Virgin Media UK - Essay Example

Virgin Mobile Analysis Table of Contents Introduction 3 2. Current Business Environment - Analysis 5 A. Macro Environment Analysis 5 A PEST Analysis 5 Political Factors 5 Economic Factors 5 Socio-Cultural Factors 6 Technological Factors 7 B. Micro Environment Analysis 7 B.1. Porter’s Five Forces 7 Bargaining Power of Buyers 7 Bargaining Power of Suppliers 8 Threat of New Entrants 8 Threat of Substitutes 9 Competition/Rivalry 9 C. Synthesizing Industry Opportunities and Threats from the Above Analysis 10 3. SBU Analysis of Strategic Capabilities 12 A. Identification of Company Resources 12 A.1. Tangible Resources 12 A.2. Intangible Resources 12 A.3. Threshold Resources 13 A.4. Unique Resources 13 B. Value Chain 14 C. VRIO 16 D. Competitive Advantages 16 E. SWOT 17 5. Conclusion 17 References 19 1. Introduction Virgin Mobile is a mobile brand, that is in use in eight different business licensees operating in different geographies around the world. The different mobile licensees act as independent business entities, and the usual arrangement is that an operator of a mobile network or a virtual mobile network works in a partnership agreement with Virgin Mobile’s parent company. Virgin Mobile has traction in the United States, in Canada, in Australia, Poland, Colombia, Chile, Mexico, France, the United Kingdom, and South Africa. In the United Kingdom, Virgin Mobile operates as a virtual network operator, riding on the physical network of T-Mobile, and later Everything Everywhere (Answers Corporation, 2014; Virgin Mobile USA, 2009; Telecompaper, 2014; RCRWirelessAdmin, 2011; RCRWirelessAdmin, 2013; Thomas, 2013; Ofcom, 2013). Virgin Media UK provides a breakdown of financial data for Virgin Mobile in its UK investor relations reports of financial performance. That aside one can get a glimpse of the kinds of numbers that Virgin Mobile is able to generate too, by looking at the financial and subscriber data for Virgin Media, which is the owner of Virgin Mobile in the UK. As of end of December of 2013, Virgin Mobile had about three million customers, a third of whom are prepaid customers, while more than two million are postpaid customers. They offer voice and data services to this customer base, as well as content. The direction of growth is towards increasing the base of postpaid customers (Virgin Media, 2013; Virgin Media, 2014). Moving on to the financial numbers, total revenues for 2013 amounted to 1.846 billion pounds, a substantial slowdown from revenues of over 3 billion pounds for 2011 and for 2012. As a group, this slowdown reflects a general drop in total revenues for the Virgin Media Group, from about 4 billion pounds for 2011 and for 2012, to just 2.3 billion pounds for 2013. The large drop can be attributed to the large drop in revenues for Virgin Mobile (Virgin Media, 2013; Virgin Media, 2014; Google, 2014b). The chosen SBU unit for analysis in this paper is Virgin Mobile n the UK, as a subsidiary of Virgin Media. In turn, Virgin Media has been bought by Liberty Global, with the Virgin Group being able to retain a small share of total ownership after the acquisition. In terms of competition, the big players include BT, Vodafone, and a slew of broadband players like BSkyB also making plays in the same set industry. EE also competes in this same space, the firm providingVirgin Mobile with the physical network, together with TalkTalk (Donnelly, 2014; Jackson, 2014; Williams, 2014; Bold, 2014; Williams, 2014b). 2. Current Business Environment - Analysis A. Macro Environment Analysis A.1. PEST Analysis Political Factors Taking Virgin Mobile UK as the SBU unit of analysis, political factors that matter relate to the UK political environment. Past performance suggests that the UK political environment is relatively stable, with current political events having little to moderate bearing on the financial performance and long-range plans of firms, with the exception of taxation issues that are tied to the political headwinds and trends, as well as regulations of big business that also have political roots. In other words the political environmentin the UK is stable enough not to be a cause of major disruptions to any long-range strategic plans for Virgin Mobile and the rest of the players in the UK telecommunications space. That said, tax cuts that affect ordinary citizens have an impact on Virgin Mobile’s customer base and impacts their spending power, and so developments in the area of tax laws and regulations such as those that have hit the news at present do have some bearing on the fate and prospects of Virgin Mobile UK moving forward. On the whole, with the political system mature, predictable and stable, it is taxation issues that threaten to cause disruptions to long-range plans and prospects for the Virgin Mobile (BBC, 2014; Carrell and Mason, 2014; Wright, 2014; Wright, 2014b). Economic Factors One can glean from news on tax cuts for large numbers of British people that the underlying premise of a strong economy to be able to take on such large cuts without affecting the ability of government to properly manage public finances and not fall into large deficits from inadequate tax revenues is there. The short of it is that in the medium term, the government is expecting the further strengthening of the local economy, which bodes well for business, and for Virgin Mobile UK too. From a wider historical perspective too, one can see that through economic downturns and improvements