IntroductionDà-Ji?ng Technology Inc.
, or more commonly known as DJI, is a Chinese technology company known for manufacturing and distribution of both consumer and commercial drones. Founded in Hong Kong in 2006 by Frank Wang and currently based in Shenzhen, DJI managed to successfully create the market for consumer drones. Their product offering includes other consumer electronics such as handheld cameras, however, drones remain their main product and they are best known for their best-selling Phantom drones (2013), which is to date the most popular drone in the market CITATION Ban16 l 1033 (Banco Bilbao Vizcaya Argentaria (BBVA), 2016). Their main target segments were initially hobbyists i.
e. consumer market, but they have since focused on the growing commercial market as well. This report seeks to evaluate the company’s strategy in the civilian drone industry i.e. non-military use of drones from 2006 to date.Business StrategyDJI is committed to providing advanced technologies, high-quality, sleekly-designed and user-friendly products (drones) for both recreational and professional users.
They do so by combining both design and technology, through their unwavering commitment to constant innovation. DJI was able to consistently dominate the drone industry and establish market leader status through their aggressive R;D, allowing them to not only be at the forefront of the drone technologies but also release new products at such expedited rate that competitors are not able to catch up, or are still struggling to even enter the drone market. Porter’s 5 Forces for Drone IndustryThreat of entry: Fairly lowThe threat of new entrants is fairly low mainly because of the high entry barriers. Firstly, setting up a drone manufacturing company requires a high capital for building factories and especially R&D.
What consumers value in drones is the technologies embedded in the drones, hence it is important for firms to be able to constantly innovate their technologies and keep up the latest technology developments to keep up with the competition. Secondly, being in the drone industry also requires firms to form strategic partnerships with other technology companies to improve their drone technologies, and also for distribution, which only established/incumbents have easier access to. Thirdly, incumbents in this industry are also protected by patents, which will make it more costly for potential new entrants to compete along with them. Lastly, network effects come into play as well. In the drone industry where DJI is already the market leader, their utilisation of influencer marketing by engaging with travel influencers help propagate the core message and lead to network effects favouring DJI in social media. Hence, it would be difficult for new entrants to steal incumbent’s market share due to network effect unless the new entrant is able to offer a product significantly superior enough for consumers to be willing to make the switch.Power of suppliers: Fairly lowDrone manufacturing companies turn to suppliers for raw materials such as the hardware and other physical components e.
g. plastic casing, metal poles etc, which is not very differentiated in terms of features i.e. these are generic raw materials. What sets drone manufacturing firms apart from each other is the software and embedded technologies, not discounting that hardware is also important, however, there are many suppliers that are able to supply the raw materials and hence downward pressure on the power of suppliers.
Power of buyers: ModerateAs the product is targeted at the mass market, the power of an individual buyer is relatively weak. However, there is a slight upward pressure on the power of buyers since their price sensitivity is moderate, considering drones are a big investment (it is not typically cheap) and furthermore complementary products are sometimes required to be purchased as well, which might influence consumers to favour the more affordable option in the market. Additionally, buyers have other options such as do-it-yourself (DIY) drones as a substitute for DJI’s ready-to-use (RTF) drones. It is also relatively cheap for the buyers to switch, as there is no sunk cost in purchasing a drone. Threat of substitutes: LowDrones are used by consumers for aerial photography/videography. The alternative to drones for aerial photography would be to rent a helicopter and film manually. Clearly, this is not the preferred option due to the potential danger to the user, the high cost of renting a helicopter (~$300 per hour; excluding pilot costs etc).
The drone industry has allowed for increased convenience and safety for consumers who are looking for aerial photography, at a relatively lower cost, hence the threat of substitutes is low.Rivalry amongst competitors: LowThe rivalry between competitors appears to be low in the drone industry. As information on the drone industry is scarce, there are only estimated figures. The market share in the drone industry is such at DJI has 72% market share, while other competitors such as Parrot S.
