Disney in Mexico 3-5 pages, APA format Pricing: Describe the pricing strategy (low  price leader? High priced luxury leader? Value pricing?)  How will the pricing strategy support market entry? Compe

As Disney plans its expansion into Mexico’s SVOD market, the company must first develop a competitor risk assessment of all competitors currently operating in Mexico as well as competitive strategy to ensure a successful entry. Through this analysis, their a target market size as well as pricing strategy have been created and suggested to Disney to utilize as their entry path in order to be a competitive force from the start. Through analysis of Mexico’s SVOD

Founded in 1923, the Walt Disney Company is recognized as one of the world’s largest entertainment companies. Since its inception, Disney has grown at a rapid pace within the entertainment industry through the production of television programs, feature films as well as amusement parks. Throughout its growth, Disney has acquired a number of different brands including ESPN, ABC, Marvel Studios, Pixar, and Lucas Film Ltd (The Walt Disney Company, n.d.). In 2018, Disney to earn $59.4 billion in revenue and $13.1 billion in net income (The Walt Disney Company 2018). The focus of Disney’s global expansion is linked to their Direct-To-Consumer and International business segment. This segment of Disney in particular is where the company can truly leverage their brand recognition and content to globally expand into international markets through their recent acquisition of Hulu and launch of Disney+ streaming services. Currently, Hulu is not offered in locations outside of the United States and Disney+ will initially be exclusive to the United States as well. In order to compete with other streaming services such as Netflix, which operates in 190 countries, Disney must focus on the expansion of this business area to retain a respective market share (Brennan, 2018).

The model for this business segment will strictly be buyer to consumer (B2C) as it relies on personal use of the technology. The target buyers for this business area will be anyone with internet connectivity. In order to subscribe and stream content, users must have access to a screened device as well as the ability to connect to the service’s website or application.

In order to operate in a foreign country, Disney must ensure that they have the proper technological infrastructure in place.

After initial examination of entry into SVOD markets in Indian and Mexico, it was determined that Disney should pursue the expansion of their streaming services in Mexico. Both countries would provide Disney with an ideal setting to launch as well have enough opportunities to succeed. However, through the PESTAL analysis of both countries, the threats were used as the deciding factor in the selection of Mexico as the target country. India’s threats in particular could make the launching of Disney+ and Hulu very difficult for Disney. Currently, Netflix is the leading streaming provider in Mexico and there are currently not many other major competitors. Disney will be able to compete with Netflix in Mexico through brand loyalty with content on Disney+ and through original content created by Hulu. They will also be able to instantly compete due to their subscription prices that fall lower for both streaming services compared to Netflix. The company will also be able to take advantage of this by bundling the two services as a subscription package. In order to ensure a smooth entry into Mexico’s market, Disney will implement a best-case competitive strategy to provide buyers with lower costs and a unique experience. As a result, Disney should expect to quickly build its user population in Mexico due to its content and subscription price.

Competitor Strategy and Market Size for Disney

Contents

As Disney’s entry into Mexico’s SVOD market, through their Disney+ and Hulu services, continues to develop, the company must now begin to create their competitive strategy. In order to do this, competitors within the current market spaced were analyzed for their advantages and disadvantages. Four companies, Netflix, Amazon, America Movil, and Blim, were all analyzed in order to develop the best path forward into the market. After the analysis, a competitive strategy, target market and price strategies were all developed in order to create the best opportunity for Disney’s first expansion into the global market.

Currently there are four major competitors to Disney within Mexico’s SVOD market: Netflix, Amazon Prime, America Movil, and Blim. Netflix and Amazon Prime are both international competitors while America Movil and Blim are local competitors. Each of the competitors present their own advantages and disadvantages within the market. These aspects of each competitor as well as Disney are outlined in Table 1. Overall, Netflix is the largest competitor within the Mexican market and has been able to retain at least 63% of all subscribers within the country (Martinez, 2018). Meanwhile, while the two local competitors are able to provide their services at a lower price point, they are unable to produce and offer the same volume of content as Netflix and other international providers.

The competitive advantage of Disney will be the high number of contents currently produced under Disney owned production companies like for example the Marvel studios which has been attracting quit a number of fans. This because according to research most people responded to the Netflix contents positively most of which mostly is usually owned by Disney due to the content production rights. Disney currently owns a number of companies i.e. ESPN, Lucas Films, National Geographic, Pixar Studios and 21st Century Fox among others (Aguilar, 2019). This means that Disney would have a huge impact if it transferred its various content to their own streaming platform just like Netflix whereby, they would offer the various packages for example sports through ESPN to the sports lovers. Additionally, the company is in control of Hulu and its popular original content such as The Handmaid’s Tale. This also means that the Disney’s advantages solely lie in its contents due to the originality of the products produced for example the movies since it already has acquired a number of production companies.

