Competitive Strategy in Lighthouse - Research Paper Example

YOUR PAGE Table of Contents Executive Summary Lighthouse is a mobile phone marketing company thatseeks to address the needs of advertisers seeking to increase their response rates in the ever more lucrative yet increasingly more competitive task of customer acquisition and retention. Its objectives were to build a platform that would enable better response rates to their marketing campaigns, to create a management system and secure funding to expand the business. A full environmental analysis was undertaken which showed that the Lighthouse has the opportunity to dominate the market and build its brand. It also showed that Lighthouse could be affected by the age of the team and the company, which may result in potential clients not taking it seriously and opting for well-known competitors. The analyses highlighted that the hybrid competitive strategy was the most appropriate strategy to follow, and recommendations were made to work closely with other key players in the industry if it was to become a dominant force. Project Description and Objectives Lighthouse is a mobile phone marketing company that seeks to address the needs of advertisers seeking to increase their response rates in the ever more lucrative yet increasingly more competitive task of customer acquisition and retention. Lighthouse will enable subscribers in the region to access government services, maps, directions, tourist attractions and tips, restaurants, museums, entertainment events, news and stock prices from their wireless devices. This enables the local population and tourists alike to utilize technology to enhance the service needs. This technology is also particularly beneficial to the local population, as ownership of devices such as personal computers is low but that of mobile devices is high. This means that the services which the internet offers to other parts of the world are not easily accessible or widely available in the UAE. By providing this service on a mobile device, Lighthouse is making the internet available in the first instance, and it is removing the need to go to a fixed location to access this information. Lighthouse's target market is primarily based in the United Arab Emirates (UAE) which is considered to have a customer base of 10-15% of the 4.5 million local mobile users. In addition to this, the UAE is a popular tourist destination with approximately 7 million tourists annually, who represent a potential market, especially for tourist related services (Business Plan - appendix I). Therefore the objectives of Lighthouse are to build a platform that enables better response rates to their marketing campaigns, to create a management system and secure funding to expand the business. It is clear that Lighthouse intend to be a dominant force in the market, but in order to do this, it is necessary to conduct a full environmental analysis, so as to determine their options for growth and expansion. External Analysis of Lighthouse An analysis of the external environment helps an organization to understand the environment they currently operate in and how it can change (Johnson and Scholes 1993). An understanding of the environment enables an organization to develop strategies that will ensure their survival within the market place. For instance, Lighthouse is going to clearly take advantage of the tourist numbers; however they also need to consider current external factors that will contribute to the reduction of tourist numbers and subscribers. Likewise, Lighthouse is also capitalizing on the low distribution of personal computers for internet access, another factor which could change in the near future. An analysis of the external environmental is known as a PESTLE analysis and this involves analyzing the political, economic and competitive, social and cultural, technological, legal and environmental/institutional factors that affect an organization (Johnson and Scholes 1993). This report will analyse the following four factors: economic and competitive, social and cultural, technological and environmental. These four factors have been selected as the author has ascertained that they are more likely to impact on the new venture than political and legal factors. The reason for this is that, the UAE is predominantly Muslim and as such the political and legal factors are intertwined, and there is little scope for major changes to this characteristic. Analysing the impact of these factors will also help Lighthouse to make strategic decisions that will match its activities to the environment; match its activities to its resources; determine the allocation of major resources within the organization; determine the direction of Lighthouse in the long term; and the implication for change across Lighthouse (Johnson and Scholes 1993). The economic and competitive factor is concerned with global, national and local events and trends that are likely to affect the operating environment (Kotler 2000). For example, there are currently reports of a recession in the US and a credit crunch in the UK. Whilst these may have nothing to do with the UAE, they will undoubtedly affect the numbers of tourists to the region, the investment interest in the information communications technology sector, and the availability and/or affordability of equipment such as the mobile phones and other infrastructure. If the UAE imports most of its equipment from overseas, then they may be able to get them at a lower price. On a local level, Lighthouse seems to stand in a favourable position as levels of disposable income have increased as a result of investment levels (Gulovsen et al 2006). The UAE now has 46 banks, with over half of these being foreign owned (Pan Arab Research Centre 2005); which suggests that more nationals are in employment which will stimulate the purchase of popular technologies such as wireless handsets and personal computers. The social and cultural factors include culture, behaviour, expectation and composition developments in society (Kotler 2000); and these factors can be influenced by the economic and competitive factor. For instance, an increase in employment levels and empowerment will lead to more disposable income and higher expectations. This could lead to changes which involve an increase in further higher education enrollments, delaying the starting of families and migration in pursuit of better or more lucrative opportunities. An increase in personal computers and other devices can also result in the development of a knowledge economy in the UAE, which would create another potential market for Lighthouse. The technological factors include developments in the areas of computer hardware and software, software applications, materials, products and processes (Kotler 2000). For instance, optic fibre cables are replacing copper cables as a means for relaying information which largely supports the internet. This means the cost of providing certain services will come down in price, and result in higher subscription rates for