Disney is a global company with numerous activities, all around the world locations and substantial revenues. In order to review this gigantic cluster of business processes it is necessary to perceive it as one entity present within several radically different industries at the same time.
There are theme parks in Orlando, Anaheim, Paris, Tokyo, Hong Kong and the most recent one, in Shanghai, will be open in June 2016. Such expansion into Asia is a strategic move with more businesses relying on the increasing middle class in the region. An investment of $5.5 billion into the Shanghai Park is an ambitious decision supported by the grounded reasoning. According to Disney CFO Rasulo, such strategy will pay off in the long term (Bloomberg Business, 2015).
A theme park is a complicated organism that requires multiple resources, thus every radical decision needs to be taken into the most serious account. Disney is an example of an innovative company in a rather industrial sector, though perceived as creative at first, which supports its solid position on the market. One of the five forces adding to the competitive environment is new entrants. Financial factor plays a significant role for a company aiming to enter the industry, and the cost of building a new park in Shanghai is a vivid example. Another issue for a new entrant would be brand awareness and its positioning, while the existing brands are dominant. Disney alone sets high barriers for entrants to be unable to apply even the low-cost strategy, while the cost that Disney and their major competitor Universal have established are affordable for people. Even though the prices have risen, for example in Hong Kong, the customers welcomed the new pricing policy, as stated by Andrew Kam, the managing director at Hong Kong Disneyland (CNBC, 2014). Thus, this competitive force is rather low and will probably remain on the same level while the increasingly high entrance barriers. The industry will be unattractive in regions where Disney is present. Europe might give more opportunities for theme parks to increase their market share, but only on a regional scale, which means small profit and lack of opportunity for development.
Modern technology due to its fast development offers new entertaining experiences, for instance virtual reality, thus it is considered to be the major threat to theme parks. Technology tends to achieve reality simulation and pushes this intent to the achievable limits. However, current computer games or virtual reality do not provide experiences that can be received in real life. Such substitutes can achieve only unique formats, media etc. that are unfamiliar to people. Therefore, the following question arises: Will they win customers' hearts? The chances are high. MyMagic+, an electronic wristband that enables operations and transactions at Orlando Disneyland, exemplifies how technology can be integrated into the existing infrastructure. It was a major challenge for Disney with collisions between various departments (Carr 2015). As a matter of fact, it is possible to integrate the substitutes to provide absolutely new experiences for the visitors. However, though now the force of substitutes is relatively low, it will continue to increase in future. In case Disney perceives the integration of every major technological innovation as a complicated , as it happened with MyMagic+, this force will either become a major threat as a substitute or will challenge Disney's brand core components which is the company's most valuable asset.
As a complicated structure, a theme park needs to collaborate with partners in a variety of industries. Suppliers are one of them. The supply of energy in Orlando, for example, logistics, hotels, food etc. is under control of Disney. The park attracts many suppliers. The financial dominance of the company provides an opportunity to negotiate prices with suppliers. The force is low in power, and will only increase in case of unpredictable circumstances that will reduce the number of suppliers.
The fact that visitors love Disney is undisputable. Its great content attracts more visitors. While in the US bringing children to Disneyland has been a family tradition for generations, it is a rather new experience for Asia, according to Andrew Kam. The buying power is growing in China which is a highly populated area. A combination of quality and quantity that is pleasing for the industry has made the bargaining power of the buyers rather low. 47% of visitors in Hong Kong come from the mainland. After the prices increased, the visitors continue returning and appreciate the value provided for the established cost. The continuous price increase can be projected in Hong Kong and the rest of Asia, with buying power taking over the buyers' bargaining power.