The viability of this competitive advantage clearly exhibits itself from the success of its products and the customer reception of the contents currently on other streaming platforms such as Netflix and Amazon. This means that the change to their own streaming platform would have a huge impact on the market since the subscribers who initially used other platforms to access the Disney produced contents would shift to Disney’s platform so that they can continue enjoying their products and services. Other competitive advantages will include the high reputation for the Company in the world and the high financial abilities of the company to do the technological upgrades in the company to full streaming services instead of relying on other companies like Netflix due to its already acquired list of contents.

When many heard that Disney was starting their own streaming service, many wondered, don’t we have enough of them? It does seem, at least in America, that streaming services have taken over the media and entertainment industry; with more households “cutting the cords” from traditional cable companies. The most common argument being heard now is the SVOD services have become over-saturated, which means increased competition.

According to Jhonsa (2018), in the United States, 80% of Netflix users do not use any other SVOD streaming service (minus Amazon Prime Video); furthermore, according to other surveys, most Americans will only want to subscribe between 2 or 3 services. This competitive framework will be similar in Mexico, where Disney is planning to expand. According to Parrot Analytics, Netflix has 74% market demand (Parrot Analytics, 2019). Despite this challenge, Disney has a unique advantage: the ability of to bundle services.

Bundling of services is the definite way forward for Disney. Bundling has been used by companies like Netflix to improve customer experience, mitigate decision exhaustion, improving customer confidence, understanding products purchased, and supplementing customer feedback (Gidwaney, 2014). Furthermore, bundling has proven to work in other industries such as auto, travel, home care, and meal delivery. This also being said, bundling for Disney will be more important as more people continue “cutting the cord”. According to VanDerWerff (2016), “cutting the cord” is starting to be just as costly, if not more costly, given all the up and coming streaming services entering the market. In other words, the SVOD streaming markets are starting to become oversaturated and combined, very expensive. Depending on certain consumers, they will have to pick and choose certain platforms that appeal to them; and in this economy most people do not have enough money to subscribe for them all, making it more expensive than cable companies. This is where Disney can enter the market using bundling as a competitive advantage.

Given this rational, bundling is Disney’s best weapon. As covered in our research, Disney currently owns ESPN, ABC, Marvel Studios, Lucas Films, National Geographic, Pixar, 21st Century Fox as well as Hulu (Ho, 2019). Based on this diversification, Disney has an immediate competitive advantage. Bundling comes in with Hulu. Since Disney owns Hulu, Disney can implement a bundling package for Disney+ and Hulu. Options can be given to consumers to either subscribe for one of their services or both Disney+ and Hulu. Bundling these two services will give Disney an automatic competitive advantage in the Unites States and Mexico by getting two services in one. Adding to this, the diversity of content Disney and Hulu have will only add to their potential market share in Mexico.

Disney can go even further in their bundling offers as well. Disney is a well-diversified company offering theme parks around the world and cruise lines. Disney should implement bundling and package deals for theme parks, cruises and other Disney products along with their bundled Disney+ and Hulu streaming services. The best part is, Disney can mix and match bundles and offers as necessary; overtime, Disney can start analyzing which are the most profitable bundles and packages and start narrowing down their offers to reduce operating costs, in the long run. Bundling all of these offers together will definitely entice consumers to add Disney+ and Hulu to their list of streaming services, and maybe even some to switch over to Disney+ and Hulu completely.

The two primary target segments for Disney+ are the price focused and quality and brand-focused segments. Companies that belong to price-focused segment have a transactional outlook to doing business and does not seek any ‘extras.’ Companies in this segment are often small, working to low margins and see their product/service as of “low strategic importance” to their business (“Market Sizing Techniques”, n.d.). One of the major limitations to SVOD growth in Mexico is the lack of credit and debit card usage. For subscription video on demand (SVOD), a valid credit card is the easiest way to pay for the recurring fees. Based on Global Findex data, credit card ownership is extremely low in Mexico, only 18% of the population have a credit card at all. In order for Disney+ and Hulu to gain more subscribers, Disney will need to adopt and integrate these alternative payment methods to capture market share and scale operations.

The quality and brand-focused segment wants the best possible product and is prepared to pay for it. Companies in this segment often work to high margins, are medium-sized or large, and see their product/service as “high strategic importance, seek the best possible product or service and is willing to pay a premium for it” (“Market Sizing Techniques.”, n.d.). Walt Disney has invested a total of $400 million US dollars to multiplatform content producers which help them reach millennials in the digital age. Disney is looking forward at the digital landscape and positioning themselves to stay relevant as consumer demands for content and distribution changes. The digital diversification of business models and commitment to the coming changes of content consumption behaviors is important. Investment in in-house growth opportunities or other strategic companies will mitigate risk for potential shifts in the ecosystem.

