The main threats of Vodafone are:
- High rivalry between the others member of the industry
- The existence of a substitute
- And the bargaining power of customers.
a)The mobile phone industry is characterized by a strong competition. Indeed, not only by the number of competitors, but also because it is a satured sector which make even more difficult to find new clients – over 9/10 individuals in UK have already their own phone (MIntel, 2007)
Thus, there is the existence of several firms in this sector with different nature: network operators (MNO) – T Mobil, Orange, O2 and 3 – and Mobil Virtual Network Operators (MVNO) – Virgin Mobile and Tesco Mobile. The latter represents a bigger threat for Vodafone since they have very low prices comparizing to the former, which have similar characteristics than Vodafone.
So, if Porter model (1980) is followed, this situation makes the competition more intense since there is several companies with relatives balanced sizes and resources which “create instability because they may be prone to fight each other and have the resources for sustained and vigorous retaliation.” (Porter, 1980). Moreover, the competitors don’t have the same nationality (UK and USA) so they will have different strategies and “may have a hard time reading each other’s intentions accurately and agreeing on a set of “rules of the same for the industry”” (Porter, 1980).
If we have a look to the barriers for Vodafone. Exit barriers are very high since Vodafone has invested a lot in that sector – he is in the market since 1984 (Datamonitor, 2007) – and Entry ones are low since spectrum access rights are not necessary anymore, allowing the entrance of MNOVs as Virgin, Tesco and soon Asda. This situation, according to Porter (1980) represents low and risky returns. Moreover, the rivalry is stronger when switching costs are low. Indeed, in this sector, customers have only one year compulsory of contract with the company and it is easier than before to unlock mobiles from network operators.
Vodafone is facing this huge competitive and satured market with a “Vodafone experience” which means to customers use Vodafone in all his services. This will allow increase customers’ loyalty since if there is more services, customers will be more attracted, creating , by this way , a better position in the competitive sector of networks, but also towards third party providers, like Carphone Warehouse, which became a network provider with Talk Talk and free broadband services in 2006 (MIntel, 2007). This Vodafone experience will be created by his Triple Plan which consist in providing to households not only home broadband, but also television and telephone fix line. They are also planning to provide IPTV which is a television that can give also internet, making, by this way, Vodafone, a full entertainment provider (Mintel, 2007).
Add to this, Vodafone is also creating his own brand of mobile handset which allows him to reduce costs but also add a value to his Vodafone experience since nowadays, the brand of the mobile represents what we are; we express our selves through the brand of our mobile, as it happens with clothing brands. (Vodafone’s low-cost cell phone gambit, 23.05.2007) .Nevertheless, Vodafone is planning to create a very low price mobile phone which could restrain this.
Another strategy that Vodafone is using is to very strong advertising strategy in order to have a bigger differentiation in relation to his competitors. (Vodafone, 2006)
b)To these competitors, Vodafone is been threaten also by Internet which allows people to communicate between them through VoIP – Voice over Internet Protocol which allows free phone calls between computer or very low cost to phones, such as Skype– and IM – Instant Messaging which allows to send free messages between computers, such as MSN. Indeed, in 2002, the firm lost $23.5billion because of the internet (How to fix Vodafone, 06.06.06).
Thus, Internet is seen as a substitute of Vodafone phone network since, following Porter’s description ( 1980), it is another kind of product – a computer network – that “can perform the same function as the product of the industry” ( Porter, 1980) – mobile phone network. Moreover, as we said, it performances better price than the industry analysed so Vodafone has to be very careful with it.
That is why Vodafone has already started including a solution in his portfolio (Vodafone, 2006) which includes internet home and office broadband, interconnection and deals with Yahoo, MSN and Microsoft, and partnership with Google. By this way, Vodafone will be able to interconnect with internet and his framework.
Nevertheless, Vodafone has a better position in the market than Internet players since he has a longer relationship and knowledge of customers, has a better control over the devices and is a partner of choice for online players. (Vodafone, 2006).
c)If we continue with Porter´s 5 forces theory, we can see that customers have a very strong bargaining power since they are 206 million for a very competitive sector so they can have several option of choice. Moreover, nowadays it is much easier and cheaper to unlock a mobile from a network provider, making easier to change operator without changing phone, so without any further cost for the customer.
To this we have to add the fact this collective is very well informed thanks to the price-comparison sites that insure them to receive the best price and services, and by this way to increase their level of bargaining power.
Vodafone´s response to this force could be, not only to make possible the already mentioned “Vodafone experience” by encouraging to buy the services bundles and to have a contract with them rather than “pay as you go plan”, creating like this a differentiation from the other competitors, encouraging customers loyalty.
