The five forces model focuses on different factors in an industry that can affect the strategy and business operations of a company. The analysis of Walt Disney Company is provided below:
Threat of New Entrants
New companies planning to venture into an industry take the cost of setting up a business, economies of scale and competition into consideration. Walt Disney Company is a part of mass media and entertainment industry, which is seen as a hard market to enter by the new firms. The industry has some well-established corporations such as Walt Disney, making it difficult to compete against such conglomerate businesses. Setting up a strong position in media and entertainment industry requires a large capital input, along with the needed technology and human capital to create a distinctive competitive advantage (Vogel, 2014). Furthermore, developing contracts with the distributors, and finding suppliers who offer reasonable prices can be a challenging task for new entrants. Without a sound financial backup, it is difficult to overcome the competitive pressures from existing corporations.
Bargaining Power of Buyers
The buyers of media and entertainment industry belong to different age groups and socio-economic status. This diverse set of target market provides the company to innovate the products for each of the segments of its market. Moreover, the customers of Disney have well established brand loyalty, thus they are not likely to engage in negotiating for the price. Even if the price is increased for the Disney products, the consumers continue to spend on their purchases and there is no significant decline in number of buyers. Walt Disney has taken benefit from this factor and is able to make changes in the ticket price of the theme parks, as well as change the price of its merchandise (Purcell, 2018). In addition, the merchandise manufactured by the company is targeting people who are willing to pay a higher price for a product that resonates their brand loyalty. Therefore, it can be seen that the bargaining power of buyers of Walt Disney is low.
Bargaining Power of Suppliers
The suppliers in the media and entertainment industry include the technology suppliers, distributors and businesses selling raw materials to manufacture the merchandise. Disney has formed supply contracts with both, local companies and international corporations, depending on the scope of investment and the type of supplies needed. Since Disney is a huge player in this industry, the suppliers try to maintain functional relationship with the firm. Moreover, the industry dynamics are as such that these suppliers have moderate level of bargaining power. The suppliers have to focus on continuing their supplier contracts with such large scale businesses, rather than engaging in intense negotiating.
Threat of Substitute Products
The ability of Walt Disney Company to understand the needs of the customers and provide them with the quality of entertainment they are seeking makes it a hard to replicate business. The buyers can opt for other media companies and sources of entertainment, but they are not likely to find the same quality experience. The cartoon and movie characters have been used as a competitive maneuver to reduce the threat of substitute products. Since the customers of Disney are brand loyal, there is low likelihood of these loyal customers switching from Disney to some other entertainment provider. Some of the customers may show price sensitivity and would opt for low cost entertainment options as mentioned by Harwell (2015). Nevertheless, an overall outlook of the company indicates that there is low threat of substitute products.
Competitive Rivalry
Walt Disney Company faces high threat of competitive rivalry from other firms in the media and entertainment industry. Even though the company has been able to attain a large market share through its movie and theme park businesses, its lead competitors such as 21st Century Fox, CBS, and Time Warner Company continue to pose risk to profitability. The company has launched its consumer products as well, besides the strong presence in movie and TV segments to make an effort to maintain a strong market presence despite the competitor’s strategic moves (Daft, 2008). The theme parks continues to bring in significant revenue for the company, while a leading position in the media network segment helps the company to deal with intense competitive rivalry.
References
Daft, R. L. (2008). Management. USA: Thomson South-Western.
Harwell, D. (12 June, 2015). How theme parks like Disney World left the middle class behind. The Washington Post. Retrieved from https://www.washingtonpost.com/news/business/wp/2015/06/12/how-theme-parks-like-disney-world-left-the-middle-class-behind/?noredirect=on&utm_term=.7f995285fa9b
Purcell, C. (12 February, 2018). Disney Raises Theme Park Ticket Prices in Effort To Reduce Crowding. Forbes. Retrieved from https://www.forbes.com/sites/careypurcell/2018/02/12/shorter-lines-at-disney-world-will-cost-you-trying-for-crowd-control-disney-raises-ticket-prices/#5a5b1cf14e5e
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis UK: Cambridge University Press.