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Reader’s Digest: The Success Story

            Reader’s Digest Association, Inc. is a private company dealing with the

publishing and distribution of various reading and educational materials, such as

magazines, books, recorded music, home video packages, TV movies, and general-

and special-interest materials. To effectively reach its customers, it uses a variety of

distribution channels that include direct mailing, display marketing, direct responsive

televisions, catalogs, retail, and the Internet. Its major publications is the Reader’s

Digest, which is the world’s most read general-interest magazine with a global

leadership of more than 100 million, available in 50 editions worldwide, and translated in

21 languages. Special-interest publication includes do-it-yourself, cooking, gardening,

health, and children’s titles (1945).

            It has been reported that after 76 years, along with struggles, difficulties,

troubles, and success, Reader’s Digest arrived with a new leadership under . Under his

leadership and management, the ill-conditioned organization faced a recovery program

consisting of strategic cost-cutting measures. Such restructuring efforts proved to be

effective, as operating profits substantially increased. However, the collapse of the

dot.com industry led Reader’s Digest to incur heavy losses because it had invested

heavily in Internet-related businesses. Because of such losses, the restructuring phase

has provided ‘strategy’, gap analysis, business level strategic options, and corporate

multi-business strategy (2004), which would focus on organizational analysis.

diminished the amenities and benefits of the employees that the company could no

longer afford. In addition, acquisitions and non-core businesses kept the organization

alive as it resurfaced along with continuous restructuring. In this regard, this paper aims
to discuss and analyze the external and industry environments of Reader’s Digest and

emphasize on its interconnections.

Profile of Reader’s Digest

            The Reader’s Digest rose as the market leader of publishing and distributing

interest materials. It has set-up a trend and is now enjoying competitive edge within the

publication industry. The first-in approach ( 2006) triumphantly puts the company in its

position, and since a new product has been introduced, the interest and curiosity of the

public has been initially available, thus, creating a well-established consumer database.

Its contents conform to the public readers’ demands and cooperation through

submissions, thus, providing them a “sense of ownership”. Individual achievement,

optimism, and family values are basically the content of the reading materials.

            Fluctuations and inflations did not seem to affect its publication, and yet the

printing industry is growing enormously. It operates in various countries and population

trends had acceptable effects for the circulation. It was introduced in local languages

disregarding the idea that it was only an American product. Demand factors are more

customized, such that local editions are entirely managed and reflected local products.

It was also customized to conform to local packaging. The company never stops

innovating, expanding, and maximizing its resources. Subscribers were introduced to

other products such as condensed books and home entertainment. In the late 1980s,

the company acquired special-interest magazines, and adapted to the global

environment into the information age. It penetrated the modern economy with the

development of CD-Rom products, and came up with its own website in 1996.

            Its top three competitors include Rodale, Inc., Meredith Corporation, and Time

Inc. Rodale is a private company, and employs 1,200 employees. Its publications range

from gardening, health and wellness, cooking, and nature, thus, contributing to its
annual sales of $139 million. Its other competitor is Meredith Corp., which is a public

company with 12 stations across the United States that employs 3,160 employees. Its

products include magazines, special-interest publications, books, and Internet and

marketing services, which contributes to its annual sales of $1,597.6 million and $144.8

million net income. Lastly, Time Magazine is a subsidiary company with annual sales of

approximately $5,846 million. It is a consumer magazine with titles ranging from

entertainment, sports, and people among others.

Environments of the Company

            To be able to analyze both the external and industry environments of Reader’s

Digest and interrelate or interconnect them with one another, the different elements of

both environments must first be identified. Elements of the external environment of any

company include the economy, demographics, culture, politics, natural environment,

and technology (1999). Such elements of the external factors move and change without

the control of any organization or company. On the other hand, the analysis of the

industry environment of a company can be done using the Five Forces Analysis of

Porter. Such forces include buyer powers, supplier powers, industry competitors, threat

of substitute products or services, and threat of new entrants, and its collective strength

determines the ultimate profit potential in the industry, where profit potential is

measured in terms of long-run return on invested capital ( 1980).      

Analysis of External Environment

            Demographically, population structures vary widely since it operates in different

countries, but the flow of communication in terms of distribution in consistent in reaching

over 500,000 households in the United States alone. In this regard, because Reader’s

Digest features a wide range of topics and subject matters that are useful and
informative to all ages, professions, and nationalities, the company would not have any

dilemma in distributing and promoting its reading materials and other products in the

market. Another external factor is the economy, which not only pertains to the overall

world economy, but pertains also to the individual economies of the countries where the

products of the company are being distributed and promoted. With this, it can be

understood that the sales and profits of the company depends on the purchasing power

of the currency of the market and its consumers, and depends on their demands.

Because Reader’s Digest is one of the most reasonable and affordable reading

materials in the market, it can be observed that its sales in any country or market is

successful. In addition, the economy also determines the costs of the company, as the

operations of the company must be based on the prices of materials and equipments in

the market and the purchasing power of the currency being used in providing the

materials and equipments to be used.  

