Marvel Inc Strategy from bankruptcy in 1997

Marvel Enterprises, Inc. evolved from bankruptcy in 1997 to the best performing stock on The Wall Street Journal. This marvelous shift in Marvel Enterprises, Inc. is due to its strategic decisions in acquiring creative talent, a wide portfolio of super heroes and characters, synergetic acquisitions, strong control over the characters created by Marvel, very profitable value chain, and successful business model. Marvel History Marvel Comics started as an exclusive comic book company and was acquired by Perelman in 1989.

Perelman tried to foster the growth of the company through acquisitions and diversification. He increased the number of titles under Marvel name and resulted in a reduction of overall quality of the comics. He led the company to a bankruptcy in 1997. Marvel was then acquired by Toy Biz and got saved from closure. Toy Biz purchase of Marvel was strategically very good move. Toys and comics have a lot of synergies because success of a character in comics can be translated to success of that character in toys. And Toy Biz emphasized on the core industry of Marvel comics.

It’s under Toy Biz that Marvel created most successful characters and changed the course of Marvel. Strategies of Marvel Enterprises, Inc. : 1 . Monetize the content library via licensing characters for use with media products and other consumer products. Marvel licensed the characters for movies, television, video games, toys, apparel, collectibles, advertisements etc. and earned royalties from the respective licensees. This was a very successful strategic move because: Create: This move created value for Marvel and Marvel’s customers (the licensees).

Marvel earned royalties and the licensees promoted their business using the characters licensed from Marvel. Capture: Marvel captured the value in terms of further promoting its characters and further increasing its comic book sales. Marvel’s most successful super hero Spider-Man created a sensation through movies by Sony Pictures. Marvel introduced more issues of Spider-Man (Amazing Spider-Man, Ultimate Spider-Man etc. ) and increased the revenues from its core business. The success of the character also translated into additional revenues from royalties.

Benefit: Marvel’s super heroes blend into the audience and created a bond with a wide range of people. The licensees benefitted from this craze through advertising, including the super hero fgures in wide range of products, and making blockbuster movies with the characters. This craze increased the customer’s willingness to pay for licensing the character and increasing their sales. Differentiation: Using the well- known characters on various products (toys, apparel, etc. ) gave a competitive advantage for their products in terms of marketing.

The success of the character easily translates to success of the product that uses that character. Marvel’s characters are used as a differentiator for promoting their products. 2. Manage the library of characters to foster long-term value. Marvel has a portfolio of over 4,700 characters with distinct abilities and characteristics. Marvel’s success depends on the uccess of the characters Marvel creates. Having a wide range of characters under different super hero families is critical for Marvel’s long-term sustenance and success.

Invention followed by innovation is always a necessity for creative company like Marvel. This strategy proved success for Marvel because: Create: Having more wide range of characters that can create value for many businesses. Capture: The value captured by Marvel in terms of royalties/brand name directly relates to the success of the characters it creates. More successful characters attract more licensees and success of the licensees further increases the success of Marvel. Benefit: Having more characters diversify the portfolio and increases the long-term strength of Marvel.

More successful super heroes increase the brand equity for Marvel and also increase the probability of the success of the characters it creates. Having more brand equity and a successful portfolio of characters increasing the customer’s willingness to pay. Differentiation: Unlike DC Comics’ characters where most of the successful characters except Batman are aliens/born with super human abilities, Marvel’s most of the successful characters are normal humans turned super heroes due to some accident. This element elevates Marvel character and creates a sense of thrill in the audience.

The audiences develop a bond with the human turned super heroes and increase the probability of success. This is the differentiating factor for Marvel from its main competitor DC Comics. 3. Retain some form of control over the creative process – to ensure the quality of the content that featured Marvel characters. Marvel characters are blend into its admirers and audience. The licensees must respect this bond while using the characters in their businesses. No one but the creators of the characters understands the importance of this bond.

So it’s critical for Marvel to monitor to the licensees’ products to ensure quality and integrity of the story of the character. Create: Marvel’s customer’s customers are people that admire the characters. Marvel can create value from its characters only if it creates value to its customers and customer’s customers. By having control over the licensees’ products, Marvel can protect the quality and integrity of the characters creating value to customer’s customer. Capture: High quality of the products encourages the collector market and increases the admiration over the characters.