A and 3D Robotics only has about 7% each CITATION Zor17 l 1033 (Valentak, 2017). As such, the Herfindahl-Hirschman Index which measures the market concentration would be high with one firm dominating the market. Hence, rivalry among competitors is low. Drone Industry life cycleThe drone industry is still in the growth stage albeit growing rapidly, predicted to grow with a CAGR of 19%-20% from 2017 to 2023 CITATION Unk17 l 1033 (Unknown, 2017).
Drones are attracting a bigger market segment, not just consumer market but also the professional market as more businesses are seeing the increasing need of using drones to collect data e.g. agriculture or construction CITATION Sky18 l 1033 (Skylogic Research LLC, 2018). Profitability in the drone industry is still rising, and there’s constant and significant improvement in product features by drone manufacturing firms that lead to increased ease of usage, enhancing our daily lives thus increasing value for customers e.g. Amazon Prime Air uses drones to deliver products.The industry structure appears to be likened to a pseudo-monopoly from the consumers’ perspective – DJI seems to have an almost monopoly status, while several other competitors only have very little shares of the market.
SWOT analysisStrengths: Firstly, DJI has an excellent reputation in the drone industry, securing brand loyalty. This may have been due to their first-mover advantage, diverse product line with a range of (relatively affordable) prices, strong connection with the drone film-making community through their online community space called Skypixel. Secondly, DJI’s aggressive R;D allows them to constantly be at the forefront of technology and innovation in their industry. Lastly, attributing to their lean manufacturing systems with factories in its headquarter, it can manufacture the drones relatively efficiently and cheaply, hence they’re able to sell high quality drones at an affordable price. The last two strengths combined enabled DJI to become so prolific, chasing away most competitors, leading to their market dominance.
Weakness: DJI has come under fire for its poor customer service, with many consumers experiencing unsatisfactory customer service and openly bashing the company on its website forum, even so far as to say that the poor customer service is a deterrence from continued usage and purchase of the DJI drones. If this weakness is not tackled in the near future through investment in customer service/employee training, it may erode DJI’s good reputation and affect sales. Opportunities: There is a growing demand in the commercial market for drones, specifically in the agricultural and construction sector. DJI can leverage on this trend and focus on not just B2C but also B2B.
With this trend in mind, establishing their brand presence and tailoring the products to suit these key industries’ different needs is important.Threats: Firstly, regulations restricting certain drone usage by the Federal Aviation Administration (FAA) may hinder not just the growth of DJI, but also consumer interest. Secondly, there is potential resistance to drone culture by those who perceive drones as a symbol of compromised privacy and this could also threaten DJI’s business as users of electronic devices are increasingly concerned about the security of their private data. Lastly, market events such as the most recent trade wars could potentially backlash against Chinese technology companies like DJI and affect their bottom line if US-China relations deteriorate.Key value drivers – differentiation strategyBranding: In line with its differentiation strategy, DJI positions itself as a premium brand that earns a price premium due to its superior features and quality. They seem to be successfully achieving product differentiation through its premium prices – while current price points for drones by some competitors are set in the more affordable range (even as low as $500 or less), DJI’s products are usually priced in the $500-$1000 range. The higher price point emphasizes DJI’s superior position in terms of quality and technology specifications of their product as compared to competitors. The drone market appears to not be leading by the price factor, as it is saturated mainly by enthusiasts and professional users.
Customers are willing to pay premium prices for a drone with better performance.Product features: DJI has been able to consistently identify flaws and/or consumers’ unfulfilled needs in current offerings successfully, in addition to capitalising on the opportunities in the market. This allows them to constantly innovate drones with better features and technology than previously offered. Not only are their products ready-to-use and user-friendly, but they are also equipped with the latest technologies. For example, in its latest Phantom 4 model, DJI was already ahead of its competitors who lagged behind and was still fixated on the ease of flying a drone. DJI realised that as the ease of flying a drone increases, so would the ease of crashing. With this in mind, DJI designed the Phantom 4 and embedded it with new technology that works with its software to enable the drone to scan its surroundings and avoid crashes CITATION Mar14 l 1033 (Zwilling, 2014). Introducing such advanced technology to consumers ahead of competitors provides DJI with some competitive advantage as their products are differentiated to have superior product features.
