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Managing Business Strategy Vodafone

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10.11.2020
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Vodafone Group Plc, a mobile network provider, headquartered in Newbury, Berkshire, England, is one of the world’s leading wireless telecommunications companies. The organization has mobile operations based in 28 countries. It employs more than 78,000 employees and has more than 435 million consumers worldwide. Vodafone has shown a tremendous success in the last decade and maintained a competitive edge over its main competitors. The global recognition of its brand is growing tremendously, as the company continues to expand in developing markets. Nonetheless, it retains its image and brand recognition in the spheres where the maintenance of trust of clients is extremely significant. By using the Porter’s five forces analysis and PESTLE, this paper analyzes the company’s business environment and observes the following fact. The development of new technologies and a rapid increase in demand for new data services are the biggest opportunities for the corporation, while the market saturation, regulatory pressure, and the strong competition comprise its main threats. The study of the paper explores strategic factors; both on micro and macro levels that are relevant to Vodafone. The essay as well examines their impact on the growth of the organization. This paper also recommends some marketing strategies that can improve Vodafone market penetration all over the world.

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Analysis of Vodafone Macro-Business Environment from 2012 to 2016

Political Factors

This sub-section analyzes the major political influences and trends that continue to impact Vodafone or may affect it in the future. The roaming regulations are set by the EU control to limit and have the levying of roaming charges within member nations of the European Union. They are applicable to the prices, which Vodafone charges their users for using its services in another country. Moreover, they are related to the wholesale rates that network operators and the company can charge each other for permitting their users’ access to the network of other operators. Since Europe is the biggest market of the firm in terms of profit and revenue, it is heavily impacted by these regulations. Proposed in 2011 and enforced on August 30th, 2012, the EU regulations reduced the charges. However, their impact was rather low. Therefore, Vodafone could not receive its benefits (European Union, 2012). The company tries to keep its tax bills as low as possible in its operating countries because the tax disputes have been increasing due to the changes in the government legislation. These claims of tax authorities can be irrelevant and small to the enterprise. However, in some cases, they can also affect the company’s financial statements.

Economic Factors

The common indicator for measuring the country’s economic growth is gross domestic product. The Figure 1 shows the growth of the GDP in Vodafone’s most important markets such as India, Germany, the UK, Italy, Spain, and the Vodafone Group consisting of South Africa, Mozambique, Lesotho, Tanzania, and its other operating markets grouped together in Other AMAP and Other Europe (Euromonitor International , 2014)

The Figure 2 reflects the real growth in GDP for two biggest markets, India and the UK, for the Euro Zone and for Sub-Saharan Africa. As the graphs show, the global financial crunch of 2007-2008 followed by the subsequent Euro crisis, the GDP in almost all countries has declined in the recent years even below 0 percent in Europe decreasing the total GDPs as well. However, it is expected that the growth rate would be positive in the future and become constant from 2015 onwards: about two percent for the EU states, and between five percent and seven percent for the Sub-Saharan Africa and India. (Vodafone Annual Report, 2016). These figures are the important indicators in projecting future revenues, especially when the nations are showing an increase in GDP. It assumes the constant growth (Tong & Haenggi, 2016).

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Social Factors

Social factors continue to influence Vodafone operations all over the world. The assumption that the amount of money, which users spend on mobile communications, is a certain fraction of their total income holds true. This aspect means that a high level of income growth offers an opportunity for Vodafone to derive higher revenues in the next four years.

The growth rate was negative in 2014 except in the United Kingdom with the expectations of positive growth rates except Italy in 2015 (Ismail, Zhuang, Serpedin, & Qaraqe, 2015). Hence, it can be argued that people will spend more money on mobile services in the future. With phones, service charges, and SIM cards becoming cheaper, this development will increase a number of subscribers globally.

Technological Factors

The technological factors render a significant impact on the Vodafone Group due to the nature of the industry. The development of networks has enabled a transfer of data and voice with a better quality and at a faster speed. The company implemented the GSM technology in the 1990s. Since then, the organization has improved high-speed data transmission techniques, such as GPRS and EDGE. Recently, the company has introduced LTE, the current technique for the fourth-generation (4G) mobile communication (Whalley and Curwen, 2014).

