The Walt Disney Company uses its strong brand as an advantage to address competition and the related external factors specified in this Five Forces analysis of the global business. Michael E. Porter’s Five Forces Analysis model is a managerial tool for understanding the industry environment in terms of external factors that affect business performance. In this company analysis case of Disney, the external factors are in the mass media, amusement parks and resorts, and entertainment industries. These factors represent the industry environment where the conglomerate must address the effects of competition with large and aggressive firms. For example, the company competes against Sony, Viacom, Time Warner, CBS, and Comcast (owner of Universal Pictures). This Porter’s Five Forces analysis of Disney stresses the significance of the external environment in determining business success. The company must align its strategies with the intensities and characteristics of the competitive forces assessed in this external analysis.
The external factors and intensities of competitive forces determined in this Porter’s Five Forces analysis of The Walt Disney Company inform managerial efforts in improving the business. For example, the corporation’s expansion strategies for its Disneyland amusement park business must account for the current trends in the international industry environment, some of which are evaluated in this external analysis. Thus, this Five Forces analysis depicts competitive concerns in Disney’s business.
Summary & Recommendations: Five Forces Analysis of The Walt Disney Company
Summary. Competition, the bargaining power of customers, and the threat of substitution are the most significant external forces determined in this Porter’s Five Forces analysis of Disney. Nonetheless, the bargaining power of suppliers and the threat of new entry are strategic management issues in the global business environment. The external factors significant to Disney involve the activities of firms in the entertainment industry, the mass media industry, and the amusement parks and resorts industry. Given such scope of operations, various industry environments are considered in this external analysis. For example, the corresponding industry-specific degrees of competition are accounted for in evaluating the overall competition facing Disney. The relevant external factors and intensities of the five forces are determined in this Porter’s Five Forces analysis of The Walt Disney Company as follows:
- Competitive rivalry or competition (Strong force)
- Bargaining power of buyers or customers (Strong force)
- Bargaining power of suppliers (Weak force)
- Threat of substitutes or substitution (Moderate force)
- Threat of new entrants or new entry (Weak force)
Recommendations. Given that competition and customer power are the most significant strategic management concerns determined in this Five Forces analysis, it is recommended that Disney focus on developing competitive advantages to further strengthen its brand. This recommendation addresses the leadership objectives contained in Disney’s corporate vision and mission statements. The company has one of the world’s strongest brands, ensuring business competitiveness in the global entertainment, mass media and theme parks industries. However, aggressive competitors can reduce this relative brand value in the industry environment. Thus, strengthening the brand helps overcome the external factors linked to high-intensity competitive rivalry. This Porter’s Five Forces analysis of Disney also warrants strategies for customer retention to address the strong bargaining power of customers. For example, high quality attractions coupled with the company’s brand can optimize customer retention in the amusement park industry. Enhancing The Walt Disney Company’s generic competitive strategy and intensive growth strategies can effectively address such concerns in this component of the external analysis.
Competitive Rivalry or Competition against Disney (Strong Force)
In Porter’s Five Forces analysis framework, this component evaluates the external factors that maintain the intensity of competitive rivalry in the industry environment. This business analysis case of The Walt Disney Company considers how firms affect each other in the entertainment, theme parks, and mass media industries. The trends influencing business development in these global industries are also considered in this external analysis. For example, aggressive mass media marketing strategies are a factor in the company’s strategic planning and management. The strong force of competition facing Disney is based on the following external factors:
- Many firms in the market (Strong force)
- High aggressiveness of firms (Strong force)
- Moderate differentiation (Moderate force)
The presence of many firms in the market is an external factor that directly translates to strong competition that The Walt Disney Company experiences. This Five Forces analysis also stresses firms’ aggressiveness as an external factor that strengthens the intensity of competition in the industry. For example, aggressive companies that produce high-quality animated films aggressively compete against Disney’s Pixar Animation Studios. This condition makes the industry environment competitive. Moreover, moderate differentiation contributes to competitive rivalry, although only moderately. Thus, this external analysis points to firm aggressiveness and population as the most significant strategic management issues with regard to the level of competition. The external factors in this component of Porter’s Five Forces analysis framework impose the strong force of competitive rivalry against The Walt Disney Company’s global business.
