U.K. Telecom Industry And Vodafone
Porter’s Five Forces Analysis for the Industry 1. Buyer Power The company faces the threat of buyers shifting their loyalty to other rival companies not only in the UK. This phenomenon according to porter is referred to as backward integration. To curb this threat, Vodafone has come up with three generic strategies to counter this threat. Cost leadership: – It has reduced the price of some its products including the cost of offering services such as oil refining. Differentiation strategy: – The Company has come up with alternative products that are differentiated from the rival firms.
These products should be economical and are environmentally friendly and community friendly Collaboration:- the company collaborated with companies in Africa, South America and Asia to diversify and increase the market share. Among the customers for the industry businesses, government, educational institutions and individual and almost all sectors of the economy. 2. Supplier Power Vodafone is faced with the threat of the suppliers being able to control the price of some of the materials they supply.
The labor laws are also stringent and the workers are so unionized that treating of employees in a fair and equitable manner is inevitable. To counter this force, the company extends its supplier chain making the prices of for instance of mobile handsets to come down. The generic strategies adopted by the company against supplier power are by increasing the price of their products. In essence, the extra prices charged for the raw materials are borne by the customers. This is the differentiation strategy. Another strategy to insulate itself from this force is that of focus.
Because of the higher material prices, Vodafone has taken on the differentiation-focused strategy. In this strategy, the methodology has been improving the quality of their products. By so doing, the prices can be increased without harm being made to the customers. The suppliers of the of the company include mobile handset companies cable manufacturers, government, community and other miscellaneous suppliers. 3. Barriers to Entry The other force challenging the industry is entry of new companies with similar products or even more products like internet.
This would pose the threat of neutralizing the company’s profits as well as its market share. The generic position that the company has taken has been cost leadership. Through lowering its production costs and increasing operational efficiencies, the company has been able to lower its products prices while maintaining its profitability. This has deterred potential investors/ entrants into the industry. The company has also produced special products and services for special people and different market segments. This kind of focus strategy that also encompasses the differentiation strategy makes entry difficult.
4. Rivalry This force emanates from other companies within the same industry like telecom, ATT &T. The threat here is that these companies capturing the market. However, the company’s framework/ strategy have been reducing prices whenever faced with such a threat. Prices are then reverted to normal after the exit of that company the specific market segment. Consequently, Vodafone products have been adopted to reduce rivalry. Focus has also been used as the generic strategy to solve these problems- rival companies cannot effectively meet differentiated as well as focused needs of the customers.
Lastly, the company is faced with the threat of rival companies accessing its premises and imitating their production methods. However, the company has made its headquarters, inaccessible to foreigners in order to safeguard its patents and copyrights. In addition, their employees are well compensated therefore; they do not have thoughts of leaving for rival companies. They have also invested in various countries so that they can have profits during bad times in the UK 5. Threat of Substitutes
From the economist point of view, threat of substitutes arises when the demand of that good is likely to be affected when the price of the substitute changes. This elasticity of price has formed a real force that the company has to fight if it has to be sustained in the near future. This bars the company from effectively increasing the price of its products whenever need arises. To reduce the strength and danger of this force, the company has strengthened its differentiation generic strategy as its framework. Customers would then be loyal to the uniqueness of their products even when Vodafone’s increase in price.