Lighthouse. Technology is also constantly evolving which means Lighthouse will have to continually update its strategy. The number of competitors is also bound to increase as the availability and accessibility to technology will remove certain barriers. For example, as more individuals have access to personal computers and the internet, more will find it easier to start their own businesses as the financial barrier to entry will have been reduced. Finally, environmental factors include local issues, pressures and movements (Brassington and Stephens 2003) that will affect the business venture. For instance, the UAE adheres to Islam which forbids certain activities and actions; but the availability of the internet and its borderless properties have the potential of influencing different views and opinions. Mobile phone usage in other countries has also led to concerns over the erosion of other communication avenues as more people rely on their devices for information. Therefore, Lighthouse has to be aware of any environmental factors, as these will affect how its subscribers and potential subscribers perceive the business. To summarise the external factors that will affect Lighthouse, it is easy to see how the four factors that have analysed present a favourable environment to Lighthouse as a result of the ongoing growth and expansion in the UAE. This means that Lighthouse has the opportunity to dominate the market and build its brand. However, abundant opportunities also mean that Lighthouse will not be the only business venture seeking to make a profit and grow in the UAE. Lighthouse operates in the technology sector, which is increasingly becoming more accessible to other budding entrepreneurs in the same field, which means that its ability to react to competition will become its greatest limitation. Internal analysis An internal analysis is conducted with the help of a SWOT analysis tool which basically audits an organization and determines its capabilities (Adams 2005). SWOT stands for strengths, weaknesses, opportunities and threats (Adams 2005) to the business. The strengths and weaknesses of a business are determined by internal factors and these determine the value creation in the business (Ames and Runco 2005). Value creation is enabled by the availability and/or access to resources such as assets, technology, and human resources. In addition, these value creators need to be unique to the organization in order for them to be considered strengths. The opportunities and threats are considered to be external factors as the organization is not able to control them (Ames and Runco 2005). These factors have been discussed as part of the external analysis. Lighthouse's strengths lie in the diversity of the team which will enable them to be flexible and adaptable to the ever changing environmental conditions. Another major strength is their unique business model which enables them to provide the service for free to the user, and obtain the costs from the advertiser. This approach will most likely ensure that there is a high adoption rate amongst users for the service, which will help in establishing it as a brand. Finally, Lighthouse has also developed the software which to some extent gives them the edge in the market, as other competitors will probably have to purchase this software or go for the time-consuming process of developing their own. This is also strength because any problems with the software can be resolved in-house and not exported out, which would take time, as is the case for those that purchase such software. Its weaknesses include the young age of the founders, as there are other more established organizations in this environment that may not be as supportive of their technology. For instance, this could affect the subscription from advertisers as they may prefer to go with a reliable and long-standing organization, as opposed to a new one. They are also new to the field, which means confidence in their services from their peers is likely to be low, and other organizations may hesitate to either invest or purchase their services. The business plan for Lighthouse also does not mention the acquisition of a patent for their software technology which is important if they do not want other competitors to simply copy the software and not acknowledge their effort and expertise. The presence of a patent alone is a potential source of income that they need to exploit. The opportunities for Lighthouse include the high mobile phone penetration rates being experienced in the UAE, which in some ways represent the end/user market for their service. They can capitalize on this by marketing and even doing a pilot on users, to stimulate demand for the marketing and advertising companies. Marketing companies in the UAE are also increasing their advertising budgets, and the opportunity for Lighthouse is that they can put proposals through before such budgets are approved, to ensure that their service is included. As this service is not being made available by anyone else, Lighthouse have the advantage of being first to market which can be viewed as an opportunity to establish a market presence and brand name, as well as to set the industry standard for the service. By taking advantage of such opportunities, it is possible that Lighthouse will attract sufficient interest to enable it to invest in neighboring countries. The threats to Lighthouse are mainly centred on technology which has reduced the barriers to entry and increased access to knowledge resources. This means that Lighthouse stands to face a number of competitors once the business generates sufficient demand. Competitors will copy their business model and software with the help of technology. Therefore efforts need to be taken to secure their service and protect their innovation. To summarise the internal analysis, the internal factors that could affect Lighthouse are based on the age of the team and the company, which may result in potential clients not taking it seriously and opting for well-known competitors. However, the presence of a unique business model does mitigate against this, as not many organizations are able to change their business models overnight. Likewise, their external factors present them with a potentially huge market which can be exploited and used to create a brand for itself; however Lighthouse also has to have strategy to deal with the arising competition. Strategic Options and Evaluation Strategic options are important for Lighthouse as they help to establish three points which are: the basis they want to compete on; the direction they will take and the method they will take to compete. This means that Lighthouse will have to follow a competitive strategy that will maximize their strengths and opportunities and reduce the level of threats they are likely to come across and to strengthen their weaknesses. Deciding a competitive strategy ensures that Lighthouse's profitability remains above the industry average and also ensures that they maintain a competitive advantage (Porter 