoping to achieve successful returns on the investment, through maximizing sales and the number of people visiting the park on a daily basis. The company needs to be willing to take a hit in profit in the first couple years of opening. With how much the project is going to cost, coupled with the small necessary adjustments the park might have to make to be as fluent with the cultural differences as possible, we don’t expect to see a profit within the first three years of the park opening. Anand Prasad said that it took both Coke and PepsiCo a very long time to be profitable in India because the culture had to adjust to those brands. Similarly, it will take some time for Indians to be aware of Disneyland and also adapt to it. He also mentioned that Indians work on the basic of relationships. The company needs to work with the government, opinion makers, and the guests visiting to increase the success of the park. Additionally, we must make sure to train and hire the right people for the right jobs. The job market around Mumbai is huge, and thus we can be very selective with hiring as success is based on how well trained the employees are.

Although profits won’t be immediate, to say success won’t result isn’t true. The opening of theme park should be successful and the generated income should be large from all the background, research, and adaptations that the company is making to adjust to the culture, demographic, language, governmental and legal differences. With have already opened three other international parks, Disney’s sixth theme park outside of Mumbai should be the most prepared for success.

Figure 2.1: Disneyland Estimated Costs of Development


Expenditures

Cost (in millions of USD)

Purchase of Property

850

Research & Development

12

Planning of Park

10

Construction Costs of Park & Resorts

880

Legal Costs

14

Utilities

11

Salaries & Wages Payable

42

Transit Systems to Park

23

Adjustments to Development

8

Other Expenses

150

Estimated Total Expenses

2,000

The expenses above in Figure 2.1 demonstrate the total cost for the opening of the resort. The other expenses include the costs expected in the marketing plan, which are the estimated costs for the promotional strategies, supply chain management, product costs and also the distribution costs. As you can see, the cost for the opening of the project will cost roughly 2 Billion USD. This is significantly lower than how much it costs for the opening of Disneyland in Hong Kong. Hong Kong’s total cost for opening their park was 3.5 Billion USD.53 Hong Kong is more costly both land and labor. This is one of the reasons for why the associated costs for this project will be significantly less expensive.

Based on ticket sales and capacity, we can also estimate how many people will come to the park throughout the first couple of years of operation. The parks maximum occupancy will be 40,000 people, which is 10,000 more people than that of Disneyland in Hong Kong. We project the park to maintain a 75% occupancy rate on average throughout the first five years. The park is expected to be open throughout the majority of the year, only closed on certain holidays throughout the year. The park plans to be open at least 360 days within the year. With the ticket prices for children, seniors and adults costing nearly $50, $55, and $60 respectively, we can use all of this information to calculate the project revenue generated in park ticket sales.
30,000 occupancy rate average x 360 days per year = 10.8 million attendees per year

$58 avg. ticket sale price x 10.8 million attendees = $626 million per year in ticket Revenue


Since the occupancy rate average is for the first five years, we could estimate that this yearly revenue for all five years. However, ticket prices do rise every year at most Disneyland theme parks by a small percentage, which we’ll estimate at 3.5%. If looking at Figure 1.2 below, we can look at how much revenue will be generated during the first 5 years of operation based on the slight increase in ticket sales.

Figure 2.2: Projected Revenues


Year

2012


2013

2014

2015

2016

Revenue (in Million USD)

626

648

671

694

718

Operational Costs also are going to factor into the cost and projections of the park. Yearly operational costs are expected to be close to 250 million USD. This is based on the staffing costs, and also costs of maintenance, research and development, upkeep of the park, and other additional factors that make the park run smoothly from open to close. The operating cost is expected to increase at a small rate of 2.5% per year, based on price escalation in wages and other factors.


In Figure 2.3 below, we can take a look at between the factors of how much the park costs, producing a debt, and then the expenses in operating costs, and the revenue from ticket sales. As you can see, in the fourth year after the park opens, it is expected to receive a profit and pay off for all the debt incurred from the purchasing of land, development, construction costs and other factors. Once this is paid off, we can see the parks profit should be significant for the following years.

Figure 2.3: Disneyland India Financial Forecast (in Millions USD)



Year

2012

2013

2014

2015

2016

2017

2018

2019

Debt

$ 2,000

$ (1,474)

$ (929)

$ (363)

 

 

 

 

Operating Costs

$ 100

$ 103

$ 105

$ 108

$ 110

$ 113

$ 116

$ 119


Revenue

$ 626

$ 648

$ 671

$ 694

$ 718

$ 743

$ 769

$ 796

Net Profit

$ (1,474)

$ (929)

$ (363)

$ 224

$ 608

$ 630

$ 653

$ 677

We believe that this forecast is quite accurate, but there are some concerns with it and the overall budget. It is hard to estimate the number of people that will stream through the park, so if that number changes significantly, the revenue generated can also fluctuate quickly. Additionally, the park might find that it will need to hire more individuals to staff and ensure proper guest satisfaction, and therefore the operating costs of the park could increase significantly.

Additionally, the price escalation in wages, although taken into account, can rise at a quicker rate. India is one of the fastest growing economies in the world, with the wage demands of workers increasing. It is possible that the operating costs are underestimated and therefore the park’s profit could take longer than 4 years. Lastly, with the cost of development estimates, some might be off significantly and can factor into how much debt the company will have before operations. Land could cost more and also for the construction of the park. Concerns for the park would include outside competition, theme parks also entering the Indian market, which might take away a population of the individuals that visit Disneyland yearly.

Overall, having the mark make a profit after 4 years of operating is an excellent mark to reach. After year 2016, Disneyland India will look to grow the park with new rides, themed area, restaurants, and upgrades with having the additional allocations in funds. This will keep the guests to the park coming back year after year.

Interviews





Date:

October 3, 2007

Interview conducted by

Chris Ramento

Interview with:



Name

Mr. Andy Bird

Title

President

Company

Walt Disney International

Contact Information

Andy.bird@disney.com

Key Topics to be discussed:




  • Communication with fellow employees

  • Tolerance and patience

  • Disney Employee info

  • Adapt business strategy to the specific country

  • Find the right people

  • Leadership is to understand people.

Notes:



  • Nothing is certain, there are no rules on how to achieve anything

  • You have to earn respect from others

  • You have to be willing to meet others and have tolerance and patience

  • Be a good listener

  • Work hard and success will come

  • Being committed not just for money but for enjoyment

  • Competition is good, will help raise the bar

  • One step at a time

  • Understand the culture and their differences

  • Its important to be efficient

  • Adapt business strategy to individual areas

  • It’s important to watch the world go by




Date:

April 15, 2008

Interview conducted by

Megan Carolin




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