Vodafone

Abstract

Aim: This essay aims to perform an analysis on the basis of the integration of SWOT and Porter’s Five Forces frameworks. The key aim of this essay is to establish the reasons behind the success of Vodafone, which is ranked 3rd in the FTSE100 Company ranking and thereby represent the implications and recommendations.

Methodology: This paper is based on the integration of secondary research, which includes recent reports, books and journal articles.

Findings: The key findings indicate that Vodafone is a well – established global company with a highly successful internationalization strategy. This implies that Vodafone has a lot of opportunities to take advantage of, despite the recent economic adverse events.

1.0.Introduction

This paper aims to demonstrate an analytical essay on the company, which is the FTSE100 Top 20 Company as of July 2012. A chosen company for this report is Vodafone Group Plc, which is ranked third in FTSE100, with the market capitalization of $ 87.53 billion (Financial Times, 2012).

2.0.SWOT analysis

SWOT framework is utilized in order to evaluate the main strengths, weaknesses, opportunities and threats on a micro-level (Kotler and Armstrong, 2010)

2.1.Strengths

As the recent FTSE100 report demonstrates, Vodafone is ranked 3rd on the basis of market capitalization numbers. This suggests that Vodafone Company has a strong brand reputation in domestic (UK) and international markets. According to Brand Directory, (2011), Vodafone has increased the brand value by 6 % in 2011 (from $ 28,995 to $ 30,674 million).

Vodafone has always followed an aggressive internationalization strategy, which has been supported by the recent investments in Australian and African markets (Brand Finance, 2011).

2.2.Weaknesses

Vodafone faces tough competition in the domestic market from another mobile network leader – O2 and recently merged T-Mobile and Orange (BBC News, 2012). The rivalry is further intensified in the light of recently introduced high data excess charges by Vodafone (Guardian, 2011).

The primary emphasis is placed on the domestic (UK) market, which in turn weakens Vodafone’s position in international markets (i.e. US)

2.3.Opportunities

The partnership between O2 and Vodafone may influence the enhancement of certain services (4G services). This, in turn, would align with the recent trends in the technology area (BBC News, 2012).

Further aggressive expansion to the untapped markets (i.e. recent internationalization to Australia and Africa) may align well with the core strategy of Vodafone (Strategic Direction, 2002).

The constant increase in the popularity of smartphones and tablets may also increase the revenue of Vodafone as a result of the utilization of 3G data services (KPMG, 2012). Additionally, there is an opportunity for the development of new services and products that would align with technological innovations.

2.4.Threats

New mobile market entrants and future strategic partnerships may become a threat to Vodafone.

The inability to satisfy the needs of the target markets, (i.e. students) may reduce the market share of Vodafone. This implies that there are a lot of international students, residing in the UK whilst Vodafone tends to apply high charges for them, regardless of the potential decrease of the demand for Vodafone services within this consumer group.

SWOT analysis has demonstrated that one of the main Vodafone’s problems is a tough competition and lack of focus on the presence in international markets versus domestic markets. In the UK, one of the key threats is related to the company’s inability to meet consumer needs on the basis of service quality and price ratio. Additionally, some of the consumer groups are being disregarded (i.e. students).

3.0.Porter Five Forces

Porter’s Five Forces framework is utilized in order to evaluate the attractiveness of the particular industry on the basis of the measurement of the strengths of the following forces, namely power of buyers, power of suppliers, the threat of new entrants, the threat of substitutes and degree of rivalry (Kotler and Armstrong, 2010).

3.1.Power of Buyers

The power of buyers is low, due to the strong market presence in the UK and internationally. Additionally, due to the complexity of the mobile market structure, products and services, it is difficult for buyers to implement backward integration. This suggests that the power of buyers is low.

3.2.Power of Suppliers

The power of suppliers is of medium strength. Vodafone has several main suppliers, with whom they tend to have long term relationships. Huawei is a one of Vodafone’s official suppliers since 2005 (Huawei Official Website, 2012). However, as the market research demonstrates, there are a lot of suppliers in the mobile market, which may substitute Huawei.

3.3.The threat of New Entrants

The threat of new entrants is low. The barriers for new entrants are relatively high due to the complexity of the mobile market structure and the need for a high degree of investments. Furthermore, given the current poor economic conditions, the risk of new mobile players’ entrance is decreased. It is also supported by the intense competition in UK mobile market, with such clear leaders as O2 and Vodafone (Independent, 2012).

3.4.Threat of Substitutes

The threat of substitutes is high. There are a lot of alternatives that may be utilized instead of the mobile phone, due to the rapid development of new technology, (Lane, 2010). The most popular are the landline phones and video conference. Additionally, VOIP services are quite popular now, due to the associated low costs of communication (i.e. Skype, Yahoo Messenger) (Tsai, Lo and Chou, 2009).

