The five forces were devised by Porter in 1979 when Michael Porter viewed the already available Analysis tool, such as the SWOT model, as incapable of examining all the forces acting on the company’s environment.
The model reveals the threats a company is facing while conducting the business. The three threats are determined on a horizontal basis which denotes threats from the competitors. The two vertical threats incorporate the challenges faced by the company by the supply chain. The first three threats are exerted by aggressive industrial competition, novel entrants’ threat, as well as the substitutional threat. Vertical threats include the buyer’s and suppliers’ power to bargain.
A Review of Verizon
The company has secured the leading position in the US market of telecommunications. The company has secured the top slop in terms of market expansion and share. The company’s market share in 2018 was 35% ahead of its rivals, including AT&T, T-Mobile, and Sprint, which secured 34%, 17%, and 12%, respectively. Despite the company’s image as an expensive service provider as compared to its rivals, Verizon swept the market because of its vast coverage of network and the company’s provision of standardized and quality assured customer services. The company has successfully captured gainful customers of higher value who give extra revenue. Verizon has, therefore, built a luxurious brand image by assuring quality services at expensive rates. Moreover, the company has effectively pursued an insight of value in the eyes of customers.
The analysis revealed that the company had faced threats from both horizons, i.e., horizontally, and vertically. The strongest threats prevailing in the industry environment of the company are the threats posed by novel entrants and the substitutional threat. Whereas vertically, the buyers’ power to bargain has exerted immense pressure on the industrial environment of the company. On the contrary, the threats exerted by the novel entrants as well as the substitutional threats have fewer exerting capacities.
Aggressive Industrial Competition
The wireless telecommunication industry has fierce competition when viewed in terms of market share and expansion. The company’s rival AT&T is lagging behind Verizon, with only a minute difference in the market share. Although the two companies have captured most of the market clientage, the other two companies have adopted strategies to compete with them. T-Mobile has proved itself to be the most proactive company in terms of market expansion. Sprint has launched robust price promotions to increase its customer base and market share.
Despite the company having been able to give the strongest network coverage since the beginning of this decade, its rivals have started investing and enriching their infrastructure to improve their quality. The estimated time frame is expected to be somewhere between 5 to 10 years, when the other companies could build this coverage and quality gap. Verizon’s competitors are building up their towers and related infrastructure for this purpose. Therefore, the company may need to find new ways to add to its competitive advantage.
Buyers’ power to bargain
The company has faced a significant threat in terms of switching buyers from Verizon to other customers. The customers find it easy to switch from one carrier to the other, which is also inexpensive. Therefore, Verizon often gives new to attract customers who have switched their networks. To demonstrate, Sprint ran an aggressive campaign to snatch its customer base of Verizon by half, and it was successful to an extent.
The ease of switching brands has made the buyers exert too serious a threat to the company’s environment. The customer can switch from one network provider to the other in just one hour without even changing the phone number. Therefore, the company must add up reasons for the stay of customers. Verizon has advertised its high-quality provision along with the reduction in some packages for SMS and call services. However, these measures could be inadequate in the near future.
The threat of Novel Entrants
The establishment of a new company to compete in the marketplace is relatively a weak force of threat to the company’s external environment. The definite reason is the cost of establishing a wireless network carrier that can compete in the market is not an easy task. The infrastructural set-up and the setting up of towers across the states to provide network services is a difficult task. Moreover, the newer company may face many governmental regulations and rules to be faced by the company. At the same time, when a new arrival can bear the expense and governmental regulations, it still has to build the brand reputation to extract the market share. Therefore, Verizon is not facing any strong force threat from a new arrival in the industry as that would take a lot of time to stand against the company.
Suppliers’ power to bargain
The company is facing a weak force of the threat of the supplier’s power to bargain. The company calls on the suppliers when it is executing expansion of network infrastructure or if the company is manufacturing some product. The plethora of suppliers readily available on the company’s call makes it easy for the company to choose from. In contrast, the suppliers find it opportunistic to work with a behemoth company like Verizon. Therefore, the company has the leverage to choose from readily available suppliers.
Substitute or Substitutional Threat
The threat of substitution is always posing a substantial threat to the company’s revenues. The rivals are working day and night to take off Verizon’s customer base. Companies such as AT&T, T-Mobile, or Sprint may provide substitution by offering lower price services or by enhancing the quality of the products. For instance, any recession in the economy may force the customers to cut their network bills by shifting to the cheaper services provided by other substitutes such as Sprint. Therefore, the company is facing a serious substitute threat.
By and large, Verizon must address these threats as discussed above by deploying shrewd strategic planning and effective decision-making to secure a competitive edge in the market. The company must ensure the retention of customers in the long term.
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