The Walt Disney Company was founded by two brothers Walt and Roy Disney in 1923 as a cartoon studio. Mickey Mouse was the first cartoon with synchronized sound to be produced. In 1954, the company developed its first television program known as the Wonderful world of Disney. The company then expanded into non- film-making business by leveraging on the popularity of the animated film characters into developing amusement parks. It later became involved into licensing the use of the Disney brand in many children products including food.
The key issues in the Disney case study involve the nutrition levels of the products under the Disney brand and the transition process from a largely confectionery collection of food into a balanced nutritional offering. In solving these issues, I recommend that the number of characters in the animated films be increased to avoid too much repetition on the products. Again, caution should be taken on the pace of the revolution as competitors may take advantage. In addition, lobbying should be intensified for nutritional laws to be passed by the political class and finally, the company should further expand into other income generating businesses.
Summary of case study
The case study presents the historical as well as current occurrences at Walt Disney. The company was formed in 1923 by two brothers Walt and Roy Disney as a cartoon studio. It later grew and entered into developing TV programs with the debut programs being “The Wonderful World of Disney” and the “Mickey mouse Club”. The company later expanded into amusement parks where it leveraged the popularity of characters I the animated films to attract customers. Walt Disney died in 1966 while his brother died in 1971.
The taking over of the company by other CEO’s saw even more expansions. Michael Eisner saw extensive expansions within the animated films as well as into the media company with the purchase of ABC in 1996. By the year 2006, four major business segments under Disney had been created. They included media networks, studio entertainment, Parks, resorts, and Disney Consumer Products (DCPs) (Bell & Winig 2007 p1).
In forming the Disney consumer products, the company was able to introduce and utilize the Disney brand to products ranging from toys, books, home décor, interactive games, electronics as well as food and beverage. Retail stores in Europe and the US stocked the DCP’s. By 2006, DCPs retail sales revenues stood at $23 billion scattered in 90 countries. The main model adopted is that of licensing the use of the Disney brand on quality products made by other companies. The model dated back in 1929 due to the popularity of Mickey Mouse Films. The first licensing fee paid was $300 to be allowed to put the mouse on paper tablets for school children. Other products like dolls, toothbrushes, books and newspaper comic strip. It became a formal business in 1932.
It was not all smooth sailing as the year 1998 and 1999 saw a decline in sales of between 10% and 15% in US and Japanese markets. The decline was attributed to high royalty rates and reliance on character licensing from new firms. The hiring of Andy Mooney in January 2000 saw a shift from the pure licensing business model to models that offered more flexibility. Two extra models were introduced. One of the models involved products created and designed by Disney but where a third party would handle the manufacturing as well as sales and marketing function. In the second one, involved developing direct partnerships with retailers where brands and character rights could be sold to retailers bypassing wholesalers. Indeed successful partnerships with Target, Wal-Mart and others were established.
The entry into supermarkets was based on a basic precept that “Disney was about fun”. Most of the products were thus confectionery. Concerns for obesity caused by these items, the changing licensing models and the need to consolidate retail industry created an opportunity for the company to expand and rationalize its products. Research conducted in 2004 showed that mothers perceived Disney products as being of high quality and that mothers wished to buy healthy foods for their children. Also, children showed to enjoy good taste, fun graphics and fun. Considering this, DCP decided that juice, pasta, frozen foods, soup, fresh food, water, cereal, dairy milk and baked goods were the new foods to be introduced.
The obesity problem was getting serious. The U. S Department of agriculture emphasized on the dietary guidelines for Americans. However, they were seldom followed. Obesity rates had risen from 5% to 14% among 2-5 year olds, from 4%-19% for 6-11 year olds and from 5%-17% for 12-19 year olds and the accompanying effects were deadly. Pressure from experts and lobbyists had piled on confectionery manufacturers with the advertising effect on children being at the center.
DCP realized the need for children to eat healthy foods. Efforts were put into developing food products standards and nutritional guidelines for both licensed and propriety products. The summary of which would be good food, great fun. Focus shifted towards producing foods with less fat and sugar. An audit of the 2100 food products showed that only 41% of the products complied with guidelines. Commendably, by the month of September 2005, 75% of DCPs products in the US complied with its nutritional standards. A whole foods philosophy was embraced. Some vendors were able to meet the standards while other could not and had to leave.
In the case of Walt Disney Company, some globalization elements can be traced especially in the expansiveness of the company’s operations. Having started in the year 1923 in the US, the company was able to take advantage of improvements in transport and communication infrastructure to grow in to a $23 billion revenue company operating in 90 countries by 2006. Again, the powerful advertising effect arising from the use of Disney characters was because of the use of media and technology in the entertainment industry. All these are aspects of globalization.
Still, the growth rate for Disney’s Consumer Products was very high. Up to the year 1998, the average annual growth rate for the company was about 25%. This is a very high rate of growth for any business entity. The decline in growth rates to between 10% and 15% in 1998 was because of rigidity in the business models. Having introduced new models, the growth rates have risen again.
Aspects of corporate social responsibility can be very well seen in the response given by DCP on the increased rate of obesity among children. The increase in obese children definitely leads to complications in future health status when they become adults. The company took the responsibility of pursuing ways of improving the nutritional balance of the foods availed for sale to children. The big switch from the fat and sugar rich confectionery to the more healthy snacks, fruits and vegetables not only required huge investments but also involved the bearing of increased business risks. However, the company was determined to contribute to the health of children. This was not only ethical but also supports the upcoming social cultural issues especially those relation to health and nutritional matters.
