Introduction
With the rapid globalization aided by technological advancement, the information technology industry has bequeathed man with easy way of communication that is more complex than the traditional methods. The mobile telephony sector is growing faster and companies are venturing in the industry to provide quality services and products in form of voice calls and data communication. Vodafone being the pioneer in the industry has endeavored to maintain its position as a dominant player warding off attempts by competitors to nudge it out. Its core competencies that have always given it an edge over other companies in the industry include the ability to expand its market share, apply the latest technology for service delivery, among others. This paper attempts to discuss Vodafone’s marketing strategy, which includes its competitive analysis, positioning, among others; within the UK market.
Competitive Analysis
The mobile telephony industry in the United Kingdom has grown rapidly since 1985 when Vodafone pioneered the market. This exponential growth of the mobile telephony market can be attributed to the advancement in technology that has drastically reduced the prices of mobile phones. With affordable prices of mobile phones, many people have cell phones with varied features and this trend underscores the importance of the communication industry. Given the industry’s oligopolistic nature, services and other products that Vodafone provides are not very much differentiated from those of its competitors (Madden, 2003, p. 151).
Apart from Vodafone, there are several companies providing mobile services in the UK and the world at large making the industry very competitive. These companies include Orange, Virgin, T-mobile, BT mobile, among others. Each of these companies has been keen at winning the biggest market share from Vodafone, which still commands the UK’s mobile telecommunication market share. The move by Orange to launch a Pay-As-You-Go tariff charges has endeared it to many subscribers and it is time Vodafone followed suit if it is to retain its customers. Orange has become a force to reckon with in the industry, going by its rapid expansion and horizontal mergers around the globe.
The oligopolistic form of the mobile telephony market provides a unique pattern of competition among the companies offering the service in the UK. Vodafone ventured this market as a pioneer in the mid 1980s when the revolution of the mobile phone was at its earliest stages making it to exploit all the advantages of pioneering a market. The reason being, there was a necessity to develop for a new service in an existing market to be able to sway customers from using the traditional fixed telephone lines into using wireless or mobile telephones. The pioneer strategy that Vodafone adopted in the UK mobile telephony market enabled it to sustain competitive advantage over the would-be entrants into the same market (DePamphilis, 2003, p. 53) but that is no longer tenable with the upsurge of companies ready to offer services at lower rates.
Vodafone strategized to capture and maintain a commanding share of the total market for the new service. It aimed at convincing as many customers as possible to switch to the service so that call cost are reduced to enable the company build a large pool of loyal customers before competitors enter the market. It managed to exploit these advantages for some times before other competitors such as Orange came on board to share the market with Vodafone (Deibert, et al., 2010, p. 539).
Strategy formulation is a very important step that a company must undergo in order to achieve is mission and objectives. Strategy formulation, however, cannot be made without a thorough analysis to the operations within the industry. The tactics used by other players in the market inform Vodafone on what to include and what not to include on its competitive strategy. As the world’s largest mobile telephony company, Vodafone provides voice and data communication services to its customers.
Operating in one market segment, the company is the supply of communication services as well as other products of related nature. In order to gain economic value in the business, the company must align its strategies to the mission and objectives. Vodafone’s strategic objectives, therefore, include creating and delivering on subscribers communication needs; deliver robust growth in emerging markets; efficiently manage its portfolio for return maximization; among others. However, the primary challenge that has troubled the company’s management is how to coordinate its growth and at the same time maintain its competitive advantage in the rapidly changing environment of mobile telephony market (Slaton and Editors, 2006, p. 87).
The UK’s telecommunication market is oligopolistic and therefore Vodafone can sparingly apply Porter’s product differentiation strategy to gain competitive advantage. Most companies that operate in the market deal in the same services be it the provision of voice and data communication services or providing internet services. Nevertheless, the company has established technologies and resources on network infrastructure, which is the backbone of its operation. The provision of mobile services requires strong network coverage with less congestion. Vodafone’s strength in this area has endeared it to its subscribers and attracted more customers (Pietersen, 2010, p. 56).
