Executive Summary
The aim of this consultancy report is to highlight to the management of BRICK-AND-MORTAR the need to draw up business strategies as analysis of the business environment and competition in the industry highlights the need for the same. The report is prepared with a view of the different changes the industry has been through in the last decades, especially in the last twenty years. There are no doubts that BRICK-AND-MORTAR wanted to capitalize on the developments and dynamics in the music, movies and computer games industry. However, like it had happened in the past, the industry is always undergoing changes which are highlighted in the analysis on environment and competition in this report. Three strategies have been recommended, and the reasons behind the recommendation have been presented inside in greater details.
1. Introduction
Business is a very crucial and challenging activity as it involves generation of revenue through provision of products and services to the market, which is susceptible to the impact of a number of factors (Bondarouk and Ruel, 2009). Many experts in the industry are of the opinion that creation of value in terms of the products and services offered in the minds of the prospective customer is the key aspect related to strategic business management. At the same time, many other experts are of the opinion that the success of the business strategy depends on production of commodities which are needed by customers and success of the same due to the inherent features in them, which provides these products and services a distinct competitive edge from those of its rivals (Davenport, 2013).
Irrespective of the school of thought, the fact which remains the same is that the revenue generation and profitability of commodities offered by any business organization is heavily dependent on the demand of customers in the market. As a result, organizations need to constantly evaluate not only the impact of market conditions, but also the feasibility of implementation of planned business strategies.
1.1 Background to study
This report is prepared in accordance to the above points of view which focuses on analysis of market conditions for the organization ‘BRICK-AND-MORTAR’ which is engaged in the retail business of DVD/CD/Computer Games. Being essentially into retail, the generation of revenues is dependent on the demand for the particular music, movies or games CDs/DVDs which are sold by the organization. It needs to be highlighted at the very onset that this form of entertainment industry has witnessed dynamic changes since its inception mainly due to changing trends in the industry and development of the information and communication technology (Davenport, 2013). As a result of which, it is no longer sensible to recommend the organization to continue business operations on the basis of the same strategies which were successful 15-20 years ago. Over the years, these changing conditions in the market due to a number of factors and the competitive forces have made it necessary to conduct an assessment of prevailing industry environmental situation.
2. Industry Analysis
2.1 About the DVD/CD/Computer Games Industry
The entertainment industry has gone through a lot of changes in the last century. Similarly, when it comes to retailing DVD/CD/Computer Games there have been a lot of changes too, especially as far as formats of the business are concerned. Erstwhile, it was convenient for business organizations to run retail shops especially with the popularity of the Jukebox. Gradually with developments in technology, production of music, movies and even multimedia CDs/DVDs became easier. This was substantially complemented by the growth in the number of artists, genres and playback devices (Krugman. 2006).
A century ago, the only source of music was gramophone records and the only options in case of movies were in theatres or cinema halls. Many experts are of the opinion that the industry witnessed a radical change with the invention of television and later, cable channel as now people could enjoy entertainment from the comfort of their homes. This is believed to have led to the growth in options as far as entertainment was concerned and led to the growth of genres (Cairncross, 2001). However, the real development in the industry was yet to come in the form of computers. From their forefathers, computers started to become more compact by the day and advanced in terms of operations. It gave to the rise of concept of ‘Compact Discs’ which immediately became popular due to the convenience it offered. Thereafter, modifications of the same led to the invention of DVDs which has more storage capacity as compared to CDs. The immediate impact was the mass production of CD/VCD/DVD players which were required to play these devices. Somehow, the entertainment industry started to focus in on formatting content into CDs/DVDs and success of artists began to be evaluated on the volume of sales – music or movies. However, with the blessings came the curses as knowledge about the ICT industry, particularly the internet, led to immense illegal copying and piracy of original content (Gallarza et al. 2010). It also needs to be mentioned that the entertainment industry was not only limited to music and movies, but the ease and convenience of using portable storage media such as DVDs/CDs also caught the attention of the multimedia design industry.
Even about 20 years ago, diskettes were the most popular form of video games available. Nintendo is well known as the most popular video game company from the era. Even though they had a high demand, the video game customers expected much more which led to the emergence of high-graphics and storage consuming computer game CDS. However, much like in the case of music and movies, computer games and other forms of multimedia entertainment have also fallen prey to piracy. The immediate impact on the industry was that artists and production houses which are involved in the business saw gradual decrease in revenue generation which ultimately impacted profits. At present, the market conditions are not at all favorable for organizations such as BRICK-AND-MORTAR as more and more such retail outlets are closing shop all across the world, primarily due to poor financial returns. At the same time, studios and production houses which are in the business or production of music, movies and games are constantly fighting the threat of piracy and copyright infringements around the world and have come up with different kinds of remedies for the solution of the problem.
It needs to be highlighted again, that the main aspect here is to be ensured that the production houses continue to produce DVDs/CDs/Video Games in manner to prevent piracy as much as possible, so as to ensure the survival of the industry in general and retail organizations such as BRICK-AND-MORTAR, as they are a very crucial entity in the distribution process (Davenport, 2013).
2.2 External Industry Environment
The primary task of identifying helpful strategies for business organizations is to be able to conduct an analysis of the external environment in which it is situated (Porter, 2001). It is because any organization needs to be aware of the implications arising out of the factors prevalent in the business environment and the market. It has been established that a PESTEL analysis will reveal the specific factors in the business environment affecting operations and a Five Forces Competitive analysis will be beneficial to gauge the competition in the industry. Finally, with respect to these two outcomes, the specific business strategies which can be beneficial to the organization have been presented. The following sections describe the present business environment and industry rivalry to the organization.