Marvel captures value in terms of the craze people develop over the characters it creates. Benefit: Higher quality of the products obviously increases the success of the products. Marvel’s customers’ benefit from the services provided by Marvel and are willing to pay Marvel for their values add services. It also gives Marvel control over the licensees and their business with respect to its characters usage. Differentiation: Having control enables Marvel protect the story of the characters and maintain a sync between the character’s identity in all the media.

Marvel was successfully able o create value for the customer and the customer’s customer, capture in an equitable manner the value created, benefit from the customers’ willingness to pay, and differentiate its products through its core strategic dimensions. Marvel’s Business model: Marvel’s core business is comic books. Although the core business is comic publication, Marvel makes most revenues and profits from licensing the characters it creates in the comic books. Creating more characters, increase the awareness of the characters and linking the character with an exciting story defines the success of Marvel’s business.

Maintaining the integrity of these characters is the main strategy of Marvel’s business. Value proposition: The target market for Marvel is predominantly kids and male teenagers. Marvel’s the excitement its characters create in the target audiences and the bond they develop with these characters. Marvel characters are NOT a target for females predominantly. Competitors: Prime competitor for Marvel is DC Comics. There are also many small comic publishers that are competitors for Marvel within the industry In general, fairy tale and short story publishers can be competitors for comic book companies Analysis: Profit Model

Revenue Architecture Comic book sales + Royalties from licensing for toys, apparel, etc. + Fees from advertising that uses the characters + Revenue share from movies + Revenue share from sales of video games Cost Structure Salaries for the creators of the characters and comics + Comic book publishing cost + distributor fees + marketing + quality control team cost Target margin The main target for Marvel is licensing the character for movies. Movies are widely reached medium. Success of the character in movies automatically increases the sales of all other products that use that character and increases the overall business f Marvel.

Resource velocity Marvel’s net income in 2003 was over 43. 1% of its net sales from all its operations. This is the one of the best profitability index. Marvel’s key resources are its writers. It’s important for attract and retain creative and talented writers for Marvel’s long term sustenance and success. Value chain confguration This table gives the outsourcing matrix for Marvel. According to the outsourcing matrix, Marvel keeps in-house the critical components of value chain, while outsourcing non-critical components. Long term ability of Marvel to compete High Medium Low

Criticality of component process in Marvels’ products Comic books – Character creation and story Toy creation (concept development) Quality control of toys and character integrity Marvel Select toys promotion Toy manufacturing Apparel that uses the character – licensing Character branding for marketing – Marvel and licensee Marvel maximizes the use of its core competency – creativity – by creating more interesting characters. The success of the characters it creates translates to the success of Marvel. Key Resources and Capabilities that should be focused Marvel is a company that lives on creativity.

Creating successful super heroes and omics is the key capability that dictates Marvel’s long term growth. Marvel should focus on creating characters and maintaining their integrity. Competitive strategy In the entertainment industry, as long as Marvel can create interesting and exciting characters, success is guaranteed for Marvel. A character once admired by masses never dies. Marvel has to work on protecting the admiration over the character and this gives Marvel a competitive advantage. Industry analysis Marvel is an entertainment company.

Entertainment industry is extremely wide and all Marvels’ businesses fall under entertainment industry. Marvel’s core business is creating super hero character and inducing the character into various forms of entertainment. The attractiveness of super hero industry can be assessed by Porter’s five forces analysis. Porter’s 5 forces analysis of super hero industry: Threat of Entry : High Any writer with a story and an exciting super hero can enter the industry through numerous publishers. Bargaining power of Suppliers : High Suppliers of Marvel’s business are creative writers and artists.

The industry runs on them and their stake in the character and its success is extremely high. Bargaining power of Buyers : Low The demand for super hero industry depends on the success of the super hero. And these characters are exclusive copyrights of the company that creates them. So bargaining power of buyers is very low. Substitutes : High Super heroes are very exciting, but they have a large number of substitutes. Normal movies are their biggest substitutes. Movies like The Matrix, for example, a fusion of technology and virtual human abilities, can be biggest substitutes for fictitious super heroes.

These factors make the fantasy industry very unattractive, but Marvel, as a very well established player with numerous characters in its portfolio, has a clear ompetitive advantage over rivals. Risks The major risk of Marvel is its ability to attract and retain creative writers. As long as Marvel can create new, exciting characters in regular intervals, Marvel’s success is The comics and characters introduced by Marvel can be either success or failure. The success/failure is linked only to the character and the loss due to failure of a character is nothing compared to the profits Marvel generates by the success of the character.

