A Case Analysis
Harlequin Enterprises is a Toronto based publishing company that specializes in series romance and women’s fiction novels. It began operations in 1949 and through its revolutionary approach of a packaged, consumer goods strategy to publishing, and the acquisition of UK based Mills & Boon, the company by 1970’s had become the largest publisher of women’s fiction in the world. The company dominates the marketplace in series romance and offered various lines for the readers. The company now wishes to invest in the single-title books marketplace. The project has been tentatively named MIRA. The initial research conducted has indicated that the readers were reading as many single-titles as series romance lines. The previous attempt of the company at producing single-titles with its Worldwide Library in 1986 had however resulted in failure and was shut down in 1988.
Mission Statement: “To provide its readers a wide variety of romance and related fiction works. The Harlequin Publishing house wishes to maintain the dominance it has in the Romance fiction novels. We understand the needs and wishes of our readers and would like to serve them continuously with new and varied titles to suit their different interests. The company is the single largest series romance publisher and has no near competitors in this field. Through superior editing and publishing techniques, we are able to offer our readers frequent works of romance fiction classified in various sub-categories. The pricing of our books helps in keeping the readers loyal and maintaining a competitive edge. The company however has limited presence in the single-title marketplace through a few subsidiaries outside Canada and wishes to have a large share in this area too. This is why we are looking to invest in MIRA.”
The report shall focus on the issue at hand on the decision to enter the single-title romance fiction marketplace. For this the assessment of the current internal situation and the forces present in external marketplace of single-titles is necessary. Also under observation would be the changes that would be needed within the organization so as to embrace the new single-title in a positive way.
Harlequin Enterprise: The Current Situation
It is essential to study the current publishing model to find out what makes Harlequin such a successful publishing house in women’s fiction and why they dominate the series romance marketplace. The company is the world leader in series romance novels and publishes as many as 120 new titles each month in 26 different languages. The company is present in 109 international markets and has no near competitors in series romance in terms of either volume of sales or the presence worldwide.
VRIO Framework
The VRIO framework is a very effective tool to carry out a thorough internal analysis of the firm. It is acronym for Value, Rarity, Imitability and Organization (Bartlett, et all, 1990). VRIO framework is analyzed by asking a corresponding question for scrutiny of the four parameters. However, a correct answer has to given for each of the four questions for accurate assessment (Barney, 2010).
Value: The value assessment of Harlequin can be made through studying its value chain. The value chain of Harlequin can be said to consist of the following elements:
Editing: The editors at Harlequin work on the fixed guidelines outlined by the company and demand consistent content that fits the various positioning set by them. Among the factors that were analyzed are the plot, levels of fantasy, realism and sensuality, social and individual problems raised and the impact it has on the reader. The series positioning scales resulting from these areas of focus were the Level of Sensuality; Adventure, suspense and intrigue in the novel; Editorial tone; Location and the Page length. Harlequin and Silhouette brands had 13 different series based on these guidelines. Such uniformity in its process was promoted with a view to deliver on the promises of Harlequin while meeting the expectations and needs of the readers.
Printing: The printing costs involved were significantly reduced due to the standardization in the size and format possible from the editing procedures. The printing at Harlequin was subcontracted and cost the company $0.44 per book as compared to $0.88 that cost its competitors for single-title paperbacks.
Marketing: The marketing activities of Harlequin included TV advertisement, but a major focus was on print media and women’s magazines. Good Housekeeping, Cosmopolitan and Glamour were some of the magazines. The promotion strategy focused on promoting the brand name rather than the author/book.
Distributors: The distribution network was the strongest for Harlequin and could be found in 250,000 retail outlets worldwide. You could find Harlequin in supermarkets like Wal-Mart, drugstores and bookstores like Barnes and Noble. Harlequin employed its own distribution network in Canada and used independent distribution elsewhere. Simon & Schuster (S&S) were their sole distributors in U.S and provided for an extensive network for sale of books.
