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Disney Lebanon

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Submitted By karen1557
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Disney’s Dilemma

Disney Consumer Products Europe and Middle East (DCPEME), a business unit of The Walt Disney Company, is hoping to maintain their position as the fastest growing division within the company by expanding into the Middle East. This region represents huge growth potential for Disney due to its favorable demographics and consumer spending patterns. These lucrative business opportunities in the Middle East resulted in DCPEME signing a 50/50 joint venture with a Saudi Arabian regional partner in 1993. The joint venture would begin their operations in Saudi Arabia, but was interested in expanding into neighboring countries, specifically Lebanon.

DCPEME now faces the decision of determining whether entering Lebanon is the correct next step in their Middle Eastern expansion strategy. Additionally, if the company decides to enter Lebanon then they must evaluate the best product categories to launch as well as identify which distribution options will position the country for success.

Should Lebanon be Next?

Lebanon is considered a small and prosperous Middle Eastern nation. A devastating civil war in the 1970s and 1980s wreaked havoc on the country’s infrastructure, but their economy has since recovered and is now characterized by free market pricing and an unrestricted exchange and trade system. Currently, Disney products are already distributed in Lebanon via three channels: worldwide licensees (ex. Mattel), non-worldwide licensees that distribute in Lebanon without proper approval, and non-worldwide licensees whose wholesalers are illegally selling Disney products to Lebanese distributors. The following section details the advantages and disadvantages of DCPEME expanding into the Lebanese market.

Advantages

Lebanon’s highly literate population, especially when compared to neighboring Arab countries, makes it an ideal Middle Eastern country for Disney. Additionally, Lebanon is familiar with many Western products and regards the Disney brand as high-value and associates it with enhanced self-esteem and status. Lebanon’s more liberal society would also help facilitate the introduction and adoption of Disney products by locals. Finally, many Lebanese distributors have already developed extensive networks and contacts in other Arab countries, which could help DCPEME with any future expansions into other Middle Eastern countries.

Disadvantages

Any extension into the Middle East would present challenges for DCPEME. Entry into Lebanon could result in an increase of illicit or pirated versions of Disney products in the area, which would be challenging for the company to regulate. Secondly, the company’s market research was limited to parents living in Beirut with household incomes among the top 25% in Lebanon. These research findings may have created an overly optimistic perspective of Disney product adoption due to only sampling a small and skewed proportion of the Lebanese population. Most importantly, the Lebanese market is already being supplied Disney products through approved and unlicensed distributors. The potential for increased competition, high advertising expenses, and price wars within certain product categories could prove challenging for the company.

By analyzing the advantages and disadvantages offered by a Disney expansion into Lebanon, I believe that the prospective benefits far outweigh the potential complications. Currently, Disney has minimal control over their product, marketing, and branding in Lebanon. As a result Disney products currently offered in Lebanon may not meet the company’s high values (quality, integrity, and imagination). It is in the best interest of DCPEME to enter the Lebanese market subsequently enabling Disney to strategically promote their company mantra, “make people happy”, to their Middle Eastern consumers.

Product Sales Potential

DCPEME has a variety of Disney merchandise that could be introduced in Lebanon. The company commissioned a focus group to better understand which Disney products parents and children liked and would consider purchasing. The following table explores the positives and negatives of each available product category.

| |Apparel |Publications |Plushes/Toys |Other |
| | | | |(watches, video games, home goods,|
| | | | |food, etc.) |
|Positives |Disney viewed as having reasonable |Many Lebanese understand French/English |Disney products not widely |Poor awareness |
| |prices for medium-quality items |Increased awareness from unauthorized |available |Disney video games are extremely |
| | |distributors | |popular |
|Negatives |Increase in imported/pirated items |Competition from French characters |Strong competition and heavy |High competition from non-Disney |
| |Perceived value based on originality |Price competition in English category |advertising |action games |
| | |4 Arabic licensing agreements |Cheaper alternatives |Only 5% of households own CD |
| | | |Limited to younger demographic |players |

Based on DCPEME’s focus group results, I believe that the right products for Disney to launch in Lebanon include publications and educational video games.

Parents viewed reading as a positive pastime and typically began reading stories to children as young as one. 92% of focus group respondents indicated that they read at home. Previous licensees had experienced success distributing picture books in Lebanon and as a result helped increase Disney’s product awareness and introduce the branded stories and characters to the country. Additionally, Disney picture books had achieved over $400,000 in Lebanese retail sales in 1993, which was the highest of any product category.