Starting as a simple animated film company, Walt Disney continually diversified the products it offered in the market as a strategy to spread the risk. Even within certain categories such as food, diversification was crucial. The strategy to offer license to manufacturers and retailers for use of the Disney brand was a very fitting strategy bearing in mind that Walt Disney did not specialize in manufacturing. The royalties received made the company very profitable. Again, they ensured that the licensed companies made food of very high standards.
In solving the problem of nutritional concerns, DCP had to look for ways of selling nutritionally rich food for children. Three strategies were used. The first saw DCP avail products, which are widely acceptable such as milk in healthier form. Secondly, the firm selected some already healthy foods and made them fun to have. Thirdly, they used product packaging to encourage the sampling of products. The basic premise was that the food had to taste good so that children like it and it had to be nutritious so that mothers also like it. The three were very fitting in developing the market for healthy foods among children as they fully considered the delicate balance between nutrition and taste for food. Again, the buying of media businesses was a good way to secure quality and positive relations with the public. The company could now reach a wide variety of audience and preach the good message of the quality of Disney products while at the same time leveraging the level of incomes for the Walt Disney Company.
The marketing strategy adopted by DCP is in two categories. First, advertisements during the company developed programs captured great interest in the kids on their products. Again, the use of characters such as the mouse on products attracts children who associate with the characters as opposed to the products. Again, the introduction of nutritious foods appeals to mothers who actually buy the products for the children. In the partnership with Kroger is very impacting. The “Better for you” tag line which pictured a gloved, thumbs-up Mickey hand next to a check it out used to promote the high nutritious value as well as the use of Disney story telling and characters to communicate to kids in a fun way was a very effective marketing strategy.
Again, there are Disney magic selection lines supported by in-store signage, advertisements, end cap and floor displays, direct mail and billboards. All these combined with the intense media advertisements spread the common message of the high nutritional contents in the food products offered under the Disney brands.
The common attribute of all these elements of marketing is that they are targeted at children. The children can very easily identify with Disney characters. The effectiveness thus cannot be overemphasized. Children insist to be bought the product with their favorite character.
Imagination Farms was founded to serve as a licensee to DCP in fresh produce in the year 2006. The farms engaged 15 large U.S growers to produce both organic and conventionally grown produce under Disney garden brand. Peaches grapes apples and citrus from Disney garden were in the retail stores just five months after contracting. A three pronged product development was adopted. They were differentiating produce through promotion, creating value added products and developing exclusive produce varieties. Customer feedback was very positive. The Disney garden brand sybolised the quality associated with Disney products and elicited emotions associated with the company’s animated programs.
4P’s (Price, Place, Product, Promotion)
The basic marketing strategy, which incorporates the use of the Price, Product, Promotion and Place (4Ps), is very well applied in the case of DPC. Though the retailers sell the products at the normal market price, there exists an extra cost of royalty charged by the company for the advertising effect. Product is the most intensely used marketing strategy. A great deal of product differentiation has occurred throughout the life of DCP. By the year 2004, the number of food products under the DCP was 2100. Of even greater importance is the emphasis on quality of the goods to be licensed to use the Disney brand. Research done showed that mothers appreciated the fact that the products offered under Disney brand were of high quality. The high quality standards have continually positioned the company as the preferred food distributor.
A great deal of promotions through the various media owned by the company and the advertising in the animated programs developed by Walt Disney were very effective. Again, the use of packaging to appeal to customer and the use of stickers on fruits and other such products is a powerful promotion tool utilized by DCP.
In reaching the 90 countries of operations, DCP adopted an integrated distribution channel. Direct ownership of retail outlets was applied especially in Europe while contracting of third parties was mainly adopted for northern America.
I would recommend several ideas to be implemented in a bid to improve the health of the company. First, the extreme reliance on a small number of characters to market products is not very healthy. The popularity of the characters is not guaranteed. Therefore, there needs to be development of more famous characters in order to beat competition. This is not an easy task. Massive investments in animated production will have to be undertaken. Secondly, the aggressive change towards more healthy foods is a positive step. The problem lies with competition. Not taking time to watch competition may give lots of room for competitors to exploit in selling the products that were being sold by the company. Big fast food producers such as McDonalds can make other very powerful partnerships with competitors to come up with foods that can offer very stiff competition for the company. Thirdly, so long as there are no supporting laws towards enhancing nutrition standards, the company’s move is a very risky one. Lobbying should be intensified to ensure that nobody takes advantage of the loopholes left behind. Still, the decision to terminate established partnerships based purely on the inability to adopt the standards may not be viable. Careful considerations should be taken as this may tamper with the company’s reputation in respecting deals and established relationships. Finally, I would recommend even further search for even more sources of income for the company.
The application of good business development strategies is defining the success of DCP. In developing products that meet the requirements of the current market, the company is positioning itself as the leader in the production of healthy foods, which has the potential to sustain the business model. Indeed, the future prospects of the company are slowly being secured as the success in providing healthy foods is already being applauded by customers as well as experts. With continued application of such strategies, competitors can only attempt to catch up.
Bell, D. & Winig L., 2007. Disney Consumer Products: Marketing Nutrition to Children. Harvard Business School.