Besides, the expansion of network standards and the development of mobile handsets have helped in maximum utilization of the latest networks speeds. The new phones are capable of connecting to 3G and 4G networks such as smart phones. The latter ones have bigger screens that are replacing the traditional computers leading to a rapidly growing demand for Vodafone’s data services on the mobile phone (Grant, 2010).

Legal Factors

Legal systems in developing markets are less predictable than in the EU states with more stable institutional structures. Since Vodafone operates in emerging markets, its investments in these markets have been negatively impacted by changing tax and legal developments being beyond the control of the enterprise. The investments the firm has made in these countries may not be obtained in the expected time or at all (Das, Drogon, Jukan, & Hoffmann 2015).

Environmental Factors

Vodafone’s environmental audit report contains the Annual statement of its environmental position and environmental performance. It includes the Vodafone’s Environment Policy such as reducing waste, improving energy efficiency, increasing recycling and reuse. Its environmental audit report explains the company’s commitment to decrease the energy and the amount of waste they create. The environmental management helps Vodafone to reduce carbon footprints and meet the expectations of customers (Johnson, Whittington, Angwin, Regner, & Scholes, 2014).

Micro Analysis of Vodafone

This subsection focuses on micro-environmental factors that impact the operations of Vodafone Company.

Buyers

In general, mobile services providers have two types of customers: corporate and individuals. While the buying power of one individual client is extremely low, the opposite one is true for big corporate buyers and the buying power of a nation’s population at large. Losing one such user could render a significant influence on Vodafone revenues. The reason is that large corporate with financial strength possess great buying power by negotiating on prices.

Furthermore, in developed markets such as the EU countries, network operators face fierce competition coupled with buyers increasing demand for more data and minutes at lower prices. In these arenas, Vodafone continuously tries to reduce its costs and pass on benefits to users by offering price cuts. This value pricing increases buying power for the entire population in the country at large (Vodafone Social, 2015).

Suppliers

The suppliers play a major role in the Vodafone Plc. On the one hand, there are manufacturers of handsets such as Nokia, Samsung, and Apple, the network infrastructure such as Ericson, Huawei, and Alcatel-Lucent, as well as software providers. On the other hand, regulatory authorities of state governments also play a critical role as suppliers. It is given that they are the exclusive suppliers of bandwidth and permit the network operators to use spectrum that is available in the country (Dicken, 2011).

Hence, supplier power of the government due to their monopolistic position and the substantial amounts, which are paid for acquiring spectrum licenses, is strong. For example, Vodafone spent GWP 2.5bn in the financial years 2013-14 on renewing and acquiring spectrum licenses in Romania, India, the Czech Republic, and New Zealand (Annual Report, 2015). Handset manufacturers also have a significant supplier power due to the fact that they are large and global producers. Coupled with the fact that the company has started to manufacture its own branded handsets, the supplier power of handset producers is decreasing slowly.

New Entrants

There is a remote possibility of new entrepreneurs to enter in the wireless telecommunications industry. For establishing a new network, a massive capital investment is needed. Antennas and base stations are also required to set up across the country of interest. Besides building a network system, a new entrant has to establish operational support systems. Therefore, big advertising campaigns are necessary for building a large customer base. Since, this market is highly saturated and a few big players dominate in this area, the chances of entering as a network operator are low (Misra, Cheng, Genevie, & Yuan, 2014).

Threat of Substitutes

One of the main substitutes for the wireless communication industry is fixed-line telephony but switching to fixed-line offers no benefits. On the other hand, wireless communication has been introduced as a substitute for fixed-line telecommunication. The success of this replacement can be seen with the popularity of mobile telephone usage. It means the mobile telephone density continues to grow significantly across the globe in the last fifteen years, while the usage of fixed-line phones has decreased slowly. The other substitutes such as VoIP (Voice over Internet Protocol) telephony and data communication offer lower rates compared to mobile telecommunication. Therefore, the company continues to develop substitutes to its original product for its customers. In short, the threat of substitutes is rather low, as Vodafone offers the replacing products themselves (von Bodisco, Braun, & Carle, 2014).