Customer Service: DJI appears to be lacking in their customer service and technical support. DJI is still a relatively young start-up with limited and competing resources. Lower investment in customer service is undertaken in their pursuit of growth and innovation in order to develop dominant market share and brand identity, which is their current priority.
Complements: DJI is also pursuing accessories and ancillary complements of the drone market. DJI sells drone components and parts, cameras, imaging, control, and stabilization systems, all of which provide recurring revenue. It also designed a hand-held camera mount for professional filmmakers, called Ronin, which is based on its experience and knowledge with image stabilization CITATION Tom15 l 1033 (Duening, 2015). This further differentiates their brand and enhance the value of their products.Core competence DJI’s core competency lies in their ability in rapid prototyping and constant innovation to produce and release high-quality and innovative products that are able to take higher quality photographs/videos as compared to competitors at very fast rates (in 2016 alone, they released 3 different models of drones), reinforcing their innovator and market leader status.
This is attributed to their agile manufacturing systems and the geographic location of their manufacturing systems. DJI owns and runs the manufacturing factories at its headquarters, which results in quicker information flow between the R;D department and the engineers. Being located in Shenzhen, DJI has access to relatively cheap manufacturing resources, highly skilled talent and human capital CITATION CJ16 l 1033 (C.J., 2016). Hence, they are able to utilise their massive R;D department to design and manufacture drones at a faster rate due to the superior supply chain model. This allows them to innovate rapidly and produce high-quality products that offer higher value to consumers, at a relatively lower cost i.
e. high economic value creation.DJI and competitorDJI’s main competitor in the drone industry is Parrot S.A. Founded in 1994 and currently headquartered in Paris, Parrot designs, develops and sells mainly consumer electronics and drones. Their drones are not positioned in the as premium unlike DJI and hence priced more in the affordable range. Like DJI, Parrot competes through a differentiation strategy, providing drones less than $500, while DJI’s cheapest offering is $499. Market share: As mentioned earlier, DJI owns 72% of the drone market share, while Parrot has about only 7%.
DJI is clearly the market dominator and Parrot is unable to successfully compete with them, which resulted in their recent laying off a third of its drone division and streamlining their product line to sell only the most profitable ones CITATION Apr17 l 1033 (Glaser, 2017).Performance: As DJI is still a private company, comparisons will only be made using economic value creation. DJI is able to create higher economic value as the value they provide consumers is high from the quality and unique/advanced features of their offerings and their costs are low due to their tight supply chain model. Parrot is not able to have the same level of economic value creation simply because their costs of production is higher. In terms of revenue performance, Parrot has USD$176 million in annual revenues in 2017 CITATION Sta18 l 1033 (Statista, 2018), while DJI had USD$2.83 billion in annual revenues in 2017 CITATION Yan18 l 1033 (Yang, 2018). Clearly, DJI has been performing better.
Sustained Competitive Advantage: DJI has a sustained competitive advantage and it was cited that drone makers all over are finding it hard to compete with DJI. There appear to be several factors that result in this sustained competitive advantage – DJI can sell its drones cheaper because unlike Parrot, it owns the factories where it makes the drones at its headquarters. DJI’s products are not only cheap, but they are also high-quality products due to their dedication to innovation through extensive R&D. It appears that DJI was able to anticipate consumers’ needs, where they value quality and the perceived value of a premium-positioned brand with advanced features embedded into the drones (i.e.
DJI) than a product that is cheaper but inferior specifications i.e. Parrot’s. Conclusion DJI has been doing well in successfully anticipating industry needs and changes, recognising how niche demands will grow into larger markets.
They have the right focus and priorities in this fast-growing industry which enables them to be the market leaders. However, over the long term, DJI should also consider tackling their weaknesses and invest in customer service because this seems to be severely lacking and overtime, it may erode the perceived value of DJI’s products.Bibliography BIBLIOGRAPHY Valentak, Z. (24 December, 2017). DRONESGLOBE.
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