3.5.Degree of Rivalry

The degree of rivalry is high since there are two mobile market leaders in the UK, namely O2 and Vodafone. Additionally, mobile companies tend to form the strategic alliances, as T-Mobile and Orange have done recently (BBC News, 2012). This, in turn, increases the competition.

The switching costs are low, especially on Pay as You Go basis, whereas the switching costs are more increased on a Pay Monthly contractual basis. It is further supported by the increased loyalty towards a particular mobile operator in case of the subscription to Pay Monthly contract.

The exit barriers are also high, due to the complexity of the mobile industry and its structure.

Porter’s Five Forces analysis has demonstrated that there are three forces with low and/or medium strength, which may be taken advantage of, namely the power of buyers, power of suppliers and threat of new entrants.

4.0.Conclusion

It has been estimated as a result of SWOT analysis that Vodafone is a global, well-established competitive company with a lot of opportunities to take advantage. As a result of Porter’s Five Forces analysis, it is recommended for Vodafone to continue emerging into the new markets in order to align with the successful globalization strategy. Additionally, it is recommended to implement more personalized approach toward consumer groups. This implies that is advisable for Vodafone to establish the prices for the products that would be attractive for certain target groups in relation to their needs and profiles. This would increase the competitive advantage of Vodafone, thus differentiating this company in highly competitive UK market arena.

5.0.References

1. BBC News, (2012), “O2, Vodafone, and a 4G promise”, Available from: http://www.bbc.co.uk/news/technology-18355569 (Accessed on 26/07/2012)
2. Brand Directory, (2011), “Global 500 2011”, Available from: http://brandirectory.com/league_tables/table/global_500_2011 (Accessed on 26/07/2012)
3. Brand Finance, (2011), “Vodafone is the world’s most valuable Telecoms brand”, Available from: http://www.brandfinance.com/news/in_the_news/vodafone-is-the-worlds-most-valuable-telecoms-brand (Accessed on 26/07/2012)
4. Financial Times, (2012), “Vodafone Group Plc”, Available from: http://markets.ft.com/Research/Markets/Tearsheets/Summary?s=VOD:LSE (Accessed on 25/07/2012)
5. Guardian, (2011), “Vodafone price rises unleash customer fury”, Available from: http://www.guardian.co.uk/money/2011/sep/23/vodafone-price-rises-customer-fury (Accessed on 25/07/2012)
6. Huawei Official Website, (2012), Available from: http://www.huawei.com/en/ (Accessed on 25/07/2012)
7. Independent, (2012), “Vodafone and O2 to save ‘hundreds of millions of pounds’ by sharing networks”, Available from: http://www.independent.co.uk/news/business/news/vodafone-and-o2-to-save-hundreds-of-millions-of-pounds-by-sharing-networks-7827959.html (Accessed on 26/07/2012)
8. Kotler P., Armstrong G., (2010), “Principles of Marketing”, 13th ed., Pearson: USA
9. KPMG, (2012), “‘Smartphone and tablet popularity brings maturity to mobile payment marketplace’ says KPMG”, Available from: http://www.kpmg.com/uk/en/issuesandinsights/articlespublications/newsreleases/pages/%E2%80%98smart-phone-and-tablet-popularity-brings-maturity-to-mobile-payment-marketplace%E2%80%99-says-kpmg.aspx (Accessed on 25/07/2012)
10. Lane M., (2010), “Slash the Cost of Your Landline”, Available from: http://www.money.co.uk/article/1005940-slash-the-cost-of-your-landline.htm (Accessed on 25/07/2012)
11. Strategic Direction, (2002), “The phenomenal growth of Vodafone: Rapid rise through an aggressive leadership style”, Strategic Direction, Vol.19, Iss.7, pp. 25-26
12. Tsai W., Lo H., Chou W., (2009), “Evaluation of mobile services for the future of 3G operators”, International Journal of Mobile Communications, Vol.7, Iss.4, pp.470-493

This report examines the current market position of Vodafone, which is currently ranked second on the FTSE 100, and has a market capitalization of 84,991 Million GBP. The report undertakes a SWOT analysis to examine the main strengths and weaknesses of Vodafone. This is followed by a Porter’s five forces analysis of the industry structure. The main conclusion of this report is that Vodafone needs to change rapidly to meet the needs of the customers, and meet the changing demands in the industry. These include the changing nature of the mobile communication, and the dynamics of the digital economy, which have led to the changes in the market. Vodafone must therefore change its strategy to deal with these changes in the market.

