• Legal Factors
Laws regulating businesses e.g. The Sales of Goods Act 1974 stating all products must be fit for the purpose they are intended. A mobile phone must therefore work. Certain laws are created to regulate particular industries, examples include the ban on using a phone while driving introduced in 2003.
• Environmental Factors
Vodafone have established a handset recycling program that encourages customers to dispose of handsets and accessories in a safe and responsible way by advertising their return programmes, providing incentives to customers and by making it easy to return unwanted phones through pre-paid envelopes or recycling points in retail outlets.
SWOT Analysis
To identify Vodafone’s internal strengths and weaknesses and its external opportunities and threats which the environment brings to a company a SWOT analysis is needed. The following SWOT analysis shows Vodafone’s internal strengths and weaknesses and its external opportunities and threats.
Strengths
• Global experience and Vodafone’s ability to set up across many countries.
• Their global brand, Vodafone has introduced its brand into the existing brands of its controlled networks and retains the Internet value of existing brand in each country.
• Sponsor of Ferrari Formula One team which enables Vodafone to develop its own global presence.
• Vodafone has a good global platform which brings together existing future network systems and enhances the company’s ability to introduce products with a focus on both speed to the market and the ability to deliver this across the groups network.
• Standardised customer relation management is also a feature of Vodafone. The company is developing a group-wide standard in customer relation management to ensure an awareness of its customer base and their preferences in order to help the efficient sales of its new services and products.
• High operations margin of at least thirty per cent has been recorded over the past five years.
• They offer data services that a customer can access using the highly evolved third generation network that it is has rolled out in many markets.
Weaknesses
• With the network continuing rollout Vodafone’s capital expenditure is high. In the past five years net cash spent on fixed tangible assets has on average exceeded the depreciation charge by fifty-eight per cent and represented a large fifty per cent of operating profits so the company might meet a cash shortage.
• Exploring new technology needs huge research and development and infrastructural costs. If the take-up of the service is not as expected, these costs cannot be recovered. In addition the company is not as flexible when it comes to switching to alternative technologies if the underlying infrastructure will not support it.
• Vodafone is facing the legal issue in terms of differentiation as the sector of telecommunications is still immature to be receptive to the rapid changes in legal issues.
Opportunities
• Third Generation Mobile Phone is expected to be one of the major products of the telecommunications industry as it will allow for much faster and higher quality data transmissions which will facilitate videophones, mobile Internet at broadband speeds, and enhanced multimedia messaging.
• The current trend is towards having at least one mobile, mobile phones have now entered the popular perception as a ‘must have’. This provides Vodafone with an opportunity to continue to increase the size of the market as well as their share of the market.
Threats
• New technologies for example, if you make the wrong choice in a standards war and build an infrastructure that cannot be adopted, this leaves the company with a problem of having to take apart a network that cost a lot to build and having to build a new network to provide the new standard.
• As the industry is regulated, mobile telecoms companies have to accept decisions that may be made for political or social reasons without taking into account the effect on the companies in the industry. Examples of this would include further mobile phone licences, the banning of phones in certain circumstances and price regulations.
• If the trend towards the use of mobile phones was to be reversed for any reason, Vodafone would be in trouble.
• Competitors coming from O2, Orange, T-Mobile etc who all have extremely good services and offers.
Porter’s generic strategies
Relating to the SWOT analysis, Porter (1980) identified three generic strategies for competitive advantage, which can represent a distinctive strength of a company. These are shown in the diagram below:
Vodafone use the cost leadership strategy and differentiation but do not adopt the focus strategy as they do not focus on a niche market. Vodafone needs to compete on a cost leadership strategy because number portability means that people will move to whoever can provide a reliable service the cheapest and by becoming the lowest cost producer in the industry through economies of scales allows Vodafone to compete on price with other producers to earn higher unit profits which in turn achieves competitive advantage through driving down costs. Vodafone also differentiate them selves through providing customers with added value through their product features and quality that are unique and different from their competitors.
Marketing strategy
In order to retain market leadership, Vodafone has established a set of marketing objectives. These are to:
• Obtain new customers
• Keep the customers it already has
• Introduce new technologies and services
• Continue to develop the Vodafone brand.