Interviewed parents did not appreciate computer games and were hesitant to purchase these products for their children. In contrast, these parents did express a product void in the educational video game department, thus illustrating a potential opportunity for Disney. None of the focus group participants knew that Disney offered computer games. DCPEME should launch educationally focused video games in Lebanon, which would appeal to older children as well as their parents. The fact that Disney’s latest game, Aladdin, was the best-selling video game in 1993 further reinforces the brand’s high appeal in this product category.

Lebanese Distribution Options

DCPEME has four options to supply their publications and educational video games in Lebanon. The following section details the positives and negatives of these distribution alternatives.

Option 1: DCPEME could rely on its licensees’ current distributors as well as encourage worldwide licensees to service Lebanon. This option depends on DCPEME to coordinate the Lebanese distributors and incent (via advertising, sponsorships, promotions, etc.) them to offer the additional Disney merchandise. It could be challenging to encourage unmotivated or financially concerned distributors to shift their focus to low-margin Disney products. These current distributors would likely demand exclusive rights to supply Disney products in Lebanon as well.

Option 2: DCPEME could identify existing Lebanese distributors willing to sell previously unrepresented Disney products. This option would necessitate DCPEME to take on the additional burden of educating, coordinating, and supporting distributors who are unfamiliar with Disney products. These distributors would also likely request exclusive rights to combat potential diversion caused by Lebanese store’s purchasing Disney products directly from US or European wholesalers.

Option 3: DCPEME could choose a new distributor to supply Lebanon with Disney products. The company has been contacted by a Saudi Arabian retail chain interested in opening a Disney store as well as becoming a distributor of Disney products to other retailers. Unfortunately, this particular chain has no previous Lebanese retail experience. This Saudi retail chain has already negotiated exclusive rights with several current licensees to sell various Disney merchandise in their store.

Option 4: DCPEME could license Disney Corners, a specialized area dedicated to merchandising genuine Disney products, in existing retail stores. These stores would help Disney achieve consistent supply, promote new products, and increase brand awareness among Lebanese consumers. The Disney Corner concept would necessitate substantial start-up costs (approximately $125,000/store) in a country whose sales potential has yet to be tested. Additionally, other Lebanese distributors of Disney products may be upset as all DCPEME attempts to direct all Disney products through Disney Corner stores.

Based on the available distribution choices, the best decision for DCPEME’s Lebanese expansion would be to initially employ Option 1. There are already established Lebanese distributors successfully selling Disney products in Lebanon, so it appears that this would be the safest and most cost effective preliminary step for the company. This option would give the Disney brand the opportunity to reach a wider Lebanese audience as well as generate excitement in the marketplace since these products could be offered in a variety of retail locations. Disney would also have better control over the products offered and the brand image they are portraying in the country. The central issues with Option 2, 3 and 4 that made them an illogical choice for DCPEME are listed below.

• Option 2: The additional effort related to working with distributors unfamiliar with Disney could be time consuming and may prove ineffective

• Option 3: The Saudi retail chain is already receiving Disney merchandise from current licensees. They could easily purchase Disney publications and educational computer games through similar channels. This option would also limit the new Disney merchandise to the chain’s 18 stores.

• Option 4: The risk associated with the Disney Corners stores is too high considering the high start-up costs and as yet unproven Lebanese market potential. This option would also limit the new Disney merchandise to only a small number of retail stores. Based on the results of Option 1, DCPEME’s better understanding of the market and sales potential would allow them to determine if the Disney Corners concept could be a viable investment opportunity in the future.

Option 1 is not without its issues, but these potential complications could be alleviated in the following ways. A successful introduction of Disney publications and educational computer games in Lebanon should necessitate increased advertising, promotions, and sponsorships regardless of which distributor option was chosen, so that original concern is mostly immaterial. DCPEME could encourage unmotivated suppliers to focus on lower margin Disney merchandise by offering favorable contract components such as incentive payments based on volume purchased/sold or more lenient inventory payment terms. Additionally, DCPEME should attempt to build non-exclusive agreements with these distributors, but if that is not possible then they should sign short-term contracts that enable them to reevaluate their distribution choices and make adjustments if needed. Moving forward it will also be important for DCPEME to devote additional time and resources towards enforcement (government involvement, legal action, etc.) in Lebanon to help restrict the potential increases in pirated versions of Disney merchandise or unauthorized licensee sales.

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