Marvel plays it safe, Blackjack style. Marvel’s Business units: Marvel has three business units. All the business units Marvel owns have excellent ynergy. All the businesses are based on the characters and stories they create, predominantly in the comic books. The success of the character in any of Marvel’s business vertical immediately results in the success of other business units pertaining to that character. The three business units of Marvel are: 1. Comic Book Publishing 2. TOYS 3. Licensing Comic Book Publishing Comic Book publishing is the core business of Marvel.

The characters and their stories are created in comics and the success of those characters is transferred into other businesses. Comic books decide the success of the character and thereby the uccess of other business units of Marvel. Comic book publishing business comprised 21% of total sales and had a profitability index of around 34% in 2003. Attractiveness of Comic book industry: Porter’s 5 forces analysis gives the attractiveness of the comic book industry Threat of entry: High Entry into comic book industry is very easy.

Anyone with an exciting story can get the support of numerous publishers and get the advantage of the established network of publishers. Bargaining power of suppliers: High Writers are the major resources/suppliers of comic book industry. Companies should e able to attract and retain various writers and should give them freedom to come up with new stories. Again, providing too much freedom to employees results in running the risk of producing nothing of substance. Bargaining power of buyers: Low If buyers like a comic story, they are obliged to buy that comic only from that company.

So the bargaining power of buyers is very low. Substitutes : High Short stories for kids, novels, etc. can be substitutes for comic books. Due to the above factors, comic book industry is not an attractive industry for new entrants due to high rivalry. But Marvel being a well-established company, can make this a trategic advantage due to low number of competitors. Conceptualization of comic book publishing business Comic book business is a three dimensional concept. According to “Abell” framework, the three dimensions can be analyzed.

Scope Costumer Group: People interested in fantasy, super human characters and comics Costumer Function: Generate excitement, thrill Technology: Color printing, art technology Differentiation Customer Group: Male kids, teenagers, and mid-30 adults Customer Function: Technology: Customer Group: Customer Function: Generate a bond between readers and comic characters and reate a craze for the character Technology: Toys Toys business is predominantly based on the success of the characters developed in the comic books. The success of toy business is dependent on the success of the respective comic books and the characters.

Toy business comprised 24. 5% net sales and had a profitability index of around 25% in 2003. Attractiveness of toys industry: Porter’s 5 forces analysis gives the attractiveness of toys industry Threat of entry: Low Entry into toys industry is fairly tough. Due to high initial investment in plastic molds and plastics, new entrants into the industry can be restrictive. Bargaining power of suppliers: Low The suppliers of plastic, which is most used material in toys, are very high making their bargaining power very low.

Bargaining power of buyers: High Due to large number of players in the toy industry, the bargaining power of buyers is very high. Substitutes : High Online games and video games can be substitutes for toys. Based on the above factors, toy industry is not an attractive industry for new entrants due to high rivalry. But Marvel being a well-established company, and most of its toys are based on the famous characters it created, Marvel’s toy industry is protected by opyrights making this a strategic advantage for Marvel. Conceptualization of toys business Toys business is a three dimensional concept.

According to “Abell” framework, the three dimensions can be analyzed. Scope Costumer Group: People interested in fantasy Costumer Function: Fun, excitement Technology: Molding technology Customer Group: boys from four to 12 years old and adults who are crazy about action figures Customer Function: Competitive Differentiation Customer Function: Generate excitement while playing with the toys (Hulk Hands, Spider-Man web shoots) Technology: Licensing Licensing is the most profitable business for Marvel. Licensing comprised 54. 5% of net sales and had a profitability index of around 72%.

Licensing derives its profits from the success of the characters in comic books and it in turn helps market the comic books. So licensing is extremely profitable and crucial for Marvel’s success. Marvel has a tight control on licensing its products and no product can hit the market without Marvel’s approval. Tight control, as previously mentioned, enables Marvel maintain the integrity of the action figures and preserve their story. Attractiveness of licensing industry: For any company to enter into licensing business, the company must first have a high brand equity and their products should be well-established in the market.