There are not many large scale theme parks in the world that can be compared to Disneyland parks. In the US Universal Studio theme park can be considered a competitor to Orlando Disneyland, if the localization variable is taken into account. The core of the competition is in the content that the rivals are able to provide. While Universal Studio theme park is putting emphasis on Harry Potter theme, Disney is developing the Avatar one. Both companies are able to produce mainstream content in order to attract millions of clients. Competition between the discussed companies can be evaluated as high, though the logic behind it might not be evident. The rest of the forces demand less competition in the middle, however, rivalry depends on other factors as well. The fact that theme parks in Orlando, Florida are located close to each other results in heavy competition. It is evident that they are in a position that allows them to compete. A completely different location issue will arise in Asia. Regardless of their close location both parks in Shanghai and Hong Kong will operate under the same brand, thus the relationship between the two can be considered a coopetition. In any case, the location of the theme park determines the competition level. Other forces will vary in their influence on company's positioning strategy.
The existing companies possess a great potential for profits. The expansion of Disney into Asia is an important factor that sets high barriers in one of the most promising economies of the world. New entrants as well as attempts to gain a market share might appear, for example in South Korea, thus creating competition on the local level. The US market will always focus on a technological aspect, and some strategic decisions on how to adapt it will have to be taken even more often. Suppliers can become strategic partners for new entrants. However, the bargaining power of customers will reduce in Asia. As for Europe and the US, the activation of the forces can enable new entrants to develop a differentiation strategy, which might result in a sustainable threat to Disney in particular.
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Disney's strategy is adopted by the five forces discussed above. The fact that there are only two forces that can influence the company's positioning defines one of the four generic strategies the company is aimed to achieve. The cost of content production and the nature of the industry deny the possibility of the narrow scope positioning. Thus Disney has only two generic strategies to choose from: cost leadership and differentiation. Michael Porter, in his interview, suggests that it is better for the companies to set themselves apart and find a place that would be better for them than try to win customers through prices (Harvard Business Review, 2008). Disney understands this and tries to keep prices at a reasonable rate, while producing unique content that helps to achieve brand loyalty and thus secure the position of the company in the market.
The Value Chain
As it has already been mentioned, theme parks are a complicated organism. Therefore, they perform multiple activities in their value chain, thus it is possible to assume that they have smaller value chains within the major one. However, these complex activities can be generalized in order to better understand how the company creates value. Content creation is one of the key activities which help to achieve the differentiation strategy. The division of 'Imagineers' is responsible for developing the actual physical experience generators. This department is one of the primary focuses of Disney. Another important activity is operations. The mechanics of a theme park prevents huge lines, crowds etc. that creates positive experience for the visitors. Infrastructure is highly important since a large theme park has the same needs as the city and these needs must be attended to. The second support activity of high priority for Disney is technology development. The investment in MyMagic+ is a proof of this claim, since numerous resources have been collected to create such a tool. Human Resource Management is among other essential activities as at Orlando park the number of staff members is over 70, 000.
The above mentioned HR is not the only that Disney possesses. The financial opportunity that the company received due to smart long term investments is an important resource for the industry. Disney exploits the value of this resource into the new markets expansion, for example the Shanghai theme park. It makes the content expensive to produce, so that entrants would be simply unable to come close in content generation. Financial resource is not only important for the Disney company. Film production studios need an access to finance as well. The resource is also purely imitable; in fact it is possible to raise even more money than Disney to enter the market, though the task is extremely complicated. The organization is ready to capture value that finance can generate in the long term.
Technology is a resource that Disney uses to receive new opportunities (e.g. MyMagic+) and considers it of high value. The rarity factor of technology is always present as installing any kind of hardware and software remains a complicated task. In addition, it might seem not difficult to imitate on the concept level, however, to execute the imitation is a complicated task. The problem for Disney is the ability of the organizational structure to adopt and accept new technology. This problem is familiar to most big companies.
Finally, brand equity is the most valuable resource for Disneylands all over the world. It enables the differentiation strategy, it is utterly unique and any attempt to imitate or copy the brand is bound to failure. Finally, the organization is permeated with the brand and will continue to build upon the tradition that lasts for decades.