over time, Virgin Mobile has managed to stay afloat, auguring well for economic factors not largely affecting the viability of the Virgin Mobile UK business. In the short term, of course, with the telecommunications business being very fluid, there is a chance that Virgin Mobile, without its own physical infrastructure and with thin margins, can succumb to pressures from economic downturns that are unexpected or severe. The long-term prognosis however is that the UK economy is expected to remain robust and viable, and so economic factors are not very relevant for the long-term prospects of Virgin Mobile, except in a positive sense, that rising economic tides should buoy up Virgin Mobile UK as well (BBC, 2014; Carrell and Mason, 2014; Wright, 2014). Socio-Cultural Factors Mobile and broadband, and the Internet, are technologies that have come to be ingrained in the social and cultural habits of British people, and so Virgin Mobile’s offerings find comfortable social home in the UK. Changes in technologies, new offerings in terms of content, and different aspects of the marketing mix, including pricing and product, as well as promotions, are well-understood and well-accepted. Therefore, socio-cultural factors augur well for the continued adoption of future offerings of Virgin Mobile UK, provided that future strategies and executions of those strategies are sound (Donnelly, 2014; Jackson, 2014; Williams, 2014). Technological Factors The business that Virgin Mobile UK is in is highly technology-oriented, and the pace of change is very rapid too. This rapid pace is evidenced by rapid churns in technology for devices, but also for all kinds of related services, so that we see almost on a daily basis firms changing positions on technological offerings, partnering with others, adopting new standards and junking older technologies, merging and competing with each other in a fast churn environment. Virgin Media acknowledges this as a large macro risk for the firm, and one that is inevitable given the nature of the business (Virgin Media, 2013; Virgin Media, 2014). B. Micro Environment Analysis B.1. Porter’s Five Forces Bargaining Power of Buyers Due to the proliferation of many players, each offering increasingly undifferentiated services, the bargaining power of buyers is high. Existing players have some leverage, but the presence of competition means that buyers have options in terms of quality of service, price, and other aspects of what they want to buy, including financing and the like. Moreover, the lack of differentiation means that competitors are unable to provide meaningful ways to lock in customers and keep them from going to competition. As well, alternatives proliferate for every product and service on offer (Donnelly, 2014; Jackson, 2014; Williams, 2014; Bold, 2014; Williams, 2014b). Bargaining Power of Suppliers Here the bargaining power of suppliers is low, given the rapid commoditization of technologies, and that again there are many suppliers for every aspect of the business. This is a market that favors buyers, who can negotiate for the best supplier deals to increasingly few players with the scale and the resources to make or break supplier businesses (Donnelly, 2014; Jackson, 2014; Williams, 2014; Bold, 2014; Williams, 2014b). Threat of New Entrants Given the need for increasing scale economies in the industry, and the rapid level of technology churn and the trend towards consolidation of existing players into fewer large companies with the scale to compete in the long term, the threat of new entrants in this space in the UK is low (Donnelly, 2014; Jackson, 2014; Williams, 2014; Bold, 2014; Williams, 2014b).. Threat of Substitutes Technologically, there are ways by which the virtual network model of Virgin Mobile UK can be replaced by other existing players who may want to offer the same services. It can come from incumbents who own the physical networks, such as BT. The threat of substitutes though, is not very high, given the large scale investments in infrastructure and brand building that are needed to be able to offer viable alternatives to existing players (Donnelly, 2014; Jackson, 2014; Williams, 2014; Bold, 2014; Williams, 2014b).. Competition/Rivalry As can be gleaned from the latest reports on the state of competition in the industry, with rapid churns in the technology aspects of the business, the ever-present threat of obsolescence, the increasing scale requirements to be able to compete and make money on thin margins, and the trend towards greater consolidation among industry players, it is clear that the level of competitive rivalry is very high. Overall one can say that the industry microeconomic dynamics is very tough for players who are unable to achieve scale, with the level of competition very high, the bargaining power of buyers very high, the bargaining power of suppliers low, the threat of new entrants low, and the threat of substitutes low to medium. This is a scale game, and those who can amass scale economies in terms of subscribers, revenues, and offered services are going to win and lock in the UK market (Donnelly, 2014; Jackson, 2014; Williams, 2014; Bold, 2014; Williams, 2014b). C. Synthesizing Industry Opportunities and Threats from the Above Analysis Macroeconomic fundamentals in the United Kingdom can be considered conducive to the continued viability of the telecommunications sector in general, and of Virgin Mobile, too, provided that Virgin Mobile is able to craft and execute