Porters 5 Forces Analysis Of Communications Industry Free Essay Example

The wireless communications industry is one of the world’s sectors of the economy that is experiencing high competition due to challenges of globalization, advance in technology and diversity of customer needs. The main services that are offered in this business are; internet access, cell phone service or mobile communication, messaging, music, ring tone and video distribution among others. There are about 600 companies that are actively involved in this industry and they constitute combined annual revenue of over 110 billion US dollars.

However, there are four major companies that have dominated this concentrated market fro some time and they include; Verizon, Sprint Nextel, T-mobile and AT&T. Wireless communication services owe its demand to an increase in consumer income and only those with good income can actually utilize or receive such services. Most businesses also utilize the technology and therefore the profitability of the wireless companies depends on how best they can attract these businesses, their marketing skills and their ability to come up with new innovative technologies.

Porters five forces analysis has been used by many companies to analyze their position in the industry and therefore strategically position itself to handle the issue of competition. Since the issue has been identified as a major threat to the existence of the companies industry, this kind of analysis is thus suitable for companies which would like to understand their competitors, their customers, buyers, sellers, suppliers, and other stakeholders in the business.  (Porter, 1985)

Threat of New Entrants

Previously established wireless communication firms pose a big challenge to new companies in the market which try to exploit the new markets.

Although substitute services are being offered in smaller companies, they still have to ‘beat’ one another in either way in order to create a better market share.  With known brand names and higher customer loyalty, established firms to push customers to start using their new products in the market since they have a name in the market.

The new entrants need to assess the market effectively and ensure that they learn their customers very well although very few for a start and also ensure that they position themselves strategically to compete more successfully to remain in business. The established firms on the other hand need to maintain good relationships with their customers so that the competitors i.e. the new entrants may not take away their customers. This way, they rest assured that they will remain in the market for a longer time (McGahan, 2004)

Power of Suppliers

Due to the bargaining power of suppliers, customers in this industry have started to become sensitive to the monopoly imposed by some suppliers and also the changes in prices that affect the way they receive services or products. In most cases, suppliers tend to utilize all unique ways in order to bargain for what they want.

First, they would like a company such as T-Mobile to offer hem better prices before they manipulate the customer’s price therefore ending up with huge prices. In some companies, they have become a competitive threat because when they raise their prices, the customers will tend to look for substitute services which can still satisfy their needs but a lower cost. In this industry however, the suppliers have little to influence although they can maneuver their way in the market price for certain services. (Porter, 1985)

Competitive Rivalry

Competition is almost everywhere today but in the wireless communication industry, it is worse. Given an improved world economy and globalization of businesses, there is rush for new customers by every company. Due to the high concentration of companies in this industry, it requires very competitive minds to venture in his business. Verizon and other companies are experiencing intensive rivalry that has benefited the consumers (Lovelock, 2006).

In order to effectively handle the issue of rivalry, some companies such as verizon have resorted to joint ventures for them to increase their market potential. AT&T had a gross profit margin of 60.7% while its closet rival Verizon had 59.50%, Qwest had61.8% and Sprint Nextel had 57.60%. All these four companies, everybody will agree, face competitive rivalry amongst themselves in the business. Although AT&T has a superior value on its market capitalization, it must keep its toes in order to meet the challenge offered by Verizon. (McGahan, 2004)

Power of Buyers

Buyers are the most sensitive lot in any business because they influence demand, supply and even distribution. In addition, they rely mostly on quality services that satisfy their needs. Due to changes in technology, customers would like to have fast communication services, reliable internet access, accurate and reliable billing among other needs. When either the suppliers or manufacturers increase their products, they will most probably go for substitute products. Many companies allow their customers to bargain for their prices but take into consideration the competitor’s prices.

When prices are low and services are of high quality, it is better for the companies. It is widely acknowledged that about 95% of wireless services go directly to the consumers and a mere 5% goes to resellers and suppliers. This indicates that, the market is getting saturated quickly and sooner or later, the companies will have no one to subscribe. It is with this in mind that companies have been employing unique marketing strategies such as the media, internet and other local stores. Since the market is easily saturated, some operators are devising ways to get customers from other companies and subscribe them. This is however difficult because it requires that the services be superior, prices are low and quality is supreme. (Lovelock, 2006)

Availability of Substitutes

Those alternative products that have the ability to satisfy related needs and give solutions to customers for what they want are referred to as substitute products. They reduce the potential returns for many businesses since they place a ceiling on the prices offered for services. Companies that realize that services being offered do not much the substitutes, and then they adjust their quality and prices. Fro example, AT &T can be able to challenge the service that is offered by smaller mobile phone companies that include messaging by offering high speed voice messaging. (McGahan, 2004)

Customers will always be tempted to try new products to see whether they are more effective and are made to believe that the newest services on the market are the best since they are current and tested. In order to counter substitute products, a majority of the companies tend to at least market their products as effectively as possible and thereby meet their market demand. The most worrying trend in the business is the fact that substitutes products come with other services that outweigh the quality of the other ones thus cause a threat to the company. Substitutes give the sellers and the users a variety of choices to choose from and making it very hard for some services to be entrenched into the market.

   Reference

Grant, R. (2005): Contemporary Strategy Analysis: – Blackwell Publishing Ltd., Oxford pp 56-98

Lovelock, J. (2006): Services Marketing, People, Technology, and Strategy. New York, Prentice Hall, pp 30-33

McGahan, A. (2004): How Industries Evolve: – Principles for Achieving and Sustaining Superior Performance. Harvard Business School Press, pp 3-8

Porter, M. (1985): Competitive Advantage:-Techniques for Analyzing Industries and Competitors. The Free Press, New York, pp 19-43