Is your business feeling the pinch of relying on others? Have you ever felt like your company is at the mercy of others, just waiting for someone to drop the ball and bring your whole operation crashing down? If you’re tired of external disruptions, then let’s see how Disney tackled this challenge with a strategic approach called vertical integration.
So, what is vertical integration?
It’s when a company decides to take the wheel and do some of the crucial stuff itself instead of relying on outsiders. The goal? To avoid those annoying disruptions by keeping things in-house. It’s all about streamlining your operation and keeping things running smoother than a freshly waxed surfboard.
Real-Life Magic: Nutriva’s Success Story
Nutriva kicked off as a little dairy farm and decided to take control of everything from the ground up. They started making their own organic feed, managing free-range egg production, and offering Omega-3 milk. By doing this, they kept a tight grip on their supply chain. The result? They raked in about $29.7 million a year just by creating, producing, and selling their products directly to customers through their own grocery stores. Talk about boosting brand loyalty and making a mark in the market!
And guess what? Disney nailed this strategy in the entertainment world as well.
How Disney uses vertical integration
Training its own staff
Disney started out as a cartoon production studio, but in 1932, they got clever and set up their own art school to train animators. This move, called backward vertical integration, meant they didn’t have to rely on third-party animators anymore.
ESPN, a Disney subsidiary, created its own production company and trained the staff to avoid depending on outside firms for sports programming.
Just like Disney, you can invest in training your own team. This doesn’t just save you money, but it also ensures top-notch quality control. No more crossed fingers hoping the outside company does a good job!
Small Businesses Mastering In-House Training:
Here are some inspiring vertical integration examples of small businesses that went from outsourcing to in-house training, reaping significant benefits:
- Acme Bakery: These guys used to outsource deliveries, but the drivers, let’s just say, weren’t exactly gentle with the pastries. Ouch! So, they trained their own delivery crew, leading to happier customers and delicious, undamaged treats.
- Willow Creek Clothing: This boutique initially outsourced garment production overseas. While costs were lower, quality control was a nightmare. They decided to train a local team of seamstresses, allowing them to create unique, custom-made pieces and stand out from the mass-produced crowd.
- Green Tech: This landscaping company used to outsource garden design, and the results were…well, disconnected and bland. They trained their own team in horticulture and design, leading to personalized landscapes that met each client’s specific needs. Happy customers, happy business! Their focus on customer satisfaction and unique designs built a strong brand reputation, attracting new clients and solidifying their position in the competitive landscaping industry.
Disney Mastered Direct-to-Consumer Sales
Disney operates its own retail stores, both online and physical, allowing them to sell merchandise directly to consumers. This strategy is a total game-changer because it means they can keep all the profits for themselves instead of handing them over to third-party retailers.
So, while you can still find Mickey Mouse and friends at various stores, Disney’s been pushing hard to sell straight to the people through its own channels. Why? Because each sale made through a Disney store puts more money in their pockets compared to sales through other retailers, which is a win!
The Smart Move: Less Offline, More Online
In recent years, Disney has been slimming down their physical store presence and beefing up their online game. This shift has led to some serious cost savings and a major boost in online revenue. It’s like they’re riding the wave of the retail industry’s move towards e-commerce. Surf’s up, baby!
In 2022, Disney’s British retail subsidiary, The Disney Store, managed to rake in £70.5 million (that’s about $91.9 million) in revenue, even though they only had one outlet open. No magic tricks here, just good old-fashioned business strategy.
So, how’d they pull that off? Disney decided to ditch some of its physical stores, and guess what happened? Their online sales went through the roof, making up a whopping 84.4% of their total revenue last year! The secret? No more rent for those empty stores (lease payments down 77.2%) and way less money spent on staff (down 26.3%). Turns out, keeping all those brick-and-mortar stores running wasn’t as enchanting as they thought.
Not Just Disney: Others Are Crushing It Too
The takeaway here is that when you sell directly to customers, you can tweak things to your heart’s content. It’s not like when you’re just handing your products over to some third-party retailer who’s trying to push everyone else’s stuff too. You call the shots!
LEGO’s been doing this too, establishing its own retail outlets and creating immersive experiences for customers. Its stores feature themed displays and interactive areas where people can get hands-on with the products. This strategy not only boosts sales directly but also enhances brand loyalty and customer satisfaction. It’s a recipe for success, and LEGO’s got the numbers to prove it.
Disney saw the benefit of the vertical integration strategy and said, “Nah, we’re done playing by someone else’s rules. Time to take control of our own destiny!”
So, if you want to be a big shot like Disney, take a hard look at your business model. Are you letting someone else call the shots? It’s time to take matters into your own hands, my friend! Open up your own stores, tweak things to your heart’s content, and watch those profits soar. It’s the Disney way, and it just might be your ticket to success too!
Creativity and Innovation: More Than Just Cartoons (How They Became a Media Giant)
Disney’s story isn’t just about catchy tunes and adorable characters. They faced some tough challenges along the way, and to stay on top, rake in more cash, grab more control, and dazzle an even bigger audience, they had to get creative. Here’s how they diversified their business to become the entertainment powerhouse they are today:
- TV takeover
- The streaming service
- Home videos distribution
- Publishing
TV takeover: The Big Leap
In the 1950s, while other Hollywood studios were shaking in their boots about this newfangled thing called television, Disney saw it as a golden opportunity. They didn’t just dip a toe in; they cannonballed into the TV world.
Disney used TV to promote the brand, fund projects like Disneyland, recycle content, and launch iconic shows that took their entertainment empire to the next level. Talk about seeing the bigger picture!
Before going solo, Disney teamed up with NBC and CBS for hour-long Christmas specials in 1950 and 1951. But soon enough, they thought, “Why share the spotlight?” So, they started their own TV and cable channels.