            The third element in its external environment is culture, which refers to the

sophistication and preferences of the consumers in the market. In this regard, this has

been one of the bases for the success of the distribution and promotion of Reader’s

Digest in the market, as most of the topics and features of the magazine provide

relevant and useful information that corresponds to the culture and practices of all

nations around the world. It addresses the needs and wants for information and

knowledge of many readers around the world who are curious and hungry for new

learning. The fourth element is politics, which refers to the regulatory aspects that would

serve as barriers or hindrances to the accomplishment of a particular goal (2006). The

relevance of politics in the company can be seen in terms of government and state

restrictions for distribution, taxes and tariffs, and other regulations. However, because

Reader’s Digest serves to be a general information and interest magazine, so much like

to the Time and National Geographic, restrictions from governments would not be

encountered. The fourth element is the natural environment, as this pertains to the

sources of the company’s resources, including the location of its stations, and the area
from where the products of the company would be obtained by consumers. In this

regard, the locations of the stations and retail stores of the company must be

strategically located in order to reach its consumers and markets effectively. The last

factor or element is technology, which pertains to the availability of supporting industries

or its suppliers, availability of expertise and skills, and the advancement of

infrastructures and its operating environment. In this regard, due to the growth of the

publishing, printing, and distributing industry, technological advances and copyrights

protection are at risk, affecting the global economy. However, technology serves to be a

good opportunity for the company, as it serves to be another channel in which the

company can reach its reading public. Its website identifies with the rapid pacing of

worldwide trade and improved competence. After all, consistency of the quality of the

materials is what places them at the top of the competition.

Analysis of the Industry Environment

            It has been reported that the publishing industry expanded to different services

over time, and now has provisions for television and the Internet. Publishing includes

the development, acquisition, dissemination, and production of the publication materials.

Traditionally, distribution of printed works or the circulation itself requires tough

competition ( 2005). The industry analysis of Reader’s Digest involves Porter’s Five

Forces, and is as follows:

            Bargaining Power of Suppliers – This element affects the company’s ability to

raise prices, as the prices of goods depend on the costs of materials and operations of

the company. Reader’s Digest can stand alone, but suppliers have a great influence

over the company. The association deals with different suppliers since it has a global

market dealing with suppliers that are localized. Because the company deals with many

different suppliers, the bargaining power of suppliers are relatively low, for they cannot

dictate high prices, as there are other suppliers that can match their services to the
company. In opposite, suppliers are likely to be powerful if they are few in number,

representing only a small amount of the sales of the company ( 2002).

Bargaining Power of Buyers – This element affects the industry with its ability

to force down prices, bargain for higher quality or more services, and play competitors

against each other (2002). With Reader’s Digest, common transactions are over-the-

counter, and there has been no record of buyers doing business with the association.

Prices are affordable, and buyers have big influence over the company. It has stayed at

the top because of their long-time loyal buyers and established presence and reputation

in the market. In this regard, the bargaining power of buyers of the company is high, as

they purchase a large part of the products of the company.

Rivalry among Existing Firms – This element pertains to the amount of direct

competition in an industry ( 2002). The industry from which Reader’s Digest belongs is

an intense industry, where competitors are roughly equal in size, there are high fixed

costs, and similar in the production of commodities ( 2002). However, although there

are 17 competitors for Reader’s Digest, it remains to be the sole company, which has

penetrated in different mediums, such as the Internet and the television, globally and

successfully. In addition, it competes on a global level based on the needs of

consumers. It understands the demands of their consumers, thus, making their products

more localized so that the consumers can relate their matters, values and preferences

with it.  

Substitute Products – These are products that appear to be different but can

satisfy the same need as another product ( 2002). Being No. 1 has a lot to do with

originality and substance of the products. There can be substitutes for the published

materials but there can be no substitute as to what the Reader’s Digest can provide to

their clients all over the world.

New Entrants – This element brings new capacity and competition for customers

and resources, and brings threat to existing businesses in the industry. The threat of
entry depends on presence of entry barriers, which make it difficult for another business

to enter the industry (2002). Because Reader’s Digest has been established in the

business scene for many years, it will be costly and risky for a new entrant to penetrate

this kind of business. As such, competitors must think twice before entering this kind of

business, and serve to become a threat to the company.

Interconnection of Industry and External Environment

            From the discussion, it can be perceived that the factors and elements in both

the external and industry environment of Reader’s Digest must be interrelated in order

to allow the company to achieve its goals and objectives. One relationship that can be

derived from the discussion is that the actions or strategies of the company are

dependent on the external events and changes that happen outside the control of the

company. In this regard, its decisions and strategies would be made in order to adapt to

the changes in its external environment, thus, not adversely affecting its production,

operations, and sales. Another relationship that can be derived is observable in terms of

culture, as the practices and the culture in the whole organization itself must be able to

become adaptive and responsive to the overall culture in a particular market, which is

external to the company. In this regard, the organization must be able to develop a

culture that is not ethnocentric, as it hinders open-mindedness and subjectivity of the

different topics featured in Reader’s Digest. Another interconnection of both

environments can be observed in terms of economy, as the bargaining power of both

suppliers and buyers depends on the economy from where they belong. As such, the

economy serves to be the determinant of the existing relationship of both the external

and industry environments.