straegies that will allow it to thrive in the midst of intensifying competition. In the macroeconomy, threats to the viability of the industry include taxation issues, that impact the purchasing power of the industry’s customers. Threats also lie in the area of rapid technological change leading to investments in infrastructure and new technologies vulmerable to rapid obsolescence. This is problematic in terms of being able to recoup and make money from technological investments. On the other hand, these conditions also point to opportunities that are validated in the microeconomic analysis, in the form of building scale economies to make sure that one can compete and be viable in the long run.. The game in the UK has become one of bulding scale, in terms of offering a wide array of services under one roof, locking in customers to postpaid subscriptions, and building large customer bases. The nature of the industry dynamics from the above Porter analysis is one where the players with the scale economies will win, and this makes up a set of opportunities and challenges for current playetrs. Sinply put, the biggest players will survive. This does not mean though that Virgin Mobile will necessarily lose, because it does have leverage in terms of being able to innovate and being able to lock in customers with its brand pul and the loyalty of its customer base. On teh whole, for Virgin Mobile, the trend towards consolidation and the buildup of scale is both a threat to its current business ,and an opportunity to innovate and to leverage trandtional strengths in brand and in technologicla and business model innovation (Donnelly, 2014; Jackson, 2014; Williams, 2014; Bold, 2014; Williams, 2014b). 3. SBU Analysis of Strategic Capabilities A. Identification of Company Resources A.1. Tangible Resources The company’s tangible resources are its financial resources, together with ts organization and physical assets, as well as by proxy the tangible physical networks of EE, on which its services ride. Technically these latter tangible resources are EE’s, but a broader imagining of the tangible resources of Virgin Mobile UK must include those too, for the duration of its agreement with EE. Its store of patents and intellectual property, as well as developed technologies, must also form par of its tangible resources, together with the ability of the firm to raise funding for its various projects and investments. Again, a broader imagining of the tangible resources of Virgin Mobile must include the tangible assets of its parent firms, Virgin Group and mostly Liberty Mobile (Donnelly, 2014; Virgin Media, 2013; Jackson, 2014; Williams, 2014; Bold, 2014). A.2. Intangible Resources The key intangible resource of Virgin Mobile UK is arguably its brand, riding on the brand equity and strong pull of the parent Virgin brand. It is no accident that Virgin Mobile retained its name through changes in ownership, and even though Liberty Global now has majority ownership of the firm, the brand name persists and sticks. This also reflects on its reputation as an aspect of its intangible asset/resource, with the past performance and attributes of the brand constituting its track record and brand promise that continues to attract subscribers at present (Virgin Media, 2013; Virgin Media, 2014). A.3. Threshold Resources Virgin Mobil’s threshold resources are those resources that it shares in common with other competitors, and which allows the firm to continue to compete in this tight market in the UK. Those include its virtual network assets, its partnerships and agreements with vital providers, chief among them EE, its organizational resources including support resources, and its financial resources needed to keep it an on-going concern (Virgin Media, 2013; Virgin Media, 2014).. A.4. Unique Resources Many of Virgin Mobile UK’s unique resources are intangible in nature, chief among them the brand and the business model, together with its long history of successful operation and built up loyalty among its customer base, that all taken as a whole constitute a kind of unique proposition that is very hard to duplicate in the UK market (Virgin Media, 2013; Virgin Media, 2014). B. Value Chain Because Virgin Mobile UK is a virtual network operator, it essentially has outsourced the maintenance and upgrade as well as the operation of the physical network, and therefore the activities that are important for the firm are related to marketing, product development, support, back office functions, organizational development and management functions and activities, including supplier management activities as they pertain to managing the relationships and the performance of key suppliers such as the physical network provider EE. In each of these activities, the overriding value add is in the provision of excellent strategy and execution of those strategies that are essentially management activities. Here at the top of the hierarchy, it is top management that is responsible, and at the execution end, it is the line managers for the different functions that are key, from marketing to support to product development and supplier management. In terms of Porter’s value chain framework, where the firm adds the most value are in the primary activities of operations, sales and marketing, and sales. These again can be considered in the context of how well top management is able to craft strategies that the primary activity managers at Virgin Mobile can execute. This is so