Strategic Analysis of Reader’s Digest Essay Example

make matters worse, the threat of substitutes is also high for Reader’s Digest because the switching cost for magazines is low. As supported by the research of Lasher (1999), the seller’s market power will be reduced when substitutes exist and don’t involve substantial switching costs for the buyers. The buyers can freely switch from Reader’s Digest and subscribe to other types of magazines that are published online easily.As shown in the report of Teo (2008), the cost of a barrel of oil has risen sharply from $25 since Sept 2003 to $139. 89 on June 2008. With this economic trend of rising oil prices, it definitely leads to higher inflation rates and increased cost of end products or services.

When the economy is bad and money is valuable, the suppliers of Reader’s Digest will hold more bargaining power and they might be aggressive in their terms and pricing since they need to retain their revenue streams.As a result, they might increase the existing raw materials cost, transportation cost, printing cost and ultimately, the increase of the operating expenses will eat into the profitability of Reader’s Digest. Although competition is low and new entrants will not enter the magazine industry when market is bad, Reader’s Digest will still find difficulties in marketing and selling their magazines. That is because due to the overall price growth, the buyers will be more conscious in their spending and tend to save up their money in case the situation turns worse.To the buyers, Reader’s Digest magazine is a “good-to-have” rather than “must-to-have” perception; hence the buyers can find other substitutes such as acquiring the information from the Internet or reading

from the newspapers. Furthermore, there is an increasing public concern on the impact of global warming and climate change.

Due to the ecological trend, the buyers are getting more environmentally conscious and most of the companies nowadays are called upon to undertake greater corporate social responsibility for the impact of their actions on global warming.According to the findings of Printing Alternative Promoting Environmental Responsibility (PAPER) project, it is reported that the magazine industry has contributed extensively to deforestation as well as pollution and more than 35 millions of trees are cut down each year for magazine paper production. (Independent Press Association, 2001) This will have an impact on Reader’s Digest as if they choose to ignore the environmental issues; they might run the risk of revealing unacceptable practices, which in turn will affect the profitability of the company.In the future, the government might even use legal laws and regulations to support the green idea and enforce that all magazines can only use recycled papers. With this legal act in place, there will be a greater demand for buyers to purchase magazines that are environmentally friendly.

To make matter worse, they might not even subscribe to Reader’s Digest in order to save the earth but use the Internet search engine as a substitute to source for information.However, this should not affect the bargaining power of Reader’s Digest’s suppliers as the costs for recycled paper now is generally cheaper. With the greater demand for recycled paper in the coming years ahead, the government will also provide incentives for the suppliers who have aligned their policy in adopting the practice of using recycled paper. As supported by the

research of Joanne (1993), most of the states are providing tax incentives to encourage industries to use more recovered materials in the manufacturing processes.Lastly, most of the readers from Reader’s Digest were too elderly and the society nowadays is dominated by boomers. As shown by the research of Baby Boomer Care (2007), demographic trends of baby boomers between the ages of 41 to 60 will be influencing numerous aspects that include interests, education and the country’s economy.

The buyers of this age group are generally more educated and prefer magazines of modern fashion, stars of Hollywood and contents that have enduring value or great interest.On the contrary side, it is sad to comment that the contents of Reader’s Digest is not much different from the recent issues which appeared on the newspapers or Internet and it will not attract the buyers to purchase the magazines. This will eventually lead to the decline profitability of Reader’s Digest. Reference List Baby Boomer Care.

2007, “Demographic Data Baby Boomers Trend”, viewed on 13 August 2008, < http://www. babyboomercaretaker. com/baby-boomer/Demographic-data-baby-boomers-trend. html > Independent Press Association. 001, “Environmental Impacts of the Magazine Industry”, viewed on 11 August 2008, < http://www. mindfully.

org/Sustainability/Magazine-Environmental-Impacts. htm > Joanne, J. A. 1993, “Tax incentives to stimulate investment in recycling”, Progress in paper recycling, vol. 3, no.

1, pg. 52-56, viewed on 12 August 2008, < http://www. fpl. fs. fed. us/documnts/pdf1993/alig93b.

pdf > Lasher, W. R. 1999, Strategic thinking for smaller business and divisions, Blackwell Publishers Inc, USA Sadler, P. 2003, Strategic Management, Kogan Page Limited, USA Teo, A.

2008, “Save environment, save fuel”, Your Choice, vol. 8, no. 34