Degree of Rivalry

The degree of rivalry differs depending on the geographic region where Vodafone operates. The European mobile telecommunications market is highly saturated and has reached a stage of maturity, resulting in a high level of competition. The global mobile industry is dominated by international players, benefiting from the economies of scale. The four biggest players in 2012 were Vodafone, China Mobile, Bharti Airtel, and America Movil with the market shares of 7.9 percent, 14.7 percent, 5.4 percent, and 5.3 percent respectively (Gillet, 2013). These three organizations cannot be considered as first-hand competitors. The reason is that they receive the largest portion of their revenues in the countries, in which Vodafone does not operate. With its main markets concentrated in Europe, Orange, Telefónica, and T-Mobile are its closest competitors. They offer major challenges to the company (Lynch, 2009).

SWOT Analysis

The SWOT examines internal and external factors that impact the operations of Vodafone.

Strengths

The strength of Vodafone lies in its brand image and worldwide recognition. The company has created a global presence by investing highly in marketing and created its image by introducing the latest products’ offerings. The organization enjoys a product differentiating advantage, which, if exploited properly, can offer a lead over its rivals. The availability of Vodafone within Europe as well as in the emerging markets across the world enhances this image. It permits users to travel and obtain the services of their home country operator. In the states where Vodafone has not established its network, for example, Norway, it has entered into strategic partnerships that offer a better service to mobile users (Indrayan, 2014).

Weaknesses

Vodafone has expanded through acquisitions of telecommunication companies rather than following the organic growth. It has increased its users’ base, offering a direct market expansion and immediate increase of clientele at the cost of direct control of subsidiaries. This factor neglected the local markets, allowing the market share to be captured by smaller local competitors. Besides, the saturation in the Western European market has resulted in a sharp increase at the price elasticity of demand, with users becoming more prices oriented. It caused high churn rates touching the level of 33.5 percent when compared to O2’s 25 percent (Ratasuk, Prasad, Li, Ghosh, & Uusitalo, 2015).Some weaknesses in its financial structure could also be seen, for example, the firm’s pending tax disputes amounting to billions of GBP in Europe and emerging markets (Vodafone Sustainability Report, 2015).

Opportunities

The wireless telecommunication market, even though saturated, offers a huge potential due to the sophistication of users and aging population. It provides ample opportunities through the appropriate market segmentation and then exploiting the particular profitable segments. Different strategies should be implemented such as simple mobile phones and a simplified pricing structure to suit the aging population as well as more sophisticated and updated solutions for a younger community. The expansion of network in more emerging countries of East Asia and Africa could increase further opportunities of Vodafone to enter more aggressively into the fixed‐line service and offer the benefits of its high investment in 3G and 4G technologies (Ratasuk et al., 2015).

Threats

The European market of Vodafone is characterized by a high level of competition. The popular brands such as T‐Mobile and O2 exploit the price sensitivity of users. In this way, they build a stronger image and increase their presence in the market. Indirect competition also poses a threat through the presence of Skype and other related VoIP services. Moreover, the upcoming European legislation will limit the tariffs for Vodafone imposing the further price cuts that could affect the profitability of the company (Indrayan, 2014).

The Marketing Strategies of Vodafone

Product Differentiation Strategy

Vodafone’s marketing strategy in the United Kingdom is to maintain market leadership. Its product differentiation policy is product-led. The company designs customized products that suit different segments of population. Moreover, it continues to develop new products and services by utilizing the latest technological developments. However, as customers have become the increasingly sophisticated users of wireless communication technology, they seek an added value through product improvements. Vodafone through its brand health tracking includes these feedbacks into its strategy. Besides, this strategy helps in offering a wider range of products and services including data, voice, messaging, and fixed line solutions. It aims at assisting consumers with their communication needs. Hence, this strategy offers many tariffs targeted at different segments including the latest branded devices and services for a wide range of customers (Corrocher & Zirulia, 2010).

Sponsorship Strategy

Vodafone’s marketing practices include a global sponsorship strategy. It has delivered positive impacts across all its markets. Major sponsorship agreements such as the UEFA Champions League and the sponsorship of Vodafone McLaren Mercedes F1 team have helped in achieving multiple marketing objectives. These ones have enabled the company to offer consumers with differentiating brand and product experiences. The exceptional performance of the McLaren Mercedes F1 team has enabled the organization in maintaining a dominant presence in one of the most popular sporting events. Vodafone has integrated the sponsorship into its marketing activities including events, content, and communications. Moreover, it has introduced three bespoke handsets that increased the usage of its network services (Annual Report, 2015).