The company operates a 2G via the Global System for Mobile Communications (GSM) networks that provides customers with basic data services, voice services, and text messaging services. Additionally, all the networks run GPRS (General Packet Radio Services) that facilitates wireless access with mobile devices to data networks such as the internet. Moreover, the company operates 3G networks (International Mobile Telecommunications-2000), which has enabled it to provide wide-area wireless services through mobile Internet access, mobile television, voice telephone, video calls, et cetera (Yamamoto, 2010, p. 47).
In 2006, Vodafone acquired HSDPA (High Speed Downlink Packet Access) technology that reduces the time for download at a data transmission speed of about 3.6 megabits per second thus satisfies customers’ needs. The strong network infrastructure is an indispensible resource if a mobile telecommunication company has to respond to the growing needs of customers with high quality services. According to Mishra (2010, p. 9), however, given the oligopolistic nature of the market, nearly all mobile telephony companies have the valuable resource at their disposal and therefore the challenge is to find strategy for winning customers over to its network services. Vodafone has organized its internal management in order to fully exploit the competitive potential of the network infrastructure. This has been achieved by providing a safe working environment for employees together with handsome performance-based incentives. This strategy has generated a competitive parity to Vodafone.
Vodafone has acquired shares in different companies in the same sector as its expansion strategy. Consequently, is has diversified its revenue base across twenty-five countries and further expanding its partner network arrangement to about thirty-eight countries (Vodafone, 2007, para. 4). These countries include, among others, Kenya, Spain, Egypt, Germany, Australia, Italy, South Africa, New Zealand, and the UK.
According to the Datamonitor (2007), Germany had the largest geographical region contributing 17 percent to the total revenue. The UK had 16.3 percent followed by Spain 14.1 percent, Italy 13.5 percent, and the rest of European countries 13.5 percent. The Pacific and Arcor combined contributed 9 percent; Africa, Middle East, and Asia contributed 8.2 percent while Eastern Europe 9 percent. This strategy is unique to Vodafone in the industry and enables it to make up for the losses and risks it may suffer in its domestic operations. The strategy further enables Vodafone to efficiently manage its portfolio through making investments in markets that have a strong local position. Thus, Preissl and Muller (2006, p. 418) contend that the company’s policy of financial investment ensures that shareholders’ returns are maximized.
Other competing companies in the industry do not have financial constraints and hence easily go the “Vodafone way” regarding the acquisition of resources. In fact, companies such as Orange and T-mobile have what can be termed as formidable financial base that allow them to offer services at affordable rates that even Vodafone find challenging. Nevertheless, Dan and Geiger (2004) have identified the secret that has given Vodafone an edge over its competitors as its organized management that ensures communication of the company’s strategic goals to the employees thereby facilitating management by objectives. This strategy thus encapsulates the strength and distinctive competence that gives Vodafone competitive advantage, albeit temporary, over other players in the market.
Rivalry is one of the Porter’s five forces that dominate the mobile telephony industry. Though there is low number of large companies in the market, those present are very competitive due to the slow pace of market growth in the sector. These rivaling firms, therefore, compete over the market shares found outside the UK thus increasing the threat. Additionally, given the low rate of switching costs coupled with low product differentiation, the threat of rivalry is high in the market (Schermerhorn, 2009, p. 146; Allen, 2010, p.117). In an oligopoly market, rivalry can be avoided if there is price collusion that facilitates rigidity, but since the UK mobile telephony market this does not happen, rivalry is rife with each company attempting to provide services as the lowest cost to expand its market share. Consequently, Vodafone has styled up and aligned its strategy towards market share expansion.
