Euro Disney Case Study

Introduction:

The Disneyland Paris Resort is owned and managed by Euro Disney. Located in Marne La Valle, France, it is the largest tourist attraction in Europe. Each year, an estimated 14 million visitors frequent the theme park. Some of the facilities in the theme park include hotels, shops, rides, an entertainment complex, and other attractions such as the Walt Disney Studios Park. The resort also offers live entertainment (Hoovers, 2008; Euro Disney Website, 2008).

40% of the company’s stake is owned by the parent Walt Disney Company, which is headquartered in the US, and to which Euro Disney pays royalties (Hoovers, 2008). The Disneyland Paris Resort is one among only five Disney resorts that Walt Disney operates across three continents and falls under the “parks and resorts” segment of the company’s business (Euro Disney Website, 2008).

To determine what strategies Euro Disney needs to adopt over the 2009 -2014 period, it is necessary to examine the company’s current mission, goals and strategies, and to conduct an analysis of its external environment. It is also necessary to analyze its internal environment. The internal analysis will be done through the SWOT analysis while the external environment analysis will be done through the PEST analysis. The analyses will be conducted based on two scenarios: scenario one where the assumption is that Europe will be in a recession between 2009 and 2014, and scenario two where the assumption is that the European economy will be growing.

            SWOT Analysis:

An examination of Euro Disney’s internal environment shows that it has the following strengths, weaknesses, opportunities and threats (Sylt and Reid, 2008):

Strengths:

• Strong brand recognition, with the Disney brand having achieved brand equity
• Euro Disney enjoys the market leadership position, being the largest tourist attraction in Europe
• The resort boasts of unique attractions which cannot be found anywhere else in Europe. A case in point is the Tower of Terror, “a flagship ride like no other”, that gives visitors an extraordinarily exceptional experience.
• In addition, the company possesses a real asset in its imaginers – the highly talented and creative employees who continue to help it innovate products and experiences that offer the firm a sustainable competitive advantage.
• Disney possesses priceless intellectual and proprietary assets, around which its theme parks are based. An example is its animated cartoon characters such as “Finding Nemo.”

Weaknesses:

• The firm is in a poor financial position and has inadequate financial resources. It has a huge debt of 1.9 billion Euros, a market capitalization of just 337 million Euros, and a history of making losses. As such, its ability to finance expansions and repay its debts is highly questionable.
• Euro Disney has relative cost disadvantages. It has huge operating overheads, comprised of high interest charges on its loans, massive fixed costs, and high payroll costs due to its 12,850 workers. With revenue of 937 million, the firm could only make net earnings of 51 million Euros, which represents a margin of just 0.05%.

Threats:

• Tourist and business travel and expenditure depends heavily on the health of the economy (Hoovers, 2008). The slowdown in the European economy is likely to result in massive layoffs, a declining confidence index and smaller discretionary incomes, which is likely to reduce the number of visitors going to the theme park (Knoop, 2004). The downward pressure on pricing is also likely to reduce margins enjoyed by Euro Disney. With that being the case, the company is likely to see declining profitability and may slide back to its loss-making streak. A recessionary economy could also bring about a credit crunch which would reduce the company’s ability to secure credit for expansion. It would increase the firm’s overheads further since it would cause an increase in items such as fuel costs.
• An unfavourable weather could reduce the number of visitors

Opportunities:

The company’s unique attractions offer a significant opportunity through which it can distinguish itself and grow its earnings (Sylt and Reid, 2008).

The economic slowdown in Europe provides the company with an opportunity to look beyond Europe (to other countries not affected by economic recessions) and to diversify its products (Sylt and Reid, 2008).

Fig.1. SWOT analysis diagram:

Mission, Goals, and Strategies:

Walt Disney’s mission is to “produce unparalleled entertainment experiences based on the rich legacy of quality creative content and exceptional storytelling” (Disney website, 2008). It aspires “to turn the ordinary into the extraordinary” and states that “making dreams come true every day is central to our global growth strategy” (Disney website, 2008). While the parent company offers products across four business segments (parks and resorts, media networks, studio entertainment, and consumer products), Euro Disney‘s core focus is solely on parks and resorts.

PEST Analysis:

This involves examining the firm’s external environment – the political-legal, economic, social-cultural, and technological environments (Wilson and Gilligan, 2005, p.122; Grant, 2002, p.66). The company’s economic environment will be favourable and conducive to growth if the assumption that Europe’s economy in the 2009-2014 period will grow holds. On the other hand, if it is assumed that Europe’s economy will go into recession in this period, the firm’s economic environment will be unfavourable. Advances in technology, such as computer generated characters, would also be unfavourable to the company. A good weather would boost visits to the theme park, while poor weather would hit earnings. Politically motivated events such as the 9/11 terrorist attacks would also hit the firm’s earnings (Sylt and Reid, 2008).