Channels like Disney Channel, ABC, and ESPN became their playgrounds, showcasing TV shows, sports, and news. This move didn’t just boost their advertising revenue; it also helped them stay cool and relevant in a rapidly changing media landscape.
So, if you ever find yourself at a crossroads, remember: sometimes you gotta make your own path. And hey, if Disney could turn a cartoon mouse into a global empire, you can totally nail your business challenges too!
The Streaming Services
As traditional television and cable television viewership declines, streaming services have continued to soar.
Before Disney began streaming its movies itself, customers could stream the company’s movies on Netflix. However, the company announced in 2017 that it was pulling all its movies from the platform as it planned to start its own streaming platform.
Its acquisition of 21st Century Fox significantly expanded its content library, giving it a competitive edge in the streaming wars.
This shift in consumer preferences towards streaming services has led Disney to prioritize its streaming platform, Disney+, over traditional cable networks, demonstrating the company’s adaptability in the face of changing market trends.
Disney’s launch of its streaming service is a prime example of forward-thinking vertical integration. It allows them to bypass traditional distribution channels, control pricing, and collect valuable user data. This move holds valuable lessons for small businesses looking to leverage digital platforms for direct customer engagement and data-driven decision-making.
From the Big Screen to Your Living Room: Home video distribution
Disney wasn’t afraid to adapt. Before Disney’s vertical integration into the distribution of its home video, the company outsourced some of its movies for distribution through DiscoVision and Fotomat. This arrangement ended when the company started its own distribution through its subsidiary, Buena Vista Home Video.
Having its own distribution subsidiary means that Disney has full control over the distribution of all its productions in all formats across the world. It is also beneficial to the company, as it no longer relies on third-party distributors or shares profits with them.
Flexibility and Adaptability
In response to the growing demand for personalized and interactive experiences, Disney has integrated augmented reality and virtual reality technologies into its theme parks and retail stores, enhancing visitor engagement and satisfaction.
The launch of Disney’s new metaverse project aims to create a virtual world where users can interact with Disney characters and content, reflecting the company’s push towards futuristic entertainment solutions.
Disney’s foray into the metaverse with experiences like virtual theme park tours and interactive storytelling presents a new dimension to its vertical integration strategy. This move highlights the company’s commitment to embracing emerging technologies and provides a glimpse into the future of immersive entertainment, offering inspiration for small businesses looking to innovate and adapt to the evolving digital landscape.
Vertical integration strategy challenges
Disney’s vertical integration strategy has been shockingly successful, making it one of the most powerful and recognizable brands on the planet. But it’s not all sunshine and rainbows. This strategy has its downsides too.
Some argue that it stifles competition and leads to a monopoly in the entertainment industry. This perspective highlights the potential drawbacks of vertical integration, prompting small businesses to consider the balance between control and fostering a healthy competitive landscape.
The hurdles of Disney’s acquisition of Lucasfilm and Star Wars and Indiana Jones franchises:
Disney’s $4.05 billion acquisition of Lucasfilm turned out to be a bit of a mixed bag. The Star Wars franchise, while initially promising, quickly spiraled into confusion with a sequel trilogy that lacked a cohesive plot, leading to disappointing films like Solo and The Rise of Skywalker.
Kathleen Kennedy, the head of Lucasfilm, faced heavy criticism for her leadership, with fans clamoring for changes that never came.
On the Indiana Jones front, Dial of Destiny was a box office flop, costing a fortune to make but failing to attract audiences. Meanwhile, franchise fatigue set in as fans grew overwhelmed by the sheer volume of Star Wars content, with projects like the Willow series falling flat.
These challenges have raised serious questions about Disney’s strategy and the long-term profitability of its investment in Lucasfilm, leaving many to wonder if they bought a treasure chest or just a pile of rusty spoons.
Yeah, we should admit that the older Star Wars fans were disappointed, but the new trilogy was still successful: you can’t say the $4.4 billion was a disaster, right? May the Force (and profits) be with them.
Other Woes
In 2021, Disney’s decision to release ‘Black Widow’ simultaneously on Disney+ and in theaters led to a legal battle with Scarlett Johansson, highlighting the complexities of modern distribution strategies.
Disney’s vertical integration strategy has faced criticism for stifling creativity and innovation, as the company’s focus on controlling the entire production and distribution process may limit external collaboration and fresh ideas.
Takeaways for small businesses
So, what can small businesses learn from Disney’s playbook? Here are a few nuggets of wisdom:
- Disney’s vertical integration success stems from prioritizing customer experience and satisfaction across various platforms and touchpoints. By shifting focus from internal goals to external customer needs, businesses can achieve greater success and customer loyalty, just as Disney has.
- By controlling every aspect of production and distribution, Disney ensures that no competitor with unlimited resources and the best talent can easily disrupt its market. This strategic foresight and comprehensive control over the entire value chain can be applied to businesses aiming for growth and market dominance.
- Execution Matters: It’s not just about having a great idea; it’s about how well you execute it. Disney’s rigorous standards can inspire smaller companies to aim high. Larger companies like Disney have the advantage of vast resources and market presence. However, smaller businesses can learn from Disney’s strategic execution and focus on quality implementation. By adopting Disney’s rigorous execution standards, smaller companies can achieve remarkable success.
Some companies find outsourcing certain tasks allows them to focus on core competencies. The decision to bring activities in-house should be based on a cost-benefit analysis and the specific needs of the company.
For Disney, vertical integration aided the company in controlling and actively managing its supply chain. It has also been beneficial for the company to closely monitor the creativity of content and ensure that it meets changing market requirements and customer expectations.