- NOKIA
Nokia is one of the leading manufacturers of mobile devices and network equipment. The firm provides not only a large range of mobile devices for imaging, games, media and business purposes, which are based on all most important technologies, but also equipment, solutions and services for network operators, service providers and corporations. (Datamonitor, 2007)
The main threats to Nokia are:
- The industry rivalry
- The bargaining power of suppliers
- The existence of substitutes
a)As it happens to Vodafone, Nokia is dealing with a very competitive market because of the saturation and because of the fact that it is affected by the quick technological changes which make a product obsolete very quickly.
This wide competitive has affected Nokia since, despite his brand and reputation; Sony Ericsson and Samsung have managed to challenge the leadership of your analyzed company by building their brand names in other goods such as electronics.
Nevertheless, this competition is charactized by only 3 main companies – Nokia, Sony Ericsson and Samsung – over non-branded mobile devices that belong to network operators, such as Vodafone. This kind of competition, following Porter (1980) “there is little mistaking relative strength, and the leader or leaders can impose discipline as well as play a coordinative role in the industry through devices like price leadership” . Moreover, entry and exit barriers are both high – as it happens for Vodafone – creating high and risky returns.
The solutions that Nokia can apply to these forces are many. Firstly, he has to create a differentiation towards his competitors based on innovation, anticipate the future, develop a strong advertising campaign towards the fashion view side of customers since nowadays mobile phones are a symbol of social differentiation at the same level as clothes, and by this way encourage customers to change their handset, and finally decrease their prices at the same time as price erosion (Nokia, 2006).
b)To fabric his handsets, Nokia needs suppliers for the electronics components, the mechanical components, software and network business. Nevertheless, there are a limited number of suppliers which creates a bid impediment for the profability of this sector. Indeed, Nokia´s brand name depends on them, on one hand, for the timely delivery of components and subassemblies, and on the other hand, for their fulfilment with their requirements (quality, safety, security). Moreover, it is possible that suppliers consolidate, making their bargaining power more powerful and limit the choice of alternative suppliers for Nokia. (Nokia, 2006)
All these characteristics represent a high level of bargaining power of suppliers, according to Porter (1980) since they are concentrated and the product they sell is an important input for Nokia´s mobile phone.
This could be resolved by buying a supplier or by creating himself the components of his handsets.
c)With Internet, Nokia is competing as well with Internet based products and services (Nokia, 2006). Moreover, he is competing with “participants that provide specific hardware and software layers within products and solutions, [making Nokia] compete at the level of these layers rather than solely at the level of complete products and solutions” (Nokia, 2006). In addition to this, products such as MP3 or portable DVD machines are catching consumers attention from mobiles phones, not only in terms of style, weight and battery life, but also in terms of life product length, making customers choose more advanced technology at more competitive price – for instance, people are watching films in trains with a DVD player rather than speaking by phone. (Mintel, 2007)
A solution to this could be to innovate his handset and to improve their advertising.
- BENEFITS AND LIMITATIONS OF THIS MODEL
The good points of Porter´s model are:
- It represents a good tool to make a competitive analyse of an industry: the company´s environment and his position in it, analyses the exit and entry barriers (Porter, 2008)
The limitations are:
- It doesn’t pay attention to internal factors of a firm, such as portfolio, expectation of future that make a company deal quicker with competition
- It doesn’t pay attention that the industries change much more quicker than Porter analyses and with much more flexibility, especially barriers.
- It doesn’t pay attention to the fact that companies rather than staying in the same sector, sometimes they change in order to increases their benefits.
- Moreover, with internet, costs of communication and transport have decreased, making products with lowest prices. It is also an obsolete theory since he doesn’t mentioned globalized markets that make a product much more competitive in an international marker rather than in a local one.
- REFERENCIES
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“Mobile Phones and Network Providers - UK - October 2007” in
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Nokia Corporation. Company Profile, Datamonitor, 2007
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Vodafone Group Plc. Company Profile, Datamonitor, 2007
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Competitive Strategy. Techniques for Analyzing Industries and Competitors. Michael Porter. The Free Press, 1980
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“Vodafone’s low-cost cell phone Gambit” in the 23.o5.2007
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“How to fix Vodafone” in the 06.06.06
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“Vodafone Group Plc. Strategy Update. Analyst Presentation” in the 30.05.06
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“Form 20-F 2006” in
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“The five competitive forces that shapes strategy”, M. Porter. Harvard Business Review, Jan 2008, vol 86, issue 1, 2008