Cost Leadership Strategy

Vodafone’s prime objective is to become the lowest cost producer in the wireless telecommunication industry. The company has designed this strategy to achieve its superiority in the mobile industry. It uses its size to negotiate volume discounts with handset producers, so that it may attract potential clients with the lower prices than its rivals. At the same time, it tries to achieve economies of scale from using latest technologies across the globe. This aspect helps the firm in making a high return on the huge investment required for the latest generation of cellular technology “3G.” This technology enables users to receive and send videos and other large files, for which its rivals charge high prices. Occasionally, Vodafone also offers massive discounts on its products to maximize sales. The reason is that it has a significant cost-advantage over its rivals and, in doing so, it further increases its market share (Tripathi & Siddiqui, 2010).

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Three Strategic Recommendations

Reduce Cost

For achieving competitiveness in European and emerging markets, Vodafone must reduce its cost structure through outsourcing and achieving operating economies to their fullest level. The integration across Vodafone operating companies, especially in Europe, can help to reduce costs and maximize the gains of the firm’s scale and scope. At the same time, as the size of Vodafone enhances, an appropriate balance between global and regional levels must be considered for maintaining flexibility, particularly in respect of central functions.

Develop and Offer New Products

In increasingly competitive local and global markets where the value for money is the chief consideration, improving the cost of available products and developing a new range of new offerings for users may help Vodafone to increase its revenue and deliver its value to all stakeholders. The potential clients extensively use new devices, technologies, and services. Hence, they would expect Vodafone to offer a wider range of new services such as a higher speed Internet access, instant messaging, and VoIP. An improvement in non‐voice services could also become a part of Vodafone strategy to encourage usage of its networks resulting in growth of revenue.

Extend to New Markets

Expansion in emerging markets can increase the revenue of the company. They are less penetrated; thus customer growth becomes a chief source of revenue growth. Enlarging the clients’ base depends on many factors, which include customer satisfaction, network coverage, handset range, and the quality of product offerings. However, the prime factor is often related to tariffs and pricing of handsets. Since the company has a wide range of products, it should consider offering price cuts and discounts on its all services and offers in the new markets (Ferguson & Brohaugh, 2008).

Financial Performance

Analytical Income Statement

The profit and loss or income statements identify all accounting items either as a part of finance or as the group’s operations. The investors recognize operating profit as a prime source of value creation. Hence, the income statements reformulate the items in a manner that non-operating profit after tax can be calculated. For calculating the NOPAT, the tax coverage is subtracted from the EBITA in addition to reported taxes. Although Vodafone explains it has adjusted effective tax rates, it is always advisable to use a marginal corporate tax rate that can be taken from respective countries. The Table 1 shows an income statement or P&L statement of Vodafone for the financial year ending 2016 (Annual Report, 2016).

The Table 3 highlights operating performance; with a review on how the EBITDA performance and the revenue of Vodafone have developed over the last year. The revenue declined 3.0% to £41.0 billion; and service revenue fell by 3.5% to £37.2 billion. In Europe, service revenue decreased 0.6 percent showing competitive pressures in many markets, with some signs of improvement throughout the year (Annual Report, 2016).

Conclusion

Technological developments will become much valuable if they find an appropriate market. Markets always search for improvements. They will adopt new developments, but these ones may not be the same ones as what the wireless technologists are doing. If such a mismatch occurs, technical enhancements will not achieve objectives. Thus, Vodafone must study the trends in emerging markets to analyze how a new technology can be implemented in the future. The company should not focus on a competitive advantage. However, its developments should result from something more basic such as offering products to consumers that save their time. It makes lives easier or strengthens their relationships. The paper has analyzed Vodafone’s macro and micro-environment in the wireless telecommunication industry, its capabilities, and resources. In conclusion, despite the impact of the EU legislation, the saturated markets of Europe and the fluctuating GDP in emerging arenas, the firm’s sustainable competitive advantages are its strong network, global footprint, and its powerful brand.

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