This makes licensing industry very attractive for established businesses. Bargaining power of suppliers: Low The licenses are protected by strict copyright laws and company holds the rights on using the product. Bargaining power of buyers: Low Once the products are famous in the customers, buyers don’t have to spend additional marketing money and they get the brand equity along with the license. This makes the bargaining power of buyers very low. Substitutes : High Normal movies, celebrities, etc. can substitute licensing super heroes.

Based on the above factors, licensing industry is not an attractive industry for new entrants due to high rivalry. New entrants must be established first to license their products, which make it tougher for them. But Marvel being a well-established company, and most of its licenses are over well-established super heroes, Marvel has a competitive advantage in the industry. Conceptualization of toys business Licensing business is a three dimensional concept. According to “Abell” framework, Costumer Group: Business that use super heroes to promote their business

Costumer Function: Promote business using famous fictional super heroes Technology: Copyright technologies Customer Group: Movie producers, apparel manufacturers, and advertisers Customer Function: Customer Function: Generate revenues for the licensees Marvel Industries based on the assessment by various strategic frameworks presented has perfect strategy and maintains excellent synergy within all the business units. Marvel is one of the most profitable companies in the world and it’s possible because of their perfect portfolio of businesses and new products planned over the timeline.

Positioning Marvel for the Future Marvel executives realized two marketing challenges critical to Marvel’s future success. 1. Use its library of characters and continue the existing business model based on licensing the characters to third-party businesses 2. Venture beyond the current business model and take on capital-insensitive but potentially more profitable activities in value chain for entertainment products I’d support option 2, which allows Marvel to further diversify their portfolio, mainly into content production and distribution business.

This will open up a huge market – movies, television, video games, etc. – for Marvel. Besides, this market is not new for Marvel. Marvel has been one of the strongest players in the entertainment business and this industry: Movies are a major part of entertainment industry – one of the biggest industries in the world. Marvel has a lot of experience with movies. Movie industry is one the major customer for Marvel and a key for Marvel’s success. Marvel entering the industry would be inline and synergetic to Marvel’s core businesses.

Attractiveness of the industry Since movies are enjoyed all over the world, PESTLE analysis would be irrelevant to measure the attractiveness of the industry. Porter’s 5 forces model could be applied o interpret the attractiveness of the industry. Porter’s 5 forces model Threat of entry: Production – High; Distribution – Low Producing a typical movie is not very expensive. But distributing the movie is very expensive and only established players control the distribution market.

Bargaining power of suppliers: Production – Low; Distribution – High Movie producers’ suppliers are production team, director, actors, etc. Marvel, an established creative company in entertainment industry can build a movie team easily. But distribution is the key for running the movies and they have high bargaining power since they control most of he theatres. Bargaining power of buyers: Production – High; Distribution – Low Distributors are the customers of movie producers. They control the market and they have high bargaining power with producers.

Whereas theatres are the customers of distributors and they don’t have a high bargaining power with the distributors. Substitutes : High Television series, Internet. Considering the above factors, Production is more attractive and easy to enter than distribution. I’d suggest Marvel to enter the production business for its most famous characters. Marvel can estimate the success of the character based on the comic ook sales and surveys. A movie of a famous super hero generally has a natural hype and craze in the market.

Most such super hero movies are at least commercially hit, if not admired by people. But this would affect Marvel’s comic book sales and character’s reputation. Nonetheless, this risk persists even with the existing business model. Since distribution is tough to enter and most prone to risk, I’d suggest Marvel to outsource the distribution of their movies to established players like Warner Brothers, Universal Pictures etc. Risks Diversification often increases risk. Marvel pursuing content production aligns to its usiness model and is a strategic and synergetic move.

Both movies and comics are creative works. Marvel being in the creative industry for many decades, have writers that could script a very good movie. Or Marvel can use the comic books as script and reach wider audience. Types of risks Marvel has to encounter Demand Risk Super hero movies often have natural hype and craze. These movies are always most awaited and people are crazy about. Marvel line of movies will generally have a very good demand. Regulatory risk Movies have general regulation and movies/comics must adhere to the regulatory ramework established by the respective countries.

Marvel’s main target is kids and Political risk As a well-known company, Marvel should not have any major political risk. Tax structure affects the profitability, but every industry/company has this risk Financial risk The fame of Marvel characters reduces the financial risk of Marvel’s movies. Marvel should go into production business, but not into distribution business at this time. Marvel can earn the profits entirely by producing a business, but is also liable to losses if the movie fails to run rather than having a minimum guarantee amount according to the existing business model.