2.2.1 PESTEL Analysis
The prevailing political, economical, social, technological, environmental and legal factors which affect the business operations of BRICK-AND-MORTAR retail organization are as under:
2.2.1.1 Political Factors
An important fact that needs to be highlighted is that the political influence on any location with respect to production and sale of CD/DVD/Computer Games products will play a major role in development and implementation of legislation (Weill, 2010). Political polarity of regimes in different countries will vary towards the products of this ‘western’ industry/organization and so will be the purchase behavior of the customers in the market. This is especially applicable in case of the music and movie CDs and DVDs. As a result, it is recommended that BRICK-AND-MORTAR apply a discretionary distribution strategy based on acceptance of Western entertainment by the different markets.
2.2.1.2 Economical Factors
Purchase decisions of the customer are influenced by purchasing power which is in turn dependent on the economic condition and income of the customers. Another important aspect to highlight is that pricing decisions will be greatly influenced by exchange rate of currencies in two different markets (Porter, 2008). It is important that the organization re-assess the rates of return on all different kinds of products in different markets – in other words the sales volume for each item. It will emerge, specifically in which areas purchase of certain genres of music and movies (even computer games) are in high demand and otherwise. The organization can then focus on re-aligning the distribution strategies accordingly.
2.2.1.3 Socio-Technological Factors
Sale of music/movies/computer games is largely influenced by the prevailing social behavior of the customers in the market. It is recommended to BRICK-AND-MORTAR to research into the buying behavior of customers in the different geographical markets – for example, do the customers prefer jazz music over techno? Are the customers more drawn to drama genre of movies than horror? The answer to these questions will be derived from sales data available which need to be utilized for predicting purchase behavior (Uslay and Teach, 2012). From a technological perspective, the issues of internet-privacy, promotion of artistes/studios on social network, availability and pricing of multimedia components in the area are few of the most prominent aspects to analyze. It is because of the fact that when it comes to purchasing original content instead of downloading it from the internet, the prevalent social influence on the customer and the technological preparedness (especially in case of computer games) will play a very important role in influencing customers (Steinman et al. 2009). For example, if in a market the price of computer peripherals and accessories is very high, the customers are less likely to purchase high-definition games with high graphics card requirements, and vice versa. The organization needs to carefully streamline the distribution accordingly.
2.2.1.4 Environmental Factors
Operation of a physical store in any location requires consumption of energy. On top of that, customers are likely to visit a store whose environment they like. These are two specific yet different environmental concepts that the retail organization needs to look into. There is no point in operating in an environment at a loss. While energy consumption will highlight the cost of operating environment, the attractiveness of the store will help in converting walk ins to sales (Merlo, 2011).
2.2.1.5 Legal Factors
License agreements with the production houses and local authorities always have create an impact on the operations of the organization. The legal implications for BRICK-AND-MORTAR are important in this case. The terms of contract with music labels, movie studios and game developers will determine the selling price, profitability as well as distribution. At the same time, the statutory compliances in each specific market (geographic location) will also influence pricing decisions (Reynolds, 2009). When it comes to legal considerations, the role of the governments in different locations to prevent piracy will also affect revenue generation and returns.
2.2.2 Analysis of Industry Rivalry
2.2.2.1 Bargaining power of Buyers
Buyers, especially in the music/movies/computer games market have a high bargaining power – not only due the presence of hundreds and thousands of music/movie/computer games producers but also due to the great number of alternative means to procure these products (Gullet et al. 2009). While many buyers will avail original licensed products, many more will resort to alternative means such as free downloads on the internet.
2.2.2.2 Bargaining power of Suppliers
The suppliers have high bargaining power, only when it comes to popularity or high demand for a movie or music album or computer game. It needs to be highlighted that it is seldom the case that each and every item from the producers become highly popular and in demand (Bishop, 2009). As a result, the bargaining powers of suppliers are deemed to be moderate.
2.2.2.3 Threat of Substitute Products
The high threat of substitution comes in the form of piracy, downloading and illegal copying from the internet.
2.2.2.4 Threat of New Entrants
The threat of new entrants, especially retailers are deemed to be high due to the fact that more and more companies are now focused on buying and operating e-libraries on the internet which seems to be in response to unauthorized downloading and copyrighting. While the industry benefits, retailers which run numerous physical outlets are at a disadvantage (Pride et al. 2009).
2.3 Assessed Industry Overview
3. Recommended Strategic Option and its implementation
The strategic options recommended to the organization are:
(1) Develop alliances with popular studios and game developers. Periodical promotional activities such as organization of computer games competition and prevention and reporting of piracy workshops will not only enhance the image of the organization, but will also provide greater brand visibility in the market.
(2) Re-structuring the supply chain management system is required and it is recommended to the organization to streamline distribution of products to stores in accordance to anticipated demands. Stockpiling of products, especially those for whom there is lesser demand in the market, will not only increase requirement for operational space but will also severely impact overall profitability. The key is to provide to the market commodities at an even pace of demand and supply.
(3) Considering another product line – peripherals like graphic cards, virtual memory and external storage devices will be helpful as in this case, the organization can cater with the products to another customer base or market as well. It will help in increasing the sales of the organization, and possibly profitability too. One particular product which can be highlighted specifically is memory cards (16GB, 32GB and so on).
4. Conclusion
The need for preparation of this report was not due to perceived poor performance of the organization in the industry, but it is due to the forecasted short term changes in the industry in the next few years. A business organization is only as successful as its ability to adapt to changes in the environment, and this has been the sole purpose of the report – to highlight how the business environment has changed and what are the steps required by the organization to face the same. It is anticipated that the report will prove to be greatly beneficial to the organization.
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