Secondly, substitutes pose a serious threat to mobile telephony service operators, Vodafone in particular. For instance, callers separated by long distances can opt to go to a computer and use that to call other than using a mobile phone. It therefore leaves the industry to share the local calls and business calls that use cell phones to communicate. Again, this segment is soon closing down, courtesy of the advent of the internet enabled mobile phones that people can use to communicate without recourse to voice calls (Stahl and Grigsby, 1997, p. 145).
Suppliers’ power is another significant of the Porter’s five forces that affect the mobile telephony industry. Their impact is usually felt in the mobile phones department of the venture where prices of such devices and the terms and conditions signed with the providers can influence the success of the business unit. For example, when Apple launched its novel iPhones, it signed a contract with AT&T to become the sole service provider to this brand of phones in the US thus locking other companies out of this segment for some time (Pederson, 2008, p. 401.). The threat posed by buyers in the industry is not very important, a factor to consider in the mobile telecommunication market. The reason being, individual buyers have absolutely no control on the prices of mobile phones or prices charged for calls made.
Advice to New Entrants
In order for a company to venture into a new market, several factors need to be considered. The political environment is a crucial factor that guarantees the existence of a business. In the UK, the business environment is free from political interference due to the liberalization of the economy. Therefore, a new entrant into mobile telephony market will not encounter any obstacle of political nature when venturing into this market.
In the legal fraternity, though, there must be some regulations that the new entrant must abide by in order to be permitted to operate. For example, in the UK for a company to be allowed to operate, it must get proper operating licenses from right authorities. The only challenge can be the cost of securing obtaining these licenses. Licenses issuing bodies such as the Universal Mobile Telecommunications System (UMTS) and the Global System for Mobile Communication (GSM) are renowned for charging higher fees for new entrants into the mobile telephony market (Walke, et al., 2003, p. 237; Arena, et al., 2004, p. 403).
New entrants in the mobile telephony industry in the UK reckon with the high cost of acquiring the license in order to operate. This is an obvious setback to companies that would want to enter into the industry because they will need a lot of money to start the investment process. Moreover, the high cost of UMTS license further makes it difficult for the entrants to get access to the Global System for Mobile Communication (GSM) market. UMTS licenses in the UK go for higher prices, approximately 30 Euros per subscriber per month, which is six times higher than the price for GSM licenses. The high fixed license prices often have a negative impact on small companies and given that new entrants usually start operating as small firms in new markets before they grow into big industries to enjoy economies of scale. Therefore, a new entrant into the mobile telecommunication market must brace for the exorbitant cost of acquiring these two important licenses in order to be permitted to operate within the industry within the UK (Bekkers, 2001, p. 296).
Another important factor that should be considered by new entrants revolves around the economy and business cycle in particular. Assuming the company has properly conducted it market research, it should be able to understand when there is a boom and when there is recession of its services during the year. In December for example, Englanders communicate a lot with friends and family members and this period can be considered as a booming period. At the beginning of the year, however, the rate of communication falls and this automatically has a negative impact on the industry. A new entrant must evaluate this trend in order to formulate effective strategic marketing plans to optimize the opportunity and counter the effect of the low calling period (Timmons and Spinelli, 2004, p. 95; Hamper and Baugh, 1990, p. 29).
Technology is another aspect that any new entrant into the mobile telecommunication industry. Given the rapid rate of technological advancement, the mobile telephony industry experiences a number of revolutions in terms of versatile devices that enhance the easier communication. The industry for instance, is moving towards telecommunication through wireless broadband connections. A good example is the Apple’s iPhone, which with merely a single touch on the screen automatically switches from Wi-Fi to telephone mode. Currently, the market uses 3G network for voice calls and data communication and any new entrant must be equipped with such sophisticated machines to be at par with other players in the market. New entrants furthermore must ensure that they keep the pace of technological advancement and adapt accordingly (Besanko et al., 1996, p.582).