Disney is currently looking to expand the streaming service in Mexico. Based on Statista data, the video on demand market revenues are expected to grow from US $118 million in 2016 to US $224 million by 2021 at a compound annual growth rate (CAGR) of 13.6 % (Statista, 2018)

Disney is targeting Mexico’s 82.5 million internet users. The figure is estimated to grow to 101.6 million internet users in 2023. (Statista, 2018) In Mexico, SVOD has income of 90 million annually. Accordingly, the subscription video on demand (SVOD) market is expected to increase from $90 million (US dollar) in 2018 to $186 million (US dollar) by 2021 at a compound annual growth rate (CAGR) of 15.6 %. A Competitive Intelligence Unit study stated Mexico has some 5 to 6 million subscribers for OTT services. Currently, Disney’s biggest competitor, Netflix, is a leader in the market by 68.9% share. Disney is expected to gain a portion of Netflix subscribers once they enter into the Mexico market.

According to Citibanamex, 30% of Mexican households are expected to pay for SVOD services by 2025 (Roshan, 2017). The study also stated that the Mexican SVOD video market is set to generate over $220 million income in less than ten years (Statista, 2018). As a result, Disney’s target audience should be the 30% of Mexico’s 129 million population; approximately 38 million subscribers. Disney will should specifically target family’s that subscribe since Disney+ will have a very large focus on family friendly content. Additionally, despite not being offered in Mexico yet, there is a 7% demand for Hulu’s collection of original content (Parrot Analytics, 2019). This will be another pivotal selling point to attract customers that are interested in content that is not available on other streaming services.

Social networking has become a significant factor impacting businesses because of the large number of users attracted to social networking. Essentially, social networking is attractive for business organizations because of the fact that this technology enables business organizations to reach large populations of potential consumers/customers. Because of such nature and characteristics of social networking, business organizations now consider social networking as part of their strategies. In fact, there is an increasing integration of social networking into the business strategies of many organizations. Walt Disney will be using its social networking, streaming and pricing strategies to become the largest streaming company in Mexico.

When marketing for the best deal in a new area or other countries, you have to consider pricing strategy. A pricing strategy takes into consumers ability to pay, market conditions, competitor strategies, as well as input costs. Right pricing strategies of many business organizations, are centered around factors such as technology innovation and current market trends.The main purpose of pricing strategy is to examine and explore the potential implications of social networking and streaming as a technology available for business organizations, and how social implications could shape the actual development of business organizations. As Walt Disney begins its streaming expansion into Mexico, they have to consider the right pricing strategy. In order to do so, they must utilize the proposed competitive strategy to ensure they are able to successfully implement both Disney+ and Hulu.

Using a Pricing Strategy framework, it is essential that Disney understands the economic environment they are entering to ensure their strategic plan is effective (Nagle, 1984). In order to maximize their entry, Disney should utilize a penetration pricing strategy. Penetration pricing is a strategy in which companies offer their product or service at a lower price point than their competitors in order to attract new customers and rapidly gain market share (CFI, n.d.). Since Mexico’s economic climate is not in the same state as established countries, subscribers will not be able to purchase expensive subscription packages. Currently Netflix and Amazon have the highest price point set for their streaming services as shown in Table 1. In the United States, Disney plans to offer Disney+ and currently offers Hulu at lower prices than Netflix and Amazon. As a result, the company should continue to follow that strategy when expanding into Mexico. A suggested penetration pricing point for Disney would be to offer both services at five dollars each while offering the proposed bundled package for nine dollars. This will allow Disney to attract customers looking for content at a lower price with similar amounts of content to the leading providers. Additionally, it will make Disney’s services the cheapest international streaming option since they will be offered at the same prices of local services such as Blim. One of the largest advantages to this pricing strategy is that it typically creates a very high turnover rate and attracts new customers on a much quicker rate than other strategies (CFI, n.d). One disadvantage that Disney will need to be cautious of is that this pricing strategy can often lead to dissatisfaction when prices are raised in the long term. The largest price factor in streaming is the cost of original content. This is the reason companies such as Netflix have had to raise their prices several times over the last three years to ensure they remain profitable. Disney must ensure that the original content from Hulu and Disney+ do not drive costs past a sustainable level and cause the company to raise prices of both services. Walt Disney will use this pricing strategy to ensure that the streaming business and brand that they promote will be second to none. The company has the best opportunity to maximize on the product or service that they are promoting through penetration pricing.

Currently Disney’s largest competitor is Netflix. While there are other services that are analyzed and operational in Mexico, Netflix has been able to retain a majority in total subscribers within the country. In order to make an impact into the countries subscription pool of about 38 million subscribers and attract some from other services, Disney will first rely on brand loyalty from all of its owned exclusive content available on Disney+ as well as the demand for Hulu’s original content. They will then use a best-case strategy where the company can offer their premium service and access to content at a lower price point than their other international competitors. Additionally, the company will utilize their ownership of both services as an incentive for customers to join through a bundling package of the two at a discounted price point. As a result, Disney will need to capitalize on their expansion by implementing penetration pricing for both services and the bundles. A price point that is similar to local competitors for international content will draw more interest and investment from customers to begin to gain a loyal consumer base.

Table 1: Advantage & Disadvantage Matrix (Disney & Competitors)

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