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Parrot Navigating The Nascent Drone Industry Case Solution
When we talk about the external factors, the suppliers, stakeholders, legal frameworks are a few factors that impact the organization. One of the most significant external factors that impact the firm’s performance is competition in the industry. Competition results in a boost in productivity amongst companies. However, it might become a game of imitating quality improvements and as a result, companies follow the same path in which the customer benefits (Porter M. E., 1996).
Prior to DJI’s rise, Parrot was the blue ocean strategist in the consumer drone industry; it could dictate the pricing levels, features, and margins. However, in 2015, we see a sharp decline in Parrot’s profitability because DJI had made its position in the market and slashed prices which drove out weaker competitors and impacted Parrot’s sales figures.
Following questions are answered in this case study solution
What are the most significant, external factors faced by Parrot?
What is Parrot’s source(s) of competitive advantage?
What strategy (ies) would you recommend to Parrot management in order to drive future success?
Case Analysis for Parrot Navigating The Nascent Drone Industry
We will use the five forces model and the PESTLE analysis to determine the external factors that Parrot faced:
i. Porter’s Five Forces Model
Bargaining Power of Buyers
Since the industry is facing immense growth with new competitors such as DJI that offer lower prices, the bargaining power of buyers is quite high.
Bargaining Power of Suppliers
There are different suppliers in this industry. The first is those who provide components to manufacture the drone. In this case, the bargaining power of suppliers is medium. For DJI, the bargaining power of the suppliers is less because of the financial strength of the company and its position in the market. Therefore, it enjoys the supply-side economies of scale (Porter M., 2008).
Another supplier category is those that give shelf space to the drone manufacturers. It also includes online platforms. The bargaining power of these suppliers might be high because of the competition. Therefore, the demand for shelf-space would be higher, resulting in strengthening this supplier group’s position.
Threat of Substitute Products
The threat of substitute products is low. This is because the drone industry is still in its nascent phase. Therefore, it is quite early to predict whether other substitute products can threaten this industry.
Threat of New Entrants
Since the industry is in the shakeout phase and weaker competitors have been wiped out, the threat of new entrants is medium. However, competitors can still explore the commercial aspect that Parrot was planning to do.
The competitive rivalry in the industry is high. This is because DJI has a variety-based positioning because of which it offers many different options which customers can choose according to their requirements (Porter M. E., 1996). Furthermore, DJI has developed a strategy which backed by investment that has resulted in the competitor being quite strong. In 2015, it has an R&D team of 1500 people compared to just 200 in Parrot’s R&D department.
ii. PESTLE Analysis
Furthermore, in 2015, a DJI drone crash-landed in the White House which resulted in the development and implementation of policies regarding the weight, airspace, and max altitude which impacted the drone industry.
According to the research by Goldman Sachs (2016), by 2020, the drone market would be $95 billion which includes the consumer segment, the military, and the commercial opportunities. The BBC report of 2018 forecasts a market opportunity of $36 billion by 2023. This shows that improvements in technology, software, and strategy can result in Parrot improving their market share.
When Parrot entered the industry, it was faced with the challenge of developing an industry because it could not be classified into mobile devices, toys, or cameras. However, now that the industry has been developed, it means that society has emerged into the phase of accepting new changes in the industry. It means that it could not only be sold through vendors such as Best Buy, but also specialty stores or directly to the businesses.
Since the forecasters have predicted an enormous boost in the drone industry and an increase of commercial use of drones, it requires a technological component as well. Right now, many drones use fuel which has increased the runtime. However, it also includes the fixed-wing drone. However, for commercial use such as in agriculture, improvements in software technology would be required for exploration.
Another technological sub-factor that is relevant for this case is the emergence of the internet. This means that there are vast possibilities of the implications of drone technology. since the COVID-19 there has been an increase in the use of technology (Jacobides & Reeves, 2020).
In terms of compliances and regulations, Parrot was faced with greater challenges because of the law enforceability. However, since DJI was based in China as were other major competitors, they were not following rules and standards like European firms. Out of the top competitors in the drone industry, three belonged to China.
Environmental factors such as the carbon footprint will be applicable to the industry in the long run. This is because fuel-powered drones for greater runtime will add to the usage of fuel. This is because batteries do not give longer flying times and increase the weight of the drone.
The five forces model and the PESTLE analysis show that the external environment of the drone industry is quite competitive. With a plethora of possibilities and opportunities available, Parrot faces the opportunity to explore new technologies to tackle the issues. However, the increasing legalities and stringent standards also pose a challenge for Parrot. Furthermore, the increasing bargaining power of buyers due to the increasing choices that they have is a significant external factor that pressures Parrot to reduce its prices.
In terms of suppliers, Parrot is not in a strong position. This is because DJI possesses the supply-side economies of scale, reducing the power of suppliers for the specific company. This has an impact on the price margins of DJI, impacting Parrot negatively too.
Another external factor that Parrot faces is the increase in the use of technology in the past year. While this has impacted all industries across the globe, since Parrot is in the communication industry, it impacts it more than other traditional businesses.
2. What is Parrot’s source(s) of competitive advantage?
Parrot’s had a first mover’s advantage in the drone industry initially. However, as large competitors like DJI emerged, this advantage became irrelevant. However, the company is ready to be flexible and pioneer into the field of the prosumer. This means that the growth opportunities are substantial for Parrot.
Value Chain analysis, balanced scorecard, and VRIO analysis will determine Parrot’s current competitive advantage.
i. Value Chain Analysis
When it comes to primary activities, one of the factors that were of competitive advantage to the firm was the operations of the company. This means that Parrot had a unique portfolio which included data analysis, sensors services, software, and hardware. This portfolio meant that the company could integrate these capabilities and strengths to explore the drone industry and provide an integrated solution for the customer.
As for marketing and sales, the company was quite inexperienced when it came to producing drones for commercial use. It meant that the company had to develop the channel from scratch and modify the distribution system, selling process, and marketing to target this new market. Therefore, this is not a competitive advantage
Support activities of the firm included technology development. While Parrot did not have the capital to invest in R&D like DJI, it had the knowledge of operating in the industry and working with a unique portfolio.
Since the firm infrastructure included these different services and hardware offerings, it had acquired technologies through different acquisitions. It could leverage the acquired technologies used in farming and mapping to expand into the commercial drone industry. Since the data from forecasters varied to a great degree, Parrot could conduct market research to determine which industry it could tap into first and which would generate more profitability to fuel more R&D efforts.
ii. Balanced Scorecard
The company did have financial backing from the variety of portfolios that it possessed. However, when compared to DJI, it could not invest to the level that DJI did.
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