New entrants would definitely want to increase their products’ life cycle in order to gain more from the product. Being an oligopoly, the mobile telephony market hardly has product differentiation and this requires a company to prolong its product life cycle to maximize gains. It is therefore imperative for a new entrant into the market to strategize how to increase its product life cycle and make such a strategy a competitive advantage over other players in the market. It is only by formulating and implementing good plans that a new entrant can sustain its growth and expansion into the market in order to achieve its primary objective of profit maximization (Pearce and Robinson, 2000, p. 259; Thompson, 1993, p. 561).
Return on Investment
Vodafone is the largest mobile telecommunication company in the UK and given its experience in the industry that had always earned it profit, though this has changed lately, people tended to buy its securities in the London Stock Exchange market with the hope that they will get impressive returns on their investment (Gats, 2002, p. 23; Connolly, 2005). The company has been able to meet its shareholders’ expectations with respect to making gains on the equity. In 2008, for example, it issued its first quarter numbers in July where its stock fell below that of its European siblings. To a clueless observer, this would be detrimental to the shareholders’ investments. However, the company had undervalued its stock to give this impression and this was attested to by the action of the board to buy back the company shares (Dawber, 2008, para. 3).
The management of Vodafone further announced that it would open about fifty more stores in the UK. The mobile telephony company is still strong in the market and the purchase of its stocks serves to buttress its base in the UK telecommunication market. Even though Vodafone’s profitability may require the marketing strategy of hold that is attributed to increased source of income for business units, analysts warn that shareholders should not consider it as such. This means that for the time being, the shareholders’ will have to hold a little before getting their returns (3G Newsletter, 2008).
The return on shareholders’ equity can be equally looked at from the perspective of the inflated prices of licenses. Vodafone, according to Bjorkdahl and Bohlin (2003, p. 24), spent a whopping 5,960 million Sterling Pounds to obtain a 3G license to operate from the UK, which required a coverage of 80 percent of the population. To achieve this target coverage, it was estimated that the company would use 1.6 billion Sterling Pounds in the 3G network infrastructure.
The authors related the level of Average Revenue per User (ARPU) required by the 3G technology generate revenues from the sum of subscribers’ base. For the company to get a return on the 3G venture, the contribution from 3G must be greater. It therefore, follows that “with this incremental increase in 3G ARPU…Vodafone must get GBP23.5 extra per month from each user from the total customer base in real terms by 2021” (Bjorkdahl and Bohlin, 2003, p. 25). It is difficult for Vodafone to get returns on its investment given that 3G requires an ARPU of 24.5 sterling pounds. The reason being, subscribers are not willing to pay that amount for high-bandwidth services for the license period. Consequently, the lower additional revenue from 3G deprives Vodafone from getting returns on its 3G investment.
A good investment is judged based on financial returns because the primary aim of any investment is profit maximization. This can be analyzed by the two metrics used to evaluate a firm’s financial position, namely, Internal Rate of Return (IRR) or Return on Investment (ROI). IRR is an annual compound rate gained from the money invested taking into account all other financial variables. ROI, on the other hand, involves subtracting the initial investment from the resulting value. Both metrics give a glimpse on the financial standing of a company, though, IRR is rather complex and detailed (Karol and Nelson, 2007, p. 150; Khosrowpour, 2006, p.262).
Vodafone’s Competitive Positioning
Competitive positioning involves product differentiation with a view of delivering value to the market. Competitive position is very important when it comes to the formulation of a firm’s strategy. The reason being, it success enables a firm to get more customers and record more sales that will translate into returns on its investment. Usually, it is concerned with establishing a unique, consistent, and clear customer perception about a company’s goods and/or services and image. Accordingly, a service or a product may be positioned based on the following factors: benefit, application or use, attitude price, user, level of quality, et cetera. Companies often use competitive positioning to target a product and or service for a particular market segment(s) accompanied by specific prices that only suit that market segment (Gelder, 2005, p. 190). By differentiating its products/services, a firm will be able to beat other companies within the industry.