Service: The price at which the books were offered was very low. This was possible due to fixed cost of printing, low author advances, common format and design and low advertisement costs. Harlequin also knew its target market well who were median age women, married, well educated, working outside and seeking relaxation and escape. This helped Harlequin to produce books to cater to their taste and maintain their loyalty.
Rarity: The Harlequin business model was rare and indeed unique. Firstly, it was the series form in which the books were produce that no other publisher could closely match. Second the customers of such series romance remained loyal to the brand and the close relationships with distributors helped Harlequin tap into unique methods of sale. Bookshelves suited the shape and size of Harlequin brand books too.
Imitability: The methods of Harlequin look simple enough to imitate. However, no other company has been able to come close to the giants in series romance brand. They had the first mover advantage and with close relations with distributors, have maintained the competitive edge since.
Organization: The Company has very well defined goals. There is a consistency and uniformity to their business process and methods, right from author guidelines to editing and to printing, marketing and distribution. The focus has always remained on their core business and through various cost effective measures, the company has remained profitable.
Thus the VRIO framework reveals that the company does indeed have a sustained competitive advantage as it is Valuable, Rare and has exploited the organizational elements to the full potential. The business is imitable in principle, but no competitor has been able to achieve any considerable degree of success in series romance novels.
The Single-Title Romance Marketplace
The single-title romance novels from other publishers have overtaken the Harlequin series romance lines in 1990 by 112 to 85. The numbers in 1985 were 72 and 77 for single-title and Harlequin series romance respectively. The single-title market is a high-risk venture and since every book had little relation to previous works, the risks are similar to that of new product introduction in the market. The risks are based on the reputation of the author, subject material and predictability of the reader’s responses. The choice of authors is all the more important in such form of publishing. The publishing house would have to select individuals they would want to invest upon. There is a significant amount of value addition that was to be expected in single-title publishing and publishers are expected to act as creative editors, rather than mere printers. The decision on the number of copies and promotion strategies are also different from that of series romance. The factors of distributor margins, advertising costs, printing costs and other overheads together with the author advances and pre-publication expenditure meant that the break-even volumes were significantly higher in single-titles.
Porter’s Five Forces
Porter (2008) provided a competitive forces framework, which helps in identifying the different forces that are present in the market and govern competition in it. Porter’s five forces are: (1) supplier bargaining power, (2) buyer bargaining power, (3) threat of new entrants, (4) threat of substitutes, and (5) rivalry (Porter, 2008).
Supplier Bargaining Power: The supplier here could be the paper and ink needed for publishing, the network of distributor and also the authors. Raw material is insignificant in this situation. Harlequin is dependent on distribution to subcontractors outside Canada. The choice of authors is also important in sale of single-titles as opposed to series novels. Thus the supplier bargaining power is high.
Buyer bargaining power: The buyers have little control over the pricing of the books that Harlequin decides. The buyer bargaining power is low.
Threat of new Entrant: The threat of new entrant is rather high, as new publishers can easily set up networks and with signing new authors, come up with new books that could hurt the sales of Harlequin books. Also, self publishing has become much affordable with the online ebook formats coming in and further reducing costs. This threat is high.
Threat of Substitutes: The substitutes to book are other forms of entertainment-movies, music etc. Also traditional books are now converting to online and soft copies in for of ebooks. This threat of substitutes is very high.
Rivalry: There exists very fierce rivalry in single-title marketplace. This is due to the large number of authors and publisher partnerships that exist. This threat is also very high.
PESTLE Analysis
Acronym for Political, Economic, Social, Legal and Environmental, PESTLE analysis tool helps in understanding the external forces that influence an industry. Every organization must accept the challenges that the external forces place on them. This tool is used as the information generator and applied to the case (Hansen, and Birkinshaw, 2007).
Political: There exists little threat from political forces to books publishing business. The only areas where a problem could occur is in the subject matter and avoiding controversial subjects
Economic: The economic factors are also largely irrelevant. Irrespective of times of boom or bust in economy, book being a recreational activity would be equally enjoyed during all seasons.