Introduction

Vodafone is one of the largest telecommunications operators in Europe and around the world and provides mobile voice and data communications to consumers and the businesses (Daruwala, 2011, Mc, 2012). Vodafone is currently ranked second on the FTSE 100, and has a market capitalization of 84,991 Million GBP (FTSE, 2012). Vodafone group has recorded revenue of 45,884 million GBP during the fiscal year ended March 2011, and has an increase of around 3.2 percent over fiscal year 2010. This report examines the strengths and weaknesses of Vodafone to discuss the ways in which the company can improve its competitive position in the industry. One of the key recommendations of this report is that Vodafone needs to work more actively in developing data communications to counter the business risk in a volatile European market, which will help the organization to grow in the short and medium term. Vodafone also needs to develop mobile applications and new digital media to remain competitive in this market.

Market Analysis

A detailed analysis of the telecommunications sector shows that it is highly competitive today, as the different companies and their brands are continuing to introduce new and robust products to their customers (FEER, 1999). A SWOT analysis has been carried out for the Vodafone, which has highlighted a number of strengths and weaknesses of the organization. One of the key strengths of Vodafone is that it has a robust brand image, which has been developed over time and has a highly extensive market reach (Browning, 2011). The organization has also been able to develop a deeper understanding of the needs of its customers, which has allowed it to grow phenomenally, and has enabled the organization to develop a customer loyalty which is highly important for it (Datamonitor, 2012). For example, the annual BrandX Top 100 valuable global brands have ranked Vodafone as second highest brand and it is a top brand in UK. Similarly, Brand Finance has ranked Vodafone as the fifth most valuable brand in the world (Datamonitor, 2012). However, the weakness of the organization has been its inability to capture the brand loyalty and market share in terms of new customers. Vodafone has not been able to capture the level of customers in the new digital environment, and therefore the market growth has not been as phenomenal in UK (Anwar, 2003) as some other brands such as ‘Three’. Another weakness of Vodafone is its inability to capture the Third Generation signal market, which could have been a significant catapult for the organization.

However, the same weaknesses of Vodafone also is one of the key opportunities for the company, the mobile data market is exploding, with the use of smart phones and other wireless enabled devices increasing phenomenally (Savitz, 2012, Uzama, 2009, Mishra et al., 2010, Nayak and Pai, 2012). The ability of Vodafone to provide services to these services is one of the best opportunities in Europe. However, outside Europe, many other countries have not introduced a high speed mobile data service, and these are also expected to be a significant opportunity for these companies. In such a case, Vodafone can potentially have significant growth avenues, which can led to significant profits for the organization (Mishra et al., 2010, Nayak and Pai, 2012). These opportunities also present a number of threats to Vodafone. In this regard, the most significant threat is the increased use of VOIP services, which challenges the traditional model of mobile phone companies due to lost revenue and customers. However, the mobile companies can continue to provide wirelesses services to customers, which they can then use to generate other forms of revenue. Another threat to Vodafone is the mature European market, which has become highly competitive with lower margins for profits and could potentially be an issue for the organization (Grocott, 2010, Jankovic, 2010).

A Porters five forces analysis of the mobile industry also shows a number of issues for Vodafone, which needs consideration. One of the key aspects of the five forces model is that it enables the examination of the various forces which are exerted on an organization within the industry. In this regard, the buying power of the buyer has certainly increased (Glajchen, 2006), as they are no longer constrained by the mobile service providers. The buyers can choose other providers and VOIP based services (Hass, 2006), which is a key concern for Vodafone. Another concern is the potential competition between the companies, which is increasing due to the maturing of the mobile phone market. A third issue for Vodafone is the power of the suppliers such as Apple, who are able to dictate their terms on the use of services (Glajchen, 2006), and therefore a significant threat to the business of Vodafone. The threat of new entrants and new substitute products is also ever increasing in the mobile communications markets (Hass, 2006), as new digital products and services are continuously evolving which limits the use of mobile phone services by the consumer (Jung and Ibanez, 2010, Te-Yuan et al., 2010). These include VOIP based services such as Skype and Facetime, which have meant that some services such as video calls from mobile operators have been completely made redundant (Chang et al., 2010, Bodhani, 2011, Shin, 2012).

Conclusions & Recommendations

A number of conclusions can be drawn based on the SWOT and Porter analysis of Vodafone conducted as part of this essay. One of the key aspects of the future of Vodafone depends on its ability to harness the data communication, which will be the future of the company. Increasingly, innovative applications and products are being used by customers to communicate at a lower cost, and the role of the traditional mobile phone calls is increasingly being marginalized. Vodafone needs to realize the potential of data communication, and use new and innovative strategies to ensure that it can stay ahead of the competition and deliver groundbreaking and new services to its customers. The future of mobile telephony may depend on 4G connections, and Vodafone needs to ensure that it is fully ready to deal with the new challenges which it will face in the changing landscape of mobile communications. New services such as mobile payment and online communities are also significant new avenues for future growth, however proper planning is needed to meet these needs of the customer.

References

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