Vodafone is achieving these objectives by continually updating their range of phones and services offered to keep ahead of its competitors. Vodafone also communicates with its customers to keep them well informed of the benefits of all Vodafone products.
Marketing mix
The marketing mix consists of many different factors, which are grouped together into four main categories: product, place, price and promotion.
• Product
Vodafone’s products have many different features which provides customers with opportunities to chat, play games, send and receive pictures, change ring tones, receive information about travel and sporting events, obtain billing information and view video clips and send video messages.
• Place
Vodafone UK operates over 300 of its own stores it also sells through independent retailers e.g. Carphone Warehouse and Phones 4 U. Customers are able to see and handle products they are considering buying and staff are on hand to ensure customers’ needs are matched with the right product and to explain the different options available to them.
• Price
Vodafone offer various pricing structures to suit different customer groups, monthly price plans are available as well as prepay options and phone users can top up their phone online. Also Vodafone gives NECTAR reward points for every one pound spent on calls, text messages, picture messages and ring tones.
• Promotion
Vodafone has worked with icons in the past such as David Beckham to communicate its brand values they use advertising on TV, billboards, magazines and in other media outlets to reach large audiences and spread their brand image and message effectively. Their stores have special offers, promotions and point of sale posters to attract customers inside the stores to buy and Vodafone actively develop good public relations through sending press releases to national newspapers and magazines to explain new products and ideas.
Also relating to the product aspect of the marketing mix, the Boston matrix represents the company’s portfolio according to where the products stand regarding market share and growth.
Vodafone’s Boston matrix
Stars
Multimedia messaging
Problem child
3G
Vodafone Live!
Cash cows
SMS
Dogs
Analogue services
Looking at this diagram, it shows that Vodafone’s portfolio seems to be quite well balanced, however Vodafone seem to having major difficulties with its 3G and Vodafone live and can be described as a ‘problem child’. A possible strategy Vodafone may decide to choose is to reduce its investment into its ‘dogs’ analogue services and instead use the money from its ‘cash cow’ SMS to restructure the ‘problem child’ and keep the ‘star’ multimedia messaging in the high market share/high market growth area.
Competitor analysis
Porter’s five forces
By using the five forces model of completion, competitor analysis takes place by understanding how the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitutes and the rivalry among competing firms will effect competitors in an industry. These five forces have a direct effect on Vodafone’s strategic competitiveness.
- Competitive rivalry
Competition is intense in this market, coming from O2, Orange, Virgin, 3 and T-Mobile. Rivalry is high when there is no brand loyalty i.e. little differentiation other than price.
- Buying power
Vodafone’s measure of how many customers disconnect during the year shows the rivalry existing is significant. Customers have more choices from new packages in terms of new phones and new tariffs through newspaper advertisements and the internet from its competition.
- Power of suppliers
Suppliers of the mobile telephone industry are strong. Vodafone, by being cost leader operates with margins greater than their competitors which in turn allow them to attract price increases from its suppliers easier than its competitors. By being a large, focused competitor of the mobile telephone industry, Vodafone could hold suppliers costs down and it could make a profit even if its competitors are making above average returns.
- Threat of substitutes
Vodafone faces a low threat of product substitutes. The focused cost leadership strategy that Vodafone operates under makes it difficult for a similar substitute to be produced at a lower rate by their use of economies of scale, their buying power and their use of temporary price increases that come from suppliers that do not need to be passed on to the consumer.
- Threat of entry
While the threat of new entrants is weak, Vodafone must continue to reduce costs below that of their competitors. By maintaining high levels of efficiency, Vodafone can help make the entrance into the mobile telephone industry unattractive to its potential competitors.
Sustainable competitive advantage
Vodafone competes against its competitors through the use of a focused strategy; this strategy allows Vodafone to produce services that service the entire mobile phone segments. Their strategy of producing services to the entire mobile phone segment has been maintained and updated with the changing technology in the mobile industry. In order to maintain a sustainable competitive advantage Vodafone will have to continuously update their service with the ever changing technology that exists in the mobile market. The mobile market has many different competitors each with their own competitive advantages and specialities, each within their own market. In order to expand into new markets they would have to constantly provide a better service through improved technology and higher quality. The costs of replication to these technologies by the smaller companies will make it hard for them to imitate the service structure that Vodafone provides. The high quality of service will make it non-substitutable and become the new standard of what mobile phone customers expect from their service providers. Vodafone’s competitive strategy works in their competitive structure but needs to be constantly updated to stay at the front of the technology curve and not fall behind to its competitors who will also be attempting to constantly improve on their current services and technologies.