Social: The only are of problem for a book publisher could be in the handling of socially sensitive issues in the subject of the works. Controversial subjects like religious sensitivity or gay issues might hurt few communities and should be deal with care.
Technological: With changes in technology, ebooks and soft copies are gaining popularity and fast replacing the conventional forms of publishing.
Legal: There are a few legal troubles for publishers to worry. Plagiarism is largely the authors headache but also a concern for publishers.
Environmental: The environmental factors like paper recycling and pollution free ink and production techniques are a few concerns for Harlequin.
Thus the external environmental analysis carried out through Porter’s five forces and PESTLE reveal that although the political, economic, Social, Technological, Legal and Environmental factors are conducive, the five forces of Porter are very strong and suggest that Harlequins entry into the single-title market will not be easy by any means. There exist high to very high threat in terms of suppliers, substitutes, rivalry and new entrants.
Findings and Recommendations
The current business model of Harlequin is tailored to suit the series romance novels that form the bulk of publishing. VRIO reveals that the value chain beginning from the author selection, homogenized editing technique, standardized printing, marketing in magazines read by the target customers, distributor partnerships to the cheaper price result in Harlequin to stay in the lead.
However the single-title marketplace is vastly different. Wholesale changes in company’s culture, core values and operations will be needed. Changes are needed to adapt to the new form of publishing of single-titles. Those being of higher investments in marketing and product design. The editing techniques would have to be more flexible and a more intense and expensive search for authors and subject material would be needed. It will also require new distribution channels and suppliers more suited to the single-title lines. All this would be time-consuming and need organizational culture change. The single-title readers also differ significantly from the target customers of Harlequin books and might not approve of association of Harlequin with romance novels.
If the company wishes to be successful in the single-title business, it needs to shift away resources and attention from its core business and risks losing its sustained competitive advantage.
Strategic Options Available
The company is committed to make the MIRA product line work. MIRA line should be introduced in parts around the world through its subsidiaries to gauge the level of response generated in the market place. A worldwide launch of MIRA is more risky than a restricted launch.
The editing techniques for single-titles cannot be following a strict guideline as in series romances. More creative freedom would have to be given to the authors and might result in higher author advances than given in series romances. Hiring former Harlequin authors who have now become single-title romance novelists is a good option to get authors at a relatively lower author advances. Harlequin should seriously consider signing up a few bestseller authors for their next works. This would help in building a customer base among the romance single-title readers.
The existing distribution channel can be utilized to for single-title sales too. However more presence in book stores than in coffee shops, pharmacists and supermarkets would be needed. A single title reader is likely to be choosier than the series romance readers who are mostly casual reader. They are likely to visit a book store to select their next readings than pick up a title from a supermarket.
Pricing is something that the company would have to compromise on. The single-title production costs are higher and the retail price of the books would also be considerably more. To counter this, Harlequin should target a different set of customers for its single-titles than the series romance readers. This way we can have two different set of customers we can cater to.
Investing in MIRA should not take away the focus from series romance as being a leader in a mature business is always more preferred than being a new entrant in a growing industry.
Conclusion
The core business of Harlequin is series romance novels, something that the company is very good at. Through their superior value chain and strategy, they have maintained a competitive advantage over the rest and dominated the marketplace. The series form still commands about 50% of the volume in romance novel sales, even though the numbers are declining.
The marketplace of single-title is competitive and diverse. The single-title business requires a different set of capabilities with respect to Harlequin’s ones. It would not be easy for MIRA to be successful and the mistakes of earlier efforts in Worldwide Library must be avoided.
Barney, J. B.2010. VRIO Framework. In Strategic Management and Competitive Advantage. New Jersey: Pearson. (pp. 68-86)
Bartlett, C.A., & Ghoshal, S., 1990. Matrix Management: Not a structure, a frame of mind. Harvard Business Review, 68(4), pp. 138-145
Hansen, M. T., & Birkinshaw, J., 2007. The innovation value chain. Harvard Business Review, 85(6), pp. 121-130
Porter, M.E. 2008. The Five Competitive Forces that Shape Strategy. Harvard Business Review. p.86-104