Strategic Options:

According to Robbins and Coulter (2006, ch.8), there are three levels of a company’s strategy. These are the corporate level, the business level, and the functional level. At the corporate level, the company may pursue any of the following three strategies: a growth strategy where it expands into new markets and product areas, a stability strategy where it seeks to maintain the status quo, and a renewal strategy, where the firm redirects itself into new markets. At the business level, the company will have an option of pursuing a cost leadership strategy, a differentiation strategy, or a focus strategy (Porter, 1985, p.11).

On the basis of uncertainty about the economic performance over the 2009- 2014 period, two scenarios depicting different strategic options will be presented. The first scenario assumes a growing economy and proposes a growth strategy, while the second scenario assumes a recessionary economy and proposes a renewal strategy.

Scenario 1:

In this scenario, Euro Disney will pursue a growth strategy, bolstered by the expectations of a growing economy. The aim will be to grow net earnings to 3 billion euros by growing its sales and also its sales revenues. To achieve this, the firm will have to increase its margins to 20% and its sales to 15 billion Euros.

From the Ansoff matrix, we get four growth strategies that a firm can pursue. These strategies include: product development, market development, market penetration, and diversification. To grow its revenues and enhance its earnings, Euro Disney will pursue these four strategies (Mercer, 1996, p.171; Baker, 2002, p.518).

Market penetration involves expanding the use of existing products in existing markets. In addition to trying to get more guests to patronize our facilities, we shall also try to increase the rates of stay at our hotels since those guests who stay for longer are more likely to take away with them souvenirs and other merchandise that the company also offers for sale. Such a strategy typically involves utilizing the promotional and place elements of the marketing mix. The promotional elements will be used to enhance product awareness and to convince people to visit the theme park. The elements to be used include advertising, publicity, direct marketing, and sales promotion techniques (Peter and Donnelly, 2002, p.11).

Advertisements will be placed in newspapers; leisure, business and travel magazines; on television, radio, and on outdoor forms of advertising such as billboards placed in high visibility locations and posters placed on subways. Sales promotion techniques are used, especially for purposes of creating short term demand. Some of these techniques involve giving the visitors coming to the resort free gifts, price off offers, rebates, coupons and organizing sweepstakes and competitions (Schultz, Robinson, and Petrison, 2006; Lamb, Hair and McDaniel, 2003, p.381).

However, since the aim is to grow the revenues, sales promotional techniques will not be used. This is in line with the firm’s experience where the “7 per cent increase in average spending per hotel room” was partly explained by fewer promotional offers (Sylt and Reid, 2008).

In addition, the company will also seek for publicity spots in the print and electronic media. Press releases and participation in high-visibility events such as social responsibility activities will also be used to enhance the firm’s image with the aim of translating the positive PR into increased sales (Smith, 2005).

As far as direct marketing is concerned, the firm will leverage on its internet presence to grow sales. The company’s attraction spots will be showcased on its website and an electronic booking system established where potential visitors can be able to book and pay for hotel suites online. Different types of advertisements such as banner ads will also be used, in addition to social media marketing techniques such as blogs and pod casts. Other electronic marketing tools that will be used include e-mail marketing, search engine marketing, and viral marketing techniques (Schumann and Thorson, 2007; Lamb, Hair and McDaniel, 2003).

Market development involves introducing existing products to new markets. This can be done through geographical expansion, through targeting new market segments, or through the use of new distribution channels (Kotler, 1988, p.47).  In our case, Euro Disney can target new market segments. These new segments can be identified on the basis of demographics, psychographics, benefits sought, geographically, or behaviour (Solomon, 2003, p.206).  At present, Euro Disney targets the entire family. Other profitable segments that the company can target would comprise of business professionals and leisure travellers. Targeting children would also be a good strategy. Even though children neither make the purchase decision nor buy items themselves, they play a bog role as influencers and by targeting them we will get their parents to bring them over. By using the internet to market itself, Euro Disney will be able to reach people in all the five continents who can choose to do their shopping or to stay at the resort whenever they travel to Europe. This presents significant opportunities, especially considering that 44% of all revenues are generated from the French (Sylt and Reid, 2008).

Product development involves coming up with new products for existing markets. Examples of products that Euro Disney would introduce in line with this are branded consumer goods such as toys which have been modelled along the Disney theme, apparels, home décor, beverages, stationery, and so on. This would also involve coming up with new attractions such as Casinos at the Paris resort. Product diversification, like product development, also involves coming up with new products but these are targeted to new markets (Kotler, 1988, p.47; Faulkner, 2002, p.143).

According to Robbins and Coulter (2006), there are three functional strategies that a firm can adopt. These are also known as generic strategies and include an overall low cost leadership strategy where the company competes on the basis of cost; a differentiation strategy, where the company competes on the basis of a unique product or distinctive service that can command a price premium; or a focus strategy where the firm exploits a unique advantage to appeal to a narrow segment or niche that has been ignored.