Vodafone’s strongest resources are their intangibles such as human resources, innovation and knowledge which are most important for them to stay ahead of their competitors and are the main source of competitive advantage. By definition these resources are more costly and harder to copy as these resources are fixed deep in the company’s history by staying focused in mobile markets and not expanding into other technologies that would lose the company’s primary focus through its core competencies.
Human Resources
Vodafone’s managerial goals seemed to be in line with their company goals. Managerial experience is important and leads to numerous successful acquisitions and mergers. Vodafone has a very detailed and experienced knowledge of the market and technology that it is involved in. They have applied this knowledge to the many markets it has entered and has proven successful. Vodafone has a focus on improving its trust with customer’s because it does not have alternative businesses to rely on to bring in the business like Internet services or fixed-line systems. Vodafone’s most valuable intangible resource is their knowledge and experience in the mobile phone industry and their international presence and these things define the company as a great investment and a name you can trust. Knowledge and experience will take them further at the edge of technology and their international presence leads to more universal understanding and networking of the business itself.
Vodafone’s capabilities and core competencies
By using the resource based model, to assess Vodafone, their unique resources and capabilities should be considered the basis for their strategy. Vodafone’s capabilities are their ability for management to compete successfully and their research and development to enable innovation technology. Vodafone’s management has the ability to merge with other companies while maintaining an effective, low cost organisational structure. Through their research and development, Vodafone is able to maintain technological leadership in mobile phone systems. Vodafone’s capabilities in management and research and development should also be considered their core competencies because these abilities give them a source of competitive advantage over its competitors. Merging with companies has allowed Vodafone to grow their customer base internationally by investing in research and development and next generation platforms for mobile phones for both voice and data that allow Vodafone to maintain a competitive advantage. Vodafone has valuable, rare, costly methods to imitate capabilities but these capabilities were substitutable, therefore they had a temporary competitive advantage. However, if Vodafone finds a way to successfully differentiate itself to become non-substitutable it will have a sustained competitive advantage.
This is important for Vodafone because they stick to what they know best, which is mobile phones and has not ventured into fixed-line telephones or providing content, they created value for their customers by being the best and most focused. Vodafone’s ability to develop innovative technology and successfully merge are rare capabilities, however, Orange a competitor also has these rare capabilities. The organisational culture of Vodafone must be strong to successfully complete mergers, while at the same time developing innovative technology. These capabilities have developed over time and the expertise gained will be very difficult for other firms to develop.
Conclusion
The success of Vodafone comes from its good investments, continuous innovation, and its focusing on customer services. They have taken a number of strategies like, branding, using value added services to adapt to the changing environment and customer tastes. However, there are still a number of problems for Vodafone at present for example; fierce competition in the European market, the product life cycle point of view for Vodafone is in a matured stage, and the fact that the Japanese and Germany market restricts Vodafone’s goal of being a global leader.
Also, Vodafone was late to invest in 4G and high speed broad band market, which exists for new innovative technology right now, and some other companies such as Skype, O2, and T-mobile have already started to target broad band users and its technology. Even though Vodafone owns a large market share and customer base in developed countries they need to concentrate more on the developing markets as well if they want to remain global leader in the mobile phone industry.
Bibliography/References
Books
Gelder. D & Woodcock. P, Marketing and Promotional Strategy (2003). Nelson Thornes
Jobber. D & Fahy. J, Foundations of Marketing 2nd Edition (2006), McGraw-Hill Education
Lynch. R, Corporate Strategy 4th Edition, (2006), Pearson Education Limited
Websites
www.vodafone.co.uk
http://tutor2u.net/revision_notes_strategy.asp
Vodafone Group Plc, Annual Review and Summary Financial Statement (2007), Newbury, London