Bargaining Power of The Walt Disney Company’s Customers (Strong Force)
The Porter’s Five Forces analysis framework considers the bargaining power of customers in affecting business strategies, such as pricing strategies. In Disney’s case, the external factors relevant to customers’ power pertain to their ability to choose between firms and products in the industry environment. For example, higher ease of changing brands corresponds to stronger customer power in affecting management practices in the multinational business. This external analysis identifies the following external factors and their intensities as contributors to the strong force of the bargaining power of The Walt Disney Company’s customers:
- Low switching costs (Strong force)
- Moderate price sensitivity (Moderate force)
- Moderate ability to substitute (Moderate force)
Low switching costs make it easy for customers to switch or transfer from one provider to another. For example, customers can easily switch from Disney’s movies to movies from competing firms. In Michael Porter’s Five Forces Analysis framework, this external factor strengthens the bargaining power of customers in the company’s industry environment. On the other hand, customers’ moderate price sensitivity imposes a moderate force on the strategic success of The Walt Disney Company. Thus, pricing is a factor in the company’s management processes. Also in this external analysis, the moderate ability to substitute has a correspondingly moderate contribution to the intensity of customers’ power in the business environment. Therefore, this component of the Five Forces analysis underlines business strategies for retaining Disney’s customers amid competition in the global market.
Bargaining Power of Disney’s Suppliers (Weak Force)
Suppliers’ influence on firms and their external business environment is the focus in this component of Porter’s Five Forces analysis framework. For example, suppliers’ stability determines the stability of materials available for The Walt Disney Company’s multinational operations. The company needs to address suppliers’ influence in the industry environment, to maintain an effective supply chain and consistent operations. The weak bargaining power of Disney’s suppliers are based on the following external factors and their respective intensities:
- Large population of suppliers (Weak force)
- High overall supply (Weak force)
- Moderate variety of suppliers (Moderate force)
In Michael Porter’s Five Forces Analysis framework, suppliers’ population is a determinant of suppliers’ influence in the industry environment. In this external analysis case, The Walt Disney Company deals with suppliers’ large population, which corresponds to the weak intensity of suppliers’ bargaining power. For example, a single supplier cannot easily affect the industry because there are many other suppliers available to support companies. Similarly, the external factor of high overall supply prevents suppliers from easily affecting the corporation’s strategic management success. On the other hand, moderate variety only moderately empowers some suppliers in imposing demands on The Walt Disney Company and other players in the amusement parks, mass media, and entertainment industries. Despite such weakness, suppliers’ bargaining power may change according to relevant trends, such as the ones outlined in the PESTEL/PESTLE analysis of Disney. These trends have the potential to disrupt the international business environment. The external factors in this component of the Five Forces analysis of Disney indicate suppliers’ weakness, although the situation could change based on trends in the industry environment.
Threat of Substitutes or Substitution (Moderate Force)
In Porter’s Five Forces analysis framework, substitution imposes pressure on firms in terms of pricing and revenues, market share, and other relevant factors. Disney’s global business is under constant pressure from potential substitutes. For example, the industry environment offers other entertainment activities that customers could choose instead of the company’s products. This external analysis indicates the significance of substitution in strategic management and planning. The moderate force of the threat of substitution facing The Walt Disney Company is a result of the following external factors and their corresponding intensities:
- Moderate availability of substitutes (Moderate force)
- Moderate substitute performance-to-price ratio (Moderate force)
- Moderate variety of substitutes (Moderate force)
The moderate availability of substitutes is an external factor that moderately intensifies the threat of substitution in The Walt Disney Company’s global industry environment. Customers have a moderate number of substitute options. Also, in Michael Porter’s Five Forces analysis framework, substitutes’ moderate performance-to-price ratio leads to moderate customer satisfaction in using substitutes to products from companies like Disney. In addition, the moderate variety of substitutes supports the moderate intensity of this force in this external analysis. A higher variety would make it less likely for customers to move away from substitutes in the business environment. The Walt Disney Company’s management must apply strategies, such as strategies for high quality and performance, for attracting customers away from substitutes, considering the moderate threat of substitution determined in this component of the Five Forces analysis.
Threat of New Entrants or New Entry against Disney (Weak Force)
Porter’s Five Forces analysis framework identifies the threat of new entry as a competitive force in the industry environment. In this case, The Walt Disney Company’s strategic management needs to consider potential new entrants and their possible effects on the international business environment. For example, this external analysis points to large firms that could enter the entertainment industry and disrupt the success of long-established companies. The following external factors and their intensities are the basis of the weak threat of new entry against Disney:
- Low switching cost (Strong force)
- High capital cost (Weak force)
- High cost of brand development (Weak force)
This component of Michael Porter’s Five Forces analysis framework determines that low switching costs makes it easy for customers to move away from The Walt Disney Company and toward new entrants, thereby imposing a strong force in the industry environment. However, high capital cost is an external factor that weakens the intensity of this force. For example, new firms need high capitalization to succeed in competing against established firms. In relation, the high cost of brand development is an entry barrier. New entrants find it difficult to compete based on brand, considering the company’s strong global brand (Read: SWOT Analysis of Disney). Thus, new entrants are a minor business strategic management issue in this external analysis. This Five Forces analysis of The Walt Disney Company determines that new entry is a weak and minor threat in the entertainment, amusement parks and resorts, and mass media industry environment.
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