Tokyo Disneyland (3): New Pricing Policy Needed For Sluggish Demand
On 9 May 2005, Oriental Land Co, Ltd ("OL") announced changes in the company's top management. They were feeling the heat not only from the humid weather in Tokyo in the rainy season but also as a result of the visitors' numbers that had just come in. The total combined attendance at Tokyo Disneyland Park and Tokyo DisneySea Park for the fiscal year (1 April 2004 to 31 March 2005) amounted to 25.021 million guests, 98.2% of the previous year's attendance. The top management was concerned that this decrease in attendance might be a bad sign of tough times ahead and it was a prime example of a successful foreign investment in Japan now caught in a completely new structural change. The factors that had been critical to its past success were now diminishing. The top management thought that the amusement park and leisure land industry provided little cause for optimism, due to factors such as slackening consumer spending and demographic changes. Under these conditions, the top management felt that a study was needed to determine whether OL could diversify the operating base. They specifically wanted to know whether the current pricing policy was effective under deflation, which the Japanese economy had been suffering for a long time, and how changes in pricing to visitors, if necessary, would affect the company's cash flow in the future. The new pricing strategy would be based on the price elasticity of demand by the visitors to the company's services.The top management asked the planning department to study the possible price changes and use net present value ("NPV") methods to evaluate these alternatives on the effect of the future cash flow. The strategy would also need to incorporate the company's long-term strategies.