1985). Maintaining a competitive advantage also depends on whether an organization possesses low cost or differentiation (Porter 1985). In the case of Lighthouse, their service will be low cost in terms of providing to the end user as it is free, but the cost will met by the marketing and advertising departments of various organizations. Lighthouse has also differentiated itself in terms of service offered and its business model which is different to other organizations in the industry. This suggests that Lighthouse is not able to disassociate low cost from differentiation. A cost leadership strategy is not the best for Lighthouse, due to the increased threat of new competitors; neither is a differentiation or focus strategy as it is not looking at a unique market segment. This leaves the hybrid strategy as a suitable one for Lighthouse as it combines its perceived low price with perceived added value (Proff 2005). For example, Lighthouse has a relatively low cost base which enables it to provider a service without a premium. These cost advantages make this service available to a wider target market thus adding value to their service. A hybrid strategy is also appropriate for Lighthouse, as this strategy requires that an organization is able to reduce the costs on activities that are not considered to be the core competencies and those that do not contribute to differentiation (Proff 2005). With Lighthouse, their core competency is facilitating this technology, and they have still left the actual marketing and advertising to the subscribers. With the hybrid competitive strategy in place, Lighthouse has to consider how it will put this strategy in place. Consolidation would be inappropriate, as they still have to establish themselves in the market, and this is the same if they wanted to diversify. This means that Lighthouse would either have to concentrate on their market or the product. In order to make this decision, Lighthouse would have to re-assess its core competence and its value adding activities. It would seem that the development of the product itself has added the most in terms of value to the business, and it would seem that the product development process has been finalized and completed to some extent. Lighthouse are looking to generate income from their product through the integration of two market groups, the end user and advertising companies. The end user market is one which is growing and it already exists; in addition Lighthouse will be offering this service for free to the end user. This means that market penetration is not a big issue either. This leaves Lighthouse to follow the direction of market development, as the success of their technology will ultimately depend on the adoption of this concept by other marketing and advertising agencies seeking to increase their penetration in the mobile market. This means that for Lighthouse to develop its market, it would need to work closely with other key players in the general consumer market. For instance, their technology is targeted to add value to mobile phone users; and forming an alliance or joint venture with the mobile phone service provider or manufacturer could offer significant profits for Lighthouse. For example, by working together with a mobile phone service provider or manufacturer, Lighthouse is increasing its market visibility and improving its credibility through association with a more established organization. Project Execution Strategy The project execution strategy for Lighthouse has been summarized below: In light of this report, Lighthouse should revise its business objectives to encompass collaboration and acceptance by other key players in the industry, to increase their market and acceptability in the market place. This will involve identifying those organizations, whose objectives and goals are closely aligned to their goals, and those organizations that will compliment Lighthouse in terms of mitigating their weaknesses and threats. The scope of this strategy will only include players in the mobile technology industry to ensure that they concentrate on their core competencies. Lighthouse should set targets for this strategy, and most importantly set milestones such as receiving positive feedback and interest from other organizations, the development of a contract of some sort and the actual delivery of the service. In terms of responsibilities, all members and employees of Lighthouse have to be aware that this will be a joint effort, and in doing so, all of them will be expected to be aware of environmental and market changes so as to stay one step ahead of the competition. Conclusion This report set out to analyse the external and environmental factors affecting a new business venture called Lighthouse, and to suggest appropriate strategies to follow in light of the findings of the environmental analyses. The analyses highlighted the unique nature of Lighthouse, whereby their low cost base was particularly of advantage to mobile phone users, but that its differentiation in terms of model, structure and service were appealing to its primary customers, the marketing and advertising agencies. This meant that the most appropriate strategy to follow was the hybrid competitive strategy as it took these factors into account. It was also determined that Lighthouse would need to work closely with other key players in the industry if it was to become a dominant force. Recommendations Based on the information presented in this report, the following have been recommended: Lighthouse should enquire and invest in obtaining a patent or copyright protection for its pioneering technology in that region, as this is where the value in the business lies and it should be protected from competitors. Protection would also allow Lighthouse to establish them in the market. An alliance or joint venture should be sought to enable Lighthouse to fully consolidate its position within the market and the UAE. References Adams, J. (2005) "Analyze Your Company Using SWOTs", Supply House Times, Vol. 48 Issue 7, pp. 26-28. Ames, M. and Runco, M. (2005) "Predicting Entrepreneurship From Ideation and Divergent Thinking", Creativity & Innovation Management, Vol. 14 Issue 3, pp.311-315. Brassington, F. and Pettitt, S. (2003) "Principles of Marketing" 3rd Edition, Financial Times/Prentice Hall. Gulovsen, B, Bhatti, T, Hassall, PJ, Fakhreddine, J, Walters, T. (2006) "Cross Cultural Media Usage in the United Arab Emirates" Zayed University, UAE. Johnson, G. and Scholes, K. (1993) "Exploring Corporate Strategy - Text and Cases", Hemel Hempstead: Prentice-Hall. Kotler, P. (2000) "Marketing management." Millennium Edition, USA, Prentice-Hall Pan Arab Research Center (2005). Estimates provided to authors during initial discussions of project in April, 2005. Porter, Michael E., "Competitive Advantage". 1985, Ch. 1, pp 11-15. The Free Press. New York. Proff, H. (2005) "Hybrid strategies as a strategic challenge - the case of the German automotive industry" Omega, Vol. 28 Issue 5, pp.541-553. Appendix I - Business Plan Read More