because of the nature of the business model of Virgin Mobile UK, that is very heavily focused on activities that are very close to the point of purchase, and heavily tied to marketing and sales and customer support. On the other hand, there are obvious links among the primary activities of sales and marketing, as well as operations, and secondary activities such as firm infrastructure activities tied to back office support functions. The key to adding value is to make sure that the secondary activities tied to firm infrastructure are aligned with the overall sales and marketing goals and the overall strategies of the firm at the front of the value chain for Virgin Mobile (Donnelly, 2014; Virgin Media, 2013; Jackson, 2014; Williams, 2014; Bold, 2014). C. VRIO As can be gleaned from the above discussion, there are several key resources that pass the VRIO test of value, rarity, ability to be imitated, and organizational capability. Those resources are largely tied to its primary activities in marketing and brand management, as well as in being able to craft, at the very top, strategies that allow for the unique virtual network business model of Virgin Mobile UK to continue to be viable up to the present time. Its brand is the top resource, together with the experience and track record that Virgin Mobile UK has been able to gather from its years of operations. Most of these are intangible resources, and are heavily embedded in the collective knowledge of the organization too. In terms of the value chain, the resources that pass the VRIO test have to do with the intangible resources residing in its primary activities of sales and marketing, and operations (Donnelly, 2014; Virgin Media, 2013; Jackson, 2014; Williams, 2014; Bold, 2014). D. Competitive Advantages Having no physical network to worry about and having perfected the primary activities in the value chain in which the company has been able to accumulate experience, knowledge, and credibility, together with the brand equity that it has developed, are key sources of competitive advantage for Virgin Mobile UK. Its network of relationships with key suppliers and its financial viability are also sources of competitive advantage (Donnelly, 2014; Virgin Media, 2013; Jackson, 2014; Williams, 2014; Bold, 2014). E. SWOT From the above discussion it is clear where the company’s strengths lie, and they are in the strength and appeal of the brand, the track record of success that has allowed it to amass a loyal customer base and continued viability in a competitive market, and its strengths in key primary activities in its value chain, notably in marketing and operations. On the other hand, its weaknesses are not too obvious but evident in its lack of scale and limited physical resources in comparison to other players, who have both the scale and the physical infrastructure to squeeze out Virgin Mobile. The threats to Virgin Mobile UK are in this area too, of competitors with scale such as BT and EE being able to crowd out Virgin Mobile and make the latter’s businesses model unviable. On the other hand, opportunities exist in innovating on upcoming technologies and leveraging its brand strengths to continue to be viable moving forward (Donnelly, 2014; Virgin Media, 2013; Jackson, 2014; Pratley, 2014). 5. Conclusion Scale is the ever-urgent necessity in this space in the UK, as can be gleaned from the frenetic pace of investments and mergers and acquisitions, and repositionings of the major players to acquire more scale and to make it harder for smaller players to continue to compete. The amount of financial investments needed to compete are growing too. This is the key threat and issue that the managers at Virgin Mobile UK need to address. Synthesizing the results of the SWOT analysis, scale is both an opportunity and as a threat and relates to the way the inherent weaknesses of Virgin Mobile in terms of inability to compete with the likes of BT in scale, on the one hand, and being able to rely on its traditional strengths in brand, customer loyalty, and innovating on viable business models and technologies such as it had done with its virtual network model. That model has allowed it to amass a substantial loyal subscriber base that is sticky, as evidenced by its large base of postpaid customers. The task at hand is to work on further building up this postpaid base as an opportunity to fortify the business, while looking out to innovate on its traditional strengths to counter its weaknesses in scale and the threat of bigger veritcally integrated players marginalizing Virgin Mobile in the long term (Donnelly, 2014; Virgin Media, 2013; Jackson, 2014; Pratley, 2014; Trotman, 2013). References Answers Corporation (2014). Virgin Mobile. Answers.com. Retrieved from http://www.answers.com/topic/virgin-mobile BBC (2014). David Cameron pledges tax cuts ‘for 30m people’. BBC News. Retrieved from http://www.bbc.com/news/uk-politics-29433919 Bold, B. (2014). Vodafone to take on Sky, BT and Virgin in home broadband and TV. Marketing Magazine. Retrieved from http://www.marketingmagazine.co.uk/article/1321404/vodafone-sky-bt-virgin-home-broadband-tv Carrell, S. and Mason, R. (2014). Scottish referendum: UK parties fast-track new tax and welfare powers. The Guardian. 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Retrieved from http://www.independent.co.uk/news/uk/politics/conservative-party-conference-david-cameron-promises-tax-cuts-and-new-british-bill-of-rights-9767291.html Read More