Vodafone uses a marketing strategy that reflects its competitive positioning techniques. That is, its strategy can be described as product-led in that it continuously develops new products as well as services from the latest technology. This is necessary because as people become techno-savvy and buy sophisticated cell phones, they create new demands hence they require added value through improvements on the product. Vodafone, consequently, must consider this phenomenon when formulating its marketing strategy (Avlonitis and Papastathopoulou, 2006, p. 47).
It is a fact that the UK’s mobile phone market nears its maturity and within a short time it will be there. Young people and technological advancement provide the impetus for this rapid development of the industry. Vodafone has endeavored to keep with this pace by always attempting to add value to its services and the packages. It prioritizes value addition and competitive prices to its trendy clients having sensed that very soon the market will experience a dearth of new customers. Not surprisingly then, that Vodafone continually introduce new technologies and services to facilitate its operations. This is reflected in the manner in which the company frequently updates the range of cell phones and services it provides giving it advantage over its competitors.
Vodafone engages in partnerships with other companies especially in the sporting sector to develop its brand. For example, the company it used to sponsor Manchester United Football Club and McLaren Mercedes Benz Formula 1 team, among others (Ferrand, et al., 2006, p. 113).
These activities help Vodafone a great deal to position its products to a wider market thus enhancing its market share and growth. Moreover, the company has expanded its operations in almost all continents making it the largest mobile telecommunication company in the world. In these international markets, it maintains its standards of service provision, albeit with a little product differentiation to suit the needs of that particular market.
Vodafone’s Core Competencies
Core competencies are areas where a firm has demonstrated expertise that has given it competitive advantage over other players in a similar industry. Vodafone being the first company to venture into the mobile telephone market has a wealth of experience in the industry that cannot be challenged by any entrant into the market. The experience and knowledge that it has gathered since the revolution of the telecommunication sector has come as a boon to its development. As such, the company has been able to segment the market for its products and adopt multi-structure outlook on the cell phone consumers. Moreover, Vodafone has excelled in the art of expansion that has surely guaranteed the presence of its services all over the globe (Jones and Hill, 2009). Identifying the company’s core competencies is very critical in setting a strategy intended for gaining competitive mileage over other players in the industry.
Vodafone has the ability to manage change and acquisition of other ventures. For instance, the 2004-2005 the Japan subsidiary of Vodafone called Japan Vodafone merged with Japan Telecom. This merger and others, which would come later increase the revenue, base for the company and enhance its market growth putting it ahead of its competitors. Vodafone, because of this expansion strategy, has been able to garner immense market power that no any other competitor in the market can rival (Vesa, 2005, p. 135).
Another important core competent area of Vodafone is the company’s ace in business research and development. This research has made the company to exploit the new technology just in time to enable it up date its service delivery equipment to match the customer demands. Furthermore, market research can be considered as the spark that facilitates Vodafone’s efficiency and operations (McNeil, 2005, p. 103).
Conclusion
The mobile telephony market in the UK has steadily grown since 1985 when Vodafone pioneered it because of the technological revolution of wireless communication. Vodafone, though the dominant company in the industry, has been challenged to polish its competitive strategies in order to stay in the market and maintain its position. The competitive analysis of the firm reveals that it has strength in almost all the Porter’s five forces that affect the market. Its employees are integrated in the strategy formulation and this is best described as management by objective at middle level managements. Any new company that desires to get into the UK market, however, must be ready to pay dearly for operating licenses. Beating Vodafone, which is deeply rooted in the market and enjoys economy of scale, can be an uphill task for new entrants can seldom.
Product positioning involves the perception that consumers have on a product or service with respect to quality, cost, availability, and utility. Vodafone is aided by technology to position its products and/or services to suit the growing needs of its customers. The mergers and sponsorships that the company enters provide fora for brand development. Finally, the core competencies of Vodafone lie on its pioneering nature that has enabled it to dominate the market for a long time.
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