Chapter 3: Evaluating Environmental Threats

Armed with a strategy, as detailed in Chapter 1, a company is well served to develop internal performance measurements, the focus of Chapter 2. From there, a company should develop a thorough, flexible understanding of its external competitive environment.

To do so, Chapter 3 discuss two key tools: The Structure-Conduct-Performance (SCP) Model and Porter’s Five Forces.

The first dates back to the 1930s and, in analyzing structure, aggregates data related to the number of firms competing in the industry, the similarity of products in the industry, and the relative cost of entry and exit. Conduct refers to specific firm actions, while Performance is two-fold, analyzing the firm’s performance, and the performance of the economy at large.

Using this model to analyze Meredith Corporation yields the following:

• STRUCTURE: In recent years, the media and marketing industry has embraced consolidation as a means to compete and survive. As such, this industry is an oligopoly, with Meredith competing directly with approximately a dozen companies, including Hearst, Conde Nast, News Corp, Gannett, and AOL. Meredith is a unique company, however, as it has comparatively diverse holdings. Most media companies have solely focused on publishing or broadcasting to strategically focus operations, but as of yet, Meredith has not. However, rumors continue to circulate the company is reportedly considering the sale of its television holdings to a private equity firm.

• CONDUCT: Changing consumer habits have contributed to a steep decline in the viability of traditional publishing as a long-term revenue model, which has led companies to focus on evolving digital platforms, related business models, and more cross-platform synergies. Just last month, for example, Meredith announced plans to launch four new podcasts built around its key food and lifestyle brands. Meredith has also seen success in extending its Better Homes & Gardens brand into a strong (and profitable) lifestyle product line of more than 3,000 items, in an exclusive deal with Walmart.

• PERFORMANCE: At the firm level, as as discussed in the previous chapter, Meredith continues to face challenges, as it realigns its core business strategy. The acquisition of Time, Inc., and the subsequent sale of several ‘legacy’ brands seem to signal Meredith’s desire to focus on entertainment, lifestyle, food, and a female-centric demographic. In a way, it seems Meredith could be trying to focus its efforts on its most obvious potential competitive advantage, built around a target, predominently female customer base.

The second tool outlined in this chapter, Porter’s Five Forces, seeks to help firms better identify environmental threats to maintaining or creating competitive advantage.

Source: Disruptiv Nation

• THREAT OF NEW ENTRANTS: This force seeks to identify firms that can enter the industry or those already in it that might strategically evolve specific aspects of operations. The cost alone of becoming a competitor in this industry makes it highly unlikely new competitors will emerge. However, one area in which this clearly applies to Meredith is the ongoing evolution of technology in the media and publishing space. No longer is it enough to offer a website to support a magazine brand. In many ways, the print magazine is secondary to the website, mobile phone application, podcast, social media presence, or any number of technologies that extend a magazine brand. Similarly, television ownership groups have needed to evolve their operations to stay relevant and engaged, realizing customers (audiences) seek the convenience of on-demand news.

• THREAT OF RIVALRY: This force seeks to ascertain the intensity of competition among a firm’s most direct rivals. This is high for a company like Meredith, from at least two distinct sides. Because of its rather unique business model, Meredith faces incredibly stiff competition from its publishing rivals (including Conde Nast and Hearst), along with its broadcasting competitors (including Tegna and Scripps). The text references five key attributes, including slow industry growth and lack of product differentiation, which seem to increase the consideration of this paricular force.

• THREAT OF SUBSTITUTES: This force analyzes the role of firms and institutions that provide the same customer needs in different ways. This is an ongoing threat for Meredith and every firm in these industries. Consumers can get the same information — news, entertainment gossip, recipes, etc. — in any number of ways. The evolution of communication in the past 25 years has dynamically changed the way people get information and the speed with which they expect it. The challenge for companies like Meredith is to evolve and find a way to lead, or be rendered outdated and out-of-touch and be left behind.

• THREAT OF POWERFUL SUPPLIERS: This force examines the role of raw materials, labor and the other elements that companies need to make items to deliver to customers. It seems this isn’t as strong a consideration for Meredith and other companies in this industry, as the products sold by suppliers to the company aren’t necessarily ‘unique or highly differentiated.’

• THREAT OF POWERFUL BUYERS: This significant force analyzes the role of a company’s buyers and their impact on a company’s revenues. Meredith has two key groups: subscribers/viewers and advertising buyers. Interestingly, the power of the two is inversely linked. With more subscribers/viewers, Meredith can presumably charge more for advertising, which decreases, it seems, the power of the companies who buy space or spots.

As the text indicates, some researchers have suggested a sixth competitive force should be included for proper analysis: the role of complementors, which differs from a competitor in that “a firm is a complementor if… customers value [a firm’s] product more when they have this other firm’s product than when they have your product alone.” In a way, having complementors raises the relative value of a firm’s product. For Meredith, however, this doesn’t seem to be a significant consideration.

All told, this analysis demonstrates how Meredith seems to be in a time of transition, overhauling and focusing its key strategy, divesting parts of the company that don’t align with that strategy, and fighting for competitive advantage in an increasingly challenging business climate.

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