Euro Disney shall adopt a differentiation strategy. The competitive advantage will be based on the unique attractions and experiences that the firm’s theme parks offer. To support this differentiation strategy, we shall adopt a premium pricing strategy. As Sylt and Reid (2008, p.3) write, “There is lots of demand and people are willing to pay the premium. Therefore I would rather favour people who are willing to pay more and renew the rooms.”

Apart from reinforcing the high quality image, this pricing strategy will also help the company attain the objective of increasing its gross margins, and eventually its sales revenues and earnings. Marketing communication will be undertaken to reinforce this image (Bradley, 2005).

According to Sylt and Reid (2008, p.3), innovation of new attractions is central to the firm’s growth and in order for that to happen, Euro Disney has to generate sufficient profits both to finance the new attractions and to repay the debts. “New attractions will require funding, but ‘our plan is to fund all attractions in the future with our self-generating cash’.”

According to Sylt and Reid (2008), the company has a debt of 1.9 billion Euros. In the first scenario, the company will have to clear this debt and generate sufficient internal capital for expansion over the five year period, the company will need to make net earnings of at least 3 billion Euros.* (refer to the assumptions).

Towards this end, the company should adopt the following recommendations:

• Enhance its promotional mix by increasing its advertisement budget and market visibility. The organization should also enhance its public relations activities. Through marketing communication, it should seek to enhance its brand image and to differentiate itself.
• It should step up the innovation of new products
• The company should adopt a premium pricing policy. Therefore, it should increase the margins on its products.

Scenario 2:

Scenario 2 is based on the assumption that Europe will remain in a recession for the entire period covering 2009 to 2014. According to McConnell, Campbell, and Brue (2005), a recession is that phase in the business cycle when the real national output falls for at least two consecutive quarters. It is characterized by rising unemployment, a drop in business profitability and in the confidence index, falling demand and falling prices as producers heavily discount their products.

In such a scenario, the external environmental analysis of Euro Disney is expected to be grim, with the external economic environment of the firm being characterized by falling real incomes, rising unemployment and a declining demand for the company’s products. In this scenario therefore, it will be impractical for Euro Disney to pursue a growth strategy. A maintenance or renewal strategy would be more appropriate. According to Robbins and Coulter (2006), a maintenance strategy would be ideal in a situation where the company is experiencing slow or no growth and is facing a dynamic and uncertain environment. A renewal strategy on the other hand involves implementing measures to help the firm address internal weaknesses that cause is to under perform. Two types of renewal strategies may be followed by a firm. These include a turnaround strategy or a retrenchment strategy.

Apart from being faced by an uncertain economic environment, Euro Disney also experiences internal weaknesses that cause it to continue underperforming. With the expected recessionary nature of the economy, sales are expected to go down and the company’s financial position could get even worse.  For this reason, the company would adopt a retrenchment strategy. In such a scenario, the company will seek to maintain its current level of sales (937 million euros) over the next five years. However, to protect its margins and ensure that its profits do not decline, the company will also reduce its overhead expenditures. From a high of 94% of all revenues, the firm will seek to reduce its overall costs to just 30% of all revenues. At the end of five years therefore, the company will have made total net earnings worth some 4.685 billion euros, which will be adequate to repay the debt. This will be done through downsizing its workforce. The firm will transform its organizational structure to a flatter, leaner and more responsive structure. Some positions will be made redundant and managerial levels reduced to the bare minimum, and some functions automated.

By cutting down its operational costs, the firm will be in a position to pursue a generic strategy of overall low cost leadership. By being able to offer low prices during the recession, it will be able to attract more customers. Rather than a premium pricing strategy, the firm will under this scenario pursue a penetration pricing strategy.

Towards this end, the firm should adopt the following recommendations:

• restructure and downsize, with a view of eliminating redundant positions and creating a more flexible, cost effective and responsive structure
• With the cost savings achieved, the firm should lower the cost of its products in order to attract more people.

             Question 2:

The models that I found useful and applicable to this case study are the SWOT analysis model, the PEST model, the Ansoff Matrix and Porter’s model of competitive advantage. The SWOT analysis model was especially useful since it enabled me to identify the firm’s capability of dealing with the external environment, while the PEST model helped me identify the factors in the firm’s environment which either pose threats or offer opportunities to the firm. In this respect, the two models have been useful in helping align the resources of the organization with the demands of the environment, which sits at the core of any strategy.

I found the Ansoff matrix useful in helping determine the growth strategies that the firm can adopt, while Porter’s model of competitive advantage helped identify sources of competitive advantage that Euro Disney can adopt.

Models which I found less applicable to this case and which I did not utilize are Porter’s Five Forces Framework, the product life cycle model, and product portfolio analysis models